In light of the recent implementation of VSIP, I looked back at your post on ERIP in 2015. Could you do a post on the effectiveness of ERIP in 2015, how many employees took advantage of the program per agency, and how VSIP 2016 compares? This is very important information for those who may be weighing their options as state employees.
Answer from Senator Brownsberger’s staff
To reduce a projected $294 million deficit in the current fiscal year, the state’s budget agency – the Executive Office of Administration and Finance (A&F) – announced cash incentives for Executive Branch employees to voluntarily separate from state service. The voluntarily separation incentive program (VSIP,) combined with an ongoing hiring freeze are expected to reduce but not close the projected deficit. This is how VSIP 2016 compares to the Early Retirement Incentive Program (ERIP) from 2015:
The program provided certain Executive Branch employees, who were already eligible for retirement with a boost in their future annual pension amounts if they left before the start of FY15. Employees that had already maxed out their pensions and employees ineligible to retire were not eligible to participate. The pension formula considers age and years of service, and ERIP allowed an employee to add up to 5 years to either or both in combination. For the employees who were eligible to take advantage of ERIP, the program represented a net present value increase in lifetime benefits of approximately $100,000.
How successful was ERIP?
When the administration pitched ERIP in 2015, Administration and Finance projected a participation of up to 4,500 Executive Branch employees and payroll savings of $325.1 million, less back-fill and other separation costs in FY16. Ultimately 2,497 employees took advantage of the program, creating a FY16 payroll savings of $189.6 million and saddling the state with a $235.2 million increase in actuarial liability to the pension system. The net savings in FY16 is lower based on the new increased liability and back-fill costs. On a 10 year schedule, the increased actuarial liability costs would be $33.1 million, or $25.7 million on a 15 year schedule, and the Executive Branch agencies have the ability to backfill up to 20% headcount of positions lost, which further reduces net savings. On December 1 2016, A&F will file a second report on the net savings achieved by the program throughout the all of FY16, including the full cost to back-filled positions and the pension liability increase. Ultimately ERIP did not achieve the full savings anticipated in FY16.
The VISP offered by A&F to eligible employees on October 17th via email provides a one-time cash payment of $15,000 to retirement-eligible Executive Branch employees and $5,000 to non-retirement Executive Branch employees who elect to voluntarily leave state service. After the program is complete, A&F will assess whether there is a need to achieve additional payroll savings through a non-voluntary layoff or other measures. This program may move some individuals to leave state service that were unable to benefit from ERIP. Additional measures will almost certainly be necessary to close the remainder of the projected budget gap.
This is the text of the email that was sent to Executive Branch Employees:
Dear Executive Branch employees:
On Friday October 14, 2016, the Executive Office for Administration and Finance (A&F) lowered the Commonwealth’s Fiscal Year 2017 (FY17) state tax revenue projection by $175 million due to slower-than-expected growth in sales tax collections. A&F also recognized expected deficiencies in certain accounts which are not supported by available revenue in the FY17 budget. These deficiencies were the primary reason the Administration made $265 million in FY17 budget vetoes, most of which were subsequently overridden by the Legislature.
The combination of lower tax revenue projections and acknowledgment of deficiencies gives the Administration authority to reduce state spending within the Executive Branch by up to $294 million in FY17. As a result, we have commenced a spending reduction exercise with Executive Branch agencies.
To help achieve savings, I have authorized a Voluntary Separation Incentive Program (VSIP) that will offer a one-time cash incentive of $15,000 to retirement-eligible employees and $5,000 to non-retirement-employees who elect to voluntarily leave state service. VSIP is open to Executive Branch employees in all budgetary accounts, including operating, capital, trust, federal and assessed accounts. It is also open to both managers and bargaining unit employees.
VSIP enrollment begins today, Monday, October 17, 2016 and runs through Monday, November 14, 2016. It is our strong desire to achieve savings through VSIP and we encourage employees to consider this option. After the program is complete, we will assess whether we need to achieve additional payroll savings through a non-voluntary layoff.
The Human Resource Division/Office of Employee Relations will be responsible for implementing and executing VSIP. Requirements for VSIP have been provided to your agency head and HR director, who will be responsible for the development and implementation of the program within your agency.
You may obtain a VSIP application or should direct any additional questions on the program though your agency’s Human Resources Office.
Secretary, Executive Office for Administration and Finance
Office of State Senator William N. Brownsberger
Got it. Thank you for the question.
You raise two different questions:
(1) What was the effectiveness of ERIP?
(2) How does the new VSIP program compare?
I will try to get an answer on the first question and get some basics on the second question. These are things that the public should know.
But I don’t think my post will help employees choose their options — they should be talking to personnel and financial advisors to determine the best course for them personally.
Ok so they are going to buy out the most experienced employees and at some point in the future replace them with less experienced workers. Will these workers get vested in the system like the ones being replaced if so what is the point?
The only logical choice is all incoming new workers be covered by social security and 401K s. Otherwise the state is shooting it’self in the foot
More likely, VSIP will not meet the administration’s goals for the reasons David mentioned above which will likely lead to layoffs. Layoffs will most likely result in higher paid employees with more years of state service bumping lower wage employees with less years experience (union bumping rights). This really hurts those at the bottom (read those making $40-70k a year), while the highest earners (read 12,000 plus state employees making between $100-$400k year) can breathe easy. Am I wrong? And what of expensive consultant contracts?
I retired from state service in February 2016. ERIP, which unfortunately didn’t apply to me because my position was bond-funded (Andrew doesn’t mention that, but it didn’t), would have been a substantial incentive to leave earlier. VSIP is _not_ a substantial incentive, and I’d love to understand the math justifying gifts to people who are about to go anyway . . .
Couldn’t agree more!
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