The Pension Puzzle and Practice Communities

Crippled by a still-recovering economy and decades of underfunding, many local and state governments throughout the United States are struggling to make annually required contributions to defined benefit pension plans sufficient for these fiduciary funds to remain viable. In a comprehensive national survey of such state and local plans in the US, The Center for Retirement Research at Boston College discovered that these public entities hold $2.6 trillion in trust to satisfy an estimated $3.5 trillion pension liability. This equates to a funding ratio of available resources to an anticipated requirement of 77%.[1] These governments’ capacity to follow through on pension promises in the near future looks grim.

Enter non-state financial professionals. Actuaries, accountants and credit rating analysts populate a highly complex and technical regulatory environment that governs the behavior of the country’s massive public pension funds. When the standards for practice offered by these non-state financial professionals conflict, governments either seek to comply with all incompatible standards or rank one or some over others based on decision criteria responsive to their local socio-political and economic environments. In a country in which government regulates a substantial segment of activity, how did this non-state regulatory environment evolve and how is it sustained? How did a pluralistic mix of non-state actors come to occupy the pension and financial management landscape? I have been struggling with this question during the past several months and have concluded that practice theory provides a helpful analytical approach to this puzzle.

Practice theory Pensions, for obvious reasons, have become a hot button issue in multiple statehouses in recent years. Some 43 states have enacted reforms in the last 3 years[2] aimed at reducing the overall costs of their retirement systems as well as the risk borne by taxpayers should existing funds prove inadequate. Actors in the pension management landscape, including the accounting, actuarial and credit ratings organizations, are all involved in the continuous construction of the reality of annuities in the US. Proponents of practice theory contend that pensions are socially constructed through the dynamics of structure and agency. Structure can be found in social dynamics (Giddens 1984) or in “habitus” or dispositions (Bourdieu 1991). Agency, broadly defined as individual modes of action, both human and non-human, that affect “calculable” outcomes (Latour 1987 as quoted in Callon & Muniesa 2003), is not only shaped by, but also “produces, reinforces, and changes its structural conditions” (Feldman and Orlikowski 2011).  In practice theory, structures are mutually constitutive with agency in shaping our social reality. Viewed this way, the pension landscape can be understood as the product of the daily efforts and decisions of those actors within it.

I next analyze a significant case that highlights competing practice norms among those active in shaping pension oversight policy: the conflict surrounding introduction of Statement 68 of the Governmental Accounting Standards Board (GASB)—the standard-setting body for government and nonprofit organization accounting practice. I outline the notions of agency and structure evident in this disagreement in the following sections.

GASB Statement 68 and agency Until very recently, governments were not required to report the status of their pension funds on their statements of net assets. Recognizing that many defined benefit retirement plans have been grossly underfunded, the GASB decided to change the rule currently in place (Statement 27) to require such transparency. The GASB adopted Statement 68 in 2012 in an effort to address this concern. The new guidance effectively required governments to report the balance of their pension funds on their government-wide statements. In addition to this important obligation, the new rule contained two significant technical changes.  The first removed a stipulation that governments report their annual required public contribution (ARC). The Board’s directors crafted GASB’s new statement on the basis of a fundamental belief that funding is squarely a policy decision for elected officials to make and therefore not within the scope of its mission. The second technical shift required pension fund managers to discount appropriated funds to their future value, using a rate that reasonably reflects the fund’s risk distribution.

The first of these changes, removal of a public official’s obligation to report mandatory contribution amounts, stunned the professional actuarial community. Actuaries are called upon to calculate the ARC necessary for defined benefit pension plans to stay viable in the future. Many of these professionals were taken aback when the GASB not only left the decision concerning whether to do so to elected leaders, but also went further to allow those officials not to share routinely as a standard of practice what they did elect to contribute.

For their part, the credit ratings agencies (CRAs) challenged the GASB’s second technical change concerning discounting the value of contributed funds. Moody’s Investor Services, for example, argued that identical discount rates are needed among all public pension funds to ensure the comparability necessary for ratings. These assessments yield risk grades on an ordinal scale for investors considering purchase of a government’s bond. The credit agencies argued that consistency and comparability of discount rates are of paramount concern to possible patrons seeking to determine the risk associated with various public investment possibilities.

GASB Statement 68 and structure As public pension adequacy has gained broader popular salience, partly as a result of these public disagreements, government officials have found themselves seeking to compile retirement fund information under conflicting guidance issued by the credit rating agencies, GASB and actuaries. This difficult scenario is worsened by the fact that each oversight institution can wield powerful enforcement tools. Policy-makers must follow the guidance outlined in GASB Statements to receive a favorable audit. Public officials must meanwhile also heed actuarial calculations to maintain minimum payments sufficient to sustain their defined benefit pension funds. Finally, government leaders must pay close attention to credit rating agencies to receive favorable debt pricing on their future bond issues. The structural question confronting public officials with responsibility for pensions therefore, is how to address all of these guidelines simultaneously while navigating the tensions embedded within them.

Another structure in this landscape is the fact that information flows between and among those participating in the policy domain. Both the GASB and CRA’s schedule public notice-and-comment sessions for proposed standards changes. Moreover, the Accounting Standards Board seeks to ensure that due consideration is given not only to “constituents,” but also to “the work of other standard setters”[3] as it addresses its responsibilities. The credit agencies meanwhile consider all the comments they receive internally and do not announce how those have affected their judgments, if at all. These three very active stakeholder communities all play substantial roles in the political and administrative environments of local government’s defined benefit public pension plans. The structure of information flows, shared understandings and norms among these institutions plays a critical role in pension policy implementation and management.

Conclusion This commentary has offered a glimpse into the dynamics of structure and agency that determine how pensions are managed today. I am encouraged by the attention the public pension ‘crisis’ has received. Nevertheless, significant questions still remain. For example, why not impose these same strictures on state pension agencies in addition to localities? What are public managers actually doing to balance the competing claims to which they are subject and how are they learning from their current (conflicted) environment? How and to what extent do risk and the social construction of numbers play a role in the pension policy environment? This is a field rich with substantial policy, organizational and public management questions. Moreover, the landscape continues to get messier and the range and number of competing purported explanatory narratives continue to aggregate. As an analyst of these significant public concerns I look forward to continuing to explore the puzzles that arise in this policy domain.


[1] Center for Retirement Research at Boston College Public Plans Database: Accessed 11/1/2013.

[2] National Conference of State Legislatures data: Accessed 11/1/2013.


Bourdieu, P. 1990. The Logic of Practice. Stanford CA: Stanford University Press.

Callon, M. and Muniesa, F. (2003), “Les marchés économiques comme dispositifs collectifs de calcul”, Réseaux 21(122):189-233.

Feldman, Martha and Wanda Orlikowski. 2011. Theorizing Practice and Practicing Theory. Organization Science 22 (5): 1240–1253.

Giddens, A. 1984. The Constitution of Society. Polity Press, Cambridge, UK.

Latour, B. 1987. Science in action: How to follow scientists and engineers through society. Cambridge (Massachusetts): Harvard University Press.


Emily Swenson Brock is a PhD student in the Center for Public Administration and Policy. As a 2013 Social Science Research Council DPDF fellow, Emily explored the contours of the pension risk rate dilemma and contributed to the discussions within the New Historical Fiscal Sociology. In her current role as a graduate teaching assistant in the Office of the Senior Fellow for Resource Development, Emily develops and teaches a course sequence focusing on the study of Public Financial Management. Before her beginning her PhD at Virginia Tech, Emily was a commercial relationship manager at a large national bank serving as the sole bank liaison for Government and University clients. Emily holds a BA in Political Science from Virginia Tech and an MBA from the College of William and Mary.

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