Funding Public Pension Plans

42 Pages Posted: 24 Apr 2009 Last revised: 28 Aug 2010

Date Written: June 14, 2009


Most state and local government employees are covered by traditional final-average-pay pension plans. State and local government employers typically fund those pension plans through a combination of employer and employee contributions, with help from investment returns on already-accumulated assets. Unlike private sector pension plans, however, public pension plans are not subject to strict minimum funding standards like those in the Employee Retirement Income Security Act of 1974 (ERISA). Public pensions also face more flexible accounting standards than private sector pensions. To be sure, many public pensions are nevertheless fairly well funded. Unfortunately, however, the recent meltdown of financial markets, the decline in the stock market, and the recession are putting tremendous pressure on both public pensions and the state and local governments that fund them; and public employers will need to respond.

At the outset, this article reviews the operation and funding status of state and local government pension plans. Next, this article discusses the major financial, accounting, and legal issues that relate to the funding of state and local government pension plans. Finally, this article considers how to ensure that public employees will have adequate retirement benefits now and in the future.

Keywords: retirement, pension funding, actuarial liability, mark-to-market, government finance

JEL Classification: G23, H55, H72, J11, J26, J45

Suggested Citation

Forman, Jonathan Barry, Funding Public Pension Plans (June 14, 2009). John Marshall Law Review, Vol. 42, No. 4, pp. 837-878, Summer 2009, Available at SSRN:

Jonathan Barry Forman (Contact Author)

University of Oklahoma College of Law ( email )

300 Timberdell Road
Norman, OK 73019
United States
405-325-4779 (Phone)
405-325-0389 (Fax)


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