Articles, Research & Spotlights 

• Analysis Shows Debt Drives the Rise in Pension Costs
• Ohio Bill Would Advance Shared Pension Responsibility
• California Pensions Rank High on Investment Risk, But Low on Returns
• Florida Still Has Decades to Go Before Fully Funding Pension Benefits

News in Brief
Quotable Quotes on Pension Reform
Data Highlight
Reason Foundation in the News

Articles, Research & Spotlights

Most Pension Contributions Go Toward Paying Off Debt, Not Funding Benefits

Pension benefits promised to public workers have become increasingly expensive, squeezing state and local budgets nationwide. A new analysis from Mariana Trujillo uses Reason Foundation’s Annual Pension Solvency and Performance Report to dive into the growth of public pension costs over the last decade. Since 2014, annual pension costs have risen by 26% nationwide, with some states, like New Jersey and Alaska, seeing their pension costs rise more rapidly than others. With employee contributions remaining relatively stable, taxpayers have had to bear the bulk of this growing burden. Trujillo’s analysis finds that public pension debt, not new retirement benefits, is the primary driver behind these trends. In fact, more than half of employer pension contributions (55%) are now allocated to address the estimated $1.5 trillion aggregate state and local public pension funding shortfall.

Ohio House Bill 473 Could Balance Public Pension Plan Contributions

New legislation under consideration in Ohio aims to improve transparency and balance the burden of pension costs between employees and employers. House Bill 473 would restrict state and local government employers from paying all or a portion of an employee’s contribution obligation, a practice commonly known as a “pickup.” While governments use pickups to attract quality workers, this practice masks the true cost of a retirement benefit and distorts market signals that are important for informed policymaking. In comments submitted to the Ohio legislature, Reason Foundation’s Zachary Christensen explained the value of collaboration between employees and the taxpayer (represented by lawmakers) in a retirement plan and the importance of transparency in that partnership. 

California’s Pensions Are Relying on Riskier Investment Strategies

Facing more than $265 billion in unfunded pension liabilities and ever-increasing costs on local governments, California’s pension systems are turning toward high-risk investment strategies they hope will offer high rewards. As Reason Foundation’s Zachary Christensen explains in a recent op-ed, every resident in the Golden State is on the hook for about $6,000 in pension debt, so there is real pressure for the state’s pensions to catch up with above-average investment returns. The California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) aim to achieve higher returns by increasing their investments in alternatives, such as private equity and hedge funds. However, this strategy also carries significant downside risk, which will ultimately be borne by increased costs on taxpayers.  

Florida Must Stay the Course to Pay for Promised Pension Benefits

New estimates indicate that the Florida Retirement System (FRS) will need at least 17 more years before reaching full funding, but lawmakers are considering adding to these already underfunded pension benefits with proposals to bring back cost-of-living adjustments (COLA) for retirees. Zachary Christensen and Steve Vu from the Reason Foundation provide analysis applicable to this discussion, finding that even without granting a new COLA, a single year of bad returns (0%) could still undo years of progress in the system’s funding. A major recession could extend the full funding date beyond 30 years and would require significant increases in annual costs on taxpayers. With these remaining risks in mind, lawmakers need to avoid diverting from the state’s current path through more risky promises to public workers.

News in Brief

Market Volatility Poses a Bigger Threat to Pension Stability Than Long-Term Averages Suggest

A new pair of whitepapers from Sage Advisory and First Actuarial Consulting shows that many public pension boards assume the same return every year—typically around 7%—even though markets rarely behave that way. These fixed-return models make plans appear stable and fully funded, but they hide the real risks facing systems that pay out far more in benefits than they take in. When a plan has a large negative cash flow, early market losses matter much more than average returns. In these cases, trustees may be forced to sell assets during downturns, locking in losses and creating a long-term funding problem that the “smoothed” projections never reveal.

The second paper focuses specifically on this timing problem—known as sequence-of-returns risk—and explains why it is a structural issue for mature pension systems. When contributions are too small relative to benefit payments, the plan depends heavily on investment gains to maintain its funded status. But if significant losses occur early, the plan must liquidate assets at low prices to keep paying retirees. This shrinks the asset base, reduces future compounding, and can drive down the funded ratio even if markets recover later. Data from the largest plans illustrate this clearly: systems with the most negative cash flow experienced the most significant funding declines over time. The papers are available here and here.

Quotable Pension Quotes 

“Any time you give a benefit, and you don’t pay for it today, it’s like buying it on a credit card. You’re eventually going to have to pay the bill. And those decisions in the ‘90s have left us a large bill in 2026.”
–Mississippi State Sen. Daniel Sparks (R-District 5), quoted in “Mississippi’s PERS faces $26 billion debt,” WJTV, Nov. 6, 2025.

“In the late ‘90s and early 2000, there were some additional benefits placed into law without additional funding at the time. Also, in the two subsequent decades, we had a declining active to retiree ratio, meaning there were fewer active PERS covered members paying into the system and more retirees coming onto the system and retirees living longer.”
–Ray Higgins, executive director of Mississippi PERS, quoted in “Mississippi’s PERS faces $26 billion debt,” WJTV, Nov. 6, 2025.

“If the state fails Safe Harbor, then we would have to enroll everybody into Social Security. So that would more than double what we’re paying right now, […] Almost half our budget would have to go to pensions and Social Security. … So the cost of doing nothing is extreme.”
–Illinois state Rep. Stephanie Kifowit (D-Oswego), quoted in “Tier 2 pension reform bill moves forward, but Pritzker says there’s ‘a lot more work’ to do,” Capitol News Illinois, Oct. 30, 2025.

Data Highlight

Reason Foundation’s Mariana Trujillo explains why most state and local government pension contributions no longer fund current employee benefits. More than half of every dollar contributed to public pension plans now goes toward amortizing legacy pension debt—driven by decades of underfunding and overly optimistic return assumptions—rather than paying for benefits earned each year. Read the full analysis here.

Reason Foundation in the News

“Most plans are taking a lot more risk in their investment portfolio than they used to, and so there’s a lot more volatility than there ever was in pension plan returns.”
—Reason’s Ryan Frost quoted in “Illinois is tops in unfunded state and local pension liabilities per capita,” The Bond Buyer, Oct. 31, 2025.

“Over 40 percent of state and local government debt consists of unfunded pension and healthcare benefits promised to public workers. State and local pension debt amounts to $1.5 trillion, with an additional $1 trillion in healthcare benefits promised to retirees.”
—Reason’s Mariana Trujillo and Jordan Campbell writing in “State and Local Governments Are Drowning in Debt,” Inside Sources, Nov. 19, 2025.

“Yet few governments have set aside money to pay for their retirees’ future healthcare costs. The Reason Foundation reports that state and local governments faced $958 billion in retiree medical obligations in 2023, about $2,900 per American. The liabilities are largest in blue states like New York ($15,017 per capita), New Jersey ($10,599) and Connecticut ($6,657), which let workers retire early with generous health benefits.”
—Alyssia Finley writing, “The ObamaCare Blue-City Bailout,” in The Wall Street Journal, Nov. 7, 2025.

“The saying in the pension world is that most pension funds have been 20 years away from paying off their unfunded liabilities for the past 20 years.”
—Reason’s Mariana Trujillo quoted in “Unfunded pensions make up a large portion of California’s $1 trillion debt,” State Affairs, Oct. 31, 2025.

The post Pension Reform News: Reason analysis shows debt drives the rise in pension costs appeared first on Reason Foundation.

Articles, Research & Spotlights 

• Reason’s Annual Report Finds $1.5 Trillion in Aggregate Pension Debt 
• Undoing California’s Pension Reforms Could Cost Billions
• What Government Worker Reductions Mean for Pensions

News in Brief
Quotable Quotes on Pension Reform
Data Highlight
Reason Foundation in the News
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Reason Foundation’s Annual Pension Solvency and Performance Report Finds $1.48 Trillion in Debt

Today, Reason Foundation is publishing our 2025 Pension Solvency and Performance Report. It’s an interactive dashboard that lets users explore an aggregated, plan-level overview of key public pension funding and investment metrics, actuarial assumptions, and other performance indicators for government-run pensions. New to the report are state rankings of funding, contribution adequacy, and investment metrics. The study compiles 23 years of data from 315 state and local public pension systems in the United States, showing that the total public pension debt now stands at $1.48 trillion at the end of 2024, the most recent year with complete data available. Most of the pension debt, $1.29 trillion, is owed by state governments. Overall, state and local governments have only 79% of the funds needed to fulfill pension promises made to public workers. With $15,804 in pension debt per person, Illinois has the highest unfunded pension liabilities per capita, the study finds. Connecticut has the second-most public pension debt per capita at $10,151, and six other states have public pension debt exceeding $8,000 per person: Alaska, Hawaii, New Jersey, Mississippi, New Mexico, and Kentucky.

In addition to debt and funded ratio information, the report also incorporates the latest market outcomes to estimate 2025 funding measurements. It finds that these metrics are expected to improve over the next year, but a major recession could add more than $1.2 trillion in unfunded liabilities nationwide and undo the funding progress most pension systems have made over the last 15 years. The study also presents other useful measurements on annual costs and investment performance to help understand the challenges facing public pension systems today. The interactive tool is available here. An overview of the findings, snapshots of state debt and funded ratios, and plan-level debt and return rate information are here: 

Report and Webinar: State and local pension plans have $1.48 trillion in debt 
Study: Illinois, Connecticut, Alaska, Hawaii, New Jersey and Mississippi have the most per capita pension debt
Study: The public pension plans with the most debt, best and worst investment return rates

California Faces a Pension Bill that Would Expose Taxpayers to More than $9 Billion in Additional Costs

In 2012, then-California Gov. Jerry Brown signed the Public Employees’ Pension Reform Act (PEPRA), which established much-needed limits on what California’s local governments could promise in pension benefits to public workers. Those public pension reforms are estimated to have already saved the state more than $5 billion and would likely save at least $25 billion over the next decade, but only if lawmakers stay the course and reject recent efforts to undo PEPRA. A new Reason Foundation explainer details how a proposed piece of legislation (Assembly Bill 1383) would undermine the landmark pension reform and could generate more than $9 billion in additional costs for the state’s already underfunded pension system, adding a significant burden to California’s already stretched taxpayers.

How Government Workforce Reductions Can Impact Public Pension Debt

Government shutdowns, hiring freezes, and a growing focus on reducing the size of government are slowing the growth of the public employee workforce in many states. Lawmakers and government administrators should be aware that this could have a negative impact on public pensions if assumptions are not adjusted, warn Reason Foundation’s Steve Vu and Zachary Christensen. Considering the shifting climate in government employment, it is an appropriate time to reevaluate the assumptions used to project the growth of these workforces to avoid surprise costs for taxpayers decades down the road.

News in Brief

AI Familiarity Linked to Higher Retirement Planning Confidence Among Public Employees

A new study from MissionSquare Research Institute explores how the adoption of artificial intelligence (AI) in state and local government workplaces influences employee engagement with retirement planning. Based on a Jan. 2025 survey of 2,000 public employees, the report finds that those who use AI at work are more than twice as likely to use it for retirement planning (57% vs. 26%). Comfort with AI is a strong predictor of interest in employer-provided AI retirement tools: 82% of employees already comfortable with AI express interest, compared with just 15% of those not at all comfortable. Income also matters—employees earning over $100,000 show 116% higher odds of interest than lower-income peers. The employees most engaged with AI are also most likely to work with financial professionals (72% vs. 15%). Read the full study here.

Quotable Pension Quotes 

“The market is running really hot right now. … It’s been good for us, but it won’t always be this good.”
—North Carolina State Treasurer Brad Briner quoted in “Could NC pension fund management changes mean COLAs for retirees?,” News From The States, Oct. 7, 2025.

“If you go back to what happened in 2024, 2023, the cities and counties said, we can’t pay more. These same cities and counties, when you talk about first responders, the majority of them are county and city employees. So, this cost is going to fall back on the cities and counties.”
— Mississippi State Sen. Daniel Sparks quoted in “First responders ask lawmakers to create separate retirement plan,” WLOX, Oct. 2, 2025.

Data Highlight

Reason Foundation’s Annual Pension Solvency and Performance Report provides an interactive funding history of the nation’s public retirement plans. The data dashboard shows if your state is on track to fulfill pension promises made to public workers and previews where these funding measurements would move under various levels of market stress. See the full interactive report here.

Reason Foundation in the News

“We should just be honest about why they raised it to 7.25% […] They did it because they have no money and they didn’t want to make the payments to the pension system. I’m sure the actuaries have justification for raising the assumed rate of return, but let’s be honest.”-Reason’s Ryan Frost, quoted in “Fiscal Fallout: Washington’s pension system gamble,” The Center Square, Sept. 17, 2025.

The post Pension Reform News: Reason’s annual report finds $1.5 trillion in aggregate pension debt appeared first on Reason Foundation.

Articles, Research & Spotlights 

• How to Properly Structure a Cash Balance Plan for Public Workers
• Reason Advises Mississippi Lawmakers on Pension Funding Options 
• Examining Potential Improvements to Oklahoma’s DC Plan

News in Brief
Quotable Quotes on Pension Reform
Data Highlight

Articles, Research & Spotlights

New Study: Best Practices in Cash Balance Plan Design

Cash balance plans have become an increasingly popular method to provide public employees with individualized retirement accounts sheltered from some of the volatility and risks of the investment market. As the latest addition to Reason Foundation’s “Gold Standard in Public Retirement Design Series,” the Pension Integrity Project has released a paper and a video interview describing and prescribing the best ways to structure a cash balance plan. Structured as a guide to policymakers, the report reveals that the stability and adequacy of cash balance plans hinge on specific design choices, most notably the interest crediting formula, which is the main factor affecting employer risk. The study also outlines proper funding policies and gives several examples of the cash balance plans used around the country.

Recommendations for Mississippi’s Public Employees Retirement System Post-Tier 5

Mississippi lawmakers made real progress last session by creating a new tier of risk-balanced benefits (Tier 5) for the Public Employee Retirement System. But they’re not done yet. Now they need to figure out how to adequately fund the old pension plan to prevent insolvency and avoid dumping massive costs on future taxpayers. On that subject, Reason Foundation’s Steven Gassenberger was invited to speak before a special legislative committee. Reason’s actuarial modeling showed that Tier 5 reform will help by slowing the growth of unfunded liabilities, but it won’t solve the underlying funding crisis. The analysis shows that without a significant commitment of additional funding into the plan there remains a looming risk of insolvency within the next 20 years. Seeking to guide policymakers through a challenging fiscal quagmire, Reason proposes adopting a gradual adoption of adequate annual contributions that adjust to the evolving needs of PERS.

Evaluating Public Employee Defined Contribution Options in Oklahoma

In 2014, Oklahoma lawmakers made the defined contribution (DC) Pathfinder plan the only available retirement plan for government employees (excluding public safety and educators). Now, a decade later, the legislature held a hearing to evaluate how the reform has been working and identify improvements to build on the Pathfinder plan’s solid foundation. Reason Foundation’s Zachary Christensen and Rod Crane presented their findings before members of the joint pension committee, benchmarking the Pathfinder plan to others around the country. They outlined how policymakers could strengthen the plan by clarifying its objectives, modernizing investment options, and adding in-plan annuity options that would give retirees a lifetime guaranteed income.

News in Brief

Analysis Shows Chicago’s Pension Debt Rivaling Most U.S. States

A new analysis from LyLena Estabine at the Illinois Policy Institute overviews the huge public pension funding challenge facing Chicago, where the pension crisis has reached staggering proportions. Across the city’s five major pension systems—municipal, laborers, police, fire, and teachers—total unfunded liabilities have ballooned to $53 billion. To put that figure in perspective, Chicago owes more in pension debt than the governments of 44 entire states. Of the 10 worst-funded local government pension systems, Chicago claims seven of the plans, with the Chicago firefighters’ plan being the worst-funded at 23.7%. Pension debt is creating a massive burden for Chicago taxpayers. More than 80% of the city’s property tax goes to public pensions, and tax increases have nearly all gone to the increased costs generated by pension debts.  You can read the complete analysis here.

Investment Experts Record 11.3% Average Return for Pensions in 2025

Investment consulting firm Callan has released a new report indicating a median return of 11.3% for public pension plans with fiscal years ending in June 2025. This return result would exceed the average pension plan’s assumed rate of return of 7%, which means plans are expected to see an improvement in their funded ratios and a reduction in unfunded pension liabilities compared to the previous year. Most pension plans smooth out return results over multiple years, so it will take several years for government plans to realize the full impact of this one year of returns. The actual change in funding numbers will become clearer as plans release their annual reporting later this year. Read the full analysis here.

Quotable Pension Quotes 

“The return on investment work group identified the state’s retirement and health benefits systems as an area to conduct a comprehensive study to explore potential closer alignment with private sector benefit offerings and to further cost-saving methods for Iowa taxpayers. … The remarks by the task force also indicated an exemption for existing public employees paying into [Iowa Public Employees’ Retirement System] IPERS to ensure any potential future changes to IPERS would not impact existing employees.”

–Emily Schmitt, Iowa DOGE Task Force chair, quoted in “Iowa DOGE recommends big changes to IPERS. Republican leaders say, don’t count on it,” Des Moines Register, Aug. 13, 2025.

Data Highlight

Reason Foundation’s paper “Best Practices in Cash Balance Plan Design” compares how benefits accrue between a traditional cash balance plan and a traditional defined benefit pension plan. While both plan types guarantee a level of returns to employees, cash balance plans can provide an advantage in benefits generated throughout the first 30 years of employment. 

The post Pension Reform News: How to properly structure a cash balance plan for public workers appeared first on Reason Foundation.

Articles, Research & Spotlights 

• Public Pensions Struggle to Meet Return Assumptions
• California Recruits and Retains Public Workers Without Adding Pension Benefits
• Proxy Voting Undermines Public Pensions’ Responsibility to Taxpayers

News in Brief
Quotable Quotes on Pension Reform
Data Highlight
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Over 99% of Public Pensions Failed to Meet Their Assumed Rate of Returns

Much of the nation’s estimated $1.6 trillion in unfunded public pension liabilities was caused by investment returns falling below the expectations public pension systems set for them. When a government pension plan earns returns below its assumed rate of return, this creates a debt that the government, and ultimately taxpayers, are responsible for covering to ensure retirees get the retirement benefits they were promised. A new analysis by Reason Foundation’s Mariana Trujillo finds that nearly all public pension systems, over 99% of them, fell short of their return assumptions over the last quarter of a century. Throughout this period, pension plans have gradually reduced their expectations for investment returns, but 85% of public pension plans still maintain return rate assumptions above their 23-year averages. 

California Isn’t Having Trouble Retaining Public Workers and Shouldn’t Unwind Pension Reforms

California lawmakers are considering making significant alterations to a landmark 2012 public pension reform law. State legislators say the proposed pension benefit increase aims to help with ongoing challenges with recruiting and retaining public workers, but Mariana Trujillo’s analysis shows unwinding the pension reforms would be misguided. The reforms have saved billions and, according to data from the Bureau of Labor Statistics and California’s 2023 Total Compensation Report, California’s government workers already have a much lower turnover rate than the rest of the U.S., and this retention advantage is even more pronounced when compared to the state’s private sector workers.

Proxy Firms’ Lawsuits Highlight Need for Public Pension Systems to Prioritize Investment Returns

In response to Texas legislation that says it is trying to increase transparency on the use of public funds for political activism, the two largest proxy advisory firms, Institutional Shareholder Services and Glass Lewis, have filed a lawsuit against the state. But Reason Foundation’s Ryan Frost explains that with public pension systems faced with thousands of shareholder proposals each year, it is a problem that many pension systems lean almost entirely on proxy advisor guidance, thereby outsourcing their legal responsibility to third parties with no duty to maximize investment returns for public workers, retirees and taxpayers. 

News in Brief

Survey of Cost-of-Living Adjustments in Public Pensions

A new issue brief from the National Association of State Retirement Administrators (NASRA) examines how U.S. state and local pension plans structure and fund cost-of-living adjustments (COLAs). COLAs have many shapes and sizes. Some are structured as a regular benefit; others are granted irregularly, often tied to funding requirements. Since 2009, 32 states have changed COLA provisions—17 affecting current retirees. In recent years, elevated inflation has exceeded the caps in most automatic COLA states, motivating advocacy for cost-of-living increases. The brief notes that a 3% compounded automatic COLA can add 26% to overall benefit costs, and legal challenges to COLA cuts have produced mixed results across states. It also highlights that nearly half of retired public school teachers and many public safety workers lack Social Security coverage, making inflation protection a critical aspect of retirement income adequacy. Read the full brief here.

Quotable Pension Quotes 

“I’m saying that without progressive revenue, there is not a pathway that allows us to maintain these obligations.”
–Brandon Johnson, Chicago’s mayor, quoted in “Johnson says Tier 2 enhancement for Chicago public safety retirees’ incomplete,” The Center Square Illinois, July 23, 2025.

“The rapidly shifting monetary policy and continued uncertainty throughout the market underscores the importance of a steady and long-term investment approach rooted in thoughtful diversification.”
–Steven Meier, New York City Retirement Systems CIO, quoted in “New York City Pension System Returns 10.3% in Fiscal 2025,” Chief Investment Officer, Aug. 6, 2025.

“It’s not clear whether our historic commitment to private equity will continue to realize a return premium relative to simpler, less costly and more liquid public market alternatives.”
–Rukaiyah Adams, former chair of the Oregon Investment Council, quoted in “How the managers of Oregon’s $100 billion pension fund lost big,” Lookout Eugene Springfield, Aug. 6, 2025.

Data Highlight

Reason Foundation’s Mariana Trujillo shows that from 2001 to 2023, 99% of public pension plans failed to meet their assumed rate of investment returns, averaging 6.5% in returns compared to their 7.59% assumption. This chronic failure to meet the expectations they set has contributed to the $1.6 trillion in public pension debt, which represents about one-third of all state and local government debt. See Trujillo’s complete analysis here.

The post Pension Reform News: Public pensions struggle to meet return assumptions appeared first on Reason Foundation.

Articles, Research & Spotlights 

• Model Legislation for Modernized Defined Contribution Retirement Plans 
• Louisiana’s Teacher Pension System Needs Reform, Not a Bailout
• Research Shows Public Employees Are Not Underpaid 
• Time and Politics Can Be a Significant Threat to Pension Reforms

News in Brief
Quotable Quotes
Data Highlight
Reason Foundation in the News
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Reason’s Model Legislation Provides Framework for Modernized Public Employee Defined-Contribution Plans

Many state and local governments are turning to defined-contribution (DC) plans to expand retirement options for public employees and mitigate the long-term risks that defined-benefit pensions impose on taxpayers. Drawing from years of experience collaborating with policymakers and pension reform successes in several states, the Reason Foundation’s Pension Integrity Project has published a template that lawmakers can use to set up or improve public employee DC plans. Reason’s model includes several cutting-edge features for modernized DC plans, including an emphasis on using DC benefits to secure guaranteed lifetime income for retirees and a focus on concrete income replacement objectives. The template also gives valuable guidance on setting best-practice vesting and contribution policies.

Taxpayers Shouldn’t Bail Out the Teachers’ Retirement System of Louisiana Without Reform

Louisiana lawmakers approved a plan to use $2 billion held in education-related trust funds to pay off some of the $8 billion Teachers’ Retirement System debt. This is expected to significantly reduce annual debt payment costs for school districts, freeing up funds that can be redirected toward permanent teacher pay raises. Passed in the legislature, the plan will now require voter approval in a 2026 ballot. Reason Foundation’s Steven Gassenberger explains that, while the drive to reduce the state’s pension debt is good, lawmakers do a disservice to taxpayers when they do so without actually addressing the source of pension debt. If Louisiana’s teacher plan experiences the same market turbulence that created the $8 billion shortfall to begin with, and no reforms are made, taxpayers will continue to be burdened with runaway costs. 

Public Employees Are Not Underpaid

A widespread assumption exists that government workers, including educators, are paid less than those in similar private-sector roles. This perceived pay gap is frequently cited as a primary reason for difficulties in retaining current government employees and attracting new, skilled individuals. It is often the basis for calling for improved public sector retirement benefits. In this analysis, Reason Foundation’s Mariana Trujillo finds that despite its widespread acceptance, the claim of a compensation disadvantage for public employees is unsubstantiated. In fact, accounting for factors like education, work hours, and benefits suggests that public workers are paid at an equivalent and sometimes better rate than their private sector counterparts.

Important Public Pension Reforms Are Under Threat in Several States

Reforming public pension systems is no small task, but lawmakers are discovering that maintaining these reforms is also challenging. The positive impacts of prudent, cost-saving reforms often take several decades to fully realize. But previously passed pension reforms in California, Washington, Alaska, and New York are encountering significant political challenges from elected officials who were not a part of or may not appreciate the need for the previous reforms aimed at reducing debt and fully funding benefits. Lawmakers need to future-proof public pension reforms, writes Reason Foundation’s Rod Crane, because taxpayers will often see these policies undermined by the next generation of politicians. Crane outlines how today’s lawmakers can convey the intent of much-needed reforms and build guardrails for them.

News in Brief

Do Pensions Influence Late-Career Teacher Effort or Retention? New Evidence from North Carolina

Public pensions are often justified not only as retirement benefits but as tools to retain the most effective educators, particularly in mid- and late-career stages. A new National Bureau of Economic Research working paper tests this hypothesis using administrative data from North Carolina public schools. When teachers become retirement-eligible, their annual pension accruals drop sharply—effectively reducing total compensation—but researchers find no corresponding decline in teacher output, attendance, or student achievement. Likewise, while attrition increases at retirement eligibility, high- and low-value-added teachers exit at similar rates, suggesting pensions do not disproportionately retain more effective educators. The authors conclude that, at least near retirement, the structure of pension accruals does not influence teacher effort or selectively retain higher-quality teachers. Read the full paper here.

Quotable Quotes on Pension Reform

“We were encouraged to see the ongoing trend of improving funding levels and reduced employer contribution rates continue through the 2024 fiscal year. … On average, PSPRS and CORP employer contribution rates are about 30 percent lower than they were five years ago, delivering more than $250 million in annual savings. That kind of progress reflects real, sustained momentum for our pension system.”
—Mike Townsend, Arizona Public Safety Personnel Retirement System administrator, in Arizona PSPRS Third Quarter Newsletter, July 2, 2025.

“However, what happens moving forward is anyone’s guess. … Between tariffs and the big (federal) budget bill, it’s difficult to predict what the consequences from those things would be.”
—Andrew Roth, Colorado Public Employees’ Retirement Association executive director, quoted in “PERA’s funding slips again, but retirees avoid further benefit cuts thanks to investment gains,” Colorado Sun, July 7, 2025.

“[The legislation] restores integrity to the management of retirement plan assets by reinforcing the obligation that ERISA imposes on fiduciaries to manage assets with complete and undivided loyalty to the workers’ financial interests—not their own political or social interests.”
–Rep. Tim Walberg(R-MI) quoted in “House Committee Passes Anti-ESG Bill,” Plan Sponsor Council of America, June 26, 2025

Data Highlight

Reason Foundation’s Mariana Trujillo details the difference in how private and public-sector employees are compensated. On average, government workers have a larger share of retirement benefits, which is essential information in any comparison or conversation on teacher or public employee pay. You can access the complete analysis here.

Reason Foundation in the News

Reason’s Ryan Frost analyzes deferred retirement option plans (DROP) for public safety workers in John Seiler’s Southern California News Group piece, “Despite deficit, California legislators float several costly pension bills.”

The Best of Cato Daily Podcast published a replay of its “The Gathering Storm in State Pensions” episode with former Reason Foundation pension analyst Pete Constant.

The post Pension Reform News: Model legislation for modernized defined contribution retirement plans appeared first on Reason Foundation.

Articles, Research & Spotlights 

• Reason’s Annual Pension Report Updated through 2024
• More Threats to California’s Pension Debt Elimination Plan
• Policymakers Shouldn’t Use Colorado’s Pension for Police Funding 

News in Brief
Quotable Quotes
Data Highlight
Reason Foundation in the News
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Update to Reason’s Annual Pension Solvency and Performance Report 

Reason Foundation’s Pension Integrity Project has updated our Annual Pension Solvency and Performance Report with data from public pension systems that hadn’t reported their 2024 data when the previous report was published. The update finds the national total of state and local public pension debt is now $1.61 trillion, up from $1.59 trillion. Reason’s updated report also includes new features to evaluate each state’s pension status and compare them side-by-side with other states. With these tools, policymakers and taxpayers can gather information crucial to dealing with the growing challenges of pension debt.

California Bill Would Undermine Important Pension Reforms

A proposal in the California Legislature, Assembly Bill 569, threatens to undo previous reforms that are crucial to protecting taxpayers from runaway pension costs. These reforms, from the 2013 California Public Employees’ Pension Reform Act (PEPRA), were designed to control spending and tackle the state’s debt of more than $200 billion. The bill would weaken these rules, allowing government agencies to promise more pension benefits through supplementary plans despite the public pension promises they’ve already made remaining significantly underfunded. The proposal would allow local governments to get around the cost-saving measures established in PEPRA, ultimately placing more risk and higher costs on future generations of California’s already overburdened taxpayers. State lawmakers need to reinforce, not undermine, the prudent pension reforms that have been adopted in the past.

Colorado Should Not Use PERA to Invest in Non-Pension Programs

Through a 2024 referendum, voters in Colorado approved spending an additional $350 million on law enforcement over the next decade. Now, it is up to lawmakers to determine how to implement the referendum. One proposal by the Joint Budget Committee would take money from the state’s emergency reserve and add it to the Public Employees Retirement Association (PERA) investment pool to leverage market returns to maximize this funding. But, as Reason Foundation’s Rich Hiller warns, using the state’s pension fund for this purpose applies undue risks on PERA, and would inappropriately ask the pension plan to deliver on a scheme that is beyond its core purpose.

News in Brief

Overestimating returns is what created pension debt

A paper in the Journal of Pension Economics and Finance by David Hengerer,

Jonathan Moody and Anthony Randazzo examines why state defined-benefit pension plans accumulated $1.33 trillion in unfunded liabilities from 2000 to 2020. Using actuarial data from 145 state pension systems, the study finds that 41% of the increase can be attributed to investment returns falling short of overly optimistic assumptions. Another 28% came from assumption changes, primarily lowered discount rates, and 24% was due to interest accumulating on prior underfunding. The authors caution policymakers that unrealistic investment return expectations have effectively masked true funding needs, leading to long-term structural pension debt. Read the full report here.

How to turn retirement savings into guaranteed lifetime income

A new issue brief from the American Academy of Actuaries explains the various ways workers can convert their defined contribution plan savings into income during retirement. Thanks to recent laws, more plans can now offer annuities—insurance products that provide guaranteed monthly payments for life. These “plan-selected” annuities are often cheaper and more flexible than those sold to individuals. The brief also covers other options, such as withdrawing a fixed percentage each year, spreading payments over a set number of years, or just withdrawing the required minimum distributions, which are minimum amounts that retirees must withdraw each year after age 73 from their tax-deferred retirement accounts. Each option has trade-offs: annuities protect against running out of money but reduce flexibility, while non-insured approaches offer more control but provide no guarantees. The authors encourage employers to offer a mix of options and provide clear explanations so that members can make informed decisions. Read the full brief here.

Airports offer opportunities to generate funding for growing pension debt

The Reason Foundation’s recently published Annual Aviation Infrastructure Report examines the potential funding that state and local governments could generate from their publicly owned airports. Through public-private partnerships, governments could agree to long-term leases of their airports with private companies, potentially generating billions in additional revenue. With growing pension debt being a multi-billion-dollar problem for many states and cities, this could be a prudent solution that could secure pensions and save taxpayers money. The report indicates that private ownership of airports is the norm outside of North America. In other regions, such as Europe and Latin America, over 76% of airports are owned and operated by private companies, whereas in North America, more than 96% of airports are government-owned. Read the full report here. 

Quotable Quotes on Pension Reform

“It’s a big complicated system, and what’s being proposed here is to make it less secure. As a member of the pension system, I object to that..Every year there’s an effort to achieve more benefits for the organizations, and some organizations like firefighters have a much more compelling case than others, but nevertheless the government has to live within limits…The great danger of pensions is that risk comes later when the current lawmakers and advocates are no longer around, so the current leadership has to act as stewards for future beneficiaries, and that is very difficult because the future is not here, but the present is now.”
—Former California Gov. Jerry Brown quoted in “Unions want to chip away at Jerry Brown’s pension law. He has something to say about that,” CalMatters, June 10, 2025.

“Our advice to [Andrew] Cuomo and all of his [New York City mayoral race] competitors is to stay out of pension politics. Playing that game will cost the city a lot in the long run, well after your four or eight years in City Hall are up.”
—New York Daily News Editorial Board in “Cuomo’s pension pander: The Tier 6 reform was necessary and should not be undone,” May 20, 2025.

“It’s cost-neutral under this one actuarial note, but if they miss their 7% return by just a little bit it will not be cost neutral—it will have a significant, meaningful cost to the city.”
—Josh McGee, former chairman of the Texas Pension Review Board, quoted in “Mayor Whitmire supports Texas bill that would reverse some Houston pension reforms, alarming experts,” Houston Chronicle, June 3, 2025.

“I just think that conversation about understanding what expenses are paid and improving the transparency—that’s a concerted effort across the alternative space, not just hedge funds.”
—John Claisse, CEO of consultant Albourne, quoted in “How Texas Teachers pushed back on hedge fund fees — and won,” Pensions and Investments, May 27, 2025.

Data Highlight

Each month, we feature a pension-related chart or infographic. This month, Reason’s update to the Annual Pension Solvency and Performance Report is a dashboard visualizing pension funding levels at state levels. Users can select their state to see the aggregated funding history and 2025 projections. Access the full report and dashboard here.

Reason Foundation in the News

“If that bet fails, even slightly, the plans will face serious funding gaps..Washington’s choice to swim against this national trend by adopting a more aggressive return assumption significantly increases the likelihood of future shortfalls.”
—Ryan Frost, Pension Integrity Project Managing Director, quoted in “Washington bill’s changes to public pension funding could cost taxpayers, critic warns,” The Center Square, May 14, 2025.

The post Pension Reform News: Updated report on pension debt appeared first on Reason Foundation.

Articles, Research & Spotlights 

• Threats to California Public Pension Reforms
• Washington’s Unprecedented Move Will Increase Pension Costs
• San Diego Needs to Manage Pension Costs
• How Are Public Pension Costs Shared Between Employers and Workers? 

News in Brief
Quotable Quotes
Data Highlight
Reason Foundation in the News
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

California Bills Would Increase Taxpayers’ Costs and Public Pension Debt

In 2012, California lawmakers, headed by then-Gov. Jerry Brown, committed to important pension reforms that would place the state’s massive system of pensions on the path to full funding. At the time, California’s pension debt had ballooned to over $200 billion, and governments at all levels were seeing required cost increases cut into their annual budgets. The reform, known as the Public Employees’ Pension Reform Act (PEPRA), slowed the growth of ongoing costs by placing prudent limits on the benefits promised to new workers. With California pensions around 80% funded by the latest reporting, the state still has a long way to go to reach the intended endpoint of PEPRA reforms. However, lawmakers are beginning to undermine these cost-saving measures. Two bills currently under consideration, Assembly Bill 569 and Assembly Bill 1383, would remove the PEPRA provisions that protect government budgets and taxpayers from unfunded pension promises. Instead of reopening the floodgates to more pension debt, California policymakers need to stay the course on the landmark PEPRA reform.
TESTIMONY: Reason Foundation Comments on Assembly Bill 1383 – PEPRA Repeal

Washington Lawmakers Passed a Ticking Time Bomb for Pension Solvency and the State Budget

Washington is one of the best states when it comes to pension funding, but a new short-sighted bill puts years of prudent funding policies at risk. Engrossed Substitute Senate Bill 5357 seeks to reduce immediate costs on public employers by increasing the assumed rate of return for the state’s pension systems and taking a holiday on paying off existing debt. The problems with this approach are twofold: there appears to be no basis for an increase in investment returns, meaning that this change will likely increase costs in the long run and shift them to future taxpayers, and the existing debt was only one or two years from being fully paid off. In this commentary, Reason Foundation’s Ryan Frost explains that all public pensions have been downgrading their market return assumptions, and Washington would be the first to raise its assumed rate of return. Making this move may reduce costs today, but it will ultimately prove extremely costly for governments and taxpayers.

San Diego Doesn’t Have to Accept Spiraling Public Pension Costs

San Diego is unfortunately re-entering a public pension crisis, despite significant past efforts to resolve it. A court decision forcing the city to reactivate its defined benefit pension system has brought back the inherent structural weaknesses that previously led to crippling levels of public pension debt. But Reason’s Mariana Trujillo explains that escalating pension costs are not a foregone conclusion. Successful reforms in other cities and states demonstrate that these risks can be contained. They’ve achieved this by adopting risk-sharing approaches that more fairly allocate financial obligations between public employees and their employers.

Sharing Defined Benefit Pension Costs: A Survey of Public Sector Practices

Pensions generally require contributions from both employers and employees, but not all pension plans distribute these contributions equally between the two parties. New research from Reason Foundation’s Rod Crane examines the employee/employer contribution share for 230 state and locally administered public pension plans. The results show that, on average, employees tend to bear about half of the normal cost of pension benefits when debt-related costs are not included. However, with employers typically covering the remaining costs, as well as any additional debt-generated expenses, governments bear on average 75% of the total annual costs. While these results vary significantly from plan to plan, pension debts have imposed a substantial fiscal burden on government employers.

News in Brief

Partisan Politics Shapes Pension Fund Voting

Using newly mandated Securities and Exchange Commission filings, a study from Northwestern University examines how political affiliation affects the voting outcomes of U.S. public pension funds. The paper uses the political party of a state’s governor to apply a loose political leaning label for a pension board. While this method may not be a perfect predictor of a board’s political leaning, it does help identify some potentially useful correlations. When it comes to decisions on staff compensation, Democratic-aligned funds are ~five percentage points more likely to vote against management and respond strongly to proxy advisor recommendations. In contrast, data indicate that Republican-aligned funds—especially in states with anti-ESG, or environmental, social, and governance, laws like Florida and Texas—anchor their voting behavior to firm performance and are less influenced by proxy advisors. The study also finds that underfunded public pension plans are more likely to engage in share lending—potentially diluting governance influence—though this is driven by funding status, not political alignment. Read the full report here.

Quotable Quotes on Pension Reform

“Having said all of that I also don’t think we should defend things the way they’re working just because it’s the way it’s been done […] You know when I was first State Treasurer I inherited what I thought was a broken dysfunctional pension system. And I fixed it and it was super hard…all constituencies in my party and the entire legislature in Rhode Island, which was mostly Democrats, told me to leave it alone, that politics are too tough. leave it alone […] But I couldn’t…I just couldn’t sleep at night.”
—Gina Raimondo, former U.S. Secretary of Commerce and Rhode Island governor, quoted in “Raimondo Spoke to Harvard Students About Her Success in Rhode Island” GoLocal Prov News, April 14, 2025. 

“First priority is to keep funding the pension system, so people have, at a minimum, their pension.”
—Rep. Mikie Sherrill (D-NJ), quoted in “What’s the potent sleeper issue in this year’s NJ governor’s race? COLAs” North Jersey, April 28, 2025. 

Data Highlight

Each month, we feature a pension-related chart or infographic. This month, Reason’s Rod Crane examines how public pension costs are shared between employers and employees. Using 2023 data, the chart shows that employees cover an average of 51% of normal costs (the estimated cost of benefits earned) but only 25% of total costs when unfunded liabilities are included. The full commentary is here.

Reason Foundation in the News

“Public pension systems should keep politics of all kinds out of their investments to serve their core duty of maximizing investment returns to provide workers with the retirement benefits they’ve been promised while minimizing financial risks for taxpayers. The modern guardrails and reporting standards in this bill can significantly strengthen these vital systems.”
— Zachary Christensen, Pension Integrity Project Managing Director, quoted in “Runestad introduces bill to ban ‘financial DEI’ investing for Michigan’s public pension funds” Michigan Senate Republicans, May 8, 2025.

“The benefit changes back then helped bend the cost and liability curves and built in some risk protections around new hires, but they didn’t fundamentally pour a bunch of money in to solve the current underfunding. It was a Phase 1 reform and then their leadership team left and they stopped pushing additional phases.”
— Len Gilroy, Reason Vice President of Government Reform, quoted in “New Mexico’s Pensions Remain Problematic” Rio Grande Foundation, May 12, 2025.

“Connecticut still has $40 billion in unfunded pension liabilities and another $20 billion in unfunded retiree healthcare liabilities to pay—the second highest in the country in per capita terms, equivalent to $16k per resident. Interest on that debt compounds at 6.9% annually. Any pause or reduction in pension contributions carries long-term costs.”
— Mariana Trujillo, Reason Foundation Policy Analyst, “Opinion: Why Connecticut Risks Return to Fiscal Chaos,” Hartford Courant, May 8, 2025.

The post Pension Reform News: Threats to California’s public pension reforms appeared first on Reason Foundation.

Articles, Research & Spotlights 

• Mississippi Reshapes Public Pension to Address Growing Debt
• Reason’s Research on Alaska’s Retirement Plan Debate
• North Carolina Weighs Taking More Investment Risks

Pension News in Brief
Quotable Quotes
Data Highlight
Articles, Research & Spotlights

Mississippi Adopts Hybrid Retirement Design in Major Pension Reform

In a groundbreaking move to tackle decades of growing public pension debt, Mississippi has enacted a significant reform to reshape the retirement benefits of new public employees. With analysis and technical consulting from Reason Foundation’s Pension Integrity Project, Mississippi lawmakers established a new tier (Tier 5) of benefits for new hires. Beginning in 2026, new hires will be enrolled in a hybrid plan that introduces defined contribution benefits in combination with a partial pension benefit, which will greatly slow the growth of pension liabilities and reduce the risk of pension debt that has been driving up costs for governments and taxpayers. Reason’s analysis indicates that this reform will reduce pension liabilities by more than $80 billion over the next 50 years and could help the state fully fund the Public Employees’ Retirement Plan of Mississippi decades sooner than its current trajectory. Additionally, the defined contribution element of the new tier gives employees a benefit that grows faster and is more flexible to the needs of a modern workforce. Still, modeling suggests that the plan remains vulnerable to future insolvency unless funding changes are made to the legacy pension plan. Lawmakers will need to address those problems in future legislative sessions.

Webinar: The Impacts of Pensions on the Alaska Budget

Tomorrow, in a webinar hosted by Americans for Prosperity, Reason Foundation policy analysts Ryan Frost and Mariana Trujillo will detail their research on how a proposal to bring back defined benefit pensions would impact Alaska’s annual budget. House Bill 78 and Senate Bill 28 would reopen a defined benefit pension and close the cost-balanced defined contribution plan that was the centerpiece of the state’s 2006 public pension reform. In comments submitted to the Alaska House of Representatives Finance Committee, Frost explains that the bill would add $2.1 billion in costs over the next 30 years under the best-case scenario, and the proposal could end up costing more than $11 billion if investment outcomes end up resembling those of the last few decades.
Join the Webinar on Thursday, April 17: Will There Be a Statewide Tax in Alaska?
Testimony: Alaska House Bill 78 Would Reopen Defined Benefit Plans

Changing North Carolina’s Investment Strategy Would Bring Significant Risks to Taxpayers, Public Pensions

North Carolina’s newly elected state treasurer, Brad Briner, has discussed overhauling how the Teachers’ and State Retirement System invests its pension assets, departing from the state’s unique, lower-risk approach with these crucial retirement funds. While North Carolina’s pension returns have come in lower than most other states, that is an expected feature of the low-risk strategy adopted by the state’s previous treasurer. Taking on more investment risks in an attempt to boost returns on pension assets can potentially reduce government costs, but it also increases the risk of taking on significant losses and exposing taxpayers to enormous, unexpected costs and pension debt. Taxpayers and lawmakers should be aware of these risks and tradeoffs before taking on more risks with the funds earmarked for fulfilling pension promises.

News in Brief

Public Employee DC Participants Are More Likely to Accept Default Investment Options

Defined contribution (DC) plans have the advantage of giving flexibility to employees in how they would like to see their retirement savings invested, but these options must be carefully curated by employers to maintain a focus on retirement security. This is particularly important when setting the default options for those who do not make an active selection, since this tends to shape the outcome for most participants. A study by MissionSquare Research Institute explores the impact of default options by studying the investment decisions of 340,000 public employees enrolled in defined contribution plans. The study, looking at data from 2020–2023, finds that over 80% of public DC participants accept their plan’s default investment option—typically a target date fund, which tends to be the best choice for most employees. Notably, these default selection rates are higher than seen in the private sector, even when controlling for age and income. Opt-out rates increased sharply during COVID-19 pandemic-related market volatility, suggesting members may trust defaults less and seek out alternative retirement investment strategies during economic uncertainty. The authors suggest that this could lead to sub-optimal savings outcomes for many people and that public retirement plans should consider offering the opportunity to revisit decisions made during periods of volatile markets. 

Five Ways Defined Contribution Retirement Plans Would Benefit New Hampshire

A new analysis by Andrew Cline at the Josiah Bartlett Institute cites Reason Foundation’s Annual Pension Solvency and Performance Report to illustrate ongoing funding challenges for New Hampshire’s pension system for public workers, “Taxpayers remain on the hook for $5.6 million in unfunded liabilities while state employees have to put in a decade of service to vest in a plan that doesn’t generate great returns.” He also notes, “A 2024 Reason Foundation study of public pension plans in 12 states found that 62% of public workers leave before their pensions vest.” Cline concludes, “Creating a DC plan for new state employee hires is a financially sound way to lower state costs, stop crowding out other government programs, reduce taxpayer obligations and create a fully funded, portable retirement plan that doesn’t take a decade to vest.”

Quotable Quotes on Pension Reform

“At some point, if we can no longer afford to fund the pensions, we won’t be able to hire firefighters, we won’t be able to keep our firefighters on. We could be looking at not having fire services because we won’t be able to adequately provide for the benefits related to being a firefighter or a police officer.”
— Forest Park Village Administrator Rachell Entler quoted in, “Could selling village-owned Altenheim land make small dent in pension funding?” Forest Park Review, March 17, 2025.

“With this bill, we would decide to take that surplus through a merger and pay for a permanent long-term COLA [cost-of-living adjustment] for PERS-1 and TERS-1. We should understand what this is. That’s a multi-billion-dollar decision to spend money in a year when we have a significant budget deficit.”
—Washington state Sen. John Braun (R-Centralia) quoted in “Bill to merge three closed retirement systems, increase COLA passes WA Senate” Queen Anne & Magnolia News, March 12, 2025. 

“To me, it’s a shared sacrifice, and we’re not seeing the sacrifice on part of the pensioners. I don’t understand the reasons why the actual employees, in this case, police and fire, are not willing to kick in a little more on their part.”
—Texas state Sen. Charles Schwertner (R-District 5) quoted in “New Senate bill could affect fight between city and Dallas police, fire pension” The Dallas Morning News, March 20, 2025.

Data Highlight

Each month, we feature a pension-related chart or infographic. Reason’s Truong Bui compares the annuities (at the age of retirement) that could be earned under Mississippi’s current pension plan, the hybrid that will be offered to new hires beginning in 2026, and a proposed defined contribution plan. The graphic shows that a public employee hired at age 32 will now enjoy an improved retirement benefit for most years of service, and an optional DC plan could further improve the lifetime retirement benefits offered to public workers. 

The post Pension Reform News: Mississippi reshapes public pension to address growing debt appeared first on Reason Foundation.

Articles, Research & Spotlights 

• Benefit Proposal in Florida Could Cost $47 Billion Over 30 Years
• Undoing Alaska’s Public Pension Reforms Would Come With Significant Costs
• Kansas Considers Modernizing Retirement Plan With a DC Option
• Washington Proposal Would Legitimize Bad and Potentially Expensive Policy

News in Brief
Quotable Quotes on Pension Reform
Data Highlight
Reason Foundation in the News
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

The Florida Retirement System’s Proposed Cost-of-Living Adjustment Comes with Major Costs and Risks

Florida lawmakers took major steps in 2011 to manage the state’s exploding public pension-related costs by suspending the cost-of-living adjustment (COLA) benefit, a move that has played a major role in improving the funding of the retirement system. Despite this progress, the Florida Retirement System is still over a decade away from reaching full funding levels to pay for benefits promised to teachers, firefighters, police, and other public workers. A new bill being considered by state legislators, House Bill 945, would grant a 2% COLA, setting previous cost-reduction reforms back. Reason Foundation’s analysis finds this move could cost as much as $47 billion over the next 30 years. Considering the system is currently $46 billion short of needed funding, it would be poor policy to add more expensive and unpredictable costs.

House Bill 78 Exposes Alaska to Significant Additional Costs

The Alaska legislature is considering rolling back major cost-saving reforms of its pensions for teachers and state employees. House Bill 78 would reopen a defined benefit (DB) pension for new workers and close the cost-balanced defined contribution (DC) plan that has been the primary retirement plan for new hires since 2006. Before bringing back the type of retirement plan that has generated ballooned debts and costs on state budgets, policymakers should evaluate the potential risks they would be taking on by reversing course. Reason Foundation analysis reveals that HB 78 could add costs of $11.4 billion over the next 30 years, generating significant pressures on Alaska’s annual budget.

Kansas Senate Bill 282 Would Improve Retirement Options for State Employees

Proposed legislation in Kansas would give public workers (excluding police, firefighters, judges, and correctional officers) in the state an option to participate in a modernized defined contribution plan. In testimony submitted to the Committee on Financial Institutions and Insurance, Reason Foundation evaluated the proposed DC plan. Reason Foundation finds that Senate Bill 282 would set up a DC plan that meets best practices and provides adequate and modernized retirement benefits that meet the needs of today’s public workers.

Washington Bill Would Be Unfair and Potentially Costly

A new bill in the Washington Legislature (Substitute Senate Bill 5058) aims to merge the Public Employees Retirement System Plan 1 (PERS 1) and the Teachers Retirement System Plan 1 (TRS 1) with the Law Enforcement Officers and Firefighters Plan 1 (LEOFF 1). Proponents of the bill are pursuing this merger because the LEOFF plan is exceptionally well funded, while the other two plans remain underfunded. This bill should raise serious concerns among policymakers because the funding set aside for the law enforcement plan would essentially be used to pay for benefits promised to an entirely different group. In this testimony shared with the House Committee on Appropriations, Reason Foundation’s Ryan Frost explains that this bill would cut away at funds saved to secure LEOFF benefits to pay for unfunded promises made to members of the other two plans. Additionally, despite analysis lauding the proposal as a cost-saving measure, this policy would likely cost taxpayers $1.5 billion.

News in Brief

Study Examines Pension Funding and Cash Flow

Milliman’s 2024 Public Pension Funding Study reports that strong market returns over the last two years have boosted the aggregate funded ratio of the 100 largest U.S. public pension plans from 69.8% funded in 2022 to 81.2% funded in late 2024. Despite this notable improvement, the aggregate funding shortfall remains substantial, totaling approximately $1.22 trillion in unfunded liabilities by Milliman’s count. The plans captured in this study have matured over the past decade, driven by a flat number of active public pension participants and a steadily increasing retired and inactive participant population. Milliman’s historical data indicates a consistent rise in contributions and benefit payments, maintaining a relatively stable but persistently negative net cash flow. The full study is available here.

Quotable Quotes on Pension Reform

“I’m concerned about the level of fees we do pay in private equity, infrastructure, in real estate, private credit. We need to be very sensitive around fees … . Performance hasn’t been great in private equity.”
—Steven Meier, CIO and deputy comptroller of the New York City Retirement Systems, quoted in “New York, Texas, Wisconsin pension fund CIOs bullish on private markets, pushing for lower fees” Pensions & Investments, March 5, 2025.

“The next 15 years [of private equity] is not going to look like the past 15 years … . [P]aying yesterday’s fees on tomorrow’s returns will get you to a bad place.”
—Yup Kim, CIO Texas Municipal Retirement System, quoted in “New York, Texas, Wisconsin pension fund CIOs bullish on private markets, pushing for lower fees” Pensions & Investments, March 5, 2025.

“We’re starting to see governmental pensions and others say that we need to make financial returns the principal guidelines, and so the dual mission (returns and ESG), it’s starting to become less of a focus.”
—Maulik Doshi, managing director at Steward Redqueen USA, quoted in “U.S. asset owners, managers to change messaging but stay the course with sustainable investing” Pensions & Investments, March 7, 2025.

Data Highlight

Each month, we feature a pension-related chart or infographic from our team of analysts. This month, we highlight Reason Foudnation Policy Analyst Steve Vu’s look at the strong investment returns achieved by many public pension systems in 2024. Vu notes that rather using last year’s gains to increase retirement benefits, most states should instead focus on reducing unfunded pension liabilities. You can read the full analysis here.

Reason Foundation in the News

If you’re looking for more on Reason Foundation’s analysis of the above mentioned pension proposal in Alaska, including the financial risks and impact on the recruitment and retention of public workers, the research has been cited in numerous local media reports. In “Alaska lawmakers seek public sector pension reform over persistent opposition,” the Anchorage Daily News takes an in-depth look at the issues being debated. In Must Read Alaska, radio host Dan Fagan notes, “Reason Foundation disputes Democrats’ claim that a pension will retain state workers.” On his radio show, Fagan spoke with Reason Foundation Policy Analyst Mariana Trujillo on the bill’s costs and her analysis of Alaska’s current rates of retraining its workers. In the Juneau Empire, columnist Win Gruening links to Trujillo’s research in “The peril of reintroducing defined benefit pensions in Alaska.” And advocacy group Americans for Prosperity commented on Reason’s analysis in “New Public Data Shows Alaska Retains Public Workers Better Than Most States” and “HB 78’s Flawed Math Could Cost Alaskans More Than $11.4 Billion.”

The post Pension Reform News: Florida’s proposed cost-of-living adjustment could cost $47 billion over 30 years appeared first on Reason Foundation.

Articles, Research & Spotlights 

• Alaska Isn’t Experiencing a Public Employee Turnover Crisis
• San Diego’s Avoidable Pension Problem 
• An Opportunity for Public Pensions to Bolster Long-term Security
• Modern Government Workers Need Modern Retirement Solutions

News in Brief
Quotable Quotes on Pension Reform
Reason Foundation in the News
Data Highlight
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Alaska Is Retaining Public Workers Better Than Most States

Lawmakers in Alaska are considering bringing back pensions to address challenges in recruiting and retaining teachers, police officers, and other public employees. A new analysis by Reason Foundation’s Mariana Trujillo indicates that Alaska’s retention of workers is consistent with trends observed in other states that primarily offer pensions. Contrary to the prevailing perception in the state, and in spite of significantly higher turnover rates in the private sector, Alaska actually retains its public workers better than most other states. According to data from the Bureau of Labor Statistics (BLS), national and state employers faced an average turnover rate of 20.6% in 2022, while Alaska’s Executive Office reported a turnover rate of only 17.5% for the same year. These results demonstrate that, despite notable challenges in retaining workers within the state’s private sector, Alaska’s state and local governments do not experience the same high turnover issues.

Extreme and Rising Public Pension Costs Force Trade-offs in San Diego

With a projected 2025 deficit of $170 million and expectations that the city’s annual shortfalls could add up to over a billion dollars by 2030, San Diego faces growing fiscal challenges that will have tangible impacts on its citizens. What should irk the city’s taxpayers is that much of this problem could have been avoided if not for a legal reversal of cost-saving pension reform. In 2012, voters approved a pension reform that put new city hires in a defined contribution retirement plan and was instrumental in reducing the city’s pension debt, but the reform was challenged in the courts by public worker unions and undone. In this op-ed published in the San Diego Tribune, Reason Foundation’s Mariana Trujillo writes, “As it reinstates traditional employee pensions, San Diego must choose between raising taxes, cutting services, or pushing more debt onto future taxpayers.”

Public Pensions Should Capitalize on Strong 2024 Returns To Build Long-term Stability

The 2024 investment results are in for nearly all public pension plans, and most had a very positive year of returns. On average, public pension plans achieved a 9.9% return, safely above the average long-term assumed rate of return for plans (7%). These are just one year of investment returns, and the ultimate success of these pension plans lies in their ability to hit or exceed expectations over decades to fund the benefits promised to workers. However, policymakers ought to see a positive year like 2024 as an opportunity to build up reserves in preparation for the eventual and inevitable year of lower-than-expected returns. Reason Foundation’s Steve Vu uses our pension plan data to analyze the variation in returns results over the last three years.

Traditional Government Pensions Alone Do Not Work for New Employees

Most people would agree that the purpose of a retirement plan is to foster adequate savings every year an employee works and gets closer to their post-employment life. However, pension plans for public workers have maintained a benefit structure that leaves many of them with poor and sometimes inadequate savings for a good portion of their early careers. Reason Foundation’s Rich Hiller highlights the growing trend of today’s public workers changing jobs more frequently and shows how very few newly hired teachers and other public workers stay in jobs long enough to enjoy the full benefit of a defined benefit pension. It is crucial for public retirement plans to evolve by offering adequate savings for both those who stay for a long career and those who move on to other opportunities. 

News in Brief

Hedge funds take advantage of predictable pension rebalancing 

A new working paper from researchers at Duke University, Capital Group, and Ohio State University examines how pension funds and other institutional investors rebalance their portfolios—adjusting asset allocations to maintain target investment mixes. The study finds that this routine “automatic” rebalancing moves markets, causing predictable sharp fluctuations in stock prices. Using data from 1997 to 2023, the authors estimate that these predictable trades cost pension funds and other institutional investors $16 billion annually by temporarily driving stock prices down when funds sell and up when they buy. The paper also finds that hedge funds and other traders exploit this pattern through front-running, executing trades ahead of pension funds to profit from anticipated price movements. The authors suggest that more flexible rebalancing policies, rather than following quarterly or monthly schedules, could help pension funds reduce costs and limit opportunities for market manipulation. The full study is available here.

Quotable Quotes on Pension Reform

“This is not touching the hard-working dollars that our men and women who educate Nebraskans put into their retirement fund. […] We are talking about future dollars, prospective dollars, that the state puts in, not what the employee puts in, not what the employer puts in.”
—Kenny Zoeller, director of the Nebraska’s governor’s Policy Research Office, quoted in “School retirement changes to play role in Nebraska school funding, budget talks” Nebraska Examiner, Feb. 3, 2025. 

“Much progress has been made financially in the state in the last 15 years in paring back some of that state debt and building reserves, but the pension and the healthcare liabilities have only grown.”
— North Carolina State Treasurer Brad Briner quoted in “NC Treasurer Briner sounds alarm on pension and Health Plan deficits” The Carolina Journal, Feb. 6, 2025. 

“Not only are the public pension systems stronger today as result of the 2022 reforms, but the state’s upfront investments will save taxpayers billions over the next two decades.”
— Vermont State Treasurer Mike Pieciak quoted in “Reform measures boosting health of Vermont’s pension funds, treasurer says” Pensions and Investments, Jan. 9, 2025. 

Reason Foundation in the News

In a published debate— “Should public pensions invest in private equity?” —Pension Integrity Project Policy Analyst Mariana Trujillo took the “No” side against Drew Maloney, president of the American Investment Council, an interest group advocating for the private equity industry. The debate, featured in CQ Researcher, is part of an academic report aimed to be distributed to high school and college students. Trujillo referenced findings from Reason’s Annual Pension Solvency and Performance Report, which showed that as private equity grew in public pension portfolios, pensions became exposed to significant risks, incurred high fees, and yet still achieved lower returns than passive index funds. The report is available here. “Over the past 20 years, 99.5 percent of the 296 largest public pension funds have failed to outperform the S&P 500. Sixty percent of pensions underperformed a gold standard 60/40 stock/bond benchmark. If pensions were underperforming public markets because of a lower-risk strategy, that would be acceptable. But they are underperforming despite embracing high-risk, high-fee investments,” Trujillo writes.

Data Highlight

Each month, we feature a pension-related chart or infographic from our team of analysts. This month, we highlight a graph taken from the 2024 Pension Solvency and Performance Report, showing the persistent gap between actual and assumed public pension investment returns. From 2000 to 2023, the average annual pension return was just 6.5%, well below the 7.6% average assumed rate of return (ARR). While pension plans have gradually lowered their ARRs to reflect market realities—with the average assumed rate declining from 8% in 2001 to 6.9% in 2023—this mismatch remains a key driver of unfunded liabilities. An overview of the 2024 Annual Pension Solvency and Performance Report is here, and you can interact with the data here.

The post Pension Reform News: Alaska isn’t experiencing a public employee turnover crisis appeared first on Reason Foundation.

Articles, Research & Spotlights 

• New Analysis Examines Pensions and Health Benefit Debt Owed by Governments
• Debt on Health Benefits Owed to Public Workers Continues to Grow
• California’s Underfunded Pension Dives Further into Investment Risk

News in Brief
Quotable Quotes on Pension Reform
Reason Foundation in the News
Data Highlight
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Public Pension Debt Rankings for State and Local Governments

According to national averages recently reported by the Pension Integrity Project at Reason Foundation, governments only have around 76% of the funds they need to fulfill pension promises. However, most government obligations to retired employees do not end there, as healthcare and other post-employment benefits are often granted to public workers as well. Reason Foundation’s latest report, “Debt Trends for State and Local Governments,” includes health care and other types of benefits to provide a more complete picture of the funding shortfalls that taxpayers will eventually need to pay. According to the analysis, several states owe significant debts that policymakers and taxpayers must be aware of. Per capita, the citizens of New Jersey, Connecticut, and Illinois face the largest debts, with New Jersey owing nearly $18,000 per capita, Connecticut about $16K, and Illinois almost $15K per person. Looking at the municipal level, New York City, Chicago, and Yonkers appear to face the largest per capita debts. Reason’s analysis also highlights the states, cities, and counties with the lowest per capita debts (Washington, Nebraska, and Oklahoma).
Report: Debt trends for state and local governments 2020-2022
Analysis: Public pension debt rankings for state and local governments

Health Care Retirement Debt Surpasses State and Local Government Pension Debt

In addition to pension benefits, it is common for governments to promise other post-employment benefits (OPEB) like health care, life insurance, and deferred compensation. While these benefits do not have the same legal protections and stringent funding requirements as pensions, they do represent a major obligation that will fall on taxpayers. A new analysis from Reason Foundation’s Mariana Trujillo shows that, while OPEBs receive less attention and tend to be less taxing on budgets, the national debt for these benefits now exceeds that of pensions. According to government financial reports, the total OPEB debt held by states and cities was over $788 billion in 2022. The policies used to fund OPEB obligations are major contributors to this debt. Unlike pensions, governments often handle healthcare and other benefits like the federal government handles Social Security—simply paying as they go without saving to pay for benefits in advance. This creates massive costs on taxpayers that could be avoided with better funding policy.

CalPERS Takes Unnecessary Risks that Could Cost Taxpayers

Facing $180 billion in unfunded pension liabilities, the nation’s largest public pension (CalPERS) is opting to dive deeper into risky and opaque investment strategies in hopes of reducing debts and avoiding higher costs on state and local budgets. The system’s board recently approved a plan to increase investments in private markets, which tend to generate high but more risky and volatile returns. As Reason Foundation’s Mariana Trujillo points out in a column for the Southern California Newsgroup, these strategies can be expensive, with results that often do not justify the lofty fees paid to investment managers. Instead of doubling down on risky strategies, California policymakers should consider cheaper and less volatile options. Nevada’s pension, for example, achieved better returns than CalPERS using safer and significantly cheaper index fund strategies. 

News in Brief

Paper suggests that engaged pension boards have better returns

A recent study published in the Journal of Financial Services Research by researchers at Marquette University evaluated the impact that board governance has on public pension fund performance. The paper created a Board Engagement Index (BEI), derived from 11 variables that aimed to measure board engagement, including the number of meetings per year, the number of investment-related words in the minutes, attendance rates, and board turnover. Analyzing publicly available meeting minutes from 60 U.S. public pension plans, the authors find that higher board engagement correlates with better investment outcomes. Specifically, a one-standard-deviation increase in the engagement index corresponds to a 3.9% increase in benchmark-adjusted returns, equivalent to an additional $320 million annually for the average fund in their sample. The full article can be found here. 

Quotable Quotes on Pension Reform

“The fund is still at risk of potential insolvency if an economic recession or investment market downturn were to occur in the near term.”
— Matthew A. Strom and Daniel J. Siblik, actuaries hired by the Municipal Employees’ Annuity and Benefit Fund of Chicago, quoted in “What’s the Matter With Chicago?” The New York Times, Dec. 30, 2024. 

“Not only are the public pension systems stronger today as result of the 2022 reforms, but the state’s upfront investments will save taxpayers billions over the next two decades.”
— Mike Pieciak, Vermont Treasurer, quoted in “Reform measures boosting health of Vermont’s pension funds, treasurer says” Pensions & Investments, Jan. 9, 2025.

“As law enforcement, firefighters and other public servants, these Kentuckians dedicated their lives to our Commonwealth. It’s our Office’s responsibility to fight for them against those who put their pensions at risk.”
—Russell Coleman, Kentucky Attorney General quoted in “Hedge funds to pay $200+ million to Kentucky pension system in lawsuit settlement” Courier Journal, Jan. 9, 2025.

Reason Foundation in the News

“The Reason Foundation, a libertarian think tank, estimated the bills would inflate the state employee retirement services plan’s unfunded liabilities from $5.4 billion to ‘well over $8 billion over the next 15 years.’

“The state employee bill, Reason Foundation argued in submitted testimony, ‘would undo a nearly 30-year-old pension reform that has been working effectively to manage financial risks and personnel costs for state agency employers and which has helped taxpayers avoid billions of dollars in additional unfunded liabilities.’”

—Pension Integrity Project Analysis and Testimony, quoted in “House advances bills expanding pension options for public employees with no testimony,” The Detroit News, Dec. 12, 2024. 

Data Highlight

Each month, we feature a pension-related chart or infographic created by our team of analysts. This month, we highlight Mariana Trujillo’s recent analysis showing that, for the first time, unfunded healthcare retirement liabilities (OPEB) have surpassed unfunded pension liabilities for state and local governments. This marks a major shift in the composition of municipal debt, with combined unfunded liabilities reaching $1.5 trillion in 2022. Read the full analysis here.

The post Pension Reform News: Public pension debt rankings for state and local governments appeared first on Reason Foundation.

Articles, Research & Spotlights 

• Michigan Legislature Pushes to Undo Pension Reform
• Webinar on 2024 Public Pension Debt, Trends
• Mississippi’s Public Plan Needs More Options
• Pennsylvania Considers Granting Costly COLA Benefits
• Louisiana Directs Funds to Teacher Pension without Fixing Source of Underfunding 

News in Brief
Quotable Quotes on Pension Reform
Reason Foundation in the News
Data Highlight
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

On Their Way Out of House Control, Michigan Democrats Seek to Undo Several Crucial Public Pension Reforms

As a result of the November election, control of the Michigan House of Representatives will soon flip from Democrats to Republicans, leaving just one more week for Democrats to pass legislation using their trifecta majority advantage. Democrats will still control the state senate, and Democratic Gov. Gretchen Whitmer will remain in office. On their way out, some members of the House Democratic caucus are targeting past major reforms to the state’s public pensions, seeking to undo policies that have been crucial to controlling runaway costs. 

Last week, the Michigan House unanimously passed House Bill 6060 without granting any opportunity for testimony or cost analysis, leaving the legislation up for consideration in the Senate. The bill would roll back a landmark 2017 pension reform of the Michigan Public School Employees’ Retirement System, which established risk-balanced options (a hybrid pension plan or a defined contribution plan) for new hires. The proposed legislation would remove the crucial cost-sharing function of the past reform, transferring colossal costs from the employee to the employer. Reason Foundation’s actuarial evaluation of this bill indicates that this could cost employers (and, therefore, taxpayers) up to $20 billion over the next 30 years. Another set of bills—Senate Bills 165-167—would move a group of existing employees from a defined contribution plan to one of the state’s existing hybrid pension plans, but the full cost of this has received almost no consideration. Before placing massive costs and risk burdens on the state and its taxpayers, legislators need to evaluate the actuarial impact of reversing course on previous reforms.
Testimony on HB 6060
Testimony on SB 165-167

Webinar: 2024 Public Pension Solvency and Performance Report

Reason Foundation’s Pension Integrity Project recently published our annual Public Pension Solvency and Performance Report, which shares a unique analysis of the funding and investment outcomes of 296 public pension plans sponsored by state and local governments. In a webinar this month, Reason Foundation’s Ryan Frost and Mariana Trujillo showcased key findings, trends, and the report’s tools and interactive capabilities, which allow anyone to see the funding history of every pension plan and funding estimates for 2025. The analysis also shows how nearly all public pension systems fell short of investment targets over the last two decades, driving up unfunded liabilities and, consequently, annual costs.
Webinar: Key trends and findings on public pensions
Public pension solvency and performance report
Analysis: Pension fund size doesn’t improve investment performance

Reforms That Could Fix Mississippi’s Public Pension

With Mississippi’s pension debt ballooning to $25.5 billion, only 56% of assets needed to fulfill promises, and expected annual costs on the rise, the Mississippi Public Employee Retirement System, PERS, is in dire need of a new approach to providing and paying for public pension benefits. In a multi-part series in the Magnolia Tribune, Reason Foundation has laid out the challenges policymakers face in the state, as well as some solutions that could improve the solvency and cost of the system. Using actuarial modeling of the plan, it’s clear that a new tier of benefits for new hires—one that better balances risks and costs—would help dig PERS out of its funding shortfalls and save taxpayers billions in the long run.
Modernizing PERS to serve Mississippi’s public workforce
Modernizing PERS (Part 2): The state of play after the 2024 legislative session
Mississippi municipalities should brace for higher public pension contributions
A new and necessary approach for Mississippi’s public pensions

Pennsylvania’s Proposed Public Pension Increases Would Be Costly to Taxpayers

Pennsylvania’s two main public pension systems, the Public School Employees’ Retirement System and the State Employees’ Retirement System, are a combined $61 billion underfunded. Despite that, state lawmakers are considering granting unfunded cost-of-living adjustments to retired teachers and public workers. Reason Foundation’s Rod Crane explains how the one-time benefit boost will add about $1.19 billion in liabilities, which is expected to add to already growing annual employer costs. Rather than passing these costs on to future budgets and taxpayers, Pennsylvania policymakers should fund these new benefits upfront.

Louisiana Legislature Wants to Use Education-Related Funds to Pay for Teacher Pensions Without Fixing Core Problem

The Louisiana state legislature approved a proposal to direct $2 billion from education-related funds to help pay down the $8.5 billion debt owed by the state’s teacher pension. Reason Foundation’s Steven Gassenberger explains that, while this will certainly have a positive impact on the funding of the pension, doing so without addressing the underlying cause of the debt does teachers and taxpayers a disservice. Reason Foundation’s modeling of the system shows that the cash infusion does not protect the teacher plan from falling short of lofty investment return expectations, which remain above national averages.

News in Brief

Making public pensions part of ERISA could straighten fiduciary obligations

A recent DePaul University Law Review article argues that the exemption of public pension plans from the Employee Retirement Income Security Act (ERISA) is no longer justifiable given their widespread underfunding and ongoing issues with mismanagement, lack of transparency, and conflicts of interest. Author Gurkaran Singh Bhatti argues bringing public pensions under ERISA would impose minimum funding standards, fiduciary duties, and transparency requirements, reducing administrative risks and protecting retirees and taxpayers from financial mismanagement. The full article can be found here.

Underfunded pensions and politically appointed boards take more risk with private equity but don’t achieve higher returns 

 A National Bureau of Economic Research working paper finds that underfunded pension plans, particularly those with boards dominated by state officials/politically appointed members, tend to take on more risk in private equity investments. Despite their increasing reliance on alternative investments to adequately grow their assets, these pensions underperformed public equity markets when adjusted for risk. The authors believe this suggests that political or governance factors may drive these decisions, as underfunded plans might be more likely to pursue risky investments to recover from financial shortfalls, rather than making sound investment choices—a practice referred to as “gambling for resurrection.” The full working paper can be found here.

Quotable Quotes on Pension Reform

“But right now we don’t send any good signals to the public, we don’t send any good signals to the rest of the country as far as us being an economic growth engine because we refuse to touch pensions.”
— Ted Dabrowski, Wirepoints President (Illinois research group), quoted in “Illinois’ pension debt grows,” The Center Square, Dec.12, 2024. 

“She [Rep. Debbie Lesko (R-Arizona)] worked on the pension reform […] and anyone who ever done it knows it’s one ugly thing, and it takes a lot of courage.”
— U.S. Rep. Andy Biggs (R-Arizona),  quoted in Rep. Lesko’s farewell address in the House, Dec. 5, 2024. 

“Missouri pension systems funds should never be used to make contributions to political campaigns.”
— Missouri state Rep. Dirk Deaton (R-Noel), quoted in “Missouri state pension board bans use of fund for political donations” Missouri Independent, Nov. 21, 2024.

Reason Foundation in the News

“The pension debt was caused by poor and risky investment decisions, not by shrinking hours or a growing retired population.”
— Zachary Christensen, Pension Integrity Project Managing Director, quoted in “Federal bailout gives $635 million to carpenters union pension plan” CapCon, Nov. 22, 2024. 

Actuarial analysis by Reason Foundation and Yankee Institute was cited in a National Review article on the value of Connecticut’s “fiscal guardrails.”
— “Connecticut’s Fiscal Death Wish,” National Review, Dec. 9, 2024.

Data Highlight

Each month, we feature a pension-related chart or infographic created by our team of analysts. This month, we highlight Mariana Trujillo’s analysis of how the fiscal year-end month affects public pension fund returns. Short-term investment returns can vary significantly depending on when a fund closes its books due to market volatility. Read the full analysis here.

The post Pension Reform News: Michigan legislature pushes to undo pension reforms appeared first on Reason Foundation.

Articles, Research and Spotlights 

• How to Structure an Optional Defined Contribution Government Plan
• Texas Needs to Reexamine Law Restricting Firefighter Pension Reform
• Pensions a Large Part of California’s $500 Billion in Government Debt
• Budget Surpluses: A Chance to Reduce Pension Debt

News in Brief
Quotable Quotes on Pension Reform
Reason in the News
Data Highlight
Contact the Pension Reform Help Desk

Articles, Research and Spotlights

Best Practices in Optional Defined Contribution Plans for Public Workers

Defined benefit (DB) pensions remain the most common retirement option for public workers. However, growing unfunded liabilities and evolving needs for employment flexibility are prompting governments to consider defined contribution (DC) plans like the private sector’s 401(k). One approach that has proven to be particularly effective for state and local governments is to offer an optional DC plan alongside the traditional DB benefit, giving new hires a choice to select the type of plan that best fits their expected career path. A new policy brief by Reason Foundation’s Zachary Christensen explores this approach, finding that providing employees with this option optimizes retirement for most public workers while also helping governments reduce pension-related debt. The brief provides actionable recommendations for policymakers, such as optimal contribution rates, default settings, and education strategies for new employees.
Policy Brief
Recorded Webinar

A Texas Law Governing Firefighter Pensions Is Straining City Budgets

The Texas Local Fire Fighters Retirement Act (TLFFRA) is the law that sets the rules for the management of city and county firefighter pensions in the Lone Star State. Reason Foundation’s Ryan Frost explains that while the purpose of TLFFRA is to protect the benefits of firefighters, aspects of the law create unreasonable pressures on local governments, tying the hands of policymakers at the expense of taxpayers. The law establishes rules for the makeup of pension governing boards that systematically prioritize the interests of firefighters over the government and taxpayers that will ultimately bear the brunt of any unexpected costs. It also requires the approval of firefighters for any reform to the benefits for new hires, which creates a nearly insurmountable barrier to necessary and prudent adjustments. Texas lawmakers should reexamine TLFFRA to enable essential reforms that balance fiscal responsibility with benefit security.

California’s State and Local Government Debt is Over $500 Billion

California’s combined state and local government debt now exceeds half a trillion dollars, with unfunded pension and healthcare liabilities as the main culprits, reports Reason Foundation’s Mariana Trujillo.  Pension debt alone has multiplied more than sevenfold in the past decade, putting immense pressure on city budgets across the state. Cities like San Bernardino and Scotts Valley are grappling with severe financial strain of increased pension costs, highlighting the urgent need for sustainable pension solutions.

States Should Use Budget Surpluses to Pay Down Public Pension Debt

Newly released fiscal survey reporting from the National Association of State Budget Officers (NASBO) gives a positive outlook for states over the next year. The report projects that many states will see budget surpluses in 2025 due to revenue growth and moderated spending. Reason Foundation’s Steve Vu articulates the opportunity many state governments will have, encouraging lawmakers to dedicate these potential windfalls toward paying down long-standing pension debt rather than using it to pay for new government programs.

News in Brief

Pooling Defined Contribution Plans

A recent issue brief by the American Academy of Actuaries discusses best practices for implementing collective defined contribution (CDC) plans, which feature fixed contribution rates but provide variable retirement benefits, adjusting based on investment outcomes and demographic factors. Unlike defined benefit (DB) plans, CDCs do not promise a specific benefit amount; instead, benefits fluctuate with the plan’s financial health, balancing the need for sustainable income with predictable contributions. Unlike defined contribution (DC) plans, CDCs pool fixed contributions from employees and employers into a single collective fund, allowing for the shared management of investment and longevity risk. This structure mitigates the need for additional contributions if assumptions fall short. Some governmental entities in the Netherlands, Canada, and the United Kingdom have replaced defined benefit plans with CDCs for new hires. However, under current U.S. law, CDC plans are not permitted by the Employee Retirement Income Security Act (ERISA), which generally requires either guaranteed benefits or individual accounts. The full brief is here. 

Pensions Pay Different Fees for the Same Financial Services 

A report from Nasdaq finds that public pension funds pay widely varying fees for identical passive index strategies. Analyzing the S&P 500, Russell 1000, Emerging Markets, and other index strategies, the report reveals significant fee discrepancies. The highest asset size tier (over $1 billion) saw the smallest dispersion in fees, while the lowest asset tier (below $50 million) had the greatest dispersion in fees paid. The report suggests many funds could achieve substantial savings without switching providers by leveraging peer benchmarking data to negotiate better terms. Limited pension investment fee transparency constrains negotiation potential and fiscal savings, but the report suggests using public benchmarking data could enable funds to optimize fees. The full report is here.

Quotable Quotes on Pension Reform 

“I don’t think there’s any question that many of the positions we hire…as well below the private market [in salary. …] We’ve always assumed people stayed in the public sector because of the good benefits, and I think we’re seeing that is deeply eroded.”
— Julie Kushner, Connecticut State Senator and co-chairwoman of the legislature’s Labor and Public Employees Committee, quoted in “CT retirement benefit debate looms large over next term,” Connecticut Mirror, Oct. 30, 2024.

“It’s the cost-of-living adjustment and the 3% compounding that’s driving the pension debt crazy, it’s not the pension itself.”
— Steven Reick, Illinois State Representative, quoted in “Panel discusses proposals to shore up Illinois’ unfunded pension liability,” The Center Square, Oct. 15, 2024.

Reason Foundation in the News

“When you’re making a decision like that—especially when you’re backtracking and you’re undoing a cost-saving reform that was done over a decade ago, you need to keep in mind that that’s going to pack in a lot of risk and that could turn south very quickly with a couple of bad years’ returns.”
— Zachary Christensen, Pension Integrity Project Managing Director testimony before Oklahoma State House Pension Committee, quoted in “Oklahoma pension changes may have been based on myth,” Oklahoma Council of Public Affairs, Nov. 4, 2024. 

“[Oklahoma’s full funding of its public employee pension] is an incredible accomplishment that should be acknowledged and protected. … Any change in the retirement benefit structure could revert or threaten this progress, and this is something that would have a tremendous effect on the fiscal health of this state and, again, the retirement security of your fellow employees.”
— Mariana Trujillo, Pension Integrity Project Policy Analyst testimony before Oklahoma State House Pension Committee, quoted in “Experts warn Oklahoma pension changes could harm state finances,” Oklahoma Council of Public Affairs, Oct. 10, 2024.

Data Highlight

Each month, we feature a pension-related chart or infographic created by our team of analysts. This month, we highlight Steve Vu’s analysis of surveyed state budget surplus funds, also known as “rainy day funds” or RDF. These growing reserves offer states a financial cushion against revenue volatility and economic downturns. As balances grow, states have an opportunity to allocate a portion of these funds toward paying down pension debt compounding at high interest rates, strengthening their long-term fiscal stability. Read the full analysis here.

The post Pension Reform News: How to structure an optional defined contribution government plan appeared first on Reason Foundation.

Articles, Research & Spotlights 

• New Reason Report Spotlights $1.59 Trillion in Public Pension Debt
• Connecticut’s Path to Fully Funding Pensions

News in Brief
Quotable Quotes on Pension Reform
Data Highlight
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Reason’s Annual Pension Solvency and Performance Report

The Pension Integrity Project at Reason Foundation released its inaugural Pension Solvency and Performance Report, aggregating and comparing key funding and investment measurements, actuarial assumptions, and other performance indicators of government-run pensions. Leveraging data from 191 state and local public pension systems in the United States, the report shows total public pension debt rose to $1.59 trillion at the end of 2023, most of which (88% of the debt) was held by state governments. In aggregate, state and local governments only have 76% of the funds needed to fulfill pension promises made to public workers. The report also uses recent market outcomes to estimate 2024 funding measurements and finds that governments—and, therefore, taxpayers—could see public pension debts more than double if a recession were to occur in 2025. The interactive tool displays the investment outcomes of every major public pension system so users can see how their plan has performed compared to the plan’s assumptions and the rest of the country. It also examines the significant growth in annual costs that all public pensions have undergone over the last decade, as well as many other useful measurements to better understand the challenges facing public pension systems today. The interactive tool is available here.

The Case for Connecticut’s Fiscal Guardrails

Facing significant growth in pension debt and severely underfunded retirement plans, Connecticut lawmakers passed major funding reforms in 2017 to direct excess revenue to pay down debts owed by the State Employee Retirement System and the State Teacher Retirement System. Since adopting this policy, Connecticut has allocated $7.7 billion in budget surpluses to the plans, improving their funding from 36% in 2016 to 50% in 2023. In collaboration with the Yankee Institute, Reason Foundation recently published a new paper examining the impact of this additional funding and the path forward for Connecticut’s two largest pensions. Using actuarial modeling, the paper finds that continuing extra payments (maintaining the $1 billion payments each year that the state has made in the last few years) could eliminate all the state’s pension debt by 2038. This would save taxpayers over $6 billion in total costs in the long run. The analysis also shows that Connecticut’s pensions, which remain dangerously underfunded, are at a significant risk of future recessions.

News in Brief

Public Pensions’ Growing Bet on Private Equity Defies Political Divides
A recent paper by Sarah F. Anzia (University of California, Berkeley) and Mark Spindel (Potomac River Capital), titled “Labor’s Capital: Public Pensions and Private Equity,” finds that the increase in public pension fund investments in private equity over the last two decades is not associated with partisan leadership or union strength. Analyzing pension funds across the U.S., the study finds that both Democratic- and Republican-controlled states have significantly increased their private equity allocations, with average targets rising to 10% of total assets under management by 2022. The rise in private equity investments by public pensions was driven by several factors, including the expansion of the private equity industry following the Sarbanes-Oxley Act of 2002, near-zero interest rates after the 2008 financial crisis making capital cheap, and the visible crisis in public pension funding that required new ways to achieve high returns. Despite frequent public criticisms of private equity labor practices, the paper reflects on how the economic need to achieve high returns has blurred traditional left-right political divides. The full paper can be found here.

Hybrid Retirement Plans Are Gaining Traction

A recent National Association of State Retirement Administrators (NASRA) issue brief explores the growing adoption of hybrid retirement plans by state and local governments. Hybrid plans combine elements of defined benefit (DB) and defined contribution (DC) plans and are primarily of two types: cash balance plans and DB-DC combination plans. Cash balance plans merge features of pensions and individual accounts, while DB-DC plans combine a reduced DB benefit along with a supplemental DC account. The brief highlights that one-size-fits-all retirement plans do not adequately address the diverse needs of the modern workforce, prompting states to adopt hybrid plans to provide more flexible options. In 2024, four states have adopted a cash balance plan for public workers, while 14 states now use a DB-DC combination hybrid plan. These plans maintain mandatory participation, shared financing, and lifetime income payouts to support retirement security. The full brief can be found here.

Quotable Quotes on Pension Reform 

“There’s no way to invest your way into this [granting teachers a COLA]. Not without taking excessive risk, and really then all you’re doing is kind of gambling and hoping it turns out OK, which is incredibly irresponsible.”
—Brian Grinnell, former Ohio State Teachers Retirement System chief actuary, quoted in “Ohio State Teachers can’t invest its way to permanent COLAs, former chief actuary says,” Pensions & Investments, Oct. 2, 2024. 

“This bill has been vetoed four times over the past five years because this pension enhancement would impose substantial unbudgeted costs on the state.”
—New York Gov. Kathy Hochul quoted in “NY Gov. Hochul rejects police pension bill after union attacks her,” Gothamist, Oct. 4, 2024. 

“It would be imprudent to revive a policy to fund pension contributions with dedicated fine/fee revenues because those revenues can fluctuate over time, while pension liabilities are always locked in.”
—Leonard Gilroy, senior managing director of Reason Foundation’s Pension Integrity Project, quoted in “Missouri Amendment 6: Should court fees fund retirement for sheriffs and prosecutors?,” The Missouri Beacon, Oct. 2, 2024.

Data Highlight

Each month, the Pension Integrity Project features a pension-related chart or infographic of interest generated by our team of analysts. This month, we are showcasing the first installment of Reason Foundation’s Annual Pension Solvency and Performance Report. The report contains in-depth statistical analysis and originally compiled data on funding levels, investment performance, and liabilities of this country’s largest public pension plans. This visualization features investment return data to show how most pensions failed to achieve their expected returns over the last 20 years.

Distribution of Excess Returns of Public Pension Plans (2001-2023)

Source: Annual Pension Solvency and Performance Report by the Pension Integrity Project at Reason Foundation. Data was collected from the annual reports of 191 public pension systems.

The post Pension Reform News: Report finds $1.59 trillion in public pension debt appeared first on Reason Foundation.

Articles, Research & Spotlights 

• Pensions Require Modernization to Serve Modern Public Employees
• Georgia’s Teacher Pension Makes Improvements, But Needs More

News in Brief
Quotable Quotes on Pension Reform
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Why Defined Benefit Plans Fail the Majority of Public Workers

Most public employees are offered a pension as the primary retirement option, but the evolution of workforce expectations and behavior suggests that lawmakers should consider adjusting and expanding upon these options. Reason Foundation’s Mariana Trujillo uses recent research—a retention analysis of multiple plans and a benefit analysis that compares a defined benefit to a defined contribution plan in Alaska—to examine how pensions serve today’s modern, more mobile public workforce. Trujillo’s findings highlight significant shortcomings that make one-size-fits-all pensions a poor fit for most new teachers and public workers.

The Need for Reform for Georgia’s Teacher Pension

Despite several prudent adjustments to actuarial assumptions, the Teachers Retirement System of Georgia (TRS) has yet to see much progress in improving the funding of its promised pension benefits. According to the latest reporting, the system has only 78% of the funds needed to pay for promised pension benefits, and the plan’s debt has grown to $27.7 billion. In a commentary for the Georgia Public Policy Foundation, Reason Foundation’s Jen Sidorova finds that new tweaks to return assumptions and debt payment schedules help, but more reform is needed to get TRS back on track. She explains that policymakers should consider accelerating paying down the system’s debt even more to save future budgets from unnecessary interest costs. Also, with extremely high vesting requirements (10 years), most teachers entering TRS are unlikely to qualify for the pension benefit, meaning very few generate adequate savings for retirement. Georgia lawmakers need to consider modernizing TRS to reduce excessive debt-related costs and to ensure teachers are building enough savings for retirement during their time as educators.

News in Brief

Best Practices for Lump-Sum Buyouts

A recent issue brief by the American Academy of Actuaries explores the growing trend of public pension plans offering lump-sum buyouts to members in exchange for their future pension benefits. A typical program offers a buyout amount equal to a percentage of the present value of the annuity benefit. The brief warns that members face challenges comparing the differences in the value of a one-time, lump-sum payment to a lifetime of pension benefits, often subject to cost-of-living adjustments (COLAs). It advises plans to explain how the buyout amount is calculated, including the present value of their future benefits and the percentage of that value represented by the lump sum offer. The brief suggests that members should receive estimates of the cost to replace their pension benefits in the private market and the required investment return on the lump sum to replicate the lost benefits over their expected lifetime. The full brief can be found here.

Pension Liabilities Forced California Cities To Reduce Spending and Public Safety Hiring

A recent paper by Tyler Ludwig at the University of Texas analyzes the fiscal pressure imposed on California cities by their defined benefit (DB) pension systems. Using data from 2003 to 2016, the study explores how increases in pension liabilities affect municipal budgets, public services, and employment. The findings highlight that cities primarily cut non-current expenditures, such as capital investments, and reduce payrolls, specifically in public safety, to meet rising pension costs. Ludwig finds that, on average, a $1 increase in unfunded pension liability costs leads to a $0.43 rise in current expenditures but results in a $1.14 cut in non-current spending. Furthermore, for every $1 increase in pension pressure, cities reduce police employment by 0.07 jobs per 100,000 residents. The full paper can be found here.

Long Duration Bonds Improve Public Pensions Outcomes Under Stress

A new issue brief by analysts at MetLife Investment Management highlights the benefits of long-duration U.S. government and corporate bonds in public pension portfolios. These bonds serve multiple functions, preserving capital, providing predictable cash flows, and enhancing liquidity during market stress. With an annualized return of 5.6% since 1994 and a low corporate default rate (0.08% annually on average from 1994 to 2023), long-duration bonds offer a reliable way for public pensions to meet their obligations. The bonds also provide capital efficiency, requiring fewer assets to generate the same returns as broader market bonds, allowing for a higher expected return and funded status for pension plans. Stress tests show that replacing traditional bonds with long-duration options improves public pension portfolios, especially in market downturns. The brief emphasizes the strategic use of long-duration bonds for risk reduction and liquidity in public pensions. The full brief can be accessed here.

Quotable Quotes on Pension Reform 

“If I had $67 billion sitting around that I wanted somebody to invest, it probably wouldn’t be somebody who said, ‘Hey, I think I can do this, I’ve never done it before, but I think I can do this’…I would want somebody with a track record and somebody with some solid experience.”

— Ohio Attorney General Dave Yost, quoted in “Ohio teachers’ pension fund chair still considering deal with controversial firm at center of scandal,” News5 Cleveland, Aug. 30, 2024.

“It’s kind of a drop in the hat when you’re looking at $150 million of (a funding gap). But at the same time, we have to start somewhere, and this is a good start.”

— Zachary Privette, president of the Columbia Professional Firefighters, quoted in “City Council planning to inject $1 million to shore up police, fire pensions,” Columbia Missourian, Sept. 5, 2024. 

“The incentive to attract new young recruits is going to not be nearly as pronounced if you’re looking at a pension fund that isn’t well funded, and then you can go to a different municipality and see that it’s much more healthy.” 

— Laura Goodloe, Forest Park’s pension board attorney, quoted in “Underfunded pensions affecting current firefighters and recruits, officials say,” Forest Park Review, Aug. 27, 2024.

The post Pension Reform News: What today’s workers need from retirement plans appeared first on Reason Foundation.

Articles, Research and Spotlights 

• Most Public Workers Don’t Stay Long Enough to Vest in Pension Systems
• Georgia’s Teacher Pension Plan Needs Reform

News in Brief
Quotable Quotes on Pension Reform
Data Highlight
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Most Public Employees Leave Before Vesting In Their Pension Plans

Public pensions are designed to build guaranteed lifetime benefits for those who have spent a career working and contributing to the pension fund, but very few employees who begin working in a government job stick around long enough to generate a substantial pension benefit. A new analysis from Reason Foundation’s Mariana Trujillo, Steven Vu, and Truong Bui explores the rates at which new hires leave 12 different state public pension systems. While there are variations in how plans expect to be able to retain members, they all assume a significant exodus within the first five years, resulting in most new hires (approximately 62%) leaving before even vesting their pension benefits. Only 25% of public workers stay longer than 15 years, which is concerning because it usually takes more time to secure a pension benefit exceeding what an employee could earn with a defined contribution retirement plan. 

Policymakers Should Consider Reforms for Georgia’s Teacher Pensions

The Teachers Retirement System of Georgia (TRS) has made some prudent adjustments to its actuarial assumptions in the past few years, which should reduce the chances of future insolvency. Despite these changes, TRS is still in need of significant reform to avoid future unexpected costs in government budgets and from taxpayers. The system’s debt has ballooned to $27.7 billion, with the plan seemingly unable to surpass a funded ratio of 80% for over a decade. Due to longstanding unfunded liabilities, the cost on school districts is more than twice that of 15 years ago. TRS requires teachers to work for at least 10 years before they can vest and secure a pension benefit, a hurdle that less than 35% of new hires are expected to reach, which raises more concerns. With such high vesting requirements, most teachers entering TRS are unlikely to generate adequate savings for retirement. Georgia lawmakers need to consider major reforms to better fund TRS and modernize the retirement benefit offered to new teachers.

News in Brief

Public Pensions Are Less Effective Than Better Salaries at Retaining Employees

A recent study by Barbara Biasi, published by the Yale School of Management, examines the relative effectiveness of defined-benefit pensions and salaries in retaining public-sector employees, using the case of Wisconsin teachers and the impact of the 2011 Wisconsin Budget Repair Bill (Act 10). Act 10 implemented significant reductions in both salaries and pensions for public school teachers. The findings reveal that teachers are four times less responsive to changes in pensions compared to equivalent changes in salaries, indicating that pensions are less effective at retaining employees. The study concludes, “teachers are significantly more responsive to changes in salaries than they are to changes in pension benefits along the substitution margin.” The study estimates that 800 additional retirement-eligible teachers would have been retained had Wisconsin opted to cut pensions instead of salaries. The full paper can be found here.

COVID-19 Did Not Lead to Early Retirement, but Major Life Events Do

A recent paper by Zhikun Liu, David Blanchett, Qi Sun, and Naomi Fink, published by the MissionSquare Research Institute, explores the discrepancies between expected and actual retirement ages among older Americans, revealing a significant gap. Despite the COVID-19 pandemic, retirement expectations remained largely unchanged before and during the pandemic, but many individuals retired earlier than anticipated, often due to health and wealth factors. The study finds that poor health typically leads to earlier retirement, while wealth can delay or hasten the decision. Additionally, changes in marital status and lower educational attainment are associated with earlier retirement. The full paper can be found here.

Quotable Quotes on Pension Reform 

“The single most important reason we have the fiscal crunch that we have today, is that pensions — our pension liability — is impacting our ability to provide core services.”
— Jim Reed, former Scotts Valley, California mayor, quoted in “Explainer: Public pension debts in Santa Cruz County” Santa Cruz Local, Aug. 9, 2024. 

“If the probability (of fully funding the pension) won’t be too good, now is the time to take care of it, not 10 years from now when the hole is too big,” 
— Jack Tate, former Colorado state senator, quoted in “As gloomy PERA projection raises concern, officials caution against drastic reactions” TheDenverPost.com, Aug. 3, 2024. 

“The returns on crypto (when good) are much higher than any conventional instruments. Of course, when the returns are bad, they are more extreme — with various coins dropping to zero value. […] Whether it’s appropriate for a retirement fund, or what fraction is appropriate, is something that depends on the guidelines of the specific fund.”
—Gina Pieters, economics professor at the University of Chicago, quoted in “Michigan pensions to the moon? Fund dips toes in Bitcoin. Will it pay off in the long run?” DetroitFreePress.com, Aug. 5, 2024. 

Data Highlight

Each month, we feature a pension-related chart or infographic of interest generated by our team of analysts. This month, we are showcasing Mariana Trujillo, Steve Vu, and Truong Bui’s retention curve graph, which plots the percentage of newly hired public employees expected to be still employed at different years of service. The graph reveals that most public employees exit their roles before their pensions vest, challenging the notion that pension benefits effectively retain workers. You can explore their full analysis here.

The post Pension Reform News: Most public employees leave before vesting in pension plans appeared first on Reason Foundation.

Articles, Research & Spotlights 

• What Are Teachers Contributing to Their Pensions?
• Proposals to Rebalance Pension Debt Between Michigan’s State and Local Governments
• Plan Administrators Could Do Better at Conveying the Advantages of Their Defined Contribution Retirement Plans

News in Brief
Quotable Quotes on Pension Reform
Data Highlight
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

How Much Are Teachers Paying for Their Pensions?

The vast majority of public school teachers around the country have a pension offered by their state government, with most educators making contributions to their pension plans through deductions from their paychecks. A new analysis from Reason Foundation’s Zachary Christensen illustrates the different pension contribution rates that teachers are paying around the country, noting some major differences from one state to another. There are several factors that drive differences in pension contribution requirements, including whether the state has its teachers participating in Social Security or not, how the system’s costs are balanced between the teacher and the employer, and the underlying generosity of the promised pension benefits.

State Taxpayers’ Share of Michigan Pension Debt Would Increase Under Various Proposals

A new Pension Integrity Project analysis examines a group of legislative proposals in Michigan that would all involve having the state pay more for local school districts’ teacher pension costs. While the total contributions required to pay down the existing teacher pension debt would not change across the proposals, the distribution of these costs between the state and employers (K-12 school districts) varies significantly. For example, one House proposal would require over $26.5 billion in additional state contributions. These findings raise questions about how Michigan and other states balance the burden of pension costs between state and local budgets.

Public Pension Plans Need to Better Communicate the Benefits of their Defined Contribution Plans

Many government employers offer flexible defined contribution (DC) plans to new hires, which can provide optimized retirement benefits for today’s increasingly mobile workforce. Unfortunately, as Reason Foundation’s Richard Hiller points out, these advantages are often poorly communicated to new and current workers. Administrators of public DC plans should focus on educating their members on the advantages of DC plans, which could reduce dissatisfaction with benefits offered and reduce calls to replace them with costly and usually sub-optimal defined benefit (DB) pensions.

News in Brief

Public Pension Returns Underperform a Simple Bond/Stock Index Portfolio 

A recent brief by the Center of Retirement Research assesses whether public pension plans’ recent investment strategies yielded better returns when compared to simple index investing. Public pension funds have been shifting from traditional equities and bonds to alternative assets and active management, aiming for higher returns. This shift has spurred skepticism on whether it can outperform simple strategies after accounting for the fees and expenses associated with private investments. The brief compares the past two decades of returns for public pension plans to a simple 60/40 index portfolio (60% stocks, 40% bonds) from 2000 to 2023. It finds that while public pensions performed similarly to the index over the long term, they lagged behind after the 2007 global financial crisis. The authors suggest public pension plans should not expect higher long-term returns from complex, actively managed approaches and might benefit from simpler, cheaper, and more transparent investment strategies. The full brief is here.

Disability Incidence in Public Retirement Systems

A recent analysis by the National Association of State Retirement Administrators (NASRA) examines the incidence of disability benefits in public retirement systems, focusing on occupational class, eligibility criteria, and plan design. The study finds that public safety officers, such as police and firefighters, have higher disability rates due to their hazardous job conditions, with median disability incidence rates of nearly 5%, compared to less than 1% for teachers. Systems with more permissive eligibility criteria, like the “own occupation” standard, report higher disability rates than those with stricter criteria, such as the “any employment” standard. Additionally, hybrid plan designs, which combine disability retirement and income replacement features, show higher disability incidence across all occupational classes. The full brief can be accessed here.

Quotable Quotes on Pension Reform 

“We plan to make the changes that are necessary to provide [pension funding reform], but we also have to recognize that taxpayers are underwriting this, and it has to be a solution that works for the firefighters and the taxpayers,”
—Midland Mayor Lori Blong quoted in “Firemen urge Midland City Council for pension reform during special meeting” yourbasin.com, June 18, 2024. 

“To be very clear: I remain committed to protecting all of the retirement benefits of all of our retirees and our current employees. I also remain committed to shoring up the retirement system, which the executive director has now informed us is $25 billion underfunded.”
—Mississippi Lieutenant Gov. Delbert Hosemann quoted in “Hosemann: Study confirms PERS ’13th check’ for Mississippi retirees protected,” Mississippi Today, July 4, 2024. 

“It’s the investment account that will give us a return on the investments through the stock market, which in the long run helps the city. If we get returns on our investments, that’s less money the city has to put in in future years.”
—Attorney Dennis Orsey quoted in “Fight over $3.5 million to help fund East St. Louis police pensions heads to court,” Belleville News-Democrat, July 5, 2024. 

Data Highlight

Each month, we feature a pension-related chart or infographic of interest generated by our team of analysts. This month, we are showcasing a map from Zachary Christensen’s analysis mentioned above. Christensen illustrates the share of their pay teachers must contribute to their pension fund in each state.

The post Pension Reform News: Contribution rates for teachers’ pensions in each state appeared first on Reason Foundation.

Articles, Research & Spotlights 

• Webinar on the Impact Public Pensions Have on Recruitment and Retention
• Paper Warns of Private Equity Dangers to Public Pension Systems
• Breaking Down Perceived Barriers to Pension Reform
• Tumult in Ohio Highlights Need for Reform, Not an Investment Slight of Hand
• Michigan Shouldn’t Divert Pension Debt Payment

News in Brief
Quotable Quotes on Pension ReformData Highlight
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Reason Foundation Webinar: How Pensions Impact the Recruitment and Retention of Public Employees

The perceived advantages public pensions bring to recruiting and retaining teachers, firefighters, police, and other public workers are often used as a justification for adopting, expanding or protecting public pension benefits. But are pensions the optimal way to attract and keep highly valued public sector employees? This recent webinar hosted by the Pension Integrity Project at Reason Foundation featuring Hoover Institution’s Oliver Giesecke, University of Missouri–Columbia’s Michael Podgursky, and Reason Foundation’s Jen Sidorova, examines the observable impact that pensions have on public employees’ behavior. Through their wide-ranging research on the subject, these experts find that a focus on long tenures makes public pensions less advantageous for securing the retirement benefits of today’s workforce and are unlikely to have much influence on the decisions of new hires the public sector hopes to attract.
Webinar Video: Experts Examine the Impact of Pensions on Recruitment and Retention
Commentary: Pension Benefits Are Not the Key to Attracting or Retaining Public Workers

Reason Foundation Policy Brief: Is Private Equity a Public Financial Hazard?

Now accounting for about 13% (and growing) of public pension investments, private equities are becoming a key part of the strategy to pull government retirement plans out of growing funding deficits. A new Reason Foundation policy brief by Larry Pollack seeks to demystify this complex asset class that is taking center stage in the pension world. Pollack also answers common questions about private equity and details the unique challenges that could surface for lawmakers and public pension plan administrators. While investment managers are hopeful that private equity will drive higher returns, higher interest rates and a general lack of transparency should give them pause. The success of many public pension systems is increasingly tied to private equity investments, so lawmakers should promote a higher level of caution and transparency.
Policy Brief: Is Private Equity a Public Financial Hazard?
Webinar Video: Answering Questions on the Impact of Private Equity on Public Pensions

Claims that Public Pension Reforms Lead to Negative Impacts Are Unfounded  

With more than $1 trillion in unfunded public pension liabilities nationwide, state governments are grappling with increased annual pension costs. In many cases, states are exploring ways to slow the growth of pension debt through much-needed reforms. Making updates to the retirement promises made to public employees is often necessary, but policymakers can face challenging political headwinds fighting unfounded arguments about pension reforms. In this commentary, Reason Foundation’s Rod Crane reviews evidence and debunks claims that changing pension benefits increases liabilities, worsens employee retention, and reduces retirement security. 

Ohio Teachers’ Pension Reform Shouldn’t Be Investment Hustle

In May, Ohio’s attorney general filed a lawsuit to remove two members of the State Teachers Retirement System, STRS, claiming they had breached their duty as fiduciaries. The move came after years of alleged actions to pressure the plan to contract with a newly formed—but connected—investment group promising massive results in returns through new but untested artificial intelligence strategies. As Reason Foundation’s Zachary Christensen writes in The Columbus Dispatch, this heated ordeal illustrates the dangers of an unbalanced governance board makeup, which can lead to ill-advised decisions with too little concern for the taxpayers who will ultimately foot the bill for any failed public pension moves. Ultimately, Ohio’s pension plans need reform, and long-shot investment strategies are not a substitute.

Diverting Michigan’s Pension Debt Payment Would Be Costly to Taxpayers and Put Retirees at Risk 

The Michigan Public Schools Employees Retirement System, MPSERS, is still $29 billion in debt. Still, Gov. Gretchen Whitmer and legislators are now proposing diverting $630 million in annual payments away from the plan to boost other public school programs. Pointing to the actuarial modeling of MPSERS, Reason Foundation’s Ryan Frost warns that the move would add $1.4 billion in debt to a plan already struggling with burdensome interest payments, a cost that local governments and taxpayers will ultimately need to pay.

News in Brief

Understanding the Motivations of Public Sector Employees Aged 35 and Under

A recent survey by MissionSquare Research Institute explores the priorities, expectations, and satisfaction levels of public sector employees aged 35 and under. Key factors influencing their decisions to join the public sector include salary, personal satisfaction, community service, and job security. The survey reveals that most young employees found that their jobs met or exceeded their expectations in these areas. Job security, work-life balance, and health insurance emerged as top priorities for these workers. Despite generally high levels of satisfaction among this group, only 62% indicated that they intend to stay in public service long-term. The full results can be found here.

High Interest Rates Offer a Chance to Apply More Secure Assumptions

A recent brief by Allison Schrager at the Manhattan Institute posits that the current high-interest-rate environment presents a unique opportunity for the Governmental Accounting Standards Board (GASB) to mandate that public pensions use a “high-quality municipal bond rate as their discount rate,” aligning with the methodology used by private pensions for valuing retirement liabilities. Typically, this shift would be more challenging because bond rates are usually much lower than the pension system’s assumed rate of return (ARR), and a sharp reduction in assumptions would mean a drastic increase to the present value of liabilities. However, the rise in bond rates due to the current high-interest-rate environment mitigates some of this effect, creating a short window where the transition would not be as drastic as it normally would be. This move would improve pension contributions, stabilize funded ratios, and ensure long-term fiscal sustainability. The full brief can be found here.

Quotable Quotes on Pension Reform 

“If we are going to adopt these changes, we have to fund them every year. That is where I am most concerned, the long-term of it. We can fund it next year, and the year after, but we have to stay the course.”
—Rhode Island General Treasurer James Diossa in “Lawmakers want modest pension adjustments to help retirees. Not so fast, general treasurer says,” Rhode Island Current, June 3, 2024. 

“We’re in great financial shape right now, but I’m never going to put our law enforcement and most importantly, our state in a bad financial position…The math just didn’t add up,”
—Oklahoma Gov. Kevin Stitt on his decision to veto a pension benefit increase for police, quoted in, “Oklahoma lawmakers override veto of bill to increase police officer pension benefits” Pensions & Investments, May 30, 2024. 

“Irrespective of their intended purpose, initiatives which meaningfully restrict options available for public finance and bonds or pension investments can generate significant economic effects.” 
—Perryman Report, quoted in “Texas divestment over reduced oil and gas involvement could cost state hundreds of millions, report says” wfaa.com, May 31, 2024. 

“It remains to be seen if these (private equity) funds will be able to exit at their target valuations or require extended holding periods in order for exits to normalize before selling.”
—Managing Director at Casey Quirk in “Asset owners favor fixed income, infrastructure, India and Japan — Casey Quirk-P&I survey” PensionsandInvestments.com, May 28, 2024. 

Data Highlight

Each month, we feature a pension-related chart or infographic of interest generated by our team of analysts. This month, Reason Foundation’s Rod Crane illustrates how long vesting periods and the back-loading nature of traditional defined benefit plans benefit long-term employees but disadvantage those with shorter tenures. In most cases, the defined contribution benefit accruals exceed defined benefit pension benefit accruals until an employee reaches over two decades of service. The full analysis is available here.

The post Pension Reform News: Webinar on how pensions impact worker recruitment and retention appeared first on Reason Foundation.