Privatization and Public Employee Pension Rights

Abstract

What rights do public employees have to the same level of pension benefits when their positions are privatized? The literature on privatization does not deal with its impact on public employee pensions In 1997 the United States Supreme Court, in the Inter-Modal case, ruled that a private company cannot contract with another private company for the purposes of lowering the benefit costs of their employees Since there is no public counterpart to ERISA, however, the courts have had to look to state constitutions and state and local law to resolve the question of pension rights The courts have relied upon contract law to handle disputes over this issue While it appears that in some states Privatized employees do have a right to the same level of benefits as public employees, in other states the answer is not as clear Issues which make the answer complex include (a) the definition of vesting and, (b) the comparability of defined benefit and defined contribution pension plans For the wary government official, several suggestions are made to avoid potential legal difficulties