Arnold Ventures’ interest in public pensions stems from our overarching mission to address complex policy issues that impact the lives of everyday Americans.
Pension debt is an urgent but often-ignored policy issue that touches past, present, and future public-sector employees, citizens, and governments in the United States. Although many pension systems are well-run and sustainable, some are not on stable financial footing: In 2016, the state pension funds collectively reported a $1.4 trillion deficit—a figure that has grown each year since 2000. Unfunded pension liabilities pose a risk to the retirement security of current and future plan participants, as well as significant financial challenges for states’ budgets.
Policy makers are facing two critical decisions about troubled pension systems: how quickly to pay off any accrued pension debt and how to pay for future benefits. Each approach has tradeoffs. Without new dedicated revenues to pay off unfunded liabilities, there will be less money for education priorities, new infrastructure projects, public safety, healthcare, among other services. There is no single answer to managing these interests, but there are researchers, policy makers, and plan administrators who are trying to better understand the benefits and limitations of different approaches to reform.
Arnold Ventures’ goal is to support the development of research, tools, and evidence-based policies that promote fiscal stability, retirement security, and accountability. To achieve meaningful public pension reforms, we believe it is important to strike a balance between many priorities, including financial sustainability, intergenerational equity, retirement security, and employee compensation. We also believe that nearly every plan to address pension debt will look different—but there are some common principles that lead to sound policies.
- Fiscal sustainability: Policy makers must consider how the decisions they make today will affect the long-term viability of the pension system. Governments must pursue a range of debt reduction strategies and ensure that required payments are made in full each year to prevent the accrual of additional debt. Such strategies include the consideration of new revenues as well as the affordability and design of benefits offered. Employing realistic assumptions and basing decisions on evidence and data can safeguard and protect taxpayers, and the viability of the pension systems.
- Retirement security: Retirement benefits are an important part of worker compensation packages and a key tool for the recruitment and retention of a skilled public workforce. All public employees, including those who change jobs or move during their careers, should be able to retire with dignity and financial security.
- Accountability and Engagement: Pension plans should continue their commitment to transparent management practices and financial reporting. Citizens, workers, and retirees should be able to hold pension boards accountable for their decisions and investment practices. And these stakeholder groups deserve a seat at the table with legislators when changes to pension plans are discussed.