These states are leading the way in pension reform
Public and municipal debt has tripled since 2000, with uncovered government pension liabilities being the main reason. After 20 years of inadequate funding policies, not excessive meetings optimistic investment return targets, and other factors, state and local government pension systems are now $ 1.5 trillion in debt.
This debt is ultimately borne by the taxpayer, and like any other debt, when uncovered pension liabilities increase, so does the cost of servicing it. As pension payments begin to siphon money away from other government priorities such as education and infrastructure, some lawmakers are now pushing for much-needed reforms.
In Texas, the state legislature passed a major pension reform that will reduce pension debts of nearly $ 15 billion. The ERS serves more than 300,000 current and retired Texas government employees. But driven mainly by rosy asset-return assumptions and a history of government underfunding, the system’s unsecured liabilities have skyrocketed. The ERS Advisory Actuary says the plan will be: Insolvent until 2061 even if it hits its lofty long-term investment return targets, and as early as 2047 if it doesn’t.
Reform legislation obliges Texas to pay employee retirement benefits by moving the ERS to actuarial funding and a fixed payout schedule. The new law also introduces all future employees to a new low risk “cash balance” retirement plan that offers a guaranteed return on investment of at least 4% along with the portability of a 401 (k). In short, the reforms would enable Texas to deliver on promises made to current and retired workers, but would stop making unsustainable pension promises to workers in the future.
The pension reform law will go into effect this weekend if Governor Greg Abbott doesn’t veto, which he hasn’t announced. Texas will then join a growing list of states – including Michigan, Arizona, Pennsylvania, and Colorado – that have created or expanded retirement plans that can reduce financial risks for governments and help prevent future taxpayers from burdening future taxpayers with more unsecured liabilities.