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The authors point out that for most states, the challenge is to narrow the definition of the contract -- a burden that would fall on the legislature and the courts. First, enacting legislation that the contract is created when the employee performs the service, would establish an ERISA-type standard. Second, if this legislation is challenged, the courts would then need to be persuaded to adopt a more flexible standard in light of changed conditions. Some states have taken the first step by passing legislation that reduces core benefits for current workers, but the courts have yet to rule on the legality of these changes. “A failure to permit such changes, however, would have serious consequences,” the report authors contend. They note that limiting pension reductions to new workers reduces pension costs only slowly over time, exempting current workers from cuts creates a two-tiered compensation system under which workers doing similar jobs would receive different amounts based solely on when they were hired, and allowing public employees to enjoy greater protections than their private-sector counterparts is perceived by many as unfair. The issue brief is here.
The authors point out that for most states, the challenge is to narrow the definition of the contract -- a burden that would fall on the legislature and the courts. First, enacting legislation that the contract is created when the employee performs the service, would establish an ERISA-type standard. Second, if this legislation is challenged, the courts would then need to be persuaded to adopt a more flexible standard in light of changed conditions.
Some states have taken the first step by passing legislation that reduces core benefits for current workers, but the courts have yet to rule on the legality of these changes.
“A failure to permit such changes, however, would have serious consequences,” the report authors contend. They note that limiting pension reductions to new workers reduces pension costs only slowly over time, exempting current workers from cuts creates a two-tiered compensation system under which workers doing similar jobs would receive different amounts based solely on when they were hired, and allowing public employees to enjoy greater protections than their private-sector counterparts is perceived by many as unfair.
Rebecca Mooreeditors@plansponsor.com