“The beauty of pension accounting is that slight tweaks can make a large unfunded liability seemingly disappear or at the very least shrink it to “she’ll be alright mate” levels. However if a pension fund plays the game of understating its risks for long enough then eventually it catches up, especially if performance is consistently poor. This is what we are starting to see in vivid colour among state and local (S&L) governments in America. Reality is biting”
Now it seems that The Dallas Police and Fire Pension (DFPF) System, once applauded for a diverse investment portfolio finds itself needing to dig out of a deep hole. A $1.2 billion change last year in the difference between the value of its assets and what the pension owes retirees left the $2.6 billion fund with just 45 percent of the assets needed, down from 64 percent at the end of 2014. The pension, which was 90 percent funded a decade ago, could be out of cash in 15 years at the current rate of projected expenditures. The pension’s former real estate investment manager, CDK Realty Advisors, was raided by the FBI in April 2016 and the fund was subsequently forced to mark down their entire real estate book by 32%.
The fraud at the DPFP left the fund over $3bn underfunded and its board of directors with no other option but to seek a $600mn infusion from taxpayers to keep the fund afloat.
Zero Hedge writes, “Well, it seems as though Dallas police officers are catching on to the ponzi and rushing to withdraw retirement funds as quickly as possible before the whole system goes bust. As reported by a local ABC affiliate, Dallas police officers are retiring at a record rate and opting for full cash withdrawals of their pension benefits as opposed to equal monthly distributions for life (apparently they don’t think the fund will be around long enough to pay them for very long).”
While this is partially crumbling because of fraud, there are many other pension funds which are way underfunded. In the public sector alone in America, pension funds are unfunded to the tune of $9 TRILLION. In the current investment environment, no amount of tricky actuarial accounting can wriggle out of this.