Pension Reform Newsletter
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Pension Reform Newsletter

Pension Reform Newsletter

Bad investment return news for Texas and other states, why pension systems should avoid politically-motivated divestment policies, 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 

  • Pension Plans Need to Be Reformed, Not Removed
  • California’s Pensions Should Avoid Divestment Policies
  • Bad Investment News for Texas Teachers
  • How Pension Plans Depend on Returns
  • Challenges and Solutions for Florida’s Pension System

News in Brief

Quotable Quotes on Pension Reform

Contact the Pension Reform Help Desk 


Articles, Research & Spotlights

Public Pension Plan Designs Are the Problem, Not Pensions Themselves

A widely distributed commentary in The Wall Street Journal proposed a trade to solve the nation’s growing pension funding issues, namely that teachers accept their retirement plans be changed to defined contributions plans in exchange for higher pay. As a response, Reason’s Leonard Gilroy and Steven Gassenberger explain that the proposed solution misses the mark in understanding the cause of pension funding challenges. A practical assessment of pensions around the country suggests that retirement systems for teachers need to be reformed, not replaced.

» FULL ARTICLE

California Pension Funds Should Focus on Improving Funded Ratios, Not Politics

Activist groups are claiming victory on a change in investment strategy by the country’s largest public pension system, CalPERS, which recently announced it has discontinued investments in two private prison companies. While system managers claim the move is a part of a larger strategy to reduce risk—not a response to activist pressures—other pension systems have turned to divestment strategies to elicit change. In this commentary, Reason’s Zachary Christensen explains how pension boards do their members a disservice when they prioritize social interests over the security of the fund they manage. Public workers depend on the fund to grow enough to support them through retirement, and pension managers should focus on maximizing that growth and reducing risk.

» FULL ARTICLE

The Teachers Retirement System of Texas Is Increasingly Relying on Risky Investments

Poor investment results for the year ending June 30 are adding to the pressures facing the Teachers Retirement System of Texas (TRS). The system’s market experience over the latest reported year failed to meet the TRS expectations of 7.25 percent, which further contributes to the decade-long trend of average returns below the mark. Reason’s Steven Gassenberger aptly points out the implications of this trend, highlighting the need for an adjustment to the system’s assumptions as well as an adjusted investment strategy that accounts for the higher volatility and lower returns in the 21st century.

» FULL ARTICLE

Low Returns for Public Pensions Threaten Future Retirees

Results from the latest fiscal year are pointing to continued challenges for pension funds, with actual market returns below expectations in both short-term and long-term assessments. In this commentary, Reason’s Jen Sidorova explains the consequences of underperforming pension funds and the challenges involved in adjusting expectations.

» FULL ARTICLE

Florida Retirement System is Being Mismanaged In a Variety of Ways

For a state known to attract retirees, it is surprising to see Florida’s retirement system struggling to manage the post-employment plan for public workers. The state’s system is facing the challenges of both underfunding and increasing costs. Additionally, the state’s defined contribution plan (which is supposed to be an attractive low-risk alternative) isn’t structured to provide enough of a benefit for retirees. In this column, Reason’s Raheem Williams emphasizes the types of pension reforms needed in the sunshine state.

 » FULL ARTICLE

News in Brief

Update to Analysis on State and Local Pension Funding: The Center for Retirement Research and the Center for State and Local Government Excellence have released an update to their annular report on public pension funding. Using data from the Public Plans Database, the analysis examines trends in funded ratios going back to 2001. Over that sixteen-year span, pension funds have dropped from fully funded to an aggregate funded ratio of 72.8 percent. To better understand this trend, the report compares growth in assets to growth in liabilities over that span, finding that while liability growth has slowed, it has still outpaced the increases in assets. The full paper is available here.

Report Examines the Benefit of Consolidating Local Illinois Pensions: After an extensive period of study, the Illinois Pension Consolidation Feasibility Task Force has presented its findings to Gov. JB Pritzker. Their analysis finds that consolidating all public pension assets for suburban and downstate police and fire plans would greatly benefit their overall market performance, which would help improve the health of many local plans in the long-run. They calculate that a consolidated plan would be able to achieve similar investment performance to that of the larger state-level plans, which would generate an additional $820 million to $2.5 billion over the next five years. The task force advocates that two consolidated plans, one for municipal police and one for municipal firefighters, be established during the next legislative session. The full report is available here.

Quotable Quotes on Pension Reform

“Our pension reform is going to be entering its third phase, which is now something of a hybrid for the new people entering the pension program. Folks already vested in the original program will remain so; new employees will see new options, but also a program that takes care of their post-employment futures, as well as the state’s ability to better support these long-term obligations.

Again, my thanks to the Reason Foundation and the Pew Foundation for their invaluable advice in crafting a program that meets the needs of all the parties to this system.”

–South Carolina House Representative Bill Herbkersman, “Contributions Continue to Make a Big Difference,” Bluffton Today, October 9, 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 or on Twitter at @ReasonPensions.

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

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