The Early Retirement Incentive Program signed by the Governor in July 2003 establishes three categories of eligible employees.  If a board decides to participate, it then assumes the following obligations:

Boards choosing to participate in the program must adopt a resolution effective either July 1, 2003 or July 1, 2004.  To be eligible for the incentive, employees must file retirement applications within one month after the effective date of the board’s resolution.  For more detail on the resolution and timing,  See the Division of Pensions and Benefits website at EARLY RETIREMENT INCENTIVES FOR SCHOOL BOARD EMPLOYEES

The law authorizes boards of education to issue refunding bonds to retire the present value of the unfunded accrued pension liabilities for early retirement incentive benefits granted by the law.

Before a board decides to participate, the following list of questions and answers should be considered.

1. This seems to be an opportunity for boards to reduce the costs of employment.  Why wouldn’t all boards choose to extend this benefit?

Savings from an ERIP normally come from reduced compensation and benefits costs when an employee retires. These savings are best realized when the employee is not replaced after retirement.  However, some local districts may need to replace an employee who opts for early retirement.  The cost of replacing employees, as well as the cost of providing the enhanced retirement benefits, may well reduce or even eliminate short-term savings.  Keep in mind two facts: (a) any savings realized from participation in the ERIP will be short-lived (one to five years) and will definitely end when the employee would have retired had there not been an ERIP and (b) the cost of providing enhanced retirement benefits will be long term increases in the total cost of employment.  The law states that the district’s liability to the pension systems (TPAF and PERS) shall be paid in level annual payments over 15 years.

2.      Aside from cost, are there other considerations to be made when deciding whether to offer ERIP?

ERIP induced retirements may create disruptions in some districts’ ability to continue to provide their full curricular program or to maintain the level of their services.  Each board will therefore need to carefully assess the impact of retirement incentives on district operations.  For example, if it has been difficult to find qualified mathematics teachers and current math teachers are eligible to take the incentive, a district may want to weigh this factor in its decision, since there is no way to tell or to influence which eligible employees will take the incentive.

3.      Should my district begin to assess the number of employees who are eligible?

Early identification of eligible employees will, of course, be helpful.  Keep in mind, however, that your district’s record may not accurately reflect your employees’ years of service credit under the pension systems.  In this situation “years of service” refers to your employees’ total years of credit under TPAF and PERS.  Credit may exceed the years of employment in your district as it can include: credit from employment in other districts, transferred credit from another public employee pension system, military credit or credit purchased by the employee in accordance with the systems’ rules.  Local boards must survey all staff to determine the employees who are eligible to add service credit from outside local district employment.

4.      Can a school district control or accurately predict which employees take the incentive, if it is offered?

No.  The decision to take the ERIP, once offered, rests with the employee.  Districts experiencing staffing issues need to carefully assess the impact that offering ERIP will have on staffing patterns.

There is a provision for an employer, with the employee’s consent, to extend the retirement date, for up to one year, for individuals deemed to be key employees. Be aware, however, that the employee can decide to retire before the extended date and qualify for the ERIP benefits.

5.      Can we adopt a resolution that covers only employees who are at least 50 years of age and have 25 years of service?

No. The law does not provide an option wherein a board can only offer the ERIP to one of the categories.  Boards that decide to adopt a resolution must extend all specified coverage to all employees defined as eligible under the law.  This fact emphasizes the need for boards to give careful consideration to all implications of offering early retirement.

6.      Does the decision to offer the ERIP require negotiations with bargaining units?

No.  The law clearly states that the decision to adopt the resolution is to be made by the governing body of an employer.  However, the act requires that each employer shall “meet and consult” with the representatives of the bargaining units representing eligible employees.  The Division of Pensions and Benefits has clarified that “at a minimum the employer must meet with and inform the bargaining representatives of the law, and as a maximum, may solicit input into the decision-making process.  However, no agreement can be struck with the bargaining units about the adoption resolution.” See Pensions and Benefits website at EARLY RETIREMENT INCENTIVE Frequently Asked Questions and Answers For Employers

7.      Can participation in the decision to provide an ERIP create a conflict of interest concern?

Anyone involved in the decision-making process should be aware of possible conflicts under the School Ethics Act.  If you have a question or concern about possible conflicts, it should be addressed to your board attorney.

8.      How can my Board calculate the costs of providing the enhanced pension benefits?

According to the Division of Pension and Benefits, actual costs of funding the additional   three-year service credit and the enhanced veterans’ benefits will need to be calculated by the pension system’s actuaries. The Division has stated that it will provide a list of eligible employees by category as of the last possible effective date.  That list can be used to do a preliminary analysis of potential costs (and savings).  The division has stated that, if you decide to consider the ERIP, it will give you a cost estimate according to the effective date you indicate.   For more detail see  EARLY RETIREMENT INCENTIVE FOR LOCAL EMPLOYEES on the Division of Pensions and Benefits website. 

9.      If we adopt the ERIP, how and when will we be notified of the actual pension costs?

The Division of Pensions and Benefits cannot calculate actual costs until the last ERIP retirement from your location occurs.  Since it is not economically feasible for you to wait that long to issue bonds, the Division will be establishing procedures in the next few months for estimating the costs.  [Please see question 11.]  For detail see EARLY RETIREMENT INCENTIVE Frequently Asked Questions and Answers For Employers on Division of Pensions and Benefits website.

10. How should we proceed to consider all cost implications? 

Category 1 additional pension costs will be developed by the Division of Pension and Benefits.  In addition, three years of SHBP costs need to be projected for each eligible employee.  Category 2 costs are health insurance benefits for the employees and their dependents.  The SHBP 2004 annual traditional plan premium for a single retired employee without medicare is $7,395.36 the premium for a family without medicare is $18,834.48.  For a complete list of the 2004 monthly rates for retirees see LOCAL RETIREMENT GROUP EDUCATION EMPLOYERS 2004 RATES at the SHBP website.

Increases in these costs can be anticipated.  The increase in cost from 2003 to 2004 in the annual traditional plan premium for a single retired employee without medicare or for a family without medicare was 7.5 % while the change in both rates from 2003 to 2003 was 24%.  Category 3 costs will be $500 per month per employee for 24 months.

Your locally negotiated agreement may contain provisions which hold additional costs.  For   example, your employees opting to retire under the law’s provisions may have an entitlement to payment for unused accumulated sick and/or personal leave.  These costs will be a onetime payment unless your negotiated contract contains other provisions for paying retirement benefits.

11. When an ERIP has occurred previously, how has it affected boards that chose to participate?

In an NJSBA survey of the 93 districts that participated in 1991 and 1993, it was reported that districts indicating no significant savings clearly outnumbered those that said they saved money.  Districts costs, depending on the level of employee participation, ranged from nearly $90,000 to more than $11 million- with an average cost of more than $2 million.  Significantly, 36% of participating districts indicated that costs exceeded what had been anticipated and only 11% of participating districts said they would participate again.  For further results see NJSBA Survey.

updated: September 16, 2003