The Myth of Early Retirement Savings

Kuddos to the Empire Center’s Lise Bang-Jensen for not accepting at face value the notion that early retirement programs save the state money.

In her report “Early retirement for state workers: Money-saver, or costly sweetner?” Bang-Jensen uncovers the sad fact that the incentive plans offered by the state over the past 20+ years may have cost more than had they not been offered in the first place.

The theory is that early retirement allows the state to replace employees who are at the top of their earning curve with lower paid employees. Yet not only has no one insisted that the state provide financial data to back the claim, but the theory fails to stand up to logical scrutiny.

The theory of early retirement assumes that the retiree is replaced by a new hire, but in manys cases, isn’t the retiree replaced by an existing employee who moves up into the vacant job category? The person who moves up presumably gets a pay adjustment. So there’s no guaranteed savings to the present payroll obligations AND you’ve just added to the state’s pension obligations in some cases by more than 30% over what that person would have received.

The only plan that works is when the retiree’s job title is retired, but when Gov. Paterson tried that in 2009, only 1,000 out of the 4,500 retirement opportunities were exercised.

The key factor that’s missing in dealing with the state’s workforce is the ability to make rationale decisions about workforce needs.

Because the state is hamstrung by civil service laws and union contracts, one cannot assume that the workforce is allocated based on program needs. Early retirement exacerbates the problem, removing in some cases people whose skills and knowledge are vital and replacing them with people who may not be prepared or capable of doing the job.

This is a topic that needs further study and it needs to be brought to the attention of the governor and the state legislature. In the future no early retirement program should be passed that does not include a complete analysis demonstrating not only that the state will save money in the long run, but that critical services and programs will not be harmed in the process.

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One Response to The Myth of Early Retirement Savings

  1. Douglas Boettner says:

    Basically, early incentive retirement programs were designed to do two things: 1) Get a state employee off the state payroll and onto their pension plan. Their payroll costs were funded with appropriations from the general fund; their pension is not. It is funded from the Common Retirement System; and 2)The position was earmarked and not allowed to be filled. It was lost to the state agency. This insured the savings was permanent.

    If properly administered, they save money.

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