RSI Talks Pensions With ALEC's Bob Williams

Posted by Rachael Heisler on April 11, 2017 at 5:43 PM

RSI Interview with Bob Williams, founder and senior fellow of the Freedom Foundation and Senior Fellow with the American Legislative Exchange Council.  Williams was the founder of State Budget Solutions, which is now a project of ALEC.

Underfunded pension systems are one of the biggest challenges facing state and local budgets, resulting in more than $5 trillion in total U.S. pension debt. In an effort to examine how we arrived in this predicament and what steps can be taken going forward to ease the overwhelming financial burden on governments, the Retirement Security Initiative (RSI) will talk with leading fiscal and pension experts to get their opinion and analysis on the funding crises. The below Q&A with Bob Williams, founder and senior fellow of the Freedom Foundation and Senior Fellow with the American Legislative Exchange Council, is the third in our series.

RSI: How did you become interested in the issue of public pensions? 

BW: As a Washington State Legislator (1978-88), I was one of two state legislators out of 147 legislators who took an interest in state pensions and tried to get my fellow legislators interested in pension reform.


RSI: During your career of working on state budgetary issues, what are the most significant changes you’ve seen in the public pension space?

BW: The great unpublicized success of the higher education faculty’s defined contribution system (higher education faculty in most states have access to a DC pension system) and the many legislators ignoring the growing (more than $5.6 trillion unfunded pension liabilities) crisis.  How has that impacted state governments’ fiscal health?  It is a problem that most legislators ignore, but the day of reckoning is rapidly approaching.  For example, in Chicago Public Schools, 89 cents out of every new tax dollar goes to pay pensions, leaving only 11 cents out of every dollar for the rest of education.


RSI: Can you talk about your recent publication “Unaccountable and Unaffordable 2016: Unfunded Public Pension Liabilities Near $5.6 Trillion” and what was the biggest surprise for you while conducting your research? 

BW: The biggest surprise is how the problem has grown in the past two years – from $4.7 trillion to $5.6 trillion—an increase of $900 billion in just two years.


RSI: In the report, you used three different metrics to gauge the severity of the pension problem across the 50 states: unfunded pension liability per capita, the funded ration and total unfunded pension liability. Can you talk about the first metric, unfunded liabilities per capita, and how that affects taxpayers? 

BW: The longer states delay reforming pensions, the more the unfunded liabilities per capita will rise. For example, in Illinois the per capita unfunded liability has grown from $25,740 in 2014 to $28,200 in 2016 (or $112,800 for a family of four).


RSI: We at RSI think that pension debt is the most challenging issue facing state and local governments, yet it’s not on the radar of most taxpayers or public workers. How can we in the pension reform community do a better job communicating the significance of the problem to these constituencies? 

BW: Communicate (perhaps through videos and other tools) what has occurred in Pritchard, Ala.; Central Falls, R.I.; Washington Park, Ill., and Detroit, showing what happened to retirees when those areas went bankrupt.  Have another video showing how K-12 teachers have to work 10 years in Florida and Texas in order to be vested in the pension system, as opposed to National Education Association headquarters staff who have a defined contribution option available to them.


RSI: Going forward, what are your recommendations to policy leaders that could help them fix their broken pension systems and begin reining in their state or municipality’s pension debt?  

BW: Reality is not negotiable.  More disclosure is required to all legislators showing the key assumptions (i.e. assuming a 7.5 percent annual rate of return; life expectancies; etc.); switching to a defined contribution system for all new employees; recognizing that if you give state employees the facts you can get them on your side. We saw this occur in Arizona with the pension reforms for police and firefighters. Public employees didn’t create the problems – state legislators and public union officials did.

RSI's Spiotto State & Local Leader of the Week

Posted by Rachael Heisler on April 07, 2017 at 9:45 AM

The George Mason University’s Center on State and Local Leadership has named RSI Board Member James Spiotto State & Local Leader of the Week. Read more from the program's weekly eNews letter below. To learn more about GMU's Center on State and Local Leadership, click here.

State & Local Leader of the Week 

Our State & Local Leader of the Week is James E. Spiotto, a long-time critical advocate for tools to help cities, counties, public school districts, and states to address severe fiscal distress. He is the Managing Director of Chapman Strategic Advisors LLC, a consultancy providing educational and strategic insights to market participants concerning municipal finance topics of interest and the co-owner and co-publisher of, an online resource specializing in municipal-related research and information concerning state and local government, including public finance, infrastructure, job market data, and economic statistics and analysis.

Mr. Spiotto played the pivotal role in the enactment of the municipal bankruptcy reforms signed into law by former President Ronald Reagan in 1988—he has a long and storied career representing municipalities, including testifying both in federal bankruptcy courts and before the United States Senate and House Judiciary Committees in conjunction with the amendments to the Bankruptcy Code involving Municipal Bankruptcy. Jim has contributed significantly to thought leadership around municipal defaults and bankruptcy, including co-authoring the volume The Law of State and Local Government Debt Financing (Thompson West), authoring chapters on municipal defaults and bankruptcy in The Handbook of Municipal Bonds (Sylvan Feldstein and Frank Fabozzi, editors, published by John Wiley & Sons, Inc.), and authoring a chapter on financial emergencies: default and bankruptcy in the Oxford Handbook of State and Local Government Finance (Robert D. Ebel and John E. Peterson, editors).

Mr. Spiotto is also an author of Municipalities in Distress?, published by Chapman and Cutler LLP and available from and Primer on Municipal Debt Adjustment, published by Chapman and Cutler LLP and available upon request from the firm. In May 2014, the National Federation of Municipal Analysts honored Jim with an award for his contributions as a thought leader within the municipal bond industry: he was recognized for his “prominent voice” on the topic of municipal bankruptcy and his years of groundbreaking research and analysis that have long aided state and local leaders on the critical intricacies of Chapter 9 bankruptcy.

Celebrate National Employee Benefits Day

Posted by Rachael Heisler on April 03, 2017 at 9:28 AM


Today is National Employee Benefits Day. Sponsored by the International Foundation of Employee Benefit Plans, the day is all about beefing up employee benefits communications. At RSI, we think retirement benefit plans should be open and transparent, and funding levels and risks fully disclosed and communicated to all participants.

We are reminded of the 200 retirees of the LA Works consortium who were recently blindsided when they learned their pensions would be slashed due to low funding. What is currently happening with the consortium’s retirees is due to the pension plan being systematically underfunded, while employees were left in the dark. Retirees now question how after paying into the pension fund for up to 30 years employees were never made aware of the risks.  

Growing pension costs are threatening the solvency of public employee retirement plans, putting at risk the hard-earned savings of many workersyet many employees aren’t made aware of the impending disaster. RSI believes that all workers deserve safe and secure futures and retirement plans should place employees on a path to a secure retirement. Communicating with employees and retirees about their retirement plans would go a long way toward this goal.

Check out the National Employee Benefits Day site, where you can learn more about employee benefit communications and how you can take a bite out of benefits communication.


NJ Pension Bill: From the Frying Pan to the Fire

Posted by Rachael Heisler on March 30, 2017 at 1:00 PM

“What parent in his or her right mind would give a teenager unlimited use of an unlimited credit card?” RSI Board Leader and former San Jose Mayor Chuck Reed asks in his latest oped.  “No parent I know. So we must ask what legislator in his or her right mind would give public-employee unions unlimited use of tax dollars to pay for unlimited public-employee pensions? You would think the answer to that would be ‘no one.’ Not so in New Jersey.”

Continues Reed:

The state Legislature has just approved Senate-Bill 3040 to turn over the police and fire pension system to the police and fire unions. Well, most of the system, anyway. The part of the system that pays for the benefits would still belong to the taxpayers. The public-employee unions would get to decide what benefits they want and how much to charge the taxpayers. The taxpayers get to pay the bill. The whole bill.  Public employees want better benefits? No problem. The taxpayers will pay.  

New Jersey’s public pension debt hit $49 billion last year, of which the state has assets enough to cover only 56.5 percent of the liabilities. Just this week New Jersey’s credit rating was downgraded for the eleventh time under Governor Christie. Moody's said the downgrade “reflects the continued negative impact of significant pension underfunding, including growth in the state's large long-term liabilities, a persistent structural imbalance, and weak fund balances.”

In turn, the State Assembly has decided to turn the $26 billion Police and Firemen's Retirement System (PFRS) over to the unions to manage. The board that will oversee the pension fund is made up of trustees dominated by beneficiaries, says Steve Malaga, a fellow of the Manhattan Institute.

Continues Malaga:

But the new 12-member board would also have powers beyond managing investments, including the ability to decrease members' contributions into the fund, to reinstate annual cost-of-living adjustments that the state suspended, or even change the formula the system uses to calculate final pensions.

The only problem is that this has already been tried around the country and has helped create some of the nation's biggest pension fiascos, as workers and unions have managed pensions for their benefit, leaving taxpayers on the hook for huge losses. This is not the kind of reform that Jersey residents facing tens of billions of dollars in pension debt need.

“If you think legislators and governors have been irresponsible, too willing to give out sweet benefits and too unwilling to pay for them, you are right,” says Reed. “But legislators and governors at least have to face the voters from time to time. Instead, this bill would put people in charge of making decisions who never have to face the voters. People who have no interest in controlling the spiraling costs of existing or future benefits would get unlimited credit cards. New Jersey is set to jump from the frying pan into the fire.”

Former New Jersey State Treasurer Andrew Sidamon-Eristoff calls the move “a very, very bad idea.”

Continues Sidamon-Eristoff:

Let’s get real. $26 billion is one heck of a lot of money. The depressing history of public-pension fund scandals suggests the need for constant vigilance. Unchecked by the need to coordinate its daily functions with the Division of Investment, a separated PFRS will enjoy greater autonomy with less constructive scrutiny from the press and public. Moreover, it’s not at all clear what procedural, procurement, and anti-conflicts standards will apply to certain PFRS board functions, such as the selection of fund managers and providers of professional services. Forgive me, but I can’t help worrying.

In sum, S-3040 is a shameless special-interest power grab at taxpayer expense. The state Assembly will soon consider a companion bill. Out of respect for itself, if not the voters and taxpayers of this state, the Assembly should quietly deep-six this embarrassment.













When It Comes To Pensions, Is Luck On Your Side?

Posted by Rachael Heisler on March 15, 2017 at 1:04 PM

The Irish proverb goes, ‘May there always be work for your hands to do, may your purse always hold a coin or two,’—a sentiment we’d wager most everyone shares. Unfortunately, though, it takes more than good luck and well-meaning to achieve a secure financial future, especially when unfunded public pensions factor into the equation.

Whether a public worker or private employee, most all Americans are impacted by the public pension crisis facing our nation. Totaling an estimated $5 trillion debt, state and local unfunded pension liabilities are costing taxpayers big.  

Just look at states like Illinois, Pennsylvania and Alabama, and cities such as Chicago and Detroit–all in financial straits because of unfunded pension liabilities.  As pension debt continues to go unchecked, policymakers tend to pull funds from important public services like education, public safety and transportation to pay it down. And when that doesn’t do the trick, they tend to raise taxes.

Growing pension debt not only costs taxpayers, it threatens the solvency of public employee retirement plans, putting at risk the hard-earned savings of many workers. Look at what’s happening in California to the retirees of the now-defunct LA Works job training agency. Because LA Works’ pension went without being fully funded and its debt went unpaid after the agency folded in 2014, CalPERS is now considering cutting the benefits of the nearly 200 former employees by as much as 63 percent. You may recall in November CalPERS voted to reduce City of Loyalton retiree benefits because the town hadn’t kept up with its pension funding before dropping out of the CalPERS system.

Both scenarios, along with countless others happening throughout the country, are happening because policymakers over-promise and underfund employees’ retirement futures. It’s pretty straightforward really, a simple lesson we all learned in adolescence, the importance of living within our means. Yet, when policymakers don’t, it’s the retirees who are dealt the blow.

Employees should get every cent they earn and taxpayers should get all they pay for, and not be overtaxed for a system in need of reform. In short, all workers deserve safe and secure futures, and ‘a coin or two’ in their pockets.


New Reports Show Connecticut's Pension Shortfalls

Posted by Rachael Heisler on March 08, 2017 at 1:50 PM


Connecticut public pensions are in rough shape. The State Employee Retirement System (SERS) currently faces $21 billion to $25 billion in unfunded pension liabilities, depending on how they’re calculated.  To address the problem, the Yankee Institute recently commissioned Securing Our Future: A Menu of Solutions to Connecticut’s Pension Crisis, in cooperation with the Reason Foundation. Backed by a full actuarial model of SERS, the report outlines options for putting people before pensions and getting Connecticut out of a repeated cycle of deficits.  

According to the Yankee Institute, “If even a few of the reforms in this paper were enacted, the state could save hundreds of millions of dollars a year in payments to our pension system, and almost $9 billion over the next 30 years. One reform alone – bringing employee contributions up to the national average level of 6 percent – would save $290 million over the next two years.”

The report suggests such measures as lowering the plan's assumed rate of return, increasing employee contributions and offering new hires a defined contribution or cash-balance plan.

Also this week, the Urban Institute issued a report card for the nation’s pension systems. Not surprisingly, Connecticut earned across the board Cs, Ds and Fs, with a D for its police and fire pension, an F for its teachers’ pension and a D for the state’s overall grade. 

Earlier this year, the Connecticut General Assembly approved a plan to restructure the state’s funding calculation and amortization schedule, based on an agreement between Connecticut Gov. Dannel Malloy and the State Employees Bargaining Agent Coalition. The plan reduces the assumed rate of return from 8 percent to 6.9 percent, which, according to RSI, is still overly optimistic. At the time, RSI recommended that contributions be based on a more realistic rate of return that is closer to the 5.4 percent rate that was achieved by the state from 2001 to 2014.

“If you proceed based on the 6.9 percent number, either more money should be put into the plan by the state and the employees, or plan redesign and benefit changes should be implemented to reduce costs to close the funding gap that will likely be created by assuming a 6.9 percent rate of return,” RSI board member Chuck Reed wrote in official comments to the Connecticut Office of Policy and Management.

According to RSI, the 6.9 percent assumed rate is unrealistic and could lead to Connecticut taxpayers shouldering the burden for decades to come, especially if meaningful, structural pension reform is not implemented.

Why Now is the Time for Pension Reform in Lincoln, Neb.

Posted by Rachael Heisler on March 07, 2017 at 12:40 PM

A guest editorial by RSI board member Dan Liljenquist this week in the Lincoln Journal Star talks of the challenges Lincoln faces if its police and fire pension is not reformed. The plan, currently $190 million in debt, is on a slippery slope toward insolvency if structural changes to the plan are not made soon, argues Liljenquist. 

Lincoln has an opportunity to reform its plan with RSI-supported Legislative Bill 30 (LB30), by Nebraska State Sen. Mark Kolterman, which would move both Lincoln's and Omaha's police and fire plans closer to sustainability, according to Liljenquist.

"LB30 would transition new employees from the current defined benefit structure to a cash-balance program that uses lower assumed return rates and cuts future risk in half," wrote Liljenquist. "The reform would not affect current employees and retirees, except to help ensure that retirement promises that were made to them can be kept.

"Lincoln has a real opportunity with LB30 to make its police and fire pension plan sustainable, cutting the risk for workers and taxpayers," he continued. "It’s an opportunity that, in my opinion, Lincoln should readily embrace, instead of just waiting and hoping for the best."

To read more of Liljenquist's editorial, click here.

To learn more about LB30, click here.


Reed: 'California Rule' Decision Could be Huge

Posted by Rachael Heisler on March 01, 2017 at 9:29 AM

RSI board leader Chuck Reed, former Mayor of San Jose, recently spoke with Debtwire Municipals about the ‘California Rule,’ which is currently before the California Supreme Court. In the interview, Reed said that the Court’s decision could be huge, as it will change the legal framework and shape political discussion on vested rights. To read the article in its entirety, click here

Debtwire is the leading provider of real-time intelligence, analysis and data on distressed debt, leveraged finance and asset-backed markets. Click here to learn more.

Dan Liljenquist: Going bankrupt slowly and then suddenly

Posted by Rachael Heisler on February 24, 2017 at 8:26 AM

Special commentary by Dan Liljenquist for the Deseret News

For those of us who closely watch state and municipal finances, it’s clear that the bankruptcy hound is stalking many — far too many — state and local governments. Sadly, in most cases, both the leaders and residents of those states and municipalities that are on the verge of bankruptcy continue to delay the tough decisions necessary to avoid it. In fact, the larger the financial gaps have become, the less likely elected leaders are either willing or able to adequately address them. So far, states and municipalities have been propped up by ready credit markets, which snap up new bonds while largely ignoring other cascading debts, like chronically delayed infrastructure investments and catastrophically underfunded public pension systems. But eventually — and sooner rather than later — the math will no longer pencil, lenders will transition from lending to collecting, taxes will skyrocket, residents and businesses will flee and the “suddenness” of bankruptcy will be upon us.

Click here to continue reading Dan Liljenquist's column in the Deseret News.

A Tale of Two Cities: Omaha and Lincoln

Posted by Rachael Heisler on February 09, 2017 at 10:39 AM

When pension experts point to state and local pension systems that are “doing it right,” Nebraska’s pension plans are almost always included. That’s because the state and county systems transitioned to cash-balance plans in 2003. And then you have the Omaha and Lincoln police and fire pension plans, both outdated and expensive defined benefit plans, and both in financial straits.

This week, RSI Board Member Dan Liljenquist and RSI Executive Director Pete Constant testified before Nebraska Legislature’s Retirement Systems Committee in support of LB30, a pension measure that would reform Omaha and Lincoln police and fire pension systems. The bill, sponsored by Committee Chairman Sen. Mark Kolterman, would transition new-hire employees from the currently-used defined benefit structure to a cash-balance retirement program.

(Refresher: a cash-balance plan is designed to provide an employee with an accumulated account balance upon retirement which the employee uses to fund his/her retirement. Employee and employer contributions are typically fixed percentages of salary. Investment gains add to the account balance and investment losses are protected by the employer’s guarantee of a minimum investment return. A defined benefit plan is designed to provide an employee with a specified amount of monthly retirement income typically based on the employee’s salary, years of work and age. The way they are typically structured, DB plans require less employer & employee contributions, instead relying on high investment returns for funding).

 “The situation in Lincoln and Omaha is that they’ve been chronically underfunding their plans,” Liljenquist told committee members during the hearing. “Couple that with high assumption risks and low market returns for years and the plans are in dire straits.”

Without substantive reform offered by LB30, both systems will continue to deteriorate, jeopardizing government finances and public workers’ retirement benefits.

The Omaha Police and Fire public pension system is roughly $630 million in debt and Lincoln’s Police and Fire pension fund is an estimated $190 million in debt. “The structure of the plans and the new normal of what the markets are doing make it very expensive,” Liljenquist said.

Neither the Lincoln nor the Omaha pension plans have kept up with funding levels to keep them sustainable (Omaha is funded at roughly 50 percent, Lincoln at 80 percent), instead relying on high assumed market returns. In Lincoln, the average rate of return for the past 15 years has been 5.2 percent, compared to its 7.5 percent assumed return. During the same time, Omaha has been guaranteeing 8 percent returns, while average actual returns have been only 4.8 percent. To help make up for the difference both cities have continually poured taxpayer dollars into the systems. In 2016, the city of Omaha contributed an exorbitant 33 percent toward its plan; in comparison, under their cash-balance plans, the state contributes 7.48 percent and counties contribute 6.75 percent.

“Pumping more money into a system is not a plan, it’s triage,” said Liljenquist. “It’s like stumbling across a chemical spill in your backyard. First you have to cap that spill and then work overtime to clean it up. LB30 does that.”

LB30 would transition new hire employees from the current defined benefit structure to a cash-balance program that uses lower assumed return rates and cuts future risk in half. The reform would not affect current employees and retirees. Adopting the cash-balance plan for new employees would help ensure that retirement promises that were made to current employees and retirees can be kept.

"For Lincoln and Omaha to honor the promises made to their active police officers and firefighters and retirees, reform of some sort must happen,” Constant told committee members. “If they want to be able to recruit from the millennial generation and Gen Z, pension portability and sustainability are essential.”

According to Constant, neither the Lincoln nor Omaha pension systems, as they are currently structured, are sustainable and leave employees and retirees vulnerable to retirement insecurity.

“The plans have significant funding problems,” he said. “When pension plans hit a funding ratio like Lincoln’s and Omaha’s and carry significant debt, taking no action threatens their very solvency.”

For more information on the pension crisis facing Lincoln and Omaha, click here for in-depth analysis by the Platte Institute and Reason Foundation.