WASHINGTON,
D.C., February 8, 2018 - A new case study examines the
impacts of the 2012 actions of the Town of Palm Beach to close its existing
defined benefit (DB) pension systems for its employees, including police
officers and firefighters.
The
new "combined" retirement plans offered dramatically lower DB pension
benefits and new individual 401(k)-style defined contribution (DC) retirement
accounts. Shortly thereafter, the town experienced a high rate of retirements
and unprecedented early departures of experienced police officers and
firefighters to neighboring towns that offered better pensions. Now
understaffed, the town faced increased costs to pay overtime hours and train
replacements for more than 100 public safety workers who departed during a
four-year period after the pension changes.
Following
this large, swift exodus of public safety employees, the town reconsidered the
changes. In 2016, the Town Council voted to abandon the DC plans and to improve
the pension plan for police officers and firefighters.
These
findings are contained in new research case study from the National Institute
on Retirement Security (NIRS), Retirement Reform Lessons: The
Experience of Palm Beach Public Safety Pensions. The research is authored by Diane Oakley, NIRS executive director.
- Download
the case study here.
- Register
for the webinar here.
- Watch here a
video of a public employee regarding changes to the retirement plan.
"This case study serves as a cautionary tale to public sector
employers considering changes to their employee retirement plans," says
Diane Oakley, report author and NIRS executive director. "The town learned
the hard way that pension plans - provided to nearly all police officers and
firefighters across the country - help keep experienced public safety workers
on the job protecting our communities. The Palm Beach saga was a painful and
costly lesson that pensions are a critical workforce management tool to
recruit, retain and retire public employees," Oakley said.
Research finds
that public workers place a high value on retirement benefits, even more so
than private sector works. For public safety workers, pensions are highly
valued because they also offer death and disability benefits, and because the
risks and physical demands associated with their jobs can shorten their years
in the workforce.
"Perhaps the most compelling data point in the case study is
that a total of 53 mid-career police officers and firefighters left their jobs
before retirement after the Town Council voted to change the pension
plan," Oakley explained. "Previously, just two mid-career public
safety workers left their jobs before reaching retirement. Faced with
unprecedented departures and large overtime and training costs, the town moved
to unscramble the egg and restore the pension plan," Oakley said.
This case study supplements past NIRS research examining
retirement plans in Alaska, Michigan and West Virginia
where a shift from DB pensions to 401(k)-style individual accounts caused
pension plan costs to skyrocket. The new case study also
can be considered alongside recent NIRS research that examines the
employee recruitment and retention impacts
of pensions.
The case study finds that pensions:
- Dismantling
the DB pension benefit caused a mass exodus of public safety officers.
Employees' reactions to losing their expected DB pension benefits were
swift. The town's two public safety pensions covered 120 employees at the
end of 2011. In addition to 20 percent of the town's workforce retiring
after the change, 109 other protective officers left before retirement in
the next four years. Mid-career public safety officers departed in
unprecedented numbers, with 53 vested police officers and firefighters
departing Palm Beach's forces from 2012 to 2015. By comparison, just two
mid-career employees departed from 2008 to 2011.
- Neighboring
towns benefited from the changes that Palm Beach implemented to its
retirement plans.
Nearby towns watched the controversy erupt in Palm Beach, and decided to
adjust their pensions rather than dismantle this employees benefit. The
109 trained officers who decided to leave Palm Beach provided a talent
pool for other towns and counties. For example, in the next four years, 31
newly-hired Palm Beach firefighters left with a refund of their pension
contributions and seemed to jump at the chance for a DB pension offered by
a nearby town. Previously, only three firefighters took refunds in the
four years before the pension freeze.
- The
shift away from the DB pension increased costs in other areas.
The town did not anticipate the financial impact of the high attrition.
For example, firefighters had to work extremely high levels of overtime to
fill staffing gaps. Also, the unprecedented loss of new and experienced
public safety officers caused the town's training cost to soar likely
reaching upwards of $20 million, based on an "all in" cost
estimate of $240,000 per officer to bring a new police officer through the
rookie period in Florida.
- The
DC switch proved a failed experiment in Palm Beach.
The Town Council voted in 2016 to abandon the DC plans and improve the DB
pensions for police officers and firefighters by raising benefits
substantially and lowering the retirement age. The Council offset the cost
of the police and fire DB pension improvements by increasing employee
contributions and eliminating the DC plan with its employer match.
The National Institute on
Retirement Security is a non-profit,
non-partisan organization established to contribute to informed policymaking by
fostering a deep understanding of the value of retirement security to
employees, employers and the economy as a whole. Located in Washington, D.C.,
NIRS' diverse membership includes financial services firms, employee benefit
plans, trade associations, and other retirement service providers. More
information is available at www.nirsonline.org. Follow
NIRS on Twitter @nirsonline.
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