An update on pension obligation bonds

Abstract

The brief's key findings are: (1) Some state and local governments issue Pension Obligation Bonds (POBs) to cover their required pension contributions. (2) POBs offer budget relief and potential cost savings, but also carry significant risk. (3) POBs had a negative average real return from 1992-2009, but show a small gain when the time period is extended to 2014. (4) POBs could be a useful tool for fiscally sound governments or as part of a broader pension reform package for fiscally stressed governments. (5) But results to date suggest that, instead, POBs tend to be issued by governments under financial pressure who have little control over the timing.