Oklahoma Rep. Randy McDaniel is blunt in his assessment of state obligations to employees and retirees. “We have a moral, legal responsibility to keep the retirement promises that have been made,” McDaniel, chairman of his state’s Pension Oversight Committee, said during a December webinar, "Pension Reforms in the South,” sponsored by The Council of State Governments’ Southern Legislative Conference.

Jennifer Burnett, CSG's fiscal policy expert, outlines the top five issues related to fiscal and economic development policy, including state revenue recovery, federal funds availability, Medicaid, state employee and retiree health care costs, and rethinking economic development strategies.  

The Council of State Governments’ Southern Office, the Southern Legislative Conference, convened a webinar on December 11 entitled “Pension Reforms in the South: Lessons from Louisiana, Oklahoma and West Virginia.” The webinar featured presentations from legislators in three SLC states that are leading the effort to enact reforms and bolster the fiscal position of their pension plans.

According to the U.S. Census Bureau, total holdings and investments for the 100 largest public-employee retirement systems[1] in the country totaled $2.7 trillion in the second quarter of 2012. That’s a decrease of 1.7 percent over the previous quarter and a year-to-year decrease of 2.1 percent (from $2.8 trillion in the second quarter of 2011). However, total holdings and investments are up nearly 30 percent – or $624 billion – over the first quarter of 2009, when pensions hit their lowest value during the recession.

State treasurers from across the nation are supporting a National Association of State Treasurers resolution asking Moody’s Investors Service to carefully consider the consequences of its proposed changes to the way it analyzes public pension data. Twenty-four state treasurers adopted a 10-point resolution during the NAST Annual Conference asking Moody’s to consider revisions to its proposed pension reporting changes. The treasurers also requested the ability to review the revised procedure and the data prior to its public release.

Things are starting to look up for state pension systems.

“Conditions affecting public pension plans continue to improve,” said Keith Brainard, research director for the National Association of State Retirement Administrators.

That’s good news following years of warnings about the sustainability of state public pension systems. A Pew Center on the States 2010 report warned of a $1 trillion gap between what states had set aside for pensions and the real price tag for those benefits.

Public pension systems continue to face significant challenges, a trend that has continued for more than a decade. While public pension difficulties alone would not be a destabilizing force on the economy, the fact that every other element of our nation’s retirement architecture also faces complex challenges requires the urgent attention of policymakers at all levels of government. The funding difficulties facing the Social Security and Medicare systems; the rising funding gap at corporate pension plans, record deficits at the Pension Benefit Guaranty Corporation (or PBGC, the federal entity that insures the benefits of private pension plans), low personal savings rate of so many Americans alongside the minimal amounts they have set aside for retirement, the “graying” of America with an increasing number of Americans now reaching retirement age and living longer; and the aforementioned public pension challenges cumulatively amount to a tsunami of red ink.

In recent years, state policymakers have been bombarded with warnings about the sustainability of their public pension systems. A Pew Center on the States 2010 report warned that there was a $1 trillion gap between what states had set aside for pensions and the real price tag for those benefits. But after years of bad news, things are starting to look up.  2010 was the first year that public pension systems have shown positive earnings since 2007, just before financial markets – and public pension assets – took a dive. Those retirement systems saw a $722.2 billion loss in 2009 and a $178.8 billion loss in 2008.