Posted on Sun, Jul. 06, 2008

Retirement speculation

Larry Dale Keeling

Herald-leader columnist

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When lawmakers adopted the two-year budget that went into effect July 1, they made certain assumptions about proposed savings to make the spending plan balance.

One of the big assumptions involved the 5,463 state workers who would be eligible for a ”27 and out“ retirement this calendar year.

Since the ”high-three window“ that has enhanced pension benefits for several years will close Jan. 1, lawmakers assumed that most, if not all, of those 5,463 workers would walk into their bosses' offices at some point this year and burst into a chorus of Take This Job and Shove It.

The basis for this assumption was the belief that these workers wouldn't miss the opportunity to have their benefits figured on the average of their high three salary years (rather than the normal high five) and have their years of service multiplied by 2.2 (rather than the normal factor of slightly less than 2) to determine the percentage of that average salary they would receive as a pension.

Indeed, the House thought this assumption was such a no-brainer that the version of the budget it passed ordered Gov. Steve Beshear to leave unfilled 3,418 of the vacancies created by this mass exodus and projected the resulting savings to be $85 million.

While the final version of the budget did not designate the number of these retirement vacancies that must go unfilled or put a price tag on the savings, the basic assumption remained: Tens of millions of dollars would be saved because virtually every eligible employee would jump through that high-three window before it slammed shut.

But the anticipated mass exodus has been slow in developing, so slow that one must begin to wonder whether the assumption of huge savings from unfilled retirement vacancies might have been a legislative ”Oops.“

Half the year has passed. And according to figures provided by the Personnel Cabinet, just 800 executive branch workers retired between Jan. 1 and June 30.

That's not indicative of a retirement rate that can achieve the assumption of several thousand vacancies. Nor is it a significant increase over last year, when 652 employees retired during the same period. (In all of 2007, 1,413 workers retired.)

Sure, it can be argued that the relatively low (in terms of the assumption) number of retirements in the first six months of the year is no big deal, that there remains plenty of time for state workers to flee in the numbers lawmakers anticipated. And I'll grant a little leeway on that – but not much, because this is not a normal year for folks nearing retirement from state government.

In a normal year, Aug. 1 is the important date for many retiring workers because even one month earning the raise that kicks in every July 1 can bump up your high-three salary average. And Aug. 1 may still be a significant date this year.

But the pay raise that went into effect July 1 was just 1 percent. By contrast, people who retired before July 1 got a 2.8 percent cost-of-living adjustment in their pension benefits that day. So, there are financial considerations that could have caused some workers to decide the COLA was of more value to them than the raise.

Regardless of which month sees the most retirements this year, the fact remains that way more than 800 workers should have left the executive branch in the first six month of the year if the total number of retirements is going to produce anything near the assumed savings in the budget.

However, it would be understandable if state workers confound lawmakers' assumptions by holding onto their jobs. With the economy flushed to the bottom of the septic tank, with few opportunities for second careers to be found in the private sector and with double-dipping made nearly impossible by the budget's demand for savings through personnel attrition, public employees (particularly those with children still in school) may find that they can't afford to retire now.

And that could pose a dilemma for the Beshear administration down the road. If the retirement rate doesn't increase rather dramatically the last half of the year and those assumed savings don't materialize, layoffs remain a possibility.

For now, though, it's a matter of ”waiting and seeing,“ according to Budget Director Mary Lassiter, who thinks the August and September retirement numbers will provide a clearer picture. Lassiter says, ”It's very difficult to tell“ if layoffs will be necessary. ”How many retire is really going to be what drives that.“