Early Retirements Sound Good, But Some Experts Warn That They Could Cost More Later

On Thursday it was announced that 93 county employees in Yolo accepted a so-called Golden Handshake or early retirement.  This included the number 2 person in the District Attorney’s Office, Ann Hurd and the County’s Public Defender Barry Melton.

Both are 62, only a few years before their normal retirement.  The county has a huge problem–probably bigger than any other local jurisdiction.  They face a deficit upwards of 24 million dollars which is greater than one-third of the county’s general fund budget.

In order to close this gap, they are trying to trim about $5 million in salaries.  The county estimates that the 93 employees that accepted the offer will take $2.6 million off the books and save about 25 jobs.  Sounds good–the county gets to wipe these high salaries off the books and the employees get two additional years of retirement credit.

These retirements come at a high price though as the various departments will lose experience workers.  But that is not all.

But in a report that appeared Friday in the North County Times covering Riverside and San Diego Counties, they such that while these retirments are very appealing and seemingly a painless way to cut expenses, there are pitfalls.

Giving away service years as an early retirement incentive is common, said Jack Dean, editor and publisher of pensiontsunami.com, which tracks developments in public employee’s pension plans.

“It’s a sleight of hand to say that is saving money,” he said. “Elected officials don’t seem to realize they are paying (increased) pension costs later.”

Dean cited the recent case of Vallejo, about 25 miles northeast of San Francisco, which filed for bankruptcy last year, saying it was overwhelmed with pay, benefit and pension costs.

Marcia Fritz, a certified public accountant and vice president for the California Foundation for Fiscal Responsibility, agreed.

“If Vallejo could scale back pay, benefits and pension costs, (the city) would make it,” Fritz said. If they can’t get concessions, Fritz says the city’s prognosis is grim.

Offering early retirements “is a crazy, crazy thing to do,” she said.

Part of whether or not there is real savings here will depend on whether the position being vacated is actually cut from the budget.  In that case the early retirement would effectively be a layoff.

The understanding is that the county is cutting for example Barry Melton’s position and then essentially leaving his position vacant rather than promoting the next in line.  The next in line is becoming an interim or acting Public Defender and thus not making the salary of the top spot.

What the county wants to avoid is hiring new workers at a lower wage for that would be a very modest and temporary savings.

CalPERS requires that the positions being target be held vacant for a certain number of years as means to help avoid lay-offs.  While several Davis City employees have expressed an interest in this kind of incentive, the city has not offered any CalPERS to date.

The bottom line here is that down the line, pension costs are an issue that are going to have to be addressed.  In the short term, it makes it a bit easier for the county to retire people a bit early rather than lay off younger workers, but the saving derived from that will be dependent on leaving those positions open and not hiring younger workers to fill the void.

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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  1. Wondering

    Maybe I am missing something here. If a person is given a golden handshake early, that person still has to be paid a pension, which is less than what they were making. Isn’t that the only real savings going on here, even if the position is done away with altogether? Let’s take a concrete example: Person A in position A @ 100K per year, retirement will be $90K per year. If Person A is given a golden handshake early, and Position A is done away with altogether, what are we saving? $10K per year? Is that the appropriate way to look at this? I find this issue very confusing – I am not convinced we really save much beyond the difference between what the person was making while working, and what they will get for a pension, assuming the job is done away with altogether… Please explain if I am not looking at this correctly.

  2. More complicated than that

    That’s where PERs comes in with the contribution ratios and its investments. The city doesn’t pay $90K, they pay the employer portion that has been contributed over time. I’m not going to pretend I can explain it to you. But I do know the actual employer is not paying out $90K at that time. Could you imagine if they did? On top of all their current employees they are paying for 90% of retired employees? Oy! While it’s bad, it’s not quite that bad.

  3. SODAIte

    Except I can’t believe all 93 will go unfilled. Maybe for PR and short time but if truly we can get the work done without filling those positions , why has it taken this long to realize that?

  4. resident

    Wow! At 100K and the retirement is 90K Wish my union had been able to match those kind of benefits. The disparity between upper management and working class has for decades been growing. Until cities, counties and states work toward a more equitable pay scale with caps on all jobs this problem will continue. Private businesses, with their special tax cuts, subsidies, etc.
    make it difficult for gov’t to justify caps. But gov’t could and should stop the special benefits to business and let them operate as “free enterprise,” and if they go bust…well, too bad.

  5. aware

    ahhh… the beauty of blogs… person A says 90%, and it’s a “fact”… as I recall, the article said Hurd worked for the county 23 years… the County has a 2.5% @ 55 benefit (percentage does not increase once someone attains age 55… unlike 2% @ 55 system)therefore, her retirement compensation would likely be 2.5 X 25 (two years credited by GH) = 62.5% X highest year of compensation… might be more if she had other years in PERS affilliated service… years other than Yolo Co. would have been actuarially paid by those employers… unlike many other states, PERS has been ‘fully funded’ on the retirement benefit side, as opposed to pay as you go (Social Security)… PERS adjusted the employers share downward when investment experience was great (Davis, in some years, paid 0% for employer’s share)… needless to say, investment results have tanked, so PERS has announced need to up the employer’s share… 90%? that would mean 36 years of service in the PERS system…

  6. David M. Greenwald

    Aware: I think 90% was an example not a declaration about Ann Hurd.

    Here’s what they said:

    [quote]Let’s take a concrete example: Person A in position A @ 100K per year, retirement will be $90K per year. If Person A is given a golden handshake early, and Position A is done away with altogether, what are we saving? $10K per year?[/quote]

    I don’t read that to mean anything more than an example not a statement that that is what Ann Hurd is getting.

    Looking up Hurd’s salary from last year, she made about $123,000. Assuming your figure is correct, she would get a retirement pension of about $77K. Not too shabby.

  7. Even more complicated...

    The “golden handshake” – giving them a few thousand to retire – doesn’t push many people to retire who wouldn’t have gone anyway. As a result, you can end up paying people money to retire who would have retired anyway, thus spending money needlessly.

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