WASHINGTON, D.C., April 11, 2018 – A new research brief that explores the impacts of public pension reform from 2005 to 2014 suggests that cuts to pension benefits have reduced the ability of public sector employers to compete with private sector employers for workers. The analysis highlights the need for states and localities to consider how pension benefit reductions may impact public worker recruitment and retention, and that more work should be done to further examine the workforce impacts of pension cuts.
These findings are contained in a new issue brief from the Center for State and Local Government Excellence (SLGE), “How Have Pension Cuts Affected Public Sector Competitiveness?” The brief is authored by Laura D. Quinby, research economist at the Boston College Center for Retirement Research (CRR); Geoffrey T. Sanzenbacher, associate director of research at the CRR; and Jean-Pierre Aubry, associate director of state and local research at the CRR.
Download the full issue brief here.
“Often lost in ongoing conversations about how to best improve the financial status of public pension systems is the important role these retirement programs fill as workforce management tools,” notes Joshua Franzel, president and CEO at SLGE.
“Given the current, increased focus on wage and benefit compensation for teachers, public safety professionals, and many other public servants in a range of states, it is essential for reforms to be analyzed not only by their budgetary impacts, but also for their long-term public workforce development implications,” Franzel explained.
A recent SLGE infographic on state and local workforce trends outlines that since 2010, there has been a 71 percent increase in job openings, and the gap between job openings and hirings has continued to grow since 2012.
Virtually all states and many local governments have altered their pension plans in the wake of the financial crisis. Pension cuts were relatively uncommon before the stock market crash of 2008, but quickly became more prevalent as plan sponsors realized the extent of the deterioration in their funded ratios and related increases in employer benefit costs. Most, but not all, of the cuts applied only to new hires because many states consider future accruals of pension benefits for current workers to be contractual obligations that cannot be reduced.
The research results should be interpreted with some caution. Fiscally stressed governments have cut wages, hiring, and health insurance at the same time as pensions. The analysis attempted to control for these factors, but the available data were limited, and it is possible that additional personnel policies changed during the period. Future research should continue to explore the effect of pension cuts, and the results of this brief indicate that states and localities should at least consider how benefit cuts might affect worker recruitment and retention.
The Center for State and Local Government Excellence helps local and state governments become knowledgeable and competitive employers so they can attract and retain a talented and committed workforce. SLGE identifies leading practices and conducts research on public retirement plans, health care benefits, workforce demographics and skill set needs, and labor force development. SLGE brings state and local leaders together with respected researchers. Access all SLGE publications and sign up for its newsletter at slge.org and follow @4govtexcellence on Twitter.
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