Early retirement plan drawing fewer applicants than predicted
Governor Charlie Baker’s early retirement plan is on pace to draw fewer applicants than his administration predicted, a gap that could prompt state government layoffs later this year.
Baker’s budget chief had predicted that 4,500 employees would take advantage of the program, aimed at helping bridge a state budget shortfall.
But just shy of 2,700 employees had filed applications for the program as of Monday evening, according to Nick Favorito, executive director of the Massachusetts State Employees’ Retirement System. He said the program was likely to get between 3,000 and 3,300 applications by Friday, the deadline for eligible employees to apply. He expected most, but not all, to qualify for the program.
Under the law, the Baker administration must achieve payroll savings of at least $325 million — or at least $172 million after accounting for costs — in the new fiscal year, which begins July 1.
Falling short of the personnel target does not automatically mean layoffs, Baker’s budget chief indicated in a statement, because the administration has other ways to reach the mandated savings without forcing employees to the exit.
“While the deadline is still several days away, a number of factors remain in play toward achieving the targeted savings,’’ Kristen Lepore, the secretary of the Executive Office for Administration and Finance, said in a statement. “We also have additional options available and under review.”
The law mentions four ways for the administration to achieve the mandated payroll savings: the early retirement program, one-time bonuses to encourage retirement of people whose large pensions disqualify them from the program, continuing a hiring freeze, and layoffs.
To lock in the savings from the early retirements, rehires for newly vacant positions are capped at 20 percent of payroll savings. But the administration could rehire far fewer people, allowing it to save more and reach the savings target with fewer departures.
Lepore said that option is being reviewed.
Baker spokesman Tim Buckley added that preliminary data show the average salary of those applying for early retirement is slightly higher than anticipated — potentially generating more savings with fewer people leaving.
A top official at the National Association of Government Employees, which represents about 20,000 government workers in Massachusetts, said he, too, believes the average salary of those taking advantage of the program will be higher than the Baker administration estimated, so it will achieve its targeted savings with fewer workers leaving.
The union official, national president David J. Holway, said that if about 3,300 people take advantage of the program, he thinks the administration will be close to the mandated level of payroll savings and avoid layoffs.
“I’m always worried about layoffs,” he said in a telephone interview, but “I think they’re within striking distance” of the $172 million figure on the current trajectory.
He praised the Baker administration’s “forthrightness” and called the program a “humane” way to save money. Still, he reiterated concerns about the exodus of institutional knowledge, with so many workers hitting the exits at once.
Facing a projected $1.8 billion shortfall in the new fiscal year, the administration proposed the early retirement program in March.
It sailed through the House but met more vocal resistance in the Senate. Several senators said the program was fiscally irresponsible — creating additional pension costs for the state in future years — and worried the plan could gut some agencies to the point of hurting services.
The bill that Baker signed into law in May essentially hewed to his original plan, but it included a limit on the number of employee departures allowed under the law: 5,000. It appears the actual number of people leaving will fall well short of that cap.
Only a certain category of workers in the 45,000-employee executive department, a big part of the bureaucracy under the governor’s control, is eligible for the early retirement and other programs in the law.
Treasury officials, who oversee the state’s retirement program, say rough, early indications show the highest number of employees applying for early retirement are from the Department of Transportation; the Department of Revenue, which enforces tax law; and the Department of Transitional Assistance, which helps poor people meet their basic needs. But, the officials cautioned, those figures could change when the final counts, along with specific salaries of the applicants, are in.
The early retirement program boosts pensions by crediting workers with up to five additional years of age or work. But it’s only for employees who are already eligible to receive a state pension — those who have achieved 20 years of service or those who are 55 or older and have reached 10 years of service.
They also have to meet other requirements. Among them: They can’t be elected officials, their salaries can’t be funded from a federal grant, and they can’t be in a position designated as critical by Lepore. Everyone taking advantage of the program has to have a retirement date of June 30, 2015.
That means thousands of employees will be off the payroll by the time the new fiscal year begins on July 1.
But early retirement-takers are not expected to get their first benefit payments for 90 to 120 days after they leave, according to the Treasury website
Holway, the union president, said some state workers live paycheck to paycheck. Worry about making ends meet for four months without income is one potential reason workers might hesitate to apply.