>> 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 happed? >> they have effectively raided pension funds.si >> the pen was used basically as a piggy bank. >> narrator: frontline correspondent martin investigates. >> how did it go down with the policemen and the firemen? >> i don't think it went down w weh anybody. >> my insurance is crap, my pay is crap, but i love what i do and i was promised this pension. >> $14 million had been paid to undisclosed indivials for doing little or nothing. it was happening all over the country. >> this is a crisis of epic

proportion. if we are unle to meet the pension obligations this comes at the expense of everything else that we care about. >>arrator: tonight, the re cost of "the pension gamble". >> kentucky might be the first one to go down, bu it won't bthe last. >> frontline is made possible by coributions to your pbs station from viewers like you. thank you. and by the corporation for public broadcasting. major support is pvided by the john d. and catherine t. macarthur foundation, committedo to building just, verdant and peaceful world. more information at. macfound.o the ford foundation: working with visionaries on thel fres of social change worldwide. at fordfoundation.org. by the abrams foundation,vided committed to excellence in journalism. the park foundation, dedicated to heightening public awareness of critical issues. the john and helen glessner family trust. journalism that informs and

inspires. and by thesm frontline journaund, with major support from jon and jo ann hagler. (bugle playing "call to the post") >> on the track for thfourth race today... scratch 13, 14, 15, and 16. (horse neighing) onto the 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 thought was secure, go south. ky we came here to kent because kentucky's pension system-- for its police,gh firers, teachers, and other public workers-- is among

the worst-funded in the nation. >> number three is promises fulfilled, owned by robertn, barained by... >> smith: with our interest in pensions, we of course noticeded a horse ca promises fulfilled. i decided to place a bet on it. so this promises ffilled, what do we think about that horse? it's like a long shot. >> sounds like a disappointmenty >> well, tod, 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 way to the starting gate, less than a minute.wd (cro cheering) >> smith: we'rin 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 worried they're not going to get a pension. >> it's crazy, the people that we depend on most in our community. >> smith: right. >> it got me mad. >> smith: it makesou mad? >> yeah. all right, i'meady for you. >> smith: okay, well, in, uh... in the derby... >> okay. >> smith: number three, promises fulfilled. >> what you want to put on it? >> smith: a hundred dollars. >> to win? >> smith: ah.

>> the horses have reached the (cheering)ate. >> smith: i had no expectation that the horse would do much. at post time, the odds board had it at around 50 to 1. on the other hand, if it won, i would win $5,000. and they're off in the kentucky derby! and promises fulfilled, great start. flawless... (drowned out) noble indy.eed on the outside is o promises fulfilled off tset the pace... >> smith: well, promises fulfild led the pack for half the race. j >>tify seizes the lead. promises fulfilled trying to keep up second and inside... >> smith: but in the back stretch, where you couldn't horse dropped from fired, the 15th out of 20. >> here comes good magic on the outside for the final quarter- mile. justify turns home in front... >> smith: all i knew w that in just two minutes, i lost my >> justify the one to catch.

here comes good magic the outside. justify turns for home in front. all rise forustify! the kentuckyerby 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, and other public employees, experienced a shortfall of more than $36 billion. >> smith: kentucky is t the only state in trouble. nearly half of all states haven't saved enough money to vey for the benefits they' promised to government worke. in total, it's estimatedhey're short trillions of dollars. that's trillions. it's a problem that will affect everyone. s >> so, wuld you care? because the bigger the problem becomes, the more tax dollars will be needed to fix it. that means fewer tax dollars

being spent in areas of need, like schls or roadways. talented teachers and other public servants may look for careers elsewhere. >> pension problems are sparking some concern for workers in northern kentucky.tu >> kencky's pension system, one of the worst across the country. >> it matters what happens in kentucky because what kentucky's problem is new jersey's problem, is illinois's proble is connecticut's problem, is california's problems, is... go on and on and on. this is a crisis of ep proportion in the united states of america. and it's time we wake up and address it. >> smith: one public employee inhientucky who wondered if s 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 youti feel for instr young people and trying to help them.

>> we're going to convert it from chemical to... >> chemical. >> chemical! bingo! >> and so it's an idealism that drives a teacher. >> and that's the beauty ofh- englwe are learning to be effective communicators. >> but one of the reasons that that we won't have to airis 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? >> a guarantee. it's a promise, and a good chunn of our salary is tut from day one and deposited into a rerement 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: christina frederick-trosper, a teaer in knox county, kentucky, also signed up because of the promiss of a guaranteed n. >> that's what i was kind of explaining to them when you get to this one. i remember 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 see you all tomorrow, thank you! i knew i would never be rich, but i thought i would, younow, 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.er >> everybody sittinghas been betrayed by the state. >> smith: i also met with some police-- some active, me retired. >> it was a major thing for me. i felt if i got hired on this police department,nd if i did what i was supposed to do, i got my life planned out.ti i'm gonna . i'm gonna have an income coming in, i'm gonna get health benefits for the rest of my life. 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 could get 20 years out of the career, that my wife and i would have health insurance, and that i

would haveome kind of a pension. >> when you look at public seants-- your teachers, yo cops, your firefighters-- the pension represents our promise to tm, and also an acknowledgement that we might not be able to pay you what you're worth rht now, but we're going to be there for you on the back end. ♪ >> smith: it used to be thatly nealf of all american workers had defined-benefit pensions, a guarantee that you would get a good percentage of your salary and benefits upon retirement. >> this is the life. what with my retirement planan a few dollars i'd saved, i didn't have a thing to worry about. >> smith: workers and their employers contributed funds that were then invested on wall street. nd of this corporation.pension we're looking for a well-diversified list high- quality bonds and some common stocks.

>> smith: over the years, private corporations have largely stopped offering defined-benefit pension plans. bulmost public employees st have them. >> the policy that we'll recommend here gives us a 60% chance of actually achieving the assumed rate of return. >> smith: the decisions about how to invest and grow pension fund money are made by a pension board and its financial advisers. and, for many years, kentucky retirement systems, or krs, was flush with cash. >> krs investment return on that money for that period ofat time est to be about $2 billion. >> smith: 20 years ago, it looked as if it would not ever have a problem. >> it's got to have an interest rate on it that gives us the same earnings as... >> smith: today, betty pendergrass sits on the board of krs. where was the kentucky retirement system sitting 1999? >> it was sitting at, at nearly 100% funded.

>> smith: but th, 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 of times. >> smith: kentucky was p suffering, biticians were reluctant to raise taxes to pay the full cost of their bills, pension money. to divert >> what will kentucky do? that's wt you're assembled here in frankfort to decide. >> in kentucky, the pension was used basically as piggy bank. the problem was, once you started to short your state pensions to cover the budget shortfall, it's hard to just do it the one time. >> smith: one of the few local reporters ying attention was john cheves. >> i've been writingor 20 years now about the state's pension system and its been, you know, sort of a slow-motion car crash. >> smith: cheves watched as oner govefter another invested in roads, bridges, libraries,.

and mo pension obligations were not met. >> as governor, i'm thrilled to be able to support this project not only with enthusiasm and congratulations, but with money. >> i think iemboldened the politicians. >> specifically $2.4 million... >> they realize nobody's paying attention, i thinkhey get a little bolder about it, and they realize, "why, no one's looking! i can do this!" >> they have effectively raided pension funds. just simply have not made the payments that they are morally required to make to fund the retirement promises that they've >> smith: david sirota reporter and opinion writer. >> so instead of making thoseth payments've used that money for roads, schools-- things that are impoant, but that other tax revenues are not funding. and the thing is, is tt the bill will come due. the bill will come due.

>> see you later. >> i had heard kind of rumblings from teachers early on, like, "oh, they're takg 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 we. you know, "they'll fix it." and then i got married and i had some kids. and, you know, that wasn what was on my radar. and i think a lot of people were like that. >> i hady head in the clouds. i'm a teacher, i'm busy, i got a family, i got a life.a they take bunch out of my paycheck, uh, every two weeks, and so that's going into a little pile that's gonna accrue interest. i figured this is on autopilot. i don't have to worry about the pension. >> smith: by 2008, kentucky's pension funds weren very bad shape. and things were about to get much worse. >> stunninnews on wall street tonight. >> at one point the market felln as if 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 the recession is hurting just about everyone. >> when i first got here, thingb wereming. there, there were a lot more factories that were open, and businesses. i mean, you can see, businesses are closing all over. >> kentucky is to hoate racing etroit is to the american auto industry. and even the sport of kingsin feels the of a global recession. >> smith: nearly every sector of kentucky's economy was affected. krs lost $2.8 billion. (siren blaring) boat. punched a hole in th i mean, the boat was taking on water, but now we got a hole. there was a huge downturn in the funding status because of that crisis.at

and you can't pay ack in five years. >> the economic turmoil of recent years is putting a comfortable retirement at risk for many americans >> so the investment crews are feeling the pressure to get the returns up so that we're generating more money going into the system. >> smi: now you're swinging for the fences. >> right. >> with less money available,ds many pension fre under pressure to take on more risk by investing in... >> smith: starting in the fall of 2009, kentucky's public pensions decided that to dig out from under, theywo d 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 they're trying to do this is thatga they're trying tle their way out of the problem. >> smith: and wall street was more than happy to answer kentucky's cal pension money is extremely >> the world of pensioa world of money. and if you really want to digwe around the heart of of economic power, in the united states, that's where much of the

money on wall street is from. the public doesn't necrily view pensions as giant pools of money. >> about a hundred offering to buy, right? thank you. >> when you say the word "pensions," people's eyes gloss over. they don't 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 people in the world on wall street. >> smith: how much money are we talking about? >> in public pensions today, there's about $3 trillion.'s part of eing paid out in benefits, and much of it being invested. >> smith: but here is it gets tricky-- knowing how to invest is difficult. >> i'd like to go through all the recoended policies and vote en masse, and then if someone... >> smith: some trustees have otfinancial experience, burs are police and firefighters appointed to the boardo represent their co-workers, often not trained in portfolio management.n

>> ...correlatiomatrices and their risk and return assumptions by asset class... >> it's complicated and some of our trustees don't have that skill set. they're better at fighting fires than i am. they're better 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... >> smith: today, betty pendergrass is a trustee that has investment experience. >> ...are we getting paid for the risk we're taking...me >> smith: , you know that on wall street, they call pension funds dumb mon. >> (laughs) that, that hurts, but it's true. >> what i would say is, the bounds of reason are 350 above the ten-year treasuries... >> smith: john farris is ann investment managerxington. until recently, he chaired the krs board. regularly exploits penet funds. >> i stated as the board

chairman that we were... >> smith: in 2008, only two members of the board had any investment management expeence. >> they are much healthier... ard that was put togetheron between 2008 and 2016 was probably the dumbest of money. >> smithand thus you're $60 billion in the hole. >> exactly. >> smith: how did they amass hundreds of investments whenxp they have noience in how to choose? >> well- >> smith: they just take anything that's commended? >> it seemed that way. a lot of them that will say, tll openly admit they're even, you know, sure what they're voting on. >> i trusted the state to deal with my money, okay? i don't kn nothing about doing that. >> smith: among those police i spoke to, one had served two terms as a krs trustee. >> smith: ed, you were a trustee. >> yes. >> smith: w, in all due respect, you're a police officer. are you in a position, or equipped, be able to evaluate a complex financial instrument like a hedge fund? >> one of the first things we

were told as elected trusteesoa when you went on the, 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.an i did not claim to bxpert in the pension system. i knew a little bit about it, and i did to the best of my ability to make thbest decision with the information i had at the time. ♪ >> smith: even with the best information, it's hard to oose a winner. think of that horse race, with only 20 entries. in the world of high finance, h there are 10,000ge funds. how do you know where to bet? one of the first ones krs chose was called arrowhawk durable alpha. it had no track record and long odds.>> rrowhawk was one of the first sort of alternative investments, as we call it,

where we had these third-party kentucky retirement syand introduced krs to these alternative investments. they came to krs and said, "you should be putting your money in these funds. and we think these are the best places for you to invest the state's money." >> smith: these middlemen are called placement agents. >> apparently, unbeknownst to us, e placement agents were being pa fees, so they were giving our business to these funds. the lead placement agent for arrowhawk was a fellow from ne york named glen sergeon. >> smith: yeah, this is glen sergeon. >> yes. >> smith: so this guy, 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. he thought it was a risky bet. h >> ...you hirege fund,

you're looking for a fund that has a track record, experience. >> smith: right, and this one didn't. >> correct. but glen 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, adam tosh, convinced the board to invest in arrowhawk, whichlt re in a large fee from arrowhawk for tosh's man, glen sergeon. >> smith: and how much money wai he paid to briarrowhawk? >> two million for arrowhawk but he brought in some other investments to the total of six million. >> smi: but at the time of the vote, the board didn't know there was a placement agent operating in the background. >> it was never disclosed in financial statements, it was never disclosed anywhere that..n he existence of placement agents. >> i think that one of theey issues is disclosure of placement agent fees. >> smith: tobe tn 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 ca. >> smith: the s.e.c. and state auditors investigated and found no laws were broken. but the auditors did conclude that 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 involving placement agents, $14n million had beaid 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 significant problem. tirement savings.aste of ♪ >> smith: arrowhawk proved to be a loser. llafter krs invested $100 n, the fund failed and closed down. krs eventually recouped it

money from arrowhawk. but another hedge fundve ment involved the camelot camelot had a manager o, in a separate case, was crged 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 wee gonna do with pension money for firefighters and cops and janitors. >> smith: ann oldfather is a louisville attorney who represented firefighters ina nsion-related lawsuit. >> they decided, "we're not going too 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, a whittle it down to the final three winners.on (car hornsng) >> smith: the winners were pacific alternative asset management company, or paamco, prisma capital partners, and blackston alternatset management.er each o krs so-called funds of funds-- umbrella vehicles that contain dozens ofun underlying hedge. with multiple layers of often dden fees, they are sometimes called black boxes. >> they're putting the together in these black boxes, s which theyo niftily named the henry clay fund, the daniel boone fund, and the newport colonel's fund. all, for your viewers that are outside of kentucky, famous names or eities here in kentucky.

>> smith: today, hedge funds are deemed by many investment professionals as inappropriate for publicensions because they are expensive and lack transparency. while hedge funds contributed only some of kentucky's pension woes, two class-action litigators from san diego--nd billichelle lerach-- sensed an opportunity here. >> i can't tell by theitle... >> smith: in 2017, they set up office in louisville. >> have you tten to a jurisdictional argument in... >> smith: they said they were coming to the rescue of kentucky's state workers. >> we are talking about the o retireme350,000-plus individuals. and we're also talking about a matter which, quite frankly,pt could bankhe state. there is so much that we don't 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 ha successfully sued enron for over $7 billion in damages.

but bill lerach had been disbarred and jailed for illegally paying plaintiffs inct some classn lawsuits, so they enlisted ann oldfather as their lead counsel. >> probably is a little bit of watchingheir own backs. our team of lawyers are blessed to have as ournt consulill lerach, who's a disbarred attorney, but indeed an expert in pension fund analysis.ve and so we omebody right there at our beck and call who has edated us about the breadth of this problem throughout the united states. kentucky might be the first one to go dot it won't be the last. ♪ >> smith: as lead plaintiff, they tapped an old friend of michelle lerach's, jeff mayberry, a retired state trooper.at >> f i understand, the funds were fraught whs. inflated f allegedly they were exorbitant,

they were non-standard, they >> smith: tens of millf dollars. >> that's what i understand. (gunshots echoing) >> smith: in the spring of 2018, we attended a pre-trial hearing in a courtroom in frankfort. >> blackstone assetme mana... >> smith: mayberry faced thirty-one defense attorneys representing krs board members, their financial advisers, and the three hedge fund companies. >> obviously the number ofd defense attorneys dike me realize that there's some big money here, and they can afford the best in the country. >> the agreemes that these three hedge fund companies entered into with krs were always declared a secret. we have never been able to find them in any public record, we've s's website.ble to find them on all of these defendants, your honor, are seeking to keep private their dealings with krs.

>> smith: the defense has called for the case to beismissed. but oldfather argues that the 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.re >> tre abundant examples, your honor, where these three h,fund managers told krs, this sub-fund manar refuses to disclose their fee," charged to the public and the taxpayers o kentucky. and then your honor... >> smith: they s you're on a big fishing expedition, looking for damaging inside informationu thaton't really know if it's there. court has said that the point of discovery is to be on a fishing expedition. and it is the beauty of civil litigation that we don't havef to know 100%at everybody did when we file the lawsuit. when we survive those motionsis toss, it's gonna be time for discovery. and i am going to snag a lot of

fish. >> there is a belief on eir part that if you file a lawsuit and you get your handsn something, the public then gets to know about it, and i've never seen a case... >> smith: paamco and prisma said in a letter to frontline that they did what they were hired to do. i but declined to benterviewed. blacksne's attorney spoke to us about the fees. we don't know what the fees were exactly. >> i, i can tell you what blactone's fees were. >> smith: right. we know what blackstone's fees were.is that wasosed. but then there's a whole set of sub-fees. and if you read the contract, s there's cificity. it's vague. >> the, the fees were disclosed. the nature of the fees were disclosed. the contract laid out the feefo structurthe 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 your view. >> there ino transparency

issue. they know exactly what they received. there were target benchmarks that were established. 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: in april 2019, t appellate court dismiss lawsuit. the plaintiffs areow taking their case to the kentucky supreme court. >> ...to defend our reputation. just because a complaint shreds us, it dsn't mean it's true.le >> smith: pen industry and on wall street think that what you're oking to do is to wear them down, get them to a how do you respond to he mey. >> i was thinking about last hearing, when the in the lawyers, you know, sort of accused us of grabbing things from discovery and sending them to the media somehow, you know.

look, if they're proud of what they do and their business model and how they do it, well, then, stand up and tell e world about it. (car engine starts) (machine whirring) >> smith: every month, kentucky retirement systems makes overio 100,000 pepayments, withe the averagretiree receiving around $1,500. 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 meet their obligations. >> in 2013, pensions had moved to the forefront. i think people started to realize we let this debt get out of control. >> smith: lawmakers decided it was time to make some drastic changes.e

>> we changed stem so that you no longer get a defined-benefit pl if you're a state employee. and you got this hybrid cash balance plan. >> smith: basically, 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 radio) smith: the first to be affected were police, firefighters, and thousands of other public servants. blic school teachers wer spared. existing workers would keep their definebenefit pension, but all new hires would be moved to a 4(k)-style plan. >> evening. the reason why i stopped you'r tonight, yswerving. >> the move into 401(k)-style plans, this was widely seen as a compromise, but it's a big difference. and it's a lot more uncertain with a 401(k) plan. >> smith: tom loftus is a local reporter who covers pensions.

how did it go down with the policemen and the firemen? >> i don't think it went down well with anybody. >> there is no way that we can continue because of demographics to offer the same plan to people who are not currently state employees. >> smith: one year later, afr reforms went into effect, the pension crisis resurfaced as an issue in the gubernatorial race, this time for state teachers and school workers.im >> the mosrtant thing to do is stop digging. >> smith: the long-shot candidate was matt bevin, age former hund manager and tea party favorite. >> we have a legal and a moralli tion... >> his campaign promise was, if the pension system is bankrupt,c the inviolable conis moot, because if you don't have those dollars to pay those benefits, then, okay, you don't pay those benefi. >> the reality is, if the money's not there, then we have ghten our budget?"ow do we >> his big issue is to shrink government in kentucky.ll to make it s.

uh, he believes in private sector, he does not believe in government.o his endgame isrink the pensions. >> ...or why we indeed will be the next governor and lieutenant governor of this commonwealth of kentucky. we had at that time, and continue to have, the p worst-fundsion system in the united states. we need a fresh start. we truly do.d we nfresh start. this tells us that we as a state are in dire risk of becoming financially insolvent. and that if we are unable to meet the pension obligations isthat we have to people, comes at the expense of everything else that we care about, everything else that we rowd cheering, drums rolling) our state workers who have been promised a pension should be given that pension. >> smith: once in office, bevin decided to stop shorting the pehaion system and to make w are called actuarially required contributions, or nual arc payments.

>> we have an $82 billion pension problem. there are going to be hard >> governor bevin is dhatdy... no governor has done for at least 15, 16 years, which is fully fund the arc again. and that's no smallt achievement, andally is starving much of the rest of the state budget.nd >>e had better clean it up. >> that isn't what's controversial. what's controversial is, he's saying we can't really afford to keep pensions going, so teachers from this point forward, teachers won't get pensions inke ucky anymore. >> we have exhaustively gonehi through ever we can to ensure that we do in fact deliver on the promise. >> smith: bevin concluded thatrs the teache' pension system was unsustaible. >> "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... >> smith: existing teachers would alsoontribute a greater percentage of their salary to

shore up the old system. you were eradicating the pension for new teachers. >> corre. i mean, this is... in other words, for new people who are e state, they would not be given a defined-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 a very 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 future years. >> keep your hands off our pensions!at >> a passione crowd of state workers, educators, and retirees took to the steps of the state capitol with one message-- they want theirns ns. >> a pension is a promise! >> a pension is a promise! t 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

>> you're going to be g at specific countries and we're going to look at each one. >> smith: christina frederick-trosper, the teacherwa from knox countyalarmed. her salary was already a challenge live on. kentucky's teachers have seen their wages, adjusted for inflation, increase byss han half a percentage point in the last two decades. >> so i'm going to give you serbia first. >> smith: now trosper feared that lawmake would come after her pension.au >> in about gust, september, i really started payg attention to what was happening. and just, everything just kind of snowballed for me. like, all of it just kind of came together. you dug the hole. h i didn't dig te. >> smith: one day, trosper attended a town meeting and confronted senator stivers out his plan. >> you all made a conscious decision to not fund your and i don't care when t elected or whatever, but you've been there during the years that ity.as not been funded prope

i want to know, how are you going to raise the revenue to nd it properly, because promise you your days in the sena will be no longer. they will be no longer if you do not fix this. (applause) that'sll i care about. >> smith: it seemed like something snapped in you. >> yeah, it did.dy and i told every had an out-of-body experience. i can go through a 300-page bill... i mean, i'm a loud person and you know, sits back a rson who, times, but i shocked myself. i wanthat you told me i was going to get. my insurance is crap, my pay is crap, but i love what i do and t i was promiss pension. and what you're proposing is going to kill . you will kill us. you will kill public education. >> i understand that lady perfectly.in she is hcertain fear of an unknown system where she's very comfortable with a known system. >> smith: and she's woied there will be less incentive for teachers to sign up,

knowing that they won't have an defined-benefit pensan, and that she has young children and the quality of the teachers for them will be less. >> well, tha opinion. there are many teachers that are teaching in the parochial systems that don't have thoseys types ofms. 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 fferently, and more. >> smithand more. and that's a difference. >> and west virginia, we're standing beside you! >> smith: teachers in kentucky were not alone. in february 18, teachers in west virginia raied to protest low pay and benefits. >> five percent... now >> 36,000 teachers walked out of class today. >> smith: west virnia 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 who say the future of public educatn is at stake. >> i think west virginia inspired us, because it happene next d a mountain state types of things that we same and that they were able to achieve their goals, i think, really ignited us. >> my funding first!di my fng first! my funding first! vote! >> smith: bevin's controversial "keeng the promise" reforms were crafted into senate bill one. >> senate bill one shall pass. (shouting) >> smith: leading the charge was senator joe bon, who five years earlier had pushed through that pension bill f affecting cops aefighters. >> vote them out! >> ladies and gentlemen, plse! i'm going to ask you to please... >> smith: they'd like to have your hide. s e. >> smith: well, the teachers were out there chanting. >>eah. look, at the end of the day, we're trying to save the system for them. that's, that's the irony of all of this, in my mind, anyway, is

that here we are trying to save the systems, and we're getting all this pushback. >> vote them out! vote them out! vo 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 thesell teachers that has funded the plan, and yet they seemingly hate what we're doing and they say... >> smithon a local radio show, governor bevin shot back. >> i mean, the reality is, this rowing a temper tantrum,t are and i'm surprised... >> bevin has made a number ofve contial statements about teachers over the last few months. d most politicianot want to be seen as critical of teachers. i mean, mattevin obviously has decided he's comfortable crossing that line. (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 p ignorason. and so if a person is uninformed about a topic, they're not even able to make

their own case forhat they believe. these are educated people with the ability to listen and to understand. ieso if they truly still b that this is bad for them, it is due to being misinformed. and they're, like, "how dare you smith: well, the choice of language is such... >> agreed. >> 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 d really served thate... >> yes, i do, and i think if people really... >> smith: ...in a constructive way? >> yes. >> smith: you do. >> whether... does evebody agree with that? 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 hadtalled, and time was running out. so with ju a few days left in the legislative session, state republicans tried a last-minute

maneuver. >> if we do not take action on this pension bill, there will be massi layoffs across the commonwealth of kentucky.d >> they were calto a crowded capitol committee room, handed a bill, and told they were going to vote on it. >> this is a good compromise plan.at >> but it turns out hey were handed a sewage bill, that they were swapping outnything that had to do with sewers, and putting in languages that changed the pension system inng kentucky forever gorward. >> well, first of all, this is very unfair to vote on a bill that, i didn'even check the number of pages that are on this bill, and then ask us tosi make this, this de today, and then limit discussion and... >> no one had a chance to read it, outside of the republican members of the senate. i mean, the democrats hadn't had a chance to read it, the teachers' association, the public, the press-- nobody else knew it was in there, and this thing is about to become law. >> this is a committee meeting, sir. >> yes, sir, it is. >> and we're allowed to ask estions 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 was an unpleasant task i was asked to do. no one wants to make other people unhappy. and i will say i've voted on i plenty bilidn't get to read, unfortunately. i had no choice.er but you have to consll of the factors-- we couldn't pass a budget if we didn't hav a pension 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, illegal.t we're doing is i'm hoping that we can have a representative of the teacheror nization to testify here today on this bill. would that be permitted, mr. chairman? >> uh, that's not on the... in the orde no.

>> is there... could you explain why we're not having a representative of the teachers to ttify on this bill, since they are the main people who 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? >> well, that's why i'm, i'm asking these questions about the bi... >> representative richards. >> can i finish my, my time, mr. chairman? >> i've called on representative richards.s? representative richa >> smith: it became clear to everyone in the room that the republan majority was not interested in hearing the democrats' objections to the bill. >> seeing no other questions, madam secretary, please call the roll. >> mr. chairman! mr. chairman! >> it was absotely just gut- wrenching to watch them vote. >> you're out of order, sir. >> no, y're out of order, too! by this statute, you're out of order. >> it was, "well, this is what we'rgoing to do and this is 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. all opposed? >> (yelling): no! >> this committee is adjourned. >> how can you guys shave inth the morning t cutting your throat? >> everyone's upset. tensions are high. and that's when we had 5,000fr teachers show up ikfort. >> manteachers and state employees are upset about being caught off-guard and not havinge a cho see the bill before it passed. >> in 20 years at the stater capitol, i've neen protests like that. the teachers kept coming and coming. they were there every day. >> aension 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 to public service, that while we wouldn'tu pay you , we would guarantee you a solid

retirement. (cheering) but they broke their promise. and they broke the law! >> yes, they did! >> put them in jail!he >> becauseaw doesn't allow you to change a sewage bill into a pension bill and pass it on the same day-- that's government at its worst! (cheering)et we deserver. >> that just felt like another slap in the face.ou to takpension bill and put it onto a sewer bill, we thought, "oh, that's symbolic."u >> ♪ b we deserve better than that! ♪ in our schools we deserveat better than ♪ in our country, we deserve better than that! ♪ in kentucky, we deserve better than that! ♪ >> it was perfect. i mean, they couldn't have chosen a, a better 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!su them blue! sue them blue! sue them blue! >> smith: many, like randy creating the mess.street for >>ote them out! vote them out! vote them out! >> smith: otrs blame the governors and lawmakers whogl neected the pension fund over decades. y >> i want to submit that this budget does not take us to that next level. >> smith: inside the capitol,g with teachers fille gallery, lawmakers debated how to cut the budget to shore up the pension fund. >> i do love public ucation. >> smith: many of the cuts proposed were to public education. >> we can do better, we must do better. if we want to have thatas world-education system that all of us want to have, i can submit to you thisudget does not do it. >> vote them out! vote them out!

vote them out! >> ihink teachers are beginning to realize that the whole system is under assault. towhat is going to happen hat generation of children? will they be able to learn ifch they come into sl, 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 learning materials in this budget aremi sliced by $16.ion. no new textbooks... >> all of those that are up for re-election right now, that wer not friends of pubucation, we're hoping that they won't be there. >> it is sad that we are wherewe re, 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 vo! (cheering):

>> smir now, kentucky's attorney general has successfully blocked bevin'sr sell in court. but teachers are afraid of what. the future holds o the pensiosome other kentucky state workers are facing insolvencin around three years. teachers worry that when the om time for them to retire pay their pensions.e he money >>ll remember in november! we will remember in november! >> stote lawmakers don't want raise taxes. voters don't want to accept tax increases. retirees, i think rightful, benefits that they weruts to promised. so in kentucky, the bill is coming due now. we are going to see situations where nsion funds literally do not have the money to paype

out benefits tle who have been promised those benefits. >> and yet i'm being fought, in some instances by the very people that we're trying to save-- it's like saving a drowning victim. it's like somebody-- they're fighting you, fighting you,ll g you under. you just need to knock them out and drag them to shore. >> yeah. >> it's for their own good and we have to save the system. >> gernor matt bevin, couldn't put it any more succinctly than that. i appreciate the wake-up call. he i won't be the governor this thing falls apart. >> it's tough medicine but... >> the next governor, regardles of who they are, owhat ideology they represent, it won't matter wt lie they give, reality will come crashing homeb (people talking kground) >> here we go, d! >> let's go, d! (cheering)ty >> the endgame is prlear. pensions are on their way out. >> go, go, go, go! (applause and eering)wh

>> s we're going to have within the next generation or two is americans who areoing to have terribly insecure retirements. they're going to have to livon whatever they've managed to squirrel away to their own savings. teachers, the one benefit you a got for su pension to retire on with some security and dignity at the end of your career. but in kentucky, after this summer, that might to be gone. >> parents, real quick, we've got pictures at 5:00, right here. >> smith: what happens if you have no pension? >> i don't want to think about that.i n't know. i don't... i don't know. >> that's excellent! what is the difference between the first 16 problems and the st four? >> many of us teachers are working paycheck to paycheck, e trying to mas 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.it

take your papersyou. you have a gat day. i'll see your beautiful faces tomorrow.th 's all right. >> narrator: next time... >> this is just the beginning. >> narrator: a violent neo-nazi movement. >> what do you think was goingh on in house? >> they were making bombs. man: >> narrator: frontline and propublica investigate. >> they are actively recruiting military members. does that surprise you? >> go to pbs.org/frontline... >> this is what democracy looks like! >> ...for a look at how states nationwide are dealing with the pension problem. w t is kentucky's problem is new jersey's problem, is illinois's problem, is connecticut's problem >> state lawmakers don't ters don't want to accept tax

increases. >> and read more from the hedge funds that kentucky invested with. then connect to the frontline community on facebook, twier community on facebook, twier or pbsrg/frontline. >> frontline is made possible by contributions to your pbs station from viewers like you. thank you. and by the corporation for public broadcasting. major support is provided by the john d. and cathine t. macarthur foundation, committed to building a more just, verdant and peaceful world. more information at macfound.org. the ford foundation: working with visionaries on the frontlines of social change worldwide. at fordfoundation.org. addional support is provided by the abrams foundation, committed to excellence in journalism. the park foundation,ca ded to heightening public awareness of critical issues. the hn and helen glessner family trust. supporting trustworthy journalism that informs and inspires. and by the frontline journalism fund,wi

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(lisa bright) >> we needl o keep in mind that these individuals lived and died before antibiotics were readily prescribed. so really what this gives us an opportunity to do is see what happens when bacteria goes unchecked when a simple infection could kill you. (music)