Getting the Incentives Right

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At the end of the day, compensation systems are intended to attract a workforce appropriate to the task.

So, the details in Monday’s Globe story on expanded State Police recruitment are alarming. The story leads with a push for greater diversity but quickly gets to the point:

Thirty-nine percent of the department’s 2,429 officers are eligible to retire because they’ve been on the job for more than 20 years, and more than half of those already qualify for a full pension, according to State Police.

“Over 500 troopers have maxed out their pension and could walk out the door any time,” said Colonel Mark Delaney.

As our 2006 paper on state pensions points out, the Commonwealth builds all kinds of perverse incentives into the state pension system, then declares a “crisis” when people behave in an economically rational way.

State troopers are the only class of public employee (besides MBTA employees) who don’t have an ‘age of retirement’ component to their pensions. After you’ve worked for twenty years, your pension is basically maxed out, save for salary increases.

If you are like Superintendent Delaney (hired at roughly age 22), he qualified for a full pension by the time he was 42 and has only increased it based on salary increases. That’s not a dig at the Superintendent (a genuinely good guy), just an illustration of a typical case.

For many of these officers, they have maxed out their pension by their mid-40s and have the prospect of well-paid, lower risk employment in the private sector (e.g. campus police, medical center security) with the potential to accumulate many years of service towards another pension.

For the Commonwealth, that means trained officers in the prime of their careers have every incentive to leave the job — a ‘crisis’ that we brought upon ourselves.