I wrote a short piece for The American Magazine on state pensions. Here’s a nug:
Most public pension funds across the United States were on an unsustainable course long before the financial crisis hit.
For example, prior to the crisis, in my home state of Kentucky, the share of pension fund assets flowing from the pension fund to retirees went from less than 5 percent to more than 9 percent between 2001 and 2007, just before the financial crisis began to cascade. That means that however quickly the pension fund grew, payments to pensioners grew considerably faster — during good times. All well before Taibbi’s supposed “legend of pension unsustainability” got started.
Furthermore, while the shift by public pension funds away from secure fixed income and into riskier investments accelerated after the financial crisis, it was actually decades in the making. Between 1984 and 1994, U.S. public pension funds in total held just 5 percent of assets in alternatives and 50 percent in fixed income, reports Pensions and Investments. By 2007, alternatives had doubled to comprise 10 percent of all pension fund holdings. Since the financial crisis, alternatives have nearly doubled again to 19 percent of total assets. By contrast, fixed income holdings have fallen nearly in half to 27 percent of total assets.
Clearly, pension funds have been chasing returns. Part of the cause is that politicians, during the reasonably good economic times before the financial crisis, were loath to make the full contributions recommended by actuaries — the people who tell lawmakers how much to contribute to keep pensions funds functioning into perpetuity.