Political economy of public sector retirement plans

Abstract

Virtually all state and local government employers in the United States offer workers some sort of retirement benefits today but there is significant variation in the characteristics of those plans. There is also a great deal of public angst about the level and timing of commitments made in these plans. The literature on retirement plans suggests that they are important elements of compensation that plan sponsors use in meeting their human resource goals. But public retirement plans are created and operated in a public policy environment and forces other than local labor market considerations may be brought to bear in the organization and operation of these plans. This paper explores some of the possible explanations for the variation in state retirement plans. Public disclosure data is used to develop a model that explains relative generosity of benefits based on the characteristics of participants and the marketplaces in which the plans are offered. The final section of the paper places the issues explored in a forward looking context. The public disclosure environment recently put in place for public retirement plans is likely to have a more profound effect on state pension operations than any other development in recent history.

Differential Returns by Year of Retirement under the Canada Pension Plan

“…One of the main contributions of this paper is also to assess the factors explaining the returns discrepancies between cohorts of beneficiaries (see the ''Explanatory Factors'' section). 4 For a review of these causes and of certain cases in the United States, see Munnell, Aubry, and Quinby (2011) and Schieber (2011). 5 Table A1 Appendix A presents the changes in the main parameters since the CPP's creation and the values set for these for projection purposes through 2056.…”

Public Pension Pressures in the United States

“…In addition, public sector employees have been retiring in record numbers, increasing the drain on pension assets sooner than expected. 9 Public plans have also gotten into financial trouble for longer-standing reasons, including the fact that states have historically cut pension contributions and raised benefit promises in good economic times, rather than taking advantage of robust periods to build up a financial cushion to protect against downturns (Schieber, 2011). 8 An active discussion is underway regarding the potential for state bankruptcy in the wake of the crisis; c.f.…”

The Economics of State and Local Public Pensions

“…A second important contributor to the poor funding status of state and local pension plans is -in many states -the history of consistently failing to make sufficient annual contributions. Schieber (2011) provides an interesting history of the development of public sector retirement plans. Clark, Craig and Sabelhaus (2011) provide a comprehensive history of the development of public pension plans in the twentieth century that explains the consolidation of plans within states, the decisions to adopt DB plans throughout the century, and the reassessment of these plans at the beginning of the twenty-first century.…”