Effective Government
Effective Government

Protecting workers and taxpayers through pension reform

During the last 15 years, state and local pension debt has increased 365 percent to $1.9 trillion, creating massive strain on government budgets. In an effort to deal with the rising debt, governments are paying more and more into their retirement systems. However, many still are not contributing enough to cover the cost of benefits plus interest, and pension debt continues to increase faster than revenue.

There is no one-size-fits-all solution, but there are steps that cities and states can take to improve the stability of their pension plans—including making their pension payments on time and in full, and limiting investment risk. We provide funding for pension research, tools to help assess the magnitude of the problem, and technical assistance for governments. In 2017, our team and our grantees worked with bipartisan coalitions in four states and two major cities as those jurisdictions designed comprehensive pension reforms.

In Texas, we provided technical assistance to policymakers in Houston who developed a fair and sustainable plan to pay down $8.2 billion in pension debt. The plan will address the root causes of the pension funds’ financial problems by establishing a schedule to pay off the debt and fixing flaws in the city’s funding policy. The reforms also cap taxpayer contributions. Public workers have agreed to $2.5 billion in concessions, and in return, the city is legally obligated to make its full contribution to the pension fund each year.

We also conducted an analysis of the Dallas pension systems that showed that the city’s pension debt had nearly doubled since 2014, and the plans did not have enough money to pay for nearly half of the retirement benefits workers had already earned. Under a reform package approved at the local level and supported by the Texas Legislature, the Dallas Police and Fire Pension System will increase contributions, reduce workers’ benefits, and establish a new pension plan for new employees. The changes will help Dallas avoid bankruptcy and will put the city on a path to fully fund its pension systems.

In addition, we provided grants to the Reason Foundation and The Pew Charitable Trusts to help several states—including Pennsylvania, Michigan, and Florida—address their pension problems. Each of the states made changes that will improve the financial stability of their pension systems.