Public-Worker Retirements Surge as States Cut Benefits to Shrink Deficits

Teri Essex retired a year earlier than planned when she was offered $56,000 to leave her elementary-school teaching job in Elk Grove, California.

Instead of accepting a salary cut, larger classes and less money for supplies from spending reductions made last year by California lawmakers closing a $19 billion budget deficit, Essex, 60, took the money over nine years to retire in 2010 after 21 years of teaching.

“The financial buyout was a no-brainer,” said Essex, whose school was 15 miles (24 kilometers) outside Sacramento. Even though she’ll give up about $300 monthly by quitting early, she said, “Once you start thinking about retiring, it was like, ‘Oh yeah, I want to do this.’”

California, Florida and Texas are seeing more retirements as rising benefit costs, pay cuts and looming furloughs prompt workers to leave. Inducements to quit early also boosted departures in New York as U.S. states tackled budget gaps totaling more than $540 billion since fiscal 2009, according to the Center on Budget and Policy Priorities. In New Jersey, Wisconsin and Ohio, added motivation came from attacks on unions over costs that strained budgets.

“These are people electing to retire because they’re worried,” Jeffrey Keefe, who teaches labor and employment relations at Rutgers University in New Brunswick, New Jersey, said in a telephone interview. “They are demoralized by the current public-employee condemnations.”

Potential Brain Drain

One-third of state and local workers with special skills, such as teachers, nurses, legal staff, engineers and managers, will be eligible to retire within five years, said Elizabeth Kellar, president of the Washington-based Center for State and Local Government Excellence, a nonprofit research organization. Retirements delayed by the recession and an increase in eligible workers contributed to the recent increases.

That may exacerbate a brain drain at states and municipalities, where employment has fallen by 2.5 percent since its peak in August 2008, according to U.S. Bureau of Labor Statistics data. Since 1995, the number of state employees outside education is little changed.

New Jersey Governor Chris Christie likened the teacher’s union in his state to “political thugs” in an April ABC interview with Diane Sawyer. He said on NBC’s Today Show in February that benefits were “out of control.” When a teacher at a public event last May complained about the salary at her job, Christie told her, “you don’t have to do it.”

May Spike Again

Retirement applicants in New Jersey rose 60 percent in 2010 from 2009. Applications to retire in the first seven months of this year fell 16 percent and may “spike” again if lawmakers pass a measure to increase employee contributions to health insurance, said Andrew Pratt, a state Treasury Department spokesman. Christie has proposed workers pay 30 percent of their health care.

In Wisconsin, retirement applications jumped 79 percent in the three months that ended in March from the period last year, according to the pension system. Governor Scott Walker has signed a law limiting unions’ collective-bargaining rights, requiring workers to contribute 5.8 percent of salaries to pensions and pay 12.6 percent of health-insurance costs. The law faces a court challenge.

Ohio saw a 27 percent annual rise in retirement filings and inquiries in March, Julie Graham-Price, a pension-system spokeswoman, said in an e-mail. Legislators last month passed a law limiting union bargaining rights, restricting local- government pension contributions and requiring workers to pay at least 15 percent of their health-care costs.

‘Dramatic Reductions’

Mona Hauenstein, a 30-year state employee, quit in 2009 as a secretary at the Emergency Management Agency after hearing about a proposal to reduce employer pension contributions, which would have likely led to “dramatic benefit reductions,” according to the pension system’s annual report.

“I was going to be a big loser if I didn’t, I felt, because of the reforms that were going to come,” Hauenstein, 50, said in a telephone interview from Lima, Ohio.

California teacher retirements rose 20 percent in fiscal 2010 from a year earlier to 15,621, Patrick Hill, a spokesman for the California State Teachers’ Retirement System, said in an e-mail. Other state and local retirements jumped almost 23 percent to 30,119 in 2010, according to the California Public Employees’ Retirement System.

$15 Billion Gap

The number is likely to grow again this year as lawmakers consider pay and benefit reductions, said Brad W. Pacheco, a Calpers spokesman, to cope with a projected $15 billion 2012 budget gap.

“We expect to see an increase in retirements because of pension reforms,” he said in a telephone interview, “and the continued threat of furloughs and pay cuts.”

Mike Dennis, 61, who teaches in Willows, 140 miles north of San Francisco, will retire in June from what he said was “the greatest calling I ever had.” Growing class sizes, cuts to student programs and “combative” salary and benefits negotiations are reasons, he said in a telephone interview.

“It’s the political environment,” said Dennis, a 16-year first-grade teacher and former police officer. “I don’t even know that I’m considered a valuable person anymore.”

The Employees Retirement System of Texas expects about 5,400 retirements in the fiscal year ending Aug. 31, up from 3,500 in a typical year, said Mary Jane Wardlow, a spokeswoman.

Insurance Premiums

Texas legislators may require employees to pay for 10 percent of their health-insurance premiums to help narrow the state’s budget deficit, Ann Fuelberg, executive director of the retirement system, said at an April 5 legislative hearing.

In Florida, retirees entering the pension system rose to 14,306 in the first seven months of fiscal 2011 from 11,639 in all of fiscal 2010, Kris Purcell, a spokesman for the state’s Department of Management Services, said in an e-mail.

Governor Rick Scott, facing a $3.8 billion deficit, wants workers to pay 5 percent of their salaries to their pensions and to lower the portion of state-paid health-insurance premiums.

The number of New York public employees who retired in 2010 grew 65 percent to 12,281, after a program that ended Dec. 31 allowed some to leave with full benefits after 25 years rather than 30, said Eric Sumberg, a spokesman for Comptroller Thomas DiNapoli.

Iowa, Michigan, Minnesota, Oklahoma also offered early- retirement enticements in 2010, according to a Nov. 23 report of the Denver-based National Conference of State Legislatures.

Fiscal Health

Most such incentives are unlikely to have a “significant impact” on pension systems’ fiscal health because costs tend to be spread over time, Bill Hallmark, chairman of the Washington- based American Academy of Actuaries public plans subcommittee, said in a telephone interview from Portland, Oregon.

State pensions have $479.6 billion of liabilities not covered by assets, according to data compiled by Bloomberg from the latest available filings. The assets covered an average of about 77 percent of liabilities, less than the 80 percent actuaries consider adequate.

Illinois is the worst-funded system, according to data compiled by Bloomberg in September, with assets to cover 50.6 percent of liabilities. In that state, 2,600 employees are expected to retire in 2011, up 27 percent from two years ago, because of legislative proposals to cut their benefits, said Tim Blair, executive secretary of the State Retirement Systems.

“We’re going to see over the next several years more people retiring at any given age,” he said in a telephone interview. It’s going to be “a steady stream of folks going out the door.”

To contact the reporter on this story: Simone Baribeau in Miami at sbaribeau@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.

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