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Retire-rehire program cost savings detailed

September 15, 2009
By JOHN PEPIN Journal Staff Writer

MARQUETTE -Marquette County Administrator Steve Powers detailed savings Monday gained through the county's controversial retire-rehire program, though he concluded the precise impact of the program remains unknown without additional actuarial study.

The county began what has become the current rehire program in 2004. Under the program's provisions, county employees can retire and then, after a 30-day severance, return to their jobs, collecting both a pension and a salary.

Critics have called the program "double-dipping," blocking advancement of younger workers within the county ranks. The county has used the program in an effort to cut costs and retain skilled workers.

Powers said the program allows the county to postpone simultaneously paying the health insurance of both a retiree and a new hire, along with savings realized by not having to pay contributions for a new employee to the retirement program administered by the Municipal Employees Retirement System of Michigan.

In a memorandum to the Marquette County Board Monday, Powers said there is an annualized savings of $508,353 for 2009, through lower health insurance costs and MERS contributions.

Powers said this year's cost of health insurance obligation, if new hires replaced rehires, would be $363,022. An additional $145,331 is being saved by the county in 2009 in MERS contributions by not having to replace rehires with new employees, Powers said.

"When an eligible employee retires, he or she receives the retiree health insurance benefit. If their position is filled with a new hire, that employee receives the active employee health insurance benefit," Powers wrote. "When a retiree is rehired, there is no duplication of health insurance cost."

One of the MERS rules for rehires is that they may not participate in a new retirement plan.

"Newly hired employees receive employer contributions to a defined contribution plan in amounts ranging from 10 percent to 12 percent of wages," Powers wrote. "Annualized for 2009, those additional MERS contributions for new hires, if they were to replace rehires, would be about $145,331."

Powers said that over the past eight years, all job vacancies have been reviewed to see if reorganization, hour reductions or reassignments were appropriate, and all of these options have been used by the county. Open positions are filled by recruitment, promotion or rehires.

There are nine employees still working who participated in a forerunner of the rehire program called the "opt-out" program. In addition to those workers, rehired employees are filling 18 job openings out of a total of 85 regular positions that opened up through attrition, Powers said.

"There are county employees who, through their experience here and elsewhere, have developed historical knowledge that creates value that cannot be measured in dollars and cents," Powers wrote. "There are some employees who, due to their knowledge, experience and work ethic, deliver a level of production it would take a newly hired employee years to achieve. Doing what we can to retain some of these people, through the rehire process if necessary, would seem to be in the best interest of county taxpayers."

Powers said that in many instances, new hires start work at a lower rate of pay than the retiree they replace. But new hires are almost always younger than the retirees, often more likely to carry family health care coverage than a retiree, which results in additional expense that may eliminate any savings gained through the lower earned wage.

As of Jan. 1, 2000, all new county employees are enrolled in the MERS defined contribution plan instead of a previously used defined benefit plan.

Annual county MERS contributions include:

Those unmet costs are incurred when forecasts, based on a range of actuarial assumptions, do not pan out. Some of those predictions include rate of return on MERS investments, retirement ages or life expectancy.

Powers said that in 2006, MERS switched from basing defined benefit contributions on a percentage of payroll to using a flat annual rate, regardless of payroll. This change occurred the year after the county had realized a savings in MERS contributions through its "opt-out" program of $135,000, helping to balance the 2005 budget.

Since the changeover, Powers said total annual MERS contributions for both plans have increased a total of about $519,190. Between 2006 and 2007, the single largest annual increase occurred, which amounted to $212,411. The county is projecting an increase of roughly $200,000 for fiscal year 2010, which begins Oct. 1.

Powers said it is not currently known how the savings and increased contributions reconcile.

"The precise impact, positive or negative, of the rehire program is unknown without an additional actuarial study," Powers said.

Within the next week or so, MERS is expected to provide the county with a list of actuarial assumptions that would be used if such an analysis was undertaken. The cost for the study is estimated by MERS at between $5,000 and $15,000.



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