In recent years, workforce shortages have become increasingly prevalent nationwide, igniting discussions about the pivotal role pensions play in employee retention. This topic has not only captured the attention of the public sector but has also become a prominent debate among major private-sector employers looking to return to pensions to boost their shrinking workforce.
Amidst this crisis, the National Institute on Retirement Security (NIRS) has recently released a compelling report shedding light on turnover trends in Rhode Island. This report delves into the 2011 changes made to the Employees’ Retirement System of Rhode Island (ERSRI), which shifted public employees from a traditional defined benefit pension plan to a hybrid plan offering a reduced pension component and mandatory participation in a 401(k)-style defined contribution plan.
The report, authored by Dan Doonan, Executive Director of NIRS, details the impacts of retirement reforms on worker retention.
Here are some of the key findings:
- Higher Employee Turnover
The report analyzes the turnover patterns of workers in the Employees’ Retirement System of Rhode Island (ERSRI). The data reveals a concerning trend of decreased employee retention, with rising turnover rates across multiple demographics and service sectors in recent years. For instance, as shown in Figure 1, the withdrawal rate of state employees was higher in 2022 across all years of service than in any of the previous four actuarial studies.
Source: NIRS Report
- Impact on Public Services
The impact of increased turnover goes beyond statistics and affects the quality and delivery of public services. The erosion of experienced employees within sectors such as state government, municipal services, and public safety has profound ramifications. Not only does it necessitate higher recruitment and training costs, but it also compromises the effectiveness and continuity of essential services. The Ocean State has been grappling with inadequately staffed law enforcement, public transportation, lifeguards and park employees, public defenders, teachers and school support staff, and has seen the closure of two special education schools in the last year alone.
- Fewer workers severing their communities
According to NIRS, reduced worker retention rates lead to fewer employees who can establish long-term careers in their local communities. The 2022 study cited in the report found that out of 100 newly hired state employees, only 29 would stay on for 25 years or more.
- Impact on experience and quality of service
The average and median levels of experience of the workforce are going down due to these higher turnover rates. This can significantly impact workforce productivity and the quality of public services. When experienced workers leave, they take institutional knowledge and skills that are difficult to replace. The erosion of experienced employees within sectors such as state government, municipal services, and public safety compromises the effectiveness and continuity of essential services.
This report presents compelling evidence of what we’ve been saying for over a decade–transitioning from a defined benefit pension plan to a hybrid model negatively impacts the workforce. It sheds light on the challenges faced by mid-career hires in the public sector, particularly regarding employment retention. The report thoroughly examines trends in employee turnover across various job categories, presenting policymakers with an opportunity to reassess the effectiveness of retirement reforms in fostering long-term career commitment. Additionally, the report highlights the crucial role of public pensions as a key tool for retaining the public workforce. Given these findings, it is essential for policymakers to appreciate the unique demands and contributions of public employees and to reward their dedication and service with a secure retirement. This will ensure the resilience and effectiveness of public service delivery. For more information and detailed analysis, read the complete report.
