Frequently Searched

Recognizing Pension System Insolvency: A Catalyst for Lasting Reform

February 6, 2015

 

But these official numbers are far rosier than reality. The state’s numbers assume pension funds can consistently earn an 8 percent return on investments, a rate of return not seen over the last decade. Based on a more realistic 5 percent rate of return, all of the state’s pension funds are in critical condition, with combined unfunded liabilities shooting over $33 billion. That works out to almost $5,000 for every man, woman, and child in the state. And the assumption of a more conservative 10-year Treasury rate would reveal that pension fund insolvency is on the horizon — in 2009, Arizona’s funds would have been less than 34 percent funded.

In light of this reality, it is plain that Arizona’s pension systems, like those of other states, assume that taxpayers will make up the difference. But developing case law shows there is likely no taxpayer backing for any “independent” pension fund. For this reason, policymakers must enact reforms before the system becomes insolvent.

New employees should be required to join defined contribution plans; old employees should be enticed to do the same. Policymakers should enact a maximum combined contribution rate of no more than 16 percent of an employee’s paycheck. To prevent future abuses, state constitutions should be amended to require a legislative supermajority to increase pension benefits. And pension funds should adopt a more realistic rate of return, one that equals or approaches a Treasury rate, to support future benefit and contribution reforms.

At the same time, the 47 states that have constitutional gift clauses should bar pension funds from giving public employees grossly disproportionate compensation for their work. Specifically, to counteract the practice of “spiking,” pension benefits for any employee should be capped at an amount that is not grossly disproportionate to that employee’s pension contributions. Further, to protect taxpayers from paying multiple times for the same work, pension funds should be prohibited from increasing employer contributions to replenish pension fund losses or to increase benefits for current retirees.

Finally, policymakers should authorize pension funds to file for Chapter 9 bankruptcy. The mere existence of such legislation will encourage trustees and pensioners to voluntarily reform the system. If voluntary reforms fail to materialize, bankruptcy will allow for pension funds to be restructured in an orderly fashion. Such reforms need to begin now to ensure a sustainable and solvent pension system for both taxpayers and employees.

Read “Recognizing Pension System Insolvency: A Catalyst for Lasting Reform”

 

 

More on this issue

Donate Now

Help all Americans live freer, happier lives. Join the Goldwater Institute as we defend and strengthen freedom in all 50 states.

Donate Now

Since 1988, the Goldwater Institute has been in the liberty business — defending and promoting freedom, and achieving more than 400 victories in all 50 states. Donate today to help support our mission.

We Protect Your Rights

Our attorneys defend individual rights and protect those who cannot protect themselves.

Need Help? Submit a case.

Get Connected to Goldwater

Sign up for the latest news, event updates, and more.

Wait! Don’t close this yet!

We are grateful for your support of the Goldwater Institute’s efforts to advance and defend liberty throughout the United States. For over 36 years, we’ve been defending the rights of Americans to live their lives free from government interference.

And Goldwater is unique in that we direct our efforts to the 50 states where we introduce and advance innovative ideas that expand freedom. And we fight in courtrooms and capitals nationwide to defend individual liberty.

In 2024 alone, we scored over 50 policy and litigation victories defending liberty!

And that’s just the beginning.

Our plans for 2025 include:

  • Stopping pernicious DEI and other woke programs in America’s universities.
  • Ensuring that patients suffering from rare and terminal diseases have access to cutting-edge, lifesaving medical treatments, without having to first seek permission from the government.
  • Defending parental rights across the United States so that parents can send their kids to the school that best fits their needs, free from leftist indoctrination.
  • Eliminating government interference in the fundamental right of individuals to own property and use it as they see fit.
  • And much, much more

We seek to restore the presumption of liberty; that people are free to act without first asking permission from the government.

But we cannot do this without you. Will you join us as we fight to preserve and advance liberty throughout the country? As we seek new and innovative ways to defend freedom in all 50 states?

And there’s great news: Thanks to a generous Goldwater supporter, your donation today will be doubled!

So please, join us in fighting to advance liberty and score real wins for freedom from coast to coast!