Public agencies at all levels share a costly problem.  Agencies are experiencing staffing problems that impede service delivery, while a retirement tsunami erodes the ranks of older, knowledgeable workers.  One-in-four government employees are 55 or older.  All of that talent could be gone in a few years. In the private sector, talent shortages are prompting companies to encourage older workers to defer their retirement — but there are no similar reports from public employers. There has been little, if any, attention to the cost of losing experienced workers.

Boomers started their careers at a time when “retirement” was seen as a reward for years of hard work. In government pension plans, the normal retirement age is typically lower than in the private sector. Many government plans encourage workers to retire early at age 50 or 55.  The mandatory retirement age for federal Law Enforcement Officers (LEOs) is 57.  That may have made sense a decade or two ago.

Realistically only the wealthy can afford to stop working in their 50s.  Those who do “retire” early go on to start new full or part time jobs and continue working into their 60s and 70s.  There are stories about people who started successful companies late in life.  The movie, The Intern, starring Robert De Niro, focuses on deferred retirement.  Prior to COVID, life expectancy at age 60 was almost 25 years.  That’s a full career for many working in government.

The Core Problem

In 2018 the Harvard Business Review published a series of articles focused on “The Aging Workforce”.  It focused on two demographic trends. The Boomers born in the years after World War II who are now retiring in droves. And the trend for couples to have smaller families. That today means fewer young people are starting careers.  

In Philadelphia, as an example, the population ages 20-24 is 45,700 smaller than the 25-29 group.  In Chicago, the 20-24 age group is 85,000 smaller.  In Boston, the group is 20,000 smaller.  It’s a common problem in major cities.  See Table 1.  That makes the local recruiting markets for new grads highly competitive for all employers.  Younger age groups follow the same lower count.  Where that demographic pattern exists, recruiting will be a problem going forward.

That shows up in key jobs important in government.  In the country’s workforce, the 20-24 cohort is 8.7 percent of the total.  But they account for only 5.2 percent of police and 6.5 percent of firefighters.  Less than 5 percent of the country’s teachers and librarians are under 25.  That’s also true for social workers. Surprisingly, the numbers are low for several tech specialties (e.g., systems analysts, 5.0 percent).

Worker shortages in public agencies emerged after the 2010 Great Recession.  In late 2013, there were 379,000 job vacancies.  At the end of 2019, the total was 684,000.  In the most recent BLS report for November 2023 the total for federal, state and local employers was 973,000. Those vacancies are spread across very different government operations – police, prisons, public health, education, public transit, emergency services, airport, etc.  In the private sector, vacancies have been declining

Surveys confirm Gen Z’s disinterest in working in government. That was reported in a Route Fifty column, “Why Young Workers Don’t Want Government Jobs” but the problem goes back years.   The result: fewer applicants, worker shortages and mounting job vacancies. The problem was described by the Washington Post’s Catherine Rampell: “A slow-moving crisis is paralyzing states and cities”, which is “leaving governments unable to fulfill their most basic functions.”

High vacancy counts hurt everyone – the public, elected officials, and co-workers who have to work extra hours.  The problem contributes to emotional and physical exhaustion, and when prolonged, it triggers burnout, absenteeism and eventually ‘quits’.  All of that adds to the costs of operation.  Over time poor agency performance can undermine public support.

The New World of Work

The numbers highlight the breadth and severity of the problem but securing agreement on a solution promises to be difficult.  In the past, when job openings were small in number, they were posted and HR offices simply waited for applicants. There were more job seekers than job openings.  

Now, with more open jobs than job seekers, agencies have to compete for talent with employers in other sectors.  The problem is private employers have far more discretion to offer attractive salaries, signing bonuses, more flexible working arrangements, etc. There have been job fairs where companies interview candidates and make job offers the same day.  Unless job seekers have a strong interest in a government career, they are unlikely to wait for the weeks and months agencies sometimes take to make job offers.

Public employers, however, share a problem that was not evident until the pandemic changed everything.  Agencies employ workers from a long list of job families.  Each agency has a distinct labor market, varying from high demand IT specialties to jobs that are close to disappearing like receptionists.  Several are unique to government; with others government competes with not-for-profits, and then there are those where companies offer the best graduates $100,000 or more.  That means each department has somewhat different staffing problems.  It makes staffing more complex than in the private sector.

Becoming competitive – and filling vacancies — will necessitate changing traditional civil service systems.  Those systems were adopted in a very different era.  Today’s young job seekers are not interested in the foundation of those systems, the “jobs for life” commitment that promised ‘‘long-term job security, consistent pay raises, and a pension at retirement”.  The systems also mandated consistent administration across all job families; civil service commissions enforced that mandate.  However, the worker shortages are now forcing agencies to be more proactive in generating interest in what’s needed to attract applicants.

The COVID crisis and the experience working remotely prompted millions to reconsider their work lives.  Now workers frequently look for better jobs. Websites like LinkedIn make job searches easy.  Job switching for higher pay skyrocketed. To attract and retain workers, private employers are offering hybrid and remote work arrangements.  The gig economy has mushroomed; millions work part time. Workers are looking for greater fulfillment and personal growth opportunities. 

Workforce management practices have possibly changed more in the past two or three years than in the prior three decades. Change is still unfolding. Websites regularly report an “expert’s” best practice ideas.  One change that stands out in their recommendations is the shift from formal policies to approaches to “engage” workers. There is also far less emphasis on top-down control; workers have more autonomy.

This is a “new world of work,” a phrase used by the Harvard Business Review, the New York Times, and Forbes – and elected leaders should understand why it’s important.

The Cost of Government Pensions is a Key

It will be a ‘hard pill to swallow’ but the high costs of defined benefit pensions  – that is plans promising annual benefits linked to pay at retirement – make change difficult.  They require budget dollars that could be diverted to competing for talent. The funding required for government pensions is the single biggest difference in public-private pay comparisons.

BLS data from 2022 shows, “Only 15 percent of private industry workers had access to a defined benefit plan, compared with 86 percent of state and local government workers.”  (‘Access’ does not signify that employees elect to participate in a plan.) Starting in the 1980s, the new law, ERISA, made companies accountable for funding accrued pension benefits and that prompted them to start replacing those plans with defined contribution or savings plans.  The costs are significantly lower.

Companies decided to terminate or freeze defined benefit plans because the costs were high.  Moreover,  future costs depend on an employee’s compensation at or close to retirement as well as uncertain future investment returns.  That keeps actuaries in business.  It’s very different with defined contribution plans where the costs depend on employee decisions to save for retirement. 

There are several varieties of retirement plans, each has specific parameters (e.g., age of early retirement, formula for matching employee contributions), but it’s the annual cost that is significant here. 

BLS data show state and local retirement plans accounts for 13.2 percent of an employee’s ‘total compensation’. The full package of benefits totals 38.1 percent.  Employers in the private sector average only 3.4 percent on retirement plans. In some industries it’s 2 percent or less. The highest of any industry group is construction where employers spend 7.0 percent. 

When the percentages are translated into payroll dollars, the total compensation of a government worker paid a $60,000 salary would be $96,930.  Retirement plans account for $12,794.  In the private sector, a rough estimate of the retirement costs for the same hypothetical worker would be $3,300. 

Another difference that adds to the costs is the age when employees ‘retire’ and start benefit payments.  At age 65 the average person can expect to live another 20 years.  To illustrate the impact on costs, when benefits begin earlier at age 60, the benefits have to be paid for 25 years.  When a worker retires at 55, the benefits are paid for 30 years.  That’s a 50 percent increase in funding.  (Actuarial calculations are not that simplistic.)  With savings plans, early retirement reduces an employer’s costs.

A related issue, largely unique to government, is mandatory retirement.  The argument for compulsory  retirement is the jobs are too dangerous (military) or they require high levels of physical and mental skill (air traffic controllers, airline pilots).  With improved health and longevity, that makes less and less sense.  It’s the same as early retirement and adds to pension costs. 

Encouraging (or allowing) workers to work an added year or two would reduce the years a retiree receives benefits, and cut costs.  Over time ‘normal’ retirement ages have been raised but are still below the ages in private sector plans – and in Social Security.  On paper, it’s a simple change to cut costs.

The federal government reconsidered its retirement program in the 1980s when the Federal Employees Retirement System was introduced.  It combines benefits from three sources: a Basic Benefit Plan, Social Security and the Thrift Savings Plan.  The Basic Plan provides very modest benefits, but the combination  provides better benefits than the typical private employer.  It’s a model for other public employers.

The point is that retirement plan costs can be reduced without affecting the benefits of older workers or their plans. Ideally leaders should arrange for meetings where the issues can be discussed in the context of the purpose – shifting dollars to make jobs more attractive to younger workers.  Actuaries can provide estimates of the potential savings spread over the workforce. 

This is clearly not an argument for eliminating defined benefit pensions.  Older workers have based their life plans on the expected benefits.  But modifying plan provisions or, as the feds did, replace an outdated plan can generate savings to improve recruiting. A simple answer, from the private sector, is ‘freezing’ benefits and/or participation for workers below a stated age (e.g. 40 or 45) and replacing it with a savings plan.  There are multiple options.

This should also not be read as a criticism of pension plans. However, public employers have obvious budget limitations. They also have a commitment to provide promised public services.  When job vacancies delay or prevent the delivery of essential public services, it can and has affected residents.  (The population data suggest the number of young workers looking to start careers will continue to decline.)

The policy questions include:  Are the costs of defined benefit pensions the best use of limited budget dollars?  Are the ‘costs’ linked to mounting job vacancies (e.g., overtime, burnout, and poor performance) acceptable?  Is the loss of knowledgeable, experienced older workers acceptable?  Public employers would benefit from initiatives to improve recruiting as well as encourage older workers to defer retirement.