>> narrator: tonight on frontline... >> a pension is a promise! >> ...it was a promise made to all state workers. >> they said if you dedicate your life to public service we would guarantee you a solid retirement. >> narrator: but what happened? >> they have effectively raided pension funds. >> the pension was used basically as a piggy bank. >> narrator: frontline correspondent martin smith investigates. >> how did it go down with the policemen and the firemen?hi >> i don't it went down we with anybody. >> my insurance is crap, my pay is crap, but i love what i do eed i was promised this pension.

>> $14 million hadpaid to undisclosed individuals for doing little or nothing. it was happening all over the country. >> this is a crisis of epicpr oportion. if we are unable to meet the pension obligations this comes at the expense of everything else tt we care about. >> narrator: tonight, the real cost of "the pension gamble". >> kentucky might be the first one to go down, but it won be the last. >> frontline is made possible by contributions to your pbs station from viewers like you.u. thank and by the corporation for viblic broadcasting. major support is pd by the john d. and catherine t. macarthur foundation, committed to building a more just, verdant and peaceful world. more information is ble at macfound.org. the ford foundation, working with visionaries on the front lines of social change worldwide. at ford foundation.org. addition support is provided by the abrams foundation, committed to excellence in jonalism. the park foundation, dedicated

to heightening public awarenesss of critical is the john and helen glessner family trust.ng supporrustworthy journalism that informs and inspires.e ncote foundation. pod by the frontline journalism fund, with major s from jon and jo ann hagler. and additional support from laura debones and scott nathan. (bugle playing "call to the post") >> on the track for the fourth race today... scratch 13, 14, 15, and 16. (horse neighing) t onhe turf is firm. six minutes. >> martin smith: this is a story about gambling and making bad bets. it's about having your retirement, that you thoug was secure, go south.

we came here to kentucky because kentucky's pensionor system--ts police, firefighters, teachers, and other public workers-- is among the worst-funded in the nation. >> number three is promises fulfilled, owned by robert baron, trained by... >> smith: with our interest in pensions, we of course noticed a horse called promises fulfilled. i decided to place a bet on it. so this promises fulfilled, at do we think about that horse? it's like a long shot. >> sounds like a disappointment. >> well,oday, i think a long shot has a chance with the... >> smith: yeah, yeah, with the mud and all, i know. >> the horses are on their wayg to the startgate, less than a minute. (crowd cheering) >> smith: we're in kentucky, we're doing a show about the pension problems. you know, the teachers, and the firemen, and the cops, people who work hard all their lives and are woied they're not going to get a pension. >> it's crazy, the people that we depend on most in our community. >> smith: right. m >> it got me. >> smith: it makes you mad?>> eah. all right, i'm ready for you. >> smith: okay, well, in, uh... in the derby... >> okay.

>> smith: number three, promises fulfilled.t >> wu want to put on it? >> smith: a hundred dollars. to win? >> smith: yeah. >> the horses have reached the starting gate. (cheering) d smith: i had no expectation that the horse woumuch. at post time, the odds board had it at ar0 to 1. on the other hand, if it won, i would win $5,000. >> and they're off in the kentucky der! and promises fulfilled, great start. flashing speed on the outside is noble indy. promises fulfilledff to set the pace...th >> s: well, promises fulfilled led the pack for hal the race. >> justify seizes the promises fulfilled trying to keep up second and inside...t >> smith: the back stretch, where you couldn't really see what happened, the horse dropped fromirst to 15th out of 20. na here comes good magic on the outside for the fiquarter-

mile. justify turns home in front... >> smith: all i knew was that in just two minutes, i lost my $100 >> justify the one to catch. here comes good magic on the outside. justify tus for home in front. all rise for justify! the kentucky derby was never in doubt! >> kentucky is drowning in a financial crisis. the state's public pension funds, which fund retirement plans for our teachers, firefighters, state police, ande public employees, experienced a shortfall of more than $36 billion. >> smith: kentucky is not then only state itrouble.ly ne half of all states haven't saved enough money to pay for the benefits they' promised to government workers. in total, it's estimated they're short trillions of dollars. that's trillions. it's a problem that will affect everyone. >> s why should you care?

because the bigger the problem becomes, the more tax dollarse willeded to fix it. that means fewer tax dollars being spent in areasf need, like schools or roadways. talented teachers and other public servants may look for reers elsewhere. >> pension problems are sparking some concern for workers in northern kentucky., one of the worst across the country. >> it matters what happens in kentucky because what iske ucky's problem is new jersey's problem, is illinois's problem, is connecticut's oblem, is california's problems, is... go on and on and on. this is a crisis of epic proportion in the united states of america. d it's time we wake up and address it. >> smith: one public employee in kentucky who wondered if his pension was okay was a history teacher at a local louisville high school. >> i understood that i would never earn a great deal of money.

you enter teaching because there's a certain warmth you feel for insucting young people and trying to help them. g >> we're go convert it from chemical to... >> chemical. >> chemical! bingo!n >> and so it'sealism that drives a teacher. >> and that's the beauty of english-- we are learning to be effective communicators. >> but one of the reasons that we accept the low salary is that we won't have to despair of our retirement. that there will be some form of a safety net for us when we get too old to trundle into the classroom. >> smith: a guarantee? d a guarantee. it's a promise, good chunk of our salary is taken out from day d deposited into a retirement plan. >> if y'all can come up with a good idea for a little project or something you want to do, we can maybe utilize the outdoor... >> smith: christin frederick-trosper, a teacher in knox county, kentucky, also signed up because of the promise of a guarantd pension. >> that's what i was kind of explaining to them when you get

to this one.me i er my parents telling me, "you know, you'll have a pension. you know, you'll have job security. and those are things you can't get in a lot of other places." have a great day, guys, i'll sew you all tomorr, thank you! i knew i would never bch, but i thought i would, you know, be comfortable and have those things that i can, you know, depend on, so that i could make decisions for my family, for my kids in the, like, long term. things that my parents weren't able to do. >> everybody sitting here has been betrayed by the state.i >> smithso met with some police-- some active, some retired. >> it was a major thing for me. i felt igot hired on this police department, and if i did what i was supposed to do, i got my life planned out. i'm goa retire. i'm gonna have an income coming in, i'm gonna get health benefits for the rest of my fe. health benefits for my spouse. it, it had a major impact on my decision to do this. >> it was kind of the same with me. i didn't get into policing until a little bit later than normal. i was almost 30. so i was very well aware of the pension benefit. for me, that was a big deal.

um, i knew that if i c get 20 years out of the career, that my wife and i would have health insurance, and that i would have some kind of a pension. u >> when look at public servants-- your teachers, ur cops, your firefighters-- the pension represents our promise to them, and also an acknowledgement that we might a not e to pay you what you're worth right now, but we're going to be there r you on the back end. ♪ >> smith: it used to be that nearly half of all american workers had defined-benefit pensions, a guarantee that you would get a good percentage of your salary and benefits upon retirement. >>his is the life. what with my retirement plan tod a few dollars i'd saved, i didn't have a thinorry about. >> smith: workers d their employers contributed funds that were then invested on wall street. >> i'm chairman of the pension fund of this corporation.

we're looking for a well-diversified list of high- quality bonds and some common stocks. >> smith: over the years, private corporations hav largely stopped offering defined-benefit pension plans. but most public employees still have them. >> the policy that we'll g recommend hees us a 60% chance of actually achieving the assumed rate of return. >> smith: the desions about how to invest and grow pension fund money are made by a pensiot board anfinancial advisers. and, for many years, kentucky retirement systems, or krs, was flush with cash. >> krs investment returnn that money for that period of time estimated to be about $2 billion.rs >> smith: 20 ygo, it looked as if it would not ever have a problem. >> it's got to have an interest te on it that gives us the same earnings as... >> smith: today, bettygr pends sits on the board of krs. where was the kentucky

retirement system sitting in 1999? >> it was sitting at, at nearly 100%unded. >> smith: but then, in 2000, the dot-com bubble burst. krs lost $1.2 billion. >> i've served in the best of times, and now is the worst ofme >> smith: kentucky was sufferin but politicians were reluctant to raise taxes to pay the full cost of their bills, and they began to divert pension money. >> what will kentucky do? that's what you're assembled here in frankfort to decide. wa in kentucky, the pensio used basically as a piggy bank. the problem was, once you started to short your state pensions to cover the budgetsh tfall, it's hard to just do it the one time. of >> smith: onhe few local reporters paying attention was john cheves. >> i've been writing for 20 years now about the state's pension system and its bee you know, sort of a slow-motion

car crash. >> smith: cheves watched as one governor after another invested in roads, bridges, libraries, and more. pension obligaons were not met. >> as governor, i'm thrilled to be able to support this projectn no with enthusiasm and congratulations, but with money. >> i think it emboldened the politicians. >> specifically $2.4 million... in they realize nobody's p attention, i think they get a little bolder about it, and they realize, "why, none's looking! i can do this!" >> they have effectively raided pension funds. and by raiding, it means they n just simply ha made the payments that they are morally required to make to fund the retirement promises that they've made... >> smith: david sirota is a reporter and opinion writer. >> so instead of making those payments, they've used that money for roads, schools-- things that are important, but

that other tax revenues are not funding. and the thing is, is that the bill will come due. the bill will come due. >> see you later. >> i had heard kind of rulings from teachers earl on, like, "oh, they're taking money from our pension fund and this and that." i'm, like, "oh they'll fix it." you know? and that was... i think that's kind of where we were. you know, "they'll fix it." and then i got married and i had some kids. and, you know, that wasn't what was ondar. and i think a lot of people were like that. >> i had my head in the clouds. i'm a teacher, i'm busy, i got family, i goa life. they te a bunch out of my paycheck, uh, every two weeks, gd so that's going into a little pile thatna accrue interest. i figured this is on autopilot. i don't have to worry about the pension. >> smith: by 2008, kentucky's pension funds were in very bad shape. and things were about to get much worse.

>> stunning news on wall street tonight. >> at one point the market fell as if down a well, over 700 points. >> the collapse of lehman brothers triggered turmoil in markets around the globe. >> smith: in the 2008 collapse, kentucky was hit hard. >> we travel to kentucky for a firsthand look at how theis recession urting just about everyone. >> when i first got here, things re booming. there, there were a lot more factories that were open, and businees. i mean, you can see, businesses are closing all over. >> kentucky is to horse racing what detroit is to the american auto industry. and even the sport of kings feels e sting of a global recession. >> smith: nearly every sector of kentucky's economy was affected. krs lost $2.8 billion.en blaring) >> it punched a hole in the boat. i mean, thboat was taking on water, but now we got a hole.

there s a huge downturn in the funding status because of that crisis. and you can't y that back in five years. tu >> the economioil of recent years is putting a comfortable retirement at risk for many amerins. >> so the investment crews are feeling the pressure to get the returns up so that we're generating more money going intt the . >> smith: now you're swinging for the fences. >> right. >> with less money available, many pension funds are under pressure to take on more risk by investing in... >> smith: starting in e fall of 2009, kentucky's public pensions decided that to dig out from under, they would invest a portion of their porfolio into some of wall street's more exotic and risky investment vehicles, like hedge funds. >> one of the reasons ey're trying to do this is that they're trying to gamble their way out of the problem. >> smith: and wall streewas re than happy to answer kentucky's call. pension money is extremely important here. >> the world of pensions is a

world of money. and if you really want to dig around the heart of power, of economic power, the united states, that's where much of the money on wall street is from. the public doesn't necessarily view pensions as giant pools o money.un >> about a hdred offering to buy, right? thank you. >> when you say the word "pensions," people's eyes gloss over.on they d really pay much attention. but there's one set of people who are paying a lot of attention, and it's the richest and most powerful pele in the world on wall street. >> smith: how much money are we talking about? >> in public pensions today, there's about $3 trillion. partf it's being paid out in benefits, and much of it being invested. >> good morning. >> smith: but here is where it gets tricky-- knowing how to vest is difficult. >> i'd like to go through all the recommended policies and vote en masse, and then if someone... >> smith: some trustees have financial experience, but others

are police and firefighters appointed to the board to represent their co-workers, often not trained in portfolio management. >> ...correlation matrices and their risk and return assumptions by asset class... >> it's colicated and some of our trustees don't have that skill set. they're better at fighting fires than i am.tt they're at catching criminals than i am. but they don't have the financial skills >> 53.5%... >> i would like to see sharpe ratios for each one of the major asset classes... >> sth: today, betty pendergrass is a trustee that has investment experience. >> ...are we getting paid for the risk we're taking... >> smithi mean, you know that on wall street, they call pension funds dumb money.ug >> () that, that hts, but it's true. >> what i would say is, the bounds of reason are 350 above the ten-year treasuries... >> smith: john farris is an investment manag in lexington.

until recently, he chaired the krs board. he says that wall street regularly exploits pension funds. >> stated as the board chairman that we were... >> smith: in 2008, only two members of the board had any investment management experience. >> they are much healthier... og i think that the pension board that was puther between 2008 and 2016 was probably the dumbest of money. >> smith: and thus you're $60 billion in the hole. >> exactly. >> smith: how did they amass ndreds of investments when they have no experience in how to choose? - >> wel >> smith: they just take anything that's recommended? >> it seemed that way. a lot of them that will say, will openly admit theye not even, you know, sure what they're voting on. t >> i trust state to deal with my money, okay? i don't know nothing about doinh at. >> smith: among those police i eeoke to, one had served two terms as a krs tru >> smith: ed, you were a trustee. >> yes. >> smith: now, in all due respect, you're a police n,ficer.

are you in a positr equipped, to be able to evaluate a complex financial instrument like a hedge fund? o >> othe first things we were told as elected trustees when you went onhe board, one of your responsibilities would be to get yourself educated. and the first question i had was how to do it. the retirement system sent me and other trustees to different investment symposiums. it's a complex thing. i did not claim be an expert in the pension system. i knew a little bit about it, and i did tohe best of my ability to make the best decision with the information i had at the time. ♪ >> smith: even with the best information, it's hard to choose a winner. think of that horse race, with hily 20 entries. in the world of finance, there are 10,000 hedge funds. how do you know where to bet? one of the first ones krs chosea waed arrowhawk durable alpha. it had no track record and long

odds. >> arrowhawk was one o first sort of alternative investments, as we call it, where we had these third-party middlemen who had come to kentucky retirement stems and introduced krs to these alternative investments. they came to krs and said, "youu sh be putting your money in these funds. and we think these are the bestu places foro invest the state's money." >> smith: these middlemen areed ca placement agents.pp arently, unbeknownst to us, the placement agents wer being paid fees, so they were ssmpensated very generously for us giving our busio these funds. the lead placement ant for arrowhawk was a fellow from new york named glen sergeon. >> smith: yeah, this is glen sergeon. >> yes.hi >> smith: soguy, he was the salesman for arrowhawk? >> correct. >> smith: in 2009, when arrowhawk was being considered, the only person on the krs

board with much investment management experience was chris tobe.s he thought it risky bet. >> ...you hire a hedge fund, you're looking for a fund that has a track record, experience.h >> smiright, and this one didn't. >> correct. buglen sergeon had a relationship with adam tosh, the chief investment officer of krs at the time. tosh sold us that... >> smith: tobe told me that krs's chief investment officer, am tosh, convinced the board to invest in arrowhawk, which omresulted in a large fee arrowhawk for tosh's man, glen sergeon. >> smith: and how much money was he paid to bring in arrowhawk? >> two million for arrowhawk. but he brought in some other investments to the total of x million. >> smith: but at the time of the vote, the board didn't know there was a acement agent operating in the background. >> it was never disclosed in financial statents, it was never disclosed anywhere that... even the existence of placement agents. >> i think that one of the key issues is disclosure of placement agent fees. >> smith: tobe then hired ted

siedle, a financial crimes investigator. they eventually filed a 32-page complaint to the s.e.c. >> so i thought it was a good case. >> smith: the s.e.c. and state audito investigated and found no laws were broken. but the auditors did concludeth tosh violated krs's disclosure rules. tosh left kentucky and has not returned our calls. sergeon has since died. what's the headline here? >> well, the headline was that there were these abuses involving placement agents, $14 million had been paid to undisclosed individuals for doing little or nothing. it was happening all over the country. public funds pay hundreds of millions in placement agent fees. so, it's a significantroblem. and it's a real waste of retirement savings. ♪ >> smith: arrowhawk proved to be a loser. after krs invested $0 million,

the fund failed and closed down. krs eventually recouped its money from arrowhawk. but another hedge fund investment involved the camelot group. camelot had a manager who, in a separate case, was charged and pled guilty to personally pocketing over $9 million of investors' money. despite this, krs would continue to invest in more hedge funds. >> it was a great big "put all of the chips on the red seven." that's what we're gonna do with pension money for firefighters and cops and janitors. >> smith: ann oldfather is a louisville attorney who represented firefighters in a pension-related laws >> they decided, "we're not going to go public, we're not going to say we need help. we're going to try to save our

rears and this'll work." isn't that what the gambler always dreams? and so they start the beauty contest, and they have perhaps 15 hedge fund managers that they interview and meet with, and talk to, and whittle it down to the final three winners. (car horns honking) e smith: the winners were pacific alternatset management company, or paamco, prisma capital partrs, and blackstone alternative asset management. each offered krs so-called funds esof funds-- umbrella vehi that contain dozens of underlying hedge funds. with multiple layers of often hidden fees, they armetimes caed black boxes. >> they're putting them together in these black boxes, which ey so niftily named the t henry clay fun daniel boone fund, and the newport colonel's fund.ou all, forviewers that are

outside of kentucky, famous names or entities here in kentucky. >> smith: today, hedge funds are deemed by many investment professionals as inappropriate for public pensions because they are expensive and lack transparency. while hedge funds contributed only some of kentucky's pension woes, two class-action ligators from san diego-- bill and michelle lerach-- sensed an opportunity here. >> i can't tell by the title... >> smith: in 2017, they set up office in louisville. >> have you gotten to a jurisdictional argument in... >> smith: they said they were coming to kentucky's state workers. >> we are talking about e retirement of 350,000-plus individuals. and we're also talking about a matter which, quite frankly, could bankrupt the state. onthere is so much that we know. i'm trying to find out what happened here. okay, that's fine, we're just going to not look at it until we get a... resubmit, yeah?

>> smith: the lerachs had successfully sued enron for ovea $7 billion in s. but bill lerach had been disbarred and jailed for illegally paying plaintiffs in some class-action lawsuits, soey nlisted ann oldfather as eir lead counsel. >> probay is a little bit of watching their own backs. our team of lawyers are blessed to have as our consultant bill lerach, who's a disbard attorney, but indeed an expert in pension fundis anal and so we have somebody right there at our beck and call who has educated us about the breadth of this problem throughout the united states.ke ucky might be the first one to go down, but it won't be the last. ♪ >> smith: as lead plaintiff, they tapped an old friend of michelle leracs, jeff mayberry, a retired state trooper. >> from what i understand, the

funds were fraught with inflatedees. allegedly they were exorbitant,w the non-standard, they were not of the norm. >> smith: tens of millions of dollars. >> that's what inderstand. (gunshots echoing) >> smith: in the spring of 2018, we attended a pre-trial hearing in a courtroom in frankfort. >> blackstone asset management... >> smith: mayberry faced th ty-one defense attorneys representing krs board members, theirad financiasers, and the three hedge fund companies. >> obviously the number of defense attorneys did make me realize that there's some big money here, and they can afford the best in the country. >> the agreements that these three hedge fund companies entered into with krs were always declared a secret.av wenever been able to find them in any public record, we've never been able to find them on

krs's website. all of these defendants, your honor, are seeking to keepth privatr dealings with krs.de >> smith: thnse has called for the case to be dismissed. but oldfather argues that e hedge funds need to fully verify that krs got all the money it should have received, that the funds didn't cheat krs by charging hidden fees. es there are abundant exam your honor, where these three fund managers told k, "oh, this sub-fund manager refuses to disclose their fee," charged to the public and the taxpayers of kentucky. and then your honor... >> smith: they say you're on a big fishing expedition, looking for daging inside information, th you don't really know i it's there. t the united states supreme court has said te point of discovery is to be on a fishing expedition. and it is the beauty of civilwe litigation thaon't have to know 100% of what everybody did when we file t lawsuit.

when we survive those motions me dismiss, it's gonna be for discovery. and i am going to snag a lot of fish. >> there is a belief on their part that if you file a lawsuit and you get your hands onin some the public then gets to know about it, and i've never seen a case... >> smith: paco and prisma said in a letter to frontline that they did what they were hired to do. but declined to be interviewed. blackstone's attorney spoke us about the fees. we don't know what the fees were exactly., >>can tell you what blackstone's fees were. >> smith: right. we knowhat blackstone's fees were. that was disclosed. but then there's a whole set of sub-fees. and if you read the contract, thers no specificity. it's vague. >> the, the fees were disclosed. the nature of the fees were disclosed. the contract laid out the fee structe for the underlying portfolio funds. >> smith: in vague terms >> you're characterizing it a certain way.

it laid out the fee structures. >> smith: there is no transparency issue, in yourew >> there is no transparency issue. they know exactly what they received. heere were target benchmarks that were establ they received nearly three times what was expected in the target benchmarks. >> we're still entitled at this point for no one to have pre-judged anything that my clients have done. we don't know yet. >> smith: the lawsuit is likely to drag on for years. but the defendants insist the bulk of kentucky's pension troubles are due to underfunding and two market crashes. >> ...to defend our reputation. just because a complaint shreds us, it doesn't mean it's true. >> smith: people in industry and on wall street think tt what you're looking to do is to wear them down, get them to a settlement, and take the money. how do you respond to that? >> i was thinking aboutth sog that came up in the

last hearing, when their lawyers, you know, sort of accused us of grabbing things a from discove sending them to the media somehow, you know. look, if they're proud of what ey do and their business model and how they do it, well, then, stand up and tell the world about it. (car engine starts) (machine whirring) >> smith: every month, kentuckys retiremetems makes over 100,000 pension payments, with the avage retiree receiving around $1,50 the total outflow is nearly $2 billion a year. but by 2013, the krs board and kentucky legislators worried that in the future, they would not have enough money to meets. their obligati >> in 2013, pensions had moved to the forefront. i think people started to realize we let this debt get

out of control. >> smith: lawmakers decid it was time to make some drastic changes. >> we changethe system so that you no longer get a defined-benefit plan if you're a state employee. and you got this hybrid cash balance plan.ll >> smith: basi a 401(k)-type plan. >> basically, a 401(k)-type plan. better than a 401(k), but not as good as a defined-benefit plan. (police siren wailing, people talking on rio) >> smith: the first to be affected were police, firefighters, anthousands of other public servants. public school teachersere ouared. existing workers keep their defined-benefit pension, but all new hires would be moved to a 401(k)-style plan. >> evening. the reason why i stopped you tonight,ou're swerving. ly the move into 401(k)-style plans, this was wieen as a compromise, but it's a big difference. and it's a lotore uncertain

with a 401(k) plan. >> smith: tom loftus is a local reporter who covers pensions.ho did it go down with the policemen and the firemen? >> i don't think it went down well with anybody. no >> there iay that we can continue because of demographics to offer the same plan to people who are not currently state employees. >> smith: one year later, after reforms went into effect, the pension crisis resuras an issue in the gubernatorial race, this time for state teachers and school workers. >> the mt important thing to do is stop digging. >> smith: the long-shot candidate was matt bevin, a formeredge fund manager and tea party favorite. >> we have a legal and a moral obligation... >> his campaign promise was, if the pension system is bankrupt, the inviolable contract is moot, because if you don't have those dollars to pay those benefits,yo then, okaydon't pay those benefits. >> the reality is, if the

money's t there, then we have to think about, "how do we tighten our budget?" >> his big issue is to shrink vernment in kentucky. to make it smaller. uh, he believes in private sector, he does not believe in government. his endgame is to shrink the pensions. >> ...or why we indeed will be the next governor and lieutenant governor of this commonweah of kentucky. we had at that time, andco inue to have, the worst-funded pension system in the united state we need a fresh start. we truly do. weeed a fresh start. this tells us that we as a state are in dire risk of becoming financially insolvent. and that if we are unable toon meet the penbligations that we have to people, this comes at the expense of everything else that we care about, everything else that we would fund. (crowd cheering, druling) our state workers who have been promised a pension should be given that pension. >> smith: once in office, bevin decided to stop shorting the

pension system and to make what are called actuarially required contributions, or annual arc payments. >> we have an $82 billion pension problem. there are going to be hard decisions made by this body... >> governor bevin is doing what no governor has done for at least 15, 16 years, which is fully fund the arc again. and that's no small achievement,nd it really is starving much of the rest of the state budget. i>> and we had better cle up. >> that isn't what's controversia what's controversial is, he's saying we can't really afford to rwep pensions going, so teachers from this point d, teachers won't get pensions in kentucky anymore. e >>ve exhaustively gone through everything we can to ensure that we do in fact deliver on the promise. >> smith: bevin concluded that the teachers' pension system was unsustainable. >> "keeping the promise" will save kentucky's pension systems. >> smith: under a proposal called "keeping the promise," all newly hired teachers would

be moved to a 401(k). >> so on a going-forward basis... s th: existing teachers would also contribute a greater percentage of their salary to shore uphe old system. you were eradicating the pension for new teacrs. >> correct. i mean, this is... in other words, for new people o are not currently employed by the state, they would not befi given a d-benefit plan because it is not possible to promise that to them with any confidence that we can deliver it-- we can't. >> i think this is aery morally sound plan. >> smith: state senator robert stivers endorsed the plan. >> ...something that the people of kentucky will understand and accept as the direction we need to go in oture years. >> keep your han our pensions! >> a pasonate crowd of state workers, educators, and retirees took to the steps of the state capitol with oneth message- want their pensions. >> a pensions a promise! >> a pension is a promise! >> the proposed bill calls for

new employees to move to a 401(k)-style plan and current employees kick in three percent of their salaries to shore up retiree healthcare funds. >> you're going toe looking at specific countries and we're going to look at each one. >> smith: christina frederick-trosper, the teacher from knox coty, was alarmed. her salary was already a challenge to live on. kentucky's teachers have seen their wages, adjusted for inflation, increase by less than half a percentage point in the last two decades. >> so i'm going toive you r rbia first. >> smith: now trared that lawmakers would come aftero her pensn. >> in about august, september, i really started paying attention to what was happening. and just, everything just kind of snowballed for me.l like, it just kind of came together. you dug the hole. i didn't d the hole. >> smith: one day, trosper stended a town meeting and confronted senatvers about his plan. >> you all made a conscious decision to not fund your

obligation. and i don't care wn you got elected or whatever, but you've been there during the years that it has not been funded pperly. i want to know, how are you going to raise the revenue to fund it properly, becae i promise you your days in the senate will be no longer. they will be no longer if you do not fix this. (applause) that's all i care about. >> smith: it seemed like something snappein you. >> yeah, it did. and i told everybody i had an out-of-body experience. i can go through a 300-page bill... i mean, i'm a loud person and i'm not the type of person who, you know, sits baca lot of times, but i shocked myself. i want what you told me i wa going to get. my insurance is crap, my pay is crap, love what i do and i was promised this pension. and what you're proping is going to kill us. you will kill us. you will kill public education. >> i understand that lady perfectly. she having certain fear of an unknown system where she's

very comfortable with a known system. >> smith: and she's worried there will be less incentive for teachers to sign up,kn ing that they won't have a defined-benefit pension plan, and that she has young children and the quality of the teachers for them will be less. >> well, tt's an opinion. atthere are many teachers re teaching in the parochial systems that don't have those types systems. and they have very good outcomes and results. uh, universities. i don't think many teachers have defined-benefit pensions in universities. now, they're paid differently, and more. >> smith: and more. and that's a difference. >> and west virginia, we're standing beside you! >> smith: teachers in kentucky were not alone in february 2018, teachers in west virginia rallied to protest low pay and benefits. >> five percent... now! >> 36,000 teachers walked out of class today. >> smith: west virginia teachers

in turn sparked similar demonstrations in oklahoma and arizona. >> this is what democracy looks like >> it's the latest in a wave of protests sweeping across the country, led by teachers whoe say future of public education is at stake. >> i think west virginia inspired us, because it happened next door in a mountain state that struggles with the same types of things that we do. and that they were able to aceve their goals, i think really ignited us. >> my funding first! funding first! my funding first! we vote! >> smith: bevin's controversial "keeping the promise" reform were crafted into senate bill one. >> senate bill one sll pass. (shouting) >> smith: leading the charge was senator joe bowen, who five years earlier had pushed through that pension bill affecting cops and firefighters. >> vote them out!>> adies and gentlemen, please! i'm going to ask you to please... >> smith: they'd like to have your hide. >> some.

>> smith: well, the teacrs were out there chanting. >> yeah. look, at the end of the day, we're trying to save the sys.m for th that's, that's the irony of all in this, in my mind, anyway, is that here we are tto save the systems, and we're getting all this pushback. >> vote them out! vote them out! vote them out! >> smith: angry and fearful teachers became a regular presence in the state capital. >> i'm the only governor in the lifetime of any of these teachers that has fully funded the plan, and yet they seemingly hate what we're doing and they say... >> smith: on a local radio show, governor bevin shot back. >> i mean, the reality is, this is a group of people that are throwing a temper ta and i'm surprised... >> bevin has made a number of coroversial statements abo teachers over the last few months. most politians do not want to be seen as critical of teachers. i mean, matt bevin obviously has decided he's comfortablene crossing that (chanting) >> i'm just flabbergasted at how remarkably uninformed folks are. there's an old saying that you

can't win an argument with an ignont person. and so if a person is blinformed about a topic, they're not even ae to make their own case for what they believe. these are educated pple with the ability to listen and to understand. so if they truly stillelieve nfat this is bad for them, it is due to being mimed. and they're, like, "how dare you say we don't understand." >> smith: well, the choice of language is such... >>greed. >> smith: you're seen as arrogant, dismissive, talking down to teachers, firemen, policemen. >> if people want to be offended, they can be offended by anything. you can parse things, take things out of context, even take them in context >> smith: do you think you've been appropriately careful in your choice of language, and really served this debate... >> yes, i do, and i think if people really... >> smith: ...in a constructive way? >> yes. >> smith: you do. >> whether... does everybodyt? agree with t no. >> smith: no regrets? >> no. i... here's the thing, i'm trying to save a system that needs to be saved. >> smith: by march 2018, the pension bill had stalled, and

time was running out. so with just a few days left in the legislative session, state republicans tried a last-minute maneuver. >> f we do not take action on this pension bill, there will be massive layoffs across the commonwealth of kentucky. >> they we called into a crowded capitol committee room, handed a bill, and told they were going to vote on it. >> this is a good compromise plan. >> but it turns outhat they were handed a sewage bill, that they were swapping out anything that had to do with sewers, and putting in langues that changed the pension system in kentucky foreveroing forward. >> well, first of all, this is very unfair to vote on a bill that, i didn't even check the number of pages that are on this bill, and then ask us to make this, this cision today, and then limit discussion and..a >> no ona chance to read it, outside of the republican members of the senate.i an, the democrats hadn't had a chance to read it, the teachers' association, the public, the press-- nobody else thew it was in there, and

thing is about to become law. >> this is a committee meeting, sir. >> yes, sir, it is. >> and we're allowed to ask questions or anything pertaining to this bill, which none of has seen except a couple of you guys. i've never seen such garbage thrown out here in my years in service. we've had three or four... >> smith: there was a lot of anger in the room. >> extreme anger. it w an unpleasant task i wa asked to do. no one wants to make other people unhappy. and i will say i've voted on plenty bls i didn't get to read, unfortunately. i had no choice. but you have to coider all of the factors-- we couldn't pass a budget if we didn't haves a n bill, and that is why i agreed, we've got to get this bill back to the floor so we can have a debate, a full debate on it, knowing that the optics were terrible. >> i'm concerned, first of all, that what we're doing is illegal. i'm hoping that we can have a representative of the teacher organization to testify here

today this bill. would that be permitted, mr. chairman? >> uh, that's t on the... in the order, no. is there... could you explain why we're not having a representative of the teachers to testify on this bill, since they are the main peopleho are going to be affected by it? >> we have heard loud and clear how the teachers feel about sb 1, and this plan has made changes responsive to those questions. does anyone have a question on the bill? i'mell, that's why i' asking these questions about the bill... >> representative richards. >> can i finish my, my time, mrn chai >> i've called on representative richards. representative rhards? >> smith: it became clear to everyone in the room that the republican majority was not interested in hearing the democrats' objections to the bill.in >> sno other questions, madam secretary, please call the roll. >> mr. chairman! mr. chairman! >> it was absolutely just gut- wrenching to watch them vote.t >> you're order, sir. >> no, you're out of order, too!

by this statute, you're out of order. >> it was, "well, this is what we're going to do and this how we're going to do it. and we're going to over-vote you because we have a supermajority." >> all in favor in the title amendment, signify by saying aye. >> aye. >> all opposed? >> (yelling): no! >> this committee is adjourned. >> how can you guyshave in the morning without cutting your throat? >> everyone's upse tensions are high. and that's when we had 5,000 teachers show up in frankfort. >> many teachers and state employees are upset about being caught off-guard and not having orchance to see the bill b it passed. >> in 20 years at the state capitol, i'vnever seen protests like that. the teachers kept coming and coming. they were there every day. >> a pension is a promise! >> a pension is a promise! >> a pension is a promise! >> a pension is a promise! (cheering) decades ago, that general assembly made you a promise.

>> yup! >> they said that if you dedicate your life tpublic service, that while we wouldn't pay you enough, we would guarantee you a solid retirement. (cheering) but they broke their promise. d they broke the law! >> yes, they did! >> put them in jail! >> because the law doesn't allow you to change a sewagebi into a pension bill and pass it on the same day-- that's government at its worst! (cheering) we deserve better. >> that just felt li another slap in the face. to take our pension bill and put it onto a sewer bill, weoh thought,that's symbolic." >> ♪ because we deserve better than that!♪ n our schools we deserve better than that. ♪ in our country, we deserve better than that! ♪ in kentucky, we deserve better than that! ♪ >> it was perfect.

i mean, they couldn't have, chosenbetter metaphor. here's your, here's your, here's your sewage. >> get the new york money managers out of my pension! (cheering) i say sue them! sue them blue! sue them blue! sue them blue! >> smith: many, like randy s.eck, blame wall street for creating the mes >> vote them out! vote them out! vote them out! >> smith: others blame the governors and lawmakers who ndneglected the pension fu over decades. >> i want to submit to you that this budget does not take us toe that next lel. >> smith: inside the capitol, with teachers filling the gallery, lawmakers debated how to cut the budget to shore up the pension fund. >> i do love public education. >> smith: many of the cuts proposed were to public education. >> we can do better, we must do better. if we want to have that worlclass education system

that all of us want to have, i can submit to you this budget does not do it. >> vote them out! vote them out! vote them out! >> i think teachers are beginning to realize that the whole system is under assault. what is going to happeto that generation of children?y will the able to learn if they come into school, because the social safety net that's very thin as it is has been shredded? >> ladies and gentlemen, the teachers know that the textbooks and learningma rials in this budget are sliced by $16.7 million. no new textbooks... >> all of those that are up for re-election right now, that were not friends of public education, we're hoping that they won't be there. >> it is sad that we are where we are, but unfortunately, we had to take action. >> everybody's going to be shocked to see how many of us come out in force to put in pro-public education candidates. >> the power is in the vote!

the power is in the vote! the power is in the vote! (cheering) >> sth: for now, kentucky's attorney general has successfully blocked bevin's wer bill in court.rs but teachere afraid of what the futureolds. the pensions of some other kentucky state workers are facing insolvency in around three years. teachers worry that when the eme comes for them to ret s.e state won't have the money to pay their pensi em>> we will remember in nr! we will remember in november! >> state lawmakers don'tant to raise taxes. voters don't want to accept tax increases. retirees, i think rightfully, don't want to accept cuts to benefits that they we promised.

so in kentucky, the bill is n coming due. we are gng to see situations where pension funds literally do not have the money to pay out benefits to people who have been prosed those benefits. >> and yet i'm being fought, in some instances by the very people that wee trying to save-- it's like saving a drowning victim. it's liksomebody-- they're fighting you, fighting you, pulling you under. you just need to knock them outs and drag them re. >> yeah. >> it's for their own good and we have toave the system. >> governor matt bevin, couldn't put it any more succinctly than at. i appreciate the wake-up call. >> i won't be the governor when this thing falls apart.di >> it's tough ne but... >> the next governor, regardless of who they are, or what ideology they represent, it won't matter what lie they give, reality will come crashing home. (people talkinin background) >> here we go, d! >> let's go, d! (cheering)

>> the endgame is pretty clear. pensions are on their way out. >> go, go, go, go! (applause and cheering) >> so what we're going to have within the next generation or two is americans who are going to have terribly insecure retirements. they're going to have to live ov wh they've managed to squirrel away to their own savings. teachers, the one nefit you got for su was a pension to retire on witsome security and dignity at the end of your career. but in kentucky, after this summer, that might to be gone. >> parents, real quick, we'vees got pictt 5:00, right here. >> smi: what happens if you have no pension? >> i don't want to think about that. i don't know. i don't... i don't know.ll >> that's ext! what is the difference between the first 16 problems and the last four? >> many of us teachers areg workycheck to paycheck, trying to make ends meet. that's, like, a pivotal point, right?

like, it's, like, a make or a break time. i have no savings. so, my pension is everything. without that, i won't survive. take your papersith you. you have a great day. i'll see your beautiful faces tomorrow that's all right. >> we stand for nnecting every person. for a global community. >> facebook systematically went from interconnecting people to essentially having all suance system of their whole lives. >> facebook has come under fire for its role... >> i mean everybody was pretty upset that we hadn't caught it during the election. and it was a very intense time. ...mark zuckerberg will testify... >> i still have questions. if we're going to make re that in 2018 and 2020 this doesn't ppen again. >> narrator: next time, on frontline. >> go to pbs.org/frontline... >> this is what democracy looks like! >> ...for a look at how states nationwide are dealing with the pension problem. >> what is kentucky's m is

new jersey's problem, is illinois's problem, ist' connectiproblem >> state lawmakers don't ant to raise taxes. voters don't want ept tax increases. >> and read more from the hedge funds that kentucky invested thth. then connect to e frontline community on facebook, twitter or pbs.org/frontline. >> frontline is made possible by contributions to your pbs station from viewers like you. thank you. c and by tporation for public broadcasting. major support is provided by thh john d. and ine t. macarthur foundation, committed to building a more just, verdant and peaceful world. more information is available at macfound.org. the fo foundation, working with visionaries on the front lines of social change worldwide. at ford foundation.org. additional support is provided a by tams foundation, committed to excellence in journalism. f the pandation, dedicated to heightening public awareness of critical issues. the john and helen glessner

family trust. supporting trustworthy journalism that informs and inspires. the wyncote foundation. and by the frontline journalis fund, with major support from jon and jo ann hagler. and additional support from laura debones and scott nathan. captioned by media access group at wgbh access.wgbh.org >> for more on this and other frontline programs, visit our website at pbs.org/fro. ♪ to order frontline's "the pension gamble" on dvd visit shop pbs, or call 1-800-play-p this program ialso available on amazon prime video.

♪ you're watching pbs it's a season of revelations... from the choice of america's favorite novel... s meredith: "i100 books we want people to take a look at." "we are hoping to get people to fall in love with novels again." vo to the fate of a he. poldark: "i'm still here." demelza: "and i..." vo: from the secret lives of the most amazing cats... to new discoveries about the first peoples of the americas... man 1: "our history goes b tk to the beginning ofe." vo: all this, and more... this season... only on pbs.

>>margrchuleta: it has such a complicated history that most people don't understand at all, because they think it's just art. >>john haworth: i look at this sweep of this story, of this quarter-century of history, and how many advances have been made in the field of native american ar >>jim denomie: i often speak about social and political history, and curnt issues, but some of them are very painful. >>charles froelick: one doesn't know what it means to beer an if they don't know what contemporary native americansen experi, or what the native american history in this country is. >>lillian pitt: we've been here for thousands of years, and wehi have to knowand be proud of it. >>francene blyth: there's a lot heof great native work out, and people don't understand either why is this native, or

at is traditional about this? se >>joe fedd i like my work to