Submitted by Taps Coogan on the 13th of May 2020 to The Sounding Line.

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Leo Kolivakis, publisher of Pension Pulse, recently spoke with Real Vision’s Ed Harrison about the impact of the Coronavirus crisis on pension funds in the US and Canada. While he believes that fully funded pensions will be relatively unaffected in the long run, underfunded pensions, particularly in the US, are very vulnerable to declines in public market valuations, rising unemployment, and very low interest rates. He warns that the numerous underfunded public pensions in the US are likely to require further tax-payer assistance and bailouts, leading to state and local tax hikes at the worst possible time for the economy.

 

Some excerpts from Leo Kolivakis:

“In the US, the problem is what they are going to have to start doing is taxing more at the worst possible time. Already you have an economy that is getting decimated with 26 million plus people being unemployed all over the US, and then you are going to start taxing businesses and corporation to top up underfunded public pensions? Can you imagine how this is going to play out on Main Street? At the same time, your bailing out big banks, big hedge funds, big private equity funds… When we reach a boiling point, we’re not there yet, but when we reach that point, I think there is going to be a massive (bailout) of public pensions. Unfortunately, they won’t be addressing the structural issues, the lack of governance and the other issues that are effecting these pensions and this is going to create what I call ‘Zombie Pensions.’ And the reason why they are going to bailout these pensions, to be quite honest with you, is they are bailing out Wall Street and the big private equity funds and hedge funds which use these big public pensions as perpetual funding mechanisms…”

“The Fed is basically nationalizing all asset classes. The Fed’s balance sheet is going to the Moon as far as I can tell… The problem with what the Fed is doing is… it’s not going to be enough to help the underfunded status of these pensions… Unless the Fed starts buying pension obligation bonds massively, which I don’t see happening, there is going to be a day of reckoning. We’re not there yet. We’re not close to being there yet, but when it happens, it will be very concerning for a lot of pensioners and members of these public pensions…”

There is more to the interview, so enjoy it above.

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