Public Pensions Are Losing Top Talent. Isn’t It Time to Rethink Compensation?

High-profile departures of senior-level executives reflect not only an aging workforce and a more politicized operating environment but also salaries and benefits that need to be competitive with the private sector’s.

OPINION | Dec. 6, 2023 •

Hank Kim, National Conference on Public Employee Retirement Systems

CalPERS headquarters — The California Public Employees’ Retirement System headquarters in Sacramento. CalPERS is looking for a new chief investment officer after an unexpected resignation. (Photo: CalPERS)

While recruitment and retention challenges have made headlines only recently as they’ve impacted the private sector, the public sector has been dealing with these issues for decades. Public pensions in particular have struggled with retaining executives and senior-level investment professionals, as evidenced by several recent high-profile departures.

So, what’s contributing to this turnover, and how can public pensions attract and retain top talent?

Part of the reason for the turnover is the aging public workforce. The pandemic led many older workers, including those in executive positions, to expedite their retirements and rethink their plans to return to the office. A recent survey by the MissionSquare Research Institute found that 36 percent of HR managers at local government agencies are seeing an increase in retirements this year.

Further, the work itself has changed substantially in recent years as public pensions operate in an increasingly politicized and polarizing environment. A growing number of public pensions are caught in the middle as politicians aim to earn points with voters through sweeping legislation and policies that restrict how plans can invest, without taking into consideration the complexities of retirement systems’ portfolios or their fiduciary duties. Senior leaders at public pensions face scrutiny from all sides — about funding ratios, investment allocations, COLAs and even staff bonuses — which likely contributes to burnout and ongoing stress in these roles.

But compensation also plays an important role, as public plans historically have not been able to compete with private-sector salaries, especially for senior leaders and crucial in-house investment positions.

Tasked with investing billions of dollars, administering benefits to public servants and advocating with policymakers and stakeholders, public pensions are unique compared to other public agencies. Approximately two-thirds of public pension revenue comes from investment earnings, and they ultimately have a net positive economic impact on local economies and revenues. Our research shows that in 2018, public pension funds generated $179.4 billion more in state and local revenues than taxpayers contributed to the funds. Further, the economy grows by $1,362 with the investment of each $1,000 of pension fund assets. So clearly it’s imperative to have top-tier staff at the helm.

Offering compensation more in line with the private sector’s could help broaden the pool of applicants and retain top talent who enjoy the mission-driven work one finds at a public pension. And that’s why it’s time to rethink public pension compensation.

Public pensions are more akin to a financial services entity than a pure government agency and, as a result, compensation for public plans may need to be looked at with a different lens. One of the National Conference on Public Employee Retirement Systems’ goals in developing its Public Pension Compensation Survey is to bring transparency and insight into compensation and benefits packages at state and local pension plans. The second, more long-term goal is to help show policymakers and the public what resources plans need in order to attract and retain qualified, high-functioning staff.

Despite the challenges, working for public pensions can be extremely rewarding. But to ensure continued efficiencies that allow them to provide vital benefits to public servants while contributing to the broader economy, compensation needs to be evaluated to reflect the evolving challenges public pensions face today.

Hank Kim is the executive director and counsel for the National Conference on Public Employee Retirement Systems.

Governing’s opinion columns reflect the views of their authors and not necessarily those of Governing’s editors or management.