Full funding, cost disclosure needed in public plan reform, paper says

HOUSTON—Sustainable reform of the public retirement system must include a commitment from states and municipalities to fully pay accrued benefits each year; pay the unfunded accrued liability over a reasonable time horizon; and clearly state the true cost of benefits promised to public employees, according to a policy paper released Thursday by the Laura and John Arnold Foundation in Houston.

The policy paper, “Creating a New Public Pension System,” said reform must address structural problems involving unpredictable costs, incentive to underfund, and labor market distortions, a statement about the paper said.

Reform should also include improvement of the generational interest in benefits and costs, portability and security of benefits for public employees, the statement said.

In the paper, Josh B. McGee, foundation vp for public accountability initiatives, underscores both the source of the problems as well as “effective and sustainable solutions that transcend traditional policy perspectives,” the statement said.

Unfunded pension liabilities total an estimated $3 trillion for state-run retirement plans, the statement said, noting the figure does not include city-run plans, “many of which are facing even more acute problems.”

Mr. McGee couldn't be reached for comment.

The $670 million foundation focuses on criminal justice, education and public accountability, according to the statement.

Barry B. Burr is the editorial page editor for Pensions & Investments, a sister publication of Business Insurance.