Public Pensions Pensions

State and local government retirement programs are typically administered by independent governmental agencies. A plan's board—made up of elected, appointed, and ex officio members—holds the fiduciary responsibility for the plan and manages it. The board's management responsibilities include hiring staff, approving expenditures, and ensuring that reporting requirements are met. The board also typically influences actuarial assumptions and investment policy.

Private pension plans are subject to funding rules set by federal law that govern the minimum and maximum allowable levels of funding. In contrast, the funding requirements of public plans are not governed by federal law, but may be set by state law. Public sector pension plans have typically been considerably less well funded than private pension plans, though there has been a long-term trend towards improved funding in the public sector. Public sector employers have less incentive to fund their plans, since they do not receive—or need—the tax deduction private employers receive for doing so. Public employers also have less need to fund their plans, since the pension plans are backed by the power of the public sector to tax, and public sector jurisdictions typically have little risk of bankruptcy. Given this security, employees have less incentive to monitor or urge improvements in plan funding. However, advance funding can lower the cost of the plan to the employer by allowing a share of benefits to be financed by investment earnings. Consequently, advance funding, at least for state and local governments, has come to be seen as a fiscally responsible policy.