Public Pension System Reforms: Outlook for 2013


In 2009, in the wake of the economic downturn, states increased their efforts to address the sustainability of their public pension systems. Since then, nearly every state legislature has passed reforms to various elements of their public pension systems, with most reducing benefits and/or requiring greater employee contributions.

The coming year should see significant activity in several states as well.

The pension reform environment depends heavily on outside factors, including the source of the calls for reform.

  • Whether the governor’s office and/or legislature initiate a reforms package influences the negotiations, especially if the two sides don’t agree.
  • Non-governmental groups often are invited to participate in the reform process and collaborate on a negotiated outcome.
  • The legal history of pension reform in the state is another factor, since previous legal rulings can have significant impact on what reform measures government actors can negotiate.

Oregon

In Oregon, Governor John Kitzhaber has proposed cutting benefits for current workers and retirees. The governor’s proposal would impose a limit on annual cost-of-living increases to 2 percent per year on the first $24,000 in benefits. This could be a challenge, given that in 2003 the state attempted unsuccessfully to suspend the automatic COLA temporarily as part of a prior reforms package. The suspension was challenged and struck down, the ruling stating that the COLA was part of a contractual obligation to employees.

Montana

Montana Governor Steve Bullock and the state legislature are in general agreement on the need to reform the state’s pension system, but they differ on approach. Legislative leaders indicate that they prefer a change in plan design for new employees, while the governor hopes to remedy the issue by requiring employees to make greater contributions to fund benefits.

Nebraska

Two bills introduced by a Nebraska state senator would make permanent a temporary increase in contributions for teachers and would cap cost-of-living adjustments for teachers who join the system after a future date. The bills were the result of negotiations between the legislature and state education groups that are attempting to alleviate the pressures caused by a gap of more than $100 million in state pension funding.

Addressing plan design, modifying postretirement benefit increases, and requiring more contributions are just three of the methods used by states to reform their pension systems. Each state’s situation is distinctive and, given the history of reform and potential legal challenges or precedents, each state faces unique challenges this legislative session.