PLAN ANNOUNCEMENT ... Plan eligibility and details of the offering must be made available to all employees. In addition there are requirements for presenting information as to eligibility at various ages using employee data. Employees on disability, sabbatical, leave of absence, and layoff should also be included.

GENERAL MEETING... A general meeting, conveniently scheduled for employees and spouses at the beginning of the window period is important to the success of the offering. This meeting should include basic information on the plan, offered eligibility, important dates, resource material, and the reasons the employer is offering the plan. It is also important to explain the tax aspects of the plan as it may relate to total income. Schedules for individual counseling can be completed following this meeting. Spouses should be invited to this meeting, as they are usually an important party in making the decision to accept or reject the offer.

INDIVIDUAL COUNSELING... Each person who is eligible should be given the opportunity for a one-on-one, confidential counseling session. These sessions are one of the most important aspects of a plan offering. As a general rule, employees do not wish to discuss personal financial matters and/or other personal matters, which may be part of the decision process. Competent, confidential third party counseling can increase participation as much as 50% to 70%! Prior to the counseling session, personal financial data must be collected, analyzed and incorporated in a meaningful presentation for each employee counseled. It is strongly recommended that the total retirement income picture be included in the analysis. This enables the employee to compare pre and post income. Health, dental and other insurance information must also be included in these sessions. Counseling is often an overlooked area. Individual counseling requires the most planning and preparation in a plan offering, and is the single most important element for plan participation.

FOLLOW-UP INFORMATIONAL SERVICE... As employees consider the offering, invariably additional questions arise. Even after meetings, memos, and individual counseling, questions must be addressed. Specific directions for answering questions from employees, accountants, attorneys, financial planners, insurance agents, and other advisors must be maintained during the window period. A single, central location and phone number should be designated to answer all questions.

AGREEMENTS, WAIVERS, BENEFICIARY FORMS... The agreement and other related documents, including the beneficiary form (if applicable), depending on the nature of the offer, must have been in the hands of the eligible employee for the time prescribed by law. These forms, together with a letter terminating employment, must be signed and collected within the window period. Specific instructions for turning such forms into the employer must be given in clear language with date and time limitations spelled out. Each form should be date-time stamped to insure that they were received within the prescribed period. If the forms are mailed or delivered by someone other than the employee, notification of receipt of the form should be mailed to the employee. Once the date is established, exceptions cannot be made, as they could invalidate the window period and open the door for persons who decide too late to accept the offering.

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IV. MANAGING THE BENEFITS

BENEFIT PERIOD REQUIREMENTS... Benefit period requirements include: payment calendar, income tax reporting system, beneficiary procedures, death proceeds authentication procedures, beneficiary payment method, direct deposit of checks option, change of name and address forms, lost check replacement policy, check stop payment and replacement policy, account audit procedures, to name a few. Policies for the administration of the benefits must be clearly enunciated to the participants.

TAX AND LEGAL AUTHORITY RESOURCE... It is quite usual that tax and legal questions will arise during the benefit payment period. Such issues, which may have been explained during the enrollment period, nevertheless, must often be addressed again. In the early years, particularly at tax time of the year, inquiries can be expected from not only participants, but also, tax advisors, accountants, attorneys and financial planners. Applicable IRS code must be available to address such issues. The IRS may raise issues with participants regarding the taxation of benefits received by the taxpayer (participant). A system to handle all such issues and questions must be in place during the entire benefit payment period. Thus, ongoing administrative procedures can be for many years.

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V. ALTERNATIVE APPROACHES

TOTALS COST VERSUS BENEFITS ... Plan objectives, no matter how carefully developed, and do not just occur because the plan is offered. The plan offering must include a meaningful benefit, professionally presented, and individually interpreted and, must all fit together to achieve outstanding result.

The employer simply offering the benefit is the most prevalent reason for plan failures. There are many factors that only experience in offering and managing such plans can address. Setting aside the considerable legal aspects for the moment, let's examine the acceptance or rejection levels in the total process.

The Superintendent.. As the responsible administrator to the board, the superintendent must not only have a complete understanding of the plan offering, but also the confidence that the results projected can be achieved. There must be agreement by involved administrators regarding the many facets of the offering.

The board must not only understand the financial aspects of the plan, but also the impact of the offering on the educational process. A clear statement of the plan objectives must be presented to the board, with complete details available for examination.

Employee Bargaining Units ... Incentive buy-outs may be considered a matter of wages and salaries, an as such require the approval of the bargaining unit. Thus, it is possible that such plans are part of the bargaining process. Often they replace, or at the very least supplement pre-existing retirement 'bonus' clauses in the contractual employee agreements. An enthusiastic acceptance of the plan by the collective bargaining team can be most helpful in achieving desired objectives.

The Community.. Due to the major impact on the educational process, the interested community must also have a clear, concise, although perhaps not as detailed, understanding of the plan. The issue of the effect on the educational process will arise, and should be addressed from the onset in presenting the plan to those who participate in school matters on a regular basis, and those who will come forward when such a plan is presented. All the 'negatives' must be anticipated in advance. Typical of the negative responses are: "We are going to pay employees to leave, when we do not have enough money to pay the employees we have?" or "We are going to lose all our most experienced staff, and replace them with untried, inexperienced staff!"

These and other reactions must be anticipated if the plan is to be adapted. Each can be dealt with when explained in context.

The Eligible Employee... Many plans, which do not succeed, do so for the simple reason that the eligible employee's perception of the plan does not measure up to the employer's idea of a "meaningful benefit." If the plan benefit falls short of achieving the meaningful benefit status, or, is not properly presented, the plan will not only fail, but will create ill-will, and enormous additional cost to the employer. Only those who were leaving anyway will accept the plan. In fact, some that were going to leave will not leave hoping for a better plan in the next year or two! Historically, such plans have been offered in the past and continue to negatively influence employers’ opinions of buy-out plans. The comment, "We tried it once and it did not work," is often heard when the idea is reintroduced to employers. It "did not work" because it was doomed to fail from the beginning due to its perception by the employees! The idea was good, but the plan or its implementation failed. A properly planned, well-executed incentive will work!

COMPLIANCE WITH TAX LAW... Major issue- Incentive plans, which are not in compliance with both IRS and Department of Labor regulations, can be the source of major liability for the employer. In this regard, the teacher's associations at the state and national level have issued, in writing, stringent warnings to their membership and employers that serious consequences can occur if an incentive plan is not in compliance with such regulations. Attorneys and CPA firms representing the association, both at the state and national level have provided their opinions, which are deemed to be correct, regarding the tax treatment of specific plans. Extreme care must be taken to insure adherence to the regulations.

LIABILITY INSURANCE ... A very important safety measures. The major decision to be made by the eligible employees is certainly one requiring preparation, thought and counseling. The employer must provide the resources that make this process easier for those that are eligible. If, a third-party counseling and administration firm is utilized, it is of the utmost importance that an additional safeguard is in place to protect the employer in the event of errors and omissions which could occur in the process, despite careful planning and execution

Substantial Errors and Omission liability coverage is a 'must'. This coverage should be verified in advance, with E&O coverage provided by the third-party firm. Such coverage, the limits of which should be substantial, provides an additional layer of protection that could save the employer from substantial claims due to errors or omissions, which occur in the process.

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VI. THIRD PARTY ADMINISTRATION

SELF-ADMINISTERED VERSUS THIRD-PARTY ADMINISTRATION... It is reasonable to consider designing and implementing an incentive plan without the services of a professional third party implementation. A careful understanding of the preceding material demonstrates the many facets of offering an incentive plan. It simply makes more sense to let the experts design and implement the incentive plan. Every aspect of the entire process has been tested and fine-tuned.

A stream of income is undoubtedly more meaningful than a lump-sum incentive. Income to a retiree must be added to all other sources of post retirement assets. A lump sum is invariably looked upon as something to spend. Thus, counseling becomes the single most important aspect of a plan offering. A professional third party counseling program is far more effective than peer-to-peer counseling. Employees are reluctant to discuss personal financial matters with fellow employees, especially their superiors.

The main reason for considering self-administered plans is to reduce costs. An incentive plan is only as successful as the attainment of the objectives established. Self-administered plans still have costs. To name a few:

Third party implementation allows the employer to continue to engage in the education business rather than the retirement counseling business.

There are substantial off-set savings in the third party approach. Prepared and tested documents are available. Expert retirement counseling and financial analysis capabilities are in place. In depth and finely tuned projections reduce the planning stage substantially, and create the confidence to accept or reject a proposed plan. The planning stage alone can be a costly procedure in time and effort.

The third party should be thoroughly checked out. References from employer clients should be sought. Third party consultants should not be in the business of selling insurance products. The objective for the employer is not to sell insurance plans to the employee, but to achieve the objective set forth. Plans which require or urge employees to buy an insurance policy are suspect. Future income streams for the employee should not be based upon uncertain interest projections used in many life insurance plans.

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VII. TOTAL PLAN COSTS

There are many cost factors in a buy-out plan. The most obvious is the actual cost of the incentive offered. This cost represents the total "outlay" for the benefits only. In addition to this obvious cost are what could be referred to as "hidden costs". These costs are associated with the planning, pre-plan administration, legal costs in preparing contractual documents, beneficiary documents, waiver and release documents, the cost of time for persons involved in any part of the total process; including records management, review of eligibility, preparation of time lines, notices to eligible persons, preparation of general meetings, printing and related costs, assignment of personnel to answer questions which may arise, etc. The counseling process alone, by far the most important element in successful plan implementation, requires hundreds of hours spent one-on-one with eligible persons, represents the most costly of the "hidden costs".

Counseling, referred to several times in this brochure, deserves special attention when considering costs. We have determined by comparing similar data in plans implemented with and without counseling that the individual counseling increases total participation 40 to 70%. Thus, when the "break even" level of participation is achieved, all additional participants reflect 100% cost reduction as reflected in the actual plan results.

The question of counseling raises other issues: Whom can best provide the counseling phase of the plan? It is not only our opinion, but the combined opinions of dozens of districts that professional third party counseling is far more effective than counseling provided by in-house personnel. The reasons as determined by actual experience are easily understood. "In-house" counselors, because they are 'fellow employees' often do not receive personal and private information which may be critical to the eligible person's decision to accept or reject the offer. This information can vary from financial issues to health and even personality problems they are experiencing. In addition, our experience tells us that in-house counselors must walk a narrow line to prevent them from losing their governmental immunity in making recommendations to employees in areas foreign to their training and authority. Third party counselors covered by substantial errors and omission insurance coverage can and do deal with areas which employer counselors, by the very nature of their positions cannot and do not explore.

The actual cost of third party implementation cannot be quantified on the basis of the benefits alone. For example, if the total cost of the benefits is $1,000,000, without addressing the present value of money expended, the cost, including all of the administrative, counseling, documentation, enrollment, follow up would be approximately 103% of the total costs! In short, less than the actual outlays of dollars as benefits are paid. Considering present values and depending on the structure of the payments in terms of years, the third party administered plan could cost 2% to 3% more than the cost of a self-administered program, but would achieve 50% to 70% more favorable results.

If, in considering plan costs, and factoring in all of the additional costs to be borne in the self administered (in-house) plan, especially the increased participation, the third party plan becomes the obvious course to follow.

In discussing costs, I have only dealt with the plan implementation process. More precisely, the offer and enrollment of participants. The administration after implementation adds substantially to the costs. Because successful plans provide income for several years into the future, there must be an on-going provision to handle all of the many issues, which arise during the payment period, promised by the employer. Invariably issues arise from the simple: change of name and or address, late checks, lost checks; to the more involved: death claims, beneficiary disputes, legal and tax issues, fraudulently cashed checks, and tax issues with attorneys and accountants. Thus, when these additional costs are considered, third party plans are far more cost efficient.

This last phase, post-plan administration must be in place and must be able to provide prompt, knowledgeable solutions to any and all problems, which arise. It is often overlooked in planning buy-outs, and can be an area subject to serious liability problems for the employer.

Successful plans require detailed planning. All of the foregoing areas must be addressed in advance. It should be noted that plan costs of third party plans might vary depending upon investment rates at the time of the first full plan payment. Plan payments are "spread" so that third party implemented plans may be spread over several years' budgets.

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