Pension Reform News: Model legislation for modernized defined contribution retirement plans

In This Issue:

Articles, Research & Spotlights 

• Model Legislation for Modernized Defined Contribution Retirement Plans 
• Louisiana’s Teacher Pension System Needs Reform, Not a Bailout
• Research Shows Public Employees Are Not Underpaid 
• Time and Politics Can Be a Significant Threat to Pension Reforms

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

Articles, Research & Spotlights

Reason’s Model Legislation Provides Framework for Modernized Public Employee Defined-Contribution Plans

Many state and local governments are turning to defined-contribution (DC) plans to expand retirement options for public employees and mitigate the long-term risks that defined-benefit pensions impose on taxpayers. Drawing from years of experience collaborating with policymakers and pension reform successes in several states, the Reason Foundation’s Pension Integrity Project has published a template that lawmakers can use to set up or improve public employee DC plans. Reason’s model includes several cutting-edge features for modernized DC plans, including an emphasis on using DC benefits to secure guaranteed lifetime income for retirees and a focus on concrete income replacement objectives. The template also gives valuable guidance on setting best-practice vesting and contribution policies.

Taxpayers Shouldn’t Bail Out the Teachers’ Retirement System of Louisiana Without Reform

Louisiana lawmakers approved a plan to use $2 billion held in education-related trust funds to pay off some of the $8 billion Teachers’ Retirement System debt. This is expected to significantly reduce annual debt payment costs for school districts, freeing up funds that can be redirected toward permanent teacher pay raises. Passed in the legislature, the plan will now require voter approval in a 2026 ballot. Reason Foundation’s Steven Gassenberger explains that, while the drive to reduce the state’s pension debt is good, lawmakers do a disservice to taxpayers when they do so without actually addressing the source of pension debt. If Louisiana’s teacher plan experiences the same market turbulence that created the $8 billion shortfall to begin with, and no reforms are made, taxpayers will continue to be burdened with runaway costs. 

Public Employees Are Not Underpaid

A widespread assumption exists that government workers, including educators, are paid less than those in similar private-sector roles. This perceived pay gap is frequently cited as a primary reason for difficulties in retaining current government employees and attracting new, skilled individuals. It is often the basis for calling for improved public sector retirement benefits. In this analysis, Reason Foundation’s Mariana Trujillo finds that despite its widespread acceptance, the claim of a compensation disadvantage for public employees is unsubstantiated. In fact, accounting for factors like education, work hours, and benefits suggests that public workers are paid at an equivalent and sometimes better rate than their private sector counterparts.

Important Public Pension Reforms Are Under Threat in Several States

Reforming public pension systems is no small task, but lawmakers are discovering that maintaining these reforms is also challenging. The positive impacts of prudent, cost-saving reforms often take several decades to fully realize. But previously passed pension reforms in California, Washington, Alaska, and New York are encountering significant political challenges from elected officials who were not a part of or may not appreciate the need for the previous reforms aimed at reducing debt and fully funding benefits. Lawmakers need to future-proof public pension reforms, writes Reason Foundation’s Rod Crane, because taxpayers will often see these policies undermined by the next generation of politicians. Crane outlines how today’s lawmakers can convey the intent of much-needed reforms and build guardrails for them.

News in Brief

Do Pensions Influence Late-Career Teacher Effort or Retention? New Evidence from North Carolina

Public pensions are often justified not only as retirement benefits but as tools to retain the most effective educators, particularly in mid- and late-career stages. A new National Bureau of Economic Research working paper tests this hypothesis using administrative data from North Carolina public schools. When teachers become retirement-eligible, their annual pension accruals drop sharply—effectively reducing total compensation—but researchers find no corresponding decline in teacher output, attendance, or student achievement. Likewise, while attrition increases at retirement eligibility, high- and low-value-added teachers exit at similar rates, suggesting pensions do not disproportionately retain more effective educators. The authors conclude that, at least near retirement, the structure of pension accruals does not influence teacher effort or selectively retain higher-quality teachers. Read the full paper here.

Quotable Quotes on Pension Reform

“We were encouraged to see the ongoing trend of improving funding levels and reduced employer contribution rates continue through the 2024 fiscal year. … On average, PSPRS and CORP employer contribution rates are about 30 percent lower than they were five years ago, delivering more than $250 million in annual savings. That kind of progress reflects real, sustained momentum for our pension system.”
—Mike Townsend, Arizona Public Safety Personnel Retirement System administrator, in Arizona PSPRS Third Quarter Newsletter, July 2, 2025.

“However, what happens moving forward is anyone’s guess. … Between tariffs and the big (federal) budget bill, it’s difficult to predict what the consequences from those things would be.”
—Andrew Roth, Colorado Public Employees’ Retirement Association executive director, quoted in “PERA’s funding slips again, but retirees avoid further benefit cuts thanks to investment gains,” Colorado Sun, July 7, 2025.

“[The legislation] restores integrity to the management of retirement plan assets by reinforcing the obligation that ERISA imposes on fiduciaries to manage assets with complete and undivided loyalty to the workers’ financial interests—not their own political or social interests.”
–Rep. Tim Walberg(R-MI) quoted in “House Committee Passes Anti-ESG Bill,” Plan Sponsor Council of America, June 26, 2025

Data Highlight

Reason Foundation’s Mariana Trujillo details the difference in how private and public-sector employees are compensated. On average, government workers have a larger share of retirement benefits, which is essential information in any comparison or conversation on teacher or public employee pay. You can access the complete analysis here.

Reason Foundation in the News

Reason’s Ryan Frost analyzes deferred retirement option plans (DROP) for public safety workers in John Seiler’s Southern California News Group piece, “Despite deficit, California legislators float several costly pension bills.”

The Best of Cato Daily Podcast published a replay of its “The Gathering Storm in State Pensions” episode with former Reason Foundation pension analyst Pete Constant.

The post Pension Reform News: Model legislation for modernized defined contribution retirement plans appeared first on Reason Foundation.

Source: https://reason.org/pension-newsletter/model-legislation-for-modernized-defined-contribution-retirement-plans/