Slow Economy Sees Public Employers Modifying Pensions vs.Switching to Alternatives

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numbers numbers The National Institute on Retirement Security’s new report, The Great Recession: Pressures on Public Pensions, Employment Relations and Reforms , showed that almost all public employers, both local and state level, have chosen to modify their pension plans rather than find alternative designs. Key findings of the report include:

• Switching benefits away from pensions would attract a different labor force to public employers who would be less committed and motivated to developing non-transferable skills needed to serve the public sector.

• Turnover would rise under individual defined contribution accounts and cash balance plans since they would offer fewer incentives for workers to remain with their public employer.

• Switching to an alternative structure (non-pension) would result in higher costs for both employers and employees due to increased investment and administrative costs for alternative retirement plans.

“The Wall Street crisis hurt all investors, including pension systems that saw drops in their funding levels,” said Diane Oakley, executive director of the National Institute on Retirement Security. “As a result, policymakers in nearly every state examined and enacted large-scale reforms to their workforce retirement plans – and nearly every state and locale maintained its pension plan. The research finds that this outcome isn’t surprising because private and public pensions have a strong track record of simultaneously meeting employers’ recruitment and retention needs and employees’ economic security needs.”

“The study underscores the key role of pensions as a human resource management tool,” said Ilana Boivie, report co-author and research economist for the Communications Workers of America. “Employers in all sectors leverage pensions to reduce attrition of skilled employees. These employers are rewarded with better employee recruitment and retention. For example, 69 percent of employees with pensions say their retirement plan is an important reason to stay versus only 37 percent with DC plans. Also, employers with pensions have lower turnover rates ranging from 20 – 200 percent lower as compared to those employers with DC plans.”

By Joshua Bjerke