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 6: Maturing State Pension Plans: 1975–2000

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

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


By the mid-1970s, civil servants in all 50 states were covered by a pension plan. For the most part, the process of consolidating retirement plans covering general state employees, teachers and, in some cases, local employees had ended. As noted in Chapter 4, the extension of Social Security to public employees on a voluntary basis, which had begun in 1951, had resulted in a wave of states deciding to allow their employees to be covered by Social Security. However, by the mid-1970s, these structural changes in public retirement systems appeared to have run their course. Still, over the last quarter of the twentieth century, public sector pension plans continued to evolve in other ways. This evolution typically resulted in an increase in their generosity, as measured by higher replacement ratios for retiring workers. In addition, under many plans, workers were allowed to retire with unreduced benefits at younger ages. This chapter examines the changes in state pension plans over the final quarter of the twentieth century and provides a comprehensive assessment of the benefits currently provided by them. TRENDS IN PUBLIC AND PRIVATE PENSION PLANS Despite the long-run trend among private sector employers away from defined benefit plans and towards a greater emphasis on defined contribution plans, by the end of the twentieth century, defined benefit plans remained the dominant type of retirement plan in the public sector. In 2007, the US General Accounting Office reported that, with the exception of Alaska and Michigan, all states offered defined benefit plans...

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