Pension Reform Newsletter: State pension plans change investment return assumptions, how to improve Florida’s retirement plan, and more
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Pension Reform Newsletter

Pension Reform Newsletter: State pension plans change investment return assumptions, how to improve Florida’s retirement plan, and more

Plus: Historical analysis of state pension plan funded ratios and comparisons between public and private sector teacher retirement benefits.

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 

  • Pennsylvania’s Teacher Pension System Should Reassess Plan Assumptions, Investments
  • Testimony on Florida’s Defined Contribution Retirement Plan
  • Leveraging Phoenix’s Airport to Address the City’s Pension Challenges
  • Maryland’s Pension Plans Lowers Investment Return Assumption

News in Brief
Quotable Quotes on Pension Reform 

Data Highlight
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Suggested Reforms for Pennsylvania’s Public School Employees’ Retirement System

As a follow-up to the Pension Integrity Project’s testimony before the Pennsylvania House State Government Committee, Reason’s Jordan Campbell evaluates the plan’s probability of achieving various returns. The findings suggest that the teacher pension system is not likely to achieve even a 6% average return over the next 10-15 years—much less its current assumed return of 7%. The analysis also examines the result of expensive investment management, comparing the last five years to a hypothetical passive investment strategy.

Testimony: Recommendations for the FRS Investment Plan

This month, the Pension Integrity Project testified before the Florida Senate Committee on Governmental Oversight and Accountability to provide analysis of the state’s defined contribution plan for public employees, also known as the Investment Plan. Florida’s Investment Plan is the default retirement plan option for most new public employees, making it a vital facet of employment with the state. In the testimony, Reason’s Zachary Christensen identified areas where improvement is needed for the Investment Plan, the most important being the need for contributions from employees and the state to be increased to meet industry standards and provide adequate retirement income.

RELATED: Full Testimony Presentation: FRS Investment Plan – Assessment and Recommendations

Leasing City Airport Could Help Phoenix Pay Down Pension Debt

Nearly $5 billion in unfunded pension liabilities weigh on Phoenix, Arizona’s city budget and city staff are evaluating options to reduce the long-term costs of this pension debt. One possible source of funding to reduce unfunded liabilities could come from leasing city-owned and operated Sky Harbor International Airport. In an op-ed originally appearing in the Arizona Republic, Reason’s Leonard Gilroy explains what a new report on the potential value of airport assets could mean for Phoenix and its longstanding pension funding shortfalls.

Maryland State Retirement Pension System Lowers Investment Return Assumption, but More Reforms Are Needed

The Maryland State Retirement Pension System (MSRPS) recently announced a reduction to its assumed rate of return from 7.4% to 6.8%. This move comes on the heels of the plan’s best annual investment return in 35 years. Using various market forecasts, Reason’s Swaroop Bhagavatula analyzes the likelihood that the system meets this lower investment return assumption going forward. He finds that, while the reduced assumption is closer to newly downgraded long-term expectations, MSRPS may still need to adjust the rate down even further to reduce the risk of future unexpected liabilities and costs.

News in Brief

American Academy of Actuaries Reiterates the Dangers of the 80% Funding Myth

A widely spread and unfounded myth that pensions can healthily remain below 100% funding periodically appears in media and academia. Far too often, 80% funding is referenced as an acceptable benchmark of a healthy pension plan. In an updated brief, the American Academy of Actuaries explains once again the pitfalls of this false understanding of basic pension funding principles. The brief confirms that funded ratios are a useful measurement of the current health of a pension plan, but a comprehensive evaluation of a fund’s health includes the plan’s strategy to return to full funding—not a target below that—within an appropriate timeframe. The full brief is available here.

New Analysis Includes Retirement Benefits into Comparison between Public and Private Teacher Compensation

The difference in public and private sector compensation is a topic commonly discussed, but factors outside of wages are often left out of this comparison. Since other benefits (health insurance, retirement benefits, retiree health insurance, etc.) are major pieces of total compensation, it is very important to bake them into any comparative analysis. A new brief from the Center for Retirement Research at Boston College does just that in an analysis of benefits for public teachers and their private-sector counterparts. Their regression analysis finds that wages alone are lower for public teachers, but when all of the relevant benefits are included, there is little difference between public and private sectors. The full brief is available here.

Quotable Quotes on Pension Reform

“Since last year’s Delivering Alpha, markets are up 30% to 50%, clearly not normal…We’re enjoying it, but this is not a normal time period.”

—JPMorgan Head of Asset and Wealth Management Mary Erdoes cited in “We Asked 3 Major Investors What Happens Next in the Market — None of Them See Big Returns,” CNBC, September 29, 2021

“The Public Employee Retirement and Administration Commission and local government retirement boards should conduct full actuarial valuations of the impact of the credit bonus on pension costs…The valuations should also address the amounts of additional pension contributions that would be needed to fund this legislation and they should be completed before legislators act on the bills.”

—Pioneer Institute Economist James Bohn on a pair of bills granting unfunded retirement credits cited in “New Study Shows Massachusetts Pension Bonus Bills Will Cost Billions to Fund,” The Center Square, October 26, 2021

Data Highlight

Each month we feature a pension-related chart or infographic of interest generated by one of our Pension Integrity Project analysts. This month, Quantitative Analyst Jordan Campbell highlights a tool that visualizes all state funding ratios and assumed rates of return up through 2020, the latest official data available. Access the tool here.

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

Follow the discussion on pensions and other governmental reforms at Reason Foundation’s website and on Twitter @ReasonPensions. As we continually strive to improve the publication, please feel free to send your questions, comments, and suggestions to

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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