The financial crisis and Great Recession had a devastating effect on public pension plans. On average, public pension plans lost about a quarter of the value of their assets due to the crisis. In the years since the recession, almost every state has made some kind of change to its public pension plans. Recently, there has been increasing evidence that these changes have harmed the ability of public sector employers to recruit and retain employees. A new report from the Center for State and Local Government Excellence (SLGE) adds to this evidence.
The SLGE report finds that a substantial amount of changes to public pension plans were made in the immediate aftermath of the recession. Some of these were well-intentioned changes to shore up and secure the funding for public pension plans. Other changes were harmful cuts pushed by pension critics who seized a moment of crisis to attack public pensions. Regardless of the motivation behind the changes, they have had real effects for public employees and retirees.
Due to constitutional and legal protections surrounding pension benefits for current employees and retirees, the bulk of changes made affected future hires – those employees hired after the changes took effect. This raises a legitimate question of the impact of pension changes on the recruitment of new public employees.
Generally speaking, public employees are paid less than their similarly educated peers in the private sector. In order to still offer a competitive compensation package for public employees, employers in the public sector have typically offered strong benefits, such as the ability to earn a defined benefit pension. When pension benefits are cut or eliminated completely, this makes the overall compensation for public employees less competitive.
The SLGE report finds that these pension cuts have had a negative impact on the ability of public sector employers to recruit new public employees. By making the overall compensation less competitive, potential employees are less likely to leave the private sector for a job in the public sector. A few weeks ago we highlighted the danger posed by the shrinking teacher preparation pipeline. If public pensions continue to be cut, then public sector employment will continue to decline, which poses a real threat to the future of teaching, firefighting, and other public sector professions. When considering potential changes to public pensions, lawmakers need to consider the effect these changes will have on the ability to recruit and retain teachers, firefighters, police officers, nurses, and other public employees.