Funding Pension Obligations

In many cases, police retirement plans fall under defined benefit plans, where a set monthly retirement income is guaranteed to workers until they die, based on years of service and an average of highest salary levels. Of course, this requires municipalities to stash away enormous amounts of money every year to prepare for these future payouts, which can often approach 80% of pay while employed, and places most of the risk with the government. As a way to save on these costs, many municipalities have started to move towards defined contribution plans, where the employer matches an employee contribution to a 401k account or similar for the duration of employment. After the employee retires, they draw from this account which they ideally have managed and invested on their own—the government has no further obligation to the retiree. As a result, the risk (and much of the cost) is shifted to the employee, meaning the government has more money to spend on other operations. Of course, this private-sector style retirement plan is almost universally disliked by police unions currently receiving defined benefit plans, so managers should be aware that the resistance to such a move is likely to be substantial. However, the cost savings for the government are potentially just as substantial, so it is an option that should not be immediately written off simply for being politically unpleasant.