Traditional defined benefit pensions remain the most common retirement plan for public sector employees. 84 percent of state and local government employees have access to a pension. Increasingly, however, anti-pension ideologues say public employees should be given a choice between pensions and 401(k)-style defined contribution plans. Just this year, Indiana, Michigan, and Pennsylvania made changes to give workers a choice among different types of retirement plans. What happens when public employees actually make a choice? They overwhelmingly choose pensions.
Last week the National Institute on Retirement Security (NIRS) released an update of its Decisions, Decisions report. This report examines eight states where public employees are given a choice among defined benefit pensions, defined contribution plans, or a defined benefit-defined contribution hybrid plan. The NIRS researchers found that in six of the eight states 80 percent or more of public employees chose the traditional defined benefit pension. In the other two states, the numbers were 75 and 76 percent. In North Dakota, 98 percent of public employees chose the pension plan. In the Ohio public employees plan, 95 percent chose the traditional pension.
In Washington state, teachers and public employees are offered a choice between a traditional pension and an unusually generous defined benefit-defined contribution combination plan. For both teachers and public employees, the combination plan is the default option. Despite this, nearly two-thirds of public employees in Washington actively choose the pension plan. For teachers, it is a smaller majority that chooses the pension plan, but the number of teachers actively choosing the pension has increased each year for seven years in a row. Clearly, more and more teachers in Washington are realizing the value of a traditional pension.
This report comes in the context of a growing number of polls and surveys that find most American workers prefer pensions. A recent Gallup poll found that 51 percent of workers would leave their current job for a job that offered a pension. The only employee benefit that was more highly valued as a reason to change jobs was monetary bonuses (54 percent). In Kentucky, a state that is currently engaged in an intense debate around public pensions, a recent survey found that 86 percent of Kentuckians believe all workers should have access to pensions. Additionally, 92 percent of those surveyed agree that pensions are a good way to recruit and retain teachers and other public employees. This follows similar polling done earlier this year that found that 86 percent of Americans believe all workers should have access to a pension.
Several states this year acted to give public employees choice among retirement plans, whether employees want that choice or not. Florida switched the default retirement plan from the pension to the 401(k)-style plan. Indiana created a 401(k)-style plan and will now give teachers a choice between that plan and the traditional pension. Michigan changed the default option for public school employees to the defined contribution plan and made their combination plan less generous. Pennsylvania created two new combination plans and a defined contribution-only plan and made the defined contribution plan the default option for teachers and state employees.
In spite of these changes, the evidence indicates that public employees will continue to choose pensions over other options. Perhaps legislators should consider the actual decisions made by workers and expand access to pensions, since this is clearly what their constituents want.
