Pensions in Crisis: Illinois Faces “Junk” Status

One by one, public pension fund systems from state to state are facing fiscal meltdown.

A new national threat is seeping into the fabric of our economy, putting our financial markets at risk. One by one, public pensions systems from state to state are facing fiscal meltdown.

Another safety net for retirement is unraveling right before our eyes. In fact, roughly one million U.S. workers are covered by pension plans on the verge of collapse.

Illinois has been the epicenter of the U.S. pension fund crisis. It has now run up a tab of $15 billion in unpaid bills and $251 billion in unfunded liabilities with no end in sight. Moody’s is threatening to lower Illinois’ credit rating to “junk” status. This will deal the state an incalculably heavy financial blow.

Most hard-working Americans have no idea that U.S. pension funds cannot keep their promises to the next generation of retirees.

Now that we are in this situation, there are only three ways to avoid the crisis and close critical pension fund gaps:

Raise taxes

Increase employee contributions

Achieve better investment returns


But how will any of these remedies be possible if almost every state or local government is already facing unbalanced budgets? Where will cash-strapped public workers like firemen and police officers find the money for higher contributions?

Even better markets might not help: Moody’s Investors Services predicts U.S. public pension funds’ pension liabilities will rise through at least 2020, even under positive investment return scenarios.

According to a recent Hoover Institute study, most state and local governments claim they ran balanced budgets in recent years. In fact, they ran deficits amounting to as much as 18% of state and local governments’ total tax revenue!

It is the same old story once again… when the going gets tough, raid the public retirement plans. It is easy for lazy politicians to dip into these pools of money when they are swelled with investor cash. However, eventually the deficit robs the funds of their ability to keep up with distributions over time.


The same report states that total underfunded pension liabilities have reached $3.85 trillion with only $1.38 trillion recognized by state and local governments. The Society of Actuaries agrees: contributions to public pension funds have not kept pace with unfunded liabilities.

Consider South Carolina’s government pension plan that covers roughly 550,000 individuals and is $24.1 billion in debt. Since 2012, the situation has forced five hikes in pension plan contributions, to no avail. More increases are expected to be necessary to keep the plan afloat.

At the end of 2016, New Jersey had a $135.7 billion deficit in its pension funds while Illinois’ gap ballooned $7.6 billion. Other states with underfunded pension liabilities include Kentucky, Arizona and Connecticut.

Demographic trends are working against us too. People are living longer and birth rates are dropping. According to Forbes magazine, the population of American 65 years of age and older has grown by more than 35% over the last 50 years.

What can you do to protect your retirement assets, especially with the uncertain fate of Social Security and Medicaid?


Safe-haven assets like gold are favored by many experts for diversification because they carry no counterparty risk. This means their value does not rely on another party’s ability or willingness to keep their promises, like with the dollar and the U.S. government.

Some financial professionals recommend that investors maintain a 5% to 15% weighting in gold bullion to insulate their retirement portfolio in the event of another financial crisis. Author James G. Rickards is bullish on gold and thinks a 10% weighting in gold for most portfolios could be appropriate.

Investor Marc Faber warns that the U.S. stock market is due for a correction and investors invested solely in paper-based assets could see up to a 50% price drop in the years ahead.


After years of politicians using creative accounting to cover up fiscal mistakes, the ticking bomb of underfunded pensions is getting louder.

A full-blown pension fund crisis will destroy the futures of millions of Americans and force spending to be cut drastically on education, infrastructure and healthcare with dire ripple effects on our economy and retirement portfolios.

By any sane measure, hopeful expectations for a quick fix on pension funds are just that: pure speculation. It is wise to prepare for the worst, ignore the promises of professional politicians and assume that no one will come to the rescue.

If the underfunded pension crisis balloons into another financial meltdown, can you afford to sit on the sidelines while the value of your paper-based assets collapse towards zero?

Read also: Could the U.S. Seize Your IRA? Fact and Fiction

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