Assumptions:
1. The act provides a one-time early retirement option for eligible employees electing to participate by May 1, 2010. Participating employees must retire on June 30, 2010.
2. Incentives to participation are as follows:
A. An additional two years of credited service for pension benefit calculation.
B. Double pension benefit for the first thee months of retirement.
C. A waiver of the age or service penalties under current law.
3. Employees hired after June 30, 2010 would be subject to different pension provisions (Tier 2) than current employees including:
A. An increase in the pension contribution requirement from 3% of total compensation in excess of $6,000 for current employees to 4% of total compensation.
B. A decreased pension multiplier from 1.85% for years service (after December 31, 1996) to 1.67%. This represents a 9.7% decrease in pension benefits.
C. Ineligibility for burial benefits to survivors or the estate of the deceased pensioner ($7,000).
D. Pension eligibility requirements are changed by deleting the option of retirement at 15 years service at age 60 and the option of retirement with 25 years of service regardless of age. Further, tier 2 retirees must be age 55 with 30 years service to be eligible for an unpenalized retirement benefits. Currently, there is no age requirement for retirement with 30 years service.
E. Tier 2 employees would not be eligible for State health insurance benefits without 20 years of service. Current retirees receive 50% of the basic individual coverage with 10 years service; and, 75% with 15 years service.
4. The net cost estimates contained in this fiscal note are based on variables dependent on behavioral factors that can not be known and the aggregate net cost estimates provided should be viewed accordingly. Further, the cost estimates are very sensitive to small changes in quantitative assumptions.
5. The annual pension cost of this program is based on a 20 year amortization of the liability. The Government Finance Officers Association (GFOA) issued an advisory concerning the use of early retirement incentives (2004) recommending that the incremental costs of such programs should be amortized over a short-term payback period, such as three to five years. Changing no other assumptions, the net cost estimates using a five year amortization schedule are a follows:
Total
Cost General
Fund Cost
FY 2011 $57,536,000 $39,670,000
FY 2012 $57,000,000 $39,330,000
FY 2013 $56,548,000 $39,018,000
The Pension Board currently has no policy guidelines addressing the amortization period for early retirement incentives.
6. Participants.
A. 3,650 current employees will retire in response to enactment. Participation will be composed of 1,825 public education employees and 1,825 agency employees.
B. The average salary (Final Average Compensation) is $60,500
C. The
average per
D. The average termination payout (qualifying accumulated unused sick and vacation time) is $12,215.
7. Pension Fund Cost. (20 year amortization)
FY 2011 $26,948,000 (All Funds)
FY 2012 $27,958,000
FY 2013 $29,007,000
General fund cost is estimated at 68% of total cost.
8. Retiree Health Insurance Cost.
FY 2011 $33,277,776 (All Funds)
FY 2012 $33,403,000
FY 2013 $32,466,000
General fund cost is estimated at 68% of total cost.
9. Replacement (Rehire) Assumptions.
A. Public education: All participating retirees will be replaced for 12 months in FY 2011. The average first year salary reduction is estimated at $12,372 relative to participating retirees, including other employment costs.
B. Agency: All participating retirees will be replaced in FY 2011 following a four month hiring lag. The average first year salary reduction relative to participating retirees is estimated at $13,750 including other employment costs.
C. Public education and Agency: The salary savings attributable to lower starting salaries of replacement employees will diminish by 1% annually through the estimation period and disappear in later years.
10. New Tier 2 savings:
FY 2011 $1,069,000 (All Funds)
FY 2012 $4,748,000
FY 2013 $7,327,000
General fund cost is estimated at 68% of total cost.
Net Cost
Total
Cost General
Fund Cost
FY 2011 $5,735,000 $3,957,000
FY 2012 $5,484,000 $3,783,000
FY 2013 $5,255,000 $3,626,000
Office of Controller
General
(Amounts are shown in whole dollars)
March 31, 2010
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