How Public Pensions Turn Cities Into Unlivable Hellholes
2nd July 2022
The main point was that public pension funds are grossly underfunded. Consequently, more and more pension funds are borrowing money to play the markets. The goal is to boost returns to cover their massive funding gaps.
If you recall, public-sector retirement plans offer defined benefits, where retiree pension checks are calculated based on salaries and years of service. Private employers, on the other hand, generally offer defined-contribution plans (like 401Ks), where payouts are based on market returns.
…
Certainly, pension funds can attempt to fill their funding gaps by requesting increases in yearly contributions from governments and workers. But the public-employee unions go full ape when such measures are proposed. So the remaining option is to take on greater risk. What could go wrong?