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State worker buyout has advantages

By Matt Pommer

Gov. Jim Doyle is again talking about reducing the number of state workers to help meet state government’s growing financial challenges.

His comments have spurred speculation that a pension buyout plan may be in the works. A possibility is to offer additional years of credit to senior employees if they retire in a narrow window of time. The years of service are part of the formula used to determine initial pensions in the Wisconsin Retirement System.

Buyouts are better for the state than laying off workers with less seniority. Most state workers are covered by union contracts in which seniority determines who is affected when the work force is reduced. That is similar to most union contracts in the private sector.

State employees are like private-sector workers in that they are eligible for unemployment compensation. The state as an employer is unlike the private sector in that its unemployment compensation is paid more directly; it’s not under the insurance approach of private-sector employers.

Thus a buyout avoids layoffs and unemployment compensation. It reduces the payroll more than reducing the same number of younger workers. The cost of higher pensions can be spread out over 30 to 40 years.

The Wisconsin Retirement System, despite big stock market hits in the recent economic downturn, remains one of the nation’s strongest public employee pension programs.

An early out might attract more workers than expected. All state employees have had their annual take-home pay reduced by more than 3 percent through mandatory unpaid furloughs.

Many factors go into individual retirement decisions. Leading the list are the availability of health insurance and when to start Social Security.

Most state civil service employees get 16.25 days of sick leave each year, and unused sick leave can be converted to health insurance premiums when a worker retires. That level of benefits was established in the mid-1990s, but soaring premiums have eroded its impact on retirement planning.

The general rule for Social Security is that a person may start collecting a benefit at age 62, but the monthly benefit grows if a person continues to work to age 70. The age of a spouse also can be a factor in the decision-making.

Perhaps more important, there are the hopes and dreams of what retirement life will be.

Matt Pommer worked as a reporter in Madison for 35 years. He comments on state political and policy issues.

2 comments

  1. I understand that Scott Walker would also like to “leverage” the Wisconsin retirement system to help underwrite the state’s dire financial situation. Welcome to New Jersey or Illinois.

  2. Keepa you hands offa the pension money!. It is not there for the legislators or Governor to use. Tommy Thompson tried this, manipulating about $40 million out of the fund, of which approx $25 MILLION was given to GM and Chysler as incentives to stay in WI. The state (Governor Tommy T and the other Governor, J. Klauser) got sued, and ten years later, after the state lost, Tommy had to come up with $230 million to put back into the fund (which was what actuaries estimated the $40 million woiuld have accrued to if the money would have been left as is in the fund). Back then $230 million was a lot of money. You can bet a large number of people will take similar action if that fund is attempted to be breached again.

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