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Legal Constraints on Changes in State and Local Pensions

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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 workers 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 constraints 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 with 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 protections 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 conventional wisdom suggests.

Suggested Citation

  • Alicia H. Munnell & Laura Quinby, 2012. "Legal Constraints on Changes in State and Local Pensions," Issues in Brief ibslp25, Center for Retirement Research, revised Aug 2012.
  • Handle: RePEc:crr:issbrf: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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    Cited by:

    1. Sen, Elif, 2016. "Pension Gap Perils," Regional Spotlight, Federal Reserve Bank of Philadelphia, issue Q2, pages 15-19.
    2. 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.
    3. Sen, Elif, 2016. "Regional Spotlight: Pension Gap Perils," Economic Insights, Federal Reserve Bank of Philadelphia, vol. 1(2), pages 15-19, Q2.

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