Pension Reform News: Annual Pension Solvency and Performance Report

In This Issue:

Articles, Research & Spotlights 

• Reason’s Annual Pension Report Updated through 2024
• More Threats to California’s Pension Debt Elimination Plan
• Policymakers Shouldn’t Use Colorado’s Pension for Police Funding 

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

Articles, Research & Spotlights

Update to Reason’s Annual Pension Solvency and Performance Report 

Reason Foundation’s Pension Integrity Project has updated our Annual Pension Solvency and Performance Report with data from public pension systems that hadn’t reported their 2024 data when the previous report was published. The update finds the national total of state and local public pension debt is now $1.61 trillion, up from $1.59 trillion. Reason’s updated report also includes new features to evaluate each state’s pension status and compare them side-by-side with other states. With these tools, policymakers and taxpayers can gather information crucial to dealing with the growing challenges of pension debt.

California Bill Would Undermine Important Pension Reforms

A proposal in the California Legislature, Assembly Bill 569, threatens to undo previous reforms that are crucial to protecting taxpayers from runaway pension costs. These reforms, from the 2013 California Public Employees’ Pension Reform Act (PEPRA), were designed to control spending and tackle the state’s debt of more than $200 billion. The bill would weaken these rules, allowing government agencies to promise more pension benefits through supplementary plans despite the public pension promises they’ve already made remaining significantly underfunded. The proposal would allow local governments to get around the cost-saving measures established in PEPRA, ultimately placing more risk and higher costs on future generations of California’s already overburdened taxpayers. State lawmakers need to reinforce, not undermine, the prudent pension reforms that have been adopted in the past.

Colorado Should Not Use PERA to Invest in Non-Pension Programs

Through a 2024 referendum, voters in Colorado approved spending an additional $350 million on law enforcement over the next decade. Now, it is up to lawmakers to determine how to implement the referendum. One proposal by the Joint Budget Committee would take money from the state’s emergency reserve and add it to the Public Employees Retirement Association (PERA) investment pool to leverage market returns to maximize this funding. But, as Reason Foundation’s Rich Hiller warns, using the state’s pension fund for this purpose applies undue risks on PERA, and would inappropriately ask the pension plan to deliver on a scheme that is beyond its core purpose.

News in Brief

Overestimating returns is what created pension debt

A paper in the Journal of Pension Economics and Finance by David Hengerer,

Jonathan Moody and Anthony Randazzo examines why state defined-benefit pension plans accumulated $1.33 trillion in unfunded liabilities from 2000 to 2020. Using actuarial data from 145 state pension systems, the study finds that 41% of the increase can be attributed to investment returns falling short of overly optimistic assumptions. Another 28% came from assumption changes, primarily lowered discount rates, and 24% was due to interest accumulating on prior underfunding. The authors caution policymakers that unrealistic investment return expectations have effectively masked true funding needs, leading to long-term structural pension debt. Read the full report here.

How to turn retirement savings into guaranteed lifetime income

A new issue brief from the American Academy of Actuaries explains the various ways workers can convert their defined contribution plan savings into income during retirement. Thanks to recent laws, more plans can now offer annuities—insurance products that provide guaranteed monthly payments for life. These “plan-selected” annuities are often cheaper and more flexible than those sold to individuals. The brief also covers other options, such as withdrawing a fixed percentage each year, spreading payments over a set number of years, or just withdrawing the required minimum distributions, which are minimum amounts that retirees must withdraw each year after age 73 from their tax-deferred retirement accounts. Each option has trade-offs: annuities protect against running out of money but reduce flexibility, while non-insured approaches offer more control but provide no guarantees. The authors encourage employers to offer a mix of options and provide clear explanations so that members can make informed decisions. Read the full brief here.

Airports offer opportunities to generate funding for growing pension debt

The Reason Foundation’s recently published Annual Aviation Infrastructure Report examines the potential funding that state and local governments could generate from their publicly owned airports. Through public-private partnerships, governments could agree to long-term leases of their airports with private companies, potentially generating billions in additional revenue. With growing pension debt being a multi-billion-dollar problem for many states and cities, this could be a prudent solution that could secure pensions and save taxpayers money. The report indicates that private ownership of airports is the norm outside of North America. In other regions, such as Europe and Latin America, over 76% of airports are owned and operated by private companies, whereas in North America, more than 96% of airports are government-owned. Read the full report here. 

Quotable Quotes on Pension Reform

“It’s a big complicated system, and what’s being proposed here is to make it less secure. As a member of the pension system, I object to that..Every year there’s an effort to achieve more benefits for the organizations, and some organizations like firefighters have a much more compelling case than others, but nevertheless the government has to live within limits…The great danger of pensions is that risk comes later when the current lawmakers and advocates are no longer around, so the current leadership has to act as stewards for future beneficiaries, and that is very difficult because the future is not here, but the present is now.”
—Former California Gov. Jerry Brown quoted in “Unions want to chip away at Jerry Brown’s pension law. He has something to say about that,” CalMatters, June 10, 2025.

“Our advice to [Andrew] Cuomo and all of his [New York City mayoral race] competitors is to stay out of pension politics. Playing that game will cost the city a lot in the long run, well after your four or eight years in City Hall are up.”
—New York Daily News Editorial Board in “Cuomo’s pension pander: The Tier 6 reform was necessary and should not be undone,” May 20, 2025.

“It’s cost-neutral under this one actuarial note, but if they miss their 7% return by just a little bit it will not be cost neutral—it will have a significant, meaningful cost to the city.”
—Josh McGee, former chairman of the Texas Pension Review Board, quoted in “Mayor Whitmire supports Texas bill that would reverse some Houston pension reforms, alarming experts,” Houston Chronicle, June 3, 2025.

“I just think that conversation about understanding what expenses are paid and improving the transparency—that’s a concerted effort across the alternative space, not just hedge funds.”
—John Claisse, CEO of consultant Albourne, quoted in “How Texas Teachers pushed back on hedge fund fees — and won,” Pensions and Investments, May 27, 2025.

Data Highlight

Each month, we feature a pension-related chart or infographic. This month, Reason’s update to the Annual Pension Solvency and Performance Report is a dashboard visualizing pension funding levels at state levels. Users can select their state to see the aggregated funding history and 2025 projections. Access the full report and dashboard here.

Reason Foundation in the News

“If that bet fails, even slightly, the plans will face serious funding gaps..Washington’s choice to swim against this national trend by adopting a more aggressive return assumption significantly increases the likelihood of future shortfalls.”
—Ryan Frost, Pension Integrity Project Managing Director, quoted in “Washington bill’s changes to public pension funding could cost taxpayers, critic warns,” The Center Square, May 14, 2025.

The post Pension Reform News: Annual Pension Solvency and Performance Report appeared first on Reason Foundation.

Source: https://reason.org/pension-newsletter/reasons-annual-pension-report/