Recent data suggest a growing number of public employee retirements taking place across the United States. For example, the Wisconsin Retirement System points out that the number of public employees retiring in Wisconsin increased by 33.6% from 2010 to 2011.
While one of the major catalysts for the recent surge in retirements among public employees has been changes made to post-retirement benefits, it is important to point out that state and local government employment has been in decline for some time. In the face of increasing rates of employee retirement, states have been addressing the effects of pension reform and early retirement through the use of transitional provisions.
According to the National Conference of State Legislators, more than 40 states have made fundamental changes to their employee benefits systems since 2009 in an effort to rein in spending and shore up budgets. The state of Iowa is among those that have passed reforms, as a 2010 report from the Center for State and Local Government Excellence chronicles.
In 2010, the Iowa Legislature passed a package of reforms to the Iowa Public Employees' Retirement System that included raising contribution rates, increasing the vesting period to seven years from four, increasing deductions for employees electing early retirement and increasing the number of years used to calculate an employee's final average salary.
The need for pension reform to preserve retirement security in Iowa was recognized by both IPERS and the Legislature, but so was the need to stave off a mass exodus of public employees. Toward this end, the following transitional provisions were passed along with the reform package:
c Employees were allowed to retire before reaching normal retirement age with the old reductions; the increased penalty for early retirement applies to those years worked after the reforms take effect.
c Employees are provided a “benefit snapshot” when electing to retire. Employees will choose between the benefit calculated using the pre-reform salary calculation or the post-reform salary calculation, whichever yields the highest benefit.
While many states have made, and continue to make changes to retirement benefits for their employees, they must also take into consideration the potential effects of a sharp increase in employee retirements. In this sense, the state of Iowa has provided an example that can be followed to ensure employees are eased through what can be an anxious process.
Research and policy analyst, Center for
State and Local Government Excellence