National Institute on Retirement Security Finds Changes to Rhode Island Public Employee Retirement Benefits Are Contributing to Employee Attrition

WASHINGTON, D.C., March 7, 2024 – A new report from the National Institute on Retirement Security (NIRS) finds shifting employees in the Employees’ Retirement System of Rhode Island (ERSRI) from defined benefit pensions in 2012 to a hybrid retirement plan is causing demonstrable changes in public employee attrition. The data specific to state employees, municipal general employees, police officers, firefighters, and teachers demonstrates a consistent pattern of higher turnover.

The impact varies across professions, but the overall trend indicates increasing challenges in retaining experienced workers. This trend towards higher turnover contributes to a workforce with less experience, potentially affecting productivity and the quality of public services.

These findings are contained in a new report, Employees’ Retirement System Of  Rhode Island: Examination Of Turnover Trends Since Retirement Reforms. Read the report.

“At a time when states like Rhode Island are confronting severe public service worker shortages, it is critical to fully understand the workforce impacts of benefit changes because  public service workers typically place a high value on their retirement benefits,” said Dan Doonan, NIRS executive director and report author. “Often times, pensions serve as worker magnets in terms of recruitment and retention for public sector jobs that typically offer lower salaries than private sector jobs.”

“The Rhode Island experience follows the pattern that we observed in Alaska. Both situations seem to confirm the impact of changing retirement benefits in worker attrition,” Doonan said. “For example, the Rhode Island state employee withdrawal rate has spiked since 2010 across the full range of years of service as compared to the previous four actuarial studies. Moreover, the most recent actuarial study projects only 31 of 100 new hires would remain employed in Rhode Island state government in 20 years. In contrast, the 2010 actuarial study before benefit changes were implement projected 47 employees would still be employed in 20 years. This reduction in the number of experienced state employees certainly will have an impact on the quality of public services.”

Significant changes were made to ERSRI retirement benefits in 2011. The plan changed from a defined benefit pension plan to a hybrid plan with a reduced pension component and mandatory participation in a 401(k)-style defined contribution plan. Participation in the new hybrid plan has been obligatory for all new hires since July 1, 2012, as well as current active workers with less than 20 years of service as of June 30, 2012. The hybrid plan has been in place for more than 11 years, which is sufficient time to study its impact on employee behavior.

The report’s key findings are as follows:

• Employee turnover has been consistently higher in the most recent actuarial experience report for nearly every age grouping (using five-year intervals), and for each group of workers, including state employees, general employees, police officers and firefighters, and teachers. The data was grouped into 19 segments (four types of workers and by service groupings), and turnover was the highest in 17 of the 19 groupings studied in the most recent actuarial report.
• Higher turnover will result in fewer workers providing full careers in their communities. For instance, the experience shown from the 2022 study suggests that only 29 of 100 new state employees would reach 25 years of service. Past experience studies estimated 34 to 45 of 100 new state employees reaching the same mark.
• It is possible to develop a return-on-investment perspective regarding hiring by using the same experience data. To do this, the analysis projects the total service provided to Rhode Island citizens by 100 newly hired workers based on the experience data for each study. For state employees, this measure has been falling since 2010 – from 1,518 years of service per 100 new hires to 1,191 years – or from about 15 years per new hire to about 12.
• These increased turnover trends not only dictate how much hiring public employers must undertake, but also the average and median level of experience of their workforce. Higher turnover translates into workers with fewer years of experience with their employers, which could impact the productivity of a workforce as well as the quality of public services.
• The rate of change in attrition may be somewhat understated in this report because each experience study covers six years, while the report is conducted every three years. So, each study is examining data that is roughly half new and half from the prior three years. This almost certainly has a smoothing effect on the rate of change that is being measured every three years.

This report analyzes the past five experience studies that are available on ERSRI’s website, covering June 30, 2004 through June 30, 2022. It is important to keep note that other issues, like the availability and size of pay raises, employer-initiated terminations during recessions, and the impact of the Covid-19 pandemic likely also are key factors. While ERSRI experience studies provide an accurate snapshot of employee behavior, the studies do not provide explanations for employee choices.

Additional research from NIRS examining jurisdictions that have moved away from pensions includes  No Quick Fix: Closing a Public Pension Plan Leads to Unexpected Challenges and Retirement Reform Lessons: The Experience of Palm Beach Public Safety Pensions and Alaska Teacher Recruitment and Retention Study: Options and Analysis Supporting Retirement Plan Design.

The National Institute on Retirement Security is a non-profit, non-partisan organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers, and the economy as a whole. Located in Washington, D.C., NIRS membership includes financial services firms, employee benefit plans, trade associations, and other retirement service providers. More information is available at www.nirsonline.org.