Who Pays for Pensions in the State and Local Sector: Workers or Employers?

Abstract

[Excerpt] In 1974 Congress passed the Employee Retirement Income Security Act (ERISA). This complex piece of legislation, which applies only to private-sector pension plans, contains several provisions which tend to increase employers' costs of providing pensions. These include liberalized vesting rules, stringent funding requirements, and increased fiduciary responsibility and accountability. The analysis in this paper will focus on the likely effect of these provisions if they are applied to state and local government employee retirement systems. Although a public-sector variant of ERISA has yet to be passed, public employee retirement systems have recently become subject to scrutiny by various governmental bodies. Partly because of fiscal crises at the state and local level, and partly because of ERISA's passage, investigations have been launched to ascertain the need for pension reform legislation in the public sector. Whether prepared at the federal, state, or local level, the resulting reports invariably call for important reform of public-sector pensions, notably in the area of funding.