It used to be that nearly half of all American workers had defined benefit pensions - a guarantee that you would get a good percentage of your salary and benefits upon retirement. Workers and their employers contributed funds that were then invested on Wall Street. Over the years, private corporations have largely stopped offering defined benefit pension plans [Defined Benefit pension plans are bundled, which yield a higher return in contrast to those bundled by bankers, allowing THEM to skim from that higher RoI] but most public employees still have them. The decisions about how to invest and grow pension fund money are made by a pension board and its financial advisors, and for many years, retirement systems were flush with cash.
Twenty years ago it looked as if they would never have a problem. But then, in 2000 the .com bubble burst and billions of dollars were lost. Politicians were reluctant to raise taxes to pay the full cost of their bills, and they began to divert pension money. Pensions were used as a piggy bank.
The problem was that once they started to short state pensions to cover the budget shortfall, it was hard to do it just one time. Governor after governor invested in roads, bridges, libraries, [corporate tax incentives,] etc. Pension obligations were not met.
Politicians have effectively raided pension funds - they have simply not made the payments that they are morally required to make to fund the retirement promises that they've made.
The bill came due.
So, the investment crews were feeling the pressure to get the returns up to generate more money going into the systems. By 2009, public pensions invested a portion of their portfolio in riskier investment vehicles like hedge funds. Knowing how to invest is difficult, and some pension board trustees have financial experience, but others are police, firefighters, [teachers,]... appointed to the board to represent their coworkers and often not trained in portfolio management.
Wall Street regularly exploits pension funds.
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Illinois is currently more than $140B in the state pension fund hole. In recent years, the state has brought in approximately $70B in revenue and spent about $75B - AND we've barely scratched the upslope of the Edgar Ramp, a 'balloon mortgage' currently scheduled through 2045.
Do the math.
(and research TRS investments!)
