Earlier this week, the article West Haven PD, losing officers, pleads with city to return to a traditional pension plan was published in the New Haven Register. The article details how ten years after the city switched the police department from a traditional pension plan to 401(k)s, a shortage of qualified officers is causing the department to lobby for a switch back to the pension plan. Here at NPPC, we weren’t at all surprised by this turn of events. We’ve seen this time and again, from Palm Beach, Florida all the way to Alaska.
In Palm Beach, the town council chose to close its traditional defined benefit public pension plans and move all current and future employees to a hybrid-style retirement plan. The reaction from public employees was swift: 20 percent of Palm Beach’s workforce retired in the aftermath of the pension cuts. Over the following four years, 109 police officers and firefighters elected to leave before retirement, resulting in a public safety staffing crisis. In light of the unprecedented exodus of public employees, the Palm Beach Town Council voted to return to a traditional defined benefit pension plan for police officers and firefighters.
The Alaska legislature voted to close its pension plans to new employees in 2005. Public employees who started work after July 1, 2006, were forced to participate in a 401(k)-style defined contribution plan. Alaska is unique in that public employees do not participate in Social Security, which means that the defined contribution plan is their only source of retirement savings. This has resulted in a massive state trooper recruitment and retention problem in the state, whose benefits just can’t compete with those in the lower 48. We discussed this issue in a blog post earlier this year:
Recently, the Alaska Department of Public Safety (DPS) released a study, at the request of the state legislature, discussing the recruitment and retention challenges it faces over the next five years. One frequently cited challenge in the report is the lack of a defined benefit pension plan. Alaska loses many potential state troopers because those candidates instead go to states where they can earn a pension. As the report states, “prospective candidates report they find agencies outside of Alaska more appealing due to the defined benefit retirement package offered by some other states.” At the end of the report, the DPS identifies as a “critical need” the ability to offer a “defined benefit retirement package for law enforcement job classes.”
Given what we’ve seen in Alaska and Palm Beach, what’s happening in West Haven isn’t surprising. Now that all employees hired after November 2009 are given a 401(k) instead of a traditional pension, 17 officers have been hired and trained only to leave for other departments, citing the lack of pension as their primary reason. Training those officers cost West Haven around $1.7 million, and the city has no officers to show for it. Though the move to a defined contribution plan was surely designed to save the city money, as West Haven has become a training ground for other departments, it is costing the city more and more.
So what can we learn from West Haven, Palm Beach, and Alaska? First, that traditional pensions are a major incentive for those going into the public sector as well as those who are currently in it. Cutting pensions not only gives public employees more of a reason to stay, but it is a critical factor in getting people interested in a career in public service in the first place. Second, the faulty argument that 401(k)s work better for employees than pensions do isn’t fooling anyone. While defined contribution plans may work just fine for the wealthy, middle-class workers can tell what works better for them, and they’ll choose the job with the pension every time.