Legal Constraints on Changes in State and Local Pensions

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The fiscal stress in many state and local governments has led to unprecedented changes in state and local pension plans. A few states have even made changes that affect retirees as well as future benefits for current employees. All such changes have been challenged in court.

This issue brief provides a comprehensive overview of the legal environment in which state and local plans operate with respect to benefit protections for current workers. It describes existing legal protections for pensions and reviews recent court decisions that have separated core benefit accruals from cost of living adjustments (COLAs). Key findings include:

  • Most states are legally constrained from reducing future benefits for current workers.
  • These constraints make it difficult to adjust to changing conditions and to share the burdens of reform fairly between new and current participants.
  • The legal boundaries for pension benefits are typically defined under a contracts-based approach rather than a constitutional provision.
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