Some Pennsylvania School Districts Look at Early Retirement Incentive Plans to Help Budget Deficits . . . Could this be a less-painful option?

It is interesting to note how other school districts are exploring different options internally to reduce expenses. 

Apparently, Tredyffrin Easttown School District joins the ranks of Bucks County’s Morrisville School District to consider outsourcing custodial services in addition to an early retirement plan to its teachers.

According to a recent article in www.phillyBurbs.com  Morrisville School District’s school board suggests that these measures are required due to “out of control spending due to increases in salaries, benefits and pensions.”

Although Morrisville School District is ‘only’ facing a $2.5 million deficit, they are facing some of the same problems as TESD.  This district is offering a special ‘early retirement incentive plan’ to teachers as a way to reduce costs.  Teachers have until March 31 to decide whether to take this option.

Has TESD considered some form of an early retirement incentive plan for teachers?  It is possible that I missed this discussion in school district.  For those that have followed the school district closely, any information on this topic is appreciated. As school districts across the state are struggling to balance their budget deficits, I find it of interest to look at options that other school districts have explored.

Looking beyond Morrisville School District, I wondered if other school districts were exploring an early retirement incentive option as a cost-saving measure.  Middletown Area School District (MASD) in Dauphine County, www.raiderweb.org  (10 miles from Harrisburg) is also offering a retirement incentive plan to teachers in an effort to reduce their gaping deficit. For those teachers that qualify, they have until March 21 to decide on this option.

The MASD early retirement incentive is available to full-time employees covered by the teacher union collective bargaining agreement who have at least 30 years of district service by June 30, 2011 and incur no more than one additional year of service under the state employees retirement system (PSER) after retiring from the district. Employees 55 or older with 20 years of service by June 30 also can retire under the same conditions.

Benefits of MASD’s retirement incentive include a $20K one-time contribution into employees’ 403(b) accounts that won’t be included when computing their annual salaries for retirement benefits.  Health care benefits under terms of their current teacher union contract which expires June 30, 2012 will also be made available if a “sufficient number” of eligible employees retire under the incentive.

Could an early retirement incentive plan be a ‘less-painful’ way of reductions of costs for school districts in budget crisis?  In Morrisville School District and Middletown Area School District, their 2011-12 budgets will be ‘tweeked’ based on how many teachers take advantage of the retirement incentive. These kind of early retirement incentive plans  are similar to models often seen in private industry for employees.  Understandably, it is too late to enact an early retirement incentive plan for the 2011-12 school district budget in TESD, but what about for the following year’s budget? 

 Any discussion of an early retirement incentive plan would take cooperation between school districts and teacher unions.  However, with talk swirling in Harrisburg of teacher furlough legislation, I would think the conversation of early retirement incentive plans would be a conversation that teacher union leaders might welcome.

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  1. Great Valley is also considering an early retirement incentive, although not nearly as generous as what was described here. GVSD’s proposal is just allowing teachers w/10yrs tenure to use the retirement package made available by the contract, that usually is not available until 15 years. All it seems to bring is a multiplier of # of sick days banked times a $ amount…I think it’s about $75/day. If you maxed them out and never took a day off, that means a 10 year tenured teacher might get around $8500…but they’re essentially being paid for their unused sick days, this is not a bonus per se.

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  2. Beware of early retirement incentive plans. The union loves them and promotes them, but they are money losers in almost every case. School boards routinely fool themselves into thinking they are saving money when they are actually just borrowing money that future boards will have to repay.

    Here’s the line you’ll hear from the union:
    Let’s offer a $50K incentive to the teachers so they will 3 years earlier than planned. The retiring teacher is earning $100K per year and can be replaced with a novice earning $50K. The first year is break even; the $50K salary savings is offset by the $50K retirement incentive. But in the second year onward you’ll be saving $50K in salary each year. If we can get 10 teachers to take the incentive then the savings is $500K per year.

    There are at least two problems with the explanation above. First, many teachers would have retired anyway without the incentive. For each of those teachers the incentive is a nice gift and district has a net loss of $50K. Second, the savings are transitory and have to be paid back by future boards.

    See: Borrowing Attrition to Save Money, James P. Hoover, American School Board Journal, August 2009

    http://www.asbj.com/HomePageCategory/Online-Features/ReadingsReports/BonusArticles/Borrowing-Attrition-to-Save-Money.pdf

    A quote:”Conventional wisdom has it that early retirement incentive programs save districts money. Unfortunately, conventional wisdom is sometimes wrong.”

    The one case where an early retirement incentive makes sense is when the district plans a large reduction in force that cannot be done with furloughs and normal attrition.

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    snowbird99 Reply:

    I totally agree with your analysis. The article referenced shows that early retirement incentives are not really early or a financial panacea.. Teachers have become so accustomed to getting this perk, they won’t retire without them. The best retirement incentive is a salary freeze. Teachers can’t increase their highest three average salary to boost their pensions and have no incentive to stay in the classroom.

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    School Observer Reply:

    CORRECT!

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    School Observer Reply:

    The state did this several times — allowing early retirements to qualify for full benefits. Result: more people on full pensions not working….so who saved what?

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    Ray Clarke Reply:

    Exactly! This is nothing more than fool’s gold. I don’t know how the PSERS accounting works, but someone, sometime has to pay the cost of those pensions.

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  3. Can anyone direct me to the legal statute permitting Pennsylvania schools boards to extend early retirement to their teachers as a means to (potentially) reduce future expenditures thereby closing their often multi-million dollar deficient’s.

    Regards,

    Faith

    PS I reached out to my local school board member, as our district is in the process of doing this, he forwarded my email to the district’s attorney who provided him w/ a 2-3 line answer. It was legalize, IMHO, spoke to 2 separate laws, the former referencing the later, & said these statutes spoken of this ability via both explicit & implicit reference.

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    Andrea Reply:

    Faith
    Individual school boards cannot offer “early retirement” per se. The state sets the retirement requirements. What some districts do is offer a “bonus” to retire — i.e.. give up their positions. Someone above explained how that works — it can be useful if there are people you hope will go…but it’s just swapping district costs over to the state, where pensions start without work. TE offered one several years ago that was designed to help teachers consider the state option — that the whole union would have more “breakage” — and if I recall, no one opted for it because the state gave them a better deal to retire before after June 30 when the district deal would have kicked in.

    Districts cannot change the state requirements. It’s just a retirement “incentive” but it would only be available to the class of people that a contract would identify — i.e. it’s severance.

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  4. Faith,

    First, there is no law that specifically allows or disallows early retirement incentives .

    Second, there is no such thing as early retirement and boards cannot ,i>extend early retirement to their teachers. Boards can offer an incentive for teachers to retire, but teachers alone decide when they want to retire. According to PSERS rules, teachers can retire anytime they want after the 5 year (I think it’s 5) vesting period. The yearly payout is typically 2.5% x number or years served x average of the highest 3 years of salary. For example, a 30 year teacher earning $100K for the last 3 years could retire now and get $75,000 per year for the rest of his or her lifetime.

    Third, there is no law that prevents a board from offering an incentive (for instance, $50,000) for teachers to retire in the current year or some future year. The board has broad leeway on how to reward teachers. If you read teacher contracts you’ll see teachers get various types of compensation both before and after retirement (payment for accumulated sick leave, payment for vacation, post retirement health insurance, severance bonus)

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    Andrea Reply:

    Thanks CO — just saw this after I had posted a response. This is my understanding as well.

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  5. If school want to really cut costs, they need to do it at the bargaining table. Otherwise, they need to cut programs and downsize staff.

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  6. Won’t cost the school district any money.
    It’s all stimulus money.
    The money was supposed to get people to retrire to open up new jobs for gollege grads. .
    For anyone who applied…
    Feds gave Pa millions……
    IT WAS SUPPOSED TO CREATE JOBS!!!!!

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