Op-Ed: A 14.8% year didn’t fix it

Original article can be found here.

New Jersey’s pension fund reported a final, unaudited return of 14.82% for the fiscal year ended June 30, and the state has budgeted a record $7.3 billion contribution for fiscal 2027. CalPERS reported 14.8%. A strong year is welcome news, but it repairs none of the rules that dug the hole, and Congress shouldn’t let one talk it out of writing a minimum standard for public pensions.

I’ve spent more than 30 years in institutional investment management and work as an expert witness in fiduciary cases, where the questions always concern process: what the fiduciary knew, what he weighed, and what he wrote down. Results come later. Any coach knows the same thing. I’ve coached youth rugby for years and a blowout win over a weak opponent is great for morale but does little to improve the defense.

The numbers show how little a great year changes. Equable Institute projects the national funded ratio at 85.0% for fiscal 2026, the best since 2009 if it holds, with $1.13 trillion still unfunded. Employers now contribute a record 31.83 cents of every payroll dollar, and only 9.42 cents of that funds new benefits. The rest services old debt. New Jersey’s state-administered plans were 55.7% funded at the July 1, 2025 valuation, before this return, and the new payment is the state’s sixth consecutive full one. “Consecutive” is the telling word, since a streak implies a year when the payment fell short.

When I asked my bank for a larger credit line, the banker wanted updated financials first. He wouldn’t have let me value my own debts at a rate I picked myself. Public plans do exactly that. Oliver Giesecke of the Hoover Institution found that plans discounted fiscal 2023 liabilities at an average 6.86%, against 3.83% for duration-matched Treasury-equivalent rates. Reported net pension liability was $1.638 trillion. On the Treasury basis it was $4.582 trillion. Reasonable people can argue about the right rate. The borrower shouldn’t be the one choosing it.

The retiree side carries its own warning. A RealClearInvestigations analysis found nearly 300,000 retirees in 18 states collecting pensions of $100,000 or more in 2025, totaling $36.2 billion, up from about 236,000 and $30.6 billion in 2024. California accounts for 160,943 of them, and I live here. The count covers only states that release data, and a six-figure pension proves nothing about abuse without the retiree’s service, pay and contributions. Nor is it a current-taxpayer check, since benefits draw on contributions and investment earnings. The question is whether anyone priced each benefit and funded it when it was granted.

When funding fails, the retiree pays first. Paul St. George, a Central Falls, Rhode Island, firefighter for 19 years, saw a promised $36,000 pension cut to $24,000 after the city, carrying an $80 million unfunded pension, filed for bankruptcy in 2011. The Los Angeles Times reported that he left his home of 25 years and took a full-time job as a maintenance man. Central Falls shows what lagging contributions cost. It doesn’t prove a federal statute would have prevented the loss, and I won’t claim otherwise.

None of this requires villains. The legislature sets the contribution, the trustees set the portfolio, and the bargaining table sets the formula. Each holds one lever, and nobody answers for the total. Washington’s legislature, for example, set minimum contributions toward unfunded liabilities in two closed plans at zero from fiscal 2026 through 2029. A legislator who defers a payment is typically out of office when the bill arrives. That’s a design flaw, and market returns don’t repair designs. A 14.8% year is the stretch of the cartoon where the coyote is still running on air.

That brings Washington, D.C., into it. I’m aware of no pending bill to rescue state or local pension plans, so this is a warning, not news. The precedent is real, though. The 2021 American Rescue Plan created Special Financial Assistance for private-sector multiemployer plans only. CBO estimated $86 billion in February 2021, PBGC’s projections reached $97 billion by September 2021, and PBGC had approved about $70.9 billion for 109 plans by January 2025. Retirement rescues also travel on spending bills: the 2014 multiemployer reform became law as Division O of the omnibus appropriations act signed Dec. 16, 2014. The current stopgap expires Dec. 11. As I argued on July 22, a federal rescue would bill the taxpayers of well-run states for the choices of poorly run ones. If a rider appears, Congress should require a separate recorded vote and disclosure of the funding gap, the history of required versus actual contributions, and the enforcement that continues after the money arrives.

Congress should write a standard before anyone asks for a check. ERISA already supplies the template for private plans, and it excludes governmental ones: its provisions “shall not apply” to a plan that “is a governmental plan.” Private fiduciaries must act “solely in the interest of the participants and beneficiaries” and are “personally liable to make good to such plan any losses” from a breach. ERISA even assigned the homework. Section 1231 directed four congressional committees to study public plans’ “existing fiduciary standards” and the need for “minimum funding standards” by December 31, 1976. That deadline turns fifty this December. Washington has had time to think about it.

The new Congress being seated on Jan. 3 should take up a public-plan minimum standard that does two jobs. On stewardship, it would require loyalty, a prudent process, disclosed fees and conflicts, independent reporting, and a remedy that reaches the people who decided. On funding, it would require a public reconciliation of required and actual contributions, disclosure of every deferral and its future cost, explicit financing for each benefit increase, a Treasury-rate liability shown beside the plan’s own, and corrective action when funding slips. A trustee’s duty to invest prudently can’t force a legislature to appropriate, so the standard needs both halves.

Congress can’t commandeer a state legislature, but it can attach conditions to federal money and federal tax benefits, a route the Supreme Court upheld in South Dakota v. Dole, 483 U.S. 203 (1987). No court has tested that approach on pensions. Congress should therefore order a GAO study comparing public and ERISA-governed plans on net returns, contribution compliance, costs and enforcement, separating fiduciary rules from funding rules, since each explains different outcomes. Test the remedy before selling it.

New Jersey earned credit for six full payments and a great year. The credit lasts as long as the next budget does. Hope isn’t an actuarial assumption, and the new Congress can replace it with a rule.