Skip to main content
    • Aa
    • Aa

The economics of state and local pensions


This paper provides an overview of an economics-based perspective on the financial aspects of state and local public pensions in the U.S. Drawing on the research commissioned for an NBER research program on this topic, we discuss the large degree to which public pension liabilities exceed the assets set aside to fund them. We summarize issues related to the optimality of pre-funding, portfolio allocation, the discounting of liabilities, as well as how plans operate in practice. We also lay out an agenda for future research related to financial aspects of public pensions, retiree health plans for public employees, as well as issues related to plan design and labor market outcomes.

Hide All
Beshears John, James Choi, David Laibson, and Brigitte Madrian (2011) Behavior economics perspective on public sector pension plans. Journal of Pension Economics and Finance, 10(2): 315336.
Black F. (1989) Should you use stocks to hedge your pension liability? Financial Analysts Journal, 45(1): 1012.
Bodie Zvi (1990) The ABO, the PBO, and pension investment policy. Financial Analysts Journal, 46(5): 2734.
Bohn Hening (2011) Should public retirement plans be fully funded? Journal of Pension Economics and Finance, 10(2): 195219.
Brown J. R. (2008) Guaranteed trouble: The economic effects of the pension benefit guarantee corporation. Journal of Economic Perspectives, 22(1): 177198.
Brown Jeffrey and Wilcox David (2009) Discounting state and local pension liabilities. American Economic Review, 99(2): 538542.
Center on Budget and Policy Priorities (2011) Misunderstandings Regarding State Debt, Pensions, and Retiree Health Costs Create Unnecessary Alarm. Available online at
Clark Robert, Craig Lee and Sabelhaus John (2011) State and Local Retirement Plans in the United States. Northampton, MA: Edward Elgar Publishing, forthcoming.
Clark Robert and Morrill Melinda (2010) Retiree Health Plans in the Public Sector: Is There a Funding Crisis? Northampton, MA: Edward Elgar Publishing.
Clark Robert and Melinda Morrill (2011) The funding status of retiree health plans in the public sector. Journal of Pension Economics and Finance, 10(2): 291314.
Feldstein M. (1974) Social Security, induced retirement and aggregate capital accumulation. Journal of Political Economy, 82, 905926.
Feldstein Martin and Liebman Jeffrey (2002) Social Security. In Auerbach Alan and Feldstein Martin (eds), Handbook of Public Economics, Vol. 4. Elsevier Science, pp. 22452326.
Friedberg Leora (2011) Labor Market Aspects of State and Local Retirement Plans: A review of evidence and a blueprint for future research. Journal of Pension Economics and Finance, 10(2): 337361.
Lucas Deborah and Zeldes Stephen P. (2006) Valuing and Hedging Defined Benefit Pension Obligations: The Role of Stocks Revisited. Mimeo: Columbia University Graduate School of Business.
Lucas Deborah and Zeldes Stephen P. (2009) How should public plans invest? American Economic Review, 99(2): 527532.
Munnell Alicia, Jean-Pierre Aubry, and Laura Quinby (2011) Public pension funding in practice. Journal of Pension Economics and Finance, 10(2): 247268.
Novy-Marx Robert, and Rauh Joshua D. (2009) The risks and liabilities of state sponsored pension plans. Journal of Economic Perspectives, 23(4): 191210.
Novy-Marx Robert and Rauh Joshua D. (2011) Public pension promises: how big are they and what are they worth? Journal of Finance, forthcoming.
Pennacchi George and Mahdi Rastad (2011) Portfolio allocation for public pension funds. Journal of Pension Economics and Finance, 10(2): 221245.
Ricardo D. (1820) Essay on the Funding System. Supplement to the Encyclopaedia Brittanica, Supplement 6, United Kingdom.
Samuelson P. (1958) An exact consumption loan model of interest with or without the social contrivance of money. Journal of Political Economy, 66, 467482.
Schieber Sylvester J. (2011) Political economy of public sector retirement plans. Journal of Pension Economics and Finance, 10(2): 269290.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Pension Economics & Finance
  • ISSN: 1474-7472
  • EISSN: 1475-3022
  • URL: /core/journals/journal-of-pension-economics-and-finance
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Full text views

Total number of HTML views: 7
Total number of PDF views: 130 *
Loading metrics...

Abstract views

Total abstract views: 333 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 19th October 2017. This data will be updated every 24 hours.