Early Retirement: Teachers Win Benefits With 'Political Muscle'

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Faced last year with the prospect of layoffs due to budget cuts, teachers in Minneapolis negotiated a provision into their contract that would allow teachers with 15 years of experience to retire at the end of this school year, with substantial salary bonuses.

As with early-retirement incentives in school districts and states nationwide, the Minneapolis plan appeared to offer something for everyone. District officials said that retiring highly paid teachers presented an opportunity both to save money and to hire more minority teachers. And union leaders said the option would give their members a professional reward.

But critics say early-retirement plans--lobbied hard for by local and state teachers' unions--may be shortsighted, given the projected national teacher shortage, questions over the financial impact of the plans, and uncertainty over how many teachers actually will elect to retire early.

The teachers' unions argue that the option to retire before age 65 is a benefit common to the business world, and that having the option to bow out early gives teachers a much-needed lift. They also have promoted the plans as tools for improving the academic climate by giving dispirited teachers a way out of the classroom.

An early-retirement bill supported by the Texas State Teachers Association was expected to take effect this week. In South Carolina, where an early-retirement bill now is pending, and in Wisconsin and Indiana, where similar bills recently were signed into law, the state teachers' unions were overwhelmingly the driving force behind the legislation, legislators and union lobbyists say.

"There isn't any question that teachers throughout the United States have to push for it," says Robert Margraf, chief lobbyist of the Indiana State Teachers Association. "People just don't come and give it to you."

J. Mac Davis, a Wisconsin state senator who opposed the early-retirement bill recently signed by Gov. Tommy G. Thompson, attributes its passage to the "political muscle" of the Wisconsin Education Association.

"The bottom line is the political force of roughly 55,000 publicly employed teachers tenaciously pushing at their legislators to give them these retirement-benefit increases," Mr. Davis says. "We never even had an actuarial analysis of the bill before we considered it."

According to a 1987 survey of early-retirement incentives presented at a conference of the National Council on Teacher Retirement, 15 statewide retirement systems serving teachers conducted one or more early-retirement programs in the previous four years.

Often known by shorthand terms such as "rule of 85"--for retirement age (usually 55) plus years of service (30)--the provisions have been used or are in use in California, Colorado, Illinois, Minnesota, New York, Ohio, Tennessee, Texas, and Utah, among other states, according to the teacher-retirement council.

At the national level, the two teachers' unions take differing tacks, however. The American Federation of Teachers, which in 1976 adopted a resolution stating that teachers should be allowed to retire after 20 years of service, nonetheless generally counsels against early-retirement plans.

"It makes no sense to us at a time when we're looking at a shortage of teachers," explains Jewell Gould, the union's director of research.

But a National Education Association spokesman, Howard Carroll, says his organization "certainly wouldn't come out and say, 'We wish you wouldn't take advantage of it."'

"If they opt to retire early, they have our best wishes," he adds.

In Minneapolis, the teachers' union, having experienced layoffs last year, viewed the option to retire early as "providing an out for the professional teachers at the top who want to retire with dignity," says Louise Sundin, president of the Minneapolis Federation of Teachers.

"Many of the people who are going are very wonderful, experienced, excellent teachers, and the teaching force will be the worse for their loss," Ms. Sundin acknowledges, "but the other realities have to be dealt with."

Between Feb. 1 and April 14, 161 Minneapolis teachers elected to retire or go on extended leave.

The school district calculates that the retirements will save $2.1 million in salaries the first year. But that savings will be offset, officials note, by the one-time expense of $3.2 million for the bonuses, which could amount to $28,000 per teacher. The program will ultimately break even in a year and a half, they estimate.

Shortages and Surpluses

The new flurry of early-retirement legislation this spring still4does not match the level of activity early in the decade, says Linda Darling-Hammond, director of the education and human-resources program for the rand Corporation.

At that time, there were teacher surpluses, the teaching forces were aging, and districts and states "began to think about putting incentives in place to encourage older teachers to retire," according to the researcher.

"The policy really seemed like a good idea," Ms. Darling-Hammond says. But now, she adds, "the demography is catching up with it."

The U.S. Education Department estimates that the annual demand for new teachers will rise steadily to 174,000 in 1995. Education schools are expected during that period to produce only xxx,xxx per year, according to the American Association of Colleges of Teacher Education.

Educators in states considering early-retirement legislation or that have recently passed it say the supply of teachers in their areas is still adequate, although special-education, bilingual, and minority teachers are in great demand.

In Texas, where some areas are having trouble finding enough teachers, "the shortage is going to happen whether this bill is signed or not," argues Charles N. Beard Jr., president of the Texas State Teachers Association.

The Indiana State Teachers Association began lobbying for earlier teacher retirement 10 years ago, Mr. Margraf says, but was successful this year thanks to actuarial studies showing the state would save money by retiring highly paid teachers.

The Indiana plan, which provides for full retirement benefits when a teacher's age and years of teaching experience add up to 85, will be paid for entirely by the state. The legislation is expected to cost $8 million in its first two years.

Disagreement Over Effects

Union officials frequently cite "burnout" as a key reason to allow teachers to retire earlier. But some experts question whether the incentives actually will bolster the quality of the remaining teacher cadres.

"Many schools have no new blood, and relatively few, if any, young teachers, and schools need both," observes Richard J. Murnane, an economist and professor at Harvard University's graduate school of education.

He warns, however, that it might be "potentially the most capable teachers who are leaving, while perhaps the less able would stay on because they would find it more difficult" to find other employment.

There is also little agreement that making it possible for teachers and administrators to retire earlier really saves money.

"If you're just going to replace the people, even at lower salaries, you're not going to save any money, in my opinion," argues Anthony Salomone, executive director of the Pennsylvania Public Employees Retirement Study Commission. Mr. Salomone points out that benefits for a teacher making $25,000 and a teacher making $38,000 cost about the same.

In addition, newer teachers tend to move up the salary scale faster, he notes, meaning that any salary savings offsetting the increased cost to the pension system from the teacher who retires early may be short-lived.

The risk of increasing a pension fund's unfunded liability--the8amount the fund would be short if all eligible employees retired enmasse--and greater pressure for cost-of-living increases from people who retired early also can add to the cost of early-retirement plans, experts point out.

In West Virginia, for example, the unfunded liability of the teacher-retirement system has grown by $140 million in the past two years due to the state's new early-retirement program, an actuarial study has found.

According to the study by the firm Milliman & Robertson Inc., the amount the fund would have to pay out if all contributors retired at once is now $2.29 billion, up from $2.15 billion in June 1987.

Opponents of the incentives also argue that, on a practical level, they make planning difficult, since school districts do not know which of their eligible employees will elect to retire, and cannot prevent those who are eligible from choosing to do so.

Districts with teacher shortages in states that offer early-retirement options often are confounded by the fact that the state is encouraging teachers to retire at the same time they are scrambling to hire enough teachers.

That is the case in Milwaukee, according to Douglas Haselow, director of governmental affairs for the school system, which opposed the Wisconsin legislation. "Teachers are trying to shorten the supply at the time the demand is increasing," he says.

Approximately 1,300 Milwaukee teachers and administrators--20 percent of the district's certified workforce--are eligible to retire under the new legislation, Mr. Haselow estimates.

"The difficulty is that those choices are made by the individuals," he adds, "and the district is in the position of reacting to decisions made by individuals rather than being able to plan."

The Wisconsin bill created a window from the time of passage until June 30, 1990, that allows any member of the state teachers' retirement fund to retire with full benefits at age 55 and 30 years of service. Wisconsin's current retirement age is 65.

After the window closes, the normal retirement age will become 57, with 30 years of service required for full retirement benefits. An early version of the bill would have reverted to age 65, which the Milwaukee district "adamantly opposed," Mr. Haselow says, because it would have encouraged a rush of retirements among people who would not have wanted to wait another 10 years to retire with full benefits.

An Unfair Subsidy?

Another factor complicating early-retirement legislation is the fact that many states' pension funds cover both teachers and other public employees.

Gov. Carroll A. Campbell Jr. of South Carolina is concerned that the legislation pending in his state would create a situation where "the poor employees are subsidizing the better-off," says Q. Whitfield Ayres, the Governor's senior executive assistant for budget and policy.

As written, the bills would increase the contributions made to the pension system by all employees to pay for the earlier retirements. But "lower-level state employees are unlikely to be able to retire on the benefits that would accrue to them at 25 years," Mr. Ayers suggests.

That means, he says, that the increased contributions paid by ael10l$20,000-a-year employee, which would amount to approximately $11,000 over 30 years, would be paid for the benefit of employees more likely to retire early.

The South Carolina bill would give teachers and other certified school personnel the option of retiring at 25 years of service, regardless of age. The current retirement provision allows certified personnel who have reached age 60 and have 30 years of service to retire with full benefits, but penalizes those who retire earlier by 5 percent per year.

"That was just the pits," says Joseph M. Grant, executive director of the South Carolina Education Association, which Mr. Grant terms "absolutely" the leading advocate of the legislation.

The need is particularly urgent, the union official argues, in light of the wave of school reform that has washed over the state, requiring more paperwork and more accountability from "stressed" teachers.

A 'Lift,' Not Mass Exodus?

"There's a psychological bridge that people cross when they know, 'I don't have to take any more of this, I can leave,"' Mr. Grant says. "I really don't expect them to take it. I don't see a mass exodus from the classroom."

The Texas bill lowered the age-and-service combination required for full retirement benefits from age 65 with 30 years of service to age 55 with 30 years of service.

Teachers see the bill as "a pretty good benefit, and a psychological benefit," says Mr. Beard of the Texas State Teachers Association, adding, "Our members need a lift."

A recent actuarial report states that the changes will not significantly affect the state's $20-billion retirement fund, notes Ronald E. Douglas, deputy executive secretary of the Texas State Teachers Retirement System.

How many actually take advantage of early-retirement windows depends upon how many can afford to, experts point out.

In Minneapolis, 1,000 of the district's 2,700 teachers were eligible to retire early under the district's incentive plan, but "very few people who have only had a 15-year career can afford to retire," Ms. Sundin says.

Teachers who are not covered by health insurance until they are eligible for Medicare often cannot afford to pay for interim coverage, notes Mr. Gould of the aft

Continuing to teach also allows many teachers to retire at a higher pension level, particularly since many states and school districts have been moving to increase their salaries, Mr. Gould and Mr. Murnane of Harvard say.

Footing the Bill

The degree of sentiment stirred up by early-retirement legislation often depends on whether school employees are asked to pay for part of the cost of early benefits or whether school districts and the state are expected to foot the bill.

According to Mr. Davis of Wisconsin, union lobbyists there argued that higher-than-projected earnings from the state's pension investments should pay for the legislation.

"The teachers' union managed to feed to the legislature a perception that there was a lot of money laying around that didn't have a home,'' says Mr. Davis, who disputes that claim.

In Ohio, which has made an early-retirement incentive program a per4manent part of its state code, school districts can "buy" years of service for teachers approaching retirement age.

The minimum requirements for full retirement benefits are age 50 and 30 years of service, which means a school district could buy a 50-year-old teacher with 27 years of service the three extra years of service needed for full retirement.

Last year, teachers in Brecksville-Broadview Heights negotiated into their contract a one-year "window" in which to choose early retirement. The school system bought three years of service credit for all eligible teachers.

According to Assistant Superintendent Roger L. Nealeigh, the district expects to break even after paying for 27 teachers--13 percent of its workforce--to take early retirement.

"Looking at those people with experience and training, and great dedication and involvement, you're losing quite a reservoir of experience," Mr. Nealeigh says. "However, you also have some individuals who, as they approach 55 or 60, are less productive. They just don't have the energy."

An Illinois law that expires in 1995 allows teachers to receive full retirement benefits between the ages of 55 and 60, instead of only at age 60, by paying a one-time sum to the state retirement system. The payment is shared by the teacher and school district, explains Terry Viar, benefits manager for the Illinois State Teachers Retirement System.

During 1987-88, 555 of 2,116 retirements, or 26 percent of the total, were early, Mr. Viar says.

But in California, only 8 percent of the 6,500 teachers who retire each year do so under the state's "golden handshake" legislation, reports John Meade, a spokesman for the California Teacher Retirement System.

Under California's law, school districts have to pay the cost of the additional retirement benefits and prove that it will not cost either the state or the district more money to offer the incentive, according to Mr. Meade.

"If they're able to do that effectively enough," he says, "they're able to use the program."

In Pennsylvania, which has offered a series of early-retirement incentives, the commonwealth and the school districts pay the increased cost of earlier retirements.

But Thomas J. Gentzel, director of governmental relations for the Pennsylvania School Boards Association, says his group contends that "if this is a worthwhile benefit, it ought to be enacted as a permanent benefit and the employees ought to pay their fair share."

"There's no question that we risk sacrificing a great deal of quality," he says of the retirement incentives. "Particularly when we know that in some places there are real shortages, it just doesn't make sense to us to be encouraging them to leave."

James A. Perry, executive director of the Pennsylvania Public School Employees Retirement System, agrees that "the windows have cost the commonwealth more money."

But "they knew that going in," he argues. "They look at it from the cost on this side versus the cost they would save in basic education subsidies."

Robert J. Ferrera, superintendent of schools in Minneapolis, argues that early-retirement incentives should be fashioned by school districts, rather than state legislators.

"I think it has to be tailored to the individual district's needs in terms of what is best for the children of the district," says Mr. Ferrera. "This was a one-time thing, and unless the conditions were exactly the same again, I probably wouldn't recommend it."

Vol. 08, Issue 36

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