National Conference on Public Employee Retirement Systems

The Voice for Public Pensions


Worker Turnover Soars After Closing a Public Plan

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  • On: 03/22/2024 09:19:56
  • In: News
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By: Tyler Bond, National Institute on Retirement Security (NIRS)

The National Institute on Retirement Security's new research finds that states that closed their public pension plans have experienced higher employee turnover. Tyler Bond from NIRS describes how the role of pensions as a workforce management tool often is undervalued in debates about closing public plans.
This is an excerpt from NCPERS Winter 2024 issue of PERSist, originally published January 16, 2024.

Public pension plans were established as workforce management tools for the end of an employee's career: helping older teachers, firefighters, and civil servants transition from working to retirement when the concept of “saving for retirement” was much less common. Over time, plan sponsors realized that pension plans helped with the beginning and middle stages of a career as well: recruiting and retaining a strong public workforce. Pensions are now seen to play a key role throughout an employee's career, so it should come as no surprise that closing a public pension plan has adverse outcomes for workforce management.

The workforce challenges that result from closing a public pension plan are documented in a new report from NIRS called No Quick Fix. The report examines five states - Alaska, Kentucky, Michigan, Oklahoma, and West Virginia - that either closed or significantly changed public plans in their state and, in the case of West Virginia, eventually reopened its closed plan. 

Alaska stands out as the prime example due to the severity of its worker shortages. Alaska is already a difficult-to-staff state due to its remoteness and imposing geography. Also, many public employees in that state do not participate in Social Security. So, closing the two statewide public plans 17 years ago removed much of the incentive for someone to work in public service in Alaska. 

The actuary for the two closed Alaska plans tracks the employee turnover data for both the defined benefit (DB) and the defined contribution (DC) plans. Employee turnover is much higher in the DC plans than in the DB plans. This data can be used to project the years of expected service in the two plans. For example, for a group of 100 male peace officers vesting in their plan at age 30, the DB plan would expect to still have 63 of them working at age 54, but the DC plan would only expect to have 17 of those 100 still working then. Similarly, for 100 female general government employees, 26 of 100 would be expected to still be working at age 55 in the DB plan, but only 7 of those in the DC plan. Put another way, the state expects to receive 67 percent more service from male peace officers in the DB plan, and 51 percent more service from female general government employees in the DB plan. 

Data like this show up in other states. The Michigan State Employees' Retirement System (SERS) DB plan has been closed for more than 26 years. While DC plans are often sold as appealing to new workers, the number of recent hires that terminated in the last experience study was 62 percent above what the withdrawal assumptions anticipated, which is certainly not good news regarding retaining new talent. 

DB pension plans have provided an effective workforce management tool to public employers for decades. That is one reason why most public employees today still have access to a pension. The few states that have moved away from pension plans have not only seen employee turnover increase, but have seen costs rise, negative cash flow grow, and retirement security for workers weakened. It's obvious that closing a public pension plan provides no quick fix to the ongoing challenge of maintaining a robust public workforce.

Bio: Tyler Bond is the research director for the National Institute on Retirement Security (NIRS). He works with the executive director to plan all NIRS research products. Since joining NIRS, Bond has authored or co-authored numerous research reports, issue briefs, and fact sheets on a wide range of topics relating to retirement security. He regularly speaks at conferences about NIRS research and testifies before policymakers. Previously, Bond spent four years at the National Public Pension Coalition, where he directed the research program and authored six original research reports. He also has held positions on Capitol Hill and at the Center on Budget and Policy Priorities. Bond holds a B.A. in political science and philosophy from Indiana University and an M.A. in public policy from The George Washington University. He is a member of the National Academy of Social Insurance.



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