New Release: Keeping the Promise: State Solutions for Government Pension Reform

By: Nick Oswald and Jonathan Williams. 

Detroit recently became the largest U.S. city in America to declare bankruptcy. While many factors contributed to this unfortunate reality, government pensions were a major contributor to Detroit’s fiscal woes. The city simply made too many promises on which it could never possibly deliver to a retiring workforce. Detroit’s decline does not have to happen elsewhere if we learn from the city’s mistakes. Public pensions can be restructured and there are options available to lawmakers to keep the promises they have made while staying fiscally solvent.

Pension reform is hard to address, however multiple legislators and their states have taken positive steps towards drawing up new plans to face this significant issue. States’ pension debts are estimated to be as high as $4 trillion and are a massive financial liability on taxpayers and state budgets. Despite the large amount of debt, there are solutions available to lawmakers that will get states out of the red.

­­­­­­­Keeping the Promise: State Solutions for Government Pension Reform, the American Legislative Exchange Council’s most recent publication, brings new light to pension reform solutions. The report describes and analyzes the three plans that are currently in use today: cash-balance, defined-benefit and defined-contribution. Currently, the vast majority of state pension systems operate as defined-benefit plans. The report finds that the defined-benefit plans are failing to meet the promises made to workers, taxpayers, and state lawmakers. The report offers alternatives that will assist legislators in being able to affordably budget state retirement plans and benefits.

The report highlights four states: Utah, Michigan, Alaska and Rhode Island for their positive steps towards reforming their pension systems and reducing unfunded liabilities. More specifically, the report also analyzes Utah’s rise to the top after struggling with a severely underfunded pension system. Former Utah state Senator Dan Liljenquist, the author of this publication, made substantial efforts during his time in the Utah Senate to help reform the state’s pension system and bring it back into sustainable Sen. Liljenquist’s concern for other states facing similar issues is evident. When talking about the goal of the publication he stated, “Our hope is that state lawmakers will use this report to help secure retirements for state employees while at the same time avoiding bankruptcy.”

Keeping the Promise: State Solutions for Government Pension Reform, reiterates the point that there is no “one-size fits all” answer to pension reform. The report gives reform-minded state legislators many tools and proactive solutions to fix the public pension system.

In Depth: Cronyism

Cronyism in tax policy stifles innovation, hinders competition and introduces a deep temptation for corruption. The 2014 ALEC Center for State Fiscal Reform study, The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth, found that in the most recent year in which states published their respective tax expenditure…

+ Cronyism In Depth