Early Retirement Costs

This Editorial was written by Don Huebscher of the LT. Interesting that he cites costs associated with several Principals in the ECASD but not the Administrators (Klaus, Butler, H. Hart, etc...) Maria

Early retirement costs no longer sustainable
Source: LT
Sunday,August 26, 2007

A few years ago, Ken Cole, then-head of the Wisconsin Association of School Boards, visited the Leader-Telegram to talk about school funding and other issues.
During that conversation, Cole commented that if the early retirement age for public school educators was raised to 59 1/2, school districts around the state could save tens of millions of dollars a year.

I was a bit surprised. After all, wasn't the whole idea of early retirement to save money by bringing in new hires at lower wages?

Then, some time after that, Menomonie school board member Margaret Breisch brought in some charts showing how early retirement is taking an increasing toll on that district's budget.

So with that background, I thought I'd do a little ciphering of my own.

Last month the Leader-Telegram published a story about six longtime Eau Claire school principals retiring. I figured this offered an opportunity to see how early retirement is affecting the Eau Claire school district on a limited scale. One of the six retirees, Jane Johnson, was in a job-share arrangement at Flynn School, so I decided to focus on the other five retiring principals: Jerry Bauer, Putnam Heights; Tom Fiedler, Northstar; Deb Hansen, DeLong; Mary Kay Kopf, Meadowview; and Mary Seitz, Lakeshore.

The school district provided me with the salaries and fringe benefit packages of the five retirees at the time of their departures. That sum was $622,294. I also obtained the salaries and projected benefit packages for the five people who replaced them: Bill Klaus, Tim O'Reilly, Delesa Boley, Robert Hehli and Kim Lauterbach-Koller. That sum was $580,344. The $41,950 difference is the first-year savings to the school district.

I then estimated an annual 4 percent increase in wages and benefits, which probably is high but close enough for the sake of my informal study. Also, for the sake of discussion, I imagined the age of eligibility for early retirement being 60 rather than 55. This is where it gets a little complicated. Two of the retiring principals were 55 when they retired, two were 56 and one was 57. Computing the number of years until each reached age 60 and adding 4 percent a year to their wage-benefit package produced compensation totaling $727,127. Figuring the same 4 percent a year increase for their replacements produced wages and benefits for the corresponding years of $677,351. The difference represents a $49,776 savings to the district. Added to the first-year savings of $41,950, the district would save $91,726 in salaries and benefits over the time it takes all five retirees to hit age 60, based on my unofficial raise percentage.

Finally, the district pays each of the five retirees $18,866.40 a year for health insurance until they are eligible for Medicare. The five retirees will receive a total of 21 years of health insurance before they all turn 60 (5+5+4+4+3), or a total of $396,194. Subtracting the aforementioned salary-benefit savings of $91,726 results in a net cost to the district of $304,468. This number may be a bit high because health benefits are computed per month, and the five retirees each aren't likely to use the maximum number of months of benefits before reaching age 60.

The retirees each also receive post-retirement stipends ranging from $1,553 to $3,103 per month, but those are only for 60 months, so even if the retirement age were raised to 60, that benefit probably wouldn't change, barring separate negotiations.

Regardless, early retirement is putting significant pressure on all local, state and federal governmental budgets. If five people are costing the local school district in the neighborhood of $300,000 by the time they turn 60, imagine the cumulative effect of all early retirees on public budgets.

Rising health care costs are the major culprits. As recently as 1995 a family health insurance plan in the Eau Claire school district cost $5,388 a year. Inflation since 1995 has increased about 37 percent; the cost of an annual health insurance plan in the Eau Claire school district has gone up about 250 percent during the same period.

This issue isn't going away. It affects everything from class sizes to snow removal, and it's only going to get worse as baby boomers continue to retire.

On a practical level, 55-year-olds still have a lot to offer. If we're losing money and expertise by making retirement affordable and attractive, we're losing competence and skill in addition to money. Some jobs can't be done as well at age 55 as 35 — law enforcement comes particularly to mind — but people far into their 50s can do other jobs as well or better than younger and less experienced people.

The political pressure to maintain the status quo is immense. And remember, state legislators qualify for the same or similar benefits. So where's the impetus to change?

About the only hope is public pressure. As public services diminish and debates rage for higher taxes in part to cover this huge and ever-growing cost, something has to give. It's happening already.

Huebscher, editor of the Leader-Telegram, can be reached at 833-9216, 800-236-7077, ext. 3216 or don.huebscher@ecpc.com.