Public Pensions and Workforce – State Police Version

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The recent announcement that State Police Superintendent Marian McGovern was going to retire prompted me to look into her compensation and her choices. (N.B. I don’t know the Superintendent and don’t question her commitment to public service. The point here is simply to look at the economic incentives provided by the current public pension system.)

My first question was: Why did she wait so long? The State Police are “Group 3” employees and the only Commonwealth employees who do not have a retirement age factor in their pension calculation (only years of service). That contributes to relative early retirements — the average State Police retiree in 2009 was 53.7 years old while the average Group 1 retiree (the majority of state employees) was 62.1 years old.

Based on her compensation levels and years of service, McGovern could have maxed out (as a percentage of salary, not average salary basis) her pension in 2006 with a pension of $100k plus.

What this means is that McGovern’s effectively yearly compensation (actual pay minus foregone pension benefit) from 2006 on was pretty low — from roughly $25.5k to $37.3k. That’s not very much for the type of work she was doing. It makes one wonder how the State Police retains any senior management.

Because of her ascent in the ranks, from Captain in 2004 to Superintendent, McGovern did benefit from pretty rapid salary escalation, almost 8% per year over that period. Its not at all clear that other senior officers would have similar escalation.

And that escalation did provide a benefit for her — increasing her yearly pension from $100k+ in 2006 to almost $150k when she retires in 2012, so there is some economic logic to her continued service. (However, this increase should be considered alongside the possibility that she could have been employed elsewhere following her retirement from the State Police earning income.)

McGovern’s situation highlights one of the less explored aspects of pension reform — is it getting us the public workforce we need and want? The system is packed with nooks and crannies, very few of which spring from a primary interest in workforce development. Her case highlights how, for many senior employees, there are economic disincentives (in the form of low effective current compension) to continue working once key (and seemingly arbitrary, in some cases) inflection points are passed.

Crossposted at Boston Daily.