Pension Reform Newsletter – March 2018
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Pension Reform Newsletter

Pension Reform Newsletter – March 2018

Three states introduce major pension reform bills.

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 

  • Three States Introduce Major Pension Reform Bills
  • New Jersey and the Rate of Return Rollback
  • Pensions & Phoenix’s Municipal Finances
  • Pension Debt & Cook County, IL Credit Downgrade

News in Brief

Quotable Quotes on Pension Reform

Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Significant Pension Reform Bills Introduced in Three States

Legislatures in several states are considering major changes to benefit designs, primarily for new hires. Reason recently provided testimony on Colorado’s SB 200, which seeks to set the state’s pension funding back on track by increasing contributions, reducing COLAs, and expanding access to the state’s current optional defined contribution retirement plan to a wider pool of public employees. South Carolina lawmakers are considering policy that reflects Reason’s suggestions from last year. Kentucky policymakers are also addressing major pension reform with SB1, a scaled-back version of last October’s bill.

» COLORADO: Reason Testimony | Denver Post Article on Bill

» SOUTH CAROLINA: Reason Analysis | HB 5000 | SB1040

» KENTUCKY: Current Bill | Previous Proposal

New Jersey and the Rate of Return Rollback

New Jersey’s newly-appointed state treasurer recently issued a policy to undo the previously planned lowering of the assumed rate of return for the state’s pension system, and to instead bring the rate down gradually over five years. Reason’s Zachary Christensen details the unusual set of events that led to New Jersey moving in a direction with its assumptions that stands in stark contrast from the more conservative trend seen in the rest of the country. As Christensen writes, this exposes the state to unnecessary risk and ignores best accounting practices, all for purely political purposes.

» FULL ARTICLE

Despite Pension Changes, Costs Continue to Weigh on Phoenix’s Municipal Finances

The City of Phoenix Employees’ Retirement System (COPERS) has continued to crowd out more and more of the city budget despite several minor reforms. Since 2001, the city has seen its contributions to the system rise more than six-fold. Despite the rising payments, the pension is still underfunded with just a 57% funded ratio in 2017 and $1.8 billion in unfunded liabilities. Reason’s Marc Joffe examines this troubling trend in the city’s rising COPERS contributions and explains how Arizona’s Public Safety Personnel Retirement System (PSPRS) has taken steps to reduce contributions for municipalities like Phoenix.

» FULL ARTICLE

S&P Global Ratings Lowers Credit Outlook for Cook County, Citing Unfunded Pension Liabilities

Standard and Poor’s is warning Cook County by changing its outlook from “stable” to “negative.” The county, which includes Chicago and its surrounding areas, is facing a major pension funding crisis, with a pension plan that owes $14.1 billion more than it has in assets. Reason’s Anil Niraula explores the circumstances that led to Cook County’s current pension quagmire and explores the effectiveness of recent reforms. Despite some helpful policy changes, more will need to be done to prevent a credit rating downgrade for the county.

» FULL ARTICLE

News Notes

New Study on California’s Pension Debt: Calmatters recently released a report that takes an in-depth look at the current health of the state’s pension systems. The report calculates that the state’s contributions toward retirement and health care have nearly doubled, from $8.3 billion to $15.6 billion, since 2011. The full study is available here.

New Report on Michigan Municipal Pension Underfunding: The Michigan Department of Treasury has released the first set of reports, which under a new law is required to annually review the fiscal and financial solvency of all local government pension and retiree health care plans offered across the state. According to the first round of reporting, over 110 cities and towns—accounting for more than one-fifth of all municipalities in the state—have pension plans with a funded ratio below 60%. The full report is available here, and Reason Foundation’s analysis of the December 2017 legislation creating the new standards is here.

Quotable Quotes on Pension Reform

“…Take the uproar over stagnant teacher pay in America. A big part of teachers’ compensation is their risk-free pension. Risk-free assets have become more expensive in the past 20 years, and this means it is more expensive to finance pensions. If you include pension value in teachers’ pay, their compensation has increased. Compensation may not have increased enough, but that’s another issue. The fact is their pay did go up….”

–Allison Schrager, “Maybe Pension Beneficiaries Don’t Understand Risk“ Allison’s Ode to the Second Movement (e-newsletter), March 26, 2018.

Our pension crisis was decades in the making, and exacerbated by the failures of governors and legislatures of both parties over the years to pay the state’s share. I do not have a magic wand capable of making everything whole again in one budget. But, I am committed to continuing to ramp up our payments until we get there—in this budget, a total of $3.2 billion—an all-time high. We will make this payment honestly and in good faith. And, we will work with our public-sector leaders on other ways to speed this process along. We will find savings within the pension system by divesting of hedge funds and reinvesting the money that would have been lost in exorbitant fees. We will find long-term health care savings that can be reinvested into pensions.”

—New Jersey Governor Murphy, in his first budget address to the state, NJ.com, March 13, 2018.

“If we don’t address this, the liability grows and it increases the likelihood of crowding out issues in the state budget… We understand that the debt service takes money away from other budget priorities. And paying off the debt isn’t as sexy as building a highway.”

Colorado Senator Jack Tate, quoted in Ed Sealover, “Colorado PERA: Legislators Introduce Bipartisan Reform of State’s Public-Pension System.” Denver Business Journal, March 8, 2018.

“You want to put responsibility for paying pensions in line with the folks who determine who gets the pension benefits and at what level, so it’s actually good policy to do that. Democrats and Republicans have both agreed that it’s the right policy to do.”

—Illinois Governor Bruce Rauner, quoted in Cole Lauterbach, “Rauner Supporting Proposals to Shift State’s Teacher Pension Costs to Local Schools.” Illinois News Network, March 6, 2018.

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, Policy Analyst, Reason Foundation

Zachary Christensen is a policy analyst for Reason Foundation's Pension Integrity Project.