Pension Reform Newsletter — September 2019
ID 94602525 © Sean Pavone |

Pension Reform Newsletter

Pension Reform Newsletter — September 2019

Analysis of proposed New Mexico PERA reforms, four things Florida’s pension system needs to fix, the impact of negative interest rates, 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 

  • Analysis of Proposed New Mexico PERA Reforms
  • Arizona’s Largest Pension System Advised to Expect Lower Returns
  • Four Things Florida’s Pension Needs to Fix
  • More Pension Contribution Increases for Colorado
  • California Officers Demonstrate Commitment to Pension Solvency
  • Are Negative Interest Rates on the Horizon for the U.S.?
  • Study Identifies Trends in Risk and Pension Fund Investment
  • Letter Suggesting Updates to Actuarial Standards

News in Brief

Quotable Quotes on Pension Reform

Contact the Pension Reform Help Desk 

Articles, Research & Spotlights

Analysis of the New Mexico PERA Pension Solvency Task Force’s Preliminary Recommendations

Several months back, Gov. Michelle Lujan Grisham convened a Pension Solvency Task Force to identify possible solutions to improve the solvency of New Mexico’s Public Employees Retirement Association (PERA). The task force recently issued a set of recommended reforms that could save, by their calculation, $6 billion over the next 25 years. In a newly released analysis, Reason Foundation partners with the Rio Grande Foundation to perform an analysis on the proposed reforms. Authors Anil Niraula, Andrew Abbott and Leonard Gilroy cover the sources of pension debt and evaluate each of the task force’s suggested changes. They conclude that the proposed changes would be positive steps for the state’s pension funding, but more challenges—funding policy, actuarial methods and assumptions—remain unaddressed.


Auditors Recommend Arizona’s Largest Pension Plan Consider Reducing Its Investment Return Assumption

Actuarial auditors have suggested that the Arizona State Retirement System (ASRS) lower its assumed rate of return in a recent report to the system’s board. According to their presentation to the ASRS board, the auditors calculate a less than 50 percent chance of achieving the plan’s current long–term, average assumed rate of return of 7.5 percent. The fund already lowered its assumption from 8 percent in 2018. Reason’s Ryan Frost summarizes the report’s findings, explaining that the reduction in assumed returns could result in an additional $2.2 billion in unfunded pension liabilities, but that the change is necessary to maintain the long-term health of the system.


Reforms Needed to Improve Florida Retirement Security 

Florida’s public pension plan (FRS) has gone from fully funded to $30 billion in debt over the past decade. Now the state owes more than $7,100 in pension debt for every Florida citizen, indicating that policymakers in the Sunshine State need to act to avoid even more unnecessary costs down the road. In a recent commentary, Reason’s Adrian Moore identified four key issues that have added to the system’s problems: unrealistic assumptions on investment returns, insufficient annual contributions, outdated practices on discounting future debt, and a poorly structured optional defined contribution plan.


Coloradans Will See Contribution Increases for PERA Pension Plan

The Public Employee’s Retirement Association, Colorado’s main pension system, saw a woefully poor year of returns in 2018—an overall loss of 3.5 percent. The underperformance increases the state’s unfunded pension liability and will result in an automatic increase in both employer and employee contributions, a newly added feature from a major 2018 reform meant to help the pension plan better adjust to unpredictable market factors. In this opinion piece, Reason’s Zachary Christensen highlights the importance of this automatic adjustment and explains why the increased contributions—while difficult for those bearing the costs—signal a commitment to responsible retirement funding.


California Officers Forgo (Some) Pay Hikes for Pension Solvency

California State Highway Patrol officers, through their union representation, have reached an agreement in which they will defer part of their scheduled increase in pay to help pay down the unfunded liabilities in their pension fund. Struggling with 60 percent funding and an unfunded liability of $4.9 billion, the California Highway Patrol (CHP) plan is certainly in need of an increased level of contributions. Reason’s Marc Joffe expresses the importance and significance of this change, finding that—albeit relatively small in dollar terms—the change marks an important step in pension solvency for the state’s highway patrol officers.


Negative Interest Rates: The Implication for Municipal Bonds and Pension Systems

Ultra-low and even negative interest rates are becoming more common in the global investment market. If the trend continues and spreads to the United States, it could provide both opportunities and challenges to local governments. Reason’s Marc Joffe explores this possibility and details what this could mean for governments at both the state and local levels, as well as for taxpayers. He explains that extremely low-interest rates could incentivize the issuance of pension obligation bonds, but policymakers should exercise caution. Additionally, a prolonged trend of lower interest rates would suggest a need for adjusted expectations for returns on pension funds.


The Risks of Public Pension Systems Reaching for Higher Investment Returns

Managers of public pension funds are taking more and more risk in their investment profile. A recent research paper from the Federal Reserve Board examines the behavioral trends in public pension fund asset allocation. This commentary by Reason’s Jen Sidorova summarizes the research’s findings, identifying four major trends in pension fund risk-taking. She also interprets the implications of this analysis, advising caution to those making investment decisions that will have long-lasting effects on the retirement security of public workers.


Pension Integrity Project Comments on ASOP 27 & 35

The Pension Integrity Project at Reason Foundation has submitted a comment letter to the Actuarial Standards Board (ASB) on an upcoming proposed change to two Actuarial Standards of Practice (ASOP). The letter makes two recommendations for future reporting standards: a de-emphasis on past results when determining assumed rates of returns and a more standardized schedule for updating demographic assumptions. These suggestions will be taken into consideration in the ASB’s next draft of ASOP 27 & 35.


News in Brief

New Brief Examines Trends in Employee Pension Contributions: The National Association of State Retirement Administrators (NASRA) has released an issue brief examining the past two decades of public employee pension contributions. The association notes that most states—35 in total—adjusted these contributions in response to the economic downturn of 2009. Additionally, some states like Missouri and Florida have moved from requiring no contribution from their employees to now requiring annual payments. The report also highlights recent policy trends like 50/50 cost-sharing and hybrid plan structures. The full brief is available here.

Guide to Variable Pension Benefits and Contributions: A relatively new and promising trend in public pension reform is the introduction of automatic adjustments in either pension benefits (e.g. COLAs) or in annual contributions. While most public retirement plans depend on the rigid, and usually slow, process of changing policy either through pension boards or through the legislature, an automatic adjustment feature allows pension funds to easily adapt to the natural variance that occurs in demographic and market experience. Partnering with AARP, the Center for State & Local Government Excellence has published a guide for policymakers on methods of variable benefit and contribution arrangements. The guide uses case studies of reforms from Wisconsin, South Dakota, Utah, Iowa, Virginia and Colorado to show that there are several ways this principle can be applied, depending on a state’s particular needs and interests. The full guide is available here.

Report on Pension Costs and Teacher Salaries in Michigan: In a newly released memorandum, the Citizens Research Council of Michigan studies the growth in state pension costs and their effect on the pay of teachers. Their research finds that the state’s average spending per pupil has increased by 12 percent over the past five years, but this infusion of additional funding has not resulted in an increase in pay for teachers. The largest recipient of the additional funding appears to be the Michigan Public School Employee Retirement System (MPSERS), the state’s pension plan for teachers, which is requiring more and more in contributions to maintain solvency. This represents a significant hurdle for policymakers who are interested in increasing pay for teachers. The full memorandum is available here.

Quotable Quotes on Pension Reform

“These assumptions impact the allocation of cost…That’s the actuarial process of funding a pension plan. We tend not to be overly conservative or more aggressive, because this impacts members directly or indirectly as well as taxpayers. We’re trying to kind of shoot for middle ground when we’re looking at a range.”

—Actuarial Consultant for Cavanaugh Macdonald Consulting Patrice Beckham, quoted in Tim Carpenter, “KPERS Explores Idea of Cutting 7.75 percent Investment Return Forecast, Adding to Liability,” Leavenworth Times, September 21, 2019.

“The solution to this issue is straightforward, but not easy…We need to make changes to ensure the funding of retirement costs while providing adequate funding for other educational services. Until then, teachers will likely bear the burden with little to no increase in pay.”

—President of Citizens Research Council of Michigan Eric Lupher, quoted in Doug Marrin, “Michigan Teacher Pay Stagnates as State Funding Flows to Pension ObligationsThe Sun Times News, September 22, 2019.

Contact the Pension Reform Help Desk

Today the Pension Integrity Project launched a new Twitter account, you can follow us at

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 and Twitter. 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

Stay in Touch with Our Pension Experts

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.

This field is for validation purposes and should be left unchanged.