“Public Pension Funds Are Adding Risk to Raise Returns”
States and companies have started investing very differently when it comes to the billions of dollars they are safeguarding for workers’ retirement.
Companies are quietly and gradually moving their pension funds out of stocks. They want to reduce their investment risk and are buying more long-term bonds.
But states and other bodies of government are seeking higher returns for their pension funds, to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. Higher returns come with more risk.
“In effect, they’re going to Las Vegas,” said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, which oversees public plans in that state. “Double up to catch up.”
What could possibly go wrong? Sure, the higher-risk stuff the public pension funds are buying includes “commodity futures, junk bonds, foreign stocks [and] deeply discounted mortgage-backed securities,” the latter of which are the sad remains of some of the crap that torpedoed the more traditional investments of the funds and made them desperate for higher returns, but hey, the cards are bound to turn their way and the house is a caring institution.
When the new investments blow up, as they inevitably will, waiting in the wings will be some stern and sorrowful but eager-to-help advisors offering easy solutions to the problems created for public institutions by impossible shortfalls in the pension funds, among which will be simply refusing to meet their pension obligations to their future retirees and perhaps cutting payments to current ones.
There’s a proud tradition of private sector companies doing that, usually as a condition of emerging from bankruptcy. A management failure turns into an opportunity to screw workers on behalf of creditors, and who wouldn’t jump at that?
Meanwhile, lots of pension fund proprietors will use contributions from their current employees to pay off their retired ones. When Bernie Madoff did this, it was called a Ponzi scheme and he will die in jail from it. When governments do it, it’s called fiscal responsibility and making the tough choices, and nobody goes to jail. Some people have to work a decade longer than they planned, and some people have to give up their retirement dreams but they were only dreams anyway.
Yum! Cat food!
But who knows, maybe it’ll all work out. Let it ride, baby. Seven come eleven …
