Yes, the pension funds were once well-managed by staid, boring pension managers, most of whom were in-house.
Over the years, Wall Street has corrupted the public pension funds, and more and more of the pension money is being placed at greater and greater risk in more “financially innovative” investments. We have Wall Street and the Federal Reserve to blame for this. The Fed’s insistence on keeping rates at ~0% are exacerbating the problems.
As for how it will affect the bond market, I believe that most people who work in these markets understand the risks…at least, I sure hope so.
It’s important to note, though, that public employees have been the ones to take the biggest hits, so far. They’ve been moving more employees, especially the newer ones, into hybrid retirement plans, and most employees with most municipal agencies haven’t been getting retiree healthcare for decades — they’ve been phasing it out since the early/mid 90s. Also, PEPRA has made quite a few changes regarding pensionable compensation, benefit caps, and increased pension contributions from employees.
The above information is related mostly to changes in California, though I know that other states and municipalities are moving in the same direction.
