What Are You Giving Up For a Broken Pension System?

Posted by Rachael Heisler on January 25, 2017 at 12:27 PM

Several news articles this week puts a human face on the true price of escalating pension costs and what happens when important services are streamlined or even eliminated in order to pay for retirement systems that have run amok. What’s called ‘Crowd Out’ is all too common when governments are unable to meet soaring pension costs and have to divert tax dollars from community services to help make up the shortfall. 

RSI board member Dan Liljenquist has spoken about his time as a Utah state senator, when the state’s pension crisis came to a head and the legislature had to dedicate the equivalent of 10 percent of the state’s general fund for decades to pay for one year’s worth of pension market losses. “We had the largest class sizes in the nation, partly because of pension costs,” he told Forbes. “When governments are dedicating hundreds of millions of additional dollars to pay for market losses, they can’t afford things like teachers.”

And now it’s happening in California. An article published this week in the San Francisco Chronicle details how school districts will have to redirect billions of dollars from classrooms into pension accounts to help pay for the California Public Employees’ Retirement System’s (CalPERS) more than $100 billion shortfall.

“School district officials say that unless the situation changes, they will have to make cuts elsewhere, possibly leading to larger class sizes, stagnant worker pay, fewer counselors and librarians, and less art and music in schools,” says the Chronicle. “Insolvency and state takeover are not out of the question for some districts.”

Another report this week from the Sacramento Bee takes a close look at public safety services that have fallen by the wayside. Forced to cut safety services during the recession to instead pay mandatory pension fees, many local California firehouses never reopened, many fire and police jobs were never reinstated. And now that CalPERS will require a bigger contribution, these programs will likely never be restored.

CalPERS 7.5 percent assumed rate of return has continued to fall short over the years (last year’s returns were just 0.6 percent), leaving state taxpayers to try to fill the void. But it’s not just California that continues to make high rate of return assumptions. Pension administrators throughout the country rely on high market returns to fund their plans. The higher the earnings assumption, the less money gets paid into the fund each year by employees and employers. If the earnings fall short, the pension debt goes up. Trusting in this approach is an act of faith, depending on smooth sailing and no hiccups in the market. It’s not realistic nor responsive to the market.

And while some plans have voted to lower their assumed rates of return to 7 percent, such as CalPERS, or even lower, it will take years to dig out of the mess left in the wake of poor decision making. And unless serious pension reform is implemented, taxpayers will continue to live with substandard public services for years to come.




New Website Explores Pension Challenges, Solutions

Posted by Rachael Heisler on January 17, 2017 at 1:06 PM

A new website released this week not only shines a spotlight on the public pension crisis facing America, but goes three steps further to thoroughly examine the problem, root causes and consequences, and offer thoughtful solutions.

PensionSecurity.org was created by the Laura and John Arnold Foundation to help cities and states develop pension systems that are affordable, sustainable and secure. Aside from laying out the problem and ways to overcome it, the site offers an assortment of tools and resources to help taxpayers, public workers, policy leaders and other stakeholders dive further into understanding the complexities of U.S. pension systems.

State and local pension debt is estimated at $1.7 trillion to $5 trillion. Taxpayers pay more and more for public pensions each year, yet pension debt is continuing to skyrocket. According to the site, governments’ pension payments, as a percentage of payroll, have nearly tripled since 2001.

In the meantime, public workers face benefit reductions and wage freezes, and governments have cut a half-million positions since 2008. Coming full-circle, communities are being forced to choose between cutting public services, such as teachers, safety officers and road improvements, and raising taxes in order to cover pension costs.

There are three things that must happen, according to the site, for governments to begin to rein in the problem and eventually get ahead of it:

  1. Governments must pay off pension debt.
  2. Governments must adopt reforms that ensure pension plans are affordable and sustainable.
  3. Governments must improve transparency. 

The Retirement Security Initative couldn’t agree more. We believe that state and local governments have a responsibility to provide essential services that protect the safety, health, welfare and quality of life for all Americans; have an obligation to ensure that their retirement plans are sustainable, fiscally sound and responsibly managed so that all retirees and employees get paid what they have earned; and solutions to the funding and cost crises need to be developed with input from employees, retirees, labor, management, taxpayers and fiscal experts.

We're excited about the new PensionSecurity.org website and encourage you to check it out and add it to your bookmarks as a go-to resource on all things pension reform.

South Carolina's Pension Challenges Addressed in Policy Panel Discussion with RSI’s Liljenquist

Posted by Rachael Heisler on January 12, 2017 at 11:48 AM

One of the biggest challenges facing South Carolina lawmakers this session is reining in the state’s nearly $25 billion pension debt. To tackle the issue head-on, the South Carolina Business and Industry Political Education Committee (SC BIPEC) convened a pension panel at its annual meeting this week to help inform and educate lawmakers and industry stakeholders about ways to tackle the spiraling pension debt.

Retirement Security Initiative Board Member and former Utah State Senator Dan Liljenquist participated on the panel, along with Columbia, South Carolina Mayor Steve Benjamin and the Reason Foundation’s Anthony Randazzo. 

"Unfunded pension liabilities pose an existential threat,” said Benjamin.

Not only have state government workers and employers seen five increases in their pension plan contributions since 2012, but taxpayers are shouldering the burden when investment returns fall short.

According to The Post and Courier, “For someone with a $40,000 salary, about average for a state employee, required pay deductions to the main pension fund now consume more than a month’s pay each year…Their employers — ultimately the taxpayers — pay even higher rates.”

"There is undoubtedly a crisis," said Randazzo, since there's no guarantee that pension funds will be available for workers when they retiree.

So how did the state’s pension debt spiral so out of control? Many reasons play a role, but a funding strategy built on risky investments and high rate of return assumptions set the stage.

"Our attitude from 2006 to 2013 was, we wanted to be on the cutting edge of (investment) diversification and financial theory, but we were on the bleeding edge," South Carolina Treasurer Curtis Loftis told The Post and Courier. "We have lost so much money the state will be lucky to get out of it."

Like many states and municipalities, South Carolina has been counting on a high investment return rate of 7.5 percent to help fund its pension. Not only is that high of an assumption rate an unrealistic goal, but pension fund managers are placing long-term wagers on an ever-fluctuating market.

“The biggest challenge is that you’re making a 60-year prediction and you have no idea what’s going to happen between now and then,” Liljenquist told the audience. 

In both the short- and long-run, it’s both the workers and taxpayers who feel the effects of poor pension management decisions. For example, The Post and Courier analysis finds that:


  • South Carolina has only 46 cents for every dollar that should be in the state's pension funds to pay future benefits.
  • The plans collects roughly $2 billion every year from workers and employers and pays out $3 billion in benefits. To make up the funding gap, investments would need to earn $1 billion yearly.
  • In the past five years, pension costs and fees have exploded to more than $361 million annually.  Before pension managers began gambling on expensive investment alternatives, these costs averaged less than $27 million per year.

To read more about South Carolina’s pension challenge from The Post and Courier, click here. To watch local news coverage from the SC BIPEC panel event, click here.

Ringing in the New Year; RSI’s Resolutions

Posted by Rachael Heisler on January 05, 2017 at 12:00 PM

Ringing in the New Year and planning grand resolutions that will better our lives and those of others is many times met with a swift kick (or non-committal shove) come January 1.  Sound familiar?  According to research, only 9 percent of Americans are successful in meeting their New Year's goals.

In 2017, we at the Retirement Security Initiative will remain steadfast in our resolution to inform and educate policy leaders and the public regarding the importance of fair and sustainable public sector retirement plans, and organize and support policy development and advocacy efforts at the federal, state and local levels.

We firmly believe that state and local governments have a responsibility to provide essential services that protect the safety, health, welfare and quality of life for all Americans; an obligation to ensure that their retirement plans are sustainable, fiscally sound and responsibly managed so that all retirees and employees get paid what they have earned; and solutions to the funding and cost crises need to be developed with input from employees, retirees, labor, management, taxpayers and fiscal experts.

This year RSI will continue to work toward the following reform principles:

  1. All workers deserve safe and secure retirements. 
  2. Retirement plans should place employees on a path to a secure retirement, regardless of tenure. 
  3. Retirement benefits should be fair, sustainable and predictable. 
  4. State and local governments should fully fund employee benefits, as they are earned, and incentives to underfund commitments should be eliminated. 
  5. Unfunded liabilities should be paid down over a reasonable time period. 
  6. Decision making and management of retirement plans should be open, transparent and non-political. 
  7. Solutions should be designed around the specific problems and financial resources of each jurisdiction and there is no single solution that will work everywhere.

To learn more about RSI’s goals and pension reform, click here.

From all of us at RSI, good luck with your New Year’s resolutions! 

See How Your Retirement Stacks Up

Posted by Rachael Heisler on December 19, 2016 at 3:45 PM

"About a third of Americans nearing retirement age, those between 55 and 64, have no retirement savings," says the LA Times. Through a series of articles looking at the pension crisis affecting the nation, and in particular California, the paper examines how much public pensions are truly costing governments and taxpayers and asks the $5 trillion dollar question: should taxpayers have to chip in more to cover those retirement promises when they themselves lack retirement savings. 

Read more of the series here and find out how your retirement compares to California's retired public employees' pensions, the largest pension fund in the nation, with this LA Times calculator.













RSI's Liljenquist Interviewed by Real Clear Radio

Posted by Rachael Heisler on December 12, 2016 at 9:52 AM

RSI Board Member Dan Liljenquist was recently interviewed by Real Clear Radio about pension reform efforts happening around the country and how he got involved in the issue. Liljenquist shares how he successfully spearheaded pension reform in Utah, which earned Governing magazine’s 2011 Public Official of the Year award, and suggests how chronically underfunded pension programs in states nationwide can avoid the risk of structural bankruptcy such as Puerto Rico suffered this year.

Listen now by clicking here.

New Numbers Show Market Pension Debt Nearing $6 Trillion

Posted by Rachael Heisler on November 30, 2016 at 10:47 AM

U.S. market pension debt has grown to $5.599 trillion, according to new numbers just released by US.PensionTracker.org, representing a substantial jump from $4,8333 in 2014. According to Stanford Institute for Economic Policy Research Professor Joe Nation, who directs the research site, market assets explain part of these poor outcomes, with market value adjustment essentially flat from $3.418 trillion in 2014 to $3.412 trillion in 2015.

To better understand such a massive number, Nation has broken the debt down per U.S. household, which is a sizable $47,388, up from $41,219 in 2014. The state with the largest household pension debt remains Alaska at $110,538; California is now second on that list at $92,748.

Not familiar with US.PensionTracker.org? The site allows visitors to probe by state, market and actuarial pension debt per household and capita, as well as general fund expenditures, total expenditures and total general fund revenues per year dating back to 2008.

For its metrics, the pension tracker team uses a variety of sources for actuarial, budgetary, demographic and other financial data from a number of sources provided by state pension systems, most notably the Comprehensive Annual Financial Reports (CAFRs). They also rely on the National Association of State Budget Officers, the U.S. Census Bureau and the Treasury Department.

US.PensionTracker.org is a tremendous asset to help policymakers, public workers and taxpayers understand the numbers behind the nation’s pension crisis and the significant need for reform.

RSI's Reed Keynotes TPPF Pension Reform Summit

Posted by Rachael Heisler on November 15, 2016 at 9:43 PM

RSI board member and former Mayor of San Jose Chuck Reed was recently invited to keynote the Texas Public Policy Foundation's pension reform summit. TPPF is a non-profit, non-partisan research institute that examines critical policy issues facing Texas and the nation, including the state of public pensions.  

Taking part in the summit were many notable pension experts, including RSI's Executive Director Pete Constant, who moderated a panel on key reform efforts happening throughout the country.

You can watch Chuck Reed's keynote speech here:






California's Record of Pension Failure

Posted by Rachael Heisler on November 13, 2016 at 8:19 PM

California’s failure to properly fund its pension obligations was the center of attention at a recent meeting of the California Society of Municipal Analysts, at which RSI board member and former Mayor of San Jose Chuck Reed presented. Despite 17 years of assuring Californians that everything was going to be all right, said Reed, the state’s two giant retirement plans, CalPERS and CalSTRS, have racked up hundreds of billions of dollars in pension debt.  Here’s the CalPERS record of failure:

Click here to view the entire presentation.

RSI's Liljenquist Discusses Urgent Need for Pension Reform on Nationally-Recognized Pension Panel

Posted by Rachael Heisler on November 03, 2016 at 3:36 PM

RSI Board Member Dan Liljenquist spoke in Washington, D.C. today about the growing need for public pension reform in states and municipalities throughout the country. He was joined by a panel of nationally-recognized pension experts who discussed the estimated $5.6 trillion pension crisis facing the U.S. 

"The problem is, we've stayed married to a pension structure that's been around for 40 years and is outdated," said Liljenquist. "There's better options that will allow state and local governments to meet their commitments, while capping their liabilities going forward." 

Skyrocketing pension debt results in tremendous budget challenges for state and local governments. And as pension plans face insolvency, policymakers tend to pull funds from important public services like public safety and education to pay down the debt. As one panelist pointed out, 89 cents of every new dollar for education funding in Chicago has gone toward pensions since 2009.

"Reality is not negotiable," said Liljenquist. "As trade offs of public services to pay down pension debt become more real, we'll hopefully see more engagement on the issue."

Watch the full panel discussion here.