Pension Obligation Bonds: Financial Crisis Exposes Risks

Alicia H. MunnellAshby MonkJean-Pierre Aubry Thad Calabrese

SLP#9

The brief’s key findings are:

  • Some state and local governments issue Pension Obligation Bonds (POBs) to raise cash to cover their required pension contributions.
  • POBs allow governments to avoid increasing taxes in bad times and could reduce pension costs, but they pose considerable risks.
  • Those who issue POBs are often fiscally stressed and not well-positioned to handle the investment risk.