How Have Pension Cuts Affected Public Sector Competitiveness?

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Often lost in ongoing conversations about how to best improve the financial status of public pension systems is the important role these retirement programs fill as workforce management tools. While wages and health benefits are certainly important, pensions also assist states and localities in recruiting, retaining, and retiring their high-quality workforces.

The recent financial crisis caused many state and local pension plan sponsors to cut benefit levels. This brief explores the effects of pension reforms undertaken by state and local governments between 2005 and 2014 on these employers’ competitiveness in the labor market, for both new and existing public servants. Key findings include:

  • Common cost-cutting pension reforms included increasing the normal retirement age, reducing the monthly benefit that workers receive when they retire, requiring employees to contribute more to the pension fund, and reducing post-retirement cost-of-living adjustments;
  • Especially for new hires, the implementation of pension reform has hampered governments’ ability to recruit new employees; and
  • State and local governments should consider how pension cuts might affect recruitment and retention
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