Picture if you will, a corporation that makes a product people not just want but need, a corporation that puts all its efforts into boosting this quarter’s profit statements, with little thought for what comes afterward.
Picture that you’re a shareholder who has contributed to the corporation’s portfolio your entire working life. You’re counting on your shares to keep you comfortable when you’re old and infirm, and no longer able to work.
Picture that, one day, with little warning and without your knowing it, the corporation reveals it has amassed massive debt, much more than its stock is worth, and you’re facing financial ruin at that exact time in life when you’re least able to deal with it. What do you do? What can you do?
That’s the question that drove veteran PBS' Frontline correspondent Martin Smith when he began research on his latest investigative report The Pension Gamble (Tuesday, 10:00 p.m. ET, check local listings).
Don’t scoff. For “corporation,” substitute “state government;” for “stock portfolio,” substitute “government pension.”
Among the sobering details Smith and longtime Frontline producers Marcela Gaviria and Nick Verbitsky discovered straight out of the gate is that nearly half of state governments across the U.S. haven’t saved enough money to pay the pension benefits they’ve promised their workers.
The cumulative red ink adds up to trillions of dollars — not billions, but trillions.
You don’t need an advanced degree in economics — a grasp of basic math will do — to realize that the potential fallout could equal the effects of the 2008 subprime mortgage crisis, which cost the economy $12.8 trillion (according to the non-profit financial reform advocacy group Better Markets in 2013).
As with past Frontline investigative programs, The Pension Gamble doesn’t have any silver-bullet solutions; it’s more of a step-by-step, painstaking account of how the perpetrators of a crisis got themselves into a mess, more often than not of their own making. The Pension Gamble is about the process, not the solution. If Frontline’s producers had any answers, they probably wouldn’t be making investigative programs for PBS.
Still, the news is about telling us things we didn’t know before. The best news programs — and Frontline is up there — tell us what we need to know, not necessarily what we want to hear. To know a thing, you have to know where it begins and ends, and where its edges are.
And the story Smith uncovers in The Pension Gamble is worrying. (Why we have to learn about this on PBS, rather than, say, Fox News, is a question for another day. An entire graduate course in journalism could be based on that one issue alone.)
The Pension Gamble focuses on Kentucky, an ardently — and unapologetically — conservative, Republican-voting state that prizes family values, hard work and making personal sacrifices to make ends meet. Hard work is rewarded, or so people are taught from an early age. Laziness will not be countenanced. “Work shy” are not words you often hear in Kentucky.
As Smith points out in The Pension Gamble’s opening moments, though, “This is a story about gambling, and making bad bets.”
It’s about having a retirement that you thought was secure go south — and not to the sunny climes of Florida and Arizona, where retirees flock to get away from the brutal winters of the urban Northeast and rural Midwest.
To dismiss government workers — as some do — as being somehow less worthy, less deserving than those who choose to work for private industry is lazy and disingenuous. Government workers aren’t just paper pushers — they include teachers, police, firefighters, paramedics and other first responders. Frontline producers chose Kentucky, Smith says, because the Bluegrass State’s pension scheme is among the most underfunded in the country.
As a gag, but also to illustrate a point, Smith places a $100 bet on a horse named “Promises Fulfilled” in the Kentucky Derby. He doesn’t expect much: The horse is rated a 50:1 long shot.
“On the other hand, if it won, I would win $5,000.”
Spoiler alert! You can guess the rest. (Though not how: In the grand tradition of TV, the actual race turns out to feature more twists and turns than you might expect.)
What happens in Kentucky doesn’t stay in Kentucky. “It matters what happens in Kentucky,” says Kentucky Gov. Matt Bevin (R). “Because what is Kentucky’s problem is New Jersey’s problem, is Illinois’ problem, is Connecticut’s problem, is California’s problem, and just on and on and on.
“This is a crisis of epic proportion in the United States of America, and it’s time to wake up and address it.”
The social contract lies at the heart of The Pension Gamble — the unspoken idea that, in exchange for lower pay than they might get in private industry, government workers will be looked after later in life, and have money deducted from their paychecks along the way to help pay for it.
Over time, though, faced by one crisis after another, state governments took money set aside for pensions and assigned it to general revenue. The trouble with that, as more than one economist notes in the program, is that one day the bill will come due. Kentucky was hit hard in the 2008 market crash, but it was not alone.
Wall Street hedge funds jumped into the fray, pushing the familiar line, “No risk, no gain,” eager to prey on gullible state governments desperate to recoup their losses in the market crash.
In the end, one of several experts cited midway through The Pension Gamble cites a familiar refrain: There were abuses. No laws were broken, but disclosure rules were shuffled aside and overlooked, where they weren’t ignored entirely.
With state pensions, as with so many other things in life, the law and the spirit of the law don’t always meet.
As with other Frontline programs, The Pension Gamble might not seem like entertaining viewing at first glance. Anyone interested in pension funds and how they work — or don’t work — should give it a look, though. Every so often, a fishing expedition lands a big one.