On January 3, 2017, the Center for Retirement Research (CRR) at Boston College released its issue brief, State and Local Pension Reform Since the Financial Crisis.  Since 2009, the majority of public pension plans have enacted several pension reforms after the financial crisis. The brief examines state and local government pension reforms to mitigate increasing costs following the financial crisis of 2008. The report was based on data from 2009 to 2014 for all 114 state plans and 46 local plans in the Public Plans Database, as well as for an additional 86 local plans.

The key findings include:

  • 74% of state plans and 57% of large local plans have raised employee contributions or reduced benefits to offset rising costs. Plans with higher pension cost burden and lower initial employee contributions were more likely to enact these changes. Furthermore, the states with robust legal protections for current workers were more likely to limit these reductions to new hires.
  • New employees experienced the largest reductions in core benefits including: increases in the age and tenure eligibility for retirement; reductions in the benefit multiplier; and increases in the number of years used to calculate final average salary.
  • About 25% of plans have made changes that impact current employees. The most common changes were to increase their employee contributions and to reduce cost-of-living adjustments (COLAs).

According to the report, pension plans that most commonly experienced plan changes had a higher annual required contribution (ARC) as a percentage of revenue or had lower employee contributions. The report concludes, “This pattern is not surprising as plans with high ARCs, as a percentage of revenue, put greater budgetary pressure on governments, and increasing the employee contribution often avoids running afoul of the legal protection of benefits. Interestingly, plan characteristics do not make it any more likely that cuts are extended to current employees. Instead, the strength of a state’s benefit protection was the only factor that mattered, significantly decreasing the likelihood of benefit cuts for this group.”

The brief is available here.