Lamont creating a much more costly retirement wave
Gov. Lamont’s tentative agreement with Connecticut state labor unions (the State Employees Bargaining Alliance Coalition, or SEBAC) compounds distortions in the natural process of renewal in the state workforce introduced by his predecessor. To prevent a retirement wave over the next three months, Lamont is offering huge wage raises and bonuses to induce employees to stay on the job.
Ironically, in battling a retirement surge created by his predecessor’s meddling, Lamont’s own meddling would create a much bigger and costlier wave in less than two and a half years.
In 2017, former governor Dannel Malloy created the current retirement dynamics. Malloy negotiated a wage agreement with no raises for two years, followed by two years of healthy 5.5% wage hikes. This forced employees to stick around. Now, employees have collected that cash.
Why should they stay around now? That’s not the only problem Lamont faces.
Not only did Malloy back-load the goodies, but he backloaded a strong kick in the rear end to propel employees into retirement. Employees who don’t retire by this coming June 30 will have to wait 30 months for the first cost-of-living increase to their pension benefits compared to the normal 12-month wait. Heard anything lately about inflation? Also, they will have to pay twice as much for their health insurance.
One wonders why Malloy did this, other than a narcissistic desire to retire in glory by kicking the can down the road — the “can” being reforms to overgenerous state employee compensation (5th highest of the 50 states, according to the most recent study) — reforms like the COLA “holiday” and the increased health insurance premiums, reforms that make governors unpopular.
Lamont doesn’t even have this rationale. Lamont’s “can” will land squarely in the middle of his second term in office, if he wins re-election in November. What is he thinking?
While Malloy kicked the proverbial can, Lamont is attempting to boot a barrel. Lamont’s three annual wage raises of about 4.5% (2.5% wage and 2.0% “step” increases) starting retroactively nine months ago will be fully baked into employees’ pensionable wage base by June 30, 2024. Wages will be about 14% higher given the compounding of those increases — and that ignores the “pensionable” cash bonuses in the deal.
Why stick around? How much better can it get?
Now we come to the human element. Having been bribed to remain on the job for five more years by Malloy, and, then, for another two to three years by Lamont, many state employees will be quite old.
At some point, you just want to enjoy a peaceful retirement before you die. Financial incentives become less tempting.
And that’s not all. Not only will the wage base be more than 14% higher in less than three years, but the population of retirement-eligible state workers will grow dramatically. Currently, there are about 8,000 out of state agency workers who were identified as retirement-eligible in a consultant’s study commissioned by Lamont and submitted to him a year ago.
Boston Consulting Group (BCG) was mandated to find efficiencies in the state workforce and ways to automate state services so as to reduce the number of now-soon-to-retire employees who would need to be replaced.
In less than three years, according to the latest actuarial report on the state pension fund (SERS) covering all state employees, as many as 3,000, or 40%, more state agency workers in Tier II and Tier IIA will become 55 or older and eligible at least for early retirement. Note: as many as 5,000 of all state workers in these tiers will become 55, including state employees in non-agency jobs that are also covered by SERS.
Over the past year many observers have wondered what Lamont might have been doing with BCG’s recommendations. Apparently very little, or he wouldn’t be offering such rich bribes to keep employees on the job. He should have been hiring their replacements, maintaining a process of natural renewal of the workforce.
It is better to face today’s retirement wave than one in just two to three years that would be 60% more costly, based upon 14% higher wages and a 40% bigger cohort of retirees. Lamont’s procrastination comes with an enormous cost.
The General Assembly should reject Lamont’s tentative agreement with SEBAC.
Red Jahncke is president of The Townsend Group Intl, LLC, based in Connecticut. He is a regular contributor.