This week’s blog post was written by NPPC’s Executive Director, Bridget Early
Earlier this month we wrote about the National Institute on Retirement Security’s new set of case studies on Kentucky, Alaska, and Michigan. The studies concluded that unfunded liabilities grow, retirement security for public servants diminishes, and recruiting and retaining employees becomes more difficult when pension plans are closed and new employees are moved to inferior retirement plans. Today we are going to highlight cases where the governing body re-opened closed pension plans. West Virginia, Palm Beach, FL and Branford, CT provide examples of why states and municipalities should look at all options when searching for ways to reduce the unfunded liability of their closed pension plans and better recruitment and retention of public employees.
We’ve written extensively about Palm Beach and its pension policy decisions. In 2012, the Palm Beach Town Council voted to move all current and future police officers and firefighters from a pension plan to a hybrid-style retirement system. Over the next four years, police officers and firefighters retired en masse. Additionally, many of their new recruits trained with Palm Beach only to leave after training to go to neighboring forces which offered a pension. The high turnover cost Palm Beach $20,000,000. In 2016, to stop their costly recruitment and retention crisis, the town council voted to re-open the pension plan for their firefighters and police officers.
West Virginia faced a similar issue with their teacher pension system, the Teachers Retirement System (TRS). In 1991, after years of underfunding, West Virginia lawmakers closed the plan and moved all newly hired teachers into a 401(k)-style plan. Unlike Palm Beach, lawmakers gave current teachers the option to switch to a 401(k) plan, but not many did. In 2005, after continued underfunding of TRS by lawmakers and fewer active teachers paying into the plan, the funding status dropped to 25 percent. That year, lawmakers commissioned a study to see what their options were and found that re-opening the pension plan would save taxpayers more money than staying the course with 401(k) retirement plans for teachers. In 2006, the state re-opened the plan, and when teachers were given the option of a 401(k) or a pension, 78.6 percent made the switch to the pension plan. With the re-opening of TRS, the unfunded liability has decreased.
Earlier this year, we wrote about the Town of Branford, Connecticut. In 2011, the town closed its police pension plan and moved all their newly hired police officers to a 401(k) plan. Since then, the police department’s recruitment and retention efforts worsened, and in May of this year, the Representative Town meeting unanimously voted to restore pensions for their police officers.
As we see pension unfunded liabilities worsen in states like Kentucky, Alaska, and Michigan, lawmakers should really look at the facts: If you want to better your recruitment and retention efforts and decrease the unfunded liability of your states’ pension plans, you should study re-opening your plans. Commissioning studies to re-open plans will cost pennies in comparison to the cost of not taking action. This next legislative session, we encourage all lawmakers of states that have closed plans to examine re-opening plans. It might just save your state money and help recruit and retain highly skilled public employees.
