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Posted October 11, 2007 The full Governing Management Letter | Subscribe to The Governing Management Letter Bonus columns: GIRARD MILLER’S BENEFITS BEAT Overcoming the Police Shortage Reform pensions to pay recruits more in cash. Questions, success stories or anecdotes about benefit issues in government? As I read reports of the nationwide shortage of entry-level police officers, my brain suffers from "future shock." It seems like yesterday that the field was flooded with candidates. When I first worked in local government in Princeton, New Jersey, we had 100 applicants for every vacancy. In the early 1990s, a young relative of mine finished his B.A. in Criminal Justice, and there were few if any entry-level jobs available except for those with preference points for military service or racial minorities. Finding nothing available in local police work, he went to work for the border patrol, now part of Homeland Security. 
But times have changed. Military veterans are unavailable because of full troop deployment in Iraq, and the Homeland Security forces on border patrol have sapped the candidate pool. We're also hearing that entry-level pay is simply uncompetitive. Part of the vacancy rate in many police departments is also the result of their unique pension systems, which permit retirement at very early ages. So Baby Boom police officers are hanging it up and moving along, often to second careers while they draw full pensions 10 years before the average American taxpayer. Other factors are also at work. Young people considering law enforcement are starstruck by TV shows like "CSI." They all want to work in forensics instead of driving patrol cars. So there just isn't much interest in public service as we knew it back in the last century. And lifestyles are much more important to this new generation than to their parents. Add the potential danger of police work, and it's no surprise that recruiters are fighting an uphill battle.
The cost of recruiting and training police officers is very high. So there is not much money left to pay salaries. Public employers complain that their hands are tied because of expense-laden labor contracts that inflate the cost of staffing a police post by 50 to 100 percent, depending on local benefit levels. Pension costs are the primary culprit, as they often suck up 20 to 25 percent or more of base pay — up to 50 percent in some jurisdictions. And when retiree medical costs are properly accounted, those numbers will go higher. So it's time to think about a new way to compensate police officers by sweetening the pot with higher salaries and more realistic retirement benefits. I don't propose to abandon the traditional defined-benefit pension for police officers, even though many departments in the country work perfectly well with defined-contribution plans instead. Those arrangements usually cost the public agency less annually, and they tend to keep police officers in the workforce longer. But it's a futile battle to pry a defined-benefit pension from an incumbent police officer who's already suspicious of management in the first place. A superior arrangement for short-staffed police departments nationwide would be a hybrid or optional pay system that works like this: New recruits could still take the standard pay package — with low current entry-level salaries and a rich pension plan. Or they could elect to receive a higher salary and participate in a defined-contribution — 401(a) — plan with the employer contributing 10 percent of their pay annually and the employee making a matching contribution of half that. Mathematically, that 15 percent combined contribution is sufficient to produce a generous retirement investment portfolio at age 65 — or earlier — that will be far richer than most civilians and taxpayers receive. And the officers can take all their money and a fair share of the employer's contributions with them at any time if they decide to change careers or jurisdictions. The portability benefit will be especially important to new recruits who may dream of grander work in other agencies or locations after they have a little experience under their belt. The same strategy could also apply to retiree medical benefits, using a Section 115 plan or a VEBA-like fund with unused sick leave and a fixed employer contribution of 4 to 5 percent of salary. This would replace the current "blank check" approach, which will cost double that or more. Employers can then take their savings from the pension plan and retiree medical plan contributions, which would be 15 to 50 percent of the base salary, and increase the rookies' salaries by that much. Experience says that extra cash in salary up front will be more attractive to 20-year-olds than a distant pension promise. The "Help Wanted: Police Officers" ads will look much more attractive with higher pay and portable benefits. In addition, the newly hired police officers can be given an option to join the traditional defined-benefit pension plan after seven years, subject to a pay adjustment that puts them in line with the other officers receiving the richer pension benefits. By then they would have a better idea of whether they want to keep working for the same department, and they would still be young enough to earn a full pension under a 30-years-of-service plan. Actuarially, this still works because their delayed pension entry age will push their retirement-eligibility date back by five or six years and thus reduce the number of years in retirement requiring pension payouts. (And don't forget that their initial savings plan from their first seven years should by then be worth about five times their final salaries because of investment compounding — a 3,000 percent return on their contributions!) Two-tiered pay plans will require union approval in most states, but if they are offered as an optional alternative that takes away nothing from the incumbent officers, it would be hard for union officials to oppose them just on principle. This structure also finesses the inevitable problem that police departments and municipalities will face if they raise entry-level public-safety salaries to be more competitive. All the senior incumbents will expect similar raises, and this approach will remind them that they already got their raise, in their richer pension plan. If full staffing reduces costly overtime, there will be even more money available to sweeten the salaries for new hires. Couple this pay package with an option to buy a home locally with assistance from the retirement plan, as I suggested last month in my Pensions and Housing $$$ column, and suddenly the compensation package for police recruits will look a lot more attractive. I don't claim to have the ultimate solution, but hopefully this suggestion will spur public managers and top brass in the police departments to think outside the box to find ways to attract needed police officers and assure the public's safety — at a price taxpayers can afford. Last month: Girard Miller, an analyst of benefits and investments with 30 years of experience in the public, private and nonprofit sectors, can be reached at Girardinmalibu@charter.net. © 2007, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
