Copyright© 1999 by School Services of California, Inc.
Early Retirement Plan Options -
Life after Sunset of the Golden Handshake
There are still legitimate reasons for a district to occasionally need to offer an early retirement incentive plan even though the State Teachers' Retirement System (STRS) program authorization officially sunset last year. Districts may need to reduce certificated staff due to declining enrollment, the desire for a different credential mix in light of changed district objectives, or for the purpose of saving money. Alternatives to the Golden Handshake are available to meet these needs and can be used for both certificated and classified staff. In fact, even when the Golden Handshake was available, many districts found the alternative plans to be more advantageous to both the employee and the district.
The plans generally contain similar elements whether they are offered by PARS/Phase II, Keenan and Associates or other facilitating consultants. Salary savings from retirement of people at the high end of the salary schedule are used first for replacement of the person by someone who is presumably at a lower salary level and then the rest of the savings are used to fund the retirement incentive plan. In the case of positions that are not to be re-filled, such as those in a declining enrollment district, the full savings are available to fund the plan or for other district purposes. Sometimes, mid-year retirements and other options are added to the plan to produce additional savings and enhanced benefits.
There is a very direct relationship between seniority and salary expense, more seniority equals higher cost. Districts do, however, need to be aware that true savings occur only when the number of retirements actually increase above the normal level. Spending money to provide an incentive to people to do what they would do anyway is unwise. Normal retirements are already calculated in your step and column and attrition costs of servicing the salary schedule. Only the additional accelerated retirements actually produce savings.
Remember also that the retirement incentive is paid to all retirees, not just the "early" or "extra" retirees. If the normal level of retirements is 50 and the incentive raises that number to 60, the savings on the additional 10 would be available, but all 60 would receive the incentive.
We further caution that to be truly an early retirement incentive paid for out of salary savings, the plan can only be offered at 3 to 5 year intervals. If it is offered every year, the plan becomes a bonus, not an early retirement incentive. In our example, if the plan is offered every year the level of retirements quickly returns to 50 and the plan becomes a cost, not a savings. For this reason, we advise that the plan not be included as a recurring obligation in bargaining unit contracts.
This valuable tool is still available to districts that need it; be careful to craft a plan that meets your needs and makes sense in both the long and short-term.
- Ron Bennett