Pension Reform News: California divestment bill fails, Milwaukee tax increase, and more

In This Issue

• Articles, Research & Spotlights
  • California avoids lawmakers’ attempt to politicize pensions
  • Milwaukee tax hikes signal the need for pension reform
• News in Brief
• Quotable Quotes on Pension Reform
• Contact the Pension Reform Help Desk

Articles, Research & Spotlights

California Fossil Fuel Pension Divestment Bill Stopped, for Now

The California legislature’s attempt to mandate the state’s pension systems divestment from the fossil fuel industry has failed, for now. Administrators of the California Public Employees’ Retirement System, the country’s largest pension fund, strongly opposed the proposal, warning that it would have forced them to shirk their fiduciary duty, which requires they focus only on maximizing returns for members at acceptable levels of risk. However, Marcie Frost, chief executive officer of CalPERS, says she expects that the efforts to politicize the retirement funds of state employees “will likely come back” in the next legislative session. Reason Foundation’s Swaroop Bhagavatula reviews how forcing public pension systems to engage in social causes or make politically-driven investments of any kind can cost taxpayers billions of dollars and severely hobble pension plans already struggling to achieve full funding.

Milwaukee’s Pension Funding Challenges Lead to New Taxes

Facing growing public pension debt and rising annual costs, a Wisconsin state bill will require residents of the city and county of Milwaukee to pay increased sales taxes. The sales tax hike is expected to generate more than $90 million annually for the city and county, which is supposed to help pay for required pension obligations that have nearly doubled in just a few years. As Reason’s Steve Vu explains, however, these revenues will not solve Milwaukee’s ongoing challenges in fully paying for its public pension promises. To avoid future budget shortfalls and pension debt, local policymakers need to implement meaningful reforms that address the sources of runaway costs associated with public retirement benefits. Fortunately, the city of Milwaukee can use the Wisconsin Retirement System’s (WRS) successful reform as a blueprint for better managing the risks that come with growing pension costs and providing retirement benefits to public workers.

News in Brief

Analysis Reveals How Many Pensions Fall Short of Providing Adequate Retirement

To promote the retention of workers, public retirement systems often heap on benefits for those who stick around for an entire career, sometimes to the detriment of those who do not. Public workers who leave their jobs after just a few years of employment often lose out on some or all employer contributions made to their retirement accounts. Public pensions also often feature slow benefit accruals for early- to mid-tenured members. As a newly updated Pew Charitable Trusts study shows, the result is inadequate retirement savings for many mid-career workers in state-run pension plans. The Pew analysis finds that all but seven state-run retirement systems—Montana, Georgia, Wisconsin, Nebraska, Arizona, Tennessee, and South Dakota—provide an inadequate level of savings for public workers who depart their jobs before reaching eligibility for retirement. Notably, Georgia and Florida have made significant strides in improving employer rates for their defined contribution (DC) plans. But many defined benefit (DB) and defined contribution plans are leaving low- to medium-tenured employees behind, with savings results falling below the industry standards of 12% of pay. This analysis demonstrates how pensions and defined contribution plans can fall short of properly serving today’s increasingly mobile workforce. Pew’s complete analysis is available here.

Quotable Quotes on Pension Reform 

“Given current employer contributions rates, which are established by state legislation, the [Ohio] plans are on a slow but steady path towards full funding…However, if the aggressive funding assumptions are not met, such as high discount rates that indicate exposure to market volatility risk, it can be difficult to make consistent progress since statutory contributions can be slow to change and plan funding levels may deteriorate over time.” 

— S&P Global research team in “Ohio Pension Programs Get Stable Report,” The Center Square, Aug. 10, 2023.

“We need a lot of money to fix city facilities and all of the stuff you’re looking at for the bond. One hundred percent true. But we also at the same time need to shore up both of our pension systems.” 

— Dallas Firefighters Association President Jim McDade in “Expensive Dallas Pension Problem Returns,” NBCDFW, Aug. 10, 2023.

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