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State and Municipal Plans Consider Options to Improve Funded Status

State and local governments are trying to improve the funded status of plans under their authority by modifying benefits and contributions or imposing constraints on the management of defined benefit plans. Concerns about the impact these elevated levels of underfunding will have on bond ratings has been an important driver in this wave of pension reform. At the same time, public employees have expressed their displeasure and influenced lawmakers to stop some of these measures.

  • The Colorado House and Senate each passed separate bills to reduce pension cost-of-living adjustments and increase state and employee contributions. The bills are now being reconciled and compromises discussed.
  • Meanwhile, after public protest, the California State Senate rejected proposed bills that included limiting cost-of-living adjustments and allowing local governments and state workers to exercise opt-out provisions. Although these issues will not be taken up again this year, debate has started for future legislative sessions.
  • In Kentucky, the governor signed a pension reform bill that eliminated the traditional DB plan for new teachers in favor of a hybrid cash balance plan that could result in lower long-term benefits. The situation prompted job actions across the state, including teacher strikes and protests in the capital.
  • West Virginia is reviewing a proposal to make it a criminal offense if any public employee fails to make required pension plan contributions. If convicted, the employee could be subject to fines or imprisoned up to ten years.