Pension Reform News: Examining Montana and Florida pension changes, teacher compensation, and more

In This Issue:

Articles, Research & Spotlights 

• Montana takes steps to improve its pension funding
• Teachers are concerned with salaries more than retirement benefits
• The good and bad of Florida’s recent pension reform

News in Brief
Quotable Quotes on Pension Reform
Contact the Pension Reform Help Desk

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Articles, Research & Spotlights

Montana Legislature Makes Pension Progress; Major Opportunities Remain

Lawmakers in Montana made two major improvements to the funding and security of the pensions offered to the state’s public employees this past legislative session. First, Montana House Bill 228 protected public funds from growing pressures to insert political goals into investment decisions and can put pension security at risk. The public pension reform strengthens the rules surrounding these decisions and ensures that pension plan administrators make crucial investment choices based solely on their fiduciary responsibility. The reform has fund managers consider only the risk and returns of the assets they manage on behalf of public workers and taxpayers. Second, House Bill 569 improved the contribution policy used to pay for benefits to public safety workers. Reason’s Steven Gassenberger highlights these reforms and identifies the challenges that still need to be addressed for Montana’s retirement system for public workers.

Studies Suggest Teachers Value Salary Increases More than Pension Benefit Increases

Two studies by Yale University’s School of Management economist Barbara Biasi explore the impact of major reforms on teacher retirement and compensation enacted by Wisconsin lawmakers in 2011. The reforms granted public school districts much more flexibility in collective bargaining and the compensation they could offer, as well as increasing employee pension contributions. As Reason Foundation’s Jen Sidorova explained, Biasi’s results suggest that salary increases encouraged teachers to stick around longer, improving retention rates among this group. In fact, educators’ response to salary changes far outweighed how they reacted to changes to their retirement benefits. These findings are valuable context for policymakers evaluating options for improving the recruitment and retention of teachers and other public workers.

Good and Bad News on Florida’s Latest Reform of its Public Retirement System

Florida made several changes to its retirement system earlier this year with Senate Bill 7024. Some changes made important improvements to the state’s defined contribution (DC) plan while others added more risk and debt to its already underfunded public pension plan. In a recent commentary in The Observer, Reason’s Zachary Christensen and Adrian Moore detailed these adjustments and explained what the changes mean for the Sarasota government and taxpayers. With most of the city’s county and school district employees enrolled in the state-run system, the improvements to the DC plan will require more contributions from local budgets. But local taxpayers and policymakers should be more concerned with the rolling back of crucial cost-saving pension reforms for public safety workers. These rollbacks will likely contribute to ongoing challenges with unpredictable cost increases.

News in Brief

Analysis Projects Private Equity Drag on Public Pension Returns in 2023

Markov Processes International (MPI), an investment research firm, has published its 2023 investment return projections for state-run pension plans. It provides a valuable preview of the reports due soon after the end of the June fiscal year. Applying quarterly asset class returns to the reported allocation of public pensions, MPI has predictions for several major state plans. The authors expect a significant reversal from last year, with private equity funds—major sources of gains in 2022—playing a major role in bringing investment return rates down in 2023. MPI predicts plans with large percentages of their assets in private equity are going to experience lower returns this year compared to plans with a larger focus on global equities. These preliminary findings support some concerns about the higher levels of volatility that public pension systems are likely to experience if they continue to dive deeper into private equity and other alternative investments. The full analysis is available here.

Quotable Quotes on Pension Reform 

“There are few political benefits to maintaining a well-funded pension system, and so few pension systems have been well funded. There always seems to be a more pressing use of funds to elected officials than to bolster pension fund savings.”

 — Director of Fiscal Policy at the Mackinac Center for Public Policy James Hohman in “Michigan Governments Struggling to Fully Fund Pension Obligations,” The Center Square, July 10, 2023.

“There’s no common definition of environmental, social and governance factors… It’s being weaponized.”
— Marcie Frost, CEO of the California Public Employees’ Retirement System, in “CalPERS CEO Bracing for Return of California Fossil Fuel Divestment Bill,” Pensions & Investments, July 14, 2023.

The post Pension Reform News: Examining Montana and Florida pension changes, teacher compensation, and more appeared first on Reason Foundation.

Source: https://reason.org/pension-newsletter/examining-montana-and-florida-pension-changes-teachers-prioritizing-salaries-over-pensions-and-more/