Pension Reform News: Public pension debt rankings for state and local governments
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Pension Reform Newsletter

Pension Reform News: Public pension debt rankings for state and local governments

Plus: California's underfunded pension dives further into investment risk, growing debt on health benefits owed to public workers, and more.

In This Issue:

Articles, Research & Spotlights 

  • New Analysis Examines Pensions and Health Benefit Debt Owed by Governments
  • Debt on Health Benefits Owed to Public Workers Continues to Grow
  • California’s Underfunded Pension Dives Further into Investment Risk

News in Brief
Quotable Quotes on Pension Reform

Reason Foundation in the News
Data Highlight
Contact the Pension Reform Help Desk


Articles, Research & Spotlights

Public Pension Debt Rankings for State and Local Governments

According to national averages recently reported by the Pension Integrity Project at Reason Foundation, governments only have around 76% of the funds they need to fulfill pension promises. However, most government obligations to retired employees do not end there, as healthcare and other post-employment benefits are often granted to public workers as well. Reason Foundation’s latest report, “Debt Trends for State and Local Governments,” includes health care and other types of benefits to provide a more complete picture of the funding shortfalls that taxpayers will eventually need to pay. According to the analysis, several states owe significant debts that policymakers and taxpayers must be aware of. Per capita, the citizens of New Jersey, Connecticut, and Illinois face the largest debts, with New Jersey owing nearly $18,000 per capita, Connecticut about $16K, and Illinois almost $15K per person. Looking at the municipal level, New York City, Chicago, and Yonkers appear to face the largest per capita debts. Reason’s analysis also highlights the states, cities, and counties with the lowest per capita debts (Washington, Nebraska, and Oklahoma).
Report: Debt trends for state and local governments 2020-2022
Analysis: Public pension debt rankings for state and local governments

Health Care Retirement Debt Surpasses State and Local Government Pension Debt

In addition to pension benefits, it is common for governments to promise other post-employment benefits (OPEB) like health care, life insurance, and deferred compensation. While these benefits do not have the same legal protections and stringent funding requirements as pensions, they do represent a major obligation that will fall on taxpayers. A new analysis from Reason Foundation’s Mariana Trujillo shows that, while OPEBs receive less attention and tend to be less taxing on budgets, the national debt for these benefits now exceeds that of pensions. According to government financial reports, the total OPEB debt held by states and cities was over $788 billion in 2022. The policies used to fund OPEB obligations are major contributors to this debt. Unlike pensions, governments often handle healthcare and other benefits like the federal government handles Social Security—simply paying as they go without saving to pay for benefits in advance. This creates massive costs on taxpayers that could be avoided with better funding policy.

CalPERS Takes Unnecessary Risks that Could Cost Taxpayers

Facing $180 billion in unfunded pension liabilities, the nation’s largest public pension (CalPERS) is opting to dive deeper into risky and opaque investment strategies in hopes of reducing debts and avoiding higher costs on state and local budgets. The system’s board recently approved a plan to increase investments in private markets, which tend to generate high but more risky and volatile returns. As Reason Foundation’s Mariana Trujillo points out in a column for the Southern California Newsgroup, these strategies can be expensive, with results that often do not justify the lofty fees paid to investment managers. Instead of doubling down on risky strategies, California policymakers should consider cheaper and less volatile options. Nevada’s pension, for example, achieved better returns than CalPERS using safer and significantly cheaper index fund strategies. 

News in Brief

Paper suggests that engaged pension boards have better returns

A recent study published in the Journal of Financial Services Research by researchers at Marquette University evaluated the impact that board governance has on public pension fund performance. The paper created a Board Engagement Index (BEI), derived from 11 variables that aimed to measure board engagement, including the number of meetings per year, the number of investment-related words in the minutes, attendance rates, and board turnover. Analyzing publicly available meeting minutes from 60 U.S. public pension plans, the authors find that higher board engagement correlates with better investment outcomes. Specifically, a one-standard-deviation increase in the engagement index corresponds to a 3.9% increase in benchmark-adjusted returns, equivalent to an additional $320 million annually for the average fund in their sample. The full article can be found here

Quotable Quotes on Pension Reform

“The fund is still at risk of potential insolvency if an economic recession or investment market downturn were to occur in the near term.”
— Matthew A. Strom and Daniel J. Siblik, actuaries hired by the Municipal Employees’ Annuity and Benefit Fund of Chicago, quoted in “What’s the Matter With Chicago?The New York Times, Dec. 30, 2024. 

“Not only are the public pension systems stronger today as result of the 2022 reforms, but the state’s upfront investments will save taxpayers billions over the next two decades.”
— Mike Pieciak, Vermont Treasurer, quoted in “Reform measures boosting health of Vermont’s pension funds, treasurer saysPensions & Investments, Jan. 9, 2025.

“As law enforcement, firefighters and other public servants, these Kentuckians dedicated their lives to our Commonwealth. It’s our Office’s responsibility to fight for them against those who put their pensions at risk.”
—Russell Coleman, Kentucky Attorney General quoted in “Hedge funds to pay $200+ million to Kentucky pension system in lawsuit settlementCourier Journal, Jan. 9, 2025.

Reason Foundation in the News

“The Reason Foundation, a libertarian think tank, estimated the bills would inflate the state employee retirement services plan’s unfunded liabilities from $5.4 billion to ‘well over $8 billion over the next 15 years.’

“The state employee bill, Reason Foundation argued in submitted testimony, ‘would undo a nearly 30-year-old pension reform that has been working effectively to manage financial risks and personnel costs for state agency employers and which has helped taxpayers avoid billions of dollars in additional unfunded liabilities.’”

—Pension Integrity Project Analysis and Testimony, quoted in “House advances bills expanding pension options for public employees with no testimony,” The Detroit News, Dec. 12, 2024. 

Data Highlight

Each month, we feature a pension-related chart or infographic created by our team of analysts. This month, we highlight Mariana Trujillo’s recent analysis showing that, for the first time, unfunded healthcare retirement liabilities (OPEB) have surpassed unfunded pension liabilities for state and local governments. This marks a major shift in the composition of municipal debt, with combined unfunded liabilities reaching $1.5 trillion in 2022. Read the full analysis here.

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.


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