How Do We Fix It?

Cities and states are at a tipping point. Public pension debt is a serious threat to the financial health of our communities, and politicians must take immediate action in order to uphold promises to workers and protect taxpayers.

The Facts

Governments Must Pay Off Pension Debt

Policymakers must develop and follow plans to pay off the pension debt as quickly as possible and, going forward, must commit to making responsible payments on time and in full.

Governments Must Adopt Responsible Reforms

Cities and states must adopt reforms that place all workers on a path to a secure retirement while also ensuring that retirement plans are both affordable and sustainable.

Governments Must Improve Transparency

Governments must strengthen plan reporting requirements to help ensure that elected and appointed officials can be held accountable for their decisions.

Cities’ and states pension problems are urgent, but they are not impossible to fix. After years of treating pension liabilities like debts that would never have to be paid, elected officials on both sides of the aisle have begun to understand the pressing need for change. Many now realize that they must take a balanced approach to solving this problem, as opposed to simply ignoring it or making indiscriminate cuts that create an unfair burden for any single group of stakeholders. In order to protect workers and taxpayers, responsible reforms should be guided by three core principles.

1. Pension plans must place all workers on a path to a secure retirement.

Traditional Defined Benefit plans are shortchanging workers and failing to meet the needs of state and local governments. Politicians should adopt systems for new workers that protect public servants and are less complex and easier to manage. These systems should ensure that workers are How to fix it.Final-01able to accumulate adequate retirement savings; have access to professionally managed, low-fee investment options; and have the option to receive lifetime annuity payments upon retirement. In addition, governments should consider enrolling public employees in Social Security.

2. Governments must establish responsible funding and investment policies that promote fiscal sustainability.

Adequate pension funding should be non-negotiable. Governments should commit to paying down their legacy costs in 20 years or less as recommended by the Society of Actuaries Blue Ribbon Panel on Pension Funding. Going forward, governments should establish policies that allow them to pay down any additional debt that is accrued within five years or less to avoid costly periods of compounding interest. In order to ensure that pension funds remain financially viable, policymakers should also establish prudent investment policies that take into account the possibility of economic downturns and governments’ ability to cover lower-than-expected investment returns.

3. Governments must improve public pension governance and reporting to promote transparency and accountability.

Governments should strengthen plan reporting requirements so that policymakers have the information they need to make informed decisions and so that workers and taxpayers can hold officials accountable for prudent, fiscally sustainable pension plan management.

An In-Depth Look

Governments Should Adopt Alternative Plan Designs

Governments Should Adopt Alternative Plan Designs

In an effort to improve retirement plan transparency and accountability, some state and local leaders have adopted alternative plan designs that are less complex and easier to manage. These plans tie benefits more closely to contributions and investment returns, which helps to ensure that governments have enough funding to cover their promises and also provides workers with greater flexibility to save for a secure retirement regardless of where their career paths take them.

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An Urgent Problem

What Are the Causes?

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