by Mish

Bridgewater notes that public pensions have just $3 trillion in assets to invest to cover future retirement payments of $10 trillion over the next many decades. It would take an investment return of roughly 9% a year to meet those obligations.

With the 30-Year long bond yielding a mere 3.5% and with stock valuation through the roof, I expect negative returns for 7-10 years.

Stretched out over 30 years, 4% seems about right. 9% is out of the question.

CNBC has further analysis in Report: 85% of pensions could fail in 30 years

Influential and well-regarded hedge fund Bridgewater Associates Wednesday warns public pensions are likely to achieve 4% returns on their assets, or worse. If Bridgewater is right, that means 85% of public pension funds will be going bankrupt in three decades.

Bridgewater came to these conclusions by stress testing the nation’s public pension plans, much the way banks need to be evaluated on what could happen given a wide range out outcomes.

Many pension observers make the claim pensions will achieve 7% to 8% returns. But even if that assumption is correct, which is unlikely, public pensions are looking at a 20% shortfall, Bridgewater says. A 4% return is much more likely, the firm says.

Bridgewater set up a sophisticated model to simulate many of the possible market environments to see how they would affect public pension’s resources. In 20% of those scenarios, public pensions run out of money in 20 years. And in 80% of the scenarios, public pensions run out of money within 50 years, Bridgewater says.

Massive Number of Municipal Bankruptcies on Horizon

I wonder what Bridgewater’s model would predict starting with losses for the next seven to ten years, because that is what I think is highly likely.

Given the only way to shed  pension obligations is bankruptcy, one hell of a lot of municipal bankruptcies are on the horizon unless some other legal maneuver is found.

Mike “Mish” Shedlock 

Illinois Too Broke to Fix: Chicago Police Pension Fund Broke by 2021 at the Latest

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Bankrupt Illinois Cities Forced to Cut Services to Fund Pensions

Multiple cities in Illinois are forced to cut police, fire departments and other city services to fund pension plans.

Beware the Taxpayer Bailout of Underfunded Teamsters Pension Funds

This was going to be a “quick” post on the pending bankruptcy of YRC, the nation’s largest trucking company.

CalPERS Pension Promises: Myth, Reality, What’s Next?

On July 13, the Fresno Bee reported California’s big pension fund sees flat earnings for a second year.

Rejected: Central States Fund Proposes 60% Pension Cuts, Treasury Dept Says “Not Enough”

407,000 private sector workers are about to lose most of their pensions.

Illinois Pension Plans Dumps $1 Billion in Value Stocks to Self Manage

An Illinois pension plan just pulled a billion dollars from an underperforming value fund to seek better returns.

One of Nation’s Largest Pension Funds (Truckers) Will Reduce Benefits or Go Broke by 2025

In 2014, Congress passed a law allowing distressed multi-employer plans to reduce benefits for retirees if it would improve the solvency of the fund.

Dallas on Verge of Bankruptcy Due to Pensions; Just a Matter of Time

Dallas is on the verge of bankruptcy due to untenable pension problems.

UPS Fears $3.8 Billion Liability Over Bankrupt Central States Pension Plan

In 2007, UPS dumped its pensioners into the Central States Pension Fund, a fund now destined for bankruptcy.