County OKs cost-saving early retirement proposals
New rules will reduce number of employees
Friday, Dec. 18, 2009
The Charles County commissioners voted last week to approve five retirement plan committee recommendations that could provide an opportunity for a staff — and wallet-friendly — reduction in the local government workforce.
"As many people are aware, there hasn't been very much positive news when it comes to the ongoing fiscal crisis and how to approach it," said Stephen Brayman, the county's director of human resources, during the Dec. 8 briefing. "Our goal is to attempt to reduce the funds necessary for the fiscal 2011 operating budget and you'll see there are significant savings we can project from this."
Among the suggestions of the retirement committee are adding up to three years of service and three years of age to the retirement benefit calculation, adjusting the early retirement reduction factor from 6 percent to 3 percent for those with 25 years or more of service, and eliminating future minimum fund liability.
Under the participation limits for the pension plan enhancement, only those employees who are at least 52, have worked for the county at least five years and are up for early or normal retirement on or before July 31 are eligible.
That number comes out to 218 employees, Brayman said, and the projection is that not all of them will want to participate.
Patrick Landry of Prudential, who is also the actuary for the county's pension plan, told the commissioners that temporary enhancements like the one being recommended are very common in both the public and private sectors.
Under a 25 percent participation rate — or 55 employees — and a replacement rate of 5 percent, if those assumption are projected correctly they could mean a savings of at least $2.4 million with a contribution of just under $320,000; "compelling numbers" according to the human resources director.
The Retirement Plan Committee is chaired by County Administrator Rebecca Bridgett; Director of Fiscal and Administrative Services Deborah Hudson is the vice chairwoman. Brayman and the Assistant Director of Human Resources Megan Donnick also sit on the committee, and Aaron Hamm of the planning and growth management department is the employee representative.
No one on the plan committee is currently eligible for the early retirement option, Brayman said.
Unlike the pension plan enhancement, the early retirement reduction factor would be a permanent change, with an estimated participation of less than 15 people out of the eligible pool.
"This would incentivize people … to look at seriously considering this early retirement program," Brayman said.
"But it would have an ongoing effect of when we have employees with 25 years or more of service that they would be able to retire without necessarily reaching ... 60 and not take such a dramatic decrease in their annuity."
According to Landry, a large majority of Prudential's clients in the public sector have implemented a change to their minimum fund liability, a factor that is necessary for the early retirement program to work.
"All our funds in the trust are in assets where 60 percent are allocated for equities and 40 percent are allocated for fixed account," Brayman said. "Under our current funding mechanism when somebody retires there are certain assets directed into fixed; that's called the minimum fund liability … and that is growing … and it's making that 40 percent grow and that's not going to be healthy over time.
"Once it exceeds 40 percent it could undermine our 8 percent assumption rate making everything cost more."
By eliminating the fund liability it would make room for more retirees and not cause an upset in the investment policy. There would also be a savings of about $48,000 per year.
Adding up to three years to the retiree health care subsidy could also be a strong incentive, Brayman said, and a cash-leave incentive was also included as a suggestion for eligible participants.
When asked by Commissioner Reuben B. Collins II (D) about other counties that had implemented something similar this year, Brayman said Carroll County had offered somewhere along the lines of $1,000 per year of service up to 25 years, while Worcester County offered straight cash perhaps a year ago.
Those were the only two jurisdictions that could be readily identified as having tried something similar in nature and in the same amount of time, Brayman said.
Landry said the limited research done on public sector clients did not show too many options similar to the one suggested in Charles County.
As far as the private sector, more Prudential employees were spending time helping with layoff plans than early retirement options, Landry said.
Charles County commissioners' President F. Wayne Cooper (D) expressed his concern for paying the costs of early retirement during a financial crisis.
Landry said half the increase in the pension would probably be paid over five years.
The county's Budget Director David Eicholtz said it would largely depend on how many retirees were replaced.
"The premise is you do not replace people," Brayman said.
"If everyone is replaced it's a self-defeating model."
Cooper and Patterson recused themselves from the vote because they would be eligible for the early retirement opt-in.
With the support of the three commissioners who did vote, the county administrator will begin working with outside agencies to develop a "financially feasible working action plan" for how to handle replacements and reductions in operating costs.
These outside agencies include the county's circuit court, state's attorney's office, nonsworn officers within the sheriff's office and the Charles Soil Conservation District.
If all goes smoothly and the working incentive plan is agreed upon, the early alternative could be rolled out to begin opt-in participation sometime in mid-January, Brayman said.
The director said by mid-March he could come back before the commissioner with the participation rate.