Public Sector Pensions and the Covid-19 Shock

7 Pages Posted: 5 May 2020

See all articles by Andrew G. Biggs

Andrew G. Biggs

American Enterprise Institute

Eileen Norcross

George Mason University - Mercatus Center

Date Written: April 13, 2020

Abstract

The 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES) awarded $200 billion in federal aid to the states to support spending for core areas including general relief, education, and mass transit. As revenue pressures mount in the coming months Congress may provide further aid to state and local governments.

Nevertheless, financial support for key services such as health, welfare, and public safety should not be allowed to morph into a more generalized bailout of state and local pension plans. The most serious pension funding gaps are largely the result of failures to undertake meaningful pension reforms over the course of the past decade. Any future federal aid packages that might be used to meet pension plan obligations should be conditioned on structural pension reforms.

Conditions for federal assistance should include a de-risking of public pensions’ overly aggressive investment strategies, a freezing of pension plans to future benefit accruals, and the establishment of alternate defined contribution retirement plans for affected public sector employees.

Keywords: government pensions, retirement accounts, healthcare, coronavirus, coronavirus pandemic, COVID-19, public health, economics, quarantine, economy, economic crisis

JEL Classification: H55, H75, H51, I00, I18

Suggested Citation

Biggs, Andrew G. and Norcross, Eileen, Public Sector Pensions and the Covid-19 Shock (April 13, 2020). Mercatus Special Edition Policy Brief, Available at SSRN: https://ssrn.com/abstract=3592923 or http://dx.doi.org/10.2139/ssrn.3592923

Andrew G. Biggs (Contact Author)

American Enterprise Institute ( email )

1150 17th Street N.W.
Washington, DC 20036
United States
202-862-5841 (Phone)

HOME PAGE: http://www.aei.org

Eileen Norcross

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States
703-993-4930 (Phone)

HOME PAGE: http://https://www.mercatus.org/eileen-norcross

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