A Legal Guide to State Pension Reform

Reports & Briefs | February 28, 2012
Image of a judge's gavel. Credit: iStock

State pension obligations have been called a ticking time bomb. According to the Pew Center on the States, unfunded state pension obligations total more than $1 trillion and exceed thousands of dollars per resident in many states. If states don’t act to rein in pension liabilities, state contributions will eat up an increasingly greater share of revenues, crowding out funding for everything from repairing roads and providing social services to hiring and retaining high-quality teachers and principals. To avoid this threat, 39 states have made significant changes to public pension plans in the last two years. And many more changes are under consideration.

But pension reform is not just a financial, ethical, educational, and political issue. It is also a legal issue. And a complicated one at that. As states across the nation wrestle with pension reform, they must strike the right balance in navigating legal constraints, which are often either overlooked in public discussions or overly feared by those involved. States that ignore legal precedents and constitutional protections will find themselves on the losing end of costly court battles.

A Legal Guide to State Pension Reform is a broad overview of the legal issues that policymakers must confront in addressing pension reform. We profile four states—California, Illinois, New Mexico, and Ohio—to illustrate the levels of pension protection provided to employees across the country. And, we address the following questions:

  • How does state law protect public employee pensions?
  • Can benefits that have already been earned be reduced?
  • Can benefits be changed for future years of service?
  • What about cost-of-living adjustments? 

The Eli and Edythe Broad Foundation provided funding for this brief. The findings and conclusions are those of the authors alone and do not necessarily represent the opinions of the foundation.