Iowa Uses Early Retirement to Shed Costs

Stateline Midwest, a publication of the Midwestern Office of the Council of State Governments: Vol 19, No. 3: March 2010.

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Iowa is offering an early-retirement package to state employees as part of its budget-balancing plan for fiscal year 2011.

Under SF 2062, signed into law in February, eligible workers will get cash payments of $1,000 for every year of service to the state (up to a maximum payout of $25,000). To qualify, employees must be 55 or older and have at least 10 years of service. In addition to the cash payments, the state will continue to pay its share of the early retirees’ health insurance coverage for five years.

More than 1,000 employees are expected to take the state up on its offer, The Des Moines Register reports. A fiscal analysis of SF 2062 estimated that it will save the state close to $60 million in FY 2011 and $190 million over the next five years. State agencies are prohibited from filling positions left open by the early retirements unless they first receive approval from the Iowa Department of Management.

Early-retirement incentives have been used by a handful of states over the past two years to reduce budget deficits: six states in FY 2009 and five in FY 2010, according to the National Association of State Budget Officers. NASBO lists Ohio as the only Midwestern state that has taken this approach. Other cost-cutting strategies have included employee furloughs, hiring freezes, and cuts in pay and benefits.