How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions
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Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions
#2Desktop version: https://theintercept.com/2018/10/21/kentucky-pensions-crisis...
Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions
#3This article was a sad, and infuriating read. The knee-jerk-response part of me would want these pension funds to be set up as an allocation of 'dumb'/passive index funds based on an individual's retirement date to not have to deal with greed on the part of human decision-makers, but there might be catastrophic issues with that too.
Edit/Follow-up: I guess there are two more sane alternatives:
1) Let public-sector workers manage their retirements privately e.g. 401k-style .
2) Let state and municipal public-sector workers opt-in to the federal pension system for federal public sector workers.
Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions
#4TL;DR: dodgy hedge funds bribe politicians to invest public pension pots with them.
I don't know why they don't just switch to private pensions. In theory public pensions should be less risky because the investment risk is spread between lots of people, but in practice it seems that the risk of management looting the fund is a much bigger concern, and one that you don't have with private pensions.
Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions
#5This article was a sad, and infuriating read. The knee-jerk-response part of me would want these pension funds to be set up as an allocation of 'dumb'/passive index funds based on an individual's retirement date to not have to deal with greed on the part of human decision-makers, but there might be catastrophic issues with that too. Edit/Follow-up: I guess there are two more sane alternatives: 1) Let public-sector wo…
The difficulty with moving to a defined contribution scheme, which makes a tremendous amount of sense, is that the employer-governments actually have to pay the costs of their promises instead of kicking the can down the road.
Taxpayers don’t like that because they’d rather pretend to believe that investment returns will fix everything while really just saddling the next generations. Government employees don’t like that because they’d rather have the extravagant promises they can extract, figuring that future governments will find a way to pay them.
If both employees and taxpayers prefer to keep pretending that the Emperor is wearing clothes how many politicians are going to fall on the sword of good government?
Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions
#6So there's a lot going wrong here, pay-to-play, investment in hedge funds that no-one had ever heard of, investment in funds that ended up performing poorly, etc. However that isn't the real problem here - the real issue is decades of under-contribution to these funds by the state government.
Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions
#7This article was a sad, and infuriating read. The knee-jerk-response part of me would want these pension funds to be set up as an allocation of 'dumb'/passive index funds based on an individual's retirement date to not have to deal with greed on the part of human decision-makers, but there might be catastrophic issues with that too. Edit/Follow-up: I guess there are two more sane alternatives: 1) Let public-sector wo…
The difficulty with moving to a defined contribution scheme, which makes a tremendous amount of sense, is that the employer-governments actually have to pay the costs of their promises instead of kicking the can down the road. Taxpayers don’t like that because they’d rather pretend to believe that investment returns will fix everything while really just saddling the next generations. Government employees don’t like t…
From my reading of the article, the pension contributions were already being made in this case (it wasn't clear to me if it was directly made by the teachers or the state). Your concern is a valid one, but I didn't see the state repurposing the pension contributions for something else in this case.
Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions
#8TL;DR: dodgy hedge funds bribe politicians to invest public pension pots with them. I don't know why they don't just switch to private pensions. In theory public pensions should be less risky because the investment risk is spread between lots of people, but in practice it seems that the risk of management looting the fund is a much bigger concern, and one that you don't have with private pensions.
How insane is it that "management looting the fund" is a legit concern?
Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions
#9So there's a lot going wrong here, pay-to-play, investment in hedge funds that no-one had ever heard of, investment in funds that ended up performing poorly, etc. However that isn't the real problem here - the real issue is decades of under-contribution to these funds by the state government.
I think think there are two separable sets of problems that both important, but can fixed independently of the other:
1) The lack of responsible stewardship in overseeing the pensions and how they were invested.
2) Under-contribution to these funds.
Follow-up:
I think the best way to deal with 1) is to do something like the Ontario Teachers' Pension Plan, which is "jointly sponsored by the Government of Ontario and the Ontario Teachers' Federation" [0] . You can still have greed ruining things, but at least the administration of the plan is totally dominated by a sometimes adversarial entity i.e. the state government.
[0] https://en.wikipedia.org/wiki/Ontario_Teachers%27_Pension_Pl...
Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions
#10TL;DR: dodgy hedge funds bribe politicians to invest public pension pots with them. I don't know why they don't just switch to private pensions. In theory public pensions should be less risky because the investment risk is spread between lots of people, but in practice it seems that the risk of management looting the fund is a much bigger concern, and one that you don't have with private pensions.
Colloquially in the US pension fund == defined benefit plan managed by your employer. A public pension would be managed by the government for governmental employees & a private pension would be managed by a private company for its employees.
Defined benefit pensions largely only exist in the public sector in the US because they are phenomenally expensive. The reason public employees don’t want to switch is that these are huge perks.