Last year, the Minnesota Legislature approved an early retirement incentive as part of the pension omnibus bill (SF 430, Article 11, Section 11). The legislation reauthorized an early retirement incentive that was already written in statute, but was not used by school districts due to technical legal issues.
The incentive program, available until July 15, 2009, allows school districts to provide benefits worth up to $17,000 per school employee. Higher education faculty in the Minnesota State Colleges and Universities system also qualify for the incentive.
Requirements to qualify
For a government entity, such as a school district, to offer an early retirement incentive, it “must be experiencing employee layoffs due to budget shortfalls or a reorganization that would be offset by offering the incentive.” This requirement may or may not be easy for school districts to meet.
To qualify for an incentive, a school employee must have 15 years of service in the Teachers Retirement Association and must terminate service before July 15, 2009.
How the incentive can be used
The retirement incentive of $17,000 or less, if allowed by the school district, may be used in the following ways:
- In a health care savings plan administered by the Minnesota State Retirement System.
- Purchase of retirement service credit from the Teachers Retirement Association “sufficient to enable the employee to retire”
- Purchase of an annuity
The amount needed to use the purchase-of-service-credit option must be the full “actuarial present value,” which can be a substantial sum. In the end, a $17,000 retirement incentive may only pay for a few months of retirement for some people. The employee would have to pick up the rest. But on the positive side, an employee may use money from a deferred compensation account, such as a 403(b) plan, to help purchase the service credit.
After participating in the early incentive program, a school employee may not be rehired for three years, except as a substitute teacher.
Program under study
Some legislators were skeptical that this retirement incentive would be used by many people who would not otherwise retire. They feared it would merely amount to a bonus for people who had already planned to retire. Other legislators expressed a concern that the incentive would invite experienced state employees to leave work, taking with them valuable institutional knowledge. As a result, legislators required a study of the incentive program, which will expire in July 15, 2009, unless it is reauthorized.
If you are interested in this early incentive retirement option, please check to see if your school district offers the incentive. If you have additional questions, please contact the Education Minnesota Governmental Relations Department at 800-652-9073 or 651-227-9541.