Concerns have been raised that these liabilities could jeopardize the fiscal stability of some state and local governments. There is considerable debate over whether this is a problem that needs to be addressed and if so, the cause and the extent of public pension plan underfunding. While it has been reported that public pension funds experienced recent gains, some of the estimates have placed the combined unfunded liabilities anywhere from hundreds of billions of dollars to over $3 trillion. This report provides an overview of how public pension plans are regulated at the federal and state levels. It discusses selected legal issues that may arise if attempts are made to remedy or prevent public pension plan underfunding, in particular, by changing plan benefits. This report will also briefly address possible federal regulation of state and local public pension plans. Recently, in an effort to alleviate pension plan underfunding and protect state and local government budgets, governors and legislators in several states have proposed and enacted various modifications to their pension plans.
Controversy has arisen over the funded status of some state and local government pension plans. It has been reported that several of these plans have not fully funded their future obligations and they could face substantial future shortfalls. While there is considerable debate over whether this is a problem that needs to be addressed, and if so, the extent and the possible causes of these shortfalls, some estimates have placed the combined unfunded liabilities anywhere from hundreds of billions of dollars to over $3 trillion. Governments facing investment losses combined with lower revenues are looking at ways to address these shortfalls and protect their fiscal stability. State governors and legislators in several states have proposed and enacted various modifications to their pension plans. There have been calls for modification of federal, state, and local laws affecting these pension plans and the benefits provided to participants and beneficiaries. This report provides an overview of how public pension plans are regulated at the federal and state levels, discusses selected legal issues that may arise if attempts are made to remedy or prevent public pension plan underfunding by modifying public pension plan benefits, and addresses possible federal regulation of state and local public pension plans.