Pension Reform Newsletter — November 2018
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Pension Reform Newsletter

Pension Reform Newsletter — November 2018

Michigan looks to bolster retirement security for police, privatization doesn’t orphan public pensions, 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 

  • Michigan Looks to Bolster Retirement Security for Police
  • Privatization Doesn’t Orphan Public Pensions
  • SEC Commissioner Endorses Transparency in Pension Reporting
  • Looking Past One-Year Returns in Iowa
  • Causes of the Gap Between Well and Poorly Funded Pensions

News in Brief

Quotable Quotes on Pension Reform

Contact the Pension Reform Help Desk


Articles, Research & Spotlights

Improving the Solvency of the Michigan State Police Retirement System

Michigan’s recent reform of the state public school employee pension plan (MPSERS) was a positive step toward improving the plan’s funding policy. Now the state legislature has an opportunity to improve the solvency of the Michigan State Police Retirement System (MSPRS) through House Bill 6475, which is a proposal to, among other things, adopt a “level dollar” amortization method to eliminate backloading of annual contributions into the plan. Reason’s Leonard Gilroy recently offered testimony to the Michigan House Financial Liability Reform Committee explaining that the proposed reform would effectively reduce the risk of rising contribution rates while ensuring pension debts are paid as soon as possible.

» FULL TESTIMONY

Privatization Doesn’t Orphan Public Pension Systems

Amidst a growing trend toward the privatization of public workers in Kentucky, several misconceptions have arisen in the public discourse. Most notably, critics of Western Kentucky University’s move to shift some workers to a privately managed contractor are arguing that the reduction in membership will make it more difficult for the Kentucky Retirement System to reduce its pension debts, and that the university is attempting to sidestep these debt payments. Reason analysts Zachary Christensen and Austill Stuart evaluate these claims and find that privatizing workers—and consequently moving them out of a pension plan—does not inherently inhibit a defined benefit pension plan’s ability to pay off unfunded liabilities.

» FULL ARTICLE

SEC Commissioner Endorses Efforts to Make Municipal Finance Documents More Transparent

A growing movement focuses on converting public financial statements into a machine-readable format, which would greatly improve fiscal transparency and accountability between governments and the taxpayers they serve. Earlier this month, SEC Commissioner Robert Jackson responded to a question about applying this policy to municipal financial reports, expressing support and excitement for this revolutionary reform in government transparency. Reason’s Marc Joffe spells out the importance of this development in a recent commentary.

» FULL ARTICLE

» MORE ON MACHINE-READABLE REPORTING

Iowa: Strong Pensions Require More Than One Year of Solid Returns

While market investment returns from the last two years have outpaced expectations of the Iowa Public Employees Retirement System (IPERS), the gains from this will hardly make up for the nearly $7 billion in pension debt caused by a variety of issues with the system’s assumptions and funding policies. Reason’s Raheem Williams examines IPERS’ growing pension debt in a new article, showing that the current funding shortfall faced by the system is a culmination of several problems over the past 16 years. Furthermore, he demonstrates that policymakers cannot depend on positive market performance in the short term to make a lasting course correction for the retirement security of Iowa’s public workers.

» FULL ARTICLE

Research Asks Why Public Pension Funding Gaps Are Widening

Growing unfunded liabilities and pension contributions are no surprise to those who follow the trends of public retirement systems, but new research shows that different systems express this trend with greatly differing degrees of severity. The Center of Retirement Research has released a report showing a growing gap between the best and worst funded pension plans around the country. Reason’s Anil Niraula explains these results in a recent article, detailing the two main factors driving the difference between the best and worst: contributing below the required annual amount and investment returns performing below assumptions.

» FULL ARTICLE

News in Brief

Frontline Focuses in on Kentucky’s Pension Crisis: PBS’ award winning documentary series, Frontline, examined the pension troubles plaguing the Kentucky Retirement System (KRS). The hour-long documentary highlights the various sides of this complicated issue, giving voice to policymakers, public workers, and taxpayers alike. The full video is available here.

New Data and Map Show State Pension Funding Over Time: The Federal Reserve released an interactive map that illustrates aggregated state funding ratios from 2002 to 2016. Along with the map, the page includes a table with data used for the visualization. This analysis is very similar to one produced by Reason’s Pension Integrity Project last year. Both analyses effectively show the lasting effect the 2008 financial crisis, with some states faring better than others in the following recovery. The visualization and data are available here.

Alton, IL: Report Shows Pension Costs Crowding Out Other Public Services: A recent report from the Illinois Policy Institute uses tax and budget data from the city of Alton, Illinois to show the expansion of pension costs in the municipal budget. The analysis shows that over the last 17 years, pension costs went from taking up 30 percent of the city’s property tax revenue in 2000 to 78 percent in 2017. This more than doubling of the share of property tax revenue demonstrates the growing budgetary pressure Illinois municipalities are facing, as the costs for their public pensions continue to rise faster than the growth of their available funds. The full report is available here.

Quotable Quotes on Pension Reform

“Plenty of folks bear the responsibility for this gloomy state of affairs. For years, particularly in municipal and state plans, employers and employees paid too little in contributions to meet accrued benefits. Accounting and actuarial rules allowed both public and private pensions to avoid reporting their actual state of poor health.

Seeking to get lucky with risky investments, pension sponsors have increasingly moved to hedge funds, private equity and infrastructure holdings, often without full knowledge of how much these nonstandard investments cost and how risky they are.”

–Professor at Wharton University of Pennsylvania Olivia Mitchell, “The Growing Pension Black Hole is Pulling Us All In,The Hill, November 5, 2018.

“The contributions now coming in are about equal to the benefits going out…The fact is that funding is critical. … All of this is caused by the fact that from 2000 to 2015, we didn’t put enough money in. It’s not investment related. It’s funding, funding, funding.”

–Kentucky Retirement System Board Chairman David Harris, quoted in John Cheves, “Kentucky’s Main Pension Fund for State Workers Was Already Frail. It Just Got Weaker.” Lexington Herald-Leader, November 8, 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.