Pension Reform Newsletter — February 2019

This newsletter from the Pension Integrity Project at Reason Foundation highlights articles, research, opinion and other information related to public pension challenges and reform efforts across the nation. You can find previous editions here.

In This Issue:

Articles, Research & Spotlights 

• Analysis of Georgia’s Proposed Pension Reform
• Recommendations for Saving Pennsylvania’s Pensions
• Oregon’s Pension Needs More than a Tax Rebate
• New Data from Illinois Cities Show Pensions Pressures

News in Brief

Quotable Quotes on Pension Reform

Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Analysis of Georgia House Bill 109 and Its Impact on Georgia TRS Solvency

With $18.6 billion in unfunded pension debt, the Teachers Retirement System (TRS) of Georgia is in need of robust and lasting reform. A new piece of legislation, House Bill 109, looks to improve the system’s fiscal standing going forward. The bill makes no changes to the benefits of current employees, but establishes a new tier for all new hires. Reason’s Evgenia Sidorova details the changes proposed in the pension reform bill, adding a detailed evaluation on the impact the bill will have if passed. Applying the bill’s provisions to a previous analysis by Reason, she finds that HB 109 does not by itself resolve the primary issues that caused the system’s current funding woes.

» FULL ARTICLE

» REFORM SCORECARD: Does Georgia’s 2019 Legislation Meet Objectives for Good Pension Reform?

» RELATED: Is Georgia’s Pension a Good Fit for Teachers?

Pennsylvania Commission’s Recommendations for the State’s $60 Billion Pension Debt

A Pennsylvania commission recently released a report giving several recommendations for the Commonwealth’s two largest public pensions—the Pennsylvania Public School Employees’ Retirement System (PSERS) and the State Employees’ Retirement System (SERS). The recommendations include cost-saving measures such as the consolidation of the two plans into one and the reduction of management fees through the use of index funds. The report also emphasizes the importance of making annual required payments in full, which the commonwealth has had problems with in the past. In this commentary, Reason’s Evgenia Sidorova and Andrew Abbott summarize the commission’s report and evaluate the impact of the various recommendations.

» FULL ARTICLE

Before Oregon Diverts Tax Rebates to PERS It Should Make Lasting Pension Reforms

With revenues exceeding budget forecasts due to strong market performance, Oregon legislators have an opportunity to divert excess funds to the state’s underfunded pension plan. But state policymakers should view this as more than a chance to make a one-time infusion of funds into the 69 percent funded Public Employees’ Retirement System (PERS). Reason’s Marc Joffe illustrates the unique opportunity Oregon currently finds itself in, explaining the possible reforms the state could adopt to propel the pension system into a more secure long-term position. Those legislators who are interested in improving the retirement security of government workers ought to take advantage of this moment to directly address the factors that contributed to PERS’ current underfunding.

» FULL ARTICLE

Underfunded Pensions Heighten Risk of Service Insolvency for Local Governments in Illinois

Chicago’s pension struggles are well documented, but new data published by the Illinois Department of Insurance show that several cities in the state are in the same perilous situation. Reason’s Marc Joffe analyzes these statistics to show the level of budgetary crowd out—also termed service insolvency—local Illinois governments are experiencing because of growing pension costs. His analysis shows a dozen cities with funding levels below 50 percent. Using a newly developed method to measure a government’s ability to meet its pension and other long-term obligation, Joffe also finds that, while all of these Illinois cities are in a precarious position, Chicago’s level of distress still stands out from the group.

» FULL ARTICLE

News in Brief

Update to an Analysis on Public Pension Contributions: A new study from the Society of Actuaries (SOA) updates an analysis from 2017 by examining the contributions of 180 public pensions over time. By analyzing employer contributions only, the new study surveys the trends in payments made into pension plans, as well as the efficacy of these payments in lowering a plan’s unfunded liabilities. The study finds that the dot-com and 2008 market crashes resulted in most plans (84 percent) making payments that weren’t enough to reduce their pension debt in 2011. While initially the percentage of plans in that group decreased, the reduction has leveled out, with most plans (63 percent) still making payments too small to reduce their unfunded liabilities in 2017. The study also finds that pension debt is growing despite annual payments rising on average. The full study is available here.

New Study Examines Massachusetts’ Pension System: Despite several attempts at pension reform over the past years, Massachusetts still faces major obstacles in ensuring the financial security of its public workers. A new study from the Pioneer Institute takes an in-depth look at the Commonwealth’s pension system, finding that its unfunded liabilities have nearly tripled since 2003, placing it well above the national average for per capita unfunded pension liability. These struggles arose despite relatively good market performance and economic growth when compared to other US states. The study also takes a looks at the Commonwealth’s funding schedule, finding that repeatedly extending the schedule has caused a backloaded payment structure that will generate overwhelming contribution rates in the later years. The full study is available here.

Quotable Quotes on Pension Reform

“If I were relocating into some state that had a huge unfunded pension plan, I am walking into liabilities…Because I mean, who knows whether they’re gonna get it from the corporate income tax or my employees — you know, with personal income taxes or what. But that — that liability isn’t gonna — you can’t ship it offshore or anything like that. And those are big numbers, really big numbers.

But the politicians are the ones that really haven’t attacked it in a good many states. And when you see what they would have to do — I say to myself, ‘Why do I wanna build a plant there that has to sit there for 30 or 40 years? ‘Cause I’ll be here for the life of the pension plan and they will come after corporations, they’ll come after individuals. They — just — they’re gonna have to raise a lotta money.”

–Warren Buffett, quoted in Jacqueline Pitts, “Warren Buffett Warns Companies to Avoid States with Unfunded Pension Liabilities,” The Lane Report, February 26, 2019.

“[I]t’s clear that the rising cost of benefits that were meant to protect teachers is now endangering teacher pay and larger school funding in a way that was never anticipated. Indeed, school districts will likely be seeing red for some time — both at rallies and in their budgets.”

–Senior Fellow at the Manhattan Institute Josh McGee, “Teachers Strike for Higher Pay Because Administration and Benefits Take Too Much Money,” USA Today, February 18, 2019.

“One major concern we have is they reamortized, changed the ramp, the payment schedule, and they didn’t point out what the new payment plan looks like, so I don’t see what that new ramp is and we want the state to go to a level dollar so it doesn’t always have this increasing payment obligation.  That’s what strains the fiscal resources.”

–Executive Director of the Center for Tax and Budget Accountability Ralph Martire on a proposed change to Illinois’ pension funding schedule, quoted in Elizabeth Bauer, “Are Illinois Public Retirement Systems Pension Funds or Pyramid Schemes?,” Forbes, February 22, 2019.

“Problems arise when those making the investment decisions are doing so on behalf of others who do not share their ESG [Environmental Social Governance] objectives. This problem is most acute when the individual cannot easily exit the relationship. For example, pension beneficiaries often must remain invested with the pension to receive their benefits. When a pension fund manager is making the decision to pursue her moral goals at the risk of financial return, the manager is putting other people’s retirements at risk.”

–SEC Commissioner Hester Peirce on prioritizing social interests in public pension investment, quoted in Wayne Winegarden, “Public Pension Funds’ Sole Responsibility Is to Secure the Retirement of Public Sector Workers ” Forbes, February 14, 2019.

Contact the Pension Reform Help Desk

Reason Foundation’s Pension Reform Help Desk provides information on Reason’s work on pension reform and resources for those wishing to pursue pension reform in their states, counties and cities. Feel free to contact the Reason Pension Reform Help Desk by e-mail at pensionhelpdesk@reason.org.

Follow the discussion on pensions and other governmental reforms at Reason Foundation’s website or on Twitter @ReasonReform. As we continually strive to improve the publication, please feel free to send your questions, comments and suggestions to zachary.christensen@reason.org.

Published by the Pension Integrity Project at Reason Foundation

Edited by Zachary Christensen, Senior Policy Analyst, Reason Foundation