Legal protections for public-sector pensions vary widely by state, according to an issue brief released May 31 by the Pew Charitable Trusts, "Legal Protections for State Pension and Retiree Health Benefits."
Pew's public-sector retirement systems project reviewed state constitutions, statutes and case law in all 50 states and found that 26 states rely exclusively on court rulings that pension benefits are protected as part of a contract between the employer and the employee. Eight states rely on their state constitutions, six states rely solely on statutes enacted by the state legislature, five states use a combination of judicial decisions and state statutes, one state relies solely on judicial decisions, and four states have varying approaches.
Pew also found that even among states with the same source of legal protection, protections can vary significantly in three major categories of pension features: accrued benefits, the rate of future accrual and cost-of-living adjustments.
The most common approach in 22 states protects accrued benefits for all employees as soon as they begin participating, while another nine states protect benefits after vesting requirements are met.
Future accrual rates are protected from changes in 11 states, while three states do so after participants are vested, and seven states protect only in specific situations. In 16 states, there is no legal protection for the future accrual rates, and 13 states have no relevant legal authority on the issue.
Less settled are COLA protections, with no legal authority in 27 states, and a range of approaches in others, Pew found.
The research looked at pension and health-care benefits separately because most states treat them differently. Pew also distinguished between legal rights of current employees and retirees.
"One reason for the wide variance in legal protections for employee retirement benefits is that state, not federal, law primarily governs retirement benefits for state workers," the issue brief said, noting that retirement benefits protected by a state constitution can be changed only by a constitutional amendment, while those protected by statutes can be changed by legislation or a constitutional amendment, and judicial decisions can be changed by other courts.
"Understanding how retirement benefits are protected is crucial for policymakers as they explore options to manage their state's increasing pension costs. These options include increasing pension funding, changing plan investment strategies, and reforming design and benefit levels," the issue brief said.