Understanding the legal limits on public pension reform

vlad0209 / Shutterstock.com

Article Highlights

  • Law limits public pension reform options.

    Tweet This

  • 8 states have recent or pending lawsuits regarding public employee pension benefits.

    Tweet This

  • Predicting legal success of public pension plan changes is difficult at best.

    Tweet This

Subscribe to AEI's retirement emails
Articles and events on retirement, pensions, Social Security, aging, and entitlement programs. Published approximately twice a month.

First Name:
Last Name:
Email:
Zip Code:

For a wide variety of reasons, many states and municipalities are turning a critical eye toward their employee retirement plans. As various parties debate the merits of different reform measures, it is important to keep in mind that in many states, the law limits potential reform options.

The legal protections that apply to state employee pension benefits are a matter of state, and not federal, law. As a result, no simple answer to the question of what changes to public pension plans are permissible exists. Rather, the unique law of each state must be examined to determine what is and is not permissible. In the early 1900s, when many courts first considered the issue of whether or to what extent public pension benefits were legally protected against change, the legal consensus was that such benefits were entitled to no protection whatsoever. Pensions were considered to be mere “gratuities” from the government that could be amended or withdrawn at any time and for any reason.

Over the next several decades, however, courts changed course and overwhelmingly rejected this approach, which left employees’ pensions completely vulnerable to unilateral change. In place of the “gratuity” approach, courts have, for the most part, adopted one of two legal theories to protect public pension benefits: the property interest approach or the contract approach.

This policy brief will provide an overview of the various approaches that states take to protect public employee pensions, discussing first the protections that apply to employees who have not yet retired and then those that apply to already-retired employees. It concludes with a look at recent litigation in several states challenging public pension plan changes.

Read the full report.

Other reports in this series:

Also Visit
AEIdeas Blog The American Magazine

What's new on AEI

Making Ryan's tax plan smarter
image The teacher evaluation confronts the future
image How to reform the US immigration system
image Inversion hysteria
AEI on Facebook
Events Calendar
  • 01
    MON
  • 02
    TUE
  • 03
    WED
  • 04
    THU
  • 05
    FRI
Wednesday, September 03, 2014 | 9:00 a.m. – 10:30 a.m.
From anarchy to Augustus: Lessons on dealing with disorder, from Rome’s first emperor

We invite you to join us for two panel discussions on how Augustus created order from chaos 2,000 years ago, and what makes for durable domestic and international political systems in the 21st century.

Wednesday, September 03, 2014 | 12:00 p.m. – 1:30 p.m.
Multiple choice: Expanding opportunity through innovation in K–12 education

Please join us for a book launch event and panel discussion about how a marketplace of education options can help today's students succeed in tomorrow's economy. Attendees will receive a complimentary copy of the featured book.

Thursday, September 04, 2014 | 12:00 p.m. – 1:30 p.m.
How conservatives can save the safety net

Please join us for a luncheon event in which our panel will discuss what conservatives can learn from how liberals talk and think about the safety net and where free-market economics, federalism, and social responsibility intersect to lift people out of poverty.

No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.