The effect of fiscal stress and balanced budget requirements on the funding and measurement of state pension obligations

Chaney, Barbara; Copley, Paul; Stone, Mary S.

doi:10.1016/s0278-4254(02)00064-9

Cited by 117 publications

(177 citation statements)

References 11 publications

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“…Chaney, Copley, and Stone (2002) find that fiscally strained states tend to have less well-funded pension plans. Coggburn and Kearney (2010) estimate that a higher ratio of interest payments on a state's debt relative to revenue is associated with higher unfunded state pension liabilities per capita.…”

Section: Econometric Specificationmentioning

confidence: 86%

The Role of Economic, Fiscal, and Financial Shocks in the Evolution of Public Sector Pension Funding

Triest

Zhao

2013

SSRN Journal

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Abstract:Many studies have documented the pervasive underfunding of public sector pension plans in the United States in recent years. The deterioration of the funded status of public pension plans coincided with severe fiscal crises that state and local governments experienced in the 2000s. This development has led to a suspicion that state and local governments have decreased employer pension contributions as a backdoor means of running fiscal deficits. In this paper, the authors investigate the extent to which this phenomenon has occurred.They estimate panel data regressions using the Boston College Center for Retirement Research's Public Plans Database, which provides data for 2001 through 2010. The authors find that contrary to popular belief, plan sponsors do not reduce their contributions in response to negative fiscal or economic shocks. In contrast, plan sponsors' contributions to their pension plans increase in response to growth in their unfunded liabilities.The authors document that the public pension underfunding crisis during the 2000s developed largely as a consequence of portfolio returns that fell short of expectations. Public pension plans' assets portfolios have a relatively high share of equities and other risky assets, leaving the plans' funded status vulnerable to asset price fluctuations. Although plan sponsors increased their contributions in response to the growth of unfunded liabilities, they did not do so by enough to fully counteract the effect of the subpar portfolio returns. This finding holds across the spectrum of plans ranked in terms of funded status in 2010.

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Section: Econometric Specificationmentioning

confidence: 86%

The Role of Economic, Fiscal, and Financial Shocks in the Evolution of Public Sector Pension Funding

Triest

Zhao

2013

SSRN Journal

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“…Given that most states have some form of balanced budget requirements prohibiting deficit spending over any prolonged period of time, fiscally stressed states are constrained in their ability to increase pension funding without raising taxes or reducing fiscal outlays elsewhere. Chaney, Copley, and Stone (2002) provide evidence that when fiscally stressed, states with strict balanced budgets provisions simultaneously underfund pensions and strategically manipulate the assumed rate of return on assets to obscure such underfunding. GASB proposals would both reduce the flexibility to manipulate pension assumptions and increase the visibility of current pension underfunding.…”

Section: H2 Economic Consequencesmentioning

confidence: 99%

Lobbying Behavior of Governmental Entities: Evidence from Public Pension Accounting Rules

Allen

Petacchi

2014

SSRN Journal

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We thank Roberta Reese and Patti Waterbury of the GASB for generous assistance with sourcing of data. ABSTRACTWe examine the lobbying behavior of state governments in the development of recently issued public pension accounting standards GASB 67 and 68. Consistent with opportunistic motivations, we find that states' opposition to the liability increasing provisions embedded in these standards is increasing in the severity of pension plan underfunding, state budget deficits, and the use of high discount rates. Further we find opposing states are subject to more stringent balanced budget requirements and greater political pressure from unions. By contrast, we find evidence that the support from financial statement users for these provisions is amplified in states with poorly funded plans and large budget deficits, suggesting government lobbying is misaligned with a public interest perspective. We also find evidence that user support varies by type: internal users (public employees) overwhelmingly oppose the standards, relative to external users (credit analysts and the broader citizenry) but the difference is moderated in states with constitutionally protected benefits. This finding is consistent with the expectation that pension accounting reform will motivate cuts in pension benefits as opposed to increased levels of funding from the governments. Analyses of 2011 and 2012 state pension reforms confirm that states opposed to accounting reform are more likely to cut pension benefits.1

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“…Résultats excluant les pays exportateurs de pétrole. la même veine et toujours dans le contexte des États américains, Chaney, Copley et Stone (2002) ont établi un lien entre la présence de règles budgétaires et un sous-financement des régimes publics de pensions ainsi que l'adoption de taux d'escompte qui obscurcissent celui-ci. Plus récemment, Auerbach (2008) s'inquiétait du fait que les règles budgétaires telles qu'on les observe aux États-Unis ne tiennent pas compte des importants passifs implicites découlant des engagements futurs des gouvernements, au premier chef dans le domaine des régimes de retraite.…”

Section: Les Mesures Du Caractère Soutenable Des Finances Publiques àunclassified

Les règles budgétaires dans les provinces canadiennes : nomenclatures et éléments d’analyse

Farvaque

Foucault

Joanis

2014

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RÉSUMÉ -Cet article fait le point sur la question des règles budgétaires, qui occupe une place centrale dans les débats de politiques publiques sur la résorption éventuelle des déficits hérités de la Grande Récession. Il revient d'abord rapidement sur la littérature théorique relative aux règles budgétaires. Il dresse ensuite une nomenclature des règles budgétaires en vigueur dans les provinces canadiennes. La nomenclature proposée est plus fine que celle existant dans la littérature et elle se fonde sur les travaux récents menés sur les États américains. Le menu des options de politiques publiques disponibles dans le contexte canadien est enfin évalué, afin d'examiner les performances relatives des diverses règles existantes.

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The effect of fiscal stress and balanced budget requirements on the funding and measurement of state pension obligations

Cited by 117 publications

References 11 publications

The Role of Economic, Fiscal, and Financial Shocks in the Evolution of Public Sector Pension Funding

The Role of Economic, Fiscal, and Financial Shocks in the Evolution of Public Sector Pension Funding

Lobbying Behavior of Governmental Entities: Evidence from Public Pension Accounting Rules

Les règles budgétaires dans les provinces canadiennes : nomenclatures et éléments d’analyse

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