An Update on Pension Obligation Bonds

Alicia H. MunnellJean-Pierre Aubry Mark Cafarelli

SLP#40

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.