When employers pay people to retire early, the goal is to save money by nudging more seasoned and expensive employees off the payroll sooner than they planned.
During a budget crisis, early retirement incentives can also help limit layoffs by replacing retirees with cheaper employees scheduled to be laid off. (San Diego Unified School District leaders did that last year, but the move may have ended up costing the district money it didn’t have.)
For 262 teachers in the tiny 6,000-student Lakeside Union School District in East County, they don’t have to wait to get such an offer.
For eligible Lakeside teachers, the option to get paid to retire is available every single year, thanks to language in the teachers’ union contract.
Lakeside district officials said they aren’t sure when or why the annual retirement offer was first put in place, but it’s been available for eligible teachers in some form since at least 2000. The annual offer is also in the current teachers’ contract approved unanimously by the school board in October.
Twenty-three teachers received retirement payouts totaling $1.3 million under the contract in effect from 2013 to 2016. Amounts paid to each person ranged from roughly $33,000 to $82,000, district records show.
The deal “has been in existence prior to the employment of anyone that currently works at the District office, therefore, we cannot speculate as to the original purpose of the incentive,” said Erin Garcia, Lakeside’s assistant superintendent of business services, in an email.
Garcia said the contract was the product of negotiations that lasted 17 months. District officials proposed removing the early retirement deal in May 2016, but ultimately agreed to keep it and phase out part of the deal over the next seven years.
Generally, per the current teachers’ contract, teachers age 55 or older who worked at least 15 years in the district can choose from three options:
- A payout totaling 25 percent of the employee’s highest district salary
- A payout totaling 40 percent of the employee’s highest district salary, paid out incrementally over three years
- Two extra years of service credit purchased with the state teachers’ pension fund by the district, a move that boosts their annual retiree pension check
District records show most teachers choose incentive option three, extra service credit with the pension fund.
For each employee who chooses that option, the district crunches the numbers to show the pension fund the offer will save the district money over two years. A sample calculation provided by the district shows it assumed a replacement employee will cost half the price of a retiree.
The district doesn’t perform any cost-saving analysis for those who choose options one or two, Garcia said.
There are currently no age limits for those who retire, but maximum ages are planned for those who retire in fiscal year 2020 and beyond, beginning at a maximum age of 62 and dropping to 58 in fiscal year 2025, according to the current contract.
The payouts to employees aren’t the only costs paid by the district for the deals.
Lakeside spreads out some costs over eight years, and pays 5 percent interest, according to the district’s latest audited financial statements. As of June 30, there was still $605,000 in costs remaining for past pension credit purchases awarded in 2009, 2012 and 2015, including $118,000 in interest, records show.
“To avoid paying interest, the District makes these payments in full whenever it is fiscally possible to do so,” Garcia said in an email.
Lakeside School District’s budget isn’t flush with cash. Last year, a proposal to lay off principals was pulled amid public outcry.
Lakeside officials expect to outspend the general fund’s $54 million in revenues by $1.2 million this year, according to the latest budget report. They also project outspending revenues next year by nearly $1.5 million and by nearly $2.3 million in 2019-20. To pay the bills, records show the district may rely on its reserves.
Still, the latest teacher contract approved in October awarded raises totaling 3 percent, most of which was applied retroactively, back to July 2016. District staff estimated the contract cost the district $1.43 million in total, records show.
No other Lakeside district employee groups get an annual retirement incentive, though the school board voted in February to provide a one-time retirement incentive this year to eligible non-teaching employees totaling 40 percent of their pay, records show.
Under the agreement to phase out part of the teacher retirement incentive, only the 25 percent salary payout will remain after 2024, and participation by five or more people 58 years old or younger will be required for it to take effect, Garcia said in an email.
That is, unless the contract is changed before then. The current teacher’s contract expires June 30, 2019.
Cathy Sprecco, president of the Lakeside Teachers Association, did not respond to multiple requests for an interview about the incentive.