Pension funds for police officers, teachers and other public employees are going broke
the Washington Post reports, with such steep losses in the financial crisis that they'll have less than half what they need to cover benefits within 15 years. That puts local governments in a painful bind: They can either cut benefits or gamble on high-risk, high-return investing strategies to try to win back the $1 trillion they've lost.
It's those risky investments in hedge funds and private equity firms that trafficked in mortgage securities that left funds depleted in the first place. And some governments are exacerbating the problem by cutting contributions to pension funds, to staunch bleeding budgets, at a time when they should be increasing them to forestall future collapse. "I don't think you can invest your way out of this. Plans are going to have to make changes," says a retirement analyst. "The scale of the losses was just so great and the liabilities are growing so fast, much faster than they can keep up."