As Policing Changes, So Should Their Retirement Plans

Policing in the United States is at an inflection point. In the years to come, criminal justice reforms and changes in police department funding, job roles and expectations, and educational requirements could potentially cause officers to make career shifts and retirements, and police departments to make layoffs.  But regardless of whether there are ultimately significant changes in policing policy, now is the time to examine the current retirement policies for public safety professionals.

As with any retirement plan, the main objective of public safety pension plans should be to meet the long-term financial security needs of its participants. To satisfy that objective, it is critical that public safety retirement plans are designed to meet today’s career mobility realities. Even before the current police reform discussions, public pension plans were often failing to account for an increasing number of law enforcement officers leaving the profession before they’re fully vested in their public pension benefits.

Tenure is especially significant in professions that provide public pension benefits because workers must provide a certain number of years of service to receive full retirement benefits. For example, the Arizona Public Safety Personnel Retirement System requires five years of service for a worker to receive any pension benefit at all and reduces the pension benefit by 4 percent for each year the member is short of 25 years of service. Many other police retirement plans have even stricter vesting requirements that may require an employee to work 10, 15, or even 20 years before they can receive any retirement benefit.

Data regarding the tenure of public safety professionals within public retirement systems is limited.  Often the tenure of this cohort is not separated from the broader group of all public employees participating in a pension plan. According to the US Bureau of Labor Statistics, the median tenure of local government public employees in 2020 was 6.9 years. State public employees’ median tenure was just 5.6 years.

A Pension Integrity Project analysis of retention assumptions for the Arizona Public Safety Personnel Retirement System expects that only 54 percent of new hires will remain in service after five years when they vest in their benefit. Even here, however, the data is not segregated by job type, so police and firefighters are combined. Regardless, the available data do suggest that median tenure for police is not substantially different than that of other public sector employees, especially in the early years of employment.

Whatever the potential changes in police policy, it seems fair to consider that members of police forces may become more mobile in their careers rather than less. In fact, all categories of employees, across all industries, are more mobile in their careers today than they were a generation ago. This reality has led to the development of retirement plan designs that recognize mobility rather than penalize it.

Because of the hazards and the physical requirements associated with policing, officers tend to enter the profession young and retire young. Historically, a traditional pension has generally suited their needs well and provided members with the ability to retire at the age of 50 or 55 with a full pension benefit. If, however, there is an increase in shorter tenures, then the traditional pension will not work as well at providing for a secure retirement for as many members as possible.

All employers, especially governments, should recognize that a growing number of employees are likely to work for several different employers during their careers. Police retirement plan design should reflect this reality and not require unrealistic years of service for workers to receive any pension benefit at all.

There are effective retirement plan designs available today that do not penalize mobility including defined contribution designs, hybrid designs, and even new technology-driven designs that combine elements of other proven strategies. These retirement plans would allow law enforcement employees to divert at least part of their retirement contributions to a defined contribution retirement account that could follow them to their next jobs.

Given the changing nature of policing, additional worker mobility is likely. Changes in retirement plan designs should be examined to see what alternative plan designs could better meet the needs of those entering the profession.