This dissertation seeks to answer three broad questions. First, what can be said about the relationship between states' political environments and public sector pension funding? Using panel data, I investigate the role of partisanship, ideology and other political and economic factors as determinants of the division of costs between public employees and state governments and the long-term funded status of pension plans. Empirical results suggest that cost sharing is not affected by state politics, but that Democratic legislative partisanship and citizen liberalism depressed long-term public sector pension funding over the previous decade.Second, to what extent is the evolution from traditional pensions to defined contribution accounts in the public sector driven by partisanship? I find that Republican legislative partisanship and growth in state indebtedness are significant predictors of whether or not a state will implement such accounts. There is no evidence of pressure from the state governor, annual revenue changes or labor unions. These results clarify some of the factors which contribute to the complex public sector pension climate across the states.Third, what are the costs and implications of defined contribution accounts for public sector employers and employees? In 1997, Michigan began enrolling new state employees in a 401(k) plan but maintained an existing pension for previous hires, making the state an excellent case study for the comparative costs of each program. Results suggest Michigan's 401(k) plan presents lower, more stable annual costs relative to the pension plan, although this has not always been the case. Pension liability growth slowed following implementation of the 401(k) plan, but unfunded pension liabilities remain. Michigan's failure to remit full annual pension contributions and the state's use of pension funds for non-retirement purposes complicates cost determinations, and eventual benefit levels of the 401(k) plan are uncertain.
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