Dallas isn’t the only city in Texas with a sick retirement fund. Nearby Fort Worth is also in deep trouble.
Let’s dive into the Comprehensive Annual Financial Report for the Fort Worth Employees’ Retirement Fund for fiscal years ended September 30, 2015 & 2014 to see what we can find.
Fort Worth Retirement Fund
The Fort Worth “City” Pension plan has a liability of $1.271 Billion on assets of only $2.094 billion.
The “Staff” plan which covers the people running the pension plan is in better shape.
For the fiscal year ending September 30, the numbers got much worse.
City Plan Has More Net Liabilities than Assets
The pension liability for the “City” plan for fiscal year ending September 2015 jumped to $2.124 billion. The plan has more net liabilities than assets.
Staff Plan in Much Better Shape
Congratulations to the staff running running the retirement plan. They are in much better shape.
Plan Assumptions
- The plan assumes 8% returns plus an extra 2% COLA in some cases.
- Projected salary increases are a “modest” 3.5% to 18.0%.
- The plan uses 5-year smoothed averages. That means the great recession was already factored out.
What is In the Plan?
The above image is not all the assets, I just clipped an interesting page.
More documents are available for download at the Fort Worth Report Center.
The person who emailed the above link wishes to remain anonymous, and offers this comment:
“Missing from the report are all the vacation hours the employees have stashed away. Some of the grandfathered ones have over 1,000 hours that will pad their benefits at retirement.”
It’s safe to say this pension fund will never make it, for numerous reasons. Benefit haircuts are coming.
For some reason, Fort Wort escaped the scrutiny of Dallas. I suspect that will change soon.
Related Articles
- Dallas Pension Showdown: Mayor Seeks to “Target Those Who Got Rich From System”
- Dallas Police and Fire Pension Halts Withdrawals in Solvency Crisis, Lawsuits Await
Mike “Mish” Shedlock
The Fed is empowered by the US constitution to spend on whatever it wants to buy. So pension schemes are too important to allow to crash, which would leave the fed holding what’s left anyway. So the fed can top up any and every pension scheme without blinking. It did it already for the GFC banks. so pensions should not be excluded. In a deflationary environment pension funds are bound to go backward as contributors are short of money to pay dues. To not help would just be a political decision, divorced from economics.
The FED bailing everyone out would be my guess. Although, I suspect they would be more inclined to do so with Hillary in the white house than Trump.
It is 100% a political decision, not economic.
The core problem is that when you have city employees negotiating with city employees on how much to pay each other, and they can hide the pay in future payments where it doesn’t need to go on current budgets, taxpayers don’t notice it, so the city employees, in city after city did the same thing: promise way more than was reasonable. Now the chickens are coming home to roost, and the taxpayers are going to get hit with massive taxes, or they are going to revolt and these plans will default.
No. Mostly not true. You missed the part where taxpayers are not on the hook for this. The government can top up failing pensions. It can also set guidelines to reduce the rorting, but it’s partly a separate problem. The wealthy collude all the time to. They also need bringing into line. {but don’t hold your breath on that one]
Or we could jail the politicians that made promises that could not be reasonably kept. I bet that fixes it going forward too.
I doubt it, but it might concentrate their minds. Unfortunately politicians today are all puppets strung up and paid for by the 0.1%
I’m pretty sure the Fed is not mentioned in the U.S. Constitution. Please point me to the clause or amendment that grants the Fed authority; if I’m wrong I want to know. Congress is given authority to handle the monetary affairs, but delegated that to the Federal Reserve by act, not by Constitution.
It is the government that is given absolute power in the constitution. This also gives it any choice it chooses to make. They just have to enact a law which they did in 1913 to create the Fed, It could just as easily be deleted, and in many opinions that’s what should happen.
Houston, Tx ———lo mismo
the fed was created in 1913, the constitution written in 1776. There are Congressionally mandated limits on Fed power which JY wants to expand, ie Qualitative Easing, or ROW (rest of the world) central banking authority – ie no accountability, other than consent of that nations sovereign leaders.
The limits on ROW cbs are implied, by referendum (***Exit), but since the US has a republic and not a parliamentary form of government these checks and balances would not work.
The president can grant emergency powers to the Fed, at stake in the current political cycle is the ongoing move away from an independent Fed (no rational banker would assume trillions in bad mortgage paper without some quid pro quo, or GSE guarantees that the US taxpayer owns those debts.) and toward a globally integrated central bank.
Short answer: in terms of how it functions, the Fed is a cabinet appointment, serves at the pleasure of, by annual review of…, etc. I would say the Fed has already done a great deal for the pension funds, by supporting the stock market since 2008. With expanded asset buying they could buy the stocks from failing pension funds and reliquify their assets. Remember that most of these funds are backed by their state governments, so when pensions funds fail that starts a domino effect.
The threat to pension funds (like unions) comes when younger workers vote to leave the system (which is bankrupt and only earning 2% a year) and that leaves the retirees holding the bag. A test case on CA tends to show that their fund would let districts opt out, and impose penalties, so your pension fund benefits would depend entirely on the health of the district where you retired. It would be difficult, nigh impossible for the Fed to buy up pension funds which are falling apart one district at a time when the will to subsidize the entire system does not hold sway.
Agree that Constitution is not relevant to Fed, but there have been many amendments to it since 1776 (e.g., women’s suffrage), so dates of creation are irrelevant.
It does require the political will to achieve any result. That’s not a given. They may choose to let the pension funds collapse in which case political betrayal of citizens gets another notch in the belt. The point is Money itself is not the problem. It is always there for them. The Fed just has to get the instruction and can proceed.
Actually, a liability of $3.366 billion. Thanks for this, and keep up the good work.
>
“The plan is 62% funded and covers 389,528 employees.”
Pray tell, where did they employ over 389K people?
The latest US Census figures have Ft. Worth’s population at 833,319. That leaves us with 46% of the population covered by the city pension plan. You say it’s underfunded? How shocking.
Oh, well. How many retirees have long since been residents anyway? You can spend 30 years in retirement in some of the cozy retiree areas of FL and elsewhere. The person who replaced you in your municipal job has gone on to 20, 25 , even 30 yr careers of their own in the same span of time that you spent drawing a pension. Then they join you as an annuitant.
This is what the entire country faces. How long will it be before there are more people receiving benefits than working. It would be wonderful if those receiving benefits had actually earned and SAVED this money and now live off of it, but almost EVERY retirement scheme is based on FUTURE earnings of OTHERS.
What a burden, and we can’t understand WHY this economy can’t get off its knees when so many are standing on its back.
You cannot save money to live off later. That would mean they have to spend money they earned in 1972 in 2035, assuming they were 25 in 1972. Virtually all the purchasing power is lost in the interim. And if everybody socked away their retirement savings under their mattras in this way, the money supply would run out every other month.
So either they invest the money and live off the returns, or they pay for the current crop of retirees (by taxes or a pension plan) and expect future retirees to do the same. In either case, they are not saving tomatoes and eggs for future consumption, but they are investing in the means to produce future tomatoes and eggs and will be consuming from current production upon retirement. In all cases, old people are consuming current production. It could be that unbalanced demographics make this harder or easier. What is important is that income put aside is invested in the means for future production, and not just in a scheme in which assets are first bid up in price only to deflate later on, leaving nothing.
You are correct…but WHY?
For the first two hundred years or so of our country’s history it was not unusual to bury your saving in your back yard, and never worry about future value.
Now, with the miracle of fractional banking and the Fed’s belief that prosperity can ONLY come from inflation, suddenly sitting on your cash just won’t do. So where do we go for protection from this wonderful wealth inspiring inflation? Banks? Well we used to think so but anyone paying attention realized that their returns were typically well below inflation. The fact that rates are so low brings this to light more but really at even these low rates I believe REAL returns are likely about the same.
SO YES, the only “real” protection of wealth is a quick Uber ride to the casino. Ideally you hire a “professional” to “help you” place bets…sure winners by all accounts. There ARE no guarantees of course, and bad things do happen.
But are we wondering WHY we must put our wealth at risk just to be able to “protect” it? We can’t put it in a safe with paid guards…that won’t work. We can’t even buy gold and stack with any real certainty. Nope. The casino is the place to be. The ONLY place to be. Do we think it is an accident or coincidence? The carrot on the end of a stick. They let us nibble on it from time to time but never let us actually possess the carrot. Our money is not our own, no matter how hard we work…and save, because if we do not put in in “wise” investments, it simply fades away.
The promise of America was freedom, not just to bitch and complain, but to own ourselves, our labor and our property. We find ourselves in our brave new progressive world where we can “own” nearly nothing. Our property is taxes and taken away if we fail to do so, our earnings are taxed while we are told we really didn’t earn it, forced to surrender whatever they demand (we have NO say in our tax rates) and our very money that we hold as symbol of our ownership of our very lives is eroded away by DELIBERATE government policy. As was predicted, we are no longer a country of the people, but a country of the government who OWNS its people.
It is sad that we have allowed this, but what is truly sad is that people DIED to give us our liberty and we simply gave it away.
It is not as bad as it sounds. Already all federal pensions are paid without regard to savings. There are no savings accounts funding federal pensions. The funding is just ad hoc, paid by the central bank as required. In future it will be the same, not a single taxpayer dollar harmed in the process.
With private pension schemes the situation is much worse as shortfalls cannot be recouped except by adding further burdens on contributors. However a remedy is at hand. All it will take is the political will to enact it. [which is not yet a given]
The federal [monetary sovereign] governments can step in and top up pension accounts.
It can be done ad hoc, as required and in whatever amount needed. Once a mass event occurs, like a crash, the government will find a way to do exactly that, and none of it will be a part of the budget process.
Future production that is now in China, Mexico, India…
What could go wrong?
I believe a pension program is purely a savings program in which the pensioners live off of the growth in value, principal and interest. I’m not sure taxpayers have to pay here unless politicians underfund the effort. In which the politicians should be held responsible.
Mish misread the report for the payroll part.
All figures are money figures in $1,000 units, per the reports themselves. So payroll doesn’t indicate people covered, it indicates the total dollar value of the payroll expenses theoretically supporting the pension plans.
It is intended I suppose to give you an idea of the money flow that is supporting the stock of assets / liabilities – i.e., what sort of percent contribution would you need to erase the liability? well, with a flow of $389MM, and a liability of $1.2BB, you’d only need to have a contribution percentage of … 300% for a year to erase the liability. No problem! More realistically since these are actuarial projections and you can assume 8% compounding returns (why not?) on any extra contributions they’d only need to increase contributions on the entire payroll base by something like 10-20% to nudge it back into shape.
The taxpayer has to support 3 families for 1 job. The private sector is good but ‘that’ good? Time to jail the politicians that wrote these bankrupting pension laws.
“The private sector is good but ‘that’ good?”
The private sector hasn’t created improved incomes for working-class men since 1969. By that measure, the only one that really counts, the private sector sucks.
The whole notion of private pensions is unnecessary. All it does is reduce the money in contributors’ pockets. And today’s world does not reward savers, not at all. It penalises them. The federal government should pay all pensions. If you can afford to then top it up but few are in that boat.
Does Illinois show us the direction of the rest of the country? If every state. County and municipality has this in their future, where do we run to avoid economic repression?
“If every state. County and municipality has this in their future, where do we run to avoid economic repression?”
Gilligan’s Island.
Mary Ann or Ginger?
Mary Ann
Confucius say – take lump sum before it turns to lump of coal
Politician say: We claw back your rollover IRA.
Probably better to pay the onerous taxes, even 10% penalty and stash what’s left.
The projected rate of return is 8%
The list of assets owned is made of fixed rate assets. All are presumably paying less than 8%. Much less than 8% I suspect. All are likely hold to maturity.
Where’s the difference coming from?
Well, back in the day when I learned pension accounting – defined benefit – the loophole was if actual revenues or expenses were far far off from projected. If so, you could amortize the difference over many years based on a complicated formula and not take the actual difference into revenue all at once. Sorry if incorrect terminology was used.
I don’t know the current rules and if they are anything like those in the above paragraph. I don’t know what they’re doing. The difference might be clearly stated in the financial statements. The difference might be in the wind.
Não basta ser pobre
https://pbs.twimg.com/media/CzjS2ZyXUAEQcT_.jpg
Pretty close. In fact, excellent. The only thing missing is the 9V battery on the other side of the plug. It’s always possible 8% is there and powering the system, but the rules for pension accounting (at least when I learned them) allowed for unforeseen circumstances. A massive exception up or down is supposed to be spread out over time. Nobody questions the assumptions if they seem reasonable. Why is 8% reasonable today?
Because they can’t steal more ?
108 over 100 means they have the say ?
The news said it ?
The manager likes the number 8 ?
They rounded it up from 0 ?
Fat finger ?
Random numerical generator software was a cheap copy and always gives an 8 ?
….
Great picture.
BTW, the outlet is on a dimmer switch and it’s gonna get turned.
Public unions are evil.
There exist only to rape the taxpayers and benefit themselves.
There is a reason why they are largest political donors of all time and give nearly 100% of their forced union dues to democrats.
Recovery plan:
Ban public unions
Declare bankruptcy
Disperse all pension assets as fair as possible in bankruptcy
Put all government employees into a 401k.
What unmitigated rubbish!! Without unions the workers have no voice to counter the moneyed class and are unable to counter their will to cut wages and benefits in the interest of profits.
It’s already rampant through asset inflation and paying of interest to the top end of town, and finally the rort is being countered.
1,500 people are needed to run a pension plan? Jeez!
They have to keep their relatives employed.
“Congratulations to the staff running running the retirement plan. They are in much better shape.”
Gee, now why would that be?
Mike, the covered payroll number is wrong. Ft. Worth has a total pop of 890,000. I doubt if 404,000 are muni employees.
Change that headline to read “Tax payers in deep trouble over pension crisis”
alternate headline: public servants think they deserve a pension even though the public doesn’t…. because (get this!) some politician supposedly promised them!!!
What? Don’t you think your property tax should double or triple so city employees can retire at 50 with 90% of their pay? C’mon. Be a team player.
Not just Dallas and Fort worth pension plans in deep trouble…. but *****ALL***** the empty promises politicians have made for years.
PS — all the younger generations that are somehow expected to give a four letter word about lazy public servants not being able to retire after 20yrs “on the job” do not get pensions at all
We need to have a stress test for all pension plans. For any plan that fails the stress test (e.g. under 90% funded), it needs to come up with a plan, either via reduced benefits or raised funding. The fed should take over any failed plan and impose haircuts similar to those banks.
Six months ago I’d say you were pi**ing in the wind. But with Trump there’s an opportunity to fix the politically difficult stuff.
So if I sell you something making the implied promise that it will be worth double in ten years…and it is not, that is fraud, right?
Why is it the pension managers and financial advisers do this all the time and it’s only an “OOPS”?
I must bid on furniture projects all the time, and I effectively have to guess at many of my costs, especially labor. If I screw up, even after thirty odd years, my client doesn’t nod in understanding and just write the check for the greater cost. It’s simply so sad too bad.
I have come to realize how stupid I was to ever actually build something for a living. Something that could be quantified, measured and identified. The real money is in fiction, in selling something that NO ONE can accurately evaluate because it is highly subjective and varies moment by moment so NO ONE really knows for sure.
Investing is incredible. As long as you have the proper licensing, you can do almost anything and still be legal. Simply look at our last banking collapse and visualize ALL of the money that seemingly evaporated and NOBODY went to jail. NOBODY. But most of them do wear suits, NICE suits) so they can’t ALL be bad, right? And there are a lot of people making money in the casinos (if you believe 1% is a lot).
The employees who have been promised this money are justifiably mad, even though it is equally maddening that they were ever offered this or accepted it, given simple math combined with even a glimpse at history would have suggested it would never happen.
We are trapped between two hard places.
One is to accept that we are all weak minded morons that can so easily be manipulated that we require eternal protection.
The other is the belief that revenge and retribution against those who sold these lies would fix things in the future, and that hard lessons for one and all is our only solution.
The pension managers DO NOT make any such “promises”. The politicians (and/or municipal treasurers) supposedly make promises — but they don’t fund them (which means it isn’t really a promise at all).
When you make a bid for a furniture job (I guess in writing?), you put a time limit on the bid. If I want my entire dining room stripped and revarnished, and I demand you honor your bid from 1960 — are you going to honor that bid?
Municipalities “promised” (not really) to fund pensions — but they did not. The pension managers promised to invest the money they were actually given, not the money they were “promised” by lying politicians.
And going back to your furniture example, it is unreasonable for any public union dope to expect you to restore his entire dining room / hutch / chairs and so forth for $5… expecting to retire on a huge pension check after 20 years is just as unreasonable. The “offer” (made by politicians, not by pension managers nor taxpayers) was unreasonable to the point that public unions really should have known better.
There was no pension promise FROM TAXPAYERS. Politicians promised not to raise taxes, to fix potholes, to operate schools for students not for administrators — all broken promises.
Politicians made empty promises. Public unions pretended to work, politicians pretended to fund unreasonably large pensions. It was all a lie from the beginning.
So when pension fund managers “promised” an 8% return on their “investment”, It was more of a suggestion than a commitment? And when the Dallas Police and Fire pension fund management bought into massive real estate deals that lost big bucks, who’s promise was that? I’m sure that some municipalities did fail to fund, but others did fund and the fund managers over promised and under delivered, many times squandering the money. We saw plenty of that back in the eighties when CALPERS and the like were making massive commercial real estate bets that blew up, which send them chasing tech investments which blew up, which sent them chasing residential real estate which blew up again. Everyone seems to know the hard dollars that go into these funds. The problem is their “growth strategies” that they use to substantiate the promised returns.
Sir, you need to be a LOT more carefull about your terms. Pension FUND managers (the ones who invest assets) do not, and never have promised 8% returns. It is illegal to guarantee a return on stocks, even the SEC would prosecute such nonsense and win. Its so obvious a felony that not even boiler room brokers would make such a promise.
The pension trustees (ie the union dopes and/or municipality “officers”) have historically made a “total return assumption” of 8%. They assume 8% “on average”, meaning half the time they expect to get more, half the time less… but any honest person would tell you the returns rarely even meet 8% never mind exceed it. That isn’t Wall Street my friend, that is the lawyers and lobbyists in city hall and/or the union hall.
One reason things don’t get better for union dopes is because they blame the wrong people. Wall Street does plenty of things wrong (mostly unethical, occasionally illegal) — blame them for those things. But people who are careless with their accusations are like media outlets — you just cloud the issues rather than aid understanding.
Pension trustees assume 8% return because that allows the same slimey greasy politicians to make smaller contributions (leaving more budget room for all the kickbacks and no-bid contracts and such). If they assumed a 4% return (which is more inline with actual recent results), they would have to double or triple contributions — which means taxes would have to skyrocket (and the fraud would be exposed) or else they would have to cut spending elsewhere (which if we are honest, directing that other spending to “associates” is the whole reason politicians get into the racket in the first place).
As for poor investment decisions (real estate etc) that you complain about… grow up. Investing involves risk, there is no such thing is a risk free investment. That is a lie made up by Keynesian economics professors who never grew up enough to leave campus.
Asking your wife out on a date was a risk — unless you are a complete weirdo, many other women said “no” to you. It doesn’t always work. Diversification in investing is like saying there are many fish in the sea in dating. If you put your entire self worth into the reply of one girl — that is just absurd.
Professionally managed pension funds do not put all the funds into real estate (which would fail both prudent investor and prudent man legal standards). Its called diversification.
On the other hand, politicians who can’t get cheap money for stupid football stadiums or make-work “convention hotels” often get the money from captive pension funds. By the time short attention span voters catch on, the politician is already in the governors mansion or the white house (see the current occupant, versus Chicago finances).
Blame Wall Street for what it does (which is plenty). Blame the politicians and union “leaders” for for what they do
PS — examples like CalPERS piling into tech stocks or “hedge funds” or commercial real estate at (or near) the top of each market is a result of asset allocation decisions. The pension investment committee (not the fund managers) decide to put x% of total assets into whatever asset class (nasdaq, hedge funds, CMBS, etc).
Like many committees, they tend to chase trends (in a very bad way). Committees invest in things only after there is a clear trend they can point to as “justification” for their decision. Its called herd mentality.
Do not ask me to justify the 2+20 fee structure (its too high for almost all funds) — but if you look, you will notice many hedge funds have been closed to new investors in recent years… because the fund managers simply cannot invest unlimited amounts in whatever strategy (eg cmbs, tech startups, etc) without massively overpaying.
Closing a fund to new investments is not a catch all solution, but its a start to avoiding lots of new investments at the top of a cycle — something pension fund committees are prone to do. It makes the fund look bad, and the committee never accepts responsibility for THEIR decision.
CalPERS waited for years while hedge fund returns were very high — then (after prices were way up), they piled in. No surprise, they paid higher prices and got lower returns. Now they are dumping hedge funds after years of below market returns? Buy high and sell low. That doesn’t work.
Many other pension committees just mimic whatever CalPERS does, so they are getting the same results.
If Shrillary were president, we’d all be bailing out these plans. Don’t think that will be happening under The Donald.
Most likely it would be the FED bailing and they’re not part of the government so Trump couldn’t stop them if they really wanted to bail. Although, I doubt the FED would strongly go against the presidents wishes. Particularly if it was against the wishes of congress too.
Martin Armstrong today: This is precisely how Rome fell. Once they could not fund the pensions, the military began sacking their own cities to get what they were owed.
The VA hospitals are filled with amputees that can’t get care because all the funding was diverted to pay exorbitant salaries to political appointees in Washington DC.
Meanwhile, local municipal paper pushers whine and cry that they can’t retire at age 45 (after 20 years of doing something close to nothing) with a six figure pension check?
That is seriously messed up.
Politicians trade “promises” for votes assuming that they will be retired or working for their favorite “donor” before the sh*t hits the fan.
Taxpayers deserve to be left with the bill as they continued to re-elect these politicians.
The best government money can buy depends on low information voters ignoring the obvious corruption.
In my municipality, the ballot usually reads “pick any 5 candidates for city council”… there are only five people running, selected by the local democratic party (which controls both the city and the state). As long as each “candidate” gets one vote, they “win”. They are essentially running unopposed.
The mayoral candidate is also selected by the party, confirmed into office by the above rigged city council. State offices aren’t really any different. The opposition party doesn’t always run candidates for many offices, because they know the vote doesn’t really matter.
For you to claim my city elected these politicians is just plain offensive. You are assuming voters actually have a choice, which is just not true.
A quick review of the actual 2015 Ft. Worth City Employee Retirement report from the fund has the following info on the first few pages. Active members, (current employees) 6,198, benefit recipients 3,906 and 317 inactive members. There are 13 board of trustees and 19 employees of the fund. This post by Mish has several items not correct and almost looks like MSM reporting.
I inadvertently attributed payroll to number of employees.
Fixed.
Please describe “several”
Thanks
Mish
ZIRP. Virtually all pension plans are toast, if ZIRP keeps on long enough.
Eventually this bubble economy goes “pop”! Then all the pension funds are in big trouble.
Dallas and Fort Worth are only preludes of what’s to come nationwide. They are only the opening acts.
Municipal pensions were always ponzi schemes, right from the beginning. The bubble stock market just allowed the pyramid scheme to get a bit bigger, but it was going to pop anyway.
People are living longer (needing more savings, not less), but meanwhile municipal “career life” keeps getting shorter and shorter. You can’t fund a 35-40 year “retirement” (age 50 to 85ish) when you barely work 20 years.
The Great Asset Reset is coming, Trump is just the person to do this kind of thing. It will be grossly unfair to some, just as in the Great Depression there were winners and losers (family farms). Make the same case for bailing the pension funds you can make for SSN, where retiree benefits would remain the same or actually improve,if benefits were freezed, (entitlements curtailed or eliminated,) as much of this social safety net is redundant, just as having two retirement pensions is redundant.
If the Fed bails the pension funds its based on the assumption that the line in the sand at SSN will be defended. Pension funds are deeply over-invested in inflated paper securities which would have to be reset as well. (Remember when Bush wanted to invest SSN in the stock market?) It’s a tough political choice, and it pits Federal versus State authority. It may happen on its own accord, and it may be we are just one financial false flag emergency from the expansion of Federal Reserve powers and the confiscation of pension fund assets and placed in the SSN trust fund (implied by assuming the debt on the Fed/Treasuries balance sheet.
Great content, very useful information. Thank you for sharing.