Increased oversight and long-term decision making are key to securing the future of public pensions
NEW YORK, NY — Public pensions across the country face serious funding challenges, and with a potential recession on the horizon, their future sustainability is increasingly tenuous. In a new Manhattan Institute report, senior fellow Josh McGee explains how states can increase oversight, limit shortsighted decision-making, and increase financial stability by implementing pension review boards.
The huge challenges faced by state and local pension plans are largely due to their current governance model, which encourages keeping costs low and benefits high. Complicating matters further, each state has anywhere from dozens to thousands of pension systems, each with their own highly technical accounting structure. Drawing on his experience as chairman of the Texas Pension Review Board (PRB) from 2015 to 2019, McGee explains how the board’s expert assistance and oversight have demonstrably improved Texas’s pension policy and the state’s financial stability.
According to McGee, Texas provides an example of how to exercise comprehensive oversight of public pension plans by providing support on data collection and analysis, technical assistance, and advisement. This role is why a leading credit-rating agency has cited PRB oversight as a positive factor in the state’s financial stability. McGee argues that other states should consider adopting similar models to mitigate the risk that underfunded pensions pose to their budgets and provides accompanying model legislation for states interested in creating their own pension review boards.