Early Retirement Incentive Plan a.k.a. MONEY GRAB

Some background info for non-Wisconsin residents: Wisconsin currently suffers from a $ 1.1 billion budget deficit. Our Republican Governor has proposed the elimination of state shared revenue funds to individual municipalities...a plan which has been met with "extreme" opposition from local government officials unwilling to try to cut their budgets.

The Democratic controlled State Senate has proposed an early retirement program for state employees as a means for budget savings.

Below are excerpts from a memo written by Bob Lang, Director of the Legislative Fiscal Bureau for the State of Wisconsin to Senator Chuck Chvala, re: POTENTIAL COSTS AND SAVINGS OF A REVISED EARLY RETIREMENT INCENTIVE PLAN FOR STATE EMPLOYEES.(The potential cost and savings implications for local government emplers are not addressed in this memorandum.)

- Any non-elected state employee who was an active WRS participant or was on a leave of absence on February 1, 2002, who has at least 10 years of creditable service under the retirement system and who meets all other age and service qualifying thresholds at some point during the appropriate "retirement window" period would be eligible...

- The early retirement incentive plan would be available to all eligible state employee WRS participants...during a "retirement window" period beginning July 1,2002, and ending January 1, 2003.

- For those eligible state employee WRS participants at the University of Wiscosnin System..."retirement window" period beginning January 1, 2003, and ending July 1, 2003.

- During these respective "retirement window" periods, the earliest retirement age...would be reduced by two years so that general and state executive category employees could retire at age 53 and protective service category employees could retire at age 48.

- An additional three years of creditable service would be applied to the employment category of the eligible individual at the time of retirement...

-An additional two years of age would be granted to eligible individuals for the purpose of computing his or her formula benefit.

- An additional $20,000 would be credited to each eligible retiring state employee's supplemental health insurance conversion credit program account...

- As a permanent statutory change, the maximum amount of an initial formula-based annuity benefit would be increased from 65% to 70%...with Social Security coverage from 85% to 90%...

- ASSUMPTIONS GOVERNING RETIREMENTS UNDER THE PLAN. Based on the most recent complete valuation data...consulting acturary has determined that a total of 17,139 state employee participants would be eligible...the actuary has further used a projection that 35% of eligible employees (6,000 participants) would elect to retire during the window periods.

FINANCING PROVISIONS. The costs of providing the additional retirement benefits provided under the early retirement incentive plan would be treated as a new, unfunded accrued liability for the WRS and would be amortized over a 10-year period as a level percentage of payroll...

- Under the proposal, this increased payroll contribution amount would be collected from state agencies as a temporary employer contribution rate...

- Because the increased benefits payable under the incentive plan could result in a near-term negative cash flow for the retirement system...Based on the current actuarial assumptions governing the WRS that incorporation a 4.5% annual wage increase over the long term, a total of $421.5 million would be contributed by the state over 10 years...to fund the additional costs of the retirement incentive plan.

POTENTIAL STATE COST SAVINGS...it is estimated that 4.203 eligible state employees would retire during the 2002-03 fiscal year from all state agencies. Excluding the Department of Employee Trust Funds, the State of Wisconsin Investment Board and the University of Wisconsin System, non-FED salary and fringe benefits lapses and transfers to the general fund between January 1, 2003, and June 30,2003, attributable to these retirements are estimated at $83.40 million.

- An estimated 1,797 eligible additional state participants who are faculty at the University would ultimately retire under the incentive plan's retirement window period for the University; however, no savings are projected during the 2002-03 fiscal year from these retirements.

- ADMINISTRATIVE AND OTHER COSTS ASSOCIATED WITH THE PROPOSAL. The proposal would create a new biennial appropriation under ETF, funded from the Public Employee Trust Fund...a total of $1,075,000 SEG annually would be appropriated...In addition, 53.0 SEG project positions would be authorized...

- IMPLICATIONS FOR THE 2003-05 BIENNIUM AND FUTURE FISCAL BIENNIA. During the next biennium, state contributions to fund the proposed retirement incentive are estimated at approximately $36 million...in 2003-04 and $38 million...in 2004-05...

- It should be noted that agencies would not be prohibited from filling positions left vacant due to retirements under the proposal...

- Further, in a number of instances, it is likely that agencies will need to fill vacant positions and the Governor and Legislature will provide funding to staff such programs as correctional institutions, care and treatment facilities, offices of district attorneys, the courts, the Office of the State Public Defender, and other areas of state government. It is not know what level of funding for these positions would be restored in 2003-05 and future biennia.

Obviously, I have cut a great deal of additional explanatory information, but have tried to give you all the highlights of this plan. If you plan to attend, or speak, at any of the upcoming hearings, I strongly recommend you read the entire 9-page memo

I am no financial analyst, but it does seem obvious this plan will cost the taxpayers hundreds of millions of dollars, while saving (possibly, at best estimates) $83 million in fiscal year 2002-03. I guess I'm wondering if the Demonrats hired Tom Ament, et al, as consultants for this plan!

the actuary has further used a projection that 35% of eligible employees (6,000 participants) would elect to retire during the window periods.

And where did the actuary get this number? A statistically valid sample, or is it pulled out of his fourth point of contact?

This is important, because early retirement programs are frequently over-subscribed with many more people electing to take the immediate bird in the hand than wait for actual retirement.

Therefore, the contingent liability for offering this program, as I see it, is not $421 million, but $1.3 billion - Or what it will cost if all eligible workers accept the program. My guess is most will accept it.

Moreover, I've read a couple of letters to the editor for state employees who profess to be be ineligible for the plan as drafted, but still support it, because "it's the right thing to do." Now why would ineligible workers would want this program? Because it opens up a number of more senior positions which they can then be promoted into, so that they will make as much as the workers they replaced. Then of course, new workers will be brought in at the bottom to replace the promoted workers.

Mark my words: in the end, no positions will be eliminated they may even add a few. Whatever "savings" there are will be short-term and illusory, and we'll be paying the bill for this for a long, long time...

The 35% estimate was based on two previous early retirement windows offered to state employees in 1981 and 1989 when 33.6% and 21.6% took advantage of the program. These earlier programs, however, were admittedly, not as attractive as the current early retirement incentives, therefore the participation rate was estimated slightly higher.

I agree that they have probably greatly underestimated the number that will take advantage of the program.

Another cost that I couldn't find mentioned would be the personnel costs involved in screening, hiring and training replacement employees, since promotion from within becomes less likely when the employee pool from which to draw has been significantly reduced by others leaving for early retirement. When the requirement is only 10 years of service and an age of 48 or 53, who in their right mind wouldn't take advantage of this?

As LouD said, this wont create any actual reduction in personnel. Some of you remember what I do "for a real job" besides "farming" and Im presently in the belly of this beast. I can tell you that there are departments with many more personnel than needed to complete their function, there are quite a few people who seem to have no function, and an overwhelming number of people with such specialized functions that many people are employed to effectively complete a single task. There is a branch of one department that Im aware of whos job is apparently to come in very late, spend a few hours driving a state car around pretending to do things while going to lunch and shopping, and then going home early.

If the state were a burger joint there would be 1 guy to get the premade patties, another to put them on the grill, another to salt them, someone else to turn them and yet another guy to take the burgers off the grill and send them down the line. Each of these fellows would have a backup in place and a supervisor with his own budget overseeing the process. There would be at least two people watching the process and apparently doing nothing over in the corner with the guy who used to make the patties before the company switched to premade.

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