Evaluating U.S. State Pension Policy

72 Pages Posted: 6 Apr 2022

See all articles by Jordan Pandolfo

Jordan Pandolfo

Federal Deposit Insurance Corporation

Kurt D. Winkelmann

Independent

Date Written: March 1, 2022

Abstract

We use an overlapping generations framework to evaluate the impact of state pension reform on public and private workers, and apply this analysis to all fifty U.S. states. We consider (i) closing the pension plan to new entrants, (ii) reducing pension benefits together with wage increases and (iii) suspending cost-of-living-adjustments (COLAs). While each reform effectively reduces long run taxes, variation in fiscal and demographic features creates significant differences in state outcomes. Closing the plan to new entrants generates the most even distribution of welfare gains across job sectors and age cohorts, while COLA suspensions prove particularly harmful to public workers.

Keywords: state pension, retirement systems, lifecycle, overlapping generations

JEL Classification: D60,E62,H70,J11

Suggested Citation

Pandolfo, Jordan and Winkelmann, Kurt D., Evaluating U.S. State Pension Policy (March 1, 2022). Available at SSRN: https://ssrn.com/abstract=4061199 or http://dx.doi.org/10.2139/ssrn.4061199

Jordan Pandolfo (Contact Author)

Federal Deposit Insurance Corporation ( email )

550 Seventeenth Street, NW
Washington, DC 20057
United States

Kurt D. Winkelmann

Independent

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