How inflation and work-from-home rules are shaping the nation’s retirement wave

By | January 22, 2021
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Watch out for the long-awaited wave, or perhaps a complete tsunami, of state employee retirement by July 1, when pensions and health benefits take a turn for the worse.

It’s too early to say how severe the retirement wave will be. But the early rush of potential retirements on April 1, while much larger than any month in memory, may signal less mass exodus than we expected.

The result is important not only for state employees and potential retirees. This wave of retirements is part of a vast restructuring of how state agencies work, how they serve the public, and how much money the state will spend on salaries.

One factor that may keep state employees on the job for longer: Generous work-from-home rights, courtesy of the December 27 arbitration award, which essentially means most office workers don’t face customers or the public will be able to work remotely from four every other five days. Governor Ned Lamont pushed the limits and lost.

“Some people have told me that the ability to work remotely a few days a week was a factor in their decision,” said House Speaker Matt Ritter, D-Hartford.

And the factor that might help push people out: inflation. The cost-of-living adjustments are based on a version of the Consumer Price Index, which we know is at a 40-year high right now. This means that state employees who choose to stay in the job for an extra year or two could miss out on some huge Social Security contracts that would increase their pensions until they die, and possibly their spouses.

Wild Card: The new 3-year agreement between the Lamont administration and the State Employee Bargaining Agents Alliance, better known as SEBAC. The deal requires a 2.5 percent annual salary increase, plus the usual 2 percent rate increases for each employee, plus cash bonuses totaling $3,500 — all but the $1,000 payable to employees even if they retire before July 1.

The SEBAC deal, which is highly likely to be ratified by members and the General Assembly, is probably neutral in urging or preventing retirement, because it does not include any significant incentives for people to stay in the job.

As an aside, anyone angry about the three-year package should realize that unions have great bargaining power with a picture of Connecticut’s overall wealth and budget looking stronger than in any recent year, and with inflation as high as 7 percent. My guess is that SEBAC could have stuck to bigger increases and won the arbitration, even though the deal is very good for state employees.

Look at the numbers

Here’s how the retirement numbers change: As of January 1, 2022, according to the State Comptroller’s Office, 12,300 of the roughly 47,000 full-time government employees participating in the retirement system were eligible to retire by July 1, well past the deadline for those diminishing benefits. Since 2011, we’ve seen an average of 2,100 retirements per year, ranging from 1,670 to 2,469.

Retirements – which take effect on the first of every month – are far ahead of the usual pace in the first three months of 2022, with a total of 961 compared to an average of 461 in the previous eleven years. But now is where we see the real work.

As of Friday, the state had received 1,148 notices of intent to retire on April 1 — a non-binding but usually reliable measure. April 1st is very important because these retirees will see their first cost of living adjustment next January, and it could be a big adjustment. Anyone who retires in May, June, and July must wait until July 2023 to obtain a COLA.

If we include these notifications of intent, that’s a total of nearly 3,200 exits this fiscal year, with the final extension yet to come. The state is ready to retire 6,000 or more this year, but no one is expecting a definitive figure.

stressful agencies

Whatever happens, the retirements come at a time when some agency heads are having trouble filling now vacant positions — let alone filling their retirement arrears. The state’s Department of Transportation, which has 2,976 employees, had 575 open positions as of March 14 — and a third of the department is eligible to bid farewell according to the state’s 2021 report, spokeswoman Kafi Ross said.

And if you think the state’s salary and benefits package is better than the private sector, tell Commissioner Joseph Giuliti, who told the legislature’s Transportation Committee on March 7 that all engineering firms are looking for employees to design billions of dollars in projects under the new federal infrastructure bill.

“The competition is intense,” Giuliti said. “We’re trying to move forward as quickly as possible because we also know we’re competing against all of our sister nations out there.”

We’ve known that wave has been coming since the summer of 2017, when SEBAC agreed to a package of concessions to help the state restore some long-term financial order.

Among those concessions: For anyone who retires after July 1, 2022, cost-of-living adjustments will go from a guaranteed 2% per year to a minimum of zero. The cost of retiree health benefits, while still a bargain, would rise by about $600 a year.

And the big thing: Anyone who retires after that deadline of July 1, 2022 will have to wait two and a half years before his or her first COLA.

Inflation-driven adjustments

Here’s how it adds up. Let’s say you retire on April 1, with a $36,000 pension — close to the average among now retired state employees. And let’s say you see cost-of-living adjustments of 5 percent, 4 percent, and the minimum, 2 percent, on January 1 of the next three years.

You now have an annual return of $40,100.

Now let’s say you work five more months, and earn the same $36,000 pension, plus maybe a few hundred dollars for the additional service. You won’t get COLA until 2025, and it may go to zero if inflation is tamed by then.

That’s potentially thousands of dollars a year in additional pensions — for decades if they live a long life — for people who waved goodbye in early 2022. And their adjustments will never fall below 2 percent a year.

That’s why it doesn’t really matter that $2,500 of the $3,500 in bonuses negotiated by SEBAC will go to employees whether or not they retire by the deadline.

“For me, bonus is not really relevant from a retirement standpoint,” said Representative Mike D’Agostino, a Hamden Democrat who brought the 2017 agreement to the House and will do the same this year. “You’d have to give a much bigger retention bonus to keep people going.”

As Lamont said, referring to a 2.5 percent retroactive wage increase for the year along with a $2,500 payout, “They got it. They showed up every day during the worst of the pandemic.”

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