Pension Reform News: How to properly structure a cash balance plan for public workers

In This Issue:

Articles, Research & Spotlights 

• How to Properly Structure a Cash Balance Plan for Public Workers
• Reason Advises Mississippi Lawmakers on Pension Funding Options 
• Examining Potential Improvements to Oklahoma’s DC Plan

News in Brief
Quotable Quotes on Pension Reform
Data Highlight

Articles, Research & Spotlights

New Study: Best Practices in Cash Balance Plan Design

Cash balance plans have become an increasingly popular method to provide public employees with individualized retirement accounts sheltered from some of the volatility and risks of the investment market. As the latest addition to Reason Foundation’s “Gold Standard in Public Retirement Design Series,” the Pension Integrity Project has released a paper and a video interview describing and prescribing the best ways to structure a cash balance plan. Structured as a guide to policymakers, the report reveals that the stability and adequacy of cash balance plans hinge on specific design choices, most notably the interest crediting formula, which is the main factor affecting employer risk. The study also outlines proper funding policies and gives several examples of the cash balance plans used around the country.

Recommendations for Mississippi’s Public Employees Retirement System Post-Tier 5

Mississippi lawmakers made real progress last session by creating a new tier of risk-balanced benefits (Tier 5) for the Public Employee Retirement System. But they’re not done yet. Now they need to figure out how to adequately fund the old pension plan to prevent insolvency and avoid dumping massive costs on future taxpayers. On that subject, Reason Foundation’s Steven Gassenberger was invited to speak before a special legislative committee. Reason’s actuarial modeling showed that Tier 5 reform will help by slowing the growth of unfunded liabilities, but it won’t solve the underlying funding crisis. The analysis shows that without a significant commitment of additional funding into the plan there remains a looming risk of insolvency within the next 20 years. Seeking to guide policymakers through a challenging fiscal quagmire, Reason proposes adopting a gradual adoption of adequate annual contributions that adjust to the evolving needs of PERS.

Evaluating Public Employee Defined Contribution Options in Oklahoma

In 2014, Oklahoma lawmakers made the defined contribution (DC) Pathfinder plan the only available retirement plan for government employees (excluding public safety and educators). Now, a decade later, the legislature held a hearing to evaluate how the reform has been working and identify improvements to build on the Pathfinder plan’s solid foundation. Reason Foundation’s Zachary Christensen and Rod Crane presented their findings before members of the joint pension committee, benchmarking the Pathfinder plan to others around the country. They outlined how policymakers could strengthen the plan by clarifying its objectives, modernizing investment options, and adding in-plan annuity options that would give retirees a lifetime guaranteed income.

News in Brief

Analysis Shows Chicago’s Pension Debt Rivaling Most U.S. States

A new analysis from LyLena Estabine at the Illinois Policy Institute overviews the huge public pension funding challenge facing Chicago, where the pension crisis has reached staggering proportions. Across the city’s five major pension systems—municipal, laborers, police, fire, and teachers—total unfunded liabilities have ballooned to $53 billion. To put that figure in perspective, Chicago owes more in pension debt than the governments of 44 entire states. Of the 10 worst-funded local government pension systems, Chicago claims seven of the plans, with the Chicago firefighters’ plan being the worst-funded at 23.7%. Pension debt is creating a massive burden for Chicago taxpayers. More than 80% of the city’s property tax goes to public pensions, and tax increases have nearly all gone to the increased costs generated by pension debts.  You can read the complete analysis here.

Investment Experts Record 11.3% Average Return for Pensions in 2025

Investment consulting firm Callan has released a new report indicating a median return of 11.3% for public pension plans with fiscal years ending in June 2025. This return result would exceed the average pension plan’s assumed rate of return of 7%, which means plans are expected to see an improvement in their funded ratios and a reduction in unfunded pension liabilities compared to the previous year. Most pension plans smooth out return results over multiple years, so it will take several years for government plans to realize the full impact of this one year of returns. The actual change in funding numbers will become clearer as plans release their annual reporting later this year. Read the full analysis here.

Quotable Pension Quotes 

“The return on investment work group identified the state’s retirement and health benefits systems as an area to conduct a comprehensive study to explore potential closer alignment with private sector benefit offerings and to further cost-saving methods for Iowa taxpayers. … The remarks by the task force also indicated an exemption for existing public employees paying into [Iowa Public Employees’ Retirement System] IPERS to ensure any potential future changes to IPERS would not impact existing employees.”

–Emily Schmitt, Iowa DOGE Task Force chair, quoted in “Iowa DOGE recommends big changes to IPERS. Republican leaders say, don’t count on it,” Des Moines Register, Aug. 13, 2025.

Data Highlight

Reason Foundation’s paper “Best Practices in Cash Balance Plan Design” compares how benefits accrue between a traditional cash balance plan and a traditional defined benefit pension plan. While both plan types guarantee a level of returns to employees, cash balance plans can provide an advantage in benefits generated throughout the first 30 years of employment. 

The post Pension Reform News: How to properly structure a cash balance plan for public workers appeared first on Reason Foundation.

Source: https://reason.org/?p=84898&post_type=pension-newsletter&preview_id=84898