California state worker retirements jumped 15% in year of pay cuts, coronavirus

State employee retirements increased 15% last year in California amid pay cuts and changes to working conditions brought on by the coronavirus, according to California Public Employees’ Retirement System data.

While state workers headed for the exits, retirements among local government employees — who generally avoided pay cuts and even received scheduled raises last year — decreased 7% compared to 2019, according to preliminary figures from CalPERS.

Gov. Gavin Newsom and the California State Legislature imposed pay cuts on state workers starting in July. Most employees took a base pay cut of 9.23% under union-negotiated agreements. Most employees receive two days off per month in exchange for the reduction in pay, and the state softened the blow by suspending the contributions employees normally make to their retirement health care.

“No one likes to take a pay cut, so it’s understandable that some employees would choose to retire rather than accept less money for their work,” said Ted Toppin, executive director of the Professional Engineers in California Government.

Retirements were up 25% among the approximately 11,000 employees PECG represents, Toppin said.

“They’re losing a huge asset,” he said. “The state needs engineers and related professionals to deliver infrastructure projects. And when folks retire, that’s not accessible to them.”

The pay cut agreements, negotiated when the state was projecting a $54 billion budget deficit, also delayed the raises many employees were scheduled to receive last year and this year.

The budget projections turned out to be wrong, and the state is now anticipating a surplus for the year ahead. Newsom’s administration has said that while the future remains uncertain, the state might restore workers’ pay in July.

Local governments tended to take a wait-and-see approach to employee pay last year, and now, like the state, they are in a better position than expected, said Steve Crouch, a recently retired labor leader who represented maintenance and HVAC employees in both state and local government.

“They didn’t see the tsunami that they expected to see with respect to a decline in revenues,” Crouch said.

State employees’ pensions are calculated based primarily on their highest pay in state service combined with their age and years of service. Those earning the highest pay of their careers as they approach retirement stand to increase their pensions by continuing to work and increase their pay. Without a raise on the horizon, there’s less incentive to stay.

Working during the coronavirus added another variable to retirement decisions last year, particularly since retirement-age people are more vulnerable to COVID-19 than younger people.

Burnout and fatigue rose among state and local employees around the country last year, affecting 47% of them by October, up from 27% in May, according to a national survey conducted by the Washington, D.C.-based Center for State and Local Government Excellence.

The changes drove teachers to early retirement last year too. The California State Teachers Retirement System reported a 26% increase in the second half of 2020 compared to the same period a year earlier, and many told the system in a survey that they were leaving early for reasons related to the pandemic.

At CalPERS, a wave of retirements among baby boomers contributed to the year-over-year increase, spokeswoman Amy Morgan said.

“We anticipate overall that the number of retirements will continue to increase over the next 5 to 10 years as more baby boomers leave the workforce. This has been predicted and considered as part of our funding of the system,” Morgan said in an email.

CalPERS reported the most retirements for December, when it processed 3,315 of them — a 17% increase from the prior year. State employees tend to retire at highest numbers at the end of calendar and fiscal years.

The retirements reduce the state’s payroll costs but increase the number of pension checks CalPERS sends out each month. The system pays pension benefits averaging $36,000 per year to about 730,000 people. The system’s investment fund was valued at about $451 billion as of the end of last week.

This story was originally published February 17, 2021 at 5:00 AM with the headline "California state worker retirements jumped 15% in year of pay cuts, coronavirus."