Retirement and the 2016 Election

Posted by Rachael Heisler on November 02, 2016 at 8:56 AM

An Interview with Committee for a Responsible Federal Budget’s Marc Goldwein


Underfunded pension systems are one of the biggest challenges facing state and local budgets, resulting in an estimated $1 trillion to $5 trillion in total U.S. pension debt, depending on the practice of measurement used. 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 policy experts to get their opinion and analysis on the funding crises. The below Q&A with Marc Goldwein, senior vice president and senior policy director at the Committee for a Responsible Federal Budget, is a special Election 2016 edition and the second in our Q&A series.


RSI: Social Security is the major source of income for most retirees, yet analysts estimate that the program will run out of funds to pay full benefits beginning in 2034. According to plans outlined by Hillary Clinton and Donald Trump, does either candidate adequately address the Social Security funding problem with real solutions?

MG: Absolutely not. Both candidates have their heads in the sand on Social Security policy. 

Donald Trump’s plan is to keep the system on its current path to insolvency. Hillary Clinton’s plan expands benefits in targeted ways, such as to widowers and childcare providers, but otherwise she doesn’t change the program’s benefits or touch the age requirement. Both candidates are doing tremendous disservice by taking so many things off the table. Neither has a plan to make the system a long-term, solvent program for future generations.

If left on its current trajectory, today’s 50-year old will receive a 21 percent cut in benefits the year after they retire, which is a $100,000 cut in lifetime benefits and enough to double the number of seniors in poverty. And unfortunately there are no quick fixes that will save the program.  For example, it’s unrealistic to think the funding shortfall can be addressed only with tax increases on high earners; and certainly it can’t be fixed by eliminating Social Security fraud, which would be just a drop in the bucket of what’s needed. The reality is we are going to need a mixture of new taxes and slowing the growth of benefits to begin to save the program. Unfortunately, neither presidential candidate has shown they have a plan to quickly stabilize the program’s finances.

For anyone wanting to see how their benefits will be affected under the program’s current trajectory, they can check out CRFB’s Social Security benefit calculator.


RSI: The scenario you paint for Social Security is dire and it would seem that public employees would have their pensions to make up for this retirement uncertainty. But, as more public pensions go underfunded, putting at risk public employees’ savings, that payoff may not be so certain. Instead of retirement being a major public policy issue this election, it has been absent from the political debate. What, if anything, do the presidential candidates’ policies do to address retirement needs?

MG: Unfortunately, as you said, retirement hasn’t been a big issue this election. The candidates are talking very little about retirement, whereas it should be one of the top things being addressed.  This is especially true given the unsustainability of the Social Security program.

Neither Hillary Clinton nor Donald Trump have concrete plans to fix some of our most pressing retirement issues, like unsustainable pensions, holes in the Social Security program for low-income wage earners, access to retirement savings plans, and the list goes on. What should have been a priority in the political debate, has unfortunately been put on the backburner in this presidential election.


RSI: Switching gears, estimates show anywhere from $1 trillion to $5 trillion in total U.S. pension debt, adding on to the nation’s already historical levels of public-held debt. How do the candidates compare in their plans to reduce the nation’s debt?

MG: Neither of the candidate’s economic plans would slow and reverse the national debt. As of now, under current law, we are on a path to increase the national debt by $9 trillion in the next decade. As a result, debt would grow from 77 percent of GDP today – already a post-war record — to 86 percent of GDP in 10 years and 107 percent of GDP – the highest in our entire history – by 2036.

Hillary Clinton’s plan would keep national debt on the path we are headed, increasing it by a small amount: an additional $9.2 trillion in the next decade and $28.3 trillion by 2036. And while this is certainly the wrong direction, Donald Trump’s plan is catastrophically worse. It would add $5.3 trillion on top of the already $9 trillion over the next decade, putting the U.S. in unprecedented debt. Trump’s plan would ultimately increase the national debt to 105 percent of GDP by 2026 and nearly 150 percent of GDP by 2036.

In dollar terms, over the next 20 years, debt held by the public will rise from around $14.1 trillion today to more than $42 trillion by 2036 under Clinton and nearly $59 trillion under Trump, compared to $43 trillion under current law.


RSI: Many times it is taxpayers who pay the price of failing pension systems with raised taxes. In what seems like a never-ending sea of tax increases, how do Clinton’s and Trump’s tax policies stack up?

MG: Clinton and Trump are polar opposites when it comes to tax policy. Donald Trump’s plan would cut taxes for pretty much everyone—individual and corporate. Trump’s plan reduces tax rates from top to bottom, though it is heavily weighted for top earners. Overall, Trump’s plan calls for about $6 trillion in tax cuts, which, in turn, represents a huge debt burden and lends to unprecedented increases in the national debt.

On the other hand, Hillary Clinton’s plan would raise $1.5 trillion in taxes, targeting almost exclusively the top 2 to 3 percent of earners. Rather than go toward debt reduction, however, the tax revenue would go toward new spending initiatives to reduce college costs, offer government-financed paid family leave, expand the Affordable Care Act – also known as Obamacare, and provide for more child care, among other initiatives.

For more information on how the candidates stack up on fiscal policy issues, check out CFRB’s “Looking at the Long Term under the Candidates' Plans.” To learn more about CFRB, click here.



Spooky Pension Systems: They’re Heeere

Posted by Rachael Heisler on October 28, 2016 at 4:57 PM

Ghosts and goblins, spooks galore, scary witches at your door. This Halloween, we at the Retirement Security Initiative think there’s nothing scarier than the systemic failure of our nation’s public pension systems—and no one is spared. 

Estimated from $1 trillion to $5 trillion, U.S. public pension debt is the shadow lurking at your door, the bump in the night, the chill that runs along your spine…well, you get the picture.  In any case, the nation’s failing pension systems are responsible for higher taxes, reduced government services and, in some of the worst cases, reductions in pensioners’ promised retirement benefits. And we think that’s scary stuff.

Today’s pension crisis is due to unsustainable systems set up with risky investments, high assumed investment returns and, on top of that, most are continually underfunded. Moody’s investors service has warned that “the ability of U.S. state and local governments to absorb adverse market performance by their pension funds has been constrained by rising costs associated with past unfunded liabilities.” The credit rating agency has also warned that pension plans are taking on more and more risk as they try to chase higher returns.

By the prickling of my thumbs, Something wicked this way comes

Growing pension costs are resulting in tremendous budget challenges for state and local governments. And, in turn, as more and more public retirement plans face insolvency, policymakers tend to pull funds from important public services like education, public safety and transportation to pay down pension debt. Reduced funding for community centers, libraries and parks due to political leaders shuffling funds to cover pension costs leads to a reduced quality of life for all taxpayers.

Just as scary, rising costs and the continual underfunding of systems are threatening the solvency of public employee retirement plans, putting at risk the hard-earned savings of many workers. Just consider what happened in New Jersey this past summer when the state’s Supreme Court upheld a freeze on cost-of-living adjustments for retired pensioners because the pension plan was underfunded and too low on money to pay out additional COLAs. 

RSI believes that all workers deserve safe and secure futures and retirement plans should place employees on a path to a secure retirement. It’s shouldn’t be a case of trick-or-treat: retirement benefits should be fair, sustainable and predictable.

You kept me up all night waiting for the Great Pumpkin, and all that came was a beagle!

Although today’s pension crisis is due to policy decisions made by legislative bodies that created unsustainable systems, current policymakers can change the tide. Unfortunately, many instead kick the can down the road for someone else to fix at a later date. Just this week the Pennsylvania General Assembly had the opportunity to pass much-needed pension reform legislation, but failed by three votes in the eleventh hour. The state, suffering from more than $63 billion in pension debt, will now have to begin again from scratch next year with a new pension reform package. In the meantime, Pennsylvania's pension debt rises at a rate of $143 per second.

Don’t be tricked this Halloween. State and local governments have a responsibility to provide essential services that protect the welfare and quality of life for all Americans—services that will be reduced as public pension debt continues to skyrocket. Governments also have a responsibility to fulfill their pension promises to public employees. After all, there are many things that frighten us, but our retirement futures shouldn’t be one of them.



RSI Q&A with Donald Boyd, director of Fiscal Studies at the Rockefeller Institute of Government

Posted by Rachael Heisler on October 11, 2016 at 10:10 AM

Underfunded pension systems are one of the biggest challenges facing state and local budgets, resulting in an estimated $1 trillion to $5 trillion in total U.S. pension debt, depending on the practice of measurement used. 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 Donald Boyd, director of Fiscal Studies at the Rockefeller Institute of Government, is the first in our series.


RSI: In the January 2014, Rockefeller Institute report, Strengthening the Security of Public Sector Defined Benefit Plans, you attribute inaccurate financial reporting, investment risk incentives and lax rules as allowing public sector pension underfunding to develop. In your opinion, how have these risks grown and why are potential consequences of these funding flaws greater now than before?

DB: The risks have grown enormously – risks to taxpayers; to people who benefit from government-financed education, health care, police, courts, roads or water systems; and to people who work for or have retired from government.

As measured by the Federal Reserve Board, public pension plan unfunded liabilities are at a near-record $1.9 trillion (Figure 1). That is conservative; alternative estimates, discounted using risk-free rates, exceed $5 trillion (1). This debt will be paid mostly by current and future taxpayers or by cuts in services.

Figure 1. Unfunded state and local government pension liability, relative to taxes, is near a record.

In an effort to reduce these liabilities, public pension funds are exposing taxpayers and others to much greater risks than before. The risks have gone up for two reasons.

First, public pension funds are larger now relative to the economy: In 1975, public pension fund investible assets were about six percent of gross domestic product; today, they are approximately 20 percent. This asset growth reflects the aging public workforce and maturation of pension funds.

Second, as nominal investment returns on safe assets fell over the last 20 years, it became more difficult to achieve assumed investment returns of 7 to 8 percent. Public plans moved into riskier assets rather than reduce earnings assumptions (2). If this risk-taking is successful, taxpayers and other stakeholders will benefit; if not, they will be worse off.

Rules and institutional arrangements encourage public pension funds to take investment risk. U.S. public funds, unlike other funds, calculate liabilities and actuarially determined contributions using discount rates based on what they assume their portfolios will earn. High assumed rates keep reported liabilities and requested contributions low. This encourages investing in risky assets that can justify high expected returns. There are few constraints on this assumed rate except for what prudence will allow, and prudence is quite generous. A recent statistical analysis concluded that as Treasury yields fell, U.S. public plans increased risk-taking in ways that U.S. private plans and plans in other countries did not, and that “gradually, U.S. public funds have become the biggest risk-takers among pension funds internationally.” (3)

This heightened risk-taking with a larger asset base means that taxpayers and other stakeholders bear far more risk now than in the past. According to a forthcoming Rockefeller Institute report, a single-year investment shortfall of one standard deviation (a common measure of risk) would now be about three times as large relative to state and local government tax revenue as in 1995 and 10 times as large as a decade earlier (4). A one standard deviation shortfall has about a one in six chance in any given year (5).

Such a shortfall would be about $427 billion. If amortized (spread out with interest) in a common fashion, it would require increased contributions from governments of about $23 billion now, rising 3 percent annually for 30 years, after which it would be paid off (6). This is equivalent to about a 24 percent cut in highway capital spending for 30 years – the consequence of a single year of moderately bad investment returns (7).

Whether taxpayers really want public pension funds taking risks of this magnitude on their behalf – risks that affect not only them but their children – is an open question.


RSI: Your recent policy brief with Yimeng Yin, Public Pension Funding Practices, draws on simulations to show that there is a one-in-six chance that a typical pension fund will fall below 40 percent funding sometime in the next 30 years. What, if anything, can we do to change this scenario?

DB: A typical 75 percent funded pension fund runs about a one in six chance of falling below 40 percent in the next 30 years, assuming an average portfolio and a common method of funding. Portfolios are risky enough that even with full payment of contributions, bad returns could drive funding this low. This is a crisis level: only a few plans are below 40 percent and they and their governments are in deep crisis (e.g, Illinois and Kentucky). We used a simulation model to estimate this, and I think we were conservative. A one in six chance of a crisis seems like a big risk to me.

Using risky assets to fund guaranteed benefits creates additional concerns. People who pay taxes and benefit from government services and infrastructure must be willing to put up with ups and downs in taxes, services and infrastructure quality in response to ups and downs in investment markets. No amount of funding smoothing can prevent this and also keep funds solvent. If we’re all ok with that, it’s not a problem.

The way to reduce this risk is for pension funds to lower earnings assumptions and move into investments similar to their bond-like liabilities. That means they’ll expect lower returns and be more confident that they’ll get them. Contributions will be much more stable, but at a big cost: It requires the very unpopular action of requesting much higher contributions from governments now, which could damage public and political support for defined benefit plans. Benefits that weather any reaction would be more secure.

While some de-risking is going on, I don’t expect a big shift. Incentives in the system encourage risk taking, and there are no rules to counter those incentives - it’s the Wild West out there.


RSI: Throughout your work, the resounding conclusion is that taxpayers—both current and future—and government employees and retirees ultimately bear the burden of investment risk. How do assumptions and gimmicks of pension administrators, as well as the different methods of funding policies and practices to repay shortfalls, vary in impact to taxpayers and employees?

DB: It is not just pension fund administrators; it is executive and legislative branch politicians, and government finance officials, too. And they often have the tacit support of unions, taxpayer groups, advocates for services and others who would rather see taxes used for current services than for services delivered in the past. All share an interest in smoothing out governmental contributions and in pushing off the cost of any shortfalls to the future.

The motive for stable contributions is understandable and appropriate: there are costs to society from instability in taxes and services. Unfortunately, we know from our modeling and from the work of economist Andrew Biggs that imposing stability on contributions when investment portfolios are extremely volatile is dangerous to the long-run health of pension funds and to future taxpayers. The second motive – the desire to push shortfalls to the future – is understandable but comes at the expense of future taxpayers.

Pension plans and governments use two main mechanisms to smooth out the consequences of investment shortfalls and overages. I focus primarily on shortfalls because they can cause distress that gains do not.

First, most plans acknowledge investment gains and losses over multiple years, rather than all at once. A common approach is to recognize one fifth of a gain or loss over each of five years. This pushes the full pain of paying for investment shortfalls until year six and beyond. If tax revenue is likely to bounce back sharply from the depths of a recession – and often it will – then this defers the greatest contribution increases until the revenue recovery, which can make sense. (This bounce-back is not assured: tax revenue recovered very slowly after the last two recessions.) The downside is moral hazard: current politicians and financial managers take risk, but bear relatively little consequence and have little incentive to minimize risk.

The second mechanism is repaying losses, once recognized, over periods that can be 30 or more years. Some methods start with payments so low that they allow unfunded liabilities to grow for years before they begin to be paid down. Other methods pay down liabilities more quickly. The most deeply underfunded plans tend to use methods that push repayments far into the future. Again, this creates a moral hazard: it softens the near-term consequences of risk-taking and thereby encourages risk. And it pushes the potential costs and benefits of uncertain investment returns to future taxpayers who did not benefit from services they may have to pay for.


RSI: You estimate that state and local government contributions to pension funds have increased $0.59 for every $1.00 in additional tax revenues between 2007 and 2015 and by about 40 cents for every dollar of available own-source revenue. Yet many public pension plans fall short of their actuarial determined contributions, with 33 plans underpaid by $100 million or more in 2014, according to your most recent presentation on funding risks. If this trend continues, what is your prediction for the future solvency of public pensions?

DB: Most public plans are nowhere near insolvency – out of assets and unable to pay benefits as they come due. But a plan is in trouble long before it is insolvent. If funding falls low enough, the needed contribution increases will become huge – perhaps so large that the resulting tax increases, service cuts, or infrastructure neglect will drive economic activity out of state. Politicians may understandably balk at paying contributions that large, despite legal and moral commitments to pay promised benefits honestly earned. If politicians do balk, insolvency could become possible and the courts would have to sort out who will lose the most and who the least. Governments and plans must act long before insolvency.

Will governments act? The political and funding risks differ from place to place. Some governments are underpaying actuarially determined contributions by a great deal. Other governments are paying actuarially determined contributions that are too low to keep unfunded liabilities from growing, as we know from work by Moody’s, Pew and the Rockefeller Institute. Some governments and their plan partners are behaving well.

Further increases in actuarial contributions are coming. Most pension plans fell short of their investment assumptions in their 2015 and 2016 fiscal years, totaling about 10 percent across the two years. That suggests increased underfunding of $350-$400 billion nationwide. Even if paid off slowly, that would be roughly the equivalent of, for example, cutting highway capital spending by 22 percent for the next 30 years or raising all sales taxes in the nation by 0.4 cents. That sounds like a lot of political pain.

When these increases come, will governments pay, will they try to cut benefits already earned or will they underpay and let plans drift further downward hoping that investments in risky assets will bail them out? A little of each I suspect. Even though solvency is not a near term risk, there is plenty to worry about.


RSI: Our organization believes that all workers deserve safe and secure retirements and retirement plans should place employees on a path to secure retirement, yet defined benefit plans, used by the majority of public pension plans, have inherent flaws that could lead to dangerous consequences for workers. You are currently working on a two-year project on modeling and disclosing public pension fund risks. Do you have recommendations so far to better guide the funding and disclosure of defined benefit plans?

DB: Let me offer observations rather than recommendations. I said earlier that it’s the Wild West because there are virtually no rules - no police – for public pensions:
• Public plans are not subject to the Financial Accounting Standards Board (FASB) standards that govern calculation of financial statement liabilities and expenses for private plans. Instead, Governmental Accounting Standards Board (GASB) standards generally allow them to calculate liabilities and expenses based upon plan-chosen investment return assumptions.
• GASB, unlike FASB, is not overseen by the Securities and Exchange Commission - no external authority constrains GASB standards (8).
• Public plans are not subject to the private sector rules in the Employee Retirement Income Security Act (ERISA) and later acts that restrict the discount rate used for funding purposes (9). While those rules have flaws, public pension plans don’t face any rules, except for a few in state-specific laws.
• Many governments have abused the rules-free environment, paying less than actuarially determined contributions, which in turn are too low. The most troubled plans invariably have had governments that underpay substantially, often when times are tough but sometimes habitually.
• The Actuarial Standards Board provides guidance to actuaries in developing interest rate assumptions, but that has not prevented actuaries and public pension boards from choosing assumptions that have contributed to this risky situation (10).

Even if we find money to fix current problems, unless we arrange police for public pensions we likely will wind up in this situation again.

Can the Wild West be tamed? I do not believe that disclosure of liabilities, costs and risks could be enough to change the behavior of pension plans and governments. Rules and other institutions will be needed:
• Liabilities and annual costs in government and pension plan financial statements should be measured properly, with discount rates that reflect the characteristics of the liability. This would not directly affect plan funding, but would provide information that could affect behavior. Understating the annual cost of pension benefits can lead governments to negotiate or legislate higher pension benefits than they otherwise might, and sunlight might discourage that.
• Discount rates used to determine contributions should be based on market interest rates rather than a plan’s portfolio. This could reduce the incentive to invest in risky assets to keep requested contributions low.
• Plans and governments should disclose this information clearly, along with measures of risk, in comprehensive annual financial reports and in municipal bond disclosures.
• Constraints should be imposed upon the earnings assumption used for funding to further counter incentives to assume high returns. This would make it more practical for plans to invest in assets that are similar in character to their liabilities.
• Governments should be required to pay actuarially determined contributions (11).

These changes would cause huge increases in contributions by state and local governments. That is not the fault of the changes, but of the situation we are in. Resulting tax increases probably would weaken public and political support for defined benefit pensions. Almost no one wants rules, particularly these rules, imposed on public pension plans – not the plans, not governments, and likely not unions or current taxpayers. Thus, they are extremely unlikely, absent a trigger event such as nonpayment of benefits. No one wants that.

One thing plans can do on their own, at political risk to boards, is gradually reduce their risk taking at every opportunity.

None of these changes would fix unfunded “legacy” liabilities that governments currently face. Most of those liabilities have strong legal protections and properly must be paid. But elected officials and others need to think about how to fix the system, so that the problem does not recur.


  1. The Bureau of Economic Analysis, which prepared the estimates, discounted liabilities of recent years with a 5 percent rate. Risk-free rates, which are more appropriate, are much lower and currently lead to estimates over $5 trillion. Updated estimates prepared by Josh Rauh of Stanford University were reported in Nicole Bullock, “The Crumbling Assumptions of US Public Pension Plans,” Financial Times, August 26, 2016, I confirmed via email with the article author that the estimates were prepared by Professor Rauh.
  2. There have been minor downward moves in earnings assumptions, but they are small compared to the movements in market interest rates.
  3. Aleksandar Andonov, Rob Bauer, and Martijn Cremers, “Pension Fund Asset Allocation and Liability Discount Rates,” Available at SSRN 2070054, March 2016,
  4. I use taxes as a rough proxy for state and local governments’ ability to pay. They have other sources of income they can use to pay pension contributions, but these are not easy to measure consistently over time and are much smaller than taxes. I estimate that taxes are used to pay for roughly 80 percent of pension contributions. Over longer periods state and local governments can raise or lower taxes, and so measures of economic capacity are important. If the risk were measured relative to gross domestic product, the conclusions would be essentially the same.
  5. The 1 in 6 statement assumes normally distributed investment returns.
  6. Based on 30-year amortization as a level percentage of pay. I ignore asset smoothing for purposes of the example. Assumes a shortfall of $426.5 billion, a 7.5 percent interest rate, and 3 percent annual growth in payments.
  7. Authors’ analysis of U.S. Census Bureau, 2013 Annual Surveys of State and Local Government Finances.
  8. For a good discussion, see James P. Naughton and Holger Spamann, “Fixing Public Sector Finances: The Accounting and Reporting Lever,” Harvard University John M. Olin Center for Law, Economics, and Business Discussion Paper, no. 814 (2015),
  9. Private-sector rules have been manipulated by Congress for politically expedient purposes.
  10. See “Actuarial Standard of Practice No. 27: Selection of Economic Assumptions for Measuring Pension Obligations - Adopted September 2013 (ASOP No. 27)” (Actuarial Standards Board, September 2013),
  11. For one analysis of this issue, see Natalya Shnitser, “Funding Discipline for U.S. Public Pension Plans: An Empirical Analysis of Institutional Design,” Iowa Law Review 100 (2015): 663–714.


The Gathering Storm in Public Pensions

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


RSI Executive Director Pete Constant met with the Cato Institute recently to discuss the gathering storm in state public pensions. "Denial" is the single word he uses to describe the attitude of many state governments toward pension finance problems. Listen to the podcast in its entirety here.


Retirement Cost Increases + Education Spending Decreases = Crowd-Out

Posted by Rachael Heisler on September 26, 2016 at 4:18 PM

Scan the news on any given day and chances are you’ll likely see one or more stories about crowd-out, or the shuffling of government money from important community services to cover escalating pension costs.  As more and more public retirement plans face insolvency, policymakers tend to pull funds from important public services like education, public safety and transportation to pay down pension debt.  

This week, Stanford lecturer David Crane demonstrates just how badly crowd-out is happening in California. As the state’s retirement costs surge, says Crane, there’s been a significant change in state budget allocations. But don’t just take his word for it, the proof is in the pudding (i.e. a review of the state’s 2016-17 budget). Data shows that from 2011 to the current budget, the change in share from the state’s general fund has increased 40 percent for pension and OPEB (retirement healthcare) costs, while education funding has simultaneously dwindled.

“Pension and OPEB costs are just at the beginning of their upward climbs because of fast growing liabilities and inadequate pre-funding,” says Crane. “Absent reform, California’s budgets will increasingly be a contest among retirement costs, healthcare and education.”  

But it’s not just a California problem. U.S. public retirement programs are more than $1 trillion in debt, resulting in tremendous budget challenges for states and municipalities throughout the nation. Amid this crisis, state and local governments still maintain a responsibility to provide essential services, including education, that provide quality of life for all Americans. Unfortunately, as David Crane points out, these services will only continue to be reduced as public pension debt skyrockets.

While it’s easy to kick the can down the road for another day, if policymakers don’t get control of the public pension crisis now there will not be funds for priority programs in the future. It’s time that we find real solutions to the pension crisis so that taxpayers receive the services they have paid for.



RSI's Liljenquist Talks Teacher Pensions in New Q&A

Posted by Rachael Heisler on September 19, 2016 at 12:10 PM

RSI Board Member Dan Liljenquist sat down recently with the experts at to discuss how he got involved in the issue of public pensions, his advice to legislators and what his hopes and goals are for the Retirement Security Initiative. Read the full interview here.

Liljenquist, Constant Talk Pension Reform in Michigan

Posted by Rachael Heisler on September 16, 2016 at 2:02 PM

RSI Board Member Dan Liljenquist and Executive Director Pete Constant this week participated in a panel discussion on pension reform in Lansing, Mich., sponsored by the Mackinac Center. The panel, How Pensions are Bankrupting Cities and States and How o Fix It, looked at repeated underfunding of pension systems in Michigan and across the country that have led to a national crisis. Also on the panel was Michigan State Representative Aric Nesbitt.

Liljenquist started off the panel discussion by saying that the first goal of any pension reform must be to meet the promises made to employees. "The second goal is to create sustainable systems for new employees," he continued. "And the third goal to is to ensure that those new systems provide adequate retirement security."

Allowing massive pension debt to continue to go unchecked will hurt employees the most, Constant emphasized. "Pension debt has a huge impact on workers and retirees," he said. "What happens when retirees are 75 or 80 years old and need their pensions the most and the pensions are dried up?"

Pension reform is also in the best interest of taxpayers, Constant continued, because they are continually paying more in taxes and getting less services. 

According to both Liljenquist and Constant, a primary reason for the nation’s massive pension debt is because pension systems haven’t adapted to changing financial markets. "What worked in the 1980s and 1990s doesn't now," said Constant. "Yet, pension plans continue to keep their heads buried in the sand. Fifteen years of poor performance is not an anomaly."

Watch the entire presentation below.





There’s No Sugar-Coating the Reality of Underfunded Pensions

Posted by Rachael Heisler on September 13, 2016 at 3:09 PM

                                                                    Wikimedia Commons


Fans of Peeps, the sugary marshmallow treats that fill millions of Easter baskets each year, may want to brace themselves—the gooey confections will likely be in short supply this coming April. Last week, 400 employees at the Bethlehem, Pa., candy manufacturer Just Born Quality Confections walked out amid pension protests. The strike comes as Easter production of the candy gets underway.

At the heart of the strike is a proposal by Just Born to move new employees to a 401(K) retirement plan, while continuing to contribute to its current employees’ pension fund at its current level. Sounds simple, right? Think again.

While most private companies have moved to 401(K)-style retirement plans (avoiding the trillion dollar underfunded pension crisis that plagues the public sector), Just Born is part of a multi-employer union pension fund.  The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union Local 6 provides pension income to thousands of workers, including those of Just Born.

And as most pension funds have found themselves drowning in debt in recent years, so, too, has the confectioner’s pension. As of April, the fund reported $5 billion in assets and $8 billion in liabilities. To try to regain solvency, the fund began charging employers a per-employee surcharge, costing Just Born more than $2 million. And now, according to the candy maker, surcharges to keep the fledgling pension fund afloat are threatening operations of the Bethlehem plant.

Just Born is caught in a Catch 22: as long as its employees remain covered by the pension fund, it must pay millions of dollars in surcharges; otherwise, to exit the pension plan would costs tens of millions of dollars in fines, bankrupting the company. Hence, to reduce costs, Just Born wants to move new hires to a 401(K), but the union argues it’s against pension plan rules. And there's the rub.

The Retirement Security Initiative believes that all workers deserve safe and secure retirements and benefits should be fair, sustainable and predictable. Unfortunately, the workers of Just Born are faced with a troubled pension that could go belly-up, leaving them without their full pensions, or an employer that may have to cease operations because it can’t afford pension surcharges and fees. Whatever the case, there’s no sugar-coating the issue: public or private pension funds that aren’t being fully funded jeopardize the futures of the workers that they are there to protect.



Here's what we're reading this week at RSI...

Posted by Rachael Heisler on September 09, 2016 at 5:52 PM


Week of Sept. 5, 2015


  • States are facing more than $1 trillion in pension debt. The Fiscal Times tells us the 10 worst.
  • Guest commentary in The Hill from Americans for Prosperity's Julia Crigler and David From goes a step further to discuss the tale of two state pension crises: Kentucky and Illinois.
  • In special commentary to the Daily News,'s Chad Aldeman discusses how pension math cheats teachers.
  • When did retirement become a game of Jenga, retirement financial expert Dennis Miller asks in
  • And lastly, Peeps workers have gone strike, rejecting a pension proposal that would move all new employees to a 401(k)-style plan. What does that mean for workers and the infamous Easter candy? Read here.