MERIDEN — The city is considering offering a retirement incentive program to employees in an effort to “reduce some short-term costs and other possible long-term liabilities,” Finance Director Michael Lupkas said.
Lupkas presented details of the proposal to the City Council’s Finance Committee this week. If approved by the council, the program will be offered to 166 eligible employees hired before 2012. Board of Education and public safety employees are not eligible.
The city is seeking to cut down on “separation payments” to retiring employees for unused sick and vacation time, which cost the city about $600,000 annually. The city is offering to roll the payments into employee pensions, increasing the pension and stretching the payment over several years, Lupkas said.
“What this will do is stretch out this cost and pay it out over a longer period with the risk being market fluctuation and the mortality risk,” Lupkas said.
“It reduces our bottom line in terms of the budget impact,” City Manager Tim Coon said. “Now the disadvantages are you’re losing a lot of experience out the door, but that would happen anyway eventually.”
The city doesn’t budget for separation payouts into its annual budget, so departments have to absorb the cost when an employee retires, Lupkas said.
“The significant savings is immediate because we’re not paying (the separation payment) out of the general fund budget, which reduces the number of taxes that have to be collected,” Lupkas said. “In a city or town, just like you saw through this budget process, people live from year to year.”
Among all eligible employees, the city is projected to owe a total of $5.7 million for separation payments in total, much of which Lupkas said would have to be paid out by the city in the next 10 or so years because those employees are expected to retire in the next decade.
The city is also offering a health insurance and retirement benefits buyout to eligible employees in an effort to reduce long-term liabilities.
Lupkas said the buyouts would be a “home run (for the city) if people take advantage,” but he doesn’t anticipate many people will be in a position to waive health insurance.
The retirement program will also help the city save money because the city will either leave the retiree’s position vacant or hire a replacement at a lower rate and with reduced future benefits, Lupkas said.
The amount of money the program will save is hard to quantify or project, Lupkas said, and will depend on the number of employees that participate.
Lupkas and Coon said they have received some questions this week from staff about how the city would handle all 166 eligible employees retiring at once, but both said the city would come up with a plan to structure the retirements to minimize disruption to services.
“The city is still going to review it. Once it gets to that stage to see how many people are interested, there’s going to be a game plan of how to implement it,” Lupkas said.
“There’s no way all (166) people are going to go at once, nor would we allow that to happen,” Coon said.
No employees will be forced to participate in the program, Coon added. “They don’t have to take an early retirement. It all depends on how it works in each particular circumstance,” he said.
Finance Committee Chairman Brian Daniels said Lupkas’ presentation this week was a “preliminary presentation” and more analysis is needed to determine if the program makes sense for the city.
“Last night was intended to give people a flavor of how it might work, how it might save the city money, but also how complicated the analysis is,” Daniels said.
Daniels suggested at the meeting that the program goes before the council’s “ad hoc labor committee,” which would further analyze the program and make a recommendation to the City Council.
Daniels said the program ultimately “comes down to the numbers — Does the city come out ahead or not?”
“If the city can make a deal with an employee that structures it in a way that the city comes out ahead financially, then it's a good thing to look into, and it obviously needs to be structured in a way” that’s attractive to the employee as well, Daniels said.
Daniels said determining whether the program will benefit the city is a “complicated analysis” that includes some unknown variables like mortality and return on investments.
The city assumes 7.75 percent return on investment for its pension fund. The city paid just over $12 million into the pension fund in the current fiscal year’s budget.
Coon said savings yielded by the program could offset the need for the city to implement furlough days or layoffs, which the city is considering to meet budget reductions passed last month by the City Council. The council reduced every city department, excluding fire and police, by the value of three furlough days. The city has negotiated with unions to implement the furlough days, but Coon says those talks have been “unproductive.” If the city cannot implement furlough days, it’s possible it would need to reduce its workforce to meet the cut.