Pension Reform Newsletter — January 2019
ID 110765393 © Sean Pavone |

Pension Reform Newsletter

Pension Reform Newsletter — January 2019

Fort Worth proposes pension reform, examining divestment activism in pension policy, and more.

This newsletter from Reason’s Pension Integrity Project 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 

  • Pension Impacts of Promised Georgia Teacher Raise
  • Fort Worth Proposes Pension Reform
  • Examining Divestment Activism in Pension Policy
  • San Antonio Experiences a Costly Credit Downgrade

News in Brief

Quotable Quotes on Pension Reform

Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Consider Pension Impacts of Gov. Kemp’s Promised Teacher Raise

Georgia Gov. Brian Kemp, ran on a promise of giving raises to all of the state’s teachers. His pledge of an additional $5,000 for every teacher is estimated to cost a total of $600 million, but the effect this raise would have on the teachers’ pension funding is being largely overlooked. In this Atlanta Journal-Constitution column, Reason’s Evgenia (Jen) Sidorova explains how the increase to teachers’ pay will create an unforeseen increase in pension benefit calculations, which could further increase the state’s growing pension debt. To ensure the retirement security of Georgia teachers, policymakers should pursue meaningful pension reform along with any increase in teachers’ pay.


Fort Worth Takes Steps Toward Meaningful Pension Reform

After a long and difficult process, Fort Worth’s public officials believe they have found a compromise that could fix its struggling pension plan while still honoring the promises made to public workers. In December, the City Council passed a set of ambitious reforms that, if approved by the city’s workers, would help steer the plan to a healthier level of funding. Reason’s Zachary Christensen and Andrew Abbott detail the proposed changes in a recent commentary, finding that while the reform falls short in some key areas, it does make several meaningful changes that would improve the retirement security of Fort Worth’s public work force.


Social Change Is Outside the Role of Public Pensions

In an effort to encourage more responsible practices among gun manufacturers, Florida’s largest pension system has joined a coalition of more than a dozen other public pension plans that have signed the Priniciples for a Responsible Civilian Firearms Industry. This action is part of a growing trend among pension administrators, in which fund managers attempt to use their investments for the purposes of influencing particular industries according to what they deem to be best for society. In this commentary, Reason’s Anil Niraula takes a detailed look at this practice, exploring its motives as well as efficacy. He finds that not only is the effectiveness of this practice in doubt, but it is well outside the responsibility of pension funds.


Fitch Downgrades San Antonio Over Fiscal Inflexibility

Citing a lack of financial flexibility, Fitch Ratings recently downgraded San Antonio’s bond rating from ‘AA to ‘AA+’, which will negatively impact the cost of any future issuance of debt for the city. The downgrade comes as a result of the passage of new law, which weakened the city’s position in future union negotiations. Reason’s Steven Gassenberger examines this downgrade and the role rising costs of pension benefits had in Fitch’s evaluation.


News in Brief

Video Details Role of Pensions in Los Angeles Teacher Woes: Reason TV released a new video reporting on the recent strike of teachers in Los Angeles, identifying growing pension costs as a major financial hurdle that complicates any talk of increased pay and services. To explore the role of pensions in the standoff, Nick Gillespie talks with Chad Aldeman from Bellwether Education Partners and, who explains that the costs of pension and health benefits are eating up more and more of school budgets, leaving less room for additional services like librarians and nurses. He explains why the current structure of teacher benefits may not be the best fit for modern teachers, pointing to charter schools as an example for providing more sustainable retirement benefits. The full video is available here.

New State Auditor Report on Health of Illinois’ State Pension Systems: Illinois’ Office of the Auditor General released its annual State Actuary’s Report, which examines the fiscal health of the state’s six public pension funds. According to the report’s findings, the state’s pension contributions will need to increase by $845 million in 2020, reaching an annual total of $9.39 billion. The report recommends additional stress testing and possible adjustments to assumptions for all state pension systems. Notably, the actuaries commissioned by the state warned that the state’s current target of 90 percent funding by 2045 is not in accordance with generally accepted actuarial principles and is further demonstration that Illinois—as well as all other pension plans—should target 100 percent funding and nothing less. The full report is available here.

Report Identifies Possible Improvements for Pennsylvania’s Pensions: Pennsylvania’s Public Pension Management and Asset Investment Review Commission released its final report on the commonwealth’s investment practices for its two pension plans. The report finds that there are several actions policymakers can take to not only improve the fiscal health of the plans, but also save significantly in taxpayer funding. Applying several proposed changes, they estimate a possible annual savings of up to $117 million, and a long-term savings of nearly $10 billion. Their recommendations include measures to reduce investment risk and improve on required annual reporting. They also advise that the commonwealth establish regular stress testing to help safeguard the retirement plans from market volatility. The full report is available here.

Expert Educates on Actuarial Assumptions: Brian B. Murphy published a commentary with GRS (one of the nation’s largest actuarial consulting firms), which looks to explain the purpose and process involved in determining actuarial assumptions for public pension plans. The paper details the various types of assumptions that a pension plan uses and explains the ways that these assumptions can affect the fiscal health of these plans. Interestingly, Murphy notes the increasing focus on experience studies to review and adjust assumed rates of return. He attributes this change to growing liabilities and tightening standards. The full report is available here.

Quotable Quotes on Pension Reform

“Before your eyes glaze over from the math, here’s the bottom line: the very nature of the way this plan — and public plans, in general — is structured, using a risky investment portfolio and calculating liabilities using expected returns for the valuation rate, inevitably means that the only way to stay appropriately-funded is to commit to boosting contributions, perhaps substantially, when needed, and run surpluses to minimize the need, or to define plan benefits in a way that’s adjustable to avoid this.

–Elizabeth Bauer, “Actuary-splaining Chicago’s Pension Liability: A Deeper Dive,” Forbes, January 24, 2019.

“This is a big deal. This is not paying down the state’s obligation—this is helping relieve the districts’ burden… I know it’s still 18.1 (percent in 2020-21), but it’s a relief to the system, and I think it’s an important one as well.”

–California Gov. Gavin Newsom on the $2.3 billion he’s proposed to put toward unfunded pension liabilities, quoted in Ricardo Cano, “It Didn’t Fix the L.A. Teacher Strike, But Newsom’s Pension Idea Would Help Schools, Anyway” Calmatters, January 13, 2019.

“There is a large and growing gap, but that’s not the primary problem. Although the value of those assets is known with reasonable accuracy, the liability figure is based on assumptions about the future. The actuarial and political assumptions are uncertain, but it is the investment assumptions – plans assume an average discount rate of 7 percent – that are the most problematic.”

–Aaron Brown, “The Pension Fund Problem Just Got Much Worse,” Bloomberg, January 13, 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

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

Published by the Pension Integrity Project at Reason Foundation

Edited by Zachary Christensen, Senior Policy Analyst, Reason Foundation

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Reason Foundation’s Pension Integrity Project has helped policymakers in states like Arizona, Colorado, Michigan, and Montana implement substantive pension reforms. Our monthly newsletter highlights the latest actuarial analysis and policy insights from our team.

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