There is a certain morbid fascination with stock market crashes. People latch onto them as exciting events, especially if they are lucky or good enough to have lower exposure, at least in the short run.
Unfortunately, many of us are bound together in our exposure in ways we may not be aware. That is through public pension funds dependent on taxpayer dollars.
Consider the largest pension fund in Illinois – the Teachers’ Retirement System. In its latest reported fiscal year, the fund was 54% invested in equities, including U.S. (21%), International (22%), and Private (11%).
This fund is managed under what is called the “prudent person rule” in Illinois law. The TRS reports that this rule requires the fund to be managed “solely in the interest of fund participants and beneficiaries.”
Given the underfunding in the plan in recent decades, under this rule, the interests of fund participants and taxpayers are not necessarily one and the same. One can argue that this can lead to higher risk-taking in the plan, in the interest of fund participants, at potential taxpayer expense.