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How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

theintercept.com

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Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#11

Post by lotsofpulp »

tareqak wrote: post #3

This 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…

There’s no reason government employees should get taxpayer guaranteed annuities. If the government employee unions want annuities upon retirement, they should be purchased from insurance companies. That way taxpayers can be certain there were no shenanigans in underfunding or mispricing or malinvesting. It would also create more transparency in how much people should be paid in government vs non government jobs.

It would also make government budgets a lot easier to understand and harder to fool taxpayers.

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#12

Post by mschuster91 »

lotsofpulp wrote: post #11
tareqak wrote: post #3

This 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…

There’s no reason government employees should get taxpayer guaranteed annuities. If the government employee unions want annuities upon retirement, they should be purchased from insurance companies. That way taxpayers can be certain there were no shenanigans in underfunding or mispricing or malinvesting. It would also create more transparency in how much people should be paid in government vs non government jobs. It w…

> There’s no reason government employees should get taxpayer guaranteed annuities

There is. In Germany, the Prussians back in the 18th century formed the "Berufsbeamtentum", basically civil servants. The idea is that the state guarantees that the Beamten be permanently employed by the state (basically, short of committing serious crimes > 12mo jail time, there is no way for the state to fire one), have their (first class) healthcare taken care of and that they will have decent pensions. For this, the Beamten bind their work life to the state.

The downside, of course, is that there are several limits for Beamte: most notably they must be absolutely loyal to the state, restrict themselves/their speech in the public (e.g. memberships in "extremist" parties are a no-go), they are forbidden from strikes, and their pay schedules are fixed (so, no individual contract agreements, everyone on the same step of the career ladder gets the same salary). Also (mostly valid for police officers and judges) the state may decide to reassign you to a different post... which may even be at the other end of the country, for those who are with the federal government.

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#13

Post by lmm »

lotsofpulp wrote: post #11
tareqak wrote: post #3

This 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…

There’s no reason government employees should get taxpayer guaranteed annuities. If the government employee unions want annuities upon retirement, they should be purchased from insurance companies. That way taxpayers can be certain there were no shenanigans in underfunding or mispricing or malinvesting. It would also create more transparency in how much people should be paid in government vs non government jobs. It w…

A long time horizon is supposed to be what governments are good at. No reasonable employee would trust a private insurance company to still be in business by the time they come to require, absent a governmental guarantee - and if something is both paid for by the government-as-employer and guaranteed by the government-as-regulator, what is bringing in a private company supposed to add to the mix other than taking profits?

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#14

Post by kylnew »

When it comes to pension funds, investing in anything volatile like hedge funds is an incredibly irresponsible thing to do. I’m kind of flabbergasted it’s even allowed in the first place. Pension funds should have steady, modest gains year over year and minimize risk of dips as much as possible.

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#15

Post by snikeris »

bradleyjg wrote: post #5
tareqak wrote: post #3

This 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…

Seems like there is a conflict of interest. Governments are dependent on investment returns or the whole house of cards falls down. Yet they are given the responsibility of regulating the investment markets and controlling the money supply. Quantitative easing led to a massive bull market. What's the downside of a government dependent on increasing asset prices?

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#16

Post by tareqak »

lotsofpulp wrote: post #11
tareqak wrote: post #3

This 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…

There’s no reason government employees should get taxpayer guaranteed annuities. If the government employee unions want annuities upon retirement, they should be purchased from insurance companies. That way taxpayers can be certain there were no shenanigans in underfunding or mispricing or malinvesting. It would also create more transparency in how much people should be paid in government vs non government jobs. It w…

I can see your point from a policy level. However, once you have generations of government employees on this scheme such that their retirement planning is based around it, then it becomes much harder for everyone involved to adjust.

From the article, it seems that teachers don't have Social Security withheld, so they don't have that as a fallback either:

Teachers, like any other public employees who don’t have Social Security withheld, are not eligible for Social Security benefits; even if they earn Social Security by working a side job, those benefits are adjusted downward based on their pension income.

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#17

Post by bradleyjg »

tareqak wrote: post #7
bradleyjg wrote: post #5

Earlier quoted context omitted.

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.

They make contributions but not nearly large enough contributions as would be required if they used accounting best practices, as for example those that the insurance industry is required to use when calculating reserves for annuities.

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#18

Post by rrdharan »

lmm wrote: post #13
lotsofpulp wrote: post #11

Earlier quoted context omitted.

There’s no reason government employees should get taxpayer guaranteed annuities. If the government employee unions want annuities upon retirement, they should be purchased from insurance companies. That way taxpayers can be certain there were no shenanigans in underfunding or mispricing or malinvesting. It would also create more transparency in how much people should be paid in government vs non government jobs. It w…

A long time horizon is supposed to be what governments are good at. No reasonable employee would trust a private insurance company to still be in business by the time they come to require, absent a governmental guarantee - and if something is both paid for by the government-as-employer and guaranteed by the government-as-regulator, what is bringing in a private company supposed to add to the mix other than taking pro…

Several private insurance companies been in business nearly as long as the US government I believe..

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#19

Post by zimablue »

kylnew wrote: post #14

When it comes to pension funds, investing in anything volatile like hedge funds is an incredibly irresponsible thing to do. I’m kind of flabbergasted it’s even allowed in the first place. Pension funds should have steady, modest gains year over year and minimize risk of dips as much as possible.

That's cool, so US bonds only then?

Re: How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

#20

Post by [deleted] »

kylnew wrote: post #14

When it comes to pension funds, investing in anything volatile like hedge funds is an incredibly irresponsible thing to do. I’m kind of flabbergasted it’s even allowed in the first place. Pension funds should have steady, modest gains year over year and minimize risk of dips as much as possible.

[deleted]
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