An Update on Pension Obligation Bonds

Source: Alicia H. Munnell, Jean-Pierre Aubry, and Mark Cafarelli, Center for Retirement Research at Boston College, Issue in Brief, SLP#40, July 2014

The brief’s key findings are:
• Some state and local governments issue Pension Obligation Bonds (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.