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What you need to know for 06/23/2017

Editorial: Do homework on early retirement

Editorial: Do homework on early retirement

Just because state allows local governments and school districts to offer early retirement doesn't m

The state is acting as if the early retirement incentive it is offering many of its workers is going to save money. But it has never quantified this with any of the 10 other retirement incentives it has offered since the mid-1980s (the last one, in 2002, cost the state $250 million in additional pension payments), and isn’t trying to quantify it now. This may, in fact, be just another of those “pension sweeteners” that the Legislature gives to placate the unions, ultimately costing the state more than it will save.

But unlike the typical pension sweetener, the state this time is leaving it up to county and local governments and school districts whether to participate. And some, including Fulton County and the Johnstown school district, are choosing not to. They have done the math, and concluded that it would save them nothing and — at least in the case of the school district — cost a lot. On July 1 the Johnstown school board rejected an early retirement proposal by a vote of 9-0.

The state has sanctioned two different early retirement incentives. One, Part A, would give extra service credit, up to three years’ worth, to workers over age 50 with 10 years of service. Part B would allow workers over 55 with 25 years’ service to retire with full benefits, just as if they were age 62. Both would require employers to make additional payments to the retirement system (which they’d be able to amortize over five years by borrowing from the pension fund, at an as-yet-undetermined interest rate.)

But an even bigger hit would come from the health insurance premiums that employers would have to continue paying for the early retirees, until they are eligible for Medicare at 65. With the possibility of retirement at 55 or even earlier, employers could be paying the health premiums (about $15,000 at current rates for family coverage, and sure to keep rising) of each new retiree for 10 years or more. If 10 or 20 people retired, the employer would be facing a few million in extra health costs over the years. That’s assuming the retirees were replaced.

In fact, the only sure way the government or school district would benefit is if the retired worker wasn’t replaced and the position was eliminated. The savings would be considerably less if a replacement were hired, even if that new hire’s base salary was no more than half of the retired worker’s, as the state law authorizing the incentive requires. In some counties like Fulton, which have managed to keep salaries of older unionized workers from rising sharply by not having step increases and minimizing overtime, the spread between the old and new employee’s salaries wouldn’t be enough to satisfy the state’s one-half-base-pay requirement. And if it was, you can bet that union negotiators would immediately start using the savings, and the disparity in pay scales, as arguments to raise the pay of all workers.

The bottom line for school districts and county and local governments considering the early retirement incentive is, if it doesn’t clearly save a lot of money, don’t do it. You’re not doing this for your workers, but for your taxpayers. Some older workers, who may have been planning to retire but delayed it for the possible incentive program, might well retire anyway, sparing the extra pension payments.

In the long term, the state shouldn’t be looking for ways to have public employees retire earlier, but later. It must also make pensions less generous. Paying someone in his or her 50s, with another 30 years or more to live, half their old salary or more not to work, and picking up their health insurance as well, is fiscal insanity. And eliminating the jobs of other workers in order to pay those non-workers doesn’t make it any less crazy.

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