State Pension Reforms: Are New Workers Paying for Past Mistakes?

Brief

State Pension Reforms: Are New Workers Paying for Past Mistakes?

Abstract

When state pension plans are underfunded, someone eventually has to pay for the shortfall. Many recent reforms designed to improve plan finances shift burdens to the young, particularly by making many new employees net contributors torather than beneficiaries ofthese plans. Using New Jersey as a case study, this brief shows how states require higher levels of employee contributions, invest them in somewhat risky assets, and then, like a bank or financial intermediary, pay back many employees less in benefits than what they contributed and expected to earn on those contributions.

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