Cover: State and Local Pensions

State and Local Pensions: What Now?

In the wake of the financial crisis and Great Recession, the health of state and local pension plans has emerged as a front burner policy issue. Elected officials, academic experts, and the media alike have pointed to funding shortfalls with alarm, expressing concern that pension promises are unsustainable or will squeeze out other pressing government priorities. A few local governments have even filed for bankruptcy, with pensions cited as a major cause.

Alicia H. Munnell draws on both her practical experience and her research to provide a broad perspective on the challenge of state and local pensions. She shows that the story is big and complicated and cannot be viewed through a narrow prism such as accounting methods or the role of unions.

By examining the diversity of the public plan universe, Munnell debunks the notion that all plans are in trouble. In fact, she finds that while a few plans are basket cases, many are functioning reasonably well.

Munnell’s analysis concludes that the plans in serious trouble need a major overhaul. But even the relatively healthy plans face three challenges ahead: an excessive concentration of plan assets in equities; the risk that steep benefit cuts for new hires will harm workforce quality; and the constraints plans face in adjusting future benefits for current employees. Here, Munnell proposes solutions that preserve the main strengths of state and local pensions while promoting needed reforms.

Advanced praise for State and Local Pensions:

"State and local pensions are much in the news, but the current discussion largely ignores why some plans are in financial trouble while others are not. Drawing on extensive research, Munnell cogently explores the diversity of past actions, current circumstances and needs, and opportunities for reform. This book is the essential starting place for thinking about and reforming pensions."
—Peter Diamond, Institute Professor and professor of economics, emeritus, MIT, and 2010 Nobel Laureate

"Munnell offers a thoughtful examination of the challenges facing state and local governments as they strive to provide retirement security for their employees. Her work represents a giant leap forward by establishing a comprehensive framework for leaders looking to tackle these critical issues."
—Gina Raimondo, general treasurer, State of Rhode Island

"Pensions for state and local employees generate ferocious debates among both the general public and pension experts, with serious repercussions for public sector pay and government budgets. Munnell explores this controversy with clarity and fairness, providing a critical resource for citizens who wish to understand public pensions and the policymakers who must manage them."
—Andrew Biggs, resident scholar, American Enterprise Institute

"Why does this book stand out? It’s because Munnell has relied upon, and truthfully portrayed facts, to produce light, not heat. Moreover, uniquely, she places blame where it belongs without rancor and provides reasonably achievable solutions."
—Ian Lanoff, attorney and public pension expert, Groom Law Group, Chartered

"This book is the most comprehensive assessment of public pensions yet compiled. Munnell evenhandedly challenges stereotypes and ideologues in describing the nuanced and consequential details of retirement benefits for employees of state and local government. Her book is indispensable for anyone with an interest in the nation’s public retirement policy."
—Keith Brainard, research director, National Association of State Retirement Administrators