This week there are two new Mercatus research papers on public sector pensions. Eileen Norcross and her co-author Roman Hardgrave published a study on the effects of unfunded pension liabilities at the municipal level in New Jersey. Norcross’ previous studies have focused on the state level, and this work illuminates the even more devastating effects this funding gap will have for smaller, local budgets.
Scott Beaulier of Troy University and a Mercatus Affiliate Scholar has a study analyzing how states might make the transition from defined benefit pension plans to defined contribution. He cites the success stories of Michigan and Utah, two states that have moved toward defined contribution plans and have each saved billions in the process.
Both papers reach the conclusion that public officials should not be in the business of managing defined benefit pension funds because they do not have the correct incentives to steward these benefits. Politicians operate in the time frame of election cycles. They have an incentive to provide future benefits without raising taxes in the short-run and are thus in a poor position to be in the business of the long-term management of pension benefits.
We held a State Policy Working Group at Mercatus today to discuss these and other recent pension studies. If you would like to attend or call in to future working groups, please email email@example.com.