State and Local Retirement Plans in the United States

State and Local Retirement Plans in the United States

Robert L. Clark, Lee A. Craig and John Sabelhaus

State and Local Retirement Plans in the United States explains how economic and political events have shaped the development of pension plans in the last century, and it argues that changes in the structure and generosity of these plans will continue to shape policy and funding in the future. It also brings to bear a new rationale to the policies behind public sector pension plans. The authors use the history of how early public pension plans were established, how they matured and how they have grown in generosity to analyse what changes may be expected in years to come. Unique in its scope, this comprehensive history of the development of public sector pension plans in the United States during the twentieth century expands upon current ideas relating to the changing economic environment, the passage and evolution of social security, and the expansion of the public sector.

Chapter 1: Public Pension Plans in the Twentieth Century

Robert L. Clark, Lee A. Craig and John Sabelhaus

Subjects: economics and finance, public sector economics, social policy and sociology, ageing

Extract

Public sector pensions have a long, though somewhat uneven, history in the United States. The Continental Congress created pension plans for its military personnel during the American Revolution, and the United States perpetuated these plans after the ratification of the Constitution. Yet by 1900, there was still no pension plan for federal civil servants, and no state offered a retirement plan to its employees. Only a few of the nation’s larger cities provided retirement plans to their workers, and these plans were typically exclusive to teachers, firefighters and police officers. In 1911, Massachusetts became the first state to establish a statewide public employee pension plan.1 By the mid-1970s, every state had done so. In the decade following the creation of the Massachusetts’ plan, Congress created a plan for federal civil servants. The pace at which public pension plans spread throughout the country was relatively slow during the first third of the twentieth century and uneven with respect to coverage. Congress passed the Federal Employees Retirement Act in 1920, creating a comprehensive pension plan for federal civil servants. By 1930, more than 20 states maintained a pension plan for public school teachers, but only eight states had a plan for their other employees. This situation changed following the Great Depression, as the expansion of state plans accelerated dramatically. The passage of the Social Security Act in 1935, which initially excluded state and local workers from participating in Social Security, provided an impetus for the states to establish retirement plans for their...

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