Management of Retirement Funds by Republican vs. Democrat States: Understanding the Differences

Abstract

As most of the state pensions in the USA deal with their respective funding crisis, we compare the management approaches undertaken by funds located in the states that are governed by Republicans vis-à-vis funds that are located in states governed by Democrats. We find that pension funds located in states governed by Republicans display a lower funding ratio compared to the pension funds located in states governed by Democrats. The lower funding ratio of pension funds located in Republican-governed states is explained by their choice of lower contributions, higher benefits, and a lower return assumption.

Keywords: state pension funds, funding shortfall, investment risk, politics

JEL Classification: D72, G23, G11, H79