Recent SLGE Summit Probes Evolving Social Contract

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Recruitment and retention concerns grow as more state and local workers retire

Fiscal constraints and changing demographics are challenging the social contract between state and local governments and their employees.

Nationally recognized experts and practitioners gathered in Washington, DC, at the Retirement Security Summit hosted last week by the Center for State and Local Government Excellence (SLGE). Speakers described the effects of pension and health benefit changes, retirement income trends, and shifting demographics on the evolving social contract with employees.

The event was moderated by Peter Harkness, founder and publisher emeritus of Governing magazine, with keynote speaker Dallas Salisbury, President and CEO of Employee Benefit Research Institute (EBRI).

SLGE President and CEO Elizabeth Kellar opened the Summit with 2015 workforce trends data, noting that for the second year in a row, a majority of state and local governments are reporting increases in hiring. The good news is tempered, she said, because the sector’s employment is almost 600,000 lower than it was before the Great Recession and more employees retired last year than the year before.

SLGE’s annual survey of state and local government human resource professionals, released last week, was conducted with the International Public Management Association for Human Resources (IPMA-HR) and the National Association of State Personnel Executives (NASPE) and highlights the talent challenges ahead:

  • Recruiting and retaining qualified personnel with needed skills to public service was the top concern of respondents, followed by succession planning and staff development.
  • A majority of respondents reported that their governments have made changes to their health benefits for the sixth year in a row
  • Thirteen percent of respondents reported shifting their employees to a high deductible health insurance plan paired with a Health Savings Account.

She noted that virtually every state had made significant changes to its pension plans over the last decade. “You might think that these changes to benefits would be offset by increases in wages, “ she said, “but state and local revenues have not yet returned to their 2007 levels, so wage increases have been modest, at best. State and local government wages and salaries increased by 1.6 percent in the 12-month period ending December 2014, compared with a private-sector increase of 2.2 percent over the same period.”

Keynote speaker Dallas Salisbury discussed the pendulum swings and trends affecting retirement programs. He described the period from 1933-1980 as driven by the New Deal, Great Society, Health, and Well Being. Defined benefit retirement plans and social insurance were seen as good policies in that era. He contrasted that with the period from 1980 to the present, beginning with President Reagan’s advocacy of individualism, liberty, and choice. These values correlate with the movement to defined contribution plans and a more negative view of social insurance.

“There are real debates about retirement plan objectives,” Salisbury said. “Is the objective retirement income or portable savings? Is the objective to provide adequate retirement savings for long-service workers or a percentage of pay to all workers?”

At the Summit’s first session, “Retirement Income Trends and Pension Reforms,” speakers examined the fiscal health of public pension plans and discussed the implications of benefit reforms on retirement income and savings.

Moderator Peter Harkness remarked that “There is a perception in the press and the public that the sky is falling for public pensions. This perception does not seem to match the facts.”

Dana Bilyeu, Executive Director of the National Association of State Retirement Administrators noted that the good news on public pensions often is not reported. “Most states are doing a good job of funding their annual required contribution (ARC) for their defined benefit plans, but there are a few outliers. The reality is that while the costs to meet the ARC have been going up, so, too, have states’ efforts to maintain funding.”

AARP’s Director of Financial Security and Consumer Affairs Gerri Madrid-Davis stressed that employees are being asked to assume greater responsibility for their retirement as a result of state and local government fiscal constraints. “Workers are being asked to work longer and pay more,” she said, “These changes will have an impact on recruitment and retention of workers.”

The Summit’s session, “The New Social Contract with Employees,” focused on changing demographics, fiscal constraints, the growing freelance economy, and how changes to benefits affect recruitment and retention.

Joshua Franzel, Vice President of Research for SLGE noted, “The state and local government workforce is aging, with more employees now making career moves in an improving economy, while benefit costs and political environments are making it difficult to increase state and local wages. How states and localities manage these variables will ultimately determine the makeup and quality of their future workforce.”

“Investments in employees need to be a top priority, not an afterthought,” said Neil Reichenberg, Executive Director of the International Public Management Association for Human Resources. “Talent management is the number one issue reported by human resource directors, yet only 27 percent of governments engage in succession planning.”

Rebecca Hunter, Commissioner of the Tennessee Department of Human Resources, echoed this trend, noting that the cost-cutting environment can prompt a conversation about the short- sightedness of reducing expenditures for training and development. A chief executive officer might object to such a cut, asking, “What if we don’t train them and they stay?”

Steve Kreisberg. Director of Collective Bargaining & Health Care Policy, AFSCME, speculated that the whole workforce dynamic may change. “The Uber model is instructive,” he said, and shows what can happen with the atomization of the workforce. “If we’re all Uberized, where do I get my benefits? Traditionally, we have gotten our benefits from the employer in the U.S. Benefits come from the state in Europe. If we don’t have regular employers in the future and we can’t agree on the Affordable Care Act, how do we provide health care?”

The final session focused on strategies to boost retirement savings with a case study of the City of Los Angeles retirement planning tool.

Ms. Kellar highlighted the importance of finding ways to make it easier for employees to increase their retirement savings. “Inertia is a big part of the savings problem,” said Kellar. “Most of us need a nudge to do something that requires discipline, whether that is an exercise program or saving for retirement. Behavioral economists have found that an effective savings nudge can be to automatically enroll employees in retirement savings plans.”

Steven Montagna, Chief Personnel Analyst for the City of Los Angeles Personnel Department gave an overview of the City’s supplemental defined contribution plan which has a 69 percent participation rate, compared to a 40 percent national average. The City established a mission for the plan to help employees achieve retirement income security, defined as 100% replacement of “lifestyle income” upon retirement. To help employees reach this goal, the City created a calculator that allows employees to calculate the gap between their current savings and their lifestyle income replacement goals. Since its implementation a year ago, the tool has been used more than 28,000 times. AARP’s Gerri Madrid-Davis said of the Los Angeles plan: “The fact that you are building this at 100 percent of replacement income is a blockbuster. For a long time, our industry has had a perception that people will need less money in retirement. Instead, what we find is that people are increasingly entering retirement with a great deal of debt.”

The Retirement Security Summit was sponsored by ICMA-RC, AARP, the Segal Group, and Gabriel Roeder Smith & Company.

“We are glad many public sector employees recognize the value of defined contribution opportunities to build retirement security and supplement pension plans,” said Bob Schultze, ICMA-RC President and CEO. “We feel it is important for public sector employees and plan sponsors to make informed choices and have the flexibility to address multiple goals, and we greatly appreciate SLGE hosting this open conversation.”

Full video of the Summit and presentations from each of the speakers are posted on the Center’s website.

For more information: Amber Snowden, asnowden(at)slge(dot)org, 202-962-3639

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About the Center for State and Local Government Excellence
The Center for State and Local Government Excellence helps state and local governments become knowledgeable and competitive employers so they can attract and retain a talented and committed workforce. The Center identifies best practices and conducts research on competitive employment practices, workforce development, pensions, retiree health security, and financial planning. The Center also brings state and local leaders together with respected researchers and features the latest demographic data on the aging workforce, research studies, and news on health care, recruitment, and succession planning on its website, http://www.slge.org.

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