Important public pension reforms are under threat in several states

George Santayana (1863–1952), a Spanish-American philosopher, is known for the adage, “Those who cannot remember the past are condemned to repeat it.”

The saying is intended to admonish and warn us that failing to learn from historical mistakes leads to their repetition. Recent efforts in multiple states to undo public pension reforms of the past are a real-time illustration of the fragility of good pension policy. 

With term limits and ever-evolving political interests, the loss of institutional memory can be a challenge in government. Circumstances in which lawmakers today do not remember the purpose of reforms from the past make it difficult to maintain and manage defined benefit (DB) pension plans in particular.

Without the ability to retain and understand lessons from past mistakes in designing, funding, and managing public pensions, public policymakers are doomed to repeat the same pension management errors and create new cycles of pension problems for the state, local governments, and taxpayers.

The financial stakes of proper public pension management remain high.

The extent of the fiscal problems related to public pension plans is reflected in the sheer size of unfunded pension liabilities. The 2024 Annual Pension Solvency Report by Reason Foundation’s Pension Integrity Project reported that between 2007 and 2010, unfunded liabilities grew by over $1.11 trillion—an abrupt 632% increase—reflecting the financial challenges faced during that period. Despite some improvements in funding ratios over the last decade, these liabilities have continued to rise, underscoring ongoing financial pressures.

As of the end of the 2023 fiscal year, total unfunded public pension liabilities (UAL) reached $1.59 trillion, with state pension plans carrying the majority of the debt. The median funded ratio of public pension plans stands at 76%, but another economic downturn could significantly increase unfunded liabilities, potentially raising the total to $2.71 trillion by 2026.

Governments, by their nature, are predisposed to mismanaging public pension plans and face few legal guardrails.

While public sector defined benefit pension plans are designed to provide retirees with a guaranteed income for life, their structure and oversight are commonly vulnerable to political pressures that undermine their sustainability and fairness. Unions and other stakeholders wield significant influence over lawmakers through campaign contributions and lobbying.

This clout often translates into enhanced pension benefits negotiated with too little consideration of the risks and long-term costs that taxpayers will bear.

A recent pension boost for Chicago’s police and firefighter pensions is an example of this pitfall, with new legislation handing out expensive benefit upgrades despite the city’s pension debt (reported to be $27 billion in 2023) exceeding that of 43 states.

Unlike private sector plans, which are subject to federal Employee Retirement Income Security Act (ERISA) regulations—imposing minimum standards for funding, benefit eligibility, vesting, and discriminatory benefits for highly paid employees—public sector plans face no such constraints. This lack of oversight creates fertile ground for political influence, where lawmakers, responsive to short-term political pressures, can manipulate pension benefits and funding to favor specific groups and constituent demands.

Institutional memory is easily lost in the political sphere.

Recent actions to reverse previously-made pension reforms in several states, including Washington, New York, and potentially California, suggest that lawmakers are inclined to succumb to political pressures while neglecting the reasons behind those essential reforms. 

California: According to a recent Reason Foundation analysis, California’s 2025 Assembly Bills 1382 and 569 aim to repeal key provisions of the 2014 Public Employees’ Pension Reform Act (PEPRA), which were crucial in reducing the growth of the state’s pension unfunded liabilities and the level of pension benefit abuses. The bills would reverse a ban on supplemental DB plans for local government employees hired after Jan. 1, 2013, and expand the definition of pensionable compensation for all PEPRA members. They would also remove critical cost-sharing requirements and again subject what are currently agreed-upon contributions to collective bargaining.

Additionally, it would create a new, higher-cost benefit for public safety employees and reduce retirement age requirements back to where they were before the 2014 PEPRA reform. AB 569 passed through the Assembly Public Employment and Retirement Committee in May 2025 with no opposition from either party, illustrating how political pressures can threaten past reforms.

Washington: According to Reason Foundation’s analysis of 2025 Engrossed Substitute Senate Bill 5357 (ESSB 5357), the bill raises the long-term investment return assumption from 7% to 7.25% for every plan in the state (except the Law Enforcement Officers’ and Firefighters’ Plan 2) and pushes the amortization of two legacy plans’ unfunded liabilities over an additional four years in order to gain short-term lower contributions to deal with budgetary pressures. The bill undermines past funding progress at the expense of future taxpayers and is counter to the trend of most other public retirement systems, which have lowered investment return assumptions and shortened unfunded liability amortization periods. It sets a dangerous precedent that prudent pension funding is optional and takes a backseat to more politically advantageous spending.

Alaska: Citing the need for better recruitment tools, Alaska has been considering reversing its landmark pension reform of 2005, when it froze its DB pension plan and created a new defined contribution (DC) structure for new hires. According to Reason’s analysis of 2025 House Bill 78, the newest iteration of that proposal would cost Alaska an additional $2.1 billion over the next 30 years. Under a more realistic scenario, if investment returns over the next 30 years resemble those Alaska has experienced over the past 23 years, the cost increases to $11.4 billion​. In addition, the existing DC plans actually provide better benefits for most Alaska public employee participants, a fact that undercuts the argument that the DB plan is needed for recruitment.

Minnesota:  While Minnesota continues to underfund its public employee pension plans with contribution rates below recommended actuarial rates, the state recently passed Senate File 2884, increasing the retirement benefits for teachers, firefighters, police officers, state patrol officers, and public employees. The legislation does provide some additional contributions to pay for added benefits ($20 million per year for 2026-29), but risks adding to the state’s estimated $18 billion in pension debt. Increasing benefits while plans are still short on paying for current pension promises is indicative of misguided public policy around the state’s pension benefits.

Oklahoma:  2024 House Bill 2854 attempted to undo the highly successful 2014 DB to DC reform adopted by Oklahoma. The reform resulted in the legacy pension plan achieving nearly 100% funding and creating a DC program that follows best practices.  HB 2854 would have eliminated the current Pathfinder DC retirement plan and retroactively reopened the legacy pension plan, re-exposing the state to unnecessary unfunded liabilities, financial risks, and hidden costs that would ultimately be borne by taxpayers. The state saw similar efforts in 2025, which did not pass, but would have also undermined the progress Oklahoma has made in fully funding the retirement promises made to public workers.

New York: Last year, New York lawmakers undermined a 2012 pension reform by boosting public worker pension benefits and limiting the crucial contributions coming from employees. Adding to ongoing political pressures to undo prudent, cost-saving reforms in the Empire State, New York City mayoral candidates (including Former Gov. Andrew Cuomo who was part of the effort to pass the original 2012 reform) have been outspoken about supporting a return to the previous pension benefits that catapulted the state into massive unexpected costs.  Public employee unions are advocating for decreasing the minimum retirement age from 63 back to 55 for teachers, and 62 for other employees, which would bring back significant costs for taxpayers.

The fragility of public pension reforms.

The durability of past public pension reforms is precarious. As the influence of reformers like former California Gov. Jerry Brown wanes, institutional memory fades, and newer generations of lawmakers, less attuned to the fiscal crises that prompted reforms, may chip away at its protections.

Bills like those cited previously demonstrate how quickly reforms can be undone under pressure from influential groups. The absence of a formal retirement funding policy leaves these reforms vulnerable to political whims, allowing lawmakers to prioritize short-term political gains over long-term fiscal responsibility. For instance, California PEPRA’s prohibition on supplemental DB plans was a direct response to past abuses, yet AB 569 threatens to reinstate these plans without addressing the risks of favoritism or unfunded liabilities.

The need for formal retirement benefit and public pension funding policies.

As a matter of public policy, government retirement plans will always be at the whim of elected lawmakers, for better or for worse. One method that today’s lawmakers could consider to, at the very least, nudge future lawmakers to maintain and not undermine good pension policies would be to enshrine sound formal retirement and funding policy statements in law—potentially at the constitutional level—which is largely not yet common practice. These binding statements should articulate the core purpose of public pensions: to provide a level of benefits sufficient to provide adequate and secure financial security for all public employees, concurrent funding of benefit promises, with actuarial assumptions and methods that do not place unreasonable financial risks on future generations of taxpayers and employees (e.g., reasonable investment return and liability discount rates and short amortization periods for any unfunded liabilities that do arise).

Such formal policies would act as a guardrail, reminding future lawmakers of the risks of unchecked pension promises. They would also provide a framework for evaluating proposed changes, ensuring that reforms prioritize fiscal sustainability and equity. For instance, a policy statement could require that any new pension benefit be fully funded at inception and subject to public disclosure, preventing opaque deals that favor the politically connected. These measures would not entirely prevent any future attempts to undermine cost-saving reforms, as any law enacted can be just as easily overwritten with new laws, but it would at a minimum require some level of accountability, as lawmakers would likely need to state their justification for going against what was enacted by their predecessors.

The case for defined contribution retirement plans for public workers.

The inherent flaws of public sector defined plans suggest a need for deemphasizing DB plans in favor of best practice DC plans or hybrid DB/DC combination approaches. Defined contribution plans allocate contributions to individual accounts with employees rather than employers and politicians in control. This cuts off both the means and motive for political manipulation.

Defined contribution plans also offer greater transparency and fairness. Contributions are visible and predictable, making it harder to conceal special benefits for influential groups. Public employers can still attract and retain talent through competitive salaries or supplemental  DC plans, which are less likely to create long-term fiscal burdens. These plans can be tailored to meet recruitment needs without twisting and manipulating DB plans to do things they were not intended to do.

Conclusion

With fewer legal guardrails on funding practices, public sector pension plans are inherently vulnerable to political manipulation and mismanagement. The absence of strong guardrails and ERISA-like funding and nondiscrimination rules allows influential groups to secure benefits that are applied unevenly, potentially undermining hard-won reforms. The loss of institutional memory further exacerbates these risks, as newer lawmakers may not fully grasp or choose to ignore the consequences of weakening prudent pension reforms.

To address these issues, policymakers can shift toward best practice defined contribution-type retirement plans, which offer greater transparency and reduce fiscal risks for taxpayers.

Additionally, formal retirement funding policies should be codified to communicate to future lawmakers the intended purpose of these pension plans: delivering equitable and sustainable retirement security for all public employees in ways that taxpayers can afford.

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