A small town on the coast of Connecticut is poised to buck the trend toward shifting its workforce to a defined contribution retirement plan from a traditional defined benefit pension.
Since 2011, when the town shifted to a DC plan, the Branford Police Department has been in a tough spot: Officers would train with the Branford force, then leave for other departments where DB still was used.
The rotation from DB to DC has been occurring across many public plans for several decades as a way to cut costs and shore up underfunded pension systems.
“Because of that, employees [in a public service] took a look around and said, ‘I’m trained. I can go take my skills to a place that will compensate me according to my skill set, including ensuring that I can retire with dignity at the end of my career in public service,’” Bridget Early, executive director of the National Public Pension Coalition (NPPC), a benefits activist group, told CIO.
Under the switchback plan, which the town’s legislative body must approve, officers hired since the DC program came into effect will receive DB pension credits from their hire date, and DC assets will be transferred to the pension accounts.
Transferring public beneficiaries into a DC plan, which has happened in a minority of municipalities, has stirred controversy in places other than Branford, affecting retirement plans of police and other civil servants.
After Palm Beach made the move to DC for cops and firefighters in 2012, it too suffered a loss of personnel. As a result, the Florida town reinstated DB pensions in 2016. But the after-effects of the move to DC linger. Thanks to the bad blood from ending the DB plan seven years ago, Palm Beach still suffers from a talent drain.
“During the course of their switch, they ended up spending upwards of $20 million in training costs just to have officers leave and go elsewhere,” said Early, who added that study groups are realizing that traditional plans matter. “It actually does cost less based on that motivation” to work under a DB arrangement.
This issue has been occurring for a while. In 1991, the West Virginia Teachers Retirement System closed its defined benefits plan due to decades of poor state funding. New hires were moved into a DC plan, which led to fewer teachers and a 25% reduction in the DC fund’s size.
The following year, the DB pension system was reopened, and 78.6% switched back, according to NPCC. As of the West Virginia Consolidated Public Retirement Board’s most recent annual report, the $16 billion retirement program houses nine public plans, including the teachers’ plan. West Virginia Teachers is 67.1% funded. That’s not great by any means, as 80% is the standard for a healthy plan.
Other states, such as Michigan and Alaska, which swapped DBs for DCs, have also seen these plans shrink. Michigan’s pensioners only had about $37,000 in their accounts on average due to lack of participants, and Alaska has seen plan costs skyrocket and underfunded levels increase with it.
“Folks are going in for the benefits because they know by going into teaching, public safety… it’s not a lucrative business, per se,” Early said. “They weigh that cost with the deferred compensation of retirement security.”
Since word that Branford might revert to a DB plan got out, the local police department has seen an uptick in applicants, according to the New Haven Register. Branford also hoped for more transfers from experienced cops, but the state’s comptroller’s office issued a ruling that curtailed that hope. The ruling mandated that anyone who retired from a town in the Connecticut Municipal Employees Retirement System and then went to work for another municipality would see their benefits delayed. This has held down the transfers of experienced officers to Branford.
The decision to go back to pensions is part of a four-year police union contract, which needs approval from the full Representative Town Meeting, the legislative body for the town. Both the pension revival and contract are scheduled for a May 14 vote.
Branford police department officials could not be reached for comment. Town meeting members were contacted but preferred not to speak to media until after the vote.