Pension Obligation Bonds: Financial Crisis Exposes Risks


Summary:

It is risky for state and local governments to shore up pensions with such bonds except in certain circumstances.

Author(s):
Alicia H. Munnell, Thad Calabrese, Ashby Monk, and Jean-Pierre Aubry of the Center for Retirement Research at Boston College
Publication date:
January 2010
Filed under:
Research Studies
Key findings:
  • Some state and local governments issue Pension Obligation Bonds (POBs) to raise cash to cover their required pension contributions.
  • POBs allow governments to avoid increasing taxes in bad times and could reduce pension costs, but they pose considerable risks.
  • Those who issue POBs are often fiscally stressed and not well-positioned to handle the investment risk.
Download publication:
Pension obligation bonds