Copyright © 2003 School Services of California, Inc.

Volume 23                    For Publication Date: August 22, 2003                  No. 17

Golden Handshake Update and Alternatives    

It looks like the Golden Handshake bills will most likely not be effective for mid-year certificated retirements this year. At this point in time, they are still in the legislative process.  

Current Status  

AB 212 (Maze, R-Visalia) would provide a retirement incentive of either an additional two years or four years of service credit for members of the State Teachers Retirement System (STRS) Defined Benefit Program who retire prior to May 16, 2007 . The bill provides that the school district must certify that the benefit will result in a net savings to the district. It is currently in the suspense file of the Senate Appropriations Committee. It is a nonurgency matter, which means that if it is approved it will not become effective until January 1, 2004 .  

AB 1207 (Corbett, D-San Leandro) would allow school and community college districts to provide two early retirement options for members of the STRS Defined Benefit Program, as follows: (1) two additional years of service credit or (2) two additional years of service credit along with two years added to the employee's age factor. The bill was amended on the Senate floor on July 21, 2003, to provide that STRS will have the 120 days needed to reconfigure its computer system, but not delay implementation until April 2004 (120 days after January 1, 2004), and (2) state that the “2+2” portion of the bill will become operative January 1, 2004, or 120 days after the bill is chaptered, whichever occurs later. This bill is on its way to the Governor..  

AB 457 (Negrete McLeod, D-Chino) would provide several early retirement incentive options, including up to two years of service and two years of age (2+2) for Public Employees Retirement System (PERS) members. The bill permits a school superintendent or community college chancellor to transmit to PERS an amount determined by PERS to fund the additional benefit, transmitted in a manner and time period that is acceptable to the employer and PERS. This bill is also in the suspense file of the Senate Appropriations Committee. It is currently an urgency matter and would become effective upon signature of the Governor.  

Other Alternatives  

STRS estimates that the additional two years of service credit will cost the district approximately $37,000 for the average retiree. The cost increases to $108,000 per retiree to include the additional two years of age credit. However, there are always other alternatives available-without waiting for legislation to pass.  

Private plan providers typically can provide districts with more savings and/or more benefits for the employees retiring than what is traditionally available from the STRS/PERS Golden Handshake plans. Below are two scenarios provided by private plan providers who are experienced at providing districts with such early retirement incentive plans.  

- Sheila G. Bua

Keenan & Associates' Supplemental Employee Retirement Plan (SERP)  

Many California school districts have anticipated passage of AB 1207, which would re-establish the STRS Golden Handshake for Certificated Employees. Most employees of the districts have eagerly awaited the final legislation and some have elected to postpone retirement to take advantage of the additional benefits the bill would provide.  

While the intent of the legislation was to encourage retirements while providing significant additional monies to the retirees, the cost to the employers appears to be quite significant. The new Golden Handshake would allow for two options:  

Two Years of Credited Service  

The typical monthly benefit is equal to 2.8% to 4.8% of salary, which means for a 60 year old with a salary of $70,000, the monthly lifetime benefit would be $233.33, with an average lump sum cost of 58% of salary or approximately $30,000 to $40,000.  

Two Plus Two-Two Years of Credited Service Plus Two Years Age Factor Advance  

The “two plus two” will typically increase monthly STRS benefits by 20%; therefore, a typical monthly lifetime benefit for a 60 year old with a salary of $70,000, could be in the $590 range. Lump sum cost for this benefit could also be as high as 160% of salary or approximately $100,000 to $110,000.  

Keenan & Associates, located in Torrance California , offers the Supplemental Employee Retirement Plan (SERP) that provides added flexibility to the employer and the employee. For more than 15 years, SERP has been a win/win as employers realized significant savings and employees benefited from additional retirement dollars to supplement their STRS benefits.  

While Keenan & Associates can provide plans that mirror the Golden Handshake, the most successful plans have been designed to maximize these savings and benefits. Plans are typically offered at the end of the school year, with June retirements, or mid-year, with a January retirement. Mid-year plans allow for teachers to return as emeritus teachers for the second semester to preserve continuity in the classroom and more time for replacement recruiting. Many districts will offer SERPs based on 7% of salary, which provides participating retirees with multiple payout options, including monthly lifetime benefits, those payable over five to 10 years, and lump sum distributions as illustrated below from an actual five-year fiscal analysis.  

 In addition, Keenan & Associates provides the lowest cost and the highest benefit levels in the industry. To increase participation and participant satisfaction, Keenan & Associates offers extensive consultation services to design an appropriate plan and meets with Unions, employees, and School Boards. Keenan & Associates also provides extensive administrative services to the district that may not be provided by CalSTRS. The most significant differentiation is the individual counseling sessions with qualified counselors who are all former school district employees, some of whom are SERP participants.  

Most importantly, Keenan & Associates has local offices throughout the state for complete and prompt client service. The Retirement Planning Department in Torrance will answer questions and provide participant service for the life of the plan. There are no additional costs for preparation of proposals or any of the client services offered. For more information, call Gail Beal, Vice President of Marketing, Keenan & Associates, at (800) 212-0363, ext. 3604.  

Public Agency Retirement System (PARS)  

The San Marcos Unified School District , a district of 14,300 students and 14 schools in Northern San Diego County , implemented a Public Agency Retirement System (PARS) retirement incentive plan last school year. PARS helped the District design, implement, and administer a creative program that met the District's own specific needs.  

The plan was offered to all certificated staff (bargaining unit members and managers) who were age 55 with ten (10) years of service. The plan was offered contingent on eleven (11) employees participating in the plan. However, the benefit level would increase if more employees participated. The plan provided:  

·                     5% of final pay with 11 retirees  

·                     6% of final pay with 12 to 18 retirees, and  

·                     7% of final pay with 19 or more retirees  

A 7% of final pay benefit would provide one-twelfth of 7% of an employee's final year salary monthly for the employee's lifetime. In addition to a lifetime option, employees could choose from a menu of actuarially equivalent benefit options that included joint-and-survivor and fixed-term options that pay monthly for five (5) to fifteen (15) years. Below are the different payout options based on a 58-year-old employee with a $60,000 salary:  

 The plan also was implemented as a “mid-year plan”. Under a mid-year plan, participating employees are required to retire at the end of the first semester and return to work as an “emeritus employee.” Emeritus employees complete the second semester in the same capacity. The mid-year approach is a win-win for both the District and employees. The District experiences a large one-time savings, while employees receive the equivalent of a one-time bonus for working as an emeritus employee.  

The District's plan was very successful and met its objectives. The following are the results of the plan:  

 The savings shown above were jointly calculated by PARS and the District. They are net of all plan costs and reductions in costs due to loss of current and future natural attrition. They also assume full replacement of all positions. Seven key factors assisted in the successful plan:  

1.                  Thorough analysis: PARS worked with the District to realistically quantify the potential savings prior to and after plan enrollment.

2.                  Turn-key administration: PARS handled all plan enrollment, communication, participant counseling, and ongoing plan administration.

3.                  Sufficient early planning: PARS worked with the District for months prior to implementation.

4.                  Lengthy Enrollment Window: Employees had a lot of time to make this life-altering decision.

5.                  Bargaining unit representatives were included in the process early.

6.                  STRS workshops were held at the District.

7.                  Single point person at the District was involved in all aspects of the process.  

-Eric O'Leary, Public Agency Retirement System (PARS)