Possibility of Early Retirement Incentives

Further below see a proposal made by the Arlington Education Association for an early retirement incentive ERI for teachers. I think this concept deserves some careful study.

ERI’s are used in both the public and the private sector to cut staff without creating labor unrest. They tend to thin staff out at the more senior levels while reductions in force tend to thin out more junior staff. Especially in education where there is a big pay spread between junior and senior staff, an ERI may allow fewer positions to be reduced to achieve a given level of savings.

It is unlikely that ERI’s would be offered only to teachers. There would have to be a more comprehensive program that covered most state and local employees. There was quite a bit of talk earlier this year about ERI’s (Early Retirement Incentives) and legislative staff worked up some options in the May/June time frame. The talk quieted down after key leaders (apparently including the Governor and the Senate President) made comments suggesting that they were cool to the idea.

But that is long enough ago that it might be time to revisit the issue. I think it has appeal as a way for the state to lighten the burden on municipalities.

According to the state’s lead actuary:

• ERI’s result in a net cost increase to the pension system. For the sake of illustration, one million of reduced salary costs might equate to $100,000 of increased costs for the pension system.
• If positions are lost permanently, then the salary savings forever are greater than the increased pension costs. If positions are immediately back filled then there may be a net increase in costs.
• Where ERI’s for state employees have been considered, the analysis by the actuary suggests that 80% of lost positions must be left empty for at least a year to cover the cost of the ERI if the ERI is 3 year ERI. The cross over is somewhere between one and two years for a 5 year ERI. (The basic model of an early retirement package is that people would be allowed to increase their pension if they retire during a set time period. The usual way is to add years of service or increase their age for pension computation purposes. Typically they can add any combination of service or age totaling a set amount, typically either 3 or 5 years.)
• Teachers participate in a retirement system funded by the state. So, an early retirement incentive would save money for the towns, while increasing costs for the state.

In effect, an ERI for teachers would be a local aid measure. It should be considered in the mix of alternative ways for the state to provide local aide. It does seem like it might be an efficient mechanism and deserves further study — the critical question financially is whether communities are downsizing for a period of at least a few years or whether they will be back-filling the positions.

One other consideration is health care. Municipalities savings will be reduced by the amount of retiree health care costs — if a position is back-filled, the municipality will carry the cost of both the new employee’s health care and the retiree’s health care. Health care is not included in the cross-over analysis provided by the actuary.

Bottom line: This concept deserves more consideration and I will certainly keep exploring it through the budget process starting after the new year.

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PROPOSAL FROM THE ARLINGTON EDUCATION ASSOCIATION APPEARS BELOW

Dear Educational Administrators, School Committee members, and Town Government officials,

I am writing regarding a grass roots campaign that the AEA has initiated in order to preserve educational services not only in Arlington, but across the state. I have contacted over 325 local educational union presidents – both from the MTA and the AFTMA – across the state to ask them to participate. I am hoping that you will take the time to read what is below and that you will decide to support us and work together with us in this endeavor. Please feel free to contact me with any questions.

What is the initiative?
What we are proposing is that the Massachusetts State Legislature pass a temporary early retirement option for teachers across the state. This is not unprecedented, as something similar to this was done about fifteen years ago.

What would this early retirement option look like?
Although the specifics could probably vary quite a bit, I see it possibly looking something like this:
· The option would be in effect for two years (2009-2010 & 2010-2011).
· Teachers would be allowed to take up to five years (any combination of age and/or years of service) to add to their current position on the MTRS scale.
· This could possibly even be added as an amendment to the Ed. Reform Bill.
· That’s pretty much it – it’s a fairly simple idea.

Whom would this benefit (or Why should we help)?
There is little that anyone can do to ease the pain considering the current budgetary outlook. This is something that can actually help, and here is whom it can help and how:

New Teachers and Support Professionals: Many new teachers and support professionals are currently in danger of losing their jobs at the end of the year as administrators are forced to make cuts to meet their budgets. An early retirement option will preserve services and save jobs. In Arlington, a teacher voluntarily retiring at the top step of our pay scale would allow the school system to save TWO teachers near the bottom of the scale.

Teachers preparing to retire within a few years: These teachers would have the option of retiring early if they so desire, and would be able to achieve or come closer to achieving 80% on their pensions at no additional cost to themselves or their school systems.

All Other Teachers and Support Professionals: The potential preservation of jobs and services due to this option would keep more departments functioning and keep class sizes lower. More teachers will mean fewer students per class and less of a work load on everyone.

School Administrators, School Committees, Mayors/Managers, etc: Will get some relief and will quite possibly be able to preserve a large number of services. Again, using Arlington as an example, if twenty people took advantage of the option it would save up to forty jobs – thereby eliminating many of the potential job cuts that we are facing.

State Legislators: I have thought long and hard about this and this is the only thing that I can think of that is something that the legislators can do that would have the type of impact that this would on preserving jobs and services and keeping class sizes down. This would be a chance for them to look good in the eyes of the voters by thinking outside of the box in a difficult time.

MTRS: I’m not a math teacher, I’m a guidance counselor. But it seems to me that this would even save the MTRS money in the long term because teachers retiring earlier means that they would be retiring at a lower 3 year salary average in most cases than they would if they retired two or three years from now. That would save the MTRS money every month for the entire length of time that they pay these teachers’ pensions.

How can you help make this happen?

· Contact your state legislators personally and strongly urge them to take action NOW! The AEA has already reached out and the initiative was met favorably.

That is all that I am asking each of you to do.

Some closing thoughts:
Time is of the essence. I know that this is a busy time of year, but we have to act fast if we intend to make a difference. The absolute worst that could happen is that it does not fly – in which case we would be in the same boat that we are in now anyway. I implore you to join this grass roots effort and work with us! I want you all to know that I have also alerted the MTA to this initiative. It is my hope that the MTA will support the initiative and the efforts of its locals. Thanks for taking the time to read and consider this.

—
Ron Colosi, Jr.
President
Arlington Education Association