Funding of Public Sector Pension Plans: What Can Be Learned from the Private Sector?

Abstract

ERISA’s framers said that the vesting and funding rules“go hand in hand.” ERISA required plans to amortize past service liability and experience losses, and it placed responsibility for funding assumptions and methods in the hands of an independent actuary. ERISA enforces the funding rules with excise taxes, public and private rights of action, and liens. ERISA also requires annual disclosure of a plan’s funding status. Like private-sector plans, public plans involve default risk and uncertainty over who should bear the risk. If state legislatures were to impose funding rules on public plans, ERISA should provide instructive examples in a number of areas.