Buy out ahead?
Gov. Jim Doyle is again talking about reducing the number of state workers to help meet growing financial challenges for state government.
His comments have spurred speculation that a pension buyout plan may be in the works. A possibility is to offer additional years of credit to senior employees if they opt for retirement in a narrow window of time. The years of service are part of the formula used to determine initial pensions in the Wisconsin Retirement System.
Buyouts are better for the state than laying off workers with less seniority. A majority of state workers are covered by union contracts in which seniority determines who is affected when the work force is reduced. That is similar to most union contracts in the private sector.
State employees are just like those in the private sector – they are eligible for unemployment compensation. The state as an employer is unlike the private sector in that its unemployment compensation is paid more directly; it’s not under the insurance approach of private sector employers.
Thus a buyout avoids layoffs and unemployment compensation. It reduces the payroll more than reducing the same number of younger workers. The cost of higher pensions can be spread out over 30 to 40 years.
The Wisconsin Retirement System, despite big stock market hits in the recent economic downturn, remains one of the strongest public employee pension programs in the nation.
An early-out might attract more workers than expected. All state employees have had their annual takehome pay reduced by more than 3 percent through mandatory unpaid furloughs. Military veterans probably smiled at the cutbacks being called furloughs. They can remember when furloughs were considered a paid leave.
Longtime state workers would have to measure the possible continuation of furlough days without pay if a buyout plan comes into play. Chances of major pay increases seem distant at this time. Pay levels also are important in setting initial pensions – the three highest years of compensation get plugged into the formula.
If a state government buyout plan becomes reality, it could spur local units of government to ponder a similar approach although some school districts have used this staff-reduction technique in recent years.
Many factors go into individual decisions about retirement. Leading the list are the availability of health insurance and when to start Social Security.
Most state civil service employees get 16.25 days of sick leave each year, and unused sick leave can be converted to health insurance premiums when a worker retires. That level of benefits was established in the mid-1990s, but soaring premiums have eroded its impact on retirement planning.
The general rule for Social Security is that a person may start collecting a benefit at age 62, but the monthly benefit grows if a person continues to work to age 70. The age of a spouse also can be a factor in the decision-making.
Perhaps more important, there are the hopes and dreams of what retirement life will be.
