Are Bigger State and Local Public Pension Plans More Cost Efficient? An Analysis of Economies of Size

Abstract

State and local public pension plans cover a significant number of workers and represent a major component of the nation's retirement system. This study examined the size‐administrative cost relationship of public pension plans to ascertain whether cost savings can be realized by increasing pension plan size. The results indicated that while the consolidation of smaller plans will generate administrative cost savings, the consolidation of larger plans will generate savings only up to an optimal membership size at which point cost savings will end. In addition, optimal size was found to differ for active and beneficiary members indicating that membership composition needs to be considered when assessing the potential for cost savings.

Citation

Dulebohn, J.H. and Chen, H. (2003), "Are Bigger State and Local Public Pension Plans More Cost Efficient? An Analysis of Economies of Size", Review of Accounting and Finance, Vol. 2 No. 3, pp. 28-47. https://doi.org/10.1108/eb027011