Municipal retirement incentives can be a solid strategy for a local government that seeks to generate revenues and cut expenses, but using this option requires research and planning to determine if it is right solution for financial circumstances.
Municipal retirement and separation incentives are making the news as county executives across the Mid Hudson region seek to trim budgets. In the wake of sales tax losses and delayed state aid during the COVID-19 crisis and shutdown, every dollar counts.
As an example, in late June, Dutchess County announced retirement incentives for employees who meet state pension system requirements, offering a bump to the county share of retiree health insurance premiums and either 10 years of fully covered vision and dental or a $10,000 incentive payment. Dutchess is also offering the option of a $20,000 lump-sum incentive to employees who retire, as well as to employees who opt for voluntary separation.
Dutchess expects the incentives to save the county between $8 million and $12 million.
The first step in determining whether a retirement incentive is right for a local municipality is to perform an analysis of your employee demographics. Once officials determine who is reaching or is at retirement age, they must consider the job and duties of the employees who might take an incentive. Is this a job where the employer will need to fill the vacancy, or it is a position that can be eliminated?
Whether a job’s duties are essential or non-essential factors into the decision. Police officers who retire, for example, may need to be replaced to maintain public safety. For other positions, departments may be able to combine duties to accommodate trimmed staffing, or find ways to automate services, such as online bill paying.
The analysis must be realistic and consider which retirees’ or open positions must be filled to continue providing needed services to taxpayers.
Local governments looking to offer incentives must also examine labor contracts and work out details with unions if bargaining-unit positions are affected.
Although retirement incentives are thought of as a near-term money-saving measure, their effects make them a longer-term measure.
Once officials have analyzed the workforce and weighed all of the information, they can then extrapolate potential savings versus the cost of incentives that will entice a sufficient number of employees to accept the offer.
Savings depends on the employee’s salary and when he or she accepts the incentive. For example, if workers retire effective July 1, the municipality will still have half of their annual salaries and benefits in the budget, helping to offset the cost of the incentives. Offering an incentive earlier in the year maximizes savings.
Officials must be sure that the savings created by the retirements or separations exceed the funds paid out to secure them.
The most obvious incentive is a cash payout. Orange County, for example, offered voluntary separation incentives of $10,000 for employees with 10-20 years of service, $12,500 for those with 20-30 years of service, and $15,000 for workers with more than 30 years. Orange coupled its separation incentives with a two-month voluntary layoff program that allows workers to collect unemployment.
Municipalities can also offer perks such as bonus payouts of unused sick or leave time, continuation of benefits, or reduced contributions towards benefits.
To offer incentives, the municipality must spend money. Optimally, a municipality will have cash savings from unexpended salaries and/or sufficient fund balance to pay out incentives. Otherwise, officials must take a hard look at the current budget, to look for efficiencies.
In determining the best course for using municipal employee retirement incentives, local officials must take a larger view of personnel and government functions. That assessment will determine how a government can most economically and efficiently provide the services constituents need and expect.