(Photo: Shutterstock)
Pensions and retiree health benefits for first responders—police and firefighters—are different in a number of ways from those offered to other employees of local governments.
And while some of the differences are pretty well known, such as higher costs for municipalities and earlier retirements, and get plenty of headlines implying (or saying outright) that such benefits are profligate, others are not. And they don't get much news ink when it comes to municipality budget discussions about those costs.
But it's tough for municipalities to make wise decisions on such matters if all the facts aren't known, or if the information that reaches the public is one-sided and doesn't allow for a broader consideration of the issues (and maybe more creative proposals to deal with the realities once the true costs of change are known).
A brief from the Center for Retirement Research at Boston College takes a look at some of those facts behind the headlines that get a lot less attention. It might be wise for city and county officials to review them, lest they propose solutions to budgetary problems that might not actually fix much of anything.
1. Although their costs are nearly double, annual retirement benefits for public safety employees are not twice as generous. According to the report, data suggest that it costs about 25 percent more for newly hired public safety employees' annual retirement benefits as a percentage of their preretirement salaries than it does for teachers and other employees.
2. The higher replacement rate could be compensating for other benefits that public safety employees do not receive. Police and firefighters are less likely to be covered by Social Security benefits, and will as a result be more dependent on their state or local government pension in retirement.
3. Part of the higher replacement rate is due to public safety employees retiring at an earlier age and thus receiving benefits for a longer period of time. Even though they have about the same expected lifespan, public safety employees will be out of those jobs at a younger age—a determination based on the more hazardous and physically demanding nature of their jobs than those of other public employees.
4. Retiree health care costs more for public safety employees than other public employees. This too is due to the younger retirement age for public safety employees, which puts them into retirement for years before they become eligible for Medicare—and thus dependent on the government's health insurance for a longer period of time.
5. Despite the fact that public safety employees' retirement and retiree health benefits cost more than those for other public employees, the overall impact of those costs is less than one might expect. There are three reasons for this: first, compensation costs (wages, health insurance, and contributions for government-sponsored retirement benefits and Social Security) only account for about 55 percent of local government budgets (the other 45 percent is expended on everyday goods and services).
Second, public safety workers account for only 17 percent of total local government compensation costs. Teachers, health, utilities, justice, penal, transit, and social services make up the other 83 percent.
And third, retirement contributions make up far less of municipal budgets than wages, so that as a share of aggregate local government spending, contributions for public safety retirement benefits are very small—just 2 percent. The report adds, "[P]ublic safety retirement costs average only 4.9 percent of aggregate spending for cities and just 1.9 percent for counties."
6. Even if public safety employees worked longer, some costs would merely shift to higher wages. Some data indicate that it would be possible for public safety employees to stay on the job longer despite the physically demanding nature of the work, but the report points out that even if that became the case, "[a]ny shift in the retirement age … would reduce total employee compensation, which could negatively affect the recruitment and retention of public safety workers at a time when hiring them is already becoming increasingly difficult."
It adds that should the retirement age be changed, wages might need to be increased to keep employee compensation competitive.
READ MORE:
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.