In addition to providing retirement security that retirees can count on, defined-benefit pensions also play an important role for state and local governments to recruit and retain highly qualified public employees in their workforces.
A report from the National Institute on Retirement Security (NIRS) found that switching newly hired public employees from a defined-benefit plan into a defined-contribution plan like a 401(k) negatively impacted recruitment and retention efforts in the public workforce. After Alaska closed its defined-benefit plans to new hires in 2005, for example, it experienced significant recruitment and retention challenges.
NIRS illustrated that teacher turnover in the state now costs roughly $20 million each year. This is because educators “are incentivized to teach for a few years in Alaska and then move to another state where they will receive a defined-benefit pension.” The Alaska Department of Public Safety also cited the lack of a defined-benefit pension plan “as one of the primary obstacles to recruiting and retaining new state troopers” throughout Alaska. Seventy-two percent of those who exited left to work for another public safety department, “often in a state that offers a pension.”
The town of Palm Beach, Florida offers another cautionary tale about changing a retirement package from a defined-benefit plan to a defined-contribution plan. In 2012, Palm Beach ended its defined-benefit plan for all newly hired public safety officers, including firefighters and police officers. Afterwards, there was an exodus of public safety personnel and, “at the peak of the crisis, more than 60% of the town’s employees had less than three years of service.” Training costs for new officers also inflated to nearly $20 million due to the turnover. Four years later, the town had to re-open the defined-benefit plan to recruit and retain more public employees.
Public employees agree that defined-benefit pensions are critical for state and local governments to recruit and retain employees. According to NIRS, 94% of state and local employees say offering a pension is an effective way to retain employees, and 73% say they would be more likely to leave their job if their pension were cut. For more information, check out our one-pager.
