Pension benefits are not the key to attracting or retaining public workers

This legislative season, many states are seeing the recruitment and retention of police, teachers, and other public workers at the forefront of policy agendas. Some lawmakers propose leaning into antiquated defined-benefit pension plans to appeal to an increasingly mobile pool of workers. While attracting and maintaining a high-quality workforce is important, academic research does not support using these old-fashioned pension plans as a solution.

Generational changes and the aftermath of the COVID-19 pandemic have reduced how long many workers stay with a single employer, a trend that applies to both the public and private sectors. Staffing turnover is a reality of the current workforce landscape.

But would clinging to or bolstering traditional defined-benefit pensions address this problem? The research says that it is unlikely. There is no robust scientific proof that pensions are superior to other forms of retirement benefits for retaining public workers. On the contrary, there is some evidence that proves otherwise.

For example, a late 2022 analysis of late-career teacher turnover in Tennessee published in The Journal of Human Resources by researchers from the University of Missouri revealed that traditional public pension plans accelerated teacher retirement and reduced average worker quality. However, 401(k)-style defined-contribution plans had the opposite effect.

Pension benefit enhancements, in general, aren’t necessarily a path to improved worker retention. A study analyzing Missouri public school teachers found that pension enhancements led to earlier retirement, reducing retention. Workers can do the math and see that adding more years to their late career, beyond retirement eligibility, has a diminishing impact on their ultimate benefit, which is a common feature of pensions. This incentivizes retirement, thus leading to a higher departure rate for the most experienced professionals.

A 2017 University of Washington study published in Industrial Labor Relations Review examined a sample of Washington state teachers and did not find a significant difference in the turnover between defined-benefit (DB) and hybrid DB/defined-contribution cohorts of educators. However, a subsample of teachers who actively enrolled in the hybrid plan exhibited lower turnover.

Other findings cast further doubt on the impact of offering traditional DB pensions to young workers. Examining Florida’s retirement system, a 2015 study published in Education Finance and Policy by researchers from the Brookings Institution and the Harvard Graduate School of Education found that certain employees — particularly younger and less experienced workers — were likelier to choose the defined-contribution plan over the traditional defined-benefit plan.

Public policymakers must recognize that a retirement plan is not a proven method for attracting and keeping valued workers. So which approaches can retain workers?

A 2019 Yale School of Management study using data from Wisconsin showed that salary changes had a more substantial impact on teachers’ employment decisions than changes in their pension plans. The study implied that immediate compensation, rather than future retirement benefits, is more relevant to teachers when making job-related decisions.

A recent survey by the MissionSquare Research Institute of young public-sector workers (those aged 35 and under) reveals that only 23 percent ranked retirement benefits among the top three factors attracting them to public-sector jobs, placing these benefits seventh overall. Job security and satisfaction, salary levels, work-life balance and meaningfulness, and health insurance all held greater appeal.

With public workers jumping from job to job more frequently, it’s clear that their decisions are motivated by their pay and other quality-of-life considerations. Increasing pay may be the only way to effectively address the growing challenges of attracting quality workers to government jobs, but this cost to government budgets cannot be ignored. Policymakers need to accept the new reality of the modern workforce, which may mean right-sizing government programs to afford the higher pay levels necessary to retain their skilled employees.

None of this is to say that retirement saving plans are unnecessary for public workers. It may not be an effective vehicle for recruitment and retention, but employees still need to work toward a secure retirement, and government employers should be assisting in this endeavor with plans calibrated to provide that security.

But instead of addressing modern workforce challenges with the old pensions model, administrators should focus on making retirement plans that match the needs of today’s young workers. Adding or improving defined-contribution plans can achieve retirement security goals at a much lower level of risk for taxpayers.

A version of this commentary first appeared in Governing.

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