Early retirement, the savings and costs

Mass. Gov. Charlie Baker.Charles Krupa/Associated press

In an effort to streamline the state workforce and balance the budget, Governor Charlie Baker has proposed an early retirement program for state employees. If it works, it will save the state about $180 million and spare workers the angst of widespread layoffs.

But a plan like this also has risks. The state could lose many of its most experienced staff. And there's no check against the possibility that a cluster of co-workers from a single agency or department will create a vacuum by leaving all at once.

How does the early retirement plan work?

The basic structure of Baker's plan is fairly simple. First, you offer older workers an enticing retirement package, including higher pensions, so that they decamp before next year's payroll begins. Then, you make sure not to hire too many replacements.

Of course, a lot depends on the details, but the fiscal side of Baker's plan seems fairly sound. Long- and short-term costs are duly accounted for, and rehiring is kept in check by way of a cap, which limits new payroll costs to 20 percent of the savings.

Besides saving money, are there other benefits?

By relying on voluntary retirement, the governor avoids the strife that can come with layoffs. No one will be forced out (though it should be said that if the early retirement plan comes up short, layoffs will likely follow).

What are the risks?

The basic problem with early retirement programs like this one is that they are liable to produce some erratic results. This includes:

■  Workers making management decisions. If you want to eliminate waste and increase the efficiency of state government, then the surest approach is to look around, identify problems, and address them directly. But that’s not what’s going to happen. Workers themselves will decide whether they want to stay or go. And there’s no reason to expect that only inefficient or redundant workers will opt for retirement. In fact, since the package is being offered only to veteran workers, odds are the people departing will be among the most experienced employees.

■  Holes in governance. The governor is shooting for 4,500 early retirements, out of about 45,000 workers in the executive branch. Losing 10 percent of the workforce could be a pretty significant drain on available resources, but the bigger concern is that in some areas losses could be even higher. What to do if some department finds itself with an unusually large number of early retirees, so large that it threatens the department’s ability to work effectively (State Police and similar front-line workers aren’t eligible, so there won’t be a retirement-related public safety hole).

■  Unforeseen costs. Some state employees actually bring in money for the state, much more than they get paid in salary. Perhaps the best example is the Department of Revenue, whose auditors help ensure that people and businesses pay their fair share in taxes. If the department loses a large number of auditors, the state may save a bit in payroll costs but lose far more in lost tax revenue.

Can these risks by managed?

Mainly, Baker's plan would address these concerns through the rehiring process. If, for instance, some department does lose a surprisingly large number of workers, that department would be able to do extra rehiring. It could break the 20 percent cap so long as some other agency stays further below.

But of course, hiring is a relatively slow process, as is job training. In the meantime, there could be serious staffing shortfalls.

As an alternative, the state could exercise some greater discretion about which applications would be accepted or put on hold.

Are there better options?

Early retirement programs are fairly blunt instruments, poorly suited to identifying and eliminating waste. But that doesn't mean there are great and easy alternatives. For instance, the more business-like approach of auditing departments and eliminating unnecessary positions might well run afoul of union rules, which provide pretty strong protections against layoffs.

Plus, there is an urgent need for cash to help fill the state's $1.8 billion deficit. And the early retirement program would indeed provide some quick savings.