Pension Reform News: Public pensions struggle to meet return assumptions

In This Issue:

Articles, Research & Spotlights 

• Public Pensions Struggle to Meet Return Assumptions
• California Recruits and Retains Public Workers Without Adding Pension Benefits
• Proxy Voting Undermines Public Pensions’ Responsibility to Taxpayers

News in Brief
Quotable Quotes on Pension Reform
Data Highlight
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Over 99% of Public Pensions Failed to Meet Their Assumed Rate of Returns

Much of the nation’s estimated $1.6 trillion in unfunded public pension liabilities was caused by investment returns falling below the expectations public pension systems set for them. When a government pension plan earns returns below its assumed rate of return, this creates a debt that the government, and ultimately taxpayers, are responsible for covering to ensure retirees get the retirement benefits they were promised. A new analysis by Reason Foundation’s Mariana Trujillo finds that nearly all public pension systems, over 99% of them, fell short of their return assumptions over the last quarter of a century. Throughout this period, pension plans have gradually reduced their expectations for investment returns, but 85% of public pension plans still maintain return rate assumptions above their 23-year averages. 

California Isn’t Having Trouble Retaining Public Workers and Shouldn’t Unwind Pension Reforms

California lawmakers are considering making significant alterations to a landmark 2012 public pension reform law. State legislators say the proposed pension benefit increase aims to help with ongoing challenges with recruiting and retaining public workers, but Mariana Trujillo’s analysis shows unwinding the pension reforms would be misguided. The reforms have saved billions and, according to data from the Bureau of Labor Statistics and California’s 2023 Total Compensation Report, California’s government workers already have a much lower turnover rate than the rest of the U.S., and this retention advantage is even more pronounced when compared to the state’s private sector workers.

Proxy Firms’ Lawsuits Highlight Need for Public Pension Systems to Prioritize Investment Returns

In response to Texas legislation that says it is trying to increase transparency on the use of public funds for political activism, the two largest proxy advisory firms, Institutional Shareholder Services and Glass Lewis, have filed a lawsuit against the state. But Reason Foundation’s Ryan Frost explains that with public pension systems faced with thousands of shareholder proposals each year, it is a problem that many pension systems lean almost entirely on proxy advisor guidance, thereby outsourcing their legal responsibility to third parties with no duty to maximize investment returns for public workers, retirees and taxpayers. 

News in Brief

Survey of Cost-of-Living Adjustments in Public Pensions

A new issue brief from the National Association of State Retirement Administrators (NASRA) examines how U.S. state and local pension plans structure and fund cost-of-living adjustments (COLAs). COLAs have many shapes and sizes. Some are structured as a regular benefit; others are granted irregularly, often tied to funding requirements. Since 2009, 32 states have changed COLA provisions—17 affecting current retirees. In recent years, elevated inflation has exceeded the caps in most automatic COLA states, motivating advocacy for cost-of-living increases. The brief notes that a 3% compounded automatic COLA can add 26% to overall benefit costs, and legal challenges to COLA cuts have produced mixed results across states. It also highlights that nearly half of retired public school teachers and many public safety workers lack Social Security coverage, making inflation protection a critical aspect of retirement income adequacy. Read the full brief here.

Quotable Pension Quotes 

“I’m saying that without progressive revenue, there is not a pathway that allows us to maintain these obligations.”
–Brandon Johnson, Chicago’s mayor, quoted in “Johnson says Tier 2 enhancement for Chicago public safety retirees’ incomplete,” The Center Square Illinois, July 23, 2025.

“The rapidly shifting monetary policy and continued uncertainty throughout the market underscores the importance of a steady and long-term investment approach rooted in thoughtful diversification.”
–Steven Meier, New York City Retirement Systems CIO, quoted in “New York City Pension System Returns 10.3% in Fiscal 2025,” Chief Investment Officer, Aug. 6, 2025.

“It’s not clear whether our historic commitment to private equity will continue to realize a return premium relative to simpler, less costly and more liquid public market alternatives.”
–Rukaiyah Adams, former chair of the Oregon Investment Council, quoted in “How the managers of Oregon’s $100 billion pension fund lost big,” Lookout Eugene Springfield, Aug. 6, 2025.

Data Highlight

Reason Foundation’s Mariana Trujillo shows that from 2001 to 2023, 99% of public pension plans failed to meet their assumed rate of investment returns, averaging 6.5% in returns compared to their 7.59% assumption. This chronic failure to meet the expectations they set has contributed to the $1.6 trillion in public pension debt, which represents about one-third of all state and local government debt. See Trujillo’s complete analysis here.