Toward a more ethical system of state and local government retirement funding

The deferred nature of retirement benefits provides public officials with a means of postponing to later years the retirement financing burden. This practice is aided by the fact that the Employee Retirement Income and Security Act of 1974 does not apply to the public sector. Failure to provide for full actuarial funding violates the concept of interperiod equity, which the Governmental Accounting Standards Board cites as a fundamental responsibility of public administrators. Underfunding also violates the just savings principle developed by the philosopher John Rawls. This paper examines the extent of retirement system underfunding in state and local government and considers the various ways in which underfunding imposes an unfair burden on future generations. The ethical significance of underfunding is tied to the works of Rawls, and remedial measures are proposed which are consistent with Rawls' just savings principle.