The primary reasons for implementing an early buy-out plan are to reduce salary and fringe costs, which are 80% or more of the budget, and to take advantage of a favorable recruiting environment. A properly structured plan will increase top of scale staff exits by as much as 500% to 1200%, attracting early exits of top of scale staff who might not have left for 3, 5, 10, 15 or more years. There are many details to address to assure success of a plan, and it must be in compliance with legal and tax codes.

The consulting firm of Educators Preferred Corporation has 15 years of experience specializing in the implementation of early buy-out plans for school districts, colleges, and public libraries. EPC has assisted over 250 districts in the implementation of successful plans, and they bring to the presentation their expertise in structuring an effective incentive plan.

With school financing a major issue today, cost containment tools are a must. Carefully structured incentive plans can be effective and dynamic, helping to avoid program and staff cuts.

We have combined our experience of eight years specializing in this field with the experience of superintendents, business managers, attorneys, and accountants throughout the state.

The following is a brief list of the "do’s and don’ts" we have compiled while working with school districts that have implemented successful plans.

To help assure effective results from an incentive plan...

Don't:
	Implement a plan without a thorough pre-plan analysis, as a plan may not be viable for your district
	Implement a plan without securing a release and waiver of claims from participants that has been reviewed by legal counsel
	Imbed the plan in the collective bargaining agreement
	Offer a benefit that will only appeal to those exiting in the next three years
	Proceed without knowing tax consequences for both the employee and the employer
	Offer a plan that is age discriminatory, whereby the older the participant is, the less the benefit
	Look at only the next one to five years, as this is too short-term
	Conduct the window period activities yourself due to liability and effectiveness issues
	Offer a lump sum, as it is perceived as a bonus and not an incentive.

Do:
	List the objectives of the plan: budget reduction, ideal number of opters, staff and program changes
	Carefully examine the demographic profile of the staff
	Project the analysis of the plan forward for ten years
	Adhere to strict Age Discrimination requirements - get proper legal review
	Understand tax consequences - get accounting review
	Include FICA and pruchase of pension time costs when analyzing the plan
	Subtract out normal retirements from projected results
	Review the plan with the collective bargaining unit before final Board approval
	Offer the plan on a one-time basis only
	Secure a release and waiver of claims (reviewed by legal counsel) from participants
	Prepare a Press Release before Board approval
	Talk to other districts that have implemented successful plans
	Offer comprehensive employee counseling - this will increase participation by 500% or more
	Have a recruiting and replacement plan in place as up to 20% (or more) of staff may elect the plan.

When a plan is correctly implemented and everyone understands the plan’s structure and objectives, successful results will follow.

Pre Plan Issues
These are areas to address when determining if a plan is viable for your district, and the budget reduction that can be projected as a result of implementing a plan.

Plan Objectives
	Cost containment tool
	Staff revitalization
	Program changes
	Promote staff
	Maximum and minimum number of participants
Plan Structure
	Eligibility: top of scale versus eligible to retire at state level
	Benefit: lump sum versus stream of income - 8 year, 10 year, lifetime - purchase of pension time - alternate exit dates - life insurance, with or without incidence of ownership
	Eligible groups: teachers, administrators, support
	Coordination with current contract severance benefits - offer plan in lieu of contract benefits - offer plan in addition to contract benefits - integrate with contract benefits
Pre-Plan Evaluation
	Examine eligible pool
	Examine top of scale salaries and pay trends for next ten years
	Examine hiring practices and the resulting entry level salaries
	Examine pay trends for next ten years
	Examine projected number of opters (need a model)
	Subtract out those that would have exited anyway, without a plan
	Economic analysis: ten years, with selected assumptions

Tax and Accounting Issues:

	Various approaches to tax issues
	Aggressive - take a chance?
	Conservative - based on solid tax code
	Employer's responsibility / employee's responsibility W-2 reporting
	1099-R reporting 941 reporting
	Review of plan by tax counsel

Third Party Expertise

	Legal counsel - tax counsel
	Plan administrator - experience and track record
	Liability coverage
	Avoid insurance "solicitors"
	Certified counselors

Recruiting and Replacement Plan

	Be prepared for "more than normal" activity (up to 20% of staff may opt)
	Remain within guidelines of hiring steps 1 - 3, consider re-assignments, consolidation, and promotions

Plan Implementation

	Administration Review: with Board of Education, with the bargaining unit(s)
	Window period activities
	Memo’s, flyers, other communications
	Confidential employee packages
	General meetings
	Confidential employee counseling + spouses, CPA, other decision makers
	Guidance throughout the process

Areas of employee concern that must be fully addressed:

	Plan benefits
	Pre- versus post-retirement income
	Insurances: health / life / dental / vision
	Social Security
	Tax issues
	Beneficiary issues
	Time lines
	Post-retirement activities
	Career changes

Demographic and Staffing Results of an Effective Plan

Results of recent study:

	25% of those opting were age 38 to 52
	28% of those opting were age 53 to 56
	28% of those opting were age 57 to 60
	15% of those opting were age 60 to 62
	4% of those opting were age 63 or older

Why people opt for plans (it’s not just for retirement)

	To pursue a new career. Education is no longer challenging or interesting.
	To be with their family, children during formative years, or to be with parents.
	To return to school, obtain an additional degree or a degree in a new field.
	To retire early or as planned, with a more financially comfortable retirement.
	Too much stress in education.
	To pursue a position at another district or college.
	To relocate out of state.
	To join a retired spouse.
	Health difficulties.
	Current position may be or has been eliminated.

This information contained within is proprietary to EPC. Please contact EPC before copying or distributing. As EPC is not tax or legal counsel, we recommend that any questions and all tax and legal decisions be reviewed by district advisors.