Question

The California CalPERS and STRS pension plans provide lifetime benefits for CA state workers and teachers. They have been grossly mismanaged. They are about $50 billion in the hole or underfunded and multiple investments have lost a great deal of money. There have also been several scandals whereby investments were made in firms that were owned by the members of the Sacramento State legislature. What can we call this situation?

• This is an example of Political Corruption

• All of the statements are correct. This story has elements of all three definitions.

• This is an example of Rent Seeking

• This is an example of Unfunded Liabilities

Answer 1

Option B

All of the statements are correct. This story has elements of all three definitions.

Unfunded liabilities are debt obligations that do not have sufficient funds set aside to pay the debt. These liabilities generally refer to debts of the U.S. government or of pension plans and their impact on savings and investment securities.As it is mentioned $50 billion is underfunded because of huge loss

Rent-seeking is an attempt to obtain economic rent (i.e., the portion of income paid to a factor of production in excess of what is needed to keep it employed in its current use) by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth.Here the money which was supposed to be given to pensioners has been misused for personal advantage.

Political corruption is the use of power by government officials for illegitimate private gain.An illegal act by an officeholder constitutes political corruption only if the act is directly related to their official duties, is done under color of law or involves trading in influence.Forms of corruption vary, but include bribery, extortion, cronyism, nepotism, patronage, graft, and embezzlement.Here the investments meant for state workers have been mismanaged by members of Sacramento State legislature.