The Payson Town Council unanimously approved an unusual deal to pay two top town administrations a bonus to retire early and then immediately return to their jobs as private contractors.
Water Department Director Buzz Walker and Acting Community Development Director Ray Erlandsen have both worked for the town for decades and so were eligible for a buyout package the town developed to help reduce soaring retirement and health benefit costs.
Despite the unanimous vote and the substantial savings to the town of a slew of early retirements, the town council struck a defensive posture in approving the retirements and new contracts involving Walker and Erlandsen.
“There’s been a lot of information out there and misinformation,” said Evans. “This was initiated by (Town Manager) Debra (Galbraith) and I to save some of the legacy costs that have begun to be incredibly burdensome. It’s not a situation where someone said ‘I want to retire and then come work for you again.’”
Evans said the administration faced a tough problem in trying to reduce benefit and retirement costs, given the sharp differences in benefits and contracts and promises made during the past 30 years. The changes all had to not conflict with the 1,200 pages of personnel law and 14,000 pages of descriptive rules.
As a result, the town had to come up with a package that would reduce its benefit and retirement costs that employees would accept voluntarily.
Galbraith said the town will start saving some $300,000 annually almost immediately as a result of the early retirement buyouts. Most of the workers
taking early buyouts will not be immediately replaced and only Walker and Erlandsen will come back as contractors.
Evans said the council worried Walker and Erlandsen had skills and knowledge the town could not replace in the near term. That applies with special force to Walker, since the town in the next several years must build the Blue Ridge pipeline and figure out how to blend the 3,000 acre-feet annually into the existing system — which delivers about 1,800 acre-feet annually from wells.
As a result, the council decided to use an outside employment services company to contract with Erlandsen and Walker after they retire.
The buyout package gives each retiree about five months of salary, but requires them to accept a benefits package largely based on what new hires would receive rather than what the employee handbook called for at the time those employees were hired, said Evans.
As an example, older contracts provided lifetime health benefits for retirees and their families pegged to the same out-of-pocket cost as current employees. Those retirees could keep the town benefits even after they qualified for Medicare at age 65.
Evans said that benefit and retirement costs amounted to 60 percent of salary under those older contracts, compared to about 20 to 30 percent under current contracts.
The attempt to overhaul the benefits and retirement package was spurred by an accounting firm’s study of the town’s self-funded benefits program. The town pays into an insurance and retirement fund, based on projections of future needs. Essentially, current workers and taxpayers must pay enough to cover the projected future costs just as current worker’s payroll taxes cover the cost of Medicare and Social Security for retirees.
The benefits study suggested the town would have to put an extra $3.2 million into its retirement and benefits plan as a result of the steadily rising age of its work force and the shrinking number of total town workers. About 40 of the town’s 162 workers are nearing retirement age and many are covered by older, more generous contracts.
Evans said the town had no choice but to find some way to sharply reduce projected future retirement and benefit costs.
So the council approved a switch to a new benefits plan set up by towns, counties and school districts throughout the region. The town may actually get back $1 million it had already set aside as a result of that switch.
In addition, the town offered the retirement buyouts to employees willing to accept a potentially less generous benefits package in retirement.
Evans said such longtime workers “have been loyal to this community” but that the town “cannot afford the load of the legacy costs. So we said, if you’re willing to give up something, we’ll give up something. Short of that, we’ll simply run out of money.”
However, the whole idea rankled some town critics. After all, the town will pay these two department heads five months salary to retire then start paying their pensions, including health benefits. Yet the town would also contract with the same workers through the outside employment services firm to do the same job from which they retired.
Moreover, state law prevents the town from controlling the other contracts a private contractor enters into. As a result, the arrangement would seem to create a possibility of the kind of financial conflicts of interest that state personnel law so tightly regulates for actual employees.
However, Galbraith said that she’s confident that neither Walker nor Erlandsen would accept any contracts that posed a conflict. If they did, “we would know” and the town could then cancel the employment contract with 30 days notice.
“Our control is that we’re in control,” said Galbraith. “If they enter into a contract that is not in the town’s best interest, they won’t be employed with us within 30 days.”
She estimated that even with the contract payments, the town will be saving $80,000 annually on Walker’s and Erlandsen’s contracts after the first year.