For America’s states and local governments to function properly and thrive — that is, to provide effective and efficient governance — the institutions within its municipalities must be healthy, strong, and meeting their objectives.¹ Public sector retirement systems are one important tool used by those institutions to meet their objectives, as a component of total compensation used to build an effective workforce. And if public sector retirement systems themselves are not healthy and strong, their fiscal stress can threaten the very effectiveness and efficiency of the government bodies sponsoring them in the first place.
Simply put: we care about sustainable public sector retirement systems because we care about government having the capacity to function effectively for the citizens it serves.
Unfortunately, there are a number of retirement systems facing challenges to their sustainability.
The aggregate size of unfunded pension liabilities has steadily grown since 2001 and average funded ratios have not meaningfully recovered since the financial crisis of more than a decade ago. Many governments are continuing to struggle with making adequate contributions to their retirement systems. And with changes to financial markets creating a new normal of lower overall investment performance forecasts, sustainability concerns dictate that we must take the tail risks of underperforming assets seriously.
All of this has created fiscal stress in certain states and cities, and reduced available resources for public salaries, programs, and services in others.
The aggregate problem does not mean that every state has problems with their retirement systems. But many states and cities do face challenges with their retirement systems that should be addressed in a way that makes them more resilient, affordable, and capable of meeting their retirement security objectives. Put another way, there are a number of states and cities that need to improve their retirement systems to reflect the sustainability that has been accomplished in other cities and states.
In trying to address these challenges, we believe the most appropriate path toward improvement is to have a data-driven methodology for deciphering the causes of challenges, measured on a system-by-system basis, with a collaborative process that offers solutions. Further, we think it is critically important to recognize that the solutions to the causes of retirement system challenges typically require a range of policy trade-offs that often have significant political ramifications.
Lasting change is hard and takes time, but also worthwhile. Problems get solved when they are acknowledged and addressed, not kicked down the road. At Equable, we believe we can do far more together than apart. When employees, retirees, and policymakers collaborate to solve problems, real progress is possible.
This article was originally published on our Medium blog on April 15, 2019.
 Such institutions include education systems, public safety, and the basic operations of state government (including transportation management, social insurance programs like Medicaid, and various administrative services).