Does the degree of debt obligations owed by a state’s pension plan affect a resident household’s utility?

Abstract

PurposeThe objective of this paper is to examine whether the financial satisfaction (FS) of a state’s residents is affected by the funding ratio of the state’s public pension.Design/methodology/approachA multilevel hierarchal probit model that control for the funding ratio at the state level and its resident’s FS at the individual level was used to determine how a one-unit increase in funding ratio of a state’s pension plan affected the degree of FS experienced by the individual residing within that state.FindingsThe marginal effect from the probit model estimated suggest that a state’s pension plan funding ratio does affect the degree of FS experienced by its residents.Research limitations/implicationsThis study only examined data from 2015, thus, future research should consider examining this question via longitude studies, perhaps a survivor model.Practical implicationsStates that fail to address their pension plan’s funding ratio may be exposing their residents to negative externality that could potentially influence an individual’s choice to relocate to another state that is not facing similar issues.Originality/valueTo the best of authors’ knowledge, the current body of research has yet to address and/or research the externalities associated with the underfunding of public pension plans throughout the USA. This paper combined two unique sets of publicly available data from all 50 states along with a sample of its residents to examine how public policy associated with state and/or local government pension affect its residents.