Public Pension Plans: Laboratories of Democracy

The Tenth Amendment of the U.S. Constitution protects states’ prerogative to design and implement public policies that address each state’s unique demographics, political culture, and fiscal constructs.

In the area of retirement benefits for employees of state and local government, the Tenth Amendment also applies to state governments seeking to meet the unique needs and objectives of their stakeholders–the governmental bodies and the public employees within that state. 

Raising Taxes Isn’t the Only Choice for Funding Pensions

States that Made Changes to Their Pension Plans from 2009 to 2011

Since 2009, 42 states have made significant changes to their retirement programs — more than any other time period in recent history. States have managed their costs in a variety of ways such as by increasing employee contributions, adjusting benefits, limiting or eliminating cost of living adjustments (COLAs), increasing retirement ages, furloughing or laying off employees, and reducing hiring.

Policymakers have more choices — and are acting on them — than just relying on increasing taxes and cutting services.

Sources: National Conference of State Legislatures, “Pension and Retirement Plan Enactments in 2011 State Legislatures,” May 2011; The Pew Center on the States, “Pension and Retiree Health Care Reform in the States,” 2009 and 2010

Inaccurate Insolvency Projections

Marc Levine’s piece “Unions will Regret not Fixing Pensions” (Chicago Sun-Times, 05/27/2011) asserts that according to Professor Joshua Rauh of Northwestern, by 2018 the State of Illinois pension funds will be exhausted. However, analysis by Keith Brainard, research director of the National Association of State Retirement Administrators, shows this projection to be unfounded. Below is Brainard’s review written in 2010 of Rauh’s published works from which the insolvency conclusion is drawn.

Public Pension Systems Rebounding from Recession

At the end of calendar year 2010, aggregate state and local government retirement system assets totaled $2.93 trillion, a 35 percent increase from their quarterly low point during the market collapse. These asset levels are also nearly 25 percent higher than they were on June 30, 2009 – a date on which many recent studies on the financial condition of state and local pension trusts are based.

Pew Report Summary

In April, the Pew Center on the States updated its 2010 report on state pensions, “Trillion Dollar Gap,” with a new report titled: “The Widening Gap: The Great Recession’s Impact on State Pension and Retiree Health Care Costs” which reflects information based on FY 09 and FY 10 data. The following are a few points to consider: