Recruitment and retention of public employees continues to be a significant issue facing states around the country. Public employees, on average, make substantially less than they would in private-sector jobs, often putting them at a disadvantage economically. However, pensions continue to be one of the most alluring draws to public service, as well as other benefit packages, including healthcare.
Several states this year are looking to address their recruitment and retention problems through legislative fixes. Some, such as Wyoming, have turned to pay raises to try and close the gap between the public and private-sector pay disparity. Others, including Kentucky, Oklahoma, Kansas, and Alaska, are attempting to make positive changes to pension benefits for firefighters, correctional officers, state employees, and teachers.
In Oklahoma and Alaska, lawmakers are examining whether to re-open pension systems for public employees who have been denied a defined-benefit pension for years.
In 2005, after the state’s actuary made inaccurate projections about the state’s pension assets, Alaskan lawmakers closed both the Public Employees Retirement System and the Teachers’ Retirement System pension plans to new employees. Newly hired public employees in Alaska are now only offered a defined-contribution retirement plan. It’s important to note that public employees in Alaska do not receive Social Security, making the defined-contribution plan the only source of retirement income for new public employees. Since the closure, school districts have had immense trouble recruiting and retaining public employees, costing the state upwards of $20 million a year. Some school districts have even offered $3,000 signing bonuses as a recruitment incentive. To stop their recruitment and retention issues in their tracks, state lawmakers are considering HB 220, which would provide public employees a choice between a defined-benefit pension plan or a defined-contribution plan.
Oklahoma is facing another set of unique challenges. In 2015, lawmakers closed the Oklahoma Public Employee Retirement System’s pension plan to new employees and switched them to a defined-contribution plan. Like Alaska, recruitment and retention have continued to plague state agencies since. In 2021, Rep. Avery Frix introduced HB 2486, which would terminate the defined-contribution plan and enroll all state employees in the defined-benefit pension plan. Since the Oklahoma legislature operates on a two-year schedule, the bill is still up for consideration this year.
Kansas and Kentucky lawmakers are trying to enhance public employees’ benefits in hazardous positions. In Kansas, correctional officers currently participate in the Kansas Public Employees Retirement System (KPERS). Although their retirement benefits vary by start date, correctional officers hired after January 2015 participate in the KPERS Tier 3 cash balance plan, which does not provide an adequate retirement. This year, lawmakers are considering moving correctional officers from KPERS to the Kansas Police & Firemen’s Retirement System. This move would enhance correctional officers’ benefits while encouraging retention and recruitment. The change was proposed in the governor’s budget and is being considered through identical legislation: SB 524 and HB 2713.
Lastly, in Kentucky, lawmakers are considering HB 135. The bill would change the retirement benefits for public employees participating in the State Police Retirement System or in a hazardous position in the Kentucky Employees Retirement System or the County Employees Retirement System who have been hired after January 1, 2014, but before January 1, 2023. These hazardous employees hired within this timeframe are currently participating in a hybrid cash balance retirement system offered through Tier 3. HB 135 would instead move hazardous employees participating in these plans to Tier 2, in which employees hired before January 1 currently participate. This legislation, much like Kansas’ legislation, would seek to better recruitment and retention of public employees working in dangerous positions.
All four states are considering legislation that could positively impact their ability to recruit and retain the best quality public employees by offering better pension benefits to public employees.
This NPPC one-pager discusses the many reasons why pensions are best for the recruitment and retention of public employees and reveals some of the significant pitfalls of moving away from defined-benefit plans. As previously mentioned, most public employees make significantly less than they would in the private sector. Pensions help close this pay gap by providing a sustainable retirement income that employees otherwise would not have received with a defined-contribution plan. A 2019 survey showed that more than 73% of state and local employees would leave their jobs if pension benefits were cut.
Several state and local governments have changed their tunes and gone back to offering a defined-benefit pension again. For example, Palm Beach, Florida, closed its pensions to newly hired public safety officers and switched them to a hybrid-style retirement plan. The switch caused a surge in officers exiting the force, leaving 60% with less than three years of experience. Recruitment costs also skyrocketed up to $20 million a year. After four years, the town re-opened its pension system.
As more and more workers continue to explore new opportunities, pensions remain a vital resource for recruiting and retaining public employees, especially in the public sector. Hopefully, lawmakers understand how eliminating pension benefits impacted their staffing efforts and support the bills before them to attract and maintain a strong workforce.