Posted on the CAPT website
www.psychtechs.net
August 23, 2009

Jon Ortiz: More public workers retiring early

Editor's note: Golden handshakes are consistently proposed by CAPT in instances such as layoffs or other cutbacks, but they are just as consistently denied by the Schwarzenegger administration.

Civil service retirements in California are running 16 percent ahead of last year, suggesting that pay reductions, furloughs, diminishing resources and heavier workloads are pushing many employees to the exits, according to data from the state's largest government retirement provider.

California state worker retirements from January through July rose by 13 percent over a year earlier, according to figures compiled by the California Public Employees' Retirement System, spiking shortly after Gov. Arnold Schwarzenegger started employee furloughs in February.

Meanwhile, local government retirements rose 17 percent.

An anticipated surge driven by an aging work force accounts for part of the trend. Many cities and counties across the state have furloughed workers, cut pay and offered early retirement incentives to move some employees out.

But the state hasn't offered its employees any "golden handshakes." Instead, furloughs – combined with more work and a sense that their employer is in decline – have prodded some state workers into retiring sooner than they'd planned.

It's a "golden handshake" – minus the gold.

"I've done the math," said Terry Sutherland, a Franchise Tax Board supervisor in the Bay Area with 43 years of state service. "I'll be making more retired than working. I just can't afford to subsidize my job any more." He plans to retire in November.

On one level, shedding longtime employees is a plus for a state struggling to bail red ink from its budget during the recession, because retiring workers tend to be among the highest paid.

However, state government isn't prepared for a massive brain drain, according to a recent state report. Now furloughs are accelerating a mass exodus of some of its most experienced, skilled employees.

"I worry about California," said Elizabeth Kellar, executive director of the Center for State and Local Government Excellence.

The organization, based in Washington, D.C., tracks public employment trends as part of its mission to help governments compete in the job market.

"Many of the people leaving quickly there are in skill and knowledge positions that aren't easy to fill," she said.

But Brad Barber, a finance professor and pension expert at the University of California, Davis, said governments are well positioned to replace the departing workers – as tight public budgets allow – because a statewide unemployment rate nearing 12 percent has created a deep pool of job candidates.

The Bee found earlier this month that state government's overall full-time work force grew by about 4,200 employees, or 2 percent, over the past year.

"The question is whether the value generated by the people retiring can be replaced," Barber said. "Given the labor market … the answer to that question is, 'yes.' "

Gov. Arnold Schwarzenegger's spokesman, Aaron McLear, wouldn't say whether the administration sees the increasing rate of state workers entering retirement as a positive or a negative.

"It's always tough to replace experienced senior level state workers," McLear said, "but we've been preparing for the bubble of baby boomer retirements since before the economic slowdown. We'll continue to provide services for the people of California."

California's sharp increase in public employee retirements this year upends a national survey that indicates state and local government workers are putting off taking a pension.

Of 460 state and local government managers around the country surveyed by Kellar's organization, 85 percent reported that the down economy is keeping people from retiring.

"Many of those people are in two-income homes where one person lost a job or had their hours reduced," Kellar said. "Or they've lost savings and need to build it back up."

Only 9 percent of managers surveyed said that workers are pushing up their retirement plans.

California's public employees, she said, might be going against the trend for a variety of reasons. Furloughs and layoffs have cut pay and staffing, but not workloads. And, she said, public anger is rising toward civil service workers over things like job security and benefits, especially during the economy's rough patch.

"Public employees are squeezed," Kellar said, "and they're not getting a lot of positive feedback."

From January through July, 11,791 local government employees covered by CalPERS received their first retirement check, an increase of 17 percent over last year, according to the fund's data.

Payroll costs are usually a local government's biggest expense, making up half of the budget or more. With cities and counties around California squeezed by falling sales and property tax revenue and state-imposed cuts, many have sought to trim what they're spending on their employees through pay cuts, furloughs and early retirement buyouts:

• San Bernardino County officials earlier this year offered an early retirement incentive of up to $1,000 for every year of county service.

• The Solano County Board of Supervisors voted Aug. 11 to offer a "golden handshake" to about 160 employees who are at least 50 years old and have five years of service time.

• In Concord, 64 of the city's 479 full-time employees – more than 13 percent of the work force – are leaving this month after accepting an early retirement offer. The deal includes a 7 percent cash-out of their annual base pay plus their CalPERS pension. The city figures the early departures will save about $13 million over the next five years and $3.5 million annually after it pays off funding for the buyouts in 2014 – assuming that at least half the jobs remain vacant.

The state isn't offering retirement deals.

"We can't afford to increase our retiring cost for baby boomers who are retiring anyway," said Lynelle Jolley, spokeswoman for the state Department of Personnel Administration. "It becomes a reward for people who will retire anyways."

Furloughs appear be accomplishing the same result as golden handshakes by prodding relatively higher-paid, longtime employees to retire.

From January through July, 5,556 state employees have received their first pension checks, according to CalPERS statistics, up from 4,914 who retired during the same period last year. The biggest monthly hikes were in April (29 percent) and May (31 percent). Schwarzenegger started furloughing more than 200,000 state workers two days each month in February before adding a third furlough day in July.

Each unpaid eight-hour day off reduces an employee's monthly wages by about 4.6 percent.

"It appears that there may be some sort of effect of furloughs on retirements," said CalPERS' spokesman Edd Fong. His reasoning: A first-time retirement check that went out in, say, April, went to retirees who applied for their pensions in February or March. "That means you probably won't see the effect of adding the third furlough day (on retirements) until August or September," Fong said.

While the trend may save money on employee wages, it's costing the state knowledge and expertise – a consequence that's difficult to quantify but a serious concern nonetheless, according to a March report by the Bureau of State Audits.

California's aging state government work force, with an average retirement age of around 60 and about 23 years of service, could lose 13,000 managers and supervisors in the next seven years, about 42 percent. More than 20 percent of rank-and-file workers, about 38,000, will also retire in that period if the average holds true.

The state isn't prepared to replace many of those workers, state Auditor Elaine Howle concluded, although she noted that the Schwarzenegger administration has made moves to modernize the state's archaic hiring practices and improve succession planning.

But the bureaucracy has been slow to respond, she said, and the state's generally lower pay compared to the private sector further hinders recruiting and retention.

On top of those longstanding concerns, workers say, furloughs have made retirement a more profitable alternative to working.

Sutherland, whose base pay as a Franchise Tax Board supervisor in the Bay Area is about $7,100 per month, said Schwarzenegger's third furlough day "was the tipping point."

When he figures in the 14 percent he's losing to furloughs plus expenses he'd dump in retirement like contributions to Social Security and his personal retirement account and medical insurance, "I come out hundreds of dollars ahead each month if I retire," he said.

Karen Walter, an Employment Development Department worker for 41 years, said she'd stick around longer, but the work she still loves has become dreary as tightening budgets, increasing workloads and the departure of longtime colleagues have all hurt morale. Now that furloughs have whittled her take-home pay from $2,852 a month to $2,493 a month, she can't justify hanging on.

"If I retire, my gross pension will be $3,700 per month. Even if my deductions (in retirement) amount to $700 a month, I'll net $3,000," Walter said. "So you can see it makes financial sense to retire."

She plans to retire "real fast," but she's not looking forward to leaving a job she's held for parts of five decades: "It's devastating to me. It's not the way I wanted it to end."