June 11, 2008
QUESTIONS ON STATE EMPLOYEE EARLY RETIREMENT INCENTIVE PROGRAMS
By: John Moran, Principal Analyst
You asked several questions relating to state employee early retirement incentives. Following are the questions and answers.
The Office of Legislative Research is not authorized to issue legal opinions and this report should not be considered one.
1. Can the Legislature enact an early retirement incentive program (ERIP) without negotiating with the State Employee Bargaining Agents Coalition (SEBAC)?
By law and contract, an ERIP should be negotiated, nevertheless the legislature enacted one in 2003 without negotiating first.
The state and SEBAC currently have a 20-year contract, which expires in 2017, covering state employee retirement and health insurance benefits. By statute, the state must negotiate with SEBAC for any changes in the State Employee Retirement System (SERS) (CGS § 5-278(f)). Furthermore, statutes say whenever a state collective bargaining contract conflicts with state law on “matters appropriate to collective bargaining . . . the terms of such agreement shall prevail” (CGS § 5-278(e)).
Despite this, in 2003 the legislature passed and the governor signed an ERIP without negotiating with the union coalition. About 4,600 state employees took the early retirement incentive contained in PA 03-2, which enabled them to count three additional years of state service toward their retirement.
SEBAC responded by filing a grievance arguing that the state could not implement an ERIP without its consent. SEBAC had prevailed in a previous grievance over a 1989 ERIP that was not negotiated (the two parties agreed to two other ERIPs in 1993 and 1997). But the decision for the 2003 grievance would be different.
On October 7, 2003, an arbitrator ruled in favor of the state. The arbitrator found that PA 03-2 clearly impaired the SEBAC contract, but determined the impairment was reasonable and necessary to serve an important public purpose under the circumstances of the state's financial crisis at that time. Therefore, the arbitrator held that the state did not violate the SEBAC pension agreement.
Both parties objected to the ruling (on different grounds) and asked the Superior Court to vacate the arbitrator's decision. SEBAC sought to have the decision vacated because the arbitrator incorrectly based his decision on an application of the U.S. Constitution's contract clause, something that was beyond his authority, and the contract clause argument was not presented by either the state or SEBAC. The state sought to vacate on the grounds that PA 03-2 was not a proper subject of arbitration.
A Superior Court judge ruled the issue was arbitrable and while the arbitrator should not have used a constitutional test, his incorrect application of the test was harmless. Therefore the judge upheld the arbitrator's ruling. The judge had authority to apply the contract clause test. He decided that while PA 03-2 impaired the SEBAC contract, it was so minimal an impairment that it did not violate the contract clause. He noted that ERIP was an additional benefit for the employees who chose to accept it. The ERIP did not diminish any employee's benefits under the existing contract.
Linda Yelmini, the state's director of the Office of Labor Relations, said she was able to argue the ERIP should stand because of the extreme circumstances around the state budget. “We had tried to get the unions to do givebacks, and that didn't work. We had about 2500 people laid off from state service,” she said. “The situation was dire.” She said the state would probably have to negotiate an ERIP when such exigent circumstances do not exist.
Dan Livingston, the chief SEBAC negotiator, agreed that the fiscal crisis was key to the arbitrator ruling for the state. “Everyone conceded that the contract was violated,” he said. But once the court upheld the arbitration ruling, the two parties were willing to move on by agreeing (1) not to pursue further appeals and (2) not to use the arbitration decision in future proceedings.
2. Can an ERIP be crafted to exclude employees of certain state departments or can it be bargained with individual unions rather than SEBAC as a whole?
It is not clear if an ERIP could omit employees of certain departments especially if the benefit is being offered to all other state employees or all other unionized employees. Past ERIPs have not excluded any state agencies.
The 2003 ERIP allowed employees of certain agencies to delay their retirement by up to a year and still receive the extra three years of service. This allowed those employees to stay in state service longer and still get the ERIP benefit. The extension was allowed on a case-by-case basis for hazardous duty employees (who are mostly state police and corrections officers), employees of the Comptroller's Office's Retirement Division, and employees of the Office of Policy and Management's Budget Division.
Livingston said he was aware of negotiated private sector employee incentives that offer some employees incentives to retire and others incentives to stay on. All employees are offered a benefit of equal value, but the form and timing of the benefit varies (retirement credit, additional pay, or other benefit). This is done to reduce some parts of a workforce while maintaining or growing others.
Yelmini indicated that if the state omitted certain departments from an ERIP it could expose itself to court action based on equal protection or other claims. “You would have to give those who were left out something else. What would make it worth it to them to be left out of the ERIP? We could negotiate that, but it would be very unlikely,” she said.
State employee collective bargaining law requires the state to bargain with SEBAC over retirement benefits and health benefits. It also provides an exception that allows an individual union to bargain with the state over retirement and health benefits if the two parties agree that the
issues are unique to the particular union (CGS § 5-278(f)). Livingston indicated that this would not apply to an ERIP because an ERIP is not unique to any one union and the current SEBAC agreement addresses negotiating an ERIP.
An example of a unique benefit is the state police and the state agreeing on an enhanced disability benefit for troopers who qualified for a standard disability retirement but also suffered extraordinary injuries. The union reached this agreement with the Rowland administration in 2002.
3. Are there any legal obstacles to offering an ERIP that includes state agencies that are operating under consent decrees?
Consent decrees address the level of services, staffing, or both. Yelmini and Livingston agreed that there is nothing to prevent an ERIP from being offered to agencies under a decree. But the retirees would have to be replaced at a ratio that satisfies the decree's mandate for staffing or services.