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Innovators in Action 2013

Closing the Gap: Designing and Implementing Pension Reform in Utah

Interview with Dan Liljenquist, former Utah State Senator

Leonard Gilroy
September 17, 2013

The long-term health of government employee retirement systems has increasingly been called into question in recent years, with growing attention paid to the massive unfunded liabilities accrued by state and local public employee pension funds. Estimates of the aggregate, unfunded state and local pension liabilities may vary—anywhere from $757 billion to over $4 trillion, according to recent studies—but the overwhelming scale of the problem has prompted a growing number of policymakers to sound the call for reform.

Utah became an early leader in the pension reform movement when it passed Senate Bill 63 and Senate Bill 43 in the 2010 legislative session, which together shut down the state’s existing defined-benefit pension plan to new entrants, created a defined-contribution style retirement plan for new state employees, ended the practice of retiree “double-dipping,” and other critical reforms.

As the sponsor of Senate Bills 63 and 43, former Utah State Senator Dan Liljenquist has become known across the nation as the architect of Utah’s pension reform efforts, earning him plaudits from Governing (which named him one of 2011’s Public Officials of the Year), The Wall Street Journal, and many others. He has been sought out by policymakers in dozens of states to advise them on pension reform issues, and he recently authored a new report—Keeping the Promise: State Solutions for Government Pension Reform—that outlines principles and concepts that policymakers can use to advance pension reform in their jurisdictions.

In late August, Reason Foundation Director of Government Reform Leonard Gilroy interviewed Liljenquist on what prompted him to take on the issue of pension reform in Utah, how he made the case to policymakers and stakeholders, the specifics of the reforms enacted, and more.



Leonard Gilroy, Reason Foundation: You have become known as the architect of Utah’s pension reform effort in 2010, which is frequently cited as a model that other states can follow in terms of getting a handle on their unfunded pension liabilities. But as recently as 2007, Utah was seen as having the nation’s most well-funded public pension system, funded at a level of approximately 100 percent. What happened to Utah’s pension system between 2007 and 2010 to prompt the drive for reform?

Dan Liljenquist, former Utah State Senator: We had the best-funded pension system in the country going into the 2008 downturn, but during the downturn we lost about 22 percent of the value of our pension fund almost overnight. It was the biggest loss we’ve ever sustained as a system. As we started looking at it, we realized that even though we were well-funded, that the 22 percent loss in value actually opened up a 30 percent gap in our pension funding ratio—our funding ratio dropped from about 100 percent in 2007 to a projected 70 percent by 2013—even though we had paid every penny that the actuary had asked us to over the previous several decades. So one market crash opened up a 30 percent gap in our pension funding ratio.

When we looked at that gap—and it took some time to figure out what it really meant as far as what our increased contributions would need to be—we realized that if this system was dependent on stock market returns—with the legislature and taxpayers required to come back and cover any funding gaps if the markets do poorly—then we felt like it was a risky proposition and one that we wanted to try and mitigate moving forward.

Gilroy: You were appointed chairman of the Senate Retirement and Independent Entities Committee shortly after entering the state legislature in 2009. Was the pension crisis something that the Committee had been focused on? What steps did you take to build the case for reform?

Liljenquist: When I first got to the state Senate, I sat down with the Senate president and he asked me what I wanted to do. And I told him that I wanted to be close to the money—I’m a finance guy by background—but that I didn’t really have a specific committee preference.

And he came back and said that he was going to make me the chairman of the Retirement and Independent Entities Committee, but not to worry because nothing ever happens over there. So when I took my seat in 2009, it was right after the crash—or really as the crash was happening—and clearly we looked at our pension system and realized about halfway through my first legislative session that we were in serious trouble. The pension fund leaders came to us and said that we had problems, and it was territory that we’d never been in before with the state pension system. The legislature had not been seriously considering reform beforehand because we had a well-funded system and always paid our bills, and this shock to the market took us all by surprise.

So what we did from there was that we took what we felt was a very measured approach, and before jumping to conclusions as to what to do about the situation—if anything—we felt it was important to get with our pension plan actuaries to understand what the effect of the 2008/2009 market crash really was.

I think this is where we had our initial win and were able to help build the case for reform. When I sat down with the actuaries, it was pretty clear that our contribution rates for the pension would have to go up significantly and stay for quite some time to pay for the market crash. And when I asked the question of how long would our rates have to stay high, our actuaries didn’t feel like they could give a solid answer because they did not know what the markets would do in the future. So instead I asked them to model out various scenarios that would show us how high our pension contribution rates would have to be, based on the 2008 market crash, to be able to make the full actuarially required contribution. We then had the actuaries model different scenarios around that situation.

Our assumed earnings rate at the time was 7.75 percent; that’s what we assumed we would earn in our pension system year over year through our investment portfolio. So I had them model the effects of the 2008 market crash based on that 7.75 percent return for a 40-year look going forward. And then I also had them model a 6 percent return, a 7 percent return and an 8.5 percent return, just to see what the sensitivities were around that assumed 7.75 percent rate of return.

The actuaries came back with a report that demonstrated that doing nothing was not an option. If we decided not to make the increased contributions to the pension system, then in every scenario—even the 8.5 percent return scenario—then within 30 years we would be in severe financial distress, and even in some cases would have a bankrupt pension system on our hands.

So we realized that we needed to at least pay the actuarially required contribution, and when we looked through the five-year smoothing period and saw what those contribution rates would be, it equated to a 75 percent increase in contributions toward the pension system over 25-year amortization period. That amount of money equated to approximately 10 percent of our general fund spending.

So that’s how we started building the case for reform. We realized that just one year’s worth of market losses wiped out 10 percent of our general fund tax revenue for 25 years. We felt like that was too much risk for the state and taxpayers to be bearing.

Gilroy: That’s interesting, because actuarial assumptions and assumed rates of return play such a key role in the outlook for government pension systems, and overestimating the assumed rates of return—making pension systems appear more solvent than they really are—is a fairly common problem with state and municipal pension systems. Can you talk a little bit more about the process you used to work with the actuaries to get a more realistic assessment of the pension picture in Utah?

Liljenquist: In August of 2009, the pension plan representatives came to me and said that they had good news: that our four-year contribution rates for the pension system were only going to have to increase by two percentage points. And by that point I had learned a bit about actuarial smoothing, and I asked “don’t we have a five-year smoothing period to smooth into higher rates,” which they confirmed. So I asked what it meant that our rates are going to only go up two percent, because if that’s two percent per year over five years, then that’s a 10 percentage point increase. And they responded that they did not know what that was going to look like and that they would need to talk to the actuaries.

So I requested to talk with our actuaries, and we brought them in to testify in front of an interim committee. They came in and sat down with me the day before that meeting, and I was able to ask that question: what’s going to happen to next year’s rate? And they responded that they were uncomfortable giving an exact answer not knowing what the markets would do, but that in general our contribution rates were going to go up and stay up for a very long time to cover these losses.

I asked them for modeling so that we could see the various scenarios I mentioned earlier, with different assumed rates of return on our pension portfolio, and no one had really asked them for that before. I actually flew down to Dallas where our actuaries—Gabriel, Roeder, Smith & Company—reside and sat down with them and had them project their models on a screen, and we walked through the different models and scenarios I wanted to see. And when they came back in November of 2009 with the modeled scenarios, that’s when we started drawing the lessons—that one, you’d have to increase funding to the pensions and couldn’t ignore that, and two, just how much risk there was to the existing system and how long it would take to pay off a year like 2008.

So that’s how we got the actuaries engaged. They were fantastic and were legitimately interested in helping us find the right policy answer.

Gilroy: How much of an understanding of the pension situation did your legislative colleagues have when you started talking to them to make the case for reform? What convinced them to ultimately support your efforts?

Liljenquist: Pensions are a tough issue. When I went into the legislature, I knew absolutely nothing about pensions, and I had to educate myself first. And this is a complex issue, and it took some time to understand what actuarial rates of return are, for example, or what actuarially required contributions are, what the different rules around smoothing gains and losses are, et cetera.

But by the time we got to the fall of 2009 though, I felt like I had a pretty decent understanding of it, and we began to lay out—with some allies, including the Utah League of Cities and Towns—some principles for reform.

Our first goal was to make sure that every penny would be paid to current employees and retirees. And we weren’t entirely sure we could do that if we had another year like 2008, which could cripple the pension plan and make it very difficult to operate state and local governments while still providing the committed benefits that our public workers were counting on. So our first goal was making sure that we meet every penny of the commitment we made to current employees and retirees.

Our second goal was in line with that, and it was to reduce and eliminate the pension-related bankruptcy risk over time. We saw just how much of a risk that actually was and that there was far more uncertainty than we realized.

So those were the two broad principles we laid out. The first thing we did in explaining the situation to legislators was to explain that this is going to get very expensive very quickly, and we need to take action to make sure that this doesn’t happen again. The seeds of the pension problem that we were facing were sewn decades ago when these programs were set up, and while we needed to make sure that we could come up with the money to pay for the existing liabilities and existing required contributions, maybe we should also look at a new system for new workers that didn’t put us in that spot down the road.

Those are the ideas that we started bringing forward, and those two principles—to meet every commitment we’ve made for current employees and retirees and to reduce and eliminate the pension-related bankruptcy risk—naturally led to a discussion on how we should provide for retirement. Where we came down was that we had to have predictable costs—that’s the policy objective that’s worthwhile.

So we went forward with those principles to find a way to close the old system down in terms of new enrollment and create a new system with predictable employer costs that provided adequate retirement security for future public employees. And then we went legislator by legislator to explain the situation and some ideas for how to proceed. Before we actually proposed any policy recommendations, I went and met with every member of the House and Senate in various caucus meetings over the summer and fall to explain the situation and why we needed to make some changes, laying the foundation by really helping them understand what the problem was.

So by the time it came to December 2009, that’s when I moved forward with my proposal to close down the defined-benefit pension system to new employees and begin a new retirement system for the state with a statutorily-prescribed contribution into the system, allowing new employees the option to choose to invest their retirement compensation in either a 401(k) plan that was professionally managed—but which also does not allow borrowing against the plan—or in a hybrid defined benefit/defined contribution plan where they could pool their retirement resources together with other employees, with the understanding that the state’s commitment toward that hybrid retirement plan was set and defined. And if the actuarially required contributions for that plan exceeded the amount that the state had budgeted per individual, then the individual employees would have to automatically pay the difference.

We moved forward with those principles as we engaged the political process.

Gilroy: Can you describe the key components of the reforms contained in Senate Bill 63 and Senate Bill 43?

Liljenquist: Senate Bill 63 is our new two-tier retirement system, and again, that is a system where instead of making a commitment to a certain size of benefit and then accepting all of the risk that the state and taxpayers pay for that benefit if the market doesn’t do well, we set in statute the principle that the state is going to pay—and we were a non-contributory system beforehand, meaning the employer, the state, paid the entire freight of the defined benefit—moving forward we were going to pay 10 percent of an individual’s salary toward retirement plan on top of Social Security (depending on the jurisdiction, most people are on Social Security). We were going to contribute 10 percent towards retirement for rank-and-file workers, and for public safety the rate would be 12 percent.

And through this legislation we were going to allow our employees to choose whether they wanted to take that 10 percent of their salary in a 401(k) plan professionally managed by Utah’s state retirement system and that completely prohibited borrowing—even in a hardship situation—from that retirement system while they work for the state.

Or, they could choose to take their 10 percent, pool it with other employees and create themselves a pension—albeit a reduced one. We made it very clear in statute that new employees would get 10 percent toward retirement, and out of that 10 percent if you choose a pension, then you have to make the full actuarially required contribution, and if there’s any money left over, then you get that additional money into a 401(k) plan. That way if the markets performed well—and the contribution rates towards that new hybrid pension go down—then the employee automatically gains because the contributions towards their 401(k)s would go up. The vice versa was true as well. If the markets do poorly and contribution rates were required to go up, employees would have to make the full actuarial required contribution, which would come out of their 10 percent retirement contribution first, and if contribution rates exceeded 10 percent, the remaining amount would automatically come out of that employee’s paycheck.

So through this legislation we essentially created a defined-contribution plan in which the state’s contributions towards the retirement system were clear and defined. There were a number of other nuances in Senate Bill 63, but that was our primary objective.

Senate Bill 43 was the legislation that I sponsored to end the practice of double-dipping in the state of Utah. Back in the year 2000, the Utah legislature made what I think was a terrible mistake that resulted in people inappropriately taking early retirements to benefit from a loophole that cost the pension system a lot of money.

This is how it worked. In order to attract retired teachers back into the workforce, the legislature passed a statute that allowed someone when they retire—if they decided to come back to work—allowed that individual, in addition to their salary, to continue to receive their pension checks, with the state also contributing the equivalent amount of money going to the pension system per employee into a 401(k) for that individual. And that included not only the nominal cost of the pension plan, but also the amortization expenses for the pension plan.

For example, police officers realized that they could retire right at 20 years, but they could leave one city and go to another city, get hired back at virtually the same wage, begin collecting the pension checks—which would give them roughly a 50 percent boost in their income—and then at the same time still be receiving a growing size of the pie for their retirement with these additional contributions.

What that did is that it changed the behavior of these police officers, where the average retirement years of service had been around 25 years. But within about 8 years of this program being put into place, the average retirement years of service dropped to about 20 years. Our actuaries came back and looked at that situation and realized that about 3,000 employees were projected to cost the state of Utah close to $900 million over 10 years to provide that benefit. The longer someone works and doesn’t retire, the less expensive the cost of the pension is. The converse is also true—the earlier someone retires, the more expensive the pension. So if people retire significantly earlier it puts a strain on the pension system by forcing resources ordinarily compounding and growing in the investment portfolio to be transferred into liquid assets to pay the current pension benefits. Our actuaries did an analysis of that and came back and told us that early retirement is costing a significant amount of money, and in addition you’re paying this really expensive benefit that no other state in the nation does.

So of that approximately $900 million, about half of it was coming from police officers and others retiring earlier than expected, and the other half was coming from the direct 401(k) contributions that the statute passed in 2000 required paying to the retirees returning to work. So we made the choice in Senate Bill 43 to end that program for future retirees, while meeting the commitment we had already made to existing retirees. But we changed that going forward.

Senate Bill 43 says that if you retire, you’re retired. If you come back within a year, then you would suspend your pension payments and go on as normal. But if you come back after a year, you get a choice: you either keep your pension payments coming and collect your wages—but you don’t get a penny more toward retirement—or you could suspend your pension payments, receive your salary and receive additional contributions into your pension plan, so when you make the final decision to retire then you have an enhanced retirement over where you were originally.

So we gave them a choice, and what we were trying to do was stop people from gaming the system by using this loophole to get benefits from the state that weren’t adequately planned for. To be honest, this was probably the most contentious part of our pension reform because it had become an expectation, even though it had only been in place for about nine years, and people were upset about that. But when the regular public realized what was happening, it didn’t seem fair. In fact, the younger public employees that were early in their careers were frustrated by it as well because it encouraged people to retire but then come right back into the workforce, which frustrated the people who wanted to move up.

Gilroy: What types of opposition to reform did you run into along the way, and how did you address those challenges?

Liljenquist: We had a fair amount of opposition. The weekend before the session began, I got a phone call from one of my Senate colleagues from the Capitol saying that, “there are a lot of people down at the Capitol that are chanting your name, and it’s not good.” I loaded my kids up in the car and drove to the capitol, and there were 4,500 people protesting me on the Capitol lawn. So it was a little bit nerve-wracking getting this started; here I was a freshman legislator trying to move this thing forward.

But there were some things that my colleagues and I did to lay the foundation throughout the summer that we were trying to do the right thing for the right reasons, that we were looking at data, and that we were trying to be respectful. I met with every union leader I could find in the state of Utah just to talk about the situation before moving forward with any proposals. And the feedback was that they were grateful that I came to talk with them, but that they didn’t know what to do and didn’t like what I was thinking, even though they didn’t really have a solution on their end.

And then as we went forward, I personally received about 3,500 emails from people who were pretty upset with me claiming that I was taking away their retirement benefits, when in fact the opposite was true. I responded personally to each one of those emails, and I responded with kindness. It’s very important to point out that public employees did not cause the situation we were in. Even with the double-dipping challenges, the employees were responding to the incentives that the legislature put in place, and these were rational economic decisions they were making. I don’t begrudge them at all for making those decisions.

Again, you’ll remember that our first goal of pension reform was to meet 100 percent of our commitments to current employees and retirees. So when I responded to each one of these people, I laid out for them the situation we were in, what happened in 2008, how much it was going to cost the state, and basically said to them that I wasn’t sure that we could go through that again. In order to meet the commitment to each of them, we’ve got to have flexibility moving forward in terms of meeting commitments to new employees. That was the primary message, and being consistent in reiterating that message and not deviating from it or vilifying public employees was critical—they don’t deserve it. That tone started to come through in this process.

I’m glad those people sent me those emails. It was a good avenue for me to be able to communicate directly back with people that were interested in the situation, and I think it helped soften a lot of the opposition.

And I was very careful, as were my colleagues, to speak about the reality of the situation we were in—not about partisan politics. We did not have an axe to grind against the unions or the rank-and-file public employees. They had a reasonable expectation; the state had made a commitment to them, and meeting it was our main objective.

From there, where we really had a breakthrough in communication was when we were able to translate what the expense was, what it really cost the state of Utah. We would have had to come up with roughly $500 million per year over 25 years to pay off the liabilities, plus the actuarially assumed four percent growth of payroll, which was incomprehensible to most people. And our breakthrough—when people really started to understand the situation—was when we told them what it meant: we will not be able to afford 8,000 school teachers that we otherwise would have been able to afford over 25 years. Once the reporters got a hold of that, in the news coverage it started to become clear that this was a serious situation and the downturn cost us a lot of money—and a lot of teachers. That helped us break through on the messaging.

And we also went back to public employees and made the case to them that the reforms to the pension system should be informally called the “Wage Liberation Act” because these pension cost increases were really coming out of employees’ pockets because we didn’t have the ability to afford cost-of-living increases, raises and other things for current workers, nor could we continue to offer the benefits for healthcare coverage at the same levels we were doing previously. So we would really have to shift these additional costs from public employees to help balance the books. If you wanted wages to increase and catch back up to the private sector, you had to control runaway pension costs to do that.

We had an imbalance. While total compensation for public and private sector workers was on par with each other, wages for public sector workers were much lower because benefit costs were so high. And so we made a commitment as part of the intent language of our bill that when costs begin to come down—when we get through the amortization period and rates start to tick down—we would use those additional freed up funds to systematically repair wages. That was a commitment we made, and expect that the legislature will live up to that commitment.

Gilroy: Some policymakers have shied away from pension reform, fearing high transition costs involved with the switch from a defined-benefit to a defined-contribution system. Is this a legitimate fear? How did Utah handle this issue?

Liljenquist: Transition costs are a tricky argument. There are GASB rules that say that when you close down a pension plan entirely—meaning that there are no new employees to come into the plan that allow you to pool investments—then there are costs that you need to account for when you close down that plan. At the tail of the plan, you’re not going to have a pool of investments growing when you have to wind down the plan. So there are some legitimate concerns about transition costs.

But most of the transition cost concern comes from a GASB recommendation that when you close down a pension plan, you have to move from what is called a graduated amortization schedule to a level-dollar amortization schedule. A graduated amortization schedule—what most people are on—says that when you have market losses, the amount of money you have to pay back into your system is calculated based on a percentage of total payroll. The thing about payroll though is that it grows over time. The actuaries and the payment schedule assume that the employees continue growing and that you’re going to have a larger and larger base of employees contributing towards paying off the pension losses.

But when you close a pension plan there’s a GASB recommendation to move to a level-dollar amortization, which is like going from a variable-rate mortgage that goes up over time to a fixed payment. And that creates some upfront, higher costs and additional cash requirements now that some legislators believe is just too expensive to do.

Here’s how we got around it in Utah. By having a hybrid option—and while most of the investment risk is shifted to new employees for their own retirement and the state agreeing to pay 10 percent but no more—but because it was technically a defined-benefit plan—the defined-benefit-portion of the hybrid—it did not count as the closing of the defined-benefit plan altogether, so therefore the GASB recommendations were not triggered and we didn’t have that issue.

So we got around that transition cost issue by being creative with this hybrid plan and essentially getting to a defined-contribution system while technically keeping the defined-benefit plan open, even though the risk to the state was defined and set.

One of the important things to note about Senate Bill 63 is that we ran clean up legislation the following year, before the plan went live, that basically enshrined that 10 percent in statute by saying that should the actuarially required contribution rates through that hybrid defined-benefit program go above that 10 percent, then the employees will make up the difference, automatically coming out of their paychecks. But we also put in the legislation that if the hybrid pension plan becomes critically unstable down the road—meaning that if required contribution rates continue to rise above 12 percent—then the legislature could go back and change benefits for existing employees and retirees in that new two-tier pension plan.

We even listed some options. We could lower the service credit, could increase final average salary, could reduce cost-of-living adjustments—we could do a variety of different things for anyone that was enrolled. The intent of that was to create a precedent to give future legislatures flexibility on how to deal with future investment crises without having the state be on the hook for poor performance in the markets.

That particular piece of legislation passed the following year unanimously and was really what solidified the Utah reforms as a defined-contribution style system, with the investment risks borne by new employees, with professional management to help mitigate those risks to make sure that the employees have adequate retirement when they finally do retire.

Gilroy: A 2012 analysis performed by two Brigham Young University economists estimated that the state’s pension fund had a 50 percent chance of becoming insolvent by 2028 in the absence of the 2010 pension reforms, but that with the reforms there’s now just a 10 percent chance of insolvency over the next decade or so. That seems to provide at least some academic validation of your reforms. How would you assess the financial risks that Utah taxpayers face today, post-reform, with regard to the state’s pension system?

Liljenquist: I’m not surprised by the findings of the report you mentioned. Here’s what we were trying to do. We understood that if we have another year like 2008 right now, it’s going to be really tough for us to recover. The purpose of this reform was that, as employees turn over and new ones come in, that over time we will reduce and eliminate the pension-related bankruptcy risk, person by person.

The new people will come in on a different deal where the state is not on the hook for the risk of the pension system long-term. We provide a generous 10 percent employer contribution toward retirement, which is generous by all accounts. But that is all we’re going to pay. And we provide professional management and some other tools around retirement that allow them to be protected from unsystematic market risk. But our intent was that as employees leave the public employee workforce, we will person-by-person reduce and eliminate the pension bankruptcy risk.

What the report’s numbers seem to be reflecting is that if we have a crash 10 years from now, we can probably absorb it, because half of our employees will have turned over, and we’ll only face the risk on half of the employees left. And 20 years from now, we can be completely out of this game altogether. That was the objective.

Gilroy: What are some of the lessons learned from Utah’s pension reforms that you would offer to peers in other states that may be contemplating similar efforts?

Liljenquist: There are a handful of things that probably offer the most important lessons. First, this is not a partisan issue, nor a left vs. right issue or an employer vs. employee issue. It’s a reality issue, and my recommendation to every policymaker is to keep it a reality issue.

Public employees did not cause this problem—they did not cause the market to collapse, they didn’t cause legislatures over the years to underfund pensions. They didn’t cause it, so it is not productive to blame them for it. I think it’s really important to make sure that these people know that the objective of pension reform is to make sure you can meet your commitments to them. I think that’s the moral and right thing to do.

From there, you’ve also got to make sure that you have data—data that show what risks there are to the plan. And it’s not just data on the risks of total insolvency, but also data that show what the opportunity costs are. If you have another year like 2008, people might be able to survive it, but at what cost? In Utah, the cost of the 2008 market crash was 8,000 schoolteachers. And had we come into that crash with a different system in place we would not have had to keep those 8,000 teachers from our classrooms. So I think that opportunity costs are what matters.

On the other side of that is that for employees—who are really going to bear the costs of these increases, just in terms of foregone wages and the continued shifting of healthcare costs from employer to employee—these reforms over time can help rebalance the equation between benefits and wages for public sector workers. It’s hard to find people in Utah who want to come out of college and work for the state, because starting wages are too low. Total compensation is competitive—and in some ways it’s higher in the public sector—but wages are lower, and that’s what most people look at when they start a job. And wages are lower because benefit costs are so high. So these are reforms that can ultimately help address that down the road.

I would also say that people should be sticking to the data. Be objective, and work with the unions as closely as possible. Work for solutions that work for all parties.

One of the things I’m most proud of in the Utah reform is that it’s a reform that nobody else had done in the country. And by the way, it’s something that no one else has replicated in the country, because it’s customized to work for us. There are dozens of ways to organize pension reform and get to your principles of predictable employer costs while leaving benefits for current employees and retirees. So my advice would be don’t be too rigid. Understand the underlying principles you’re after, and look for different opportunities and models to get your state to the model that makes the most sense for it. Not every state is the same; every state is different, and every dynamic place to place is different.

But there are real solutions that can mitigate the risk of bankruptcy in pensions and make sure that down the road—when all of the legislators currently serving are long gone—make sure that each state is in a better position should something like this happen again.


Dan Liljenquist is a former Utah State Senator nationally renowned for his work on major entitlement reform. In his first term as a state senator, Liljenquist championed Utah’s groundbreaking pension reforms, moving Utah from a defined benefit system to a defined contribution-style system. He also successfully sponsored a companion bill that ended the practice of “double-dipping.” Liljenquist has gained national prominence on this issue and has been highlighted by the New York Times, The Wall Street Journal, the National Conference of State Legislatures, ALEC, the Mercatus Center and others.

After pension reform, Liljenquist turned his sights to Medicaid reform. Watching a dramatic increase in Medicaid costs, from 9% of the state budget in 2001 to almost 20% in 2011, he spent a year working to bring all parties to the table. He carefully crafted a bill that fundamentally restructured the Medicaid program in Utah and saw it pass both the House and Senate without a single dissenting vote. Under his guidance, Utah became the first state in the nation to cap Medicaid growth as it relates to the state budget.

Liljenquist has a Juris Doctorate from the University of Chicago law school. After graduation, he joined Bain Consulting where he worked as a strategy consultant. He has continued his business career with Affiliated Computer Services where he served as Director of Operational Strategy. He also served as the president and Chief Operating Officer of FOCUS Services and has consulted with the Laura and John Arnold Foundation on fiscal reforms. He ran for the U.S. Senate in 2012 on a platform of fiscal reform and forced long-term incumbent Orrin Hatch into his first primary in 36 years. Currently, Liljenquist is the founder and president of Liljenquist Strategies, LLC, a business strategy consulting company based in Bountiful, Utah.

Other articles in Reason Foundation's
Innovators in Action 2013 series are available online here.


Leonard Gilroy is Director of Government Reform


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