An Update on Pension Obligation Bonds

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.