When a city hires a bus driver who is 25 years old, they have actuaries who project out the pension benefits that driver will receive at retirement, how long the driver is likely to live past retirement, and so on. They know how much they need to invest, and at what interest rates, for the rest of the driver's career in order to meet those obligations.
In the 1970s it was easy to invest for pensions, because interest rates were high. But if the bus driver was hired in 1980, when rates were at their peak, then during the driver's whole career, interest rates would be falling. The pension investors are the most conservative of investors. They take money and like to know exactly how much they will receive in ten, twenty years. But in a falling interest rate environment, their projections for the return on their money would always be too low.
If they are in a long term interest rate slump, all they can do to meet their obligations is accept more risk in order to get a higher return. But these investors are sometimes obligated to only invest in the safest investments. But as the interest rates kept going lower, they had to begin doing stupider things. This is how Wall Street can start bundling up subprime mortgages, label them AAA, and sell them to pension funds that on paper are required to invest in conservative investments, but in reality are so deeply behind their projections that they are forced to gamble.
In contrast my private plan through a church, which optimistically has at best 1% of the MBA’s that Oregon PERS can call upon, has increased my annual payment since my retirement by 56% in the fifteen years since 2001.
‘The Central States Pension Fund is currently paying out $3.46 in pension benefits for every $1 it receives from employers, which has resulted in the fund paying out $2 billion more in benefits’
Too few workers (employers going OOB) supporting too many retirees. The promised returns on these pension funds were always a lie. Too bad employees believed and trusted these figures.