[jhulla]

Pension funds are one of the largest victims of Central Banks after the 2008/2009 financial crisis. Quantitative easing on top of zero/negative interest rate policies has dramatically reduced the risk-free return on capital. Bond yields have collapsed worldwide.

In short, the problem is this: commitments were made when interest rates were higher than now. Interest rates have now stayed far lower for far longer than expected. Meeting those commitments in the recent few years would have required taking more risk than the funds can justify.

[neffy]

It's much worse than that. Commitments have been made that could never have been met - and not just in California.

Hard equations are coming home to roost.

[aswanson]

Facts. The baby boomer generation set up public commitments on the back of the taxpayer, from municipal to federal, that simply cannot be met. On top of that, after inheriting a system that allowed them to get a post-secondary education doing unskilled labor, they sloppily set up incentives that caused their children to inherit mortgage-level debt with horrible employment prospects for a comparable education in their era. Thing is, they are reliant on the people they saddled with this piss-poor situation for continued retirement payments.

[smsm42]

In even shorter, whoever designed those plans failed to account for the fact that future economic environment may be different from the current one. Despite that being pretty much their only job - otherwise they could just give that money to people to invest for themselves in 401k, IRA, etc. plans. The whole notion of one big pension plan is based on the premise that whoever manages this plan knows what they're doing better - or at least not worse - than non-professional people could, and even than most of people on professional market could. "We didn't predict interest rates could change" doesn't really inspire confidence in that premise.

The worst aspect, though, is that the next step would be to ask for my and other taxpayer's money to fix the botched job the pension managers did. And next worst aspect would be that this request would never be refused, because you can't deny people their money, can you? That means, if they work for the government, if they not, you can take their money as much as you wish, that's why they are called "tax payers".

[stcredzero]

Pension funds are one of the largest victims of Central Banks after the 2008/2009 financial crisis. Quantitative easing on top of zero/negative interest rate policies has dramatically reduced the risk-free return on capital. Bond yields have collapsed worldwide.

As a layperson, the 2008 financial crisis felt like this to me: Someone shrank the effective value of my savings and earnings by something like half.

[ak217]

No argument there, but public employee pension funds have access to a unique resource: they can hold the taxpayers over a bucket to make up for the deficit. In California's case, the difference comes from tax increases and cuts in funding to higher education.

[guelo]

That's an overly simplistic view that assumes that everything else stays constant. If the central bank policies increased the GDP as hypothesized then the overall effect to pension funds would be positive compared to a world where GDP languished at or below recession levels even with higher nominal returns.