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 8: Comparing Trends in Public Pensions to Those in the Private Sector

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

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


Retirement plans in both the public and private sectors began to emerge towards the end of the nineteenth century (see Chapter 2 for a detailed discussion of the early development of pension plans in the United States). Public sector plans were first developed by local governments, mostly large northern cities, to cover teachers and public safety employees between the 1850s and 1900; while in the private sector, a few large employers established retirement plans during this same period. In the early decades of the twentieth century, state governments began establishing plans, and there was some further expansion of pension coverage among private sector employers. Movement towards a broader expansion of employer-provided pensions was stimulated by the passage of the Social Security Act in 1935. Earlier chapters have discussed the initial exclusion of public employees from the Social Security system and the impact of this exclusion on the development of public sector pensions. Rather quickly after passage, states without plans began to establish their own retirement plans, with many being created in the 1940s. A similar surge in the development of private sector plans began at this time. This chapter examines the similarities and differences in the development of employer-provided retirement plans in the public and private sectors, and how they were affected by the expansion of Social Security and its increasing generosity. RETIREMENT PLANS AND HUMAN RESOURCE POLICIES The pension plan is essentially a contract between the worker and the firm or government entity managing the plan (Craig, 1995).1...

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