Retirement fund inspires teachers to exit jobs early to quit early

By DENNIS J. WILLARD

Beacon Journal Columbus Bureau

The current formula for retirement from the State Teachers Retirement System encourages career teachers and administrators to tap the pension fund in their 50s.

Otherwise, they are likely to receive far less in both their working careers and retirement.

A superintendent earning $100,000 when he retires at age 52 with 30 years of service will receive about $64,000 in the first year from his pension.

If he is rehired to his same job, by the time the superintendent stops working at age 65, he will have collected his annual salary and about $983,000 (based on a 3 percent increase each year) in pension pay during those 13 years. In addition he could have an annunity at age 65 valued at as much as $659,000.

That brings his total pension package to $1.6 million at age 65.

In 2000, the pension plans and state lawmakers tried to address the cost of early retirement by providing an 11.5 percent benefit enhancement to stay an additional five years.

So, under this scenario, the same superintendent who waits five years to retire at age 57 with 35 years on the job will take home 88.5 percent of his average salary. His annual pension payout would be about $99,600.

The only decision a superintendent must make under current law is to collect early, but less each year, or wait five years and take in a bigger annual pension for five fewer years.

The 35-year retiree, under the above scenario, will have collected about $1.3 million in the eight years he was retired from his pension and annuity, but he will have increased his annual payout by about 50 percent by working five additional years.

There is no real incentive for a superintendent to stay on the job for 39 years, the time needed to receive 100 percent of the average of his three best-paying years on the public payroll.

By working this long, the superintendent forgoes as much as 13 of pension checks and an annuity that would place, based on the conservative salary of $100,000 a year, about $1.3 million to $1.6 million into his bank account.

Retiring at 30 years vs. 35 costs the pension funds real dollars.

For example, the superintendent in the example above who retires at 30 years would collect $339,000 in pension checks in his first five years of retirement.

And as a retiree, he and his employer would not be required to contribute $126,000, or about 23 percent of his salary over those five years, into STRS’ general pension fund. Instead, that amount would be placed in an annuity and given to the superintendent when he finally retires.

So retiring five years earlier costs STRS about $465,000 in expenditures and contributions, illustrating why the pension plans want public employees to stay on the job longer.