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The Economics of State and Local Public Pensions

Author

Listed:
  • Jeffrey R. Brown
  • Robert Clark
  • Joshua Rauh

Abstract

This paper provides an overview of an economics-based perspective on the financial aspects of state and local public pensions in the U.S. Drawing on the research commissioned for an NBER research program on this topic, we discuss the large degree to which public pension liabilities exceed the assets set aside to fund them. We summarize issues related to the optimality of pre-funding, portfolio allocation, the discounting of liabilities, as well as how plans operate in practice. We also lay out an agenda for future research related to financial aspects of public pensions, retiree health plans for public employees, as well as issues related to plan design and labor market outcomes.

Suggested Citation

  • Jeffrey R. Brown & Robert Clark & Joshua Rauh, 2011. "The Economics of State and Local Public Pensions," NBER Working Papers 16792, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:16792
    Note: AG PE
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    References listed on IDEAS

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    1. Munnell, Alicia H. & Aubry, Jean-Pierre & Quinby, Laura, 2011. "Public pension funding in practice," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(2), pages 247-268, April.
    2. Beshears, John & Choi, James J. & Laibson, David & Madrian, Brigitte C., 2011. "Behavioral economics perspectives on public sector pension plans," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(2), pages 315-336, April.
    3. Bohn, Henning, 2011. "Should public retirement plans be fully funded?," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(2), pages 195-219, April.
    4. Robert L. Clark & Melinda Sandler Morrill, 2010. "Retiree Health Plans in the Public Sector," Books, Edward Elgar Publishing, number 13688.
    5. Jeffrey R. Brown, 2008. "Guaranteed Trouble: The Economic Effects of the Pension Benefit Guaranty Corporation," Journal of Economic Perspectives, American Economic Association, vol. 22(1), pages 177-198, Winter.
    6. Robert Novy‐Marx & Joshua Rauh, 2011. "Public Pension Promises: How Big Are They and What Are They Worth?," Journal of Finance, American Finance Association, vol. 66(4), pages 1211-1249, August.
    7. Robert L. Clark & Lee A. Craig & John Sabelhaus, 2011. "State and Local Retirement Plans in the United States," Books, Edward Elgar Publishing, number 13685.
    8. Clark, Robert L. & Morrill, Melinda Sandler, 2011. "The funding status of retiree health plans in the public sector," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(2), pages 291-314, April.
    9. Pennacchi, George & Rastad, Mahdi, 2011. "Portfolio allocation for public pension funds," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(2), pages 221-245, April.
    10. A. J. Auerbach & M. Feldstein (ed.), 2002. "Handbook of Public Economics," Handbook of Public Economics, Elsevier, edition 1, volume 4, number 4.
    11. Friedberg, Leora, 2011. "Labor market aspects of state and local retirement plans: a review of evidence and a blueprint for future research," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(2), pages 337-361, April.
    12. Deborah Lucas, 2007. "Valuing & Hedging: Defined Benefit Pension Obligations - The Role of Stocks Revisited," Money Macro and Finance (MMF) Research Group Conference 2006 169, Money Macro and Finance Research Group.
    13. Novy-Marx, Robert & Rauh, Joshua D., 2011. "Policy options for state pension systems and their impact on plan liabilities," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(2), pages 173-194, April.
    14. Jeffrey R. Brown & David W. Wilcox, 2009. "Discounting State and Local Pension Liabilities," American Economic Review, American Economic Association, vol. 99(2), pages 538-542, May.
    15. A. J. Auerbach & M. Feldstein (ed.), 2002. "Handbook of Public Economics," Handbook of Public Economics, Elsevier, edition 1, volume 3, number 3.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09hi4ch92c6 is not listed on IDEAS
    2. Altiok, Hasan U. & Jenkins, Glenn P., 2013. "The fiscal burden of the legacy of the civil service pension systems in northern Cyprus," Journal of Pension Economics and Finance, Cambridge University Press, vol. 12(1), pages 92-110, January.
    3. David G. McCarthy & Po‐Lin Wang, 2022. "Wait your turn: Pension incentives, workplace rules, and labor supply among Philadelphia municipal workers," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(4), pages 985-1029, December.
    4. Vincent Touzé, 2011. "Le financement des retraites aux États-Unis," Post-Print hal-03461438, HAL.
    5. Castañeda, Pablo & Castro, Rubén & Fajnzylber, Eduardo & Medina, Juan Pablo & Villatoro, Félix, 2021. "Saving for the future: Evaluating the sustainability and design of Pension Reserve Funds," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    6. Hasan U. Altiok & Glenn Jenkins, "undated". "The Pension Traps of Northern Cyprus," Development Discussion Papers 2012-03, JDI Executive Programs.
    7. Dashle Kelley, 2014. "The political economy of unfunded public pension liabilities," Public Choice, Springer, vol. 158(1), pages 21-38, January.
    8. Joelle H. Fong & John Piggott & Michael Sherris, 2012. "Public Sector Pension Funds in Australia: Longevity Selection and Liabilities," Working Papers 201217, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
    9. Hasan U. Altiok & Glenn P. Jenkins, 2013. "Social security generosity, budgetary deficits and reforms in North Cyprus," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 16(2), pages 218-235, June.
    10. Hasan U. Altiok & Glenn Jenkins, 2012. "Social Security Reforms in Northern Cyprus: Are they Fiscally Balanced and Socially Equitable?," Development Discussion Papers 2012-02, JDI Executive Programs.
    11. Miller, Steven R. & Deller, Steven C. & Stallmann, Judith I., 2017. "Potential Rural Impacts of Pension Reductions," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258126, Agricultural and Applied Economics Association.
    12. repec:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09hi4ch92c6 is not listed on IDEAS
    13. Godbout, Luc & Trudel, Yves & St-Cerny, Suzie, 2013. "Le régime de rentes du Québec : le rendement différencié selon l’année de prise de la retraite de 1968 jusqu’en 2056," L'Actualité Economique, Société Canadienne de Science Economique, vol. 89(2), pages 89-113, Juin.
    14. Latifa AITOUTOUHEN & Faris HAMZA, 2016. "Financial and Econometric Study of the Sustainability and Evaluation of Scenarios of Reforms for the Civil Regime of Moroccan," Turkish Economic Review, KSP Journals, vol. 3(4), pages 652-667, December.

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    More about this item

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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