early retirement incentive revieeligible employees must retire within 60-120 days after the school...

Early Retirement Incentive ReviewPresented to the

Audit, Budget & Technology Committee

by thePERSONNEL COMMISSION

and HUMAN RESOURCES DIVISION

January 15, 2004

January 15, 2004 2

AGENDA

Introductory CommentsChuck Burbridge

Personnel CommissionOverview by Kathryn Butler

Human Resources DivisionOverview by Tom Killeen

Closing Comments & QuestionsChuck Burbridge

January 15, 2004 3

Introductory Comments

OverviewWhy Offer Early Retirement Incentives?

Reduce costsReduce and improve workforce

Why Do Early Retirement Incentives Work?Comparison of Two Incentive Programs

Why it works for one but not the other

January 15, 2004 4

Personnel Commission Overview

Government Code Section 20904:

Provides two years of additional service credit for employees who are at least 55 years of age

And have at least five years of service credit

January 15, 2004 5

Personnel Commission Overview, con’t.

State Government Code 20904 conditions:The employees must retire within the specific window period of 90-180 days

The District must pay PERS the actuarial equivalent of the increased retirement benefit

The retirement will result in a net savings to the District

January 15, 2004 6


Section 20904 Conditions, Con’t.The job classifications or organization units eligible for the benefit must be designated

The benefit cannot be provided on the basis of employee organization (bargaining unit) or unrepresented groups (e.g., confidential employees)

January 15, 2004 7


Cost to the District based on the employees’ annual compensation and a cost factor

AGE COST FACTOR50 - 54 .3955 - 59 .5460 - 64 .5865 + .54

May be made in payments within two years, including interest

January 15, 2004 8


Staff surveyed eligible classified employees regarding their interest

1,410 responses received 665 would definitely retire 745 indicated they were not prepared to make a decision at the time of the survey

January 15, 2004 9


Administrators determined if their Division would participate

Impacted positions were required to be left vacant for at least four months

Half of these positions were to be permanently cut

January 15, 2004 10

Personnel Commission Overview, con’t.Participation by:

Food Services Branch 23 job classifications

Office of the Inspector General3 job classifications

Independent Analysis Unit1 job classification

January 15, 2004 11


$1,124,625.30 TOTAL SAVINGS

359.027.50$365,586 $150,830.44 $239,255.94 NET SAVINGS

359,027.50339,930.50318,870.50304,603.00Half Positions Cut (6/12)

91,136Vacant Four Months

$9,925.50 $25,655.50 31,583.5043,140.50Positions remaining

(salary savings)

($199,623.56)($199,623.56)Cost of Incentive*

2006-072005-062004-052003-04INSPECTOR

GENERAL

January 15, 2004 12


$11,401 $11,621 Net savings

+11,401+5,655Replacement at lower salary level

+55,293Position to be kept vacant six months

-49,327Cost of additional service credit

2004-052003-04Independent

Analysis Unit

January 15, 2004 13


$140,657.21 $222,983.01 $1,333,947.87 Cost Savings

2,862,135.07Positions Cut

$140,657.21 $222,938.01 301,016.96Positions remaining (salary savings)

$(1,829,204.16)Cost of Incentive

2005-062004-052003-04Food Services BranchSavings for previously approved classifications:

$21,160.68 $41,331.83 $51,842.95 Cost Savings

$21,160.68 $41,331.83 $327,141.61 Salary Savings

($275,298.66)Cost of Incentive

CAFETERIA WORKER II

SUPERVISORS AND

2004-052003-04 Area Food Services

January 15, 2004 14


ConclusionsApplicable in limited situations

ReorganizationImpending layoffs

Can save money only by not backfilling positions

January 15, 2004 15

January 15, 2004 16

Human Resources DivisionOverview

Assembly Bill 1207 “Golden Handshake” (2 Yrs Service Credit)

Provides two years of additional service credit for employees who are at least 55 years of age and have at least 5 years of service credit

“2+2” (2 Yrs Service + 2 Yrs Age Credit)

In addition to the above, provides two years to the age factor

January 15, 2004 17

Human Resources DivisionOverview, con’t.

Effective DatesThe “Golden Handshake” is effective January 1, 2004, and has no ending date

The “2+2” program is effective January 3, 2004, through December 31, 2004

Eligible employees must retire within 60-120 days after the school board’s resolution and completion of negotiations with employee bargaining units

January 15, 2004 18


RequirementsThe incentive programs must result in a net savings to the district

The incentive programs must be negotiated with appropriate bargaining units

The incentive programs cannot be selectively offered to certain employees

January 15, 2004 19


Requirements, con’t.

All costs related to the incentive programs must be paid by the school district

Employees are prohibited from paying any of the costs related to the programs

January 15, 2004 20


Post-retirement Reemployment

Benefits are forfeited if retiree returns to any California public school service within one year, or within five years, if return is to the former district

January 15, 2004 21


Informal Survey of School Districts

Over two dozen California public school districts were surveyed, including the largest 15 as well as smaller districts. The Los Angeles County Office of Education was also queried

None of the districts surveyed indicated that they were preparing to offer the retirement incentives provided under AB 1207

January 15, 2004 22


CalSTRS Present Value CostsThe District must pay the CalSTRS actuarial equivalent of the increased retirement benefit, with costs ranging from an average of $18,733 to $136,846 per retiree

CalSTRS Administrative FeeThe District must pay CalSTRS an administrative fee of $250 per retiree, or $280 per retiree if actuarial costs are being deferred

January 15, 2004 23


CalSTRS Deferred Interest Costs

The District must pay the interest of the actuarial costs if costs are deferred. The average costs of deferral interest for eight years range from $3,161 to $23,093 per retiree

Retiree Health and Welfare Benefit Costs

The District must pay lifetime health and welfare benefits for eligible retirees and dependent(s)

January 15, 2004 24


Other Costs

Savings from normal employee turnover historically has been used to fund salary step and schedule increases

January 15, 2004 25


Differences between CalPERS and CalSTRS Retirement Incentive Programs

The CalSTRS programs cannot be selectively offered or limited to certain employees

The District would have no control over the loss of personnel in shortage fields who may not be replaced by qualified persons (e.g. math, science and special education teachers)

January 15, 2004 26


Differences between CalPERS and CalSTRS Retirement Incentive Programs, con’t.

The District would have no control over the tremendous costs associated with the “windfall” for employees intending to retire even without the incentivesUnlike the CalPERS program, most of the retirements would require replacement personnel to be hiredThere is no net savings to the District

January 15, 2004 27


Methodology“Golden Handshake”

60/3058/28

“Golden Handshake” (No Backfill For 6 Months)60/3058/28

“2+2”60/3058/28

January 15, 2004 28


Employee Categories(Certificated Employees Age 55+ With 15+ Years of Service)

Preparation Table 5,210 (79%)

Early Education 104 (2%)

Adult Education 74 (1%)

Support Staff 209 (3%)

Administrators 1,022 (15%)

TOTAL 6,619 (100%)

January 15, 2004 29


Demographics

Employees with 15 years of service

Age 55 and over: 6,619

Age 55 to 59 3,775 (57%)Age 60 plus 2,844 (43%)

UTLA 5,597 (85%)AALA 926 (14%)District Represented 96 (1%)

January 15, 2004 30


Program Cost Per Employee [Savings or (Loss) ]

“Golden Handshake” (Age 60/ Service 30)

One Year Four Year Eight YearPreparation Table ($16,499) $50,118 $90,876Early Education ($22,834) ($14,773) ($26,418)Adult ($15,347) ($13,665) ($30,195)Support Staff ($35,551) ($21,604) ($42,795)Administrators ($28,203) $45,974 $88,520

TOTAL ($118,434) $46,050 $79,988

January 15, 2004 31


Program Cost For Those Expected to Retire (Windfall)

“Golden Handshake” (Age 60/ Service 30)

No. Four Year Eight Year

Preparation Table 644 ($28,024,264) ($29,933,563)Early Education 10 ($ 310,614) ($ 331,721)Adult 7 ($ 145,381) ($ 155,215)Support Staff 29 ($ 1,494,017) ($ 1,595,907)Administrators 120 ($ 7,467,600) ($ 7,977,360)

TOTAL 810 ($37,441,876) ($39,993,766)

January 15, 2004 32


Conclusions

The District does not qualify to offer either of the two retirement incentive programs because there is no net savings resulting from the offers

Even if the District did qualify, (which it does not), the inability to selectively offer the benefits would preclude any recommendation for offer

January 15, 2004 33


Conclusions, con’t.Without the ability to selectively offer the incentives and thereby limit the offer to shortage field personnel, the District could be confronted with possibly a significant number of shortage field vacancies for which qualified staff cannot be recruited to backfill

The District has advised UTLA and AALA that it will not offer the retirement incentives provided under AB 1207

January 15, 2004 34

Closing Comments

Concluding RemarksQuestions

early retirement incentive revieeligible employees must retire within 60-120 days after the school...

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