Using the model developed in earlier briefs, the welfare consequences of Rhode Island’s recent pension reforms are analyzed. This stylized example suggests that Rhode Island-style pension reform can improve economic welfare for both taxpayers and beneficiaries.

With the largest generation of pensioners in U.S. history heading for life after work, the stress on all manner of retirement plans grows more obvious by the year.

Since 2000, public pension funds have increased the levels of asset risk in their portfolios, principally through their allocations to illiquid assets. Going forward, a stable public pension system requires policy with well-articulated rules for contribution rates, the use of market-based interest rates to value pension obligations, and a clear rule governing funding.

Despite the prolonged equity market rally, recent headlines suggest that pension funding continues to be a challenge for U.S. public funds. A long period of below-trend real economic growth could lead to further deterioration in pension funding ratios.