Pension Reform News: Delaying needed reforms costs taxpayers

In This Issue:

Articles, Research & Spotlights 

• Mississippi Faces Large Pension Debt, Rising Costs
• Proposal to Use Citations to Pay for Missouri’s Pensions

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

Articles, Research & Spotlights

Delaying Mississippi PERS Reform Will Increase Cost to Taxpayers 

Mississippi’s lawmakers face growing costs and funding challenges with the state’s pension for government workers, the Public Employees’ Retirement System, PERS. According to evaluations by system administrators, contributions from government employers will need to rise from 17.4% to 22.4% this year and likely need to double in the coming decades. With the pension system’s funding $25.5 billion short of promised liabilities, Mississippi’s AA credit rating is now in jeopardy, according to a recent statement by S&P Global Ratings. In this explainer, Reason Foundation’s Leonard Gilroy and Steven Gassenberger explain the potential long-term costs to taxpayers if the state continues to make insufficient contributions to PERS. Seeing that the costs of PERS continue to rise, and very few of the state’s workers stay long enough to take advantage of this benefit, lawmakers would be wise to emulate successful pension reforms made in other states.
One-pager: Delaying Mississippi PERS reform will increase the cost to taxpayers
Commentary: Mississippi’s low pension contributions cause S&P Global to downgrade its credit outlook

Missouri Senate Proposal Would Unwisely Fund Public Pensions Through Fines and Fees

Missouri Senate Joint Resolution 71, currently under consideration in the state legislature, would reinstate a policy that ties police pension contributions to fees associated with arrests, prosecutions, and other functions of the criminal justice system. In this testimony given to the Missouri House Pensions Committee, Reason Foundation’s Leonard Gilroy and Ryan Frost warn that depending on citations and other criminal justice actions to pay for the ironclad obligations of public pension systems is bad policy. Revenues from fines and fees can fluctuate significantly based on how a law is enforced, creating perverse incentives to maximize enforcement to pay for pension costs. If governments are going to offer pensions, they should fund them properly, with payments coming directly from the annual budget. There are several responsible pension funding reforms available to Missouri lawmakers. Leaning on law enforcement penalties is not one of them.
Testimony: Missouri Senate Joint Resolution 71 would unwisely fund public pensions through fines and fees
One-pager: Missouri’s bill would revive bad pension funding policy

News in Brief

COVID-19 Aid Packages Lead to Modest Real Contribution Improvements

A recent New York University working paper investigated how federal aid distributed in response to the COVID-19 pandemic affected pension contributions by state and local governments in the United States. The researchers found that state and local governments did not increase their pension contributions in absolute terms. However, because of layoffs and equity market appreciation, actuarially determined contributions fell during this period, leading to similar absolute contributions appearing more generous relative to the actuarially recommended amounts. Before the pandemic, the average government contributed approximately 96% of Actuarially Determined Contributions (ADC). In 2022, employer contributions increased to approximately 103% of ADC. Local governments showed more significant increases in pension contributions in direct response to pandemic aid than state governments. Researchers concluded that federal aid did, in fact, flow, in part, to pension funds and that pension contributions did increase relative to the recommended amounts–but the overall improvement was modest, indicating future fiscal stimulus of this nature is unlikely to have a significant impact on public pension funding. The full working paper can be found here.

Quotable Quotes on Pension Reform 

“(The COVID-19 pandemic) really silenced the conversation because we got so much money from the federal government that we were able to make our budgets work, but really, this problem started 20 years ago, almost a quarter century ago, with the pension funds.”
—Director of the Center for Public Finance at Rice University’s Baker Institute John Diamond quoted in “Houstonians should expect major rate, fee hikes, expert says: ‘We’re in a little bit of a crisis,'” ABC13.com, March 25, 2024.

“It’s really a false premise because they are absolutely obligated to the fiduciary duty to the [pension] fund […] but the taxpayer is really not represented there.”
—District 13 Council Member Gay Donnell Willis, quoted in “Dallas public safety pension faces $160 million increase in unfunded liabilities,” KERA News, April 12, 2024.

“This is raw political power being used to squeeze billions from the public fisc. […] All you need is for the legislature and the governor to do the wrong thing once, and that cost is permanently stuck on New Yorkers who haven’t even been born yet.”
—Empire Center Director of Research Ken Girardin in “NY Pension Costs to Rise by More Than $4 Billion Under New Plan,” Bloomberg, April 10, 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 Alaska Defined Benefit (DB) – Defined Contribution (DC) dashboard compares retirement benefits for a wide variety of Alaska workers in different fields and starting at different ages in the defined contribution or the defined benefit track. You can access the interactive tool here.