It's no secret that the fiscal environment for all public agencies around the country is challenging, to say the least. Sales and property tax revenues are in decline. State budget cuts mean reduced cash flow for operating expenses, including salaries and benefits.
Vince Brown, VP of HR for the San Joaquin Delta (Calif.) Community College District reported that last year his agency faced a $6.5 million structural deficit, and Marc Houle, president of the Poway (Calif.) Federation of Teachers, lamented, "The effect of the economic downturn on our budget has been nothing short of horrific."
All too often, the only solutions appear to be worst-case scenarios like layoffs or benefits reductions. But there is another option - one that can not only help avoid these situations, but even optimize the overall profile of the workforce.
That option is a supplemental employee retirement plan, or SERP.
Advantages
A properly designed SERP plan encourages early retirement by providing public employees with a monthly income that begins at the time of retirement and supplements their regular benefits.
Further, it enables public employers to tackle a wide range of issues including critical budget decisions, retirement of higher paid employees, reorganizations, reducing OPEB liability, modifying the age demographics of a workforce and helping employees retire who may want to, but may not be able to afford to.
Says Houle: "We're up to 139 early retirements. And that has allowed us to save many young people's jobs."
With the right SERP, an employer also can increase staffing flexibility, realize net payroll savings, avoid layoffs and employee burnout, and maintain or improve morale.
And what's in it for public employees who elect to participate? Things they'll like to hear about, like recognition of service, a guaranteed monthly income and the freedom to pursue their personal interests.
Key program features
Program flexibility is the key. In an already complex and demanding organization to manage, the last thing that is needed is a one-size-fits-all approach. An effective SERP for public agencies should offer maximum flexibility with multiple plan designs. Features should include:
* No requirement that positions be permanently eliminated.
* Employee distributions that can be taken over a period of years or over a lifetime, and rolled into an IRA.
* Phased implementation, department-by-department.
* Application to specified groups within the agency.
* Accommodation of return-to-work options, as well as a retiree medical buyout.
* Program cost that is guaranteed upfront and that can be amortized over a one- to five-year period.
* Personalized enrollment.
The success of any early retirement program lies in proper planning and implementation. A critical consideration is sensitivity to personal retirement issues and respect for those involved.
For example, providing one-to-one peer counselors who are public agency retirees themselves, can help public employees understand the retirement issues they face and make important retirement decisions, including how to integrate a SERP into their personal financial plan.
Steve Gedestad is the executive vice president of Keenan Financial Services, the largest privately held insurance brokerage/consulting firm in California. Follow EBN on:
