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State Protection for Pensions Varied, But Widespread

Municipal bankruptcies like Detroit’s bring into sharp relief the effect such financial strains can have on pensions, as well as the effect of what local and state governments do. But there is good news — most states have taken steps to protect public-sector pensions. 

In fact, according to Governing.com, 41 states have done so, including Michigan. Here’s a breakdown of some states’ approaches:

In 34 states, court rulings have inferred that there was an intent to create a contract between public employees and the state.

  • In 21 states, contract law or some other kind of law protect past and future pension benefit accruals.
  • Seven states have amended their constitutions to state that a public pension plan is a contract between the state and the employee.
  • In six states, pensions are protected as property under the Due Process Clause of the U.S. Constitution.
  • Indiana and Texas consider pensions to be “gratuities,” benefits that can be amended or taken away.
  • Minnesota protects pensions under the promissory estoppel theory, meaning that they are protected by a promise even if there is no explicit contract. 

While these protections do lend added security for public-sector pensions on the state level, considering a public pension plan to be a contract between the state and the employee can create a problem, and already has in one case — Detroit. For more on that issue, click here and here.

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John Iekel is Senior Writer at ASPPA, as well as Editor of the ASPPA Net and NTSA Net web portals.