Frontline Season 37 Episode 8 The Pension Gamble

The Pension Gamble is the eighth episode of the thirty-seventh season of the investigative series Frontline. It takes a look at the struggles of state governments to manage their public pension funds, which are often underfunded and at risk of insolvency. The episode highlights several examples of states like Kentucky and New Jersey where political leaders made aggressive investments in hedge funds, private equity, and other alternative assets to increase the returns, but ultimately incurred significant losses.

The episode follows investigative reporter Martin Smith as he uncovers the complex web of relationships between pension fund managers, politicians, and investment firms that underlies this high-stakes game of financial futures. Smith speaks to current and former officials, experts, and whistleblowers who reveal the pressures and incentives that drive pension fund investment decisions.

The episode begins with a discussion of how the public pension system in America works and what's at stake. It explains that over the past few decades, state and local governments have promised their employees generous retirement benefits, such as lifetime pensions, health care, and survivor benefits, but failed to adequately fund them. As a result, many of these pension funds face a shortfall of trillions of dollars and are projected to run out of money in the coming years leaving hundreds of thousands of retirees out of luck.

The main focus of the episode is on how some states have turned to high-risk, high-reward investment strategies to try to offset these shortfalls. Smith recounts how state officials in Kentucky and New Jersey made risky investments in hedge funds, private equity, and other "alternative" investments, believing that these could generate high returns to help fill the budget gaps. In both cases, the gambles didn't pay off, and the states were left with big losses and shortfalls that had to be made up elsewhere (usually via cuts in essential services to taxpayers).

Through interviews with insiders, whistleblowers, and experts like former SEC chair Arthur Levitt and Pulitzer Prize winner Gretchen Morgenson, the episode highlights the flaws in the pension system that allow these risky investments to flourish. It explains how politicians who oversee pension funds can be swayed by the promises of high returns offered by Wall Street investment firms, who have their own agendas and incentives to pursue high fees and other profits. The episode traces the links between powerful public pension officials, Wall Street banks, and big hedge funds, showing how these players continually coax state pension officials into these gambles, sometimes with disastrous results for retirees.

As the episode progresses, it covers how other states and municipalities have chosen to deal with their impending pension crises. It examines the different ways that government officials have addressed budget shortfalls, including cutting spending, raising taxes, renegotiating benefits, and finding innovative ways to invest in alternative assets.

The Pension Gamble concludes by examining the changing landscape of public pensions in America. It highlights how the political climate has shifted in recent years, with states like California and New York passing laws that rein in the power of investment firms and scrutinize the performance of public pension officials. The episode underscores the need for greater transparency, accountability, and reform in the system, to ensure that tens of millions of public employees across the nation receive the retirement benefits promised to them.

Overall, The Pension Gamble is an insightful and engaging look at a critical issue facing America today. With its bold investigation, powerful stories, and incisive analysis, the episode offers a sobering but necessary reminder that our public pension system is at a crossroads, and that the choices we make today will have serious implications for the well-being of millions of retirees tomorrow.