Sweat the Small Stuff: Strategic Selection of Pension Policies Used to Defer Required Contributions

21 Pages Posted: 5 Jun 2018

See all articles by Jeffrey Diebold

Jeffrey Diebold

North Carolina State University, College of Humanities and Social Sciences, Department of Political Science & Public Administration, Students

Vincent Reitano

North Carolina State University, College of Humanities and Social Sciences, Department of Political Science & Public Administration, Students

Bruce McDonald

North Carolina State University

Date Written: July 2018

Abstract

The administrators of state‐sponsored defined benefit public pension plans have considerable discretion to determine the accounting and actuarial parameters used to calculate the normal cost contributions and amortization payments that, together, comprise the sponsoring state's annual required contribution amount. Using longitudinal data from the Public Pension Database and a fixed effects approach, we find evidence that suggests plan administrators decisions about cost and amortization methods are influenced by the normal cost and amortization payments, respectively. When these costs increase, administrators tend to use less prudent methods that defer, or keep low, the pension contributions required from the state while, simultaneously, and perversely, improving the appearance of the plan's funded status and the state's funding discipline.

JEL Classification: H75

Suggested Citation

Diebold, Jeffrey and Reitano, Vincent and McDonald, Bruce, Sweat the Small Stuff: Strategic Selection of Pension Policies Used to Defer Required Contributions (July 2018). Contemporary Economic Policy, Vol. 36, Issue 3, pp. 505-525, 2018, Available at SSRN: https://ssrn.com/abstract=3188555 or http://dx.doi.org/10.1111/coep.12236

Jeffrey Diebold (Contact Author)

North Carolina State University, College of Humanities and Social Sciences, Department of Political Science & Public Administration, Students ( email )

NC
United States

Vincent Reitano

North Carolina State University, College of Humanities and Social Sciences, Department of Political Science & Public Administration, Students ( email )

NC
United States

Bruce McDonald

North Carolina State University ( email )

School of Public and International Affairs
Campus Box 8102
Raleigh, NC 27695
United States
919-515-2481 (Phone)

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

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