Pension Reform News: Mississippi reshapes public pension to address growing debt

In This Issue:

Articles, Research & Spotlights 

• Mississippi Reshapes Public Pension to Address Growing Debt
• Reason’s Research on Alaska’s Retirement Plan Debate
• North Carolina Weighs Taking More Investment Risks

Pension News in Brief
Quotable Quotes
Data Highlight
Articles, Research & Spotlights

Mississippi Adopts Hybrid Retirement Design in Major Pension Reform

In a groundbreaking move to tackle decades of growing public pension debt, Mississippi has enacted a significant reform to reshape the retirement benefits of new public employees. With analysis and technical consulting from Reason Foundation’s Pension Integrity Project, Mississippi lawmakers established a new tier (Tier 5) of benefits for new hires. Beginning in 2026, new hires will be enrolled in a hybrid plan that introduces defined contribution benefits in combination with a partial pension benefit, which will greatly slow the growth of pension liabilities and reduce the risk of pension debt that has been driving up costs for governments and taxpayers. Reason’s analysis indicates that this reform will reduce pension liabilities by more than $80 billion over the next 50 years and could help the state fully fund the Public Employees’ Retirement Plan of Mississippi decades sooner than its current trajectory. Additionally, the defined contribution element of the new tier gives employees a benefit that grows faster and is more flexible to the needs of a modern workforce. Still, modeling suggests that the plan remains vulnerable to future insolvency unless funding changes are made to the legacy pension plan. Lawmakers will need to address those problems in future legislative sessions.

Webinar: The Impacts of Pensions on the Alaska Budget

Tomorrow, in a webinar hosted by Americans for Prosperity, Reason Foundation policy analysts Ryan Frost and Mariana Trujillo will detail their research on how a proposal to bring back defined benefit pensions would impact Alaska’s annual budget. House Bill 78 and Senate Bill 28 would reopen a defined benefit pension and close the cost-balanced defined contribution plan that was the centerpiece of the state’s 2006 public pension reform. In comments submitted to the Alaska House of Representatives Finance Committee, Frost explains that the bill would add $2.1 billion in costs over the next 30 years under the best-case scenario, and the proposal could end up costing more than $11 billion if investment outcomes end up resembling those of the last few decades.
Join the Webinar on Thursday, April 17: Will There Be a Statewide Tax in Alaska?
Testimony: Alaska House Bill 78 Would Reopen Defined Benefit Plans

Changing North Carolina’s Investment Strategy Would Bring Significant Risks to Taxpayers, Public Pensions

North Carolina’s newly elected state treasurer, Brad Briner, has discussed overhauling how the Teachers’ and State Retirement System invests its pension assets, departing from the state’s unique, lower-risk approach with these crucial retirement funds. While North Carolina’s pension returns have come in lower than most other states, that is an expected feature of the low-risk strategy adopted by the state’s previous treasurer. Taking on more investment risks in an attempt to boost returns on pension assets can potentially reduce government costs, but it also increases the risk of taking on significant losses and exposing taxpayers to enormous, unexpected costs and pension debt. Taxpayers and lawmakers should be aware of these risks and tradeoffs before taking on more risks with the funds earmarked for fulfilling pension promises.

News in Brief

Public Employee DC Participants Are More Likely to Accept Default Investment Options

Defined contribution (DC) plans have the advantage of giving flexibility to employees in how they would like to see their retirement savings invested, but these options must be carefully curated by employers to maintain a focus on retirement security. This is particularly important when setting the default options for those who do not make an active selection, since this tends to shape the outcome for most participants. A study by MissionSquare Research Institute explores the impact of default options by studying the investment decisions of 340,000 public employees enrolled in defined contribution plans. The study, looking at data from 2020–2023, finds that over 80% of public DC participants accept their plan’s default investment option—typically a target date fund, which tends to be the best choice for most employees. Notably, these default selection rates are higher than seen in the private sector, even when controlling for age and income. Opt-out rates increased sharply during COVID-19 pandemic-related market volatility, suggesting members may trust defaults less and seek out alternative retirement investment strategies during economic uncertainty. The authors suggest that this could lead to sub-optimal savings outcomes for many people and that public retirement plans should consider offering the opportunity to revisit decisions made during periods of volatile markets. 

Five Ways Defined Contribution Retirement Plans Would Benefit New Hampshire

A new analysis by Andrew Cline at the Josiah Bartlett Institute cites Reason Foundation’s Annual Pension Solvency and Performance Report to illustrate ongoing funding challenges for New Hampshire’s pension system for public workers, “Taxpayers remain on the hook for $5.6 million in unfunded liabilities while state employees have to put in a decade of service to vest in a plan that doesn’t generate great returns.” He also notes, “A 2024 Reason Foundation study of public pension plans in 12 states found that 62% of public workers leave before their pensions vest.” Cline concludes, “Creating a DC plan for new state employee hires is a financially sound way to lower state costs, stop crowding out other government programs, reduce taxpayer obligations and create a fully funded, portable retirement plan that doesn’t take a decade to vest.”

Quotable Quotes on Pension Reform

“At some point, if we can no longer afford to fund the pensions, we won’t be able to hire firefighters, we won’t be able to keep our firefighters on. We could be looking at not having fire services because we won’t be able to adequately provide for the benefits related to being a firefighter or a police officer.”
— Forest Park Village Administrator Rachell Entler quoted in, “Could selling village-owned Altenheim land make small dent in pension funding?” Forest Park Review, March 17, 2025.

“With this bill, we would decide to take that surplus through a merger and pay for a permanent long-term COLA [cost-of-living adjustment] for PERS-1 and TERS-1. We should understand what this is. That’s a multi-billion-dollar decision to spend money in a year when we have a significant budget deficit.”
—Washington state Sen. John Braun (R-Centralia) quoted in “Bill to merge three closed retirement systems, increase COLA passes WA Senate” Queen Anne & Magnolia News, March 12, 2025. 

“To me, it’s a shared sacrifice, and we’re not seeing the sacrifice on part of the pensioners. I don’t understand the reasons why the actual employees, in this case, police and fire, are not willing to kick in a little more on their part.”
—Texas state Sen. Charles Schwertner (R-District 5) quoted in “New Senate bill could affect fight between city and Dallas police, fire pension” The Dallas Morning News, March 20, 2025.

Data Highlight

Each month, we feature a pension-related chart or infographic. Reason’s Truong Bui compares the annuities (at the age of retirement) that could be earned under Mississippi’s current pension plan, the hybrid that will be offered to new hires beginning in 2026, and a proposed defined contribution plan. The graphic shows that a public employee hired at age 32 will now enjoy an improved retirement benefit for most years of service, and an optional DC plan could further improve the lifetime retirement benefits offered to public workers. 

The post Pension Reform News: Mississippi reshapes public pension to address growing debt appeared first on Reason Foundation.

Source: https://reason.org/pension-newsletter/mississippi-reshapes-public-pension-to-address-growing-debt/