Public pension reforms aren’t impacting public employee turnover rates

In many states, reforms aimed at improving retirement security for public workers and reducing the costs imposed on taxpayers have changed the benefit structure of public pension systems for incoming employees, often switching incoming members from defined benefit (DB) plans to defined contribution (DC) plans.

Though most pension reform efforts have improved the fiscal resilience and pension solvency of the states and pension systems involved, critics have expressed concerns that switching new hires to defined contribution plans could negatively impact the turnover and quit rates of public employees. 

Amid the discourse surrounding reform initiatives tackling the pension funding challenges many states face, this question becomes worth exploring: How have recent changes in pension design influenced recruitment and retention in the states that have adopted a defined contribution retirement plan approach for public workers? 

Turnover in Oklahoma after the state’s 2014 pension reform

In 2014, Oklahoma’s state legislature concluded a multi-year effort to improve the funding and sustainability of the then-66% funded Oklahoma Public Employees Retirement System, or OKPERS, which provides benefits for state and local government employees. The reform closed the OKPERS defined benefit pension plan to new entrants, enrolling employees hired after Nov. 2015 into a new DC plan–the Oklahoma Pathfinder Retirement Plan. 

Did the switch in pension benefit structure increase turnover of public employees in Oklahoma, as opponents to the reforms warned?

Technical note: the "voluntary turnover" reported by Oklahoma includes all public workers, while the OKPERS reform did not change the benefit structure of teachers. Considering the turnover rate for teachers is higher than the statewide value (18% > 16.2%), it is likely the public employee numbers displayed overestimate the voluntary turnover of OKPERS members. 

Data from Oklahoma's Annual Compensation Reports, issued by the Office of Management and Enterprise Services, does not show that the shift to the DC plan impacted public employee retention in Oklahoma. In 2015, when the new DC plan was implemented, the voluntary turnover for public employees (counting workers who retired or quit) was 14.6%. In 2021—the most recent year with data available—the turnover rate was nearly identical, at 14.3%.

There was an observable increase in public employee turnover in Oklahoma from 2016 to 2018. As displayed in Figure 2, the fluctuations in public employee retention observed in Figure 1 closely follow Oklahoma's private and public sector at-large quitting rate, indicating this short-term increase in turnover is not specific to just public employees and should not be attributed to changes in the OKPERS retirement system.

Technical Note: The 2013 Total Remuneration Study replaced the Annual Compensation Report in 2013, so there is no declared 2013 turnover data for Oklahoma's public employees. An interpolation of 2012 and 2014 numbers (13.80% and 13.85%, respectively) generated value for 2013 in the graph. 

The Bureau of Labor Statistics (BLS) quit rate data for all employees (public and private sector) in Oklahoma tends to move in tandem with the state's voluntary public employee turnover rate—revealing that public employee turnover closely follows labor market trends for the rest of the state. 

Figure 2 also illustrates how volatile turnover measures can be year to year, indicating the need for caution in making abrupt conclusions or policy decisions based on short-term trends—especially when not placing public employee turnover figures in the proper context of its broader labor market.                                              

In 2021, Oklahoma's total public employee turnover rate was 16.2%. In Colorado, it was 15.1%; in Kansas, it was 19.15%; 19.4% in Arkansas; and 22.7% in Texas. Among its bordering states, Oklahoma is the only state with a defined contribution plan for new public employees—and yet, its turnover rate was among the lowest.     

As seen in Figure 3, among the states bordering Oklahoma, Texas has the highest public employee turnover—with 22.7% of its public labor force leaving in 2021. That is the highest number in over a decade. The report from the Texas state auditor's office stated:     

“The top three reasons that employees reported in exit surveys for leaving state agency employment were for better pay/benefits, retired, and because of poor working conditions/environment.”  

Though employment data does not suggest that the defined contribution reform had an observable impact on the retention of public employees in Oklahoma, it did positively affect their overall retirement security. The Oklahoma Public Employees Retirement System, which was only 66% funded in 2010, is now among the top public pension plans nationwide in funding and is one of just a handful of plans that have more than 100% of the funds needed to pay for the pensions promised to public employees. 

Since 2015, new employees starting public employment in Oklahoma are enrolled in the well-structured Pathfinder Retirement Plan, which offers advantages in retirement savings—including portability. If workers leave their jobs, they can take their retirement savings with them, which is vital for a growingly mobile workforce.

How about Oklahoma's teachers? The state's public school teachers were not included in the OKPERS reform efforts, and new teachers are still covered in the same defined benefit pension as they always have been. Still, Oklahoma's teacher turnover rate was 18.4% in 2021, much higher than the average turnover of 11.6% for other states in the region. According to the Southern Regional Education Board, a nonprofit group that works with states to improve public education, this rate makes Oklahoma the state with the second-highest teacher turnover rate in the region.

This analysis of turnover data further illustrates that turnover rates seem to have little to do with retirement plan structure and more to do with employee compensation and the changing reality of American labor markets. Employment data has repeatedly demonstrated that public employees are not responsive to pension benefit structure changes, while other factors, such as compensation and career progression, have been shown to impact employees' career decisions.

Impact on West Virginia's teacher quality after defined benefit flip 

The Teachers Retirement System of West Virginia switched benefit structures twice. In 1991, due to its low single-digit funding ratio and outdated funding practices, West Virginia shifted its pension approach by closing new enrollments in its defined benefit pension plan for teachers and introduced the Teachers Defined Contribution Retirement System (TDCRS) for new hires. This move aimed to curb the growth of unfunded liabilities by offering individual accounts with flexible investment options. Despite this change, the closed DB plan's funding remained woefully low, rising to a 32% funded ratio in 2006. Under pressure from state interest groups, the legislature reopened the DB plan. Since then, the system has remarkably improved to a 78.4% funding level, now surpassing the national average funded ratio. The state's turnaround can be primarily attributed to West Virginia's court-mandated commitment to fulfilling its pension promises with adequate funding rather than the structural shift from DB to DC itself. 

How have the shifts in pension benefit structure impacted the quality of public school teachers in West Virginia? A good proxy for assessing the recruitment and retention impacts could be changes in the qualifications of teachers. If a specific pension plan is highly preferred or rejected by teachers, a decay or improvement in the quality of the workforce under such a system should be visible over time, as teachers express their preferences by moving to other states or choosing different industries.

The No Child Left Behind Act mandated yearly reporting of the highest college degree earned by all teachers in each public school. The numbers were disclosed in the West Virginia Educational Personnel Data Report, which only reported between 2003 and 2014—capturing West Virginia's shift from defined contribution to defined benefit enrollment for teachers.

In 2005, 37.2% of public school teachers in West Virginia had a bachelor's degree, while 61.4% had a master's degree. In 2007, a year after the reopening of the defined benefit plan, those figures were nearly unchanged (37.8% and 60.6%, respectively). In 2014, the last year reported, there was still no major improvement or decay in the workforce: 40.3% of teachers had a bachelor's degree, and 58.8% had a master's degree. As Figure 4 shows, there was no observable short or long-term impact—either positive or negative—on the education (or quality) of West Virginia teachers after the switch in retirement plan structure.

Who is turning over in public sector jobs?

Unlike Oklahoma, West Virginia does not report turnover rates for its public employees. The most recent estimate in 2016 by the Institute for Education Science found that, on average, 90.1% of teachers and 87.7% of administrators stayed in the same West Virginia school district from one year to the next —with most of the turnover concentrated among the most and least experienced teachers. 

Teachers and administrators with fewer than four years of experience left the system at roughly double the rate of other teachers, and more than a third of first-year teachers left within their first four years.

The Southern Regional Education Board found that the average yearly turnover rate for teachers in the southern states it examines was 11.6%, while for teachers with five or fewer years of experience, it was 45%.  

The demographics where most of the turnover is concentrated—that is, the highest and lowest earners—tend to be in phases of their lives where they are the least responsive to pension benefits. Newcomers and experts are most at risk of leaving because they have the highest career flexibility and can pivot to the private sector for higher wages. Newcomers, in particular, tend to seek higher lifelong earnings by hopping roles more frequently. As consistently demonstrated in exit surveys, salary takes precedence for many workers, especially for the demographics that drive most turnover. 

A small survey by MissionSquare Research Institute asked 102 entry-level candidates to rank factors influencing their motivation toward public service. Among the top rankings were paid time off, flexible hours, and remote work. The applicants, mostly Gen Z with a median age of 22, ranked retirement benefits as the least motivating factor and personal satisfaction and monetary compensation as the most important. 

Public employees leaving in search of better pay is nothing new. A 1990s report from the U.S. Merit Systems Protection Board titled, "Why Are Employees Leaving the Federal Government? Results of an Exit Survey," disclosed that, even in the '90s, "compensation and advancement" were the most attributed reasons for leaving a public post. 

Retirement Benefits are not the leading draw for public workers

As observed in Oklahoma and West Virginia, as well as in studies of America's public pension history, changes to the retirement benefit structure have not led to significant changes in turnover rates, the quality of the workforce, or general public employee retention. But, as public employees themselves may tell you, many other things do. 

In the public sector, it is very rare for an employee to see large increases in salary without changing jobs. Pay ranges and employment structures for public employees and teachers are often antiquated, and longevity, not talent, is rewarded. Raises can often add up to nothing more than cost of living increases that keep up with inflation. For a talented employee to be paid what the market says they are worth, he or she often needs to change employers. In such cases, pensions become even less relevant to most workers. 

Addressing public employee turnover is a valid policy pursuit. For our public posts to remain competitive to attract and develop top talent, states must continue to strive to match private sector opportunities and capture the changing preferences of today's workforce. The choice of whether to provide defined contribution retirement plans or defined benefit pensions has not been demonstrated to aid such an end.