As teachers, school districts and state policymakers confront financial uncertainty in the wake of the COVID-19 pandemic, millions of older workers find themselves considering early retirement. Some policymakers see early retirement incentive programs (ERIPs) as an opportunity to help educators who may be more vulnerable to the virus safely exit the workforce while reducing state budget costs.
ERIPs offer early access to distributions from retirement plans, additional contributions to retirement or deferred compensation plans, or other inducements for employees to retire from the workforce earlier than they otherwise would.
These generally temporary programs attempt to replace higher paid, experienced educators with younger staff, whose lower salaries could generate savings. Proponents see a potential for reduced payroll costs and immediate—and in some instances—long-term savings. For these incentives to work, however, employees must be willing to participate in ERIPs in the first place. Critics worry about the programs’ implications for workforce dynamics, student outcomes and the extent to which promised savings actually materialize.
Only 44% of teachers polled reported being generally satisfied with their jobs in October 2020—down from the 69% reported in March that year. —Center for State and Local Government Excellence
Current polling suggests the nation’s teachers are reeling from professional demands during the pandemic. Citing dramatically changed work requirements, substantially increased working hours, concern over contracting COVID-19 and more, recent research from the Center for State and Local Government Excellence highlighted that only 44% of teachers polled reported being generally satisfied with their jobs in October 2020—down from the 69% reported in March that year. Moreover, 45% expressed concern about having enough savings to retire, while another 54% suffered from burnout.
Under these circumstances, policymakers in several states have asked whether ERIPs could represent a win-win for state governments looking to cut costs and for teachers looking to leave the profession.
Proponents of ERIPs point to studies from the private sector that indicate the costs immediately incurred by the programs are offset by the projected savings from a reduced workforce. However, these same studies acknowledge that long-term savings can be difficult to calculate, as there can be no sure way to accurately predict how many employees may participate in incentive programs, and what benefit disbursements may look like in the long run.
Nonetheless, on the public sector side of things, proponents point to the California State Teachers’ Retirement System’s “golden handshake” program as evidence of the efficacy of retirement incentive programs. Unique among RIPs in that the golden handshake program has been a permanent benefit since 2007, it offers retirement-eligible teachers additional service credit that is used in calculating their final retirement benefit in exchange for leaving the workforce before they otherwise would. The California State Controller’s annual cost-benefit analyses of the program have reported millions of dollars in savings over the past five fiscal years, including last year’s report on fiscal year 2018-19.
Impact on Students
Concerns have been raised about the impact on student performance if the most experienced teachers took advantage of ERIPs. Research on the correlation between ERIPs and student achievement is limited; however, a study done in Illinois Public Schools after the district implemented an ERIP indicated that student performance remained unchanged, and in some cases improved, even as more experienced teachers retired early. The study points out that student performance following ERIP implementation may be unique to each school district, as a variety of factors can impact student performance. Additionally, the study’s findings run counter to previous literature suggesting that student performance is correlated with teacher experience.
Opponents of ERIPs note that while some cost-benefit analyses indicate payroll savings, these reports do not always account for the costs induced by turnover or long-term benefit administration. The same case study out of Illinois is one such example: The implementation of an ERIP saved money on teacher salaries for school districts, but higher pension payments ended up being a net cost to the state and taxpayers.
Are there consequences to workforce reductions in a field already experiencing severe talent shortages, one where prior to the pandemic, 6 in 10 hires were replacing colleagues who left the classroom before retirement? The Learning Policy Institute indicates that the high teacher turnover rate (or “churn”) being seen throughout the country is costing school districts millions of dollars each year. The cost of increasing the number of vacant positions via ERI programs could be cause for concern in parts of the country already struggling with the higher costs induced by rapid turnover, in addition to those facing severe teacher shortages.
Moreover, organizations such as the Government Finance Officers Association have issued advisories against the implementation of ERIPs on the state level, citing inaccurate cost saving estimates, long-term costs of benefit administration, uncertain market factors and the potential for insufficient participation in ERIPs.
This session, states including Alaska, Arkansas, Massachusetts, New York, Rhode Island and Washington all are considering legislation that would establish retirement incentive programs for teachers.
New York has outlined the financial impact of its measure. The fiscal note attached to the bill indicates that, “It is not possible to accurately forecast the total cost to the New York State Teachers’ Retirement System employers electing to participate in this retirement incentive because the number of eligible members electing to retire under the incentive, their ages and the amount of service credited, cannot be readily estimated.” However, the fiscal note does include an estimate that the increase in the present value of benefits per participating member will range from 5% to about 250% for one portion of the program, and from 3% to 200% of final average salary for another. Both estimates are contingent upon the member’s age, years of service and benefit tier at retirement.
ERIPs might seem like an attractive option for policymakers looking to recoup lost revenue since COVID-19 sent state finances into a tailspin. But tax revenue has grown enough to erase its initial pandemic losses in most states, and the consequences of accelerating attrition among experienced educators can make the public policy calculus complex.
Anna Petrini is a senior policy specialist and Evan Davis is an intern in NCSL’s Employment, Labor and Retirement Program.