Pension Reform Newsletter — May 2019
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Pension Reform Newsletter

Pension Reform Newsletter — May 2019

Leveraging public assets for pension solvency, Arizona pensions seeing little reward for major risk taking, and more.

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 

  • Webinar: Leveraging Public Assets for Pension Solvency
  • New Jersey Pension Reform Legislation Introduced
  • Warren Buffett on States with High Pension Debt
  • Arizona Pensions: High Risk, Little Reward
  • Reviewing New Mexico’s Recent Pension Reform
  • Study Highlights Lagging State Pension Market Returns
  • Lessons from the Country’s First Teacher Pension Plan

News in Brief

Quotable Quotes on Pension Reform

Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Webinar: Leveraging Public Assets for Pension Solvency

Facing growing pension solvency challenges, a growing number of state and local governments are exploring options for leveraging public assets—typically through sale, lease or transfer—to shore up underfunded retirement plans. New Jersey’s transfer of its state lottery enterprise to several state pension funds in 2017 was a recent example of this approach that garnered national attention. Earlier this month, The Bond Buyer hosted a webinar sponsored by Reason Foundation on this emerging issue—featuring speakers from the Pension Integrity Project at Reason Foundation, Bipartisan Policy Center and the National Association of State Retirement Administrators—offering an opportunity for public finance officials, market analysts, industry players and other parties interested in this emerging policy area to hear from a diverse panel of experts on the opportunities, challenges, nuances and early lessons learned in this space thus far.



New Jersey Senate President Introduces Pension Reform Legislation

New Jersey Senate President Steve Sweeney has unveiled his bipartisan “Path to Progress” plan, which looks to avoid a hike in property taxes by tackling several of the state’s fiscal issues. At the center of this plan is a significant reform to the state’s two largest pension systems, the Teachers’ Pension and Annuity Fund (TPAF) and the Public Employees’ Retirement System (PERS). The proposed bill would install a new “stacked” retirement plan structure for new and non-vested workers, in which they still have the existing pension applied to their first $40,000 in income, with any income over that amount going to a cash balance plan. In this analysis, Reason’s Zachary Christensen summarizes the changes proposed in Sweeney’s plan, finding that the new structure would certainly alleviate some of the growing pressures of pension debt in the future. At the same time, the reform should not be seen as a comprehensive fix to New Jersey’s beleaguered pensions, as more will need to be addressed going forward.


Warren Buffett: Avoid States with Large Unfunded Pension Liabilities

States with growing unfunded pension debts are beginning to gain the attention of investors, including Warren Buffett, and not the type of attention a state would want. In a recent interview, Buffett advised against relocating—either personally or as a business—into a state that is struggling with huge unfunded pension liabilities, explaining that the government will eventually look to residents and businesses to pay the bill. In a commentary featured in Catalyst, Reason’s Anil Niraula explores this concept further, finding that states burdened with huge pension debts are often looking to increase taxes, which is likely contributing to people leaving for other states in many cases.


Arizona Pensions Seeing Little Reward for Major Risk Taking

In a recent Arizona Republic op-ed, Reason’s Leonard Gilroy warns about excessive risk-taking by all of Arizona’s state-level pension plans, which has helped produce $26.6 billion in unfunded pension promises. Ratings agency Fitch recently ranked Arizona as #1 among the states in pension risk-taking, while ranking it as the sixth worst state in terms of investment performance. Servicing the state’s pension debt is increasingly crowding out other state and local spending, and stands as a major obstacle to increasing pay for teachers and government workers.


New Mexico Takes Steps to Reform Teacher Pensions, But More Is Needed

State lawmakers just passed a bill with the purpose of reforming the pension managed by the New Mexico Educational Retirement Board (NMERB). To help the poorly funded retirement plan—just 52% funded by GASB standards—the reform establishes a slightly increased rate of employer contributions and adjusts the retirement multiplier for new hires. Reason’s Anil Niraula and Andrew Abbott take a close look at this new reform, evaluating the significance of the changes. Using an analysis of the pension’s historic performance, they conclude that the reform isn’t nearly enough to fully address the problems NMERB faces.


Study: State Pensions Are Badly Trailing Their Own Investment Return Assumptions

A new study from Cliffwater LLC, an investment advisory firm, reveals that state pensions performed well below their expected market returns the past two decades. According to the report, the average asset-weighted return for all states was just 5.87% from 2000 to 2018, which is well below their expected 7.75% over that period. Reason’s Anil Niraula reviews Cliffwater’s findings and explains what they mean for state-level pension plans. He explores several implications of underperforming investments, including growing pension debt and increased risk in asset allocation.


As Teacher Pensions Turn 125, the Old Lessons Learned Are Still Relevant

in 1894, New York established the country’s first public teacher pension, which faced several significant issues and eventually went bankrupt after just 21 years. Still, its history and eventual shortcomings serve as valuable lessons to the way we view public pensions today. Reason’s Marc Joffe details the plan’s history from its inception to its eventual collapse, as well as the subsequent restructuring of the plan. He uses this history to highlight the dangers of not properly funding promised retirement benefits, and to explain the reasoning behind the lifelong service model that remains a part of public pension plans today.


News in Brief

New Report Explores How Unfunded Pension Costs Threaten Educational Equity in California: A report from Pivot Learning studies the rising costs of unfunded pension liabilities in California school districts, showing how these costs are applying a “big squeeze” to the state’s public education funding. Over the past decade, the amount paid per pupil has more than tripled, making it harder to find funding for teachers’ salaries and services for high-need students. The report demonstrates that rising pension debts are contributing directly to inequity in California public schools by taking away from funding needed for the neediest of students—low-income, English learners, or otherwise marginalized. The full report is available here.

Quotable Quotes on Pension Reform

“If we fail to act, property taxes will continue to go up, and pension, health benefits and debt service will continue to eat up every penny of state revenue growth over the next three years, crowding out our ability to make the investments we need to make to increase aid to growing school districts, expand preschool, fix NJ Transit, make college affordable and provide funding for social service programs that serve our most vulnerable citizens…We need to have the courage to make the right decisions and take the actions that are best for New Jersey’s future.”

–New Jersey Senate President Steve Sweeney, quoted in “Sweeney, Sarlo, Oroho, Greenwald Unveil Legislation to Fix Fiscal Crisis and Cut Property Taxes,” Insider NJ, May 16, 2019.

“Politicians in our Legislature, as well as in many others, were loath to raise taxes or cut other spending to fund fully the future obligations for pension systems. So they avoided the political trouble, and made decisions on the basis of short-term thinking.

Over time, Louisiana has made a wiser choice to pay these down with big annual contributions from the state budget. Those payments will squeeze the budget for decades to come, but high rates of payment by schools — as well as universities, paying in for part of the UAL — also squeeze local districts’ budgets.”

–Louisiana Legislative Auditor Daryl Purpera, “Our Views: Pension Debts Crowding Out Better School Investments,” The Advocate, May 20, 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. 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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