Reforming US public sector plans : Truths and consequences
Most public-sector pension plans in the United States provide quite generous defined benefits. Long-term projections show that full payment of these promises threatens the finances of many state and local employers, which implies that taxes will have to be increased or pensions and/or other public expenditures reduced. This article analyzes the effectiveness of measures<br/>aimed at improving the sustainability of these plans.We consider the impact of contribution increases, benefit reductions, and adjustments in the pension fund’s investment strategy. Since a pension fund can be seen as a zero-sum game, these interventions imply value redistributions among current and future plan participants and current and future tax payers. We use the value-based asset–liability management (ALM) method to estimate the value of those transfers. These imply massive value redistributions from taxpayers to plan<br/>participants that could exceed 20% of American GDP. Hence, plan sustainability may be achieved only through either substantially higher contributions or lower benefits.
Year of publication: |
2014
|
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Authors: | Beetsma, R.M.W.J. ; Lekniute, Z. ; Ponds, E.H.M. |
Institutions: | Tilburg University, School of Economics and Management |
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