Wow. When I saw this article about the questionable investment assumptions and increasingly risky investment choices being pursued by public pension plans, the first thing that jumped into my head was the old Yogi Berra line that “in baseball, you don’t know nothing." It seems to hold true for at least some of those running the public pension plans profiled in the article. The article details how public pension plans, in order to deal with (I would say paper over) an ever increasing gap between their assets and their obligations, are increasing their exposure to ever more risky investments at the same time that the best run private pension funds are reducing theirs. My second thought, in reading the techniques, assumptions and reasoning of the public pension funds being profiled – in particular the reliance of some of them on assumed future returns in excess of anything the funds have actually been garnering – is that if these were instead the fiduciaries of private pension plans, they would be staring at breach of fiduciary duty lawsuits right now.
For a long while, many have been sounding the alarm that many public pension plans cannot possibly meet the benefit obligations that state and municipal governments have committed them to satisfy, and this article doesn’t suggest otherwise. As many have argued, this can only mean, eventually, a taxpayer bailout of one form or another, whether it is in the form of large increases in tax revenue contributed to the plans or in the form of taxes to pay out the promised benefits to the beneficiaries down the road. Playing connect the dots a little bit, I couldn’t help but think of the Washington Post Company’s Robert Samuelson’s depiction of the youngest generation in the current workforce as being the “chump” generation, who will end up paying for all of these promised benefits down the road, reducing their long term quality of life to pay off the underfunded promises made to generations that preceded them.