Dr. Jorgensen's February Highland Highlights
January 21, 2020
Highland Highlights
Every spring you will hear discussion from several school districts about the possibility of offering an Early Retirement package to its employees. The Highland School Board will be offering an Early Retirement package to its eligible employees this spring. Why do school district’s do this? How is it funded?
The Iowa Public Employees Retirement system for Iowa Teachers allow a full pension from the state when an employees age and years of service add up to 88. For example, a 55 year old employee who has 33 years of experience in the public school system is eligible for the full pension, which begins at 60% of the highest five years salary average. An additional 1% is paid for each year of experience past 30 up to an additional 5% for a maximum benefit of 65%.
Early retirement packages from schools are offered to IPERS eligible employees (meaning they are at least 55 years of age) and usually require a minimum number of years of service to the school district. It is totally at the discretion of the Board to offer and is optional for an employee to accept. Early retirement packages usually include either a cash sum or insurance and possibly a combination of both. A few years ago, the Washington Community School District offered a package of $75,000 and insurance until medicare eligible of which over 20 staff took advantage of the offer. This is not the normal package. Something around $10,000-$20,000 cash and/or insurance until Medicare eligible are more common offers.
Early retirement is one of the few items that can be paid out of the district’s Management Fund. This is one of the few funds a school district can completely control in the budgeting process. A few months back, I described how the Management Fund is used to help maintain and control the property tax rate from large swings back and forth. The other most common use of the Management Fund is to pay Property and Casualty insurance premiums for the district. A district can build up a Management account in anticipation of Early Retirement benefits.
It is important that the funds to pay Early Retirement Benefit do not come from the General Fund. It allows the district to replace more expensive salaries in the district with young staff members who are less expensive, in some cases as much as a 50% savings. Of course that savings accumulates every year after as well. Offering an Early Retirement package is a great way for the district to build up spending authority and provide savings to the General Fund. It is an incentive to employees to retire a little earlier than they planned. It works well for all parties concerned.
