RI not alone in pushing retirement age for a full pension to 67

October 31st, 2011 at 11:01 am by under Nesi's Notes

Dozens of teachers and other government employees appeared before the joint finance committee last week to decry the proposal by Governor Chafee and Treasurer Raimondo to align the state pension system with Social Security by raising the retirement age to 67 for workers who aren’t in public safety.

“Do you really want a 66-year-old kindergarten teacher taking care of your children?” asked one. “I can’t imagine being able to do this at 67,” said another.

As it turns out, though, Raimondo and Chafee aren’t completely alone in thinking 67 should be the new 62 for the public sector. Calif. Gov. Jerry Brown, another Democrat (and a 73-year-old himself), made the same “rare” proposal just last week, Bloomberg reports:

California would join Minnesota, Illinois and Missouri in raising the age threshold as a way to shave costs. …

Since 1989, public employees in Minnesota have had to reach 66 to step down with full benefits, according to Susan Barbieri, a spokeswoman for the state’s Teachers Retirement Association. …

Illinois and Missouri both bumped up their retirement age to 67 last year, according to Keith Brainard, research director for the National Association of State Retirement Administrators. Most states have thresholds of 60 or 62 years old, he said.

Congress in 1983 increased the age at which Americans can collect full Social Security payments to 67 for those born after 1959, according to the Social Security Administration’s website. …

The retirement age for California workers not in public-safety jobs was 65 in 1932, when the state created its pension system, according to a summary of Brown’s proposals. At that time, a 20-year-old wasn’t projected to survive beyond 70.

What’s unclear is whether the changes enacted in those three states and proposed in California apply to workers already in the system or only to new hires. The Raimondo-Chafee bill would make the retirement age 67 for any current employee born after 1959, though individuals could retire sooner with a reduced pension.

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3 Responses to “RI not alone in pushing retirement age for a full pension to 67”

  1. GaryM says:

    Below is a letter I sent to a member of my local school committee on this pension age increase:

    Dear [member],

    I did some calculations to test the impact of raising the retirement age from 62
    to 67 for the town of Barrington (teachers). In short, it may be a net money
    loser for the town and the school budget into the future.

    Using the actual payroll data provided from [School Administrator]for all Barrington teachers (FY 2009), I computed the running cost of wages per year (step and normal increase) vs the replacement cost of hiring an entry level teacher. In
    sum, over a 10 year period, the cost to the local taxpayers for keeping teachers
    on payroll for an added 5 years is approximately $9 mil extra for the full 10
    year period as a result of sliding the “in/out” career cycle by the additional 5
    years. This computation applies only to Barrington, but I believe similar
    outcomes would exist in other towns.

    Thus the question: Does the pension savings outweigh the extra $9 mil in added
    salary cost? It turns out that the savings from the age change in the pensions
    appears to be less than the added cost of the salaries. I am not confident that
    the Treasurer has fully accounted for the full costs to the local school budgets
    in this matter.

    There are several reasons for this outcome:

    1) the new rate of pension growth (accrual) is lowered in the new pension plan
    to 1% of final 5 year average wages for each year after July 2012, while the
    rate of wage growth continues without a corresponding reduction,

    2) the average difference in the “Present Value” at retirement between a pension
    at age 62 and the same worker staying on to 67 averages around $63,000. In this
    10 year period, I count approximately 120 teachers who could take retirement
    at age 62 (120*$63,000 = $7,560,000). But the town only pays 60% of that cost
    (by statute) and thus the local pension savings are really only $4,536,000 to
    the town vs a $9 mil cost in added salaries over the 10 year span,

    3) The teacher payroll contributions are reduced from 9.5% of salary to 3.75%
    after July 2012,

    4) On a dollar value basis, the wages at top step are compounding at a faster
    cumulative rate.

    It’s not just the money, it is a question of whether we want senior teachers
    forced on payroll in their final 5 years of teaching if indeed there is no net
    savings to taxpayers. It’s a question of quality in the schools which the
    Treasurer may not have fully examined.

    I might suggest that an inquiry to the Treasurer’s Office from the School
    Committee asking what has been computed as the net benefit for local taxpayers
    would be prudent. Coming from one concerned citizen would be ineffective at
    this point in the debate.

    [GaryM]

    1. DaveP says:

      It seems that you took the extra cost of 9 mil over 10 years. However you took the savings 7.5 mils for only 1 year.

      1. GaryM says:

        Dave,

        The $7.5 million is based on a “Present Value at retirement” calculation which is done only once in any pension calculation regardless of how long that pension is for.

        I was surprised myself on the outcome (I have been a proponent for change even more drastic, but not stupid changes for appearances only).

        The earlier retirement at age 62 is based on lower wages and years of service as compared to age 67 for the same employee which would be based on higher earned wages and longer term employment. I did factor in that those added years are based on a July 2012 “1%” plan multiplier.

        My real point is that the Treasurer (not me) needs to provide to taxpayers a more comprehensive answer to this specific question.