Pension Obligation Bonds: Financial Crisis Exposes Risks

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.