In the late 1990s, pension funds decided that it would be a good idea to purchase stocks near the peak of the technology bubble. Strike one. In the mid 2000s, the idea was to join the private equity and hedge fund wave sweeping over Wall Street just in time for the 2008 financial crisis. Strike two. Now, The Wall Street Journal reports that public pension funds have decided to employ leverage in order to boost the low returns offered by bonds. Read this article for a preview of “strike three”.
Fortune Magazine recently published an article outlining New Jersey’s pension dilemma. Based on the information in this article, it appears that New Jersey could very well be the canary in the coalmine when it comes to the widespread pension crises that threaten to impact states and municipalities throughout the country. Let’s take a look at New Jersey’s situation and the broader implications for taxpayers, bondholders, and retirees.
The steep market declines over the past year have left many state and local governments struggling with severely underfunded pension plans. The Wall Street Journal reported today that several states and municipalities are considering extreme measures to address pension shortfalls. This also has implications for municipal bond insurance, including the business Berkshire Hathaway entered in early 2008.
Roger Lowenstein’s latest book, “While America Aged” provides thee compelling case studies of pension funds that impacted private industry and government, and provides a prescription for reforms to fix the system.