‘Cyber, boomers and pensions, oh my!’: state governments’ 3 worries

The annual budget process at our state and local governments is the traditional focus of much of the public’s attention. While much of the public discourse highlights tax policy and spending priorities, this discussion tends to mask other underlying issues that impact government operations.

Three issues that are at the top of mind of many government leaders are cyber threats, the impending retirements of the baby boomers and the looming pension crisis.

Governments collect massive amounts of business and personal data from a wide variety of sources. Businesses provide data to taxing authorities; public health officials maintain detailed health information on citizens that they serve; and public education officials maintain personally identifiable information (PII) and protected health information (PHI) on their students.

Governments maintain an assortment of employee data. All of this data is managed by governments that are dedicated to being transparent and trying to engage their citizens via the internet. Government leaders are constantly assessing their vulnerability to these cyber threats.

In managing their risks, governments must constantly assess the vulnerability of their IT systems to withstand these threats. Many are investing significantly in new hardware and software to mitigate such threats.

Concurrent with those investments, governments must also invest in training their employees to engage new technologies to minimize the threats. Finally, governments must also invest significantly in continually monitoring access to this data to ensure it is safely maintained.

Because of the increase in cyber threats, employees with those IT skills are in high demand in the private sector and are leaving government in large numbers. This “brain drain” of talented cyber experts further increases cyber risks.

However, it is not just government IT workers that are leaving. We are also beginning to see the first wave of baby-boomer retirements. These employees are among the most skilled in the government’s workforce. This “brain drain” impacts the effectiveness and efficiency of government operations.

As these workers leave, it is critical for governments to harness the collective knowledge of these individuals and implement comprehensive succession planning techniques.

Updating job descriptions and policies and procedures is an imperative. But there is a silver lining in the exodus of older workers. These departures also allow governments a unique opportunity to re-engineer work processes.

Can government make a greater use of technology to perform tasks previously performed by an employee? Can the work be redeployed to others with less experience so that those with more experience can be used in a more analytical role?

Governments should be taking advantage of employee turnover to re-evaluate and re-engineer processes to become more effective and efficient.

An unintended consequence of such turnover is an exacerbation of an already looming pension funding crisis, which is rapidly impacting government’s ability to fund other areas of operations. As these employees retire, assets in the retirement plans will deplete at an increased rate.

At the same time, the rates of return on the remaining assets in the plan have not returned to the long-term rates of return seen 10 and 20 years ago. As such, required contributions to these pension plans are accelerating at an alarming rate, especially in underfunded plans.

Governments must make tough choices about whether to continue to provide defined benefit plans to new employees. Many younger employees like the portability of 401(k)-type plans, which makes them a much more attractive alternative than they have been for previous generations.

Some governments are establishing “review commissions” to allow for external advisors, along with affected employee groups, to explore alternatives to providing retirement benefits.

In addressing cyber threats, the impending retirements of the baby boom generation and the looming pension crisis leaders must make tough choices.

The good news is that both constituents and employees can benefit when thorough and realistic procedures are implemented before these issues develop into significant threats to government. 

Jack Reagan is a member of national accounting and audit firm UHY’s audit practice out of Columbia, Maryland. Reagan has almost 30 years experience serving state and local governments, local school districts, federal government entities and not-for-profit organizations as both an auditor and consultant.