Data and Research July 15, 2024

Pensions Have ‘Critical’ Role in Strengthening Public Safety Workforce

Defined benefit pensions help with the three Rs of workforce management: recruitment, retention and retirement, per the National Institute on Retirement Security.  

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For states and municipalities, offering public safety workers a sufficient defined benefit pension benefit is key to maintaining a healthy public safety workforce, according to new research, with a knock-on effect on both public safety and protecting property.

For states and cities, offering pension plans to police officers and firefighters—particularly—is critical to sustain a robust public safety workforce to fight fires and maintain public safety, according to a National Institute of Retirement Security paper, “The Role of Defined Benefit Pensions in Recruiting and Retaining Public Safety Professionals.”  

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“Defined benefit pension plans are an essential component of a public safety career,” explained Tyler Bond, the institute’s research director, during a July 11 webinar on the topic.

Defined benefit pensions support the three Rs of workforce management: recruitment, retention and retirement, according to the paper presented during the webinar. More than half (52%) of new hires in public safety positions are expected to retire as a participant in the pension plan, with an average of 17.6 years of service, NIRS found.

While 6% will leave their job due to disability or death, “only 42% are expected to leave for another reason, likely quitting,” the paper stated. This contrasts with experience “in the private sector, where the median tenure in 2022 was 4.1 years,” according to data from the Bureau of Labor Statistics published in 2022.

Public safety workers tend to join these pension plans at about ages 27 or 28, and the average length of service for current, active employees was 12 years, according to the research paper.

This length of service at one organization is “unheard of, really,” compared with the lengths of service of workers in all public pension plans or larger state pension plans, explained Paul Baugher, a senior consultant with Foster & Foster, co-author of the paper and a webinar presenter.  

Bond added that “pensions have demonstrated impacts on helping to recruit police officers and firefighters, keep them throughout their career and then help them to transition into retirement at the appropriate time.”

For firefighters and police offices, offering DB plans is even more critical because many will not be eligible to receive Social Security benefits when they retire. As many as two-thirds of firefighters and police officers do not participate in Social Security through their public safety job, NIRS estimated.

In the U.S., there are approximately 700,000 full-time police officers with the power of arrest, according to 2023 figures from the Bureau of Labor Statistics, and if figures include other police department employees, the number is more than 900,000 full-time employees, according to FBI data from 2019.

Full-time professional fire fighters number approximately 315,000 workers nationally, found BLS, in 2023.

Providing a DB plan is also a recruitment tool for states and cities, facilitating hiring for public safety professions. The NIRS research examined a nationally representative sample of 28 police and firefighter pension plans and found that three-quarters of these plans expect at least 75% of their current employees to retire from the plan. These plans accounted for more than 250,000 retirement plan participants in 2022.

The NIRS research also found that, in 2019, half of police officers and more than half of firefighters said the ability to earn a pension benefit was a reason they chose a public sector job. More than 60% of both groups of workers said the pension was a major reason they stayed at their job.

Meanwhile, 86% of state and local government employees cited retirement benefits as either major or minor factors that attracted them to their public sector job in the first place, according to 2023 research from MissionSquare Research Institute.  

The paper was co-authored by Baugher; Bond; Alisa Bennett, president and consulting actuary at Cavanaugh Macdonald Consulting; Dan Doonan, executive director of the National Institute on Retirement Security; Larry Langer, principal and consulting actuary at Cavanaugh Macdonald Consulting; Joe Newton, a senior actuary at Gabriel, Roeder, Smith & Co.; Daniel Siblik, vice president and actuary at Segal; and Matthew Strom, a senior vice president and actuary at Segal.

Data and Research July 12, 2024

Gen Zers Most Confident About Retirement, but Still Worry About Outliving Savings

For the third consecutive year, BlackRock’s survey finds at least 60% of respondents from all generations say they are worried about outliving their savings in retirement.

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Across all generations of savers surveyed in BlackRock’s 2024 “Read on Retirement” survey, employees expressed confusion about how much to save for retirement, worries about outliving their savings and uncertainty about how much income they will need in retirement.  

Generation Z employees expressed the highest level of retirement confidence out of any generation, with 77% saying they feel on track to retire with the lifestyle they want. However, 69% of this cohort said they worry about outliving their retirement savings. 

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For the third year of BlackRock’s survey, more than 60% of all respondents expressed fear of outliving their savings. Employers expressed similar concerns, as only 58% said they believe participants are on track with their retirement savings, down from 64% in 2023. 

Millennials, in particular, are “feeling the squeeze,” as 62% reported that they carry credit card debt—the most of any generation—and 56% said they worry about outliving their retirement savings. Additionally, 72% of Millennials surveyed said they would stay with their current employer if it matched student loan payments with contributions to their retirement plan. 

Since January 1, employer contributions matching employees’ qualified student loan payments are allowed under the SECURE 2.0 Act of 2022. 

Stressful Times for Gen X  

With retirement coming sooner for Generation X workers, respondents from that generation were both the most likely to report saving consistently for retirement and the least likely to feel on track.  

More than half (54%) of Gen Xers who self-identified as not on track feel they should be saving more, but only 31% of those eligible reported making catch-up contributions, according to BlackRock. Under 2024 IRS limits, individuals older than age 50 can save up to $7,500 extra annually in their 401(k) or 403(b) plans. 

“Our survey showed that Gen X had the highest volume of debt on a dollar basis across all generations,” said a spokesperson at BlackRock. “While there are likely multiple factors impacting why less Gen Xers are making catch-up contributions, debt load could be one reason impacting their decisions – and their retirement confidence.”

BlackRock also found that 40% of Gen X workers currently use a financial adviser, the lowest of any generation. 

Younger Workers Relying on Employers 

Gen Z employees are more likely than Gen X to work with a financial adviser; the survey found that a majority of Gen Z lacks firsthand investment knowledge and is seeking more professional management from their plan.  

For example, 63% of Gen Z members surveyed admitted they do not understand enough about investments to confidently manage their own savings. Instead, many Gen Z employees are relying on their employers to offer appropriate investments, as 25% said their trust in their employer to choose the right investment option for them is the primary reason they invest via a target-date fund. This may seem like a small percentage of workers, but BlackRock found that Gen Z workers trust their employers nearly four times more than Baby Boomers. 

What Lies Ahead? 

TDFs remain the “tool of choice” for the majority of workplace savers, as 61% are either already invested in a TDF or plan to be soon. However, 20% said they are not sure if they are invested in one or not.

“What’s encouraging is of those 20% not currently familiar with a target date fund, 69% said they’d be interested in using one within their retirement plan, after being provided a definition,” a BlackRock spokesperson said. “And the survey showed 79% of participants said providing specific education on investment options would help with retirement planning.”

Plan sponsors expressed a preference for making guaranteed income part of retirement planning, as 83% agreed their participants would benefit from a TDF solution that includes some sort of guaranteed income. A growing number of plan sponsors are also seeing mounting evidence that active investment strategies often perform better and benefit savers across market cycles, according to the report. For instance, 85% of plan sponsors agreed that active TDFs could reduce the impact of market volatility on investment outcomes. 

“Our research continues to underscore how complicated the path is for Americans when planning for retirement,” said Anne Ackerley, a senior advisor on retirement at BlackRock, in a statement. “This is an important moment to rethink retirement, and we are committed to convening conversations around ways we can make retirement investing simpler, more accessible, and more affordable for as many people as possible.” 

The survey included responses from more than 450 defined contribution plan sponsors, as well as 300 plan advisers, 1,300 workplace savers, 1,300 independent savers and 300 retired workplace savers in the U.S. It was fielded online from January 29 through March 7. 

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