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Pensions Remain a Powerful Recruitment and Retention Tool, But Communication is Key
Workers are seeking out roles that provide pensions (and are staying in their roles because of them), but the lack of understanding around retirement planning means that employers risk losing talent if workers don't understand the full value of the compensation and benefits packages.
By: Hank Kim, Executive Director & Counsel, NCPERSWhile some may argue that pensions are no longer a relevant tool for recruitment and retention, the historical data and broader research show otherwise. However, as financial literacy has become a significant challenge in the United States, it is critical that employers provide the necessary education around these benefits in order to maximize their potential as a ‘secret weapon' in the battle for talent.
As pensions have become less common in the private sector, they have increasingly become a highly coveted benefit for current and prospective public servants. A 2020 study from the National Institute on Retirement Security examined millennial state and local government employees' views on their compensation and benefits. They found that 74 percent of millennials pursued their role in the public sector because the employer offered a pension, and 84 percent remain in their current positions because of this benefit.
The same study found that 71 percent of millennials would be more likely to leave their jobs in the public sector if their pensions were cut. This has proven to be true in cities and states that have cut pensions in favor of 401(k)-style defined contribution plans, as public sector workers have left in droves.
Since Alaska closed its two statewide pension plans in 2005, it has experienced crisis-levels of public sector worker shortages. Since the switch, the state has seen the number of workers participating in the defined contribution plans quit at 4.5-4.7 times the rate of employees in the defined benefit plans. It's gotten so dire that one borough voted this year to arm its residents because Alaska State Troopers cannot recruit enough staff, despite offering sign-on bonuses. The state has incurred significant costs in attempts to recruit workers, and policymakers pushed to reopen the plans this year. While the effort to bring back pensions fell short this year, it's significant that this was the first time a bill to restore a defined benefit pension for all public employees passed one of the two legislative chambers since the plans were closed. It paves the way for further action in 2025 legislative cycle.
Employee turnover itself is expensive, with the annual costs to U.S. businesses estimated at $1 trillion annually. At the same time, pensions are surprisingly cost-effective because of economies of scale and risk pooling. In fact, pensions provide twice as much benefit than defined contribution plans at the same cost to taxpayers.
We've seen growing support and interest in pensions in recent years, so employers offering these highly sought after benefits should have leg up with job seekers. But—as fewer Americans live in households with access to pensions—it becomes even more critical that employers are providing the necessary education around these benefits to maximize their full potential as successful tools for recruitment and retention.
In the under-35 demographic of the public sector, recent data from MissionSquare found that 1 in 5 employees did not know whether they were participating in a defined benefit or defined contribution plan. But it's not just younger generations struggling with financial literacy, despite the increasing anxiety most are experiencing around their ability to enjoy a secure retirement. Across generations, nearly half of Americans do not know what a 401(k) is.
Workers are seeking out roles that provide pensions (and are staying in their roles because of them), but the lack of understanding around retirement planning means that employers risk losing talent if workers don't understand the full value of the compensation and benefits packages. There needs to be a concerted effort to rethink how to communicate about these resources and provide employees with the education needed to plan for their futures.
It's clear that benefits matter to workers, playing a key role in recruitment and retention. A recent survey of U.S. workers found that 70 percent of respondents would leave their current role for better benefits, with younger workers expressing the greatest willingness to jump ship. But in order to maximize the impact of offering a highly competitive benefit—like a pension—employers need to rethink how to effectively communicate with and educate workers today.
NCPERS offers several resources to its members to help public pensions optimize their communications with stakeholders. We host recurring virtual roundtable meetings to bring together public pension staff to ask questions, share ideas, and learn best practices. Learn more about our Communications, Member Services, Human Resources, CEO, and CIO Roundtables here, and please don't hesitate to reach out to membership@ncpers.org to find out how we can assist your fund with its communications and recruitment endeavors.
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