The Governor has proposed to offer executive branch employees an Early Retirement Incentive Progam (ERIP). The program would cost half a billion dollars more than a hiring freeze and has the potential to damage the essential missions of many state agencies.
Essentially, certain employees who are already eligible for retirement would receive a boost in their future annual pension amounts if they leave before the start of the coming fiscal year. The lump sum value of those future payments is expected to average a little under $100,000 per employee.
The ERIP, although it involves a huge giveaway, is presented as saving money in the following sense: The costs of the giveaway (in cash equivalent discounted for the time value of money) become less than the payroll savings after a year or two as long as the state leaves most of the positions vacant. It also avoids the possibility of strife associated with layoffs. The question that isn’t always asked is: What are the alternatives?
The Governor expects 4500 employees to take the ERIP and the plan allows him to use 20% of the direct payroll savings to hire some new people (who might come in at lower salaries). So, the net headcount reductions would be roughly 3500 people. Coincidentally, 3500 to 4000 people leave the executive branch voluntarily every year. So, a strengthened and extended hiring freeze could accomplish the same head count reductions in roughly 12 months and save the half a billion dollars in increased pension costs associated with the ERIP.
From the standpoint of new cabinet secretaries, the attraction of the ERIP is that all the reductions would be accomplished at once and they could immediately start hiring and remaking their organizations. In addition to the 20% immediate rehiring built into the ERIP plan, there would be no need to freeze replacement of those who depart for other reasons over the course of the year.
A hiring freeze would force the new executives to move much more slowly, hiring only from within and reallocating positions over time. That’s actually a much wiser approach. In some agencies, as many as half of the employees would be eligible. The mass departures likely with the ERIP could mean a crippling loss of organizational expertise and momentum. The executives will gain a much deeper understanding of their organizations and will make much better decisions if they implement change more deliberately.
The ERIP raises very concrete fairness concerns — in many agencies, employees eligible to receive the valuable ERIP package are seated next to others who have been around a little too long to benefit or not quite long enough. And there are many who do not qualify as a result of their funding source. Those ineligible or unable to benefit will have to pick up the slack when their lucky colleagues depart. In testimony this week, some employees and unions were naturally enthusiastic about the benefit and sought to expand it. But some employees testified to express bitter reservations about the unfair distribution of largesse.
Summary Comparison of ERIP to a Hiring Freeze
|Expected net work force reduction||3500 – 4000 executive branch employees||3500 – 4000 executive branch employees|
|FY16 Savings||$178 Million||$114 Million|
|FY17-FY19 annual savings||$178 million||$228 Million|
|Long-term payroll savings||Dependent on future decisions||Dependent on future decisions|
|Annual continuing incremental pension costs||$48.8 million||$0|
|Present value of all cash flows (relative)||Comparison baseline||$360 million cheaper|
|Risk to state agency missions||Significant||Moderate|
|Fairness||Arbitrary distinctions among employees||Even-handed|
What Finally Passed?
On Wednesday, April 15, the Senate debated this proposal and ultimately passed it on a voice vote. It was clear from many conversations that the proponents of the proposal had the votes to pass it, but also clear that a substantial minority would have voted against it. I remained opposed to the proposal after all deliberation. I very much appreciated the quality of the dialog and the efforts of the Senate President and the Chair of Ways and Means to consider all views. The proposal now seems on its way to becoming law.
One note about the numbers in this statement. There was a lot of discussion of how much could really be saved in Fiscal 2016 by a hiring freeze. We couldn’t get to a consensus answer on this — it depends on the varying rates of turnover of employees in different jobs. It remained clear ( in my mind) that over 12 to possibly 24 months, the head count reductions that the Governor sought could be achieved by an extended hiring freeze. The reduction could be accelerated by extending it beyond executive branch agencies with statutory backing. At the same time, I had to admit that it would be difficult to book those reductions early in the fiscal year (as the sudden departures through the ERIP would allow).
My final view in the conversation was that we should simply make the necessary budget cuts — distributing them perhaps more widely than the governor would distribute them through ERIP. Without the expense of the ERIP to cover, the necessary cuts would be relatively shallow (0.5% budget wide on average) and likely achievable without layoffs in many agencies.
How has the administration implemented what passed?
The final bill that was signed into law capped the ERIP at 5000 employees. In a gesture to those of us who felt that other tools might be less expensive, the bill requires the Secretary of Administration and Finance to estimate attrition, incentives and layoffs as alternatives to the ERIP and to reduce the ERIP cap by the total headcount reductions available through those tools. Not surprisingly, the Secretary of Administration and Finance interpreted the law so as to count the non-ERIP reductions on a net basis — so, in other words, if they plan to refill the positions, they don’t operate to reduce the ERIP. As a result, the reductions to the cap total only 440, which brings the cap back to just over the Governor’s original target for the ERIP of 4,500.
Similarly, in a gesture to those us of concerned about the loss of critical employees, the final bill required the secretary to designate those positions that are critical and should not be subject to the ERIP. The Secretary chose a list of smaller agencies as critical, rather than designating any positions within the larger agencies that we were worried about.
1595-6379 – operation of motor vehicle insurance merit rating board
2100-0012 – operation of the department of public utilities
2310-0200 – administration of the division of fisheries and wildlife
2310-0300 – operation of the natural heritage and endangered species program
2310-0306 – for the hunter safety training program
2310-0316 – for purchase of land containing wildlife habitat and for costs directly related to administration of wild lands stamp program
2310-0317 – for waterfowl management program
7006-1003 – for the operation of the department of energy resources
7006-0010 – for the operation of the division of banks
7006-0020 – for the operation of the division of insurance
7006-0029 – for the operation of the health care access bureau in the division of insurance
7006-0071 – for the operation of the department of telecommunications and cable
7003-0500 – for the operation and administrative expenses of the department of industrial accidents
8324-0000 – for administration of the department of fire services
8800-0100 – for the nuclear safety preparedness program of the Massachusetts Emergency Management Agency
The Q&A below further explores the ERIP and the alternative of an extended hiring freeze.
Who does the ERIP apply to?
The ERIP is available only to employees meeting all of the following criteria:
- They work in the Executive Branch — that is, they work for the Governor, directly or under one of the eight executive offices that serve under the governor. Employees of other branches of government, of independent agencies and of the state university system are excluded by this rule.
- They are in active service — not retired already.
- Their position is funded out of the state’s general fund, as opposed to a trust fund or a federal grant. This criterion is ambiguous in some cases as employees may receive their compensation from multiple sources and/or show up as funded from different sources at different times of the year. MassDOT employees are explicitly made eligible, even though they are funded from the Transportation Trust Fund. (In the House version of the bill, MassDOT toll-takers, who already have a retirement incentive in place, are explicitly excluded).
- They are “Group 1” employees. Group 1 is the general catch-all category for state workers. Group 1 employees are eligible to retire at their maximum possible pension at age 65 with 32 years of service. Groups 2, 3 and 4 include certain employees in dangerous or physically demanding jobs who are permitted to retire earlier.
- They are already eligible for a pension, having achieved 10 years of service and the age of 55 or having achieved 20 years of service.
- They are not elected officials.
- They elect to retire before the start of the coming fiscal year (or, in the House version of the bill, one month into the fiscal year).
How does the ERIP work?
Under the ERIP, an employee can receive:
a combination of years of creditable service and years of age, in full year increments, the sum of which shall not be greater than 5 years, for the purposes of determining his superannuation retirement allowance.
Employee pensions are computed as a Retirement Percentage multiplied times the average of the employee’s highest three years of compensation. So, for example, if in their last three years of service, they received $69,000, $70,000 and $71,000, their pension would be computed as the Retirement Percentage multiplied times $70,000.
The Retirement Percentage is determined by their age and their years of service — the longer they have served and the older they are, the higher the Retirement Percentage. The ERIP, by adding to their age and/or years of service increases their Retirement Percentage. See this schedule of Retirement Percentages from the state retirement Board.
The way the numbers work, an employee eligible for the ERIP will receive a pension that is increased by an amount that is somewhere between 7.5% and 20% of their highest three years of salary. For example, checking the schedule, if an employee were 55 years of age and had 20 years of service, the ERIP would raise their Retirement Percentage from 30% to 40%. If their highest three years of compensation averaged to $70,000, the ERIP would be worth $7,000 per year every year for the rest of their lives — ( 40% – 30%) x $70,000 ).
The ERIP cannot be used to increase the Retirement Percentage above the 80% maximum level, so employees who are already at or near that level cannot benefit from the ERIP, although they would be technically eligible.
How much is the ERIP worth to each employee?
The ERIP will give each employee $93,200 cash equivalent on average. The value of the ERIP is a function of age, years of service, compensation level and also life expectancy. The actuaries at the state’s Public Employment Retirement Administration Commission have computed — very roughly — that the average retiring employee will have an average compensation level of $68,100 and that the cash equivalent of the ERIP will average $93,200. The employees will receive the payments over the rest of their lives. Those payments over time could total as much as $200,000 for some employees. The $93,200 is the average “lump sum” or “cash equivalent” or “present value” — as if they could receive all the ERIP money in a single payment of immediate cash which they could invest and make a return on so as to generate the same stream of future payments. The rate of return assumed by PERAC in making its estimates is 7.75%.
How much would the ERIP cost the Commonwealth?
$419.4 million — present value. In making an estimate of total cost, the estimated average per employee is multiplied by the expected number of employees who will take the incentive. The Governor is hoping for 4,500 takers. $419.4 million = 4,500 x $93,200. The final value could be higher or lower. Over time, the undiscounted outflow will add up to over $700 million.
How will the cost of the ERIP be absorbed?
The ERIP will actually be paid out over the lives of the retiring employees. The actual budgetary impact of the cost depends on how far we are willing to “kick it down the road.” The administration proposes to amortize the cost over 15 years, making a down payment of $48.8 million in Fiscal 2016 to the state’s pension fund. At this rate, in total, the Commonwealth would need to contribute 15 x $48.8 million or $732 million over the next 15 years. (The computations are exactly like mortgage computations — $48.8 million is roughly the annual payment amount on a 15 year fixed-rate mortgage for $419.4 million at a 7.75% interest rate. PERAC uses the 7.75% interest rate because that is the rate they hope to achieve on their investment portfolio, which is in the equity markets. PERAC recommended using a 10 year amortization schedule, which would require annual contributions by the Commonwealth to the pension fund of over $60 million.)
Mechanically, how does the ERIP fit into the Fiscal 2016 budget?
In outside section 29 of his proposed budget, the Governor creates a mechanism whereby the secretary of administration and finance can recognize the payroll reductions resulting from the ERIP by adjusting allotments to individual line items.
Whenever the secretary of administration and finance determines that an early retirement incentive program has resulted in cost savings for an agency of the executive department during fiscal year 2016, the secretary may reduce allotments under section 9B of chapter 29 of the General Laws to reflect some or all of the amounts saved.
The ERIP payroll reductions will, of course, be spread unpredictably across multiple line items. They are therefore not estimated or budgeted in individual line items (although I understand verbally that a couple of A&F line items do assume ERIP related headcount reductions). In the Governor’s pro forma financial statement the full amount of the projected ERIP payroll savings appears as a lump sum of $325.1 million which is subtracted from appropriated expenditures of $38,387.4 million to reach net total spending of 38,062.3. $325.1 million is equal to 4,500 (number of employees expected to take the ERIP) x $72,244 ( the average salary apparently estimated by A&F — a little higher than PERAC’s estimate of $68,100 ).
So, once the payroll reductions from the ERIP are known, they will be apportioned across all affected line items by the Secretary of Administration and Finance. The language of the section gives the Secretary discretion to not make the full downward adjustment in affected line items, in effect, allowing rehiring in those line items. The Governor’s budget also includes a reserve account that is intended to “to fund the direct payroll costs of employees who fill positions vacated pursuant to the employee retirement incentive program.”
So, in a crude accounting sense, the $325.1 million is a negative budget account and when payroll reductions are achieved through the ERIP, they will reduce both the affected line item and the magnitude of the negative account. When people are rehired, they will increase the affected line items and reduce the salary reserve.
The amount of the salary reserve is $63,340,000 — roughly 20% of the projected ERIP payroll savings, consistent with the administration’s representations that they want to be able to rehire against up to 20% of the salary savings.
What is the FY16 budgetary impact of the ERIP?
The budget impact in FY16 is $177.9 million:
|Projected Payroll Savings||$325.1 million|
|Less: First year pension cost reserve||$48.8 million|
|Less: 20% reserve for back fill of employees||$63.3 million|
|Less: Reserve for nonpayroll costs||$35.1 million|
|Net FY16 Savings||$177.9 million|
The FY16 savings associated with the ERIP may be reduced as a result of amendments to section (g) which spreads over 4 years the normally immediate payout of any accrued sick leave or vacation. The House version adjusted this to 3 years which would require an increase in the necessary reserve for FY16 non-payroll costs.
What alternative inducements could be offered for retirement?
In testimony this week, the Secretary of Administration and Finance stated that she had not reviewed alternative models from the private sector, but had instead simply implemented the ERIP model previously used by the state over a decade ago. There are, of course, many types and levels of inducement towards retirement that could be offered, some of which might be much more cost-effective in reducing payroll. As noted above, the particular form of the ERIP tends to target those employees that are not on the cusp of retirement, but are a couple of years away from retirement. A cash incentive could accelerate departures all up and down the seniority scale, including younger employees, mid-career employees and the late career employees who are too close to retirement to benefit from the ERIP. The per employee cost of the ERIP is close to $100,000 — a much more modest cash inducement might have a big impact.
Is the ERIP necessary at all — would an extended hiring freeze suffice?
According to the Commonwealth’s Human Resources department, roughly 3500 to 4000 people leave the executive branch every year — a little less than half through retirement, a little less than half through resignation and the rest through death or discharge.
If the legislature mandated that the Governor limit replacements of departing positions to promotions and lateral transfers, the headcount reductions that the Governor seeks would be achieved within one year. Of course, there would necessarily be some exceptions to a freeze and the volume of permitted exceptions would slow the reductions resulting from the freeze.
How would an extend hiring freeze be implemented in the budget?
There are at least two alternatives:
- The legislature could simply budget slightly less than the Governor in most major payroll-driven line items. The Governor would then have to manage those line items downwards through expected attrition and possibly a few layoffs. To match expected attrition, the legislature would budget approximately 4 to 5% less than maintenance funding — by the end of year, a little less than 10% of employees will depart, but the full year savings will be a little less than half that level.
- Or, the legislature could assume in, its proforma financial projections, a fixed amount of savings (as the Governor did for the ERIP) and rewrite outside section 29 — the ERIP savings section — to give the Secretary of A&F the authority to reduce allotments as departures occur. The legislature could take a further step and allow the Secretary to reduce some allotments and make necessary layoffs if sufficient savings do not materialize — as in the current version of Section 29 for the ERIP.
How does an extended hiring freeze stack up next to the ERIP in FY16?
|Payroll Savings||$325.1 million||$114 million|
|Less: First year pension cost reserve||$48.8 million||$0|
|Less: 20% reserve for back fill of employees||$63.3 million||$0|
|Less: Reserve for nonpayroll costs||$35.1 million||$0|
|Net FY16 Savings||$177.9 million||$114 million|
Notes to freeze savings estimates:
- The freeze payroll savings of $114,000,000 are computed as follows: 3,800 ( employees departing ) x 0.5 ( assuming that they depart randomly through the year, on average half way through year ) x $60,000 (average compensation per employee).
- The $60,000 estimated payroll per employee requires some refinement. It may be overstated, but could also be understated: The per employee estimates used by PERAC and A&F for the ERIP are closer to $70,000. Among the routine annual departures, a little less than half are through normal retirement — that means they have more seniority and are making more than those who might take the ERIP. The resignations, deaths and discharges among the routinely departing employees will include some younger employees. The younger employees are presumably making less, but, on the other hand, when they depart, their health insurance costs end, while all the employees leaving with the ERIP will have continuing retiree health insurance costs.
- Note that other termination costs related to routine departures need to be built into the budget regardless of whether one has an ERIP, so they are not a cost factor attributable to a freeze.
How does an extended hiring freeze stack up next to the ERIP in FY17, FY18 and FY19?
|Payroll Savings||$325.1 million||$228 million|
|Less: Continuing pension cost amortization||$48.8 million||$0|
|Less: Retained backfilled employees||$63.3 million||$0|
|Less: Deferred nonpayroll costs (4 year amortization)||$35.1 million||$0|
|Net savings in each of next three fiscal years||$177.9 million||$228 million|
In summary, what is the cost comparison between a freeze and the ERIP?
The freeze saves, very roughly, $360 million in cash equivalent present value over the ERIP. There are lots of uncertainties, but it appears that the ERIP would save roughly $60 million more in FY16, but save roughly $50 million less in future years. The salary savings and other costs in the two approaches will equalize over time, but the pension amortization cost difference will endure. So, it appears fair to claim that the freeze would save approximately $360 million as compared to the ERIP (the ERIP pension amortization present value cost of $420 million less the $60 million savings advantage of the ERIP in the first year).
What are the management issues associated with the two alternatives?
Clearly, the ERIP gives managers much greater flexibility to hire and reshape their organizations. Not only will they have the 20% backfill authorized by the ERIP, but they will not necessarily be subject to a hiring freeze — all of the targeted head count reductions will have been achieved by the ERIP.
However, there are huge risks associated with ERIP. Some departments could experience sudden unmanageable losses of client relationships, contextual knowledge and/or expertise through the ERIP. The option of bringing ERIP employees back as consultants may offer a partial solution in some cases, but is offensive financially. When asked this week whether she had target levels in mind for particular agency headcounts after the ERIP and subsequent back fill, the Secretary of Administration and Finance said she did not. So clearly, the administration has not fully reflected on the consequences of the ERIP.
The chart below shows the number of employees eligible for the incentive by department. It presents one of three different department-level estimates I have seen from official sources. All of them involve some uncertainty, but they are all broadly consistent in identifying certain large agencies as having more than 40% of their employees eligible to leave under the proposed ERIP. Certainly, not all those eligible will take it, but the risks are clear.
ERIP Eligible Employees as % of Total by Department
|Dept Code||Department Name||Headcount||Eligible||% Eligible|
|ADD||DEVELOPMENTAL DISABILITIES COUNCIL||10||0||0|
|AGR||DEPARTMENT OF AGRICULTURAL RESOURCES||79||32||40.5|
|ALA||ADMINISTRATIVE LAW APPEALS DIVISION||34||7||20.58|
|ANF||EXECUTIVE OFFICE FOR ADMINISTRATION AND FINANCE||325||146||44.92|
|ATB||APPELLATE TAX BOARD||21||10||47.61|
|BLC||BOARD OF LIBRARY COMMISSIONERS||23||4||17.39|
|BSB||BUREAU OF STATE BUILDINGS||14||5||35.71|
|CDA||EMERGENCY MANAGEMENT AGENCY||84||9||10.71|
|CHE||SOLDIERS' HOME IN MASSACHUSETTS||378||138||36.5|
|CHS||CRIMINAL JUSTICE INFORMATION SERVICES DEPARTMENT||37||7||18.91|
|CJT||MUNICIPAL POLICE TRAINING COMMITTEE||22||12||54.54|
|CME||CHIEF MEDICAL EXAMINER||81||15||18.51|
|CSC||CIVIL SERVICE COMMISSION||5||1||20|
|DCP||CAPITAL ASSET MANAGEMENT AND MAINTENANCE DIVISION||403||10||2.48|
|DCR||DEPARTMENT CONSERVATION AND RECREATION||971||360||37.07|
|DFS||DEPARTMENT OF FIRE SERVICES||73||21||28.76|
|DMH||DEPARTMENT OF MENTAL HEALTH||3312||1317||39.76|
|DMR||DEPARTMENT OF DEVELOPMENTAL SERVICES||6462||2317||35.85|
|DOB||DIVISION OF BANKS||159||34||21.38|
|DOC||DEPARTMENT OF CORRECTION||5281||1193||22.59|
|DOE||DEPARTMENT OF ELEMENTARY & SECONDARY EDUCATION||508||82||16.14|
|DOI||DIVISION OF INSURANCE||130||51||39.23|
|DOR||DEPARTMENT OF REVENUE||1830||888||48.52|
|DOS||DIVISION OF STANDARDS||22||11||50|
|DOT||MASSACHUSETTS DEPARTMENT OF TRANSPORTATION||4422||1705||38.55|
|DPH||DEPARTMENT OF PUBLIC HEALTH||3180||933||29.33|
|DPS||DEPARTMENT OF PUBLIC SAFETY||145||49||33.79|
|DPU||DEPARTMENT OF PUBLIC UTILITIES||150||33||22|
|DSS||DEPARTMENT OF CHILDREN AND FAMILIES||3525||780||22.12|
|DYS||DEPARTMENT OF YOUTH SERVICES||886||193||21.78|
|EDU||EXECUTIVE OFFICE OF EDUCATION||95||23||24.21|
|EEC||DEPARTMENT OF EARLY EDUCATION & CARE||212||79||37.26|
|EED||EXECUTIVE OFFICE OF ECONOMIC DEVELOPMENT||50||15||30|
|EHS||EXECUTIVE OFFICE OF HEALTH AND HUMAN SERVICES||1626||624||38.37|
|ELD||DEPARTMENT OF ELDER AFFAIRS||57||13||22.8|
|ENE||DEPARTMENT OF ENERGY RESOURCES||58||12||20.68|
|ENV||EXECUTIVE OFFICE OF ENVIRONMENTAL AFFAIRS||283||87||30.74|
|EOL||EXECUTIVE OFFICE OF LABOR AND WORKFORCE DEVELOPMENT||1458||127||8.71|
|EPS||EXECUTIVE OFFICE OF PUBLIC SAFETY & HOMELAND SECURITY||189||36||19.04|
|EQE||DEPARTMENT OF ENVIRONMENTAL PROTECTION||768||364||47.39|
|FWE||DEPARTMENT OF FISH AND GAME||292||103||35.27|
|GIC||GROUP INSURANCE COMMISSION||56||17||30.35|
|HCF||CENTER FOR HEALTH INFORMATION & ANALYSIS||151||34||22.51|
|HLY||SOLDIERS' HOME IN HOLYOKE||375||122||32.53|
|HPC||HEALTH POLICY COMMISSION||45||0||0|
|HRD||HUMAN RESOURCES DIVISION||145||51||35.17|
|ITD||MASSACHUSETTS OFFICE OF INFORMATION TECHNOLOGY||365||125||34.24|
|LIB||GEORGE FINGOLD LIBRARY||12||2||16.66|
|MCB||MASS COMMISSION FOR THE BLIND||167||26||15.56|
|MCD||COMMISSION FOR THE DEAF AND HARD OF HEARING||56||25||44.64|
|MMP||MASSACHUSETTS MARKETING PARTNERSHIP||21||7||33.33|
|MRC||MASS REHABILITATION COMMISSION||860||23||2.67|
|OCD||DEPT OF HOUSING AND COMMUNITY DEVELOPMENT||304||69||22.69|
|OHA||MASSACHUSETTS OFFICE ON DISABILITY||12||3||25|
|ORI||OFFICE FOR REFUGEES AND IMMIGRANTS||19||0||0|
|OSD||DIVISION OF OPERATIONAL SERVICES||106||26||24.52|
|PER||PUBLIC EMPLOYEE RETIREMENT ADMINISTRATION||51||0||0|
|POL||DEPARTMENT OF STATE POLICE||2556||650||25.43|
|REG||DIVISION OF PROFESSIONAL LICENSURE||124||25||20.16|
|RGT||DEPARTMENT OF HIGHER EDUCATION||67||8||11.94|
|SCA||OFFICE OF CONSUMER AFFAIRS AND BUSINESS REGULATION||23||10||43.47|
|SEA||DEPARTMENT OF BUSINESS AND TECHNOLOGY||21||9||42.85|
|SOR||SEX OFFENDER REGISTRY||47||15||31.91|
|SRB||STATE RECLAMATION BOARD||106||0||0|
|TAC||DEPARTMENT OF TELECOMMUNICATION AND CABLE||19||4||21.05|
|TRB||TEACHERS RETIREMENT BOARD||85||0||0|
|VET||DEPARTMENT OF VETERANS SERVICES||51||14||27.45|
|WEL||DEPARTMENT OF TRANSITIONAL ASSISTANCE||1617||643||39.76|
|Executive Branch Total||45672||13881||30.39|
great analysis, Will. thanks for the most comprehensive description of the ERIP I have been able to find.
i just read this analysis in the Watertown Tab. I had no issue with Gov Baker’s proposal until i read your comprehensive explanation of the proposal, its pros and cons. I agree with your position now, thanks for casting a no vote when it comes up for consideration.
Read further up and see Brownsberger mistakes.
Try to be open look at both sides and see why we have had all these deficit issues over the years and where the real responsibility lies.
Well state retirement is a favorite of mine so I have something to say.
The ERIP reduces immediate costs, but increases them in the future. The record of the state on financing the state pension is very poor, it’s way behind in paying it’s meager 3.2% of salary contributions, while employees are obviously up to date with their 9% or 11% as it’s take straight from their wages…..who is going to pay for the extra pension payments to early retirees?….I bet a lot of it will come out of state workers wages in higher future contributions or reduced benefits.
It’s immediate approach is a drastic reduction in jobs and probably in services that the state can deliver. It seems like a very short sighted solution to an temporary budget deficit.
It does not increase any costs that much in the future that you are not going to face anyway. People will retire and their salaries and years of service will go up in future years.
Thank you for this exhaustive and. I am sure exhausting report on this issue.
This is classic Charlie Baker. When he worked for Weld he decimated Mental Health wit a similar attitude. Please fight this proposal
I agree with you, Will. The extended hiring freeze is the route to take.
Should be both for group one is not a threat or lack of service causing issue
This kind of thing can give the average person a giant headache. Thank you Senator Brownsberger for being so clear in your explanation. It appears that the Governor wants to make it look like he is moving quickly ahead to save money and paying for it later. This kind of incentive will encourage employees who haven’t prepared their department or themselves for retirement to retire and bring on turmoil. With the State’s usual procedure of then moving up the next senior person, whether they know the job or not, it takes sometimes years to get the departments back into good running order. Again, thank you to Senator Brownsberger. I trust your judgment.
Regardless of any bill for any purpose whether it be ERIP or hiring freeze the facts are facts. The average state employee is 53 years old and over the next 7 years many will retire anyway. This is group one only. There will be no devastation
Here is mytake on the Governor’s proposal
It seems a gradual and measured approach makes more sense. If almost 1/3 of the workforce qualifies to take advantage of this ERIP some departments may loose a huge amount of institutional knowledge gained over decades of service. This is not a prudent approach.
No true. He states a true fact that eligibility of 55 years old or 20 years or more service will give you these numbers. Did you know that if you are 55 with 20 years of service you only get a 30 % pension. No one is leaving for that. The numbers he is quoting do not reflect that the number will be much lower. Also the law id the law and they cannot rehire more than 20%. Plus this hiring freeze is in effect now and is also in effect for FY16 before the ERIP was ever proposed.
Thanks for posting this Will. The governor’s proposal is, at best, only superficially attractive in light of the Commonwealth’s current fiscal position, but may have quite serious long term effects on operations and effectiveness – – which (at least since Hobbes’ Leviathan) is the real purpose of government.
Aren’t you always tired of hearing about our terrible financial position? Year after year and decade after decade? Did you ever stop to think how this happens? The Governor is not a King and all his proposals whether it be this Governor or Governors past has to go thru the legislature. That is your real problem.
Remember no Secretary for group one is crying wolf here. Group one does not affect critical services.
Terrific analysis. There is no way to reduce headcount without difficulties but there are more and less expensive ways to go about it – and it should be a multi-year analysis. In my opinion also, it is unlikely that the assumption that the salaries of the replacements will cost only 20 percent of those departing (without going back that’s what I believe I read) is correct. Finally, there are agencies on the list that are funded from private assessments (the DPU and, I believe, part of DOER). For those agencies there is no immediate benefit to the state budget of an early retirement offer.
I want to know who is going to pay for the ERIP? Will the state commit to funding it? or will state employees be expected to pay for it out of their own paychecks? State employees fund 70% of the pension from payroll deductions themselves already and the pension fund is only in deficit because the state doesn’t make all of it’s contributions. If ERIP goes through will there be a line item in the budget to fund it?
In principle the state is paying for it with an increased contribution for 15 years. Of course, that is only actually budgeted for the first year.
Not true. The employee pays a very large amount into this and if the pension fund was never underfunded this would not be the case. As we have to do pay your bills and stop over spending. What is good for people homes is good for the state. Remember the state pays for noting. It is the citizens of the state that pay. We should first review the cots of the legislature and see about their job performance.
I agree with searching for more alternatives than the ERIP. Amortizing the ERIP expense over 15 years, while taking budget credit for the reduced headcount now is indeed “kicking the can down the road”.
But I think there is a better way than a freeze. The freeze focuses only on headcount. A more effective way is to bring in professional cost reduction consultants (objective consultants, not beholden to the Governor) to review all costs. They could identify unneeded or low-value programs, money wasted in technology or equipment, sweetheart deals, patronage-friendly agencies, as well as identify inefficient procedures, and a range of other ways to reduce costs. Odds are they could come up with cost savings much higher than the Governor’s target, and in much healthier and long-lasting ways than simply reducing headcount.
Kicking the can down the road while over spending now and not paying your pension bills and this bill is a problem. Aren’t you just mad about this deficit regardless of any bill? Are you sick and tired of the federal governments 16 trillion debt. How long before people face their legislatures both federal and state and say enough is enough. Good government would have alleviated these problems.
In looking back at the numbers you presented, Will, the headcount in the departments listed totals 45,672. If I am comparing the numbers correctly, Baker wants to take out 4,500, about 10% of the workforce, or about 8% after the 20% replacement hiring. That is really a ham-handed approach to cost reduction, which supports my suggestion of bringing in experts who can look at all costs, not just personnel costs.
(And I’ll echo comments made by others. Great analysis, Will.)
Thanks, Don! Ham-handed is a fair word.
Your position was the right one, Will. What led to this Senate vote? Was it as crass as showing an immediate cost reduction, disregarding the higher long-term cost, or were there less obvious considerations in play?
I think people hate to see layoffs and also want to give the Governor some space to manage things his way. I share both those feelings, but just see the costs and risks of the approach as unacceptable.
Excellent analysis. I hope this isn’t a done deal and I certainly don’t see why the legislature would go along with the more short-sighted governors plan.
Viewed in this context, S44 (see https://malegislature.gov/Bills/189/Senate/S44) is a fascinating document.
Awesome summary Will. Sorry your approach did not carry the day.
Sorry to say your points are wrong. And your approach was all wrong from the beginning.
First let’s address the deficit. The deficit which brought this ERIP on for consideration is not the fault of any employee. It is the sole responsibility of current and past Senators and Representatives. You Mr. Brownsberger are at fault here. If you and your colleagues produced a balanced budget and stuck to it this would never have happened.
2. Employees are the same as any Massachusetts citizen. They pay taxes and vote like everyone and should not be used to layoff staff just because your institution cannot do their job.
3. Next it is the responsibility of the Senate to pass a balanced budget and monitor said budget to the actuals every month. If you are not doing this then your institution should be shut down. The actuals are there for the Ways and Means committee to see every month of which you are a part. The Senate did not do their job for decades. It is your job to see the deficit and see it growing every month. All deficits should have been caught and dealt with way before any real issues became serious. This was your job. If you did not see a deficit coming and stopped it because it was hidden from you then someone should be in jail.
4. I watched the live stream debate and vote in this institution and I saw your display. Unfortunately your triad was wrong and filled with errors. Next you and your colleagues did not do a roll call vote where it would have been recorded. Also you did a show of hands vote and had the cameras face the podium so those citizens watching could see their senators and how they voted. Shame on you and your institution.
5. Eligibility. It says 55 or over or 20 years of service or more and your numbers reflect that only. What you did not show was the number of people with low salaries or partial years so their pension amount will prevent them from taking advantage of this. I know 59 years old, 32 years of service and at 80%, not going because kids are not grown. People at 63 years old with 10 years of service and not enough to go.
The pension system does not provide decent percentages until people get into their 60’s and then the pension percent starts to rise. What you are going to get sir is over the next 7 years a lot of people going that finally have to. So you are cutting your nose off to spite your face. If you let everyone go now then you can rehire 20%, younger staff and lower salary and paying a higher percentage into the benefits but your institution derailed this.
6. You wrote that no one from trust or capital funding of federal funded can be eligible. Just because you do not receive a direct savings but you do. First the travel expense and services they use. Yet you allowed the Massachusetts Transportation Trust Fund to be eligible. The is the Department of Transportation and the Massachusetts Turnpike Authority. Funny you allow them but not others, HMMMM.
7. Critical Positions. You added into the bill this wording to prevent supposedly critical people from leaving and thus you discriminate but disallowing them from being eligible. So first this ERIP only apples to Group 1. That is administration. Group 2 and above applies to direct care staff and they are not included so no critical disaster. Next if any person is deemed critical then you should be questioning the management as to why cross training did not occur. Next you use the language Critical Positions. An employee has 2 positions titles. One for Organization and one for the Form 30. The bill does not address a critical person but position. So if you use a form 30 position title for the position then ALL people across ALL secretariats must become ineligible and believe me you are going to be flooded with union grievances.
8. If you exceed 5000 prioritize by years of service. WRONG!! Just the same as putting in a people count cap. You are after money savings here not people counts. If you have to prioritize by anything it should be annual salary. You then get the highest paid first and you would have reached your savings goal before reaching the 5000 number. That would also allow you to take the full 5000 and get more savings. If you go by years of service and because most state employees make a much smaller salary you can reach the 5000 cap before you reach the savings thus creating a situation whereby to make the difference you have to layoff. If you want money then do not do apples to oranges stick with money.
Which reminds me I watched your performance on live stream where you stated just lets absorb the pain and not do this bill. You were saying just lets do the layoffs. You weren’t going to be laid off. The lower paid employees were. Who are you to play GOD as long as you do not suffer the consequences. Do the Commonwealth a favor. Resign from your post, take your staff with you and lets have another election. Let’s see how you like being out of a job. The state employees suffered from 2008 thru 2011 layoffs, no increases, higher benefit costs and more and multiple times. How many times do the state employees suffer because your institution cannot do their job?
If you want the cap you should have grandfathered in anyone 60-65 as in and not part of the cap. Prioritize by annual salary and you would have been much better off.
9. Underfunded Pension Liability. It is the Commonwealths responsibility to fund the pension fund every year. If the pension fund is underfunded it is because you sir did not do it. Do not use this as an excuse to kill the bill and lay people off.
10. For decades all the job world in the government and private sector knew this day was coming that the baby boomers were to retire and you sir did not plan for it regardless of your time in the Senate.
11. Agencies offering buyouts for this at 80%. Why take a less than $7000 pay after taxes and lose multiple effects over decades in your retirement by letting your pay increases up your pension over the years. It makes sense to stay if you are not ready. Foolish gesture.
12. Every ERIP itself only always made savings. Never lost money. The problem was that the government just hired right back. That is why there was no savings. It is not the ERIP that is the problem it is the rehiring. The Governor put in those stop gaps for the sections of government he controls. Did the Senate do the same for the rest of the sections they control? No.
13. There are more issues but the bottom line is over decades the Governors and Legislatures did not do their jobs and we wind up with this. Overall it still would be better to have not only accepted the House version but to expand it as well. The issues you state for not doing was a cover and the facts are not real.
14. In the end it is the responsibility of the Governor, House and Senate to run the PEOPLES business and the facts are over the decades they have failed. It is too bad citizens do not get more involved to see what is being done to them. remember the Big Dig. The day it opened we sat in traffic.
Certainly the Senate here did not do it’s job. Your personal comments below are wrong and your analysis flawed. I hope someday people will come to understand that state employees the majority of them do not have this cushy life working for the state.
Lastly. You do realize that you can have the hiring freeze option and the ERIP at the same time and realize more savings. It does not have to be one or the other.
Just remember how your government operates both Federal and State. The final say on how things are done, monitored and approved are thru the House and Senate not the President or Governor. Do not let this long presented display fool you. The base is wrong and the fault squarely lies with the Legislature over the decades. As an example notice you are offering option A ERIP and Option B the Hiring Freeze. You can have both and any simpleton can see that so why present either or. You are going to pay these pensions anyway. And why is it this Governor that is offering some ways of dealing with this? Where was the legislature? If you want to have some real fun for all you financial addicts take a look and see what is being done with this upcoming budget.
Thanks, Paul for weighing in so thoroughly on the ERIP issue.
Although we disagree on the ERIP Issue, I’d be the first to agree with your main point that the legislature does bear immediate responsibility for the current financial problems we have and for solving those problems.
That is what free speech is all about. I was not there to make people come to my side but to present a fair and balanced reply to what I consider faulty assumptions. So with that said the ERIP is now law and we both have to live with what happens. If we do not hit 5000 then everyone is fine. If we exceed I will feel sorry for all those people that could have been considered but lost out and if anyone gets laid off when there is no reason to.
Thank you for letting me reply.
The goal was not reached, some “Group 2” state employees should be considered for the ERIP, example: some DMH state employees with over 20 yrs. and over 60 years of age..
Not too likely to be proposed at this stage.
Comments are closed.