Governments trying to recruit and retain employees need to reassess how young workers view pensions

The public sector is currently grappling with challenges in recruiting and retaining employees and the role and impact retirement benefits may play. Some recent trends help show what attracts and retains employees.

How can municipalities attract and retain young workers?

A generational shift has changed what public employees find important, from retirement benefits to factors like higher pay, work-life balance, and alternative benefits. As policymakers evaluate the retirement plans offered to public workers, knowing what hires are looking for and how retirement benefits affect their career decisions is helpful.

Retirement benefits rank low among public sector worker priorities

A recent 2023 survey of 1,004 young public workers by MissionSquare Research Institute of young public sector workers (aged 35 and under) reveals that less than a quarter (23%) ranked retirement benefits among the top three factors attracting them to public sector jobs, placing these benefits seventh overall. Instead, job security, work-life balance, and access to health insurance were the most appealing, according to young workers surveyed. Job satisfaction, salary, and engagement in meaningful work also ranked higher than retirement benefits in factors young workers said initially attracted them to public sector jobs.

Additionally, the survey shows a lack of long-term commitment among these workers to public sector roles. MissionSquare finds that 16% of public workers say they do not plan to stay in until retirement, 15% aim for a medium-term employment stay, 6% have no intentions to stay, and 17% are uncertain. This transience challenges the relevance of defined-benefit public pensions, traditionally designed for lifelong careers with a single employer.

Law enforcement leaders explore the need for 401(k)-style plans

The Bureau of Justice Assistance and Office of Community-Oriented Police Services recently released a report on the recruitment and retention of modern law enforcement officers. The report was the result of a group of law enforcement and community leaders from across the country meeting in April 2023 to discuss existing best practices and emerging solutions designed to address recruitment and retention challenges.

Attendees at the meeting noted a decrease in the number of individuals choosing a long-term career in policing, specifically those planning to stay on the job for over 25 years. The report notes that “because of this generational shift, pension plans are often no longer a strong motivator.”

The participants discussed the potential for the shift toward offering alternative retirement plans like portable investment options, such as 401(k) plans. In such retirement plans, public employers may match a portion of the investment, but the funds are owned by the employees and remain with them whenever they decide to exit the profession, which is a feature that defined benefit pensions cannot provide.

The group also noted that employees increasingly prioritize work-life balance. As a result, the group recommended that law enforcement employers investigate unconventional benefits, such as coverage for mental well-being and family planning, as well as expanded childcare and schedules that promote work-life balance.

Municipalities notice the decline in the attractiveness of pensions

In a panel at the Governmental Research Association Conference 2023, William Bagley Jr., the director of human resources for the city of Worcester, MA, pointed to a significant shift in the mindset of newer employees venturing into the public sector. “The newer employees come [to us] with already well-developed 401(k)s,” Bagley said. “The pension is not really the selling point that it used to be.”

Bagley also highlighted another emerging obstacle in attracting fresh talent to local government: deferred access to comprehensive vacation benefits. He noted that while Worcester offers up to five weeks of vacation annually, employees need to dedicate 10 years of service first. In comparison, many private sector companies readily offer up to four weeks of vacation at the outset of a worker’s employment. Bagley emphasized that this competitive difference presented a significant challenge in public employee recruitment and retention strategies.

This recruitment problem reflects a growing preference among younger workers for shorter employment stints. As this trend develops, all public employers will likely see higher rates of turnover, but they will also see more candidates who have had some years of work experience with other employers. That means more incoming employees will already have some retirement savings built up from previous jobs, most of those savings coming in the form of 401(k)s. Government employers might need to revisit and possibly restructure the retirement benefits they offer to align with the evolving expectations of the contemporary workforce.

Recommendations for retirement plans that appeal to today’s workforce

As governments adapt to changing workforce preferences, it is evident that a one-size-fits-all approach to employee benefits is becoming increasingly obsolete. The recent trends serve as a timely reminder of the need to adapt and innovate. A more nuanced and flexible approach to employee benefits may be the key to preserving a vibrant and dynamic public sector.

Reason Foundation has extensively analyzed the potential of hybrid retirement plans, which combine the features of both defined benefit (DB) and defined contribution (DC) pension plans, offering a more adaptable and portable solution than the traditional DB plan. Reason has also proposed the Personal Retirement Optimization (PRO) Plan as an alternative, a DC plan designed to operate more like a traditional pension with guaranteed lifetime benefits. The DC foundation for the PRO Plan allows public employees to accrue adequate retirement benefits regardless of length of service compared to the traditional defined benefit approaches. 

These modernized retirement plans align better with the evolving financial planning preferences of the evolving workforce but also provide government employers with a sustainable option to manage their pension liabilities more effectively. The benefits include enhanced portability, allowing employees to transfer their benefits across different employers, and potentially higher investment returns, offering a win-win solution for employers and employees.