Senior U.S. officials have expressed concern. Sure, they have steady jobs—firefighters, public school teachers, and police officers—but unfortunately, they can no longer rely on one of the most basic financial safety nets they’ve worked so hard to build—retirement plans. Many pension plans fall into Dilemma, as there are no longer enough funds to pay for them. These people have pension guarantees in retirement so that their retirement and old age can be lived comfortably. But now the future of retirement plans hangs in the balance in states across the country.
One of the states hardest hit by the pension crisis is Kentucky. The pension fund for Kentucky teachers, police officers and firefighters is currently in trouble worth more than $40 billion. This came as a shock to many, as pensions were almost 100% funded between 2000 and 2001. So what happened?
In short, pension funds are poorly managed. The state of Kentucky uses it as a piggy bank to fund public buildings, schools, roads and better amenities, all of which are good things but not what the fund was originally designed for. Governors decided to dip into pension funds because most recipients were too young to retire anyway. These reforms were supposed to be funded with taxpayer money, but instead the government turned to pension funds.
To rebuild the fund, the Kentucky government proposed raising taxes, but the idea was (understandably) rejected. That’s when Kentucky Retirement Services, which manages the fund, turned to Wall Street. They started putting money into high-risk hedge funds and other investments — many of which failed. They essentially turned to “gambling” in an attempt to win back their retirement funds. Additionally, many members of the KRS board have no prior investment and financial experience.
Unfortunately, the failure of the Kentucky pension fund is not unique. The problem is national. Over the past decade, state pension plans have lost as much as $4 trillion. This is a heavy blow to pensioners. Hard times are ahead for steadfast Kentucky officials as the local government fails to save the pension plan.
