Your Early Retirement Incentive (ERI) may not be the best cost-saving strategy in today’s climate of rising health care costs. In fact, OSBA recommends that districts conduct a cost-benefit analysis of ERI programs. A growing number of districts have bargained a sunset on these programs, reduced benefits, or immediately discontinued the program. One alternative is to substitute ERI packages with a district-funded Tax Sheltered Annuity (TSA).

About half of Oregon’s school districts started ERIs a few years ago with the plan of replacing "higher paid" teachers with new teachers normally hired at lower salaries. As part of the retirement incentive, districts agreed to pay towards health insurance premiums.

Unfortunately, these plans are based on the assumption that future savings will fund the program. The benefits (costs) of the program are guaranteed in the labor contract. The savings are not. This creates an unfunded liability in that the district will be responsible for the cost regardless of any potential savings.

Also, districts hire the most qualified teachers, not the cheapest. They also hire additional teachers to reduce class size. This eats away at any potential savings from ERIs.

The old ERI plan was cost-effective at first. But as more staff retired, school districts assumed an even bigger financial burden. With growing ranks of retirees, districts pay more and more insurance premiums, which have been escalating with no end in sight.

According to OSBA Associate Executive Director Ron Wilson, TSAs have more advantages for both districts and employees.

"First, the benefits are pre-tax, which means both district and employee gain a tax benefit on the contribution," Wilson says. Also, the accumulated balance will follow employees throughout their careers. Even if they leave the education field, their account balance will continue to grow.

"When they reach age 59 they are eligible to pull the funds needed to pay health insurance premiums or for a monthly stipend to tide them over until social security or PERS kicks in," he adds.

Here’s the second advantage: The district has the opportunity to use existing, budgeted funds to provide an early retirement incentive over the working career of the teacher. "This is more fiscally responsible and allows financial forecasting," Wilson said.

"Because an ERI offers only a one-time window of opportunity for the employee, you have no way of knowing when they will use the incentive," Wilson said. "It’s like having an unknown liability. You’re committing funds far into the future that may not exist."

How one district switched

The Roseburg School District recently changed its ERI plan. The board agreed to contribute $10 per month of district money for new employees and current employees with less than 10 years in the district. Employees may also contribute toward their TSAs (subject to the IRS limits). Existing employees with less than 10 years in the district also receive a one-time contribution of $100 for each year of service.

Employees with 10 years or more experience were grandfathered into the old ERI program.

For more information, contact Lisa Freiley ( E-mail), Human Resource Development Director, at 1-800-578-6722.