The Dow Jones Industrial Average is down 100 points so far this morning, and is bouncing around pretty good. The Dow has fallen almost 10% since late July.
Many taxpayers are exposed, even if they don’t own stocks directly. That is because many pension funds for government employees are heavily invested in stocks – and, governments have explicitly or indirectly stood behind those pension promises.
In cases like these, government workers and their friends on Wall Street can pose a “Heads I Win, Tails You Lose” problem for taxpayers.
Take a look at the Illinois Teachers’ Retirement System annual report, for example. That report shows a TRS investment portfolio heavily concentrated in stocks and other risky assets like real estate.
The front page of the TRS website has a paragraph stressing how the pension system provides economic benefits for the State of Illinois. It includes a link to a study of those benefits here.
The opening sentence of that study reads: “The Teachers’ Retirement System of the State of Illinois annually distributes approximately $3.8 billion in pensions and benefits to men, women, and children in every corner of the state, creating a sustained economic stimulus that helps drive the economy in all 102 counties.”
Wow, what a godsend! Trouble is, those dollars didn’t just appear out of nowhere. They came from somebody else.
And considering how massively underfunded the plan is, and how the Illinois state supreme court recently decided those benefits payments are constitutionally protected, and how risky the portfolio is, Illinois taxpayers are facing the prospect of delivering a lot more of their hard-earned dollars to the pension system in the future.
As massive as the Illinois Teachers’ Retirement System plan is, it is a puppy compared to CalPERS, a huge public pension fund in California. In recent weeks, growing drumbeats are indicating CalPERS might be undertaking a fundamental change in its investment risk posture, choosing significantly less risky assets – with important taxpayer implications.
See this, this, and this, for example.