A report this month from the National Institute on Retirement Security (NIRS) finds moving employees from defined benefit (DB) pensions to hybrid defined contribution (DC) plans has changed employee attrition in some cases.
The study, “Employees’ Retirement System of Rhode Island: Examination of Turnover Trends Since Retirement Reforms,” analyzes public employees enrolled in the Employees’ Retirement System of Rhode Island (ERSRI), which changed its workplace plan in 2012 from a defined benefit model to a hybrid system.
The data was exclusive to state employees, municipal general employees, police officers, firefighters, and teachers—all who showed consistent patterns of high turnover, found NIRS.
The report points to the change in retirement benefits, specifically going from a pension plan to a DC-based plan, for the high turnover rates. According to NIRS, ERSRI had made “significant” changes to its retirement benefits in 2011, including changing from a DB plan to a hybrid model with a “reduced pension component and mandatory participation in a 401(k)-style defined contribution plan.” Employees were obliged to participate in the hybrid model starting on July 1, 2012, as well as current active workers with less than 20 years of service as of June 30, 2012, according to the report.
“At a time when states like Rhode Island are confronting severe public service worker shortages, it is critical to fully understand the workforce impacts of benefit changes because public service workers typically place a high value on their retirement benefits,” said Dan Doonan, NIRS executive director and report author, in a statement. “Often times, pensions serve as worker magnets in terms of recruitment and retention for public sector jobs that typically offer lower salaries than private sector jobs.”
Doonan likens the findings to a similar report conducted in Alaska, where it was found that shifting Alaska’s public education employees from DB pension plans to 401(k)-style DC accounts resulted in more employees quitting. “The Rhode Island experience follows the pattern that we observed in Alaska,” he added. “Both situations seem to confirm the impact of changing retirement benefits in worker attrition.”
The research adds that generating income through a DC plan could be more difficult for workers participating at later ages, compared to younger workers who are just starting out in their careers.
Additionally, NIRS touches on the impact that higher turnover can have with communities, adding that it contributes to a workforce with less experience and can potentially affect productivity and the quality of public services. “Addressing these issues requires careful consideration of benefit structures, accrual rates, and adequate funding to balance these priorities to ensure the long-term sustainability of the retirement system and the quality of public services provided,” the report concludes.
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