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Legal Constraints on Changes in State and Local Pensions

Author

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  • Alicia H. Munnell
  • Laura Quinby
Abstract
State and local government pension reform has become a front-burner issue in the wake of the economic crisis, which sharply reduced funded ratios for most plans. Policymakers have responded primarily by raising employee contributions for all wo rkers and/or reducing benefits for new workers. One option that has largely been off the table is reducing future benefits for current workers. The reason is that many states face legal constraints on their ability to make such changes. These constra ints not only tie the hands of pension reformers but also accord public employees greater protections than their private sector counterparts. This brief provides a comprehensive overview of the legal environment in which state and local plans operate w ith respect to benefit protections for current workers. The analysis relies on a thorough review of secondary sources and consultations with plan legal counsels. The brief is organized as follows. The first section covers the major types of legal prot ections that apply to public pension benefits. The second section suggests an approach for increasing the flexibility of plan sponsors to alter benefits. The final section concludes that it may be less difficult to make such changes than the conventio nal wisdom suggests.

Suggested Citation

  • Alicia H. Munnell & Laura Quinby, 2012. "Legal Constraints on Changes in State and Local Pensions," State and Local Pension Plans Briefs ibslp25, Center for Retirement Research, revised Aug 2012.
    • Handle: RePEc:crr:slpbrf:ibslp25
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    File URL: http://crr.bc.edu/briefs/legal-constraints-on-changes-in-state-and-local-pensions/
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    Citations

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    Cited by:

    1. Butler, Alexander W. & Yi, Hanyi, 2022. "Aging and public financing costs: Evidence from U.S. municipal bond markets," Journal of Public Economics, Elsevier, vol. 211(C).
    2. Kenechukwu E. Anadu & James Bohn & Lina Lu & Matthew Pritsker & Andrei Zlate, 2019. "Reach for Yield by U.S. Public Pension Funds," Supervisory Research and Analysis Working Papers RPA 19-2, Federal Reserve Bank of Boston.
    3. Lekniūtė, Zina & Beetsma, Roel & Ponds, Eduard, 2019. "U.S. municipal yields and unfunded state pension liabilities," Journal of Empirical Finance, Elsevier, vol. 53(C), pages 15-32.
    4. Laurent Bouton & Alessandro Lizzeri & Nicola Persico, 2020. "The Political Economy of Debt and Entitlements," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(6), pages 2568-2599.
    5. Elif Sen, 2016. "Pension Gap Perils," Regional Spotlight, Federal Reserve Bank of Philadelphia, issue Q2, pages 15-19.
    6. Joshua D. Rauh & Irina Stefanescu & Stephen P. Zeldes, 2020. "Cost Saving and the Freezing of Corporate Pension Plans," NBER Working Papers 27251, National Bureau of Economic Research, Inc.
    7. Rauh, Joshua D. & Stefanescu, Irina & Zeldes, Stephen P., 2020. "Cost saving and the freezing of corporate pension plans," Journal of Public Economics, Elsevier, vol. 188(C).
    8. Trang Hoang, 2022. "Fiscal competition and state pension reforms," Public Budgeting & Finance, Wiley Blackwell, vol. 42(3), pages 41-70, September.
    9. Elif Sen, 2016. "Regional Spotlight: Pension Gap Perils," Economic Insights, Federal Reserve Bank of Philadelphia, vol. 1(2), pages 15-19, April.
    10. Wagner, Gary A. & Elder, Erick M., 2021. "Campaigning for retirement: State teacher union campaign contributions and pension generosity," European Journal of Political Economy, Elsevier, vol. 68(C).
    11. Lekniute, Z. & Beetsma, R.M.W.J. & Ponds, Eduard, 2016. "Fooling the Market? Municipal Yields and Unfunded State Pension Liabilities," Other publications TiSEM 591eb14d-c598-4297-a775-7, Tilburg University, School of Economics and Management.
    12. Novy-Marx, Robert & Rauh, Joshua D., 2014. "Linking benefits to investment performance in US public pension systems," Journal of Public Economics, Elsevier, vol. 116(C), pages 47-61.

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