Early Retirement Incentives

Early Retirement Incentives
By Mike Fulton

SSTA Research Centre Report #96-11: 17 pages, $11.

Early Retirement Incentives Early Retirement Incentive Eligibility Reasons for Offering Early Retirement Incentives Types of Incentives The Provincial Picture Issues and Questions	This report was prepared by Mike Fulton of Educon Services for the SSTA Research Centre. The report was commissioned by the SSTA Research Centre in response to interest by Boards of Education for information about early retirement incentive practices in Saskatchewan. Boards of Education in Saskatchewan have in place or are being asked to establish early retirement incentive programs. This report addresses a variety of issues and suggests some guidelines for the development of early retirement incentive policies. The concept of early retirement incentives is relatively new to education in Saskatchewan with policies dating back only to 1986. In some cases Boards have been offering early retirement incentives for some time and have found that the level of incentive offered has not proven to be cost effective; in other cases Boards have recently implemented policies in the area but have expressed interest in knowing what others are doing. The author met with a focus group in Davidson in May and drafted a survey. Based on the June, 1996 survey to which 48 school divisions responded, Boards of Education have taken a variety of approaches with respect to early retirement incentives. Of the respondents to the June survey, 32.5% reported having no early retirement incentive package while 67.28% reported having some form of early retirement incentive included in policy, in local agreement, or in a combination of both. The opinions and recommendations expressed in this report are based on the questionnaire results and on a study of 46 school division policies and or agreements.
Guidelines for Policy Development
Summary Recommendations
Discussion Questions
Sources

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The opinions and recommendations expressed in this report are those of the author and may not be in agreement with SSTA officers or trustees, but are offered as being worthy of consideration by those responsible for making decisions.

EARLY RETIREMENT INCENTIVES

Early Retirement Incentive Eligibility

In Saskatchewan there are a variety of early retirement incentives available to teachers who are eligible to retire with an unreduced allowance. In accordance with the Teachers' Superannuation Act teachers are eligible to retire at:

65 years of age with one year of contributory service,
60 years of age with 20 years of service,
60 years of age or any subsequent date when the sum of the teachers contributory age and service equals 85,
55 years of age and with contributory service equal to 85, or
any age when the teacher has completed 30 years of contributory service.

Most early retirement incentives are offered to those teachers opting to retire under the "30 and out provision" but incentives are also available to teachers who qualify in other ways for early retirement.

Early retirement incentives in Saskatchewan fall into two broad categories:

payment of an amount of money based on teaching service, or
hiring back on a part time contract or for a guaranteed number of substitute days.

Most Boards in Saskatchewan choose to provide a monetary incentive rather than rehiring superannuated teachers.

Reasons for offering Early Retirement Incentives

Traditionally Boards of Education have offered early retirement incentives to teachers primarily for one or a combination of the following reasons:

To realize financial savings by hiring young, less experienced teachers;
To ease the problem of declaring teachers redundant as a result of declining enrolments and budgetary constraints;
To promote renewal in a time of curriculum and instructional change.

In June of 1996 Directors of Education were asked to respond to the question,

"Why do school boards offer early retirement incentives?"

The following summary presents the respondents’ views in terms of what is actually happening in their school divisions and what they believe the ideal purpose of early retirement incentives should be. Numerical values represent a percentage of the total values of all responses by item.

Actual Purpose Ideal Pupose

1. To realize financial savings. 17.2 18.1

2. To deal with downsizing due to declining enrolment. 15.4 15.8

3. To recognize long service. 14.5 15.5

4. To avoid redundancies. 13.6 14.8

5. To replace older with younger teachers. 13.6 14.1

6. In response to LINC requests. 11.1 7.7

7. To rid the system of marginal performers. 8.2 7.4

8. To avoid sick leave requests. 6.4 6.6

Other reasons provided by respondents included the need to facilitate better planning and to make the transition to retirement easier for teachers. In most cases the respondents rated the ideal purpose higher than actual practice with the exception of items 6 and 7 where the ideal purpose was rated lower than actual practice.

In summary Boards of Education seem to recognize the merits of offering early retirement incentives; that is to realize financial savings, to assist in downsizing, to recognize teaching service, to avoid declaring teachers redundant and to replace older with younger teachers. Boards of Education are less supportive of offering early retirement incentives in response to LINC requests, to rid the system of marginal performers and to avoid sick leave requests.

In the Foreword to the report Graying Teachers (Auriemma, Cooper & Smith, 1992), the authors note that

"a well managed early retirement program can benefit teachers when they retire, can grant administration a chance to bring in new teachers and can significantly reduce the districts budget just at a time when money for education is even tighter".

Types of Incentives

In the last 10 or so years Boards of Education have offered a variety of early retirement incentives including the following:

Rehiring superannuated teachers on part time contracts
Provision of a base cash incentive specified in policy or in contract
Provision of an incentive based on years of service - usually a percentage of salary in the final year of employment or a number of days of salary per year of service.
Provision of a cash settlement based on accumulated sick leave
Rehiring for a guaranteed number of substitute days
Combinations of the above

Directors of Education were asked to respond to the question

"What types of early retirement incentives do school boards use?"

The results presented below are representative of their responses.

Payment of a lump sum retirement incentive 38.5%

Hiring back to another position 28.9%

Payment of an incentive based on years of service 19.2%

Hiring for a guaranteed number of sub days 5.8%

Payout of all or a portion of sick leave 3.8%

No special incentive 3.8%

A review of Board policies reveals that actual practices differ from perceived practices. Approximately 41% of Boards offer a lump sum incentive while only about 10% of the policies make reference to hiring back to another position. Approximately 33% of Boards offer an incentive based on years of service. Early retirement incentives in Saskatchewan are paid out either in a lump sum or over a period of years. Paying out the incentive over a period of two or more years appears to be the preferred practice.

Several Boards of Education continue to offer some form of rehiring of staff in lieu of providing a monetary cash settlement, a practice which should be looked at carefully in light of the changes which have occurred in The Education Act with respect to replacement contracts for teachers. The writer's interpretation of the Act is that a superannuated teacher hired on a replacement contract who goes beyond one year with the employing Board, could end up being eligible for redundancy pay back to the original date of hire if the replacement contract was extended beyond one year.

Recommendation 1

Boards of Education should look carefully at possible problems which may result from the practice of hiring superannuated teachers.

In the June of 1996 survey Directors of Education responded as follows to three other questions.

"How are early retirement incentives offered?"

Responses to this question were as follows:

terms and conditions of early retirement incentives included in policy - 73%
an unwritten procedure - 15.7%
terms and conditions included in local agreements - 10.5%

A few Boards had a provision for early retirement incentives in both policy and local agreement. Many of the policies mentioned that the early retirement incentive would be available only from year to year based on the circumstances and the Boards ability to provide such incentives. Several Boards indicated a need to maintain the ability to modify the size of the incentive annually based on their financial position. In most cases teachers had to apply to the Board by a certain date in order to be considered for an early retirement incentive.

"Who should receive early retirement incentives?"

Responses to this question were as follows:

Early retirement incentives should be available only to those teachers who are eligible for retirement - 86.5%
Early retirement incentives should be available regardless of eligibility - 5.4%
A minimal number of respondents believed that early retirement incentives should be available only to those teachers whose performance was marginal and who qualified for retirement.

"Should early retirement incentives be available to other division employees?"

Responses to this question were as follows:

Yes - 70.6%
No - 29.4%

Several verbatim comments follow which provide food for thought for Boards who may be considering implementing an early retirement incentive policy.

Our early retirement incentive policy was rescinded in 1994 - philosophically the Board could not accept early retirement incentives.

If our Board were to implement a policy it would be to replace older teachers with younger teachers and to rid the system of marginal performers. The Board members realize that there are no long term savings and we have been able to downsize without redundancies. The other reason which might lead them to adopt a policy would be a desire for consistency. When marginal performers enter into mutual termination agreements and are thus rewarded while outstanding teachers retire with no financial recognition it leaves a bad taste.

Our Board is in the process of creating a policy that would offer incentives to avoid declaring teachers with less experience redundant.

Unless the Board is actually faced with redundancies one questions the long term efficacy of retirement incentives. If you wish to reward employees for good service fine but don't kid yourself into potential mediocre hiring practices - you won't necessarily be hiring the best teacher following an early retirement incentive - just a relatively cheap beginner.

The Provincial Picture

In preparing this report the writer reviewed forty-six school division policies and/or clauses from local agreements. Several interesting observations can be made based on this analysis.

The earliest early retirement incentive policy was approved in 1986 although most were drafted after 1990 and continue to be amended on a regular basis since that time.
Only 13% of Boards have early retirement incentives included in local agreements.
Approximately 33% of Directors who responded to the survey indicated not having policies in the area and several are adamant that there is no need to provide early retirement incentives for teachers. As one anonymous respondent indicated "Early retirement incentives have proven unnecessary as teachers are retiring anyway" a reality born out in statistics provided by the Regina Board of Education.
Most policies refer to the fact that teachers must have a minimum of ten years of service within the system to be eligible to apply for an early retirement incentive.

Recommendation 2

Boards of Education should consider establishing a minimum number of years of service with the employing Board. Ten years within the system is representative of present practice.

The largest incentive provided in policy appears to be 60% of salary although there are many permutations and combinations to consider when trying to describe the reality of the situation. In some cases Boards of Education have had to reduce the amount of the incentive when it was found that the level of incentive was proven not to be cost effective.
The Prince Albert Public School Board is in the process of reducing their retirement incentive from 60% to 40% of salary by 1997-1998.
The Prince Albert Catholic System has similarly reduced their base incentive from $24 000 in 1988 to $15 000 in 1995 with the observation that "though the base incentive amount has decreased over the years the number of people taking advantage of the incentive remains high."
In Graying Teachers the authors state "An incentive ratio equal to 25-30 percent of the maximum teacher's salary is the tipping point at which individuals begin to look favourably at the districts incentive plan" (Auriemma, et al, 1992. p.73).

Recommendation 3

Provision of early retirement incentives should be ongoing and should be sufficient to induce teachers to retire. Boards will need to carefully determine the optimum level of incentive to provide in order to achieve their goals.

Approximately two thirds of the Boards provide retirement incentives for anywhere from two to four years beyond the initial year at which the teacher becomes eligible for retirement. This practice, however, does not allow Boards to hire at the first opportunity, as some teachers choose not to retire in their first year of eligibility.

Recommendation 4

Early retirement incentives should be voluntary and offered to all teachers only in the first year of eligibility rather than over a period of several years.

Most Boards in the Province have chosen to spread payment of the incentive over two or more years, a practice which seems to make financial sense.

Recommendation 5

Payment of early retirement incentives should be spread out over at least two years and preferably paid into a tax sheltered RRSP of the teacher's choice.

Most policies speak to the need to maintain flexibility in terms of the amount of incentive provided from year to year based on individual circumstances including the overall financial position of the Board of Education.
Fifteen Boards base their incentive on a percentage of salary ranging from 25% to 60%.
Nineteen Boards offer a specified early retirement incentive ranging from $5 000.00 to $30 000.00.
Three Boards promise a base amount to be established by the Board from year to year.
Two Boards tie their incentive to the Provincial Salary Grid for example: a percentage of Class 4 maximum.
Two Boards offer an unspecified amount.
Three Boards offer part time contracts rather than a monetary amount.
One Board offers up to 20 days pay.
Three Boards tie their early retirement incentive package to unused accumulated sick leave.

Recommendation 6

Because sick leave is a protection against illness, it is recommended that incentives should be based on years of service with no reference to unused sick leave.

Two Boards offer a choice of an early retirement incentive or a part time contract.
It appears that some Boards may be offering early retirement incentives to teachers who do not fully qualify for early retirement.

Recommendation 7

Early retirement incentives should be available only to those teachers who qualify for early retirement in accordance with the Teachers Superannuation Plan.

The decision to take early retirement is a serious one for teachers since potentially they must surrender several years of salary and must learn to live with a reduction in monthly income.

Recommendation 8

Teachers should be encouraged to attend pre-retirement seminars sponsored by the STF to ensure that they fully understand the implications of opting for early retirement.

Issues and Questions

1. According to Saskatchewan Education, in 1995-96 the average age of teachers in Saskatchewan was 41.25 years. Many teachers will be eligible for early retirement within the next several years. This fact could have serious implications for Boards if retirement incentives are overly generous and Boards cannot recoup their investment through hiring practices.

2. Declining enrolments, particularly in rural Saskatchewan, may prevent Boards of Education from hiring qualified young and less expensive teachers. Funding cuts to education may also impact the Boards ability to offer early retirement incentives.

3. Should early retirement incentive provisions be provided for in policy, in local agreements, at the Provincial level or not at all? It is interesting to note that the subject of early retirement incentives has been included in the Teacher Proposals for a 1997 Provincial Collective Bargaining Agreement.

4. Should early retirement incentives be available one year at a time based on the Boards financial position or should early retirement incentives be available from year to year so that teachers can plan ahead? In Graying Teachers it is pointed out that "If teachers can view the retirement incentive as a long term effort, they can depend on it and make retirement plans well in advance."

5. Should incentives be paid out in a lump sum or over several years? The answer to this question lies with individual Boards of Education. On the one hand there may be financial benefits to making payments over several years but the bookkeeping may create extra work for central office staff.

6. Do early retirement incentives work in terms of reducing costs and permitting the replacement of teachers smoothly and effectively? The Prince Albert Public School Board has conducted research in this area and has concluded that "the Board would have to be particularly diligent in its hiring of beginning teachers to realize any significant savings".

7. What would be the effect of school division amalgamation and restructuring on the provision of early retirement incentives?

Table of Contents

GUIDELINES FOR POLICY DEVELOPMENT

When developing policy Boards of Education should consider:

1. Including a statement of purpose which outlines the reasons why the Board has chosen to offer early retirement incentives, for example:

to promote ongoing renewal of teaching staff
to improve the quality of teaching and learning in schools
to realize financial savings over time
in recognition of the potential benefits to students, staff, and the school division
to recognize years of faithful and committed service by teachers
to assist in the transition from employment to retirement status.

2. Outlining the eligibility requirements, for example:

in accordance with the Teachers Superannuation Act (See page two of this report)
with a specified minimum number of years in the system.

3. Defining the level and extent of the incentive, for example:

a monetary base incentive amount or an incentive based on years of teaching
some other arrangement

4. Carefully outlining the procedures to be followed by teachers when applying for an incentive.

5. Setting deadlines for when teachers may apply and indicating to whom they apply.

6. Outlining payment procedures, for example

to an RRSP of the teacher's choice over a period of two or more years
in a lump sum.

7. Explaining the voluntary nature of the program.

8. Outlining the Board's procedure with respect to notifying teachers about the availability of the incentive.

Table of Contents

SUMMARY OF RECOMMENDATIONS

1. Boards of Education should look carefully at possible problems which may result from the practice of hiring superannuated teachers.

2. Boards of Education should consider establishing a minimum number of years of service with the employing Board. Ten years within the system is representative of present practice.

3. Provision of early retirement incentives should be ongoing and should be sufficient to induce teachers to retire. Boards will need to carefully determine the optimum level of incentive to provide in order to achieve their goals.

4. Early retirement incentives should be voluntary and offered to all teachers only in the first year of eligibility rather than over a period of several years.

5. Payment of early retirement incentives should be spread out over at least two years and preferably paid into a tax sheltered RRSP of the teacher's choice.

6. Because sick leave is a protection against illness it is recommended that incentives should be based on years of service with no reference to unused sick leave.

7. Early retirement incentives should be available only to those teachers who qualify for early retirement in accordance with the Teachers Superannuation Plan.

8. Teachers should be encouraged to attend pre-retirement seminars sponsored by the STF to ensure that they fully understand the implications of opting for early retirement.

Table of Contents

DISCUSSION QUESTIONS

What are the advantages of having an early retirement incentive policy?

What are the disadvantages?

Is there a need to offer early retirement incentives in our school division? Why or why not?

What rationale would we provide for offering such a program?

What are some aspects of our present retirement incentive policy that we might have to adapt?

Table of Contents

SOURCES

Auriemma, Cooper & Smith, Graying Teachers - A Report on State Pension Systems and School District Early Retirement Incentives (Chapters 1 and 3). Eric Clearinghouse on Educational Management, University of Oregon, 1992.

Board Policies & Agreements

Focus Group Meeting - Davidson, May 2, 1996 (Notes)

Prince Albert Separate Board of Education (Letter & Statistics)

Prince Albert Public Board of Education (Letter & Statistics)

Regina Public Board of Education (Letter & Statistics)

Saskatchewan Education (Age and Service Statistics and Graphs)

SSTA Survey of Directors of Education - June 1996

Table of Contents

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	Actual Purpose	Ideal Pupose
1. To realize financial savings.	17.2	18.1
2. To deal with downsizing due to declining enrolment.	15.4	15.8
3. To recognize long service.	14.5	15.5
4. To avoid redundancies.	13.6	14.8
5. To replace older with younger teachers.	13.6	14.1
6. In response to LINC requests.	11.1	7.7
7. To rid the system of marginal performers.	8.2	7.4
8. To avoid sick leave requests.	6.4	6.6