Contrary to what you might hear from pension opponents, pensions are making a comeback. Once considered a relic of the past, traditional defined benefit (DB) pensions are experiencing a resurgence as states and cities across the country reinstate and bolster these benefits. This strategic move aims to tackle pressing challenges in workforce recruitment and retention. As more private sector employers also consider reopening their pension systems, the allure of guaranteed retirement income is proving stronger than ever. This blog explores this remarkable trend and the states leading the charge in bringing pensions back!
Case Studies of Pension Restoration
Alaska
After Alaska closed its Public Employees’ Retirement System (PERS) and Teachers’ Retirement System (TRS) in 2005, the state has struggled with recruiting and retaining public employees. Teacher recruitment alone costs Alaska approximately $20 million annually. Additionally, staffing shortages have led to severe service backlogs, including in SNAP benefits, Medicaid, and pension payments. In some areas, there is only one state police officer patrolling 100 square miles. During the 2023-2024 legislative session, Senate Bill 88, which proposed a modest pension benefit for Alaska’s public employees, was passed the Senate but was narrowly defeated in the House, leaving the state grappling with these challenges for the foreseeable future.
Arizona – Maricopa County
On February 28, 2024, House Bill 2203 was passed to restore pensions for Maricopa County detention and corrections officers, reversing a 2017 decision that moved these employees to a 401(k)-style plan. The lack of pensions had led to severe staffing shortages and retention issues, with the county struggling to fill and maintain correctional positions. The new bill transfers jail employees back into the Correctional Officers Retirement Plan (CORP), aligning their benefits with those of other public safety workers in Arizona.
California – San Diego
On February 2, 2022, San Diego Mayor Todd Gloria signed an ordinance reinstating pensions for city employees, effectively undoing the 2012 ballot measure Proposition B, which had been ruled unlawful. The City Council unanimously approved the ordinance, which reintroduced defined benefit pensions for members of the Municipal Employees Association, AFSCME Local 127, and the city’s unrepresented workers. This move aimed to correct the negative impacts of Prop B, which hampered the city’s employee recruitment and retention efforts by moving all non-police new hires to (401)k plans while surrounding municipalities continued to offer pensions. Initially touted as a cost-saving initiative, Prop B eventually cost San Diego over $80 million.
Connecticut –
Branford
In Branford, CT, the police department restored traditional pensions on April 26, 2016, after experiencing negative impacts from the 2011 switch to a defined contribution plan. The previous shift had led to increased departures of both experienced and new officers, who often left for nearby departments with better retirement benefits. The four-year police union contract, which included annual 2.5% salary increases, aimed to address this issue and make the Branford Police Department more attractive for recruits and transfers. This move resulted in a significant increase in applications, reflecting its positive impact on recruitment and retention.
Trumbull
On December 3, 2023, the Trumbull Town Council unanimously approved the reinstatement of police pensions, aiming to improve officer retention. The department had been without pensions since July 1, 2014, when it switched to a 401(k) defined contribution plan, leading to significant turnover. The new pension plan, developed after over a year of discussion, includes contributions of 2% of annual earnings for up to 25 years of service, increasing to 4% for years 26-30.
West Haven
On August 16, 2023, the West Haven City Council unanimously approved a pension plan for the police department, addressing retention issues caused by the 2009 switch to a 401(k) plan. The new plan, effective July 1, 2023, allows officers hired after November 1, 2009, to purchase past service time by paying 8% of their base pay. Officers hired before 2009 became eligible for a deferred retirement option plan with a 5% increase to their pension calculation after 25 years of service. The union supported the plan, voting 95-2 in favor.
Florida –
Palm Beach
In 2012, the Town of Palm Beach closed its pension system for future public safety officers, replacing it with an inadequate hybrid retirement plan. This change led to a high turnover rate. Over 60% of officers with less than three years of experience who trained in Palm Beach then transferred to jurisdictions offering pensions. Consequently, training costs soared to $20 million. By 2016, the town reopened its pension plan to provide stable retirement benefits and secure long-term financial security for public safety officers.
Jacksonville
As of June 2024, the Jacksonville Fire Department is awaiting ratification of a contract that includes a 12% pay raise and reentry into the Florida Retirement System pension plans, which were eliminated for new hires in 2017. The anticipated reinstatement of pension benefits is expected to significantly enhance the department’s ability to attract and retain firefighters.
Pennsylvania – Meadville
In October 2022, Meadville, PA, restored traditional pensions for its police officers in a move to address a critical staffing shortage. The city council unanimously approved a four-year labor agreement with the police union, reversing the 2015 switch to a 401(k)-style defined contribution plan. This decision came after Chief Michael Tautin highlighted the department’s inability to retain officers due to the lack of a traditional pension. The new contract requires officers to contribute 5% of their base salary to the pension fund and includes concessions such as a city residency requirement for new hires.
Rhode Island – Statewide
A working group in Rhode Island began efforts on February 26, 2024, to restore pension benefits after the previous administration changed to a hybrid system in 2011. This restoration seeks to enhance retirement security for public employees across the state. In early 2024, the National Institute on Retirement Security released a report detailing the significant rise in public employee turnover since implementing the DB/DC hybrid system.
Virginia – Richmond
In September 2023, Richmond’s City Council unanimously approved a plan for city employees to join the Virginia Retirement System (VRS). This shift aims to enhance recruitment by aligning with VRS, which offers better benefits, including annual cost of living increases. New employees starting in January 2024 are automatically enrolled in VRS, while current employees have a year to choose between VRS and the Richmond Retirement System (RRS).
The return to defined benefit pensions in these communities reflects a broader trend of recognizing the importance of stable, secure retirement benefits. These moves are about improving financial security for public employees and ensuring that states and local governments can attract and retain the best talent. As pensions become popular again, we may see more states follow suit, reversing previous closures and enhancing the retirement landscape for public workers.
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