On July 1, California’s Assembly Appropriations Committee advanced AB 1383, a bill that guts the pension reform Sacramento passed in 2013 to keep its own promises honest. It would drop the public safety retirement age from 57 to 55, invent a new 3%-at-55 benefit formula, and let cities bargain away the cost-sharing rules that reform required. CalPERS already carries more than $179 billion in unfunded liabilities. California’s total state and local pension debt tops $200 billion. Sacramento’s answer, apparently, is to promise more.
Congress should not wait to find out how this ends. It should pass a federal fiduciary floor for public pensions now, paired with a permanent statutory bar on any future federal bailout of a plan that fails to meet it.
I have spent 30 years managing institutional money and sitting as an expert witness in pension and fiduciary litigation, and I have watched this same failure pattern up close. A plan sponsor makes a promise, a market downturn arrives, and the bill lands on the taxpayers who never got a vote.
Private-sector pension plans have operated under a federal duty of prudence since 1974, when the Employee Retirement Income Security Act imposed funding rules, fiduciary standards, and Pension Benefit Guaranty Corporation insurance on every corporate plan in the country. Public pensions, covering more than 20 million current retired government workers, are explicitly carved out of that law, with no federal funding floor and no enforceable duty of care for their trustees. Just a patchwork of state constitutions and pension board bylaws that Sacramento just showed can be rewritten whenever the political wind shifts.
Congress has tried the easy version of this fix before and gone nowhere. The Public Employee Pension Transparency Act, introduced by former Rep. Devin Nunes and former Sen. Richard Burr in 2010, would have required public plans to report liabilities using honest, uniform assumptions as a condition of keeping their tax-exempt bond financing. It never got a floor vote in that Congress or the four that followed. And that bill only asked for disclosure. It never touched the underlying duty of care.
Waiting has a price tag. Congress has already written one pension bailout check. In 2021, it authorized $97 billion in Special Financial Assistance to prop up failing multiemployer union pension plans, and even that money did not close the gap. Roughly $745 billion in unfunded multiemployer promises remain today. State and local public pensions carry nearly $1.27 trillion in unfunded liabilities nationwide, according to the Equable Institute’s most recent accounting, more than 15 times the multiemployer shortfall Congress already covered. Nobody in Congress wants to be the vote against a retired firefighter’s check when a plan runs dry. That is exactly why the floor needs to exist before the emergency, not after it, the way nobody wanted a bigger boat until the shark had already circled the beach.
The mechanism is not novel. Congress should require any public pension plan to meet an ERISA-style prudent-investor standard and honest funding disclosure as a condition of continued tax-exempt bond financing, the same lever Nunes and Burr proposed, but with an actual duty attached this time rather than a reporting form. Pair it with a permanent statutory declaration that the federal government assumes no liability for any state or local pension shortfall, so no governor can treat Washington as a backstop while spending like one is guaranteed.
The jurisdiction already exists. The House Committee on Education and Workforce, through its Subcommittee on Health, Employment, Labor, and Pensions under Chairman Rick W. Allen, already writes the fiduciary rules that govern every private 401(k) in the country. The Senate’s Health, Education, Labor, and Pensions Committee, chaired by Sen. Bill Cassidy (R-LA), holds the same authority on the other side of the Capitol. Neither committee needs new power. Both need only decide to use the power they already have.
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This is not a partisan fantasy. Congress passed the Social Security Fairness Act last year by a vote of 327 to 75 in the House and 76 to 20 in the Senate, proof that retirement security legislation can clear both chambers by margins most bills never see. A bill that protects taxpayers from bailing out mismanaged pensions, rather than one that expands benefits, should find that same room.
Sacramento just showed Washington what happens without a floor. The next state to test Congress’s resolve will not file a request. It will simply run out of cash and dare anyone in Washington to watch retirees lose their checks on television. Congress can write the standard before that call comes, or it can write another check after. It should write the standard.
Jay Rogers is a financial professional with more than 30 years of experience in private equity, private credit, hedge funds, and wealth management. He has a Bachelor of Science in criminal justice from Northeastern University and has completed postgraduate studies at UCLA, the University of Pennsylvania, and Harvard. He writes about issues in finance, constitutional law, national security, human nature, and public policy.
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[ H/T Washington Examiner ]
