Pension Reform News: How West Virginia improved funding and why reforms often fall short

In This Issue:

Articles, Research & Spotlights 

• Explaining Improved Funding of West Virginia’s Pension System
• How Pension Reform Often Falls Short

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

Articles, Research & Spotlights

West Virginia Improved Teacher Retirement Funding Through Increased Spending, Not Better Plan Design 

Facing significant funding challenges, the pension system for West Virginia’s teachers was closed to new workers in the early 1990s, only to be reopened just 15 years later. The decision to reform the teachers’ plan and the reversal of this decision has been the subject of much debate among policy experts, some claiming that this example illustrates the value of defined benefit (DB) pensions and the pitfalls of defined contribution (DC) plans. Reason Foundation’s Mariana Trujillo examines the decisions behind the plan’s long path toward improved funding, revealing a story that is about funding policies and not one that endorses defined DB over DC plan design.

Public Pension Reforms Often Fall Short of What Is Needed

With many public pension systems dealing with significant increases in unfunded pension liabilities, policymakers must find ways to shift more of government budgets to pay for growing pension costs. In many cases, lawmakers secure more funding without addressing the causes of these rising costs. Reason’s Richard Hiller explains how this approach often leads to even more avoidable costs down the road. Underfunded pension plans are a complex issue that requires comprehensive changes, not just more taxpayer money thrown at the problem. Real change requires an examination of a plan’s objectives—the retirement security goals that a public system wants to achieve—and a recalibration of benefits to better match the needs of today’s evolving workforce.

News in Brief

Citing Improved Discipline in Pension Funding, S&P Revises States’ Credit Ratings Up

S&P Global Rating’s performance rating summary for 2023-2024 shows a positive trend in U.S. state general obligation bond ratings. For the second consecutive year, most rating actions and outlook revisions have been favorable. In 2023, upgrades were given to five states (Alaska, Kansas, Louisiana, New Hampshire, Oklahoma, and Pennsylvania), following three upgrades in 2022. The S&P report cited “strengthened pension discipline and improved balances, as well as replenished reserves” as factors for the positive outlooks. The full report can be found here.

Quotable Quotes on Pension Reform 

“From 2013 through 2022, the PPFS [Public Pension Funding Study] asset allocation was largely stable, but our 2023 study saw a noticeable move from equity and fixed income into private equity and real estate.” 

— Milliman Inc Consulting Actuary Becky Sielman quoted in “Milliman annual Public Pension Funding Study finds public pensions shifted portion of equity, fixed income assets to private equity and real estate,”  MarketWatch, Dec. 18, 2023

“Required pension contributions could go up, even with the benefits of consolidation, because funding levels deteriorate because of other factors — because people are living way longer than expected because actuaries’ assumptions are totally off.”

— DePaul University Professor Amanda Kass, quoted in “Effect of police and fire pension consolidations on property taxes remains uncertain,” Chicago Tribune, Dec. 26, 2023

Data Highlight

Each month, we feature a pension-related chart or infographic of interest generated by our team of analysts. This month, we are showcasing a graph from Jordan Campbell, visualizing the difference in the support for environmental, social, and governance (ESG) proposals between public pension plans and general shareholders. You can access the visualization along with a detailed examination of the topic here.