Colorado district choking on the costs of generous retirement policy

Apr 26, 2013 by

THORNTON, Colo. – Over the past few decades, many school boards across the nation decided that early retirement incentives for teachers would help save money.

The idea was to tempt higher-paid senior teachers to leave early and have lower-paid entry level teachers take their place. Officials theorized that savings from lower payrolls would more than cover the cost of the retirement incentives.

But many school officials are now discovering that the theory does not hold water.

A good example is the Adams 12 Five Star school district in Colorado, which could end up paying a backbreaking $87 million in “retirement stipends” due to a policy the school board adopted in 1991, according to the Broomfield Enterprise.

District officials have cited the cost of the stipends as one reason for the recent elimination of teaching positions, a lack of raises for employees and program cuts.

The stipend policy was established with noble intentions.

The Adams 12 school board was trying to provide a secondary source of income for teachers, who have long been among the lowest paid in their geographic area, the news story said. School officials were also hoping the benefit would convince some older teachers to retire a few years early.

Under the program, teachers and other certified employees who retire with at least 20 years of service collect an amount equal to half of the district’s base salary for five years. Those who retired before the 20-year mark receive a lesser stipend.

Under the district’s current based salary – $31,544 – a teacher who retires today would collect about $15,770 for five years, the news story said.

While the program ended for new hires in 2007, its costs continue to mount. About $42 million has already been paid to retirees, and if the other 1,100 current employees who qualify for the stipend work for at least 20 years, that figure could grow to $87 million, the news report said.

The district operates on an annual budget of about $200 million. That means the cost of the retirement incentive could eventually come close to equaling half of one year’s operating budget.

The program did not prove to be cost-effective and the school board was forced to negotiate with the teachers union to phase it out.

“(The program was established) at a time when the district was not financially able to give wage increases that might have been at the time as competitive as some of our peers, and so it was a way of creating deferred compensation,” Mark Hinson, the district’s human resources officer, told the media.

“What we recognized later was that the theory that the high salary out, low salary in would help underwrite the cost no longer applied.”

School districts throughout the nation are learning the same type of lesson about expensive provisions written into teachers collective bargaining agreements over the past few decades. Promises made when times were better are hard to meet when budgets get tight.

Taxpayers can only hope that the painful lessons of today will be remembered in the future.

via Colorado district choking on the costs of generous retirement policy – :: Education Research, Reporting, Analysis and Commentary.

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