Smith Professor Examines National Pension Crisis in New Book

Public pension debt has far-reaching consequences, yet there appear to be limited options for addressing it. State and local governments often turn to legislation to reduce plan benefits. These reforms have been challenged in state and federal courts and providing a “timely analytical lens for comprehending these contemporary constitutional controversies” is why T. Leigh Anenson, business law professor at the Robert H. Smith School of Business, wrote a book about the issue. Specifically, three reasons that compelled her to write the book were to address a national crisis, to respond to litigation trends, and to fill a gap in legal scholarship.

Analyzing more than 70 landmark cases over a 10-year time period, Anenson’s new book, published with Cambridge University Press, “The Public Pension Crisis: Contractual Rights and Constitutional Limits,” highlights the evolving role of pension contracts in constitutional law. 

“There’s a great deal of data because every state has its own autonomy,” she said. “With the pension rights, courts are interpreting state statutes that provide pensions for public sector employees. They're deciding whether and when these statutes are contracts. That's one of the dynamics.”

The topic was brought to Anenson’s attention by a colleague in finance, who suspected potential legal implications after uncovering significant liabilities in government pension plans and asked Anenson to investigate. Anenson said she seeks to answer a “big question” in her work, and her methodical process often leads to deeper insights.

The 2008 financial crisis exposed the pension problem, which made headlines in every major newspaper in the country. Anenson emphasizes that the pension crisis is complex and has many causes, but the resulting “unfunded liabilities” mean that the governments that offer defined benefit plans owe more than they are taking in, creating debt. “There are over 5,000 plans across the U.S. Most are local plans, city and county. And cities have gone bankrupt because of these pensions.” The liabilities are estimated, collectively, at trillions of dollars and it is why Anenson says there is an urgent need for reform.

State and local governments began enacting reform measures to cut pension benefits, but employees pushed back with lawsuits and the Contract Clause became part of the conversation. Anenson noted that it is a constitutional clause that has not been litigated in modern times. The argument from employees is that government employers can’t make changes to these retirement plans because they are contracts protected under the U.S. and state constitutions. 

“The central puzzle emerging from this jurisprudence, this case law, was the protection afforded by contract law. You're going to expect some variation because laws can be different in each state, but contract law itself is fairly uniform in its core principles.” The level of variety she found, Anenson said, surprised her. 

Massive pension debt does not just impact employees who have pensions; the effect has wider societal repercussions, so Anenson said it’s a topic that should be of interest to everyone. “State and local governments don't have the money to fix these failing plans. Budgets are tight. So, other than trimming pension benefits, the only way they're going to get funds is to raise taxes and/or lower government spending on infrastructure, schools, parks and other government programs.” 

“Because few legal scholars have examined the national pension problem,” she said. “I offer a principled and unified contract theory as a path forward.” Anenson hopes the book will provide information to assist policymakers in crafting reform measures and to help courts in evaluating cases as they arise.