A Public Pensions Bailout: Economics & Law
Willamette University - College of Law
December 16, 2013
University of Michigan Journal of Law Reform, Forthcoming
In several states, public pensions plans are at risk of insolvency within a decade. If public pension plans do become insolvent, it seems likely that the federal government will bail them out. This paper proposes that the federal government prepare for the prospect of federal financial support of public pensions by instituting an optional regulatory regime for these plans. In states that elect to participate, public plans would be eligible for federal financial support in the event of severe financial distress. All public plans in these states would be subject to a federal regulatory regime similar to ERISA, including minimum funding requirements. States could elect not to participate, but then their public plans would not be eligible for federal financial support. Sponsors of regulated plans could also be given the authority to revise the benefits of existing employees with respect to future services, an option that private employers have always possessed. This flexibility would allow for much more significant pension reform on the state and local level, since in many states pension reforms can only alter the benefits of new hires.
Number of Pages in PDF File: 27
Keywords: public pensions, bailouts, public finance, fiscal federalism, retirement security, ERISA, insurance, state and local governments
JEL Classification: H75, H81Accepted Paper Series
Date posted: December 16, 2013 ; Last revised: April 19, 2014
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