Is it Cheaper to Offer Early Retirement?

In a recent article in Sioux City Journal on the moving of mail processing from Sioux City, IA to Sioux Falls, SD, Jim Price, Sioux City Postal Workers Union Local 186 officer contends that, "Employees who would drive from Sioux City to Sioux Falls and back would include that drive-time as part of their work day."   The map below shows the shortest route from Google maps between Sioux City, IA and Sioux Falls.  The distance is 87.9 miles with most of the miles on Interstate Highway 29.   



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If Mr. Price is correct, the Postal Service will be paying employees that commute to Sioux Falls for 3 hours of driving time daily.  This makes little sense for the Postal Service or the employee.   [I urge readers of this blog to add a comment referencing Postal or employee contract documents that describe the basis for Mr. Price's comments.]  

If true, the Postal Service would be well served to offer employees in Sioux City and Sioux Falls early retirement.  This saves the Postal Service money in two ways.  First, early retirement would save the Postal Service $506 per week associated with pay for commuting costs.   Second, if a new employee is needed to fill a position that the newly retired employee would take, his/her compensation would be lower than the salary of the retired employee.   If the compensation difference between an employee at the top of the pay is $10 per hour, the Postal Service would save $400 per week to switch by replacing a retiree with a new hire.  

In total, offering early retirement would save the Postal Service around $900 per week.   In other words, the Postal Service would break even by offering a $15,000 incentive if the employee would retire 17 weeks (3 months) earlier than they might otherwise.   The savings would be larger if no new employee needs to be employed.  

This simple calculation suggests that any time a consolidation of plants would involve paying for any commuting time between two locations, early retirement incentives of $15,000 to employees at the consolidated plant community would be well worth it.   Given how quickly the Postal Service covers the cost of the retirement incentive, the Postal Service might even find it worthwhile to pay the incentives in one payment unless the employee prefers two payments for tax purposes.  

The savings from early retirement identified here raises two more interesting questions.  Could offering early retirement incentives in selected cities to APWU members and either not replacing these employees, or replacing them with lower-paid new hires reduce the Postal Service's expenses in fiscal year 2012?  Does the Postal Service have the cash needed to offer these incentives?