Older civil servant workers in America are worried. Sure they have steady jobs - as firefighters, public school teachers, and police officers - still, sadly, they can no longer count on one of the most basic financial safety nets they have worked very hard to establish - the pension plan. Many pension plans are in trouble because there is no longer enough money to cover them. These people are assured of a pension once they retire so that their retirement and their old age are comfortable. But now, the future of pension plans in states across America is up in the air.
One of the worst-hit by a pension crisis is the state of Kentucky. The pension fund meant for Kentucky's teachers, police, and firefighters is currently in a hole worth 40+ billion dollars. This came as a shock to many because, in 2000-2001, pensions were practically 100% funded. So what happened?
To make a long story short, the pension fund was not properly managed. The Kentucky government used it as a piggy bank to fund public buildings, schools, roads, better facilities, which are all great things, but not what the fund was meant for in the first place. The governors decided to use the retirement funds since the bulk of the recipients were too young to retire anyway. These reforms are supposed to be paid for by actual tax money however the government turned to the pension funds.
To build the fund up again, the government of Kentucky proposed to increase taxes, but the idea was (understandably) rejected. That's when the Kentucky Retirement Services - who handle the fund - turned to Wall Street. They began to put money into high-risk hedge funds and other investments - many of which failed. They essentially turned to "gambling" to try and make back the retirement fund. Also, many on the KRS board had no previous experience with investing and finance.
Sadly, the failure of Kentucky's pension fund is not a stand-alone occurrence. The problem is a national one. In the last decade, state pension plans have lost a whopping $4 trillion. This is a big blow to the retirees. And with the local government unable to bail out the pension plans, tough times are coming for Kentucky's loyal civil servants.