back of a uniformed officer that says Police (Photo: Shutterstock)

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Pensions and retiree health benefits for first responders—policeand firefighters—are different in a number of ways from thoseoffered to other employees of local governments.

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And while some of the differences are pretty well known, such ashigher costs for municipalities and earlier retirements, and get plenty of headlinesimplying (or saying outright) that such benefits are profligate,others are not. And they don't get much news ink when it comes tomunicipality budget discussions about those costs.

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But it's tough for municipalities to make wise decisions on suchmatters if all the facts aren't known, or if the information thatreaches the public is one-sided and doesn't allow for a broaderconsideration of the issues (and maybe more creative proposals todeal with the realities once the true costs of change areknown).

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A brief from the Center for Retirement Researchat Boston College takes a look at some of those facts behind theheadlines that get a lot less attention. It might be wise for cityand county officials to review them, lest they propose solutions tobudgetary problems that might not actually fix much ofanything.

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1. Although their costs are nearly double, annualretirement benefits for public safety employees are not twice asgenerous. According to the report, data suggest that itcosts about 25 percent more for newly hired public safetyemployees' annual retirement benefits as a percentage of theirpreretirement salaries than it does for teachers and otheremployees.

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2. The higher replacement rate could be compensating forother benefits that public safety employees do notreceive. Police and firefighters are less likely to becovered by Social Security benefits, and will as a result be moredependent on their state or local government pension inretirement.

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3. Part of the higher replacement rate is due to publicsafety employees retiring at an earlier age and thus receivingbenefits for a longer period of time. Even though theyhave about the same expected lifespan, public safety employees willbe out of those jobs at a younger age—a determination based on themore hazardous and physically demanding nature of their jobs thanthose of other public employees.

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4. Retiree health care costs more for public safetyemployees than other public employees. This too is due tothe younger retirement age for public safety employees, which putsthem into retirement for years before they become eligible forMedicare—and thus dependent on the government's health insurancefor a longer period of time.

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5. Despite the fact that public safety employees'retirement and retiree health benefits cost more than those forother public employees, the overall impact of those costs is lessthan one might expect. There are three reasons for this:first, compensation costs (wages, health insurance, andcontributions for government-sponsored retirement benefits andSocial Security) only account for about 55 percent of localgovernment budgets (the other 45 percent is expended on everydaygoods and services).

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Second, public safety workers account for only 17 percent oftotal local government compensation costs. Teachers, health,utilities, justice, penal, transit, and social services make up theother 83 percent.

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And third, retirement contributions make up far less ofmunicipal budgets than wages, so that as a share of aggregate localgovernment spending, contributions for public safety retirementbenefits are very small—just 2 percent. The report adds, "[P]ublicsafety retirement costs average only 4.9 percent of aggregatespending for cities and just 1.9 percent for counties."

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6. Even if public safety employees worked longer, somecosts would merely shift to higher wages. Some dataindicate that it would be possible for public safety employees tostay on the job longer despite the physically demanding nature ofthe work, but the report points out that even if that became thecase, "[a]ny shift in the retirement age … would reduce totalemployee compensation, which could negatively affect therecruitment and retention of public safety workers at a time whenhiring them is already becoming increasingly difficult."

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It adds that should the retirement age be changed, wages mightneed to be increased to keep employee compensation competitive.

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Marlene Satter

Marlene Y. Satter has worked in and written about the financial industry for decades.