More than half (52) per cent of new public safety employee hires are expected to retire from a defined benefit pension plan, according to a new report by the National Institute on Retirement Security.
The report, which reviewed data from 28 U.S. police and fire pension plan sponsors, found that DB plans are an effective tool for organizations’ workforce management. These retirement options aid organizations to recruit and retain talent in the long term.
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Roughly half of police officers and firefighters said the ability to earn a pension benefit was a reason they chose a public sector job, while more than 60 per cent of both groups of workers said it was a significant reason for staying at the job. An overwhelming majority agreed that public pensions are a good tool for recruitment (97 per cent for police and 99 per cent for firefighters) and retaining (99 per cent for both groups) their fellow public safety professionals.
According to the report, rolling 30-year investment returns for all public pension plans have consistently been above the average assumed rate of return. It also found the average funding ratio among police and firefighters pension plans has steadily remained below 80 per cent since 2008. A downward trend in discount rates from on or above eight per cent starting in 2001 to below the same mark in 2022 explains why the average funded ratio has remained relatively flat, it noted.
“Plans have paid for lowering their assumptions by maintaining a lower funded ratio,” the report said. “This should position public plans for future success as capital markets assumptions anticipate lower investment returns in the future than in the past.”
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It found that about two-fifths (42 per cent) of public safety workers are expected to leave their jobs for a different reason, likely quitting, the report said. The finding is a sharp contrast from what’s seen in the private sector, which in 2022 registered a median tenure of 4.1 years, according to employee tenure data from the U.S. Bureau of Labor Statistics contained in the NIRS report.
The report said a move away from public service pension plans in some jurisdictions across the U.S. is leading to increased turnover among public safety professionals since the country is facing a tight labour market.
“While public safety departments across the country are struggling with employee recruitment and retention, especially in the years since the onset of the [coronavirus] pandemic, those jurisdictions that recently have made significant changes to their public pension plans have experienced higher levels of employee turnover,” the report said.
With the danger and risk public safety professionals face on a regular basis during their careers, the study noted, workers depend on the availability of death and disability benefits within DB plans. In terms of the average life expectancy, it said workers are expected to live into their early to mid-80s since at age 55, plan members in the dataset still had another 28 years of service in front of them.
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