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An Update On Pension Obligation Bonds

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SOURCE Center for State and Local Government Excellence

New issue brief examines their use

WASHINGTON, July 2, 2014 /PRNewswire-USNewswire/ -- A new issue brief from the Center for State and Local Government Excellence examines the rationale for issuing Pension Obligation Bonds (POBs) and how they have performed since the financial crisis.  

An Update on Pension Obligation Bonds, written by Alicia H. Munnell, Jean-Pierre Aubry, and Mark Carafelli of the Center for Retirement Research at Boston College, finds that governments are more likely to issue POBs if their debt levels are high, they are short of cash, and the pension plan represents a substantial obligation to government.

If the timing is good, governments will earn more on the proceeds than they have to pay in interest.

The brief's findings include:

  • Some state and local governments issue POBs to cover their required pension contributions.
  • POBs offer budget relief and potential cost savings, but also carry significant risk.
  • POBs had a negative average real return from 1992-2009, but show a small gain when the time period is extended to 2014.
  • POBs could be a useful tool for fiscally sound governments or as part of a broader pension reform package for fiscally stressed governments.
  • But results to date suggest that, instead, POBs tend to be issued by governments under financial pressure who have little control over the timing.

Read the brief at http://slge.org/publications/an-update-on-pension-obligation-bonds

Access all Center retirement research at http://slge.org/research/retirement

About the Center for State and Local Government Excellence
The Center for State and Local Government Excellence helps state and local governments become knowledgeable and competitive employers so they can attract and retain a talented and committed workforce. The Center identifies best practices and conducts research on competitive employment practices, workforce development, pensions, retiree health security, and financial planning. The Center also brings state and local leaders together with respected researchers and features the latest demographic data on the aging workforce, research studies, and news on health care, recruitment, and succession planning on its website, www.slge.org.

©2012 PR Newswire. All Rights Reserved.

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