As it stands, California’s state and local governments have the most public pension debt in the country, with total unfunded pension liabilities of more than $265 billion, according to a new report from the Reason Foundation. That’s over $6,000 in pension debt for every state resident. CalPERS has $166 billion in debt, and CalSTRS has $39 billion in unfunded liabilities.

Since pension benefits promised to government workers are constitutionally protected, taxpayers are on the hook for that debt. In the years ahead, paying this pension debt will consume an ever-larger portion of state and local budgets.

So, to pay for retirement promises already made to government workers while also hoping to keep costs down, public pension systems are chasing new investment return strategies and targets. Worryingly, California’s over-reliance on high-risk, high-return strategies could result in overwhelming losses, a burden that taxpayers would ultimately bear.

Historically, pension plans have relied on investments like stocks and bonds, but many plans are moving away from this strategy and dedicating more assets to higher-risk investment strategies, such as real estate, hedge funds, private equity, and commodities, for which it can be challenging to obtain accurate market value information, and reporting periods lag behind those of traditional investments.

The Reason Foundation finds that in 2001, only 11% of California’s pension assets were allocated to alternative investments. However, by 2024, this share had increased to 37%, which is the 18th-highest in the nation.

CalPERS has more than doubled its shares in private equity over the last four years (from 6.3% of its total assets in 2020 to 17% in 2024), and it plans to expand further, so that private assets (private equity and private debt) make up 40% of its portfolio.

As it attempts to make up for the failure to set aside enough money to pay for promised retirement benefits, CalPERS is moving away from safer, predictable investment options in the hopes of better returns from riskier options that charge high fees, come with less transparency, and more risk and volatility that could leave taxpayers holding the bag.

With debt and costs rising, the pressure to take public pensions in this direction is strong because investment outcomes greatly impact overall funding progress and contribution requirements. The pressure is also increasing because California’s pensions have generated investment returns that fall below those of other pension systems nationwide.

Over the past 20 years, CalPERS achieved an average return of 6.8%, and CalSTRS achieved 7.6%, both of which are far below the S&P 500 average of 10.4% for the period.

Even over the last five years, during which CalPERS and CalSTRS have adopted higher-risk strategies in the hope of achieving better investment returns, California still ranked 36th out of 50 states in average investment returns for all public pension plans. California’s average investment return over the past five years was 7.51%, while Nevada ranked first with 9.67% average returns, and Washington state was second with 9.66% average returns for its pension systems during that time.

It is in taxpayers’ best interests for CalPERS, CalSTRS, and other public pension plans to achieve high investment returns, but investment strategies should include a thorough evaluation of the downside risks. Private equity charges high fees that primarily benefit fund managers, not retirees or taxpayers. They have opaque accounting practices and market valuations. They offer the potential for high investment returns, but that comes with high risk that they could fail to deliver.

Underestimating the risks associated with alternative investments could lead to even more costs. Taxpayers at the state and local level would see more money siphoned away from infrastructure, education, and public safety to make up for investment losses and to pay public pension debt. California’s pension systems should be more cautious about taking risks with taxpayers’ money and workers’ retirement benefits.

A version of this column first appeared at The Orange County Register.

The post California’s state and local pension plans have over $265 billion in debt appeared first on Reason Foundation.

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.

A new analysis by Aon Investments USA Inc. (a market consulting company), commissioned by the Florida State Board of Administrators (SBA), predicts that the Florida Retirement System, FRS, is on track to eliminate all unfunded pension liabilities by 2042. Lawmakers reformed the system in 2011 by introducing a defined contribution (DC) option called the Investment Plan, and subsequently made it the default retirement plan for most new hires in 2018. These reforms have helped FRS make progress in closing what was a nearly $40 billion funding shortfall after the Great Recession.  

The latest reporting from FRS now gives the system an 83.7% funded ratio (up from 70% in 2009), indicating that the state has made progress but still needs to stay the course to return to its pre-recession, full funding status. According to Reason Foudnation’s recently released Annual Pension Solvency and Performance Report, one bad year in the market (0% returns in 2026) would essentially undo that progress, bringing the system’s unfunded liabilities back to an estimated $40 billion overnight. 

Florida has a long way to go before catching up with its public pension promises 

If market outcomes over the next two decades resemble those of the last 20 years, FRS won’t achieve full funding anytime soon. The pension system’s 24-year average return since 2001 is 6.4%, falling short of the plan’s 6.7% assumption. According to Reason Foundation’s actuarial modeling of FRS, this seemingly small 0.3% shortfall would push the date for reaching full funding out by another three years. 

Another major recession would also significantly derail the system. Reason Foundation’s modeling indicates that an investment loss in 2026 similar to that of 2009 (a 20% loss) would result in a funding ratio of 62%, and it would take 15 years just to climb back to today’s funding levels. The full funding date would extend well beyond 2055 in that scenario. 

Lower market returns would also drive up the annual costs of FRS, which taxpayers and lawmakers should be wary of. In 2024, employers contributing to the FRS pension paid an amount equal to around 12.7% of payroll (totaling $5.6 billion statewide annually). If everything goes as planned, with returns matching the system’s assumptions, this cost will remain relatively stable and drop significantly once the system is free from pension debt. Under the scenario of a major recession, annual costs will need to rise to as high as 22.9% of payroll to maintain full pension benefit payments. 

A recession would necessitate much larger government contributions 

When it comes to public pensions, policymakers can hope for the best, but they need to prepare for the worst. At a minimum, they should structure pension systems to withstand the same market pressures and funding challenges that created today’s costly pension debt.

Florida lawmakers should consider these risks as they weigh proposals to expand benefits. During the 2025 legislative session, lawmakers saw (and rejected) a proposal to unroll the state’s crucial 2011 reform by again granting cost-of-living adjustments (COLAs) to all FRS members.

Reason Foundation’s analysis of the proposal warned that even under a best-case scenario, the move would add $36 billion in new costs over the next 30 years. A scenario in which the system sees multiple recessions over the next 30 years would have driven the estimated costs of the proposed COLA to $47 billion.

For a pension fund that is still many years away from having the assets to fulfill existing retirement promises, the last thing it needs is to double down on more costs and liabilities. 

Current proposals to cut taxes in the Sunshine State should also factor into any consideration of granting additional pension benefits to public workers. A new group of bills introduced in the state’s House of Representatives signals that lawmakers intend to offer several property tax-cutting measures to voters on the 2026 ballot. It is safe to say that the idea of increasing pension costs on Florida’s local governments while simultaneously facing the prospect of reduced tax revenue is ill-advised.  

Through prudent reforms, Florida has made some laudable progress in improving the funding of its public pension system. However, the state is still several years away from achieving the end goal of all these efforts, and any level of market turbulence would push the finish line out by decades. Policymakers need to be aware of Florida’s long-term pension funding strategy and avoid any proposals to add to the costs and risks imposed on taxpayers through new pension benefits. 

The post Florida must stay the course to pay for promised pension benefits  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.

House Bill 473 (HB 473) addresses a common issue found in public employee retirement plans. Pension plans depend on regular contributions to fund the benefits that will become available to workers upon retirement. Typically, these contributions are split between the employee and employer according to rates established beforehand or when a public worker is hired. Employees in the Ohio Public Employees Retirement System (OPERS), for example, contribute 10% of their paycheck, while their employer contributes an amount equal to 14% of that member’s pay. These rates are a key part of the decision-making and bargaining that takes place between the employer (in this case, local governments) and a potential hire. 

In an effort to compete for high-value workers, some local employers offer to cover all or part of an employee’s retirement contributions, a practice commonly known as a “pickup.” While the intent of this strategy is honorable—it is in the public’s interest to have experienced and capable government employees—the practice distorts the cost and the purpose of a collaborative retirement plan. 

The reasoning behind a retirement plan in which both employees and employers share the contribution load (by far the most common approach among government pensions) is that it signals to both parties that they are contributing to the same shared goal of a secure retirement. While pickups have no impact on the total amount going toward contributions, they create unnecessary complications with government transparency and cost. Policymakers, administrators, and the public usually evaluate the compensation of public workers based on the hourly wage or salary offered, with pension costs listed and evaluated separately. A pickup arrangement is certainly part of an employee’s total compensation, but it is commonly overlooked since it is part of the larger retirement package offered to all public workers. Analysis comparing compensation between different local government employers usually isn’t sophisticated enough to include the variety of pickup arrangements between each employer and employee. It would better serve the public to make the costs of public service as straightforward as possible without creative compensation strategies. 

As local governments compete for the best public employees, they should do so using clear, transparent, and undistorted compensation. By banning the practice of pickups for Ohio’s public employers, HB 473 would ensure that pension contributions are transparent and in line with the goals of shared responsibility, all while not hurting local governments’ ability to offer attractive compensation packages to remain competitive with today’s workforce.  

The post Ohio House Bill 473 could fix public pension plan contributions appeared first on Reason Foundation.

Parents around the U.S. have had concerning interactions with law enforcement because their kids had engaged in seemingly innocuous activities without direct supervision. Brittany Patterson, a mother from Georgia, was arrested last year after her 10-year-old son ventured to the store alone in her small town of 370 residents while she was at a doctor’s appointment with her other son. A concerned passerby noticed the boy walking alone and contacted the police, which ultimately culminated in her being arrested and handcuffed in front of her kids. Then came a lengthy legal process between Patterson and the authorities. 

A single mother in Pennsylvania, responsible for two children and her 13-year-old brother, faced severe legal consequences when she briefly left her 1-year-old in the young brother’s care to run an errand. Intervention by authorities resulted in the mother’s placement on the state’s child abuse registry, which subsequently made it almost impossible for her to secure employment as a home health aide. 

The constant threat of government intervention has had a significant chilling effect on parents who wish to give their children space to develop through independent activities. Why would someone allow their child to play outside unsupervised—an activity that used to be considered normal and safe—when there is a chance that it could result in punishment? 

Experts are gaining a better understanding of how excessive parental protection negatively impacts both children and families. A study published in The Journal of Pediatrics in 2023 established a causal link between declining childhood independence over several decades and a rise in anxiety and depression among children. One of the authors of that study and professor of developmental psychology at Boston College, Peter Gray, testified before a Pennsylvania committee that the way children develop a robust sense that they can handle challenges is through regular independent opportunities without parents hovering over their every decision. 

But parents must feel comfortable to grant these opportunities for independent activities. At the heart of the issue lies the imprecise and subjective nature of child neglect laws, which allow considerable discretion to law enforcement and social workers to decide what qualifies. Although government safety workers undoubtedly act with what they believe to be the child’s best interests at heart, in most situations, a child’s own parent remains the most suitable judge of what is appropriate. 

This legislative session presents Ohio lawmakers with a crucial chance to tackle this issue head-on. SB 277 aims to remove subjective language and sharpen the definitions of neglect and abuse within Ohio’s current laws. The bill will clearly permit specific activities, such as children walking to and from school or stores, engaging in outdoor play, and remaining home alone for appropriate durations, all while continuing to forbid genuinely harmful neglect or endangerment. This legislation would empower Ohio parents to make sound choices for their children without the fear of inconsistent interpretations of what constitutes appropriate parenting. It would provide them the liberty to foster independence confidently during a vital stage of development. 

This bill would have Ohio join several other states (including Georgia, Florida, and Missouri just last year) in adopting “reasonable childhood independence” laws. Through close partnership with the nonprofit Let Grow, whose president, Lenore Skenazy, writes for Reason magazine, Reason Foundation has promoted this same type of bipartisan law in over 10 states.  

Ohio lawmakers have a chance to send a clear message to parents that they have their back when it comes to nurturing independent and resilient children. The legislature should seize this opportunity to promote childhood independence by passing SB 277. 

The post Ohio lawmakers consider bill to promote an independent childhood  appeared first on Reason Foundation.

PEPRA has saved billions, but it still needs decades to get California on track

The California Public Employees’ Retirement System, CalPERS, estimates that PEPRA has saved the state more than $5 billion since its inception. Another $25 billion in savings is estimated over the next 10 years, but only if members reject AB1383 and guard the shared PEPRA commitments.

How AB 1383 would undermine the PEPRA reforms:

• It expands the definition of pensionable compensation for all California pensions, granting large—and expensive—benefit bumps for the state’s top-earning government workers.
• It removes critical cost-sharing requirements that have shielded taxpayers from paying for all unexpected pension costs. The bill would allow employers to pay part of employees’ required contributions, which would undermine the shared limit set by PEPRA and disrupt the careful balance of responsibility established by the 2012 reform.
• It makes special exceptions for public safety workers, reducing their retirement age from 57 to 55, and granting them a new level of higher-cost benefits. It also changes rules to allow public safety employers to move all of their existing members into this new, higher-level benefit.

AB 1383 would cost taxpayers more than $9 billion

State taxpayers are already heavily burdened by the costs of public pension enhancements going back to 1999. According to CalPERS, AB 1383 would add an additional $9 billion over the next 20 years. The ultimate cost to taxpayers could extend well beyond that if market results resemble those of the last 20 years, or CalPERS continues its prudent lowering of its expected rate of return on investments.

Bottom line

Assembly Bill 1383 rolls back crucial elements of the landmark PEPRA reform, which would impose billions in extra costs on the state’s already stretched taxpayers. California needs to stay the course with PEPRA and fully fund its pensions before promising richer benefits.

Download the full backgrounder:

The post Assembly Bill 1383 brings back major pension costs for California appeared first on Reason Foundation.

At the federal level, despite Congress and the Trump administration recently passing a bill that will add trillions to the $37 trillion national debt, President Donald Trump has also moved to cut some spending by extending a federal hiring freeze through mid-October 2025. Even after this date, federal agencies will be restricted to hiring one new employee for every four departures, in an effort to reduce the size of their workforce. This push to downsize the federal workforce gained recent momentum when the Supreme Court lifted a lower-court injunction, clearing the way for federal layoffs under an executive order issued in February. The Supreme Court ruling affirms the administration’s authority to proceed with large-scale job cuts across various departments, including agriculture, state, commerce, and health and human services.

At the state and local level, governments must typically address their budget deficits. Louisiana Gov. Jeff Landry issued an executive order instituting a hiring freeze across all state government departments and agencies. The measure aims to achieve approximately $20 million in annual savings to address revenue shortfalls and protect essential services.

In Colorado, Gov. Jared Polis proposed hiring freezes and reductions in state programs to address an anticipated $1 billion deficit, driven by economic conditions, recent tax breaks, and rising Medicaid costs.

At the local level, Los Angeles Mayor Karen Bass unveiled a proposed $13.9 billion municipal budget for fiscal year 2025-26, which includes more than 1,600 layoffs and the consolidation of four city departments to eliminate a nearly $1 billion deficit.

Orange County, California, interim Chief Executive Officer Michelle Aguirre ordered department heads to implement a hiring freeze, reduce discretionary spending, and lower service levels over a three-month period.

This pattern of tightening public sector payrolls across all levels of government could contribute to a larger long-term trend that public pension systems need to monitor and address. Hiring freezes and workforce reductions could create a technical challenge for public pension plans: When payroll growth falls short of actuarial assumptions, it can lead to an underestimation of the amount of money that needs to be saved today to pay for pension benefits promised to workers.

Pension systems rely on an assumed rate of payroll growth to calculate their annually required contributions. Most systems use a “level-percent of payroll amortization method,” which bases their contribution planning on the assumption that future payroll growth and salaries will increase at a level rate. When actual payrolls fail to grow at the assumed rate, the calculations used to determine a government’s contributions to the pension plan end up short of what is actually needed.

Missing on this assumption leads to unforeseen unfunded liabilities (pension debt) and necessitates future cost increases. To avoid this, public pension plans need to either lower their payroll growth assumptions or transition to a method that is less sensitive to payroll fluctuations.

One method that some pension systems have adopted to insulate their plans from this particular risk is to remove the payroll growth assumption altogether. This can be done by switching from the “level-percent” amortization method to the “level-dollar” approach when calculating the annual required contributions. Using a “level-dollar” approach means that plan actuaries simply apply the dollar amount needed to amortize pension debt without connecting this payment to the assumed payroll. This results in a more secure method of pension funding, as it means that, at the very least, the plan has one less assumption imposing risks for underfunding.

Adopting a “level-dollar” amortization method can be done in several ways. Michigan lawmakers directed their pension for teachers to use a level-dollar method to amortize any debt on their new tier of benefits in 2017.

Arizona’s plan for public safety employees applied a level-dollar policy with a new tier of benefits beginning in 2017, and all tiers began using level-dollar for any new debt starting in 2020. By removing the payroll increase assumption from their amortization calculations, these plans have removed the impact that an increasingly volatile and unpredictable hiring rate has on their long-term funding viability.

Workforce reductions are necessary, but they also raise potential technical challenges for public pension systems. The impact of these trends can be lessened by pension plans making proactive changes to payroll assumptions. To uphold both fiscal sustainability and the retirement promises made to public workers, state and local governments should consider adjusting their payroll growth assumptions or removing them altogether from the funding calculation by adopting level-dollar amortization policies.

The post How government workforce reductions can impact public 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.

The tool has incorporated the data released by public pension systems since our original report was published in September 2024. Public pension systems that ended their fiscal years in June or July of 2024 have been updated. With these additions, the total unfunded public pension liability was $1.61 trillion, up from $1.59 trillion. Correspondingly, the median funded ratio across public pension plans decreased marginally from 76% to 75.8%.  

With the additional data, Reason Foundation’s stress-test projections for public pensions have worsened slightly. For example, under a major market shock, defined as a 10% loss, comparable to the Great Recession of 2007-2009, or the temporary stock market decline after President Donald Trump’s ‘Liberation Day’ tariff announcement, unfunded liabilities are now projected to reach $2.29 trillion by 2025, up from our previous estimate of $2.16 trillion.  

Total public pension assets were $5.07 trillion, a slight increase from the $5.05 trillion previously reported.

The average assumed rate of return for public pension systems fell marginally from 6.89% to 6.87%, continuing the gradual shift toward more conservative investment expectations amid current economic conditions.

Overall, the updated data reinforces previously identified public pension trends. Insufficient public pension contributions, ongoing asset-liability mismatches, and improving, but still overly optimistic, investment return assumptions are ongoing issues for pension systems.

A significant addition to the tool in this mid-year update is the introduction of the state tracker. While previous versions provided individual state and plan data in separate sections, the state tracker now consolidates all relevant public pension data into a single, easily navigable area. This integration enables direct comparisons of pension funding ratios, investment returns, and liabilities across states within one unified interface.

Structural refinements to enhance clarity and ease of use have also been made. Navigation labels have been streamlined, with sections previously titled “Funding Health & Risk Assessment” simplified to “Funding Health” and “Asset Allocation & Projected Returns” shortened to “Asset Allocation.” These changes aim to improve the user experience, especially those accessing information on mobile devices or smaller screens. 

We hope these updates to the Annual Pension Solvency and Performance Report can help inform policy discussions and decisions around pension funding strategies at the local, state and national levels. 

The post With additional plans reporting, total unfunded public pension liabilities in the U.S. grow to $1.61 trillion appeared first on Reason Foundation.

Assembly Bill 569 undermines a meaningful reform established by the General Assembly in the Public Employees’ Pension Reform Act (PEPRA), designed to limit unexpected and unnecessary taxpayer costs and eliminate over $200 billion in pension debt. It would remove restrictions on government employers, allowing them to increase pension promises through supplemental defined benefit plans, even though the state’s pension promises are still underfunded. AB569 would allow local governments to sidestep the currently agreed-upon contributions for what is already considered an adequate pension benefit. Opening the possibility for more pension promises would ratchet up the risk and costs imposed on California’s strained taxpayer base.

All these changes thwart the prudent and necessary reforms lawmakers adopted and built coalitions around in 2013. Passing PEPRA required sacrifice from government employees and employers alike, but the result of this landmark piece of legislation was that California’s pensions would remain secure and eventually be fully funded.

CalPERS estimates that PEPRA has saved the state more than $5 billion since its inception. Another $25 billion in savings is estimated over the next 10 years, but only if members reject bills like AB569 and uphold the shared PEPRA commitments.

AB569 essentially repeals one of the most essential parts of PEPRA and would add more unfunded mandates to the state’s already underfunded pensions. Offering government employers the option to provide and pay for supplemental pension benefits may seem innocuous at first glance; however, cost estimates for pension benefits have frequently proven to understate their ultimate long-term costs, forcing future policymakers and taxpayers to deal with burdensome unfunded liabilities of past promises. Ill-advised pension enhancements with underestimated costs were a major contributor to the explosion in the state’s pension debts in the early 2000s, and this bill would again open the possibility for runaway debt.

Support of AB569 is also based on questionable logic and is unlikely to achieve the proponents’ stated goal of improving the recruitment and retention of public workers. According to California’s 2023 Total Compensation Survey, the turnover rate for police and patrol officers was 7.5%, nearly identical to the state’s overall public employee turnover rate of 7.4%—and far below the 2023 national average of 18.5% for non-education state and local government workers, as reported by the Bureau of Labor Statistics. There is no empirical basis to support the claim that California’s workforce is in crisis or lacking retirement security under its current retirement systems.

It is up to lawmakers to protect and defend the 2013 PEPRA reform to its intended end—with CalPERS fully funded within the next 15 to 20 years and secured going into the future. Reversing crucial reforms at this time would come at a significant cost and thrust the state back into perpetually growing pension debt that governments faced over a decade ago.

The post California Assembly Bill 569 would undermine important pension reforms appeared first on Reason Foundation.

Starting July 1, Georgia Senate Bill 110, also known as the “Reasonable Childhood Independence” bill, will go into effect. Florida’s legislature unanimously passed a similar bill, which is expected to be signed by Gov. DeSantis and go into effect this July. Missouri legislators included the same type of provisions in a consolidated child welfare-focused bill, which will go into effect in August.   

These bills establish clear exceptions to the statutory definitions of neglect and abuse in state laws, ensuring that parents cannot be penalized for allowing their children to engage in regular activities such as walking to the store, playing outdoors, or staying home alone under reasonable circumstances. State laws will still prohibit clearly harmful neglect or endangerment. However, these “reasonable childhood independence” bills reassure parents that they will not face a significant run-in with law enforcement for permitting their child to pursue healthy, independent activities.  

With the passage of these bills, Georgia, Florida, and Missouri join eight other states that have adopted “Reasonable Childhood Independence” laws. 

The aggressive policing of parents saw national attention last October when Reason first reported on a Georgia mother, Brittany Patterson, who was handcuffed in front of her children and taken to jail for reckless conduct—all because her 10-year-old son walked into town by himself while she was away taking another child to the doctor’s office. Patterson told the police (who had been called by a concerned neighbor) that she did not believe he was in an unsafe situation, as it was normal for him to be outside and engage in activities on his own in their small town of Mineral Bluff (pop. 370). Despite her assurances, the family was thrust into a legal battle in which the Department of Family and Children’s Services pressured Patterson to commit to a “safety plan” for her children that involved tracking their location using a phone app, an idea that the Georgia mom vehemently declined. 

Patterson’s story adds to an alarmingly growing list of similar encounters between parents and local authorities about what children can and cannot do without direct adult supervision. In 2020, another mother from Georgia was arrested for allowing her 14-year-old daughter to babysit her younger siblings. In 2018, yet another Georgia mother was visited by police and child protective services because her 7-year-old rode his bike home alone from swimming practice. 

Lenore Skenazy, founder of the “Free-Range Kids” movement (which advocates against helicopter parenting, arguing that it hinders children’s development), and Reason have reported on many more cases like these around the country. A 2023 study in The Journal of Pediatrics finds a steep decline in children’s independence over the last few decades and attributes increases in anxiety and depression to this trend. 

These stories and the overall ambiguous enforcement of negligence and endangerment laws have a significant chilling effect on the parents who want their children to develop independence, but never know when a call to the police from a concerned neighbor could upend their lives. The Georgia, Florida, and Missouri bills address this ambiguity directly by clearly defining what will and will not be considered negligent. 

Reason Foundation partnered with Let Grow (an organization at the forefront of the childhood independence movement), interest groups in the states, and the bills’ sponsors to communicate to lawmakers the clear benefits of this type of legislation, which passed in all three states with bipartisan support. Visit the Let Grow website to learn about the progress made and the laws still needed to promote childhood independence in each state.  

The post New Georgia, Florida, and Missouri laws protect parents who teach their children independence  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.

Assembly Bill 1383 reverses course on several prudent reforms established by the General Assembly in the Public Employees’ Pension Reform Act (PEPRA), designed to limit exploding taxpayer costs and eliminate the state’s over $200 billion pension debt. It would expand the definition of pensionable compensation for all PEPRA members, remove critical cost-sharing requirements, and again subject what are currently agreed-upon contributions to collective bargaining. Additionally, it would create a new, higher-cost benefit for public safety employees and reduce retirement age requirements back to where they were before the 2014 PEPRA reform.  

All these changes thwart the prudent and necessary reforms lawmakers adopted and built coalitions around in 2013. Passing PEPRA required sacrifice from government employees and employers alike, but the result of this landmark piece of legislation was that California’s pensions would remain secure and eventually be fully funded.  

CalPERS estimates that PEPRA saved the state more than $5 billion since its inception. Another $25 billion in savings is estimated over the next 10 years, but only if members reject AB1383 and guard the shared PEPRA commitments. 

AB1383 essentially repeals the most important parts of PEPRA and would add more unfunded mandates to the state’s already underfunded pensions. According to CalPERS, AB1383 would immediately increase the annual cost to public employers (and therefore taxpayers) by $343 million and cost nearly $9 billion over the next 20 years. The ultimate cost to taxpayers could extend well beyond $9 billion if market results resemble those of the last 20 years, or CalPERS continues its prudent lowering of its expected rate of return on investments. 

Support of AB1383 is based on questionable logic and is unlikely to achieve the proponents’ stated goal of improving the recruitment and retention of public workers. According to California’s 2023 Total Compensation Survey, the turnover rate for police and patrol officers was 7.5%, nearly identical to the state’s overall public employee turnover rate of 7.4%—and far below the 2023 national average of 18.5% for non-education state and local government workers, as reported by the Bureau of Labor Statistics. There is no empirical basis to support the claim that California’s public safety workforce is in crisis or undercompensated under its current retirement structure. 

It is up to lawmakers to protect and defend the 2013 PEPRA reform to its intended end—with CalPERS fully funded within the next 15 to 20 years and secured going into the future. Reversing several crucial reforms at this time would come at a significant cost, have the counterproductive effect of making it more costly and difficult to recruit new hires, and thrust the state back into perpetually growing pension debt that governments faced over a decade ago.  

The post California Assembly Bill 1383 would undo prudent pension reforms appeared first on Reason Foundation.

The 2012 Public Employees’ Pension Reform Act (PEPRA), signed by Gov. Jerry Brown, improved the long-term stability of the state’s public pension plans, helping slow runaway costs that had become an insurmountable burden on state and local budgets. 

However, before the full savings from these reforms have been realized, some lawmakers, partnering with public labor unions, are trying to undo them. These reversals would thrust California back into the same pension funding quagmire it was in over a decade ago.

At the time of the 2012 reform, governments at all levels were reeling from exploding public pension costs, caused mainly by irresponsible and unfunded benefit increases granted around the turn of the century. State policymakers needed to slow the growth of pension costs, which they did by modifying the benefits promised to future workers. Specifically, the law limited the size of retirement benefits that could be promised to prospective hires, increased the age at which new hires could retire, and set a minimum for the amount employees must contribute.

The impressive cost savings from the reforms are undeniable. The California Public Employees’ Retirement System, CalPERS—the country’s largest public pension plan—estimates that PEPRA saved its employers, i.e., taxpayers, up to $5 billion over the last decade. Taxpayers are supposed to see even more savings over the next 10 years. CalPERS estimates PEPRA will reduce taxpayers’ costs by $20 billion to $25 billion. However, the reforms must remain in place to realize these savings. 

Unfortunately, two current proposals in the state legislature threaten to derail the pension reforms and increase taxpayer costs. Assembly Bill 569 would allow local governments to circumvent the benefit limits set by PEPRA, opening the gates to the same costly and unfunded pension increases that created the state’s massive public pension debt in the first place.

Assembly Bill 1383 would cause even more harm to taxpayers and PEPRA by undoing limits on pension benefit increases, retirement age adjustments, and contribution requirements for all public safety members enrolled in CalPERS. The bill aims to give police and firefighters costly pre-2012 pension benefits, which have already proved financially untenable for taxpayers and governments.

The proposals would worsen California’s pension funding problems. While significant funding progress has been made since the 2012 reforms—state pensions have improved from 71 percent funded to nearly 80 percent funded— the state’s unfunded pension liabilities jumped above $244 billion in 2009 and haven’t come back down.

Supporters of these new bills to increase pension benefits argue they’re needed to help recruit and retain public workers. However, there is no evidence that handing out costly benefits increases will do that. Surveys of incoming and outgoing public workers consistently demonstrate that pensions are not among the top considerations for new hires or those leaving government jobs. Public workers say they are far more interested in higher salaries, better workplace conditions, and work-life balance, not more pension benefits.

Opening the door for pension cost increases and more debt, while the state is $285 billion short of having the money needed to pay for the retirement promises it has already made to public workers, would be highly irresponsible to government employees and the taxpayers who will ultimately foot the bill.

Maintaining the PEPRA reforms is part of the state’s best hope for fully funding public pension benefits and eliminating debt. Unwisely unwinding PEPRA’s successful pension reforms before the full funding goal is realized would increase unfunded pension liabilities and cost state taxpayers tens of billions in the years ahead.

A version of this column appeared in the Los Angeles Daily News.

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