Unfunded pensions are usually the result of over generous benefits, especially COLAs, granted to former employees. Unfunded pension and OPEB liabilities put beneficiaries in peril if the municipality goes bankrupt which aligns the beneficiaries’ interest with current residents and taxpayers. POBs convert off balance sheet unfunded liabilities to debt on the balance sheet which reduces, and possibly eliminates, the incentive of beneficiaries to negotiate with municipal leaders and participate in hard decisions necessary to pay high portion of benefits now and in the future without bankrupting the municipality.
Unfunded pensions are usually the result of over generous benefits, especially COLAs, granted to former employees. Unfunded pension and OPEB liabilities put beneficiaries in peril if the municipality goes bankrupt which aligns the beneficiaries’ interest with current residents and taxpayers. POBs convert off balance sheet unfunded liabilities to debt on the balance sheet which reduces, and possibly eliminates, the incentive of beneficiaries to negotiate with municipal leaders and participate in hard decisions necessary to pay high portion of benefits now and in the future without bankrupting the municipality.