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
- Texas Pension Reform Passes, But More Is Needed
- New Jersey Pensions Need Help, Despite Protestations
- Public Pension Issues Disproportionately Affect Women
- Louisiana Needs to Recognize All Forms of Debt, Including Pension Debt
- Kansas Lawmakers Weigh Short- and Long-Term Pension Costs
- Pension Reporting Will Now Include Measurements of Risk
News in Brief
Quotable Quotes on Pension Reform
Contact the Pension Reform Help Desk
Articles, Research & Spotlights
Texas Teacher Pension Funding Bill Passes, But More Still Needs to Be Done
The Texas Legislature finished its 2019 session by passing significant pension reform through Senate Bill 12. The bill increases employee and employer contributions into the state’s underfunded Teacher Retirement System (TRS) and provides a much-needed one-time payment to retired teachers to make up for years without cost-of-living adjustment (COLA) payments. In a follow-up commentary on the reform, Reason’s Zachary Christensen and Steven Gassenberger analyze the effects of the changes. They determine through forecasting that, while positive, the changes aren’t likely to be enough for retired teachers to consistently receive COLAs in the future.
State Sen. Sweeney Proposal Would Help Secure New Jersey Pensions
New Jersey Senate President Stephen Sweeney has proposed major reform for the state’s public pensions in Senate Bill 3753. The reform looks to make changes to the pension’s structure for future and unvested workers, which would greatly reduce future costs and improve the security of the fund for the state’s workers. But the introduction of this bill has garnered sharp criticism from some public unions. Originally appearing in the Star-Ledger, this op-ed features Reason’s Evgenia Sidorova and Zachary Christensen detailing the proposed changes and their merits, concluding that the proposed retirement structure will still be very attractive when compared to most other post-employment options.
The Public Pension Crisis Is an Especially Big Threat to Women
The public pension crisis affects all taxpayers and public workers. But many miss the fact that many of the affected professions are predominantly occupied by women, making it a particularly concerning issue for working women. In this commentary, originally published in the Orange County Register, Jen Sidorova explains how the pension crisis is not only creating government budgetary problems, it is also making it harder for women to get wage increases.
Public Pensions Left Out of Louisiana Debt Conversation
A recent State Bond Commission report indicates that Louisiana’s public debt is on the decline, but the report does not account for the significant amount of pension debt for which the state is responsible. As Reason’s Steven Gassenberger notes in this commentary—featured in The Advocate—unfunded pension liabilities may differ from traditionally recognized debt, like bonds, but they represent a similar legal and financial obligation. Louisiana should recognize and account for pension debt as it does other forms of debt.
The Debate Over Pension Debt and Government Spending in Kansas
Kansas Gov. Laura Kelly has spent her first year butting heads with the state legislature over issues related to pension funding. With the priority of reducing government spending, Kelly appears to be promoting lower pension payments today. The legislature, on the other hand, is promoting policy that increases contributions into the state’s pension to avoid higher long-term costs. In this commentary, Reason’s Raheem Williams details the debate taking place among Kansas policymakers and explains why Gov. Kelly’s approach would create several unwanted consequences for the state’s workers and taxpayers.
New Risk Measures in Effect for Defined Benefit Plans
The Accounting Standards Board has released new accounting requirements for defined benefit plans, which will be included in valuation reports dated after November 2018. The new reporting will provide much-needed insight into the levels of risk taken on by public pensions. Reason’s Ryan Frost details the new reporting standards and highlights various types of risk that will be addressed. He also gives some of the useful applications this new information will allow.
News in Brief
Setting the Record Straight on West Virginia’s 1991 Pension Reform: A new report from TeacherPensions.org studies West Virginia’s failed defined contribution (DC) plan experiment from the early 1990s, an example often cited by critics of alternative retirement structures. The report finds that the Mountain State’s DC plan failed to provide a valuable retirement to its members due to long vesting periods and low total contribution rates. Furthermore, the report finds that the previous defined benefit (DB) pension plan that existed before the 1991 reform also fell short in that aspect. In the end, the report concludes that DC plans are not inherently better or worse than DB plans. Neither type of plan is immune to failure, highlighting the importance of proper plan design. The full report is available here.
Causes to Current Pension Shortfalls and Solutions to Reach Full Funding: This summer’s issue of National Affairs features an article that effectively explains the pension funding quagmire that many state and local governments currently face. Using a brief history on funding going back to the 1960s, the commentary illustrates the changes public pensions have experienced in risk and returns. Noting that the time to act is now, the author gives three major solutions that would help defined benefit plans adjust to the issues at hand: lowering investment-return assumptions, adjusting mortality assumptions, and shortening amortization schedules. The full article is available here.
Quotable Quotes on Pension Reform
“In 2014, to help close the staggering $75 billion funding gap in its teacher pension system, the state directed school districts to significantly increase their contributions. At the time, districts spent an average of $500 per pupil on pensions; in 2020, they’ll be contributing an average of $1,600 per pupil.”
– Arun Ramanathan and Christopher Edley Jr, “Open Forum: Unfunded Pensions Are Hurting California Students and Teachers,” San Francisco Chronicle, June 10, 2019.
“New Jersey needs to make structural financial reforms because its increasing debt and unsustainable spending on public employee pensions and benefits is hamstringing its ability to make the necessary investments in higher education, infrastructure and economic development…The Path to Progress Report provides a roadmap that will help put this state on sounder financial footing, and make New Jersey more competitive. New Jersey has a $151 billion pension liability and post-employment benefit obligation and its long-term debt has increased 382 percent over a 10-year period…Instead of remedying budget imbalances by enacting new tax increases, the state should address the root of the problem by fixing the structural imbalances in the way the state raises and spends money.”
—New Jersey Business and Industry Association Vice President Andrew Musick, quoted in “NJBIA Supports First Round of Path to Progress Bills Advancing in Legislature,” Insider NJ, June 13, 2019.
“’It’s always difficult when you believe in something so much, and I am still to this day a huge supporter of labor,’ said Mitchell, who quit her job as a state worker to serve in the House. ‘I understand this moment for them and their members, but at the end of the day, I like to think that when you look at the facts, and you realize, ‘I promised to protect these people’s retirement,’ if you realize the only effective way you can do that is by taking a vote that might look bad right now, but actually preserves that retirement benefit for those members, that to me was the end moment and the greater good.’”
–Oregon Representative Tiffiny Mitchell on the vote to reform the state’s pension, quoted in “Democrats Who Voted for Pension Reform Face Angry Unions,” The Astorian, June 7, 2019.
“It would have a drastic impact to our campus…In 2008, we were paying $2.6 million in pension contributions. Today we’re paying $18 million. Without some action soon, we’ll be paying approximately $31.5 million next fiscal year.”
–Northern Kentucky University Vice President of Government, Corporate and Foundation Engagement Adam Caswell on growing pension costs, quoted in “Higher Pension Costs Kick In for Some Agencies July 1. Will the Legislature Bail Them Out?,” Courier Journal, June 18, 2019.
“No one is left untouched in this conversation…Local government credit ratings have gone down because of this pension burden, the state’s rating has gone down…Cities, counties, school districts — it doesn’t matter.”
–Moody’s analyst Heather Correia, “Pension Obligations Weigh on Schools, Local Governments in New Mexico,” Santa Fe New Mexican, June 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 pensionhelpdesk@reason.org.
Follow the discussion on pensions and other governmental reforms at Reason Foundation’s website. 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
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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.