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Pensions in the Public Sector

Mitchell, Olivia S. and Hustead, Edwin C. (editors)

Philadelphia, PA: University of Pennsylvania Press 2000, 393 pp

Reviewed by Laura Palmer Werneck, Policy Analyst, GFOA Research and Consulting Center, Chicago, Illinois.

Pensions in the Public Sector is a useful guide to government pension planning and administration. Readers, however, need to be patient with the book's organization. Written by multiple authors, this book contains some repetition, different writing styles, and ordering discrepancies. Nonetheless, Pensions in the Public Sector is required reading for pension system managers and policymakers.

Chapters 1 and 2 begin by defining the differences between defined benefit (DB) and defined contribution (DC) plans and by discussing trends in the workplace and challenges that place pressure on governments to switch from defined benefit to defined contribution plans. For instance, the workforce is aging and becoming more mobile. Also discussed are the actuarial valuations and assumptions employers use to measure plan obligations and determine contributions necessary to fund these liabilities over time.

Chapter 3 is especially important for new public managers or students of public finance interested in state pensions. It educates readers on the similarities and differences of public and private plans and the legal basis for, and benefits of, pensions. Most notably, it points out that because special interest groups (such as retirees or workers) influencing legislation have a strong effect on the pension plan designs, public pensions tend to be more employee-oriented, rather than employer-oriented. As a result, funding problems arise. Small adjustments to benefits in the present can result in significantly higher costs in the long run as the benefits are paid out to employees in the future. Politicians concerned with short-term budgets of their office term often overlook this dilemma. This chapter then continues the discussion on how to set actuarial assumptions in order to accurately predict how much money is enough to fund the pension system.

Chapters 4 and 5 focus on federal civilian and military...