The Legal Framework for Public Pensions

Amy Monahan
Publication Date: 
March 17, 2010

There is significant interest in reforming retirement plans for public school employees, particularly in light of current market conditions. This paper presents an overview of the various types of state regulation of public pension plans that affect possibilities for reform. Nearly all of the various approaches to public pension plan protection taken by the states have significant flaws. These flaws include a lack of clarity regarding what plan changes the relevant legal standard will allow, combined with either too much or too little protection for plan participants. This paper argues that states would be well served to adopt a contractual approach to public pension benefits, but to limit that contractual protection to accrued benefits. This approach is clear, protects legitimate participant interests, and preserves an employer’s ability to respond to changing economic conditions.