Retirement insights from a Colorado PERA perspective

Issues & Perspectives

Pension changes offer cautionary tale

Palm Beach

Unsuccessful Shift to Costly 401(k) Accounts Led to Unprecedented Public Employee Turnover

A new case study released by the National Institute on Retirement Security (NIRS), Retirement Reform Lessons: The Experience of Palm Beach Public Safety Pensions, looks at a decision by the Palm Beach Town Council to close its defined benefit (DB) pension retirement plan in 2012 and move its police officers and firefighters to a “combined” plan that offered a dramatically lower pension benefit along with individual 401(k)-style accounts.

As the case study shows, public safety workers quickly fled Palm Beach, retiring or finding employment in other cities that continued to offer DB retirement plans. Only four years after the sharp cuts to the traditional pension, the town found that about a third of its police department had three years of experience or less. Along with a retirement rate of 20 percent after the 2012 change, 53 mid-career safety officers left Palm Beach from 2012 to 2015. By comparison, only two mid-career employees departed from 2008 to 2011.

Palm Beach faced significant financial challenges as a result of the high attrition. The town had to cover high levels of overtime to fill staffing gaps and soaring training costs as it brought in rookie police officers and firefighters. And as the case study notes, “the move to (defined-contribution) accounts does nothing to reduce plan liabilities on its own.”

After the costs of employee turnover and recruitment skyrocketed, Palm Beach reversed course and, in 2016, abandoned the defined-contribution aspects of new retirement plans and strengthened the defined benefit provisions. As a result of the exodus of workers, the town council strengthened the pension elements of the plan with the aim of improving recruitment and retention.

The high rate of retirements and departures from the town might not be that surprising, given the value that public sector employees place on retirement benefits. A 2015 NIRS study found that 88 percent of public-sector employees rate retirement benefits as extremely or very important, compared to 57 percent who said the same the about salary.

The experience in Palm Beach mirrors similar experiences of statewide plans in Alaska, Michigan, and West Virginia, where shifts from DB pensions to 401(k)-style accounts caused pension plan costs to skyrocket.

For more on defined benefit and defined contribution research, see these PERA on the Issues posts:

Cautionary Tales: Case Studies Show How States Face Funding, Debt Challenges After Switching to defined contribution Retirement Plans

Report: defined benefit Plans Increase Retention and Reduce Turnover Costs

Importance of Public Sector defined benefit Plans

Defined benefitA mandatory retirement savings plan in which a participant’s future benefits are known or can be calculated, but contributions are subject to adjustments. Defined contributionA voluntary plan in which participants can save pre-tax income for retirement. Contributions are “defined” by the employee, but the future benefit is not guaranteed.


  1. Gary Justus says:

    The State of Colorado legislature should add an exercise in honesty to the PERA bill currently being drafted to cut our benefits one more time. Simply mandate that every prospective and current employee of a PERA employer would have to be informed in clear terms and in writing of the effects on their retirement that PERA membership entails. First, the WEP/GPO reductions in Social Security benefits need to be explained with several examples of how PERA benefits trigger these significant reductions. Second, employees need to understand that working for a PERA employer means they cannot also pay into Social Security (absent working at a second job), thus preventing them from qualifying for “substantial earnings” credits to complement their SS earnings in other states or jobs. Finally, they should be told in clear terms that the legislature can and does pass new laws that cut promised PERA retirement benefits even after an employee is vested and even already retired. This is because the State of Colorado makes benefit promises that it refuses to fully fund with “actuarially required contributions.” With this level of transparency that PERA regularly extols, would PERA employers be able to attract and retain quality employees at the salaries and wages they pay? Would you have taken a job here knowing this upfront?

    • Colorado PERA says:

      Dear Mr. Justus,

      Thank you for your comments. All PERA members hired on or after January 1, 2005, must sign form SSA 1945 that outlines the details of the WEP/GPO for employees who work in positions where Social Security contributions are not required.

      Members are advised in all publications and in presentations that PERA benefits are governed under state law.

    • Duh, no! Who would want to work for state? State government is good only in that benefits are great, But PERA in itself does not keep their promises! The way I see it, states will have more non-productive employees if they have to keep working in their later years, I am talking about less productive employees past their 70s, still in the work force-what a shame it has to come to this…will probably have to also face future double taxations the way this country is going, sad affairs, may become a 3rd world country to say the worst!!! GPO also sucks, I had to quit a good state job in the 1980s in order to raise my kids, and now I am being penalized for it having to take out over 2/3 of my state salary from social security-sucks to the core, no wonder Americans are going crazy in this country! think about it….nothing to look forward to!!!!! I wonder where my ex-husbands money goes to-probably to those who don’t have to work!!!! I should have had 10 kids and lived off the system, instead of working most of my life since age 20, sucks!!!!! Americans are tired of this beaureacracy!

    • Bob Brinkerhoff says:

      No. I would have never risked my life to be a Colorado State Trooper if I had any idea the State would renig on their promise (in writing), regarding my retirement benefits. I had a better paying job when I quit to work for the State. Actually a 50% pay cut.

    • Laurie says:

      This is absolutely true. I was not told that PERA would have an invasive effect on Social Security due to WEP.

  2. Regina Macy says:

    During the Bush administration there was a huge ploy to have people do 401K’s instead of Social Security. That push encourages the demise of SS. The Stock Market crumbled so the 401k conversation ended. Now we have folks that want to destroy PERA doing the same thing and encouraging 401K’s. The new employees pay into the PERA system and the system can continue. I do think PERA needs to be tweaked. PERA destroyers always bring up the “3” people who make a million dollars a year on PERA. Please do common sense tweeks and protect PERA. Thanks.

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