The Economic Consequences of Pension Underfunding: Evidence from the Retirement Systems of Alabama

43 Pages Posted: 15 Jun 2016 Last revised: 23 Aug 2018

See all articles by Daniel J. Smith

Daniel J. Smith

Middle Tennessee State University - Department of Economics and Finance

John A. Dove

Troy University - Manuel H. Johnson Center for Political Economy

Date Written: June 14, 2016

Abstract

There is a strong consensus among economists and public pension experts that many public pensions are substantially underfunded and that absent fundamental reform many state and local governments will have to resort to some mixture of tax increases, budget cuts, and/or bailouts. While many nation-wide empirical studies have evaluated the growth in unfunded pension liabilities, few academic case studies have been done for individual public pension systems to analyze specifically how these unfunded liabilities have accumulated and to formulate concrete avenues for reform. Therefore, this paper provides a case study of the Retirement Systems of Alabama. We find that Alabama is similarly situated relative to a number of other public pension systems in the U.S. when it comes to issues with accounting standards, transparency and oversight, and the use of economically targeted investments. Based on this work, we offer recommendations for reforming public pensions.

Keywords: Public Pensions, Pension Underfunding, Transparency, Economically Targeted Investments, Defined Benefit, Defined Contribution

JEL Classification: D02, D78, G11, H75, J26

Suggested Citation

Smith, Daniel J. and Dove, John A., The Economic Consequences of Pension Underfunding: Evidence from the Retirement Systems of Alabama (June 14, 2016). Available at SSRN: https://ssrn.com/abstract=2795692 or http://dx.doi.org/10.2139/ssrn.2795692

Daniel J. Smith (Contact Author)

Middle Tennessee State University - Department of Economics and Finance ( email )

MTSU Box 190
1301 E. Main St.
Murfreesboro, TN 37132-0001
United States

HOME PAGE: http://www.danieljosephsmith.com/

John A. Dove

Troy University - Manuel H. Johnson Center for Political Economy ( email )

Bibb Graves Hall
Troy, AL 36082
United States

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