Rethinking the Role of the Profession on Public Sector Compensation

Source: Thom Reilly, Public Administration Review, Volume 73 Issue 1, January/February 2013
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…Instead of constantly defending postretirement benefits and arguing that public sector employees are paid less than their private sector counterparts, I would like to suggest that the public administration profession take the lead in reforming public pay and benefits. If public managers, along with elected officials and employee and union groups, do not comprehensively address this issue, fed-up citizens will head to the ballot box, and their remedies will likely be much more punitive and draconian than any legislation or policy changes. Our field has been slow to lead in this area.

The field of public administration should be at the forefront, driving the reform agenda and discussion. I suggest four areas in which we could move in this direction.

-Transparency. Our field must insist on transparency in the adoption of public pay and benefits, including an independent analysis of the current cost of any pay or benefit increase, as well as how future costs will be paid for and managed.

-Shared pension (and retiree health care) costs. Similar to Social Society and defined contribution plans, there should be equal employee/employer contribution. Allowing public employees to take reduced pay increases in lieu of sharing in the cost of pensions is problematic and allows for a good deal of gamesmanship. If the pension rate goes up 2 percent and the employee gets a 3 percent cost-of-living adjustment, does that mean he or she would otherwise have gotten 5 percent? The reality is that in many jurisdictions, the public employer has largely picked up employee contributions. Courts have generally held that existing pension benefits are protected, but increasing existing employees’ contributions is generally permissible, which can significantly address a portion of the current underfunding.

-Hybrid and cash-balance pension plans. Our field should take the lead in designing hybrid plans that combine elements of existing defined-benefit plans with a new 401(k)-style system in which money is invested on behalf of the retiree. The Federal Employee Retirement System has adopted such a model. Under cash-balance plans, workers get an individual retirement account to which both the employee and the employer contribute while the employer guarantees a minimum return. These plans have the potential to increase active participation of public employees in retirement planning while transferring some of the risk away from the taxpayer. Moving public employees to these type systems will also allow portability of these benefits so that they can follow workers if they choose to switch jobs and move to the private or nonprofit sector or to another public sector job.

-Retirement security for all. Our field can use the increased national attention on public employee benefits to expand the conversation on the need for retirement security for all Americans. According to data from the Federal Reserve, U.S. Census Bureau, and Internal Revenue Service, 25 percent of American families have no savings at all, and the average amount saved for retirement is $35,000. Our nation is not adequately prepared to deal with this retirement security crisis….