Michael Mulgrew, head of the United Federation of Teachers in New York City, suggests the city can ease its budget crisis by offering early retirement incentives for experienced teachers to retire. In today’s New York Post he writes:
Retirement incentives are particularly effective in the Department of Education, since senior teachers make more than twice the salary of entry-level teachers. There are about 25,000 experienced teachers to whom such an incentive could be offered right now. Given current salary levels, the retirement of 1,000 of them would save the city $55 million per year. If 4,000 senior teachers were to retire, the system would save more than $220 million – even if every retiree is replaced by a new teacher.
This is a common argument you hear during budget crises, but the math does not add up. Given New York City’s hiring spree over the last decade, not to mention local pressure to keep class sizes low, it’s safe to assume the retiring teacher would indeed be replaced. To get to Mulgrew’s $55,000 savings per teacher, we have to assume the district will replace a teacher that’s maxed out on the salary schedule ($100,000 in NYC) with one without a Master’s degree or any years of experience ($45,000). Mulgrew’s figure is the maximum amount and any variation (say, if the new hire had a few years of experience or additional credits beyond a bachelor’s degree) would reduce the savings. More importantly, this calculation does not include the minimum $44,000 annual pension that a retiring teacher with that level of experience would be eligible to receive. Including health insurance costs–New York covers 90 percent of retiree health expenses–would wipe out any remaining “savings” completely. This does not count any one-time payments or new early retirement incentives that might be used to encourage senior teachers to retire.
These payments do come out of slightly different pots of money, and it might be tempting during a budget crisis to play around with numbers and come up with magic savings, but ultimately that’s just dishonest.
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{ 6 comments }
Burt,
Your experience level wouldn’t qualify you for the savings that Mulgrew claimed. Here’s what I wrote in the post:
To get to Mulgrew’s $55,000 savings per teacher, we have to assume the district will replace a teacher that’s maxed out on the salary schedule ($100,000 in NYC) with one without a Master’s degree or any years of experience ($45,000).
I am a teacher, at normal retirement age. However, I only have 13 years on the job and that gives me a pension of about $17,000 not the alleged MINIMUM pension of $44,000 quoted above.
True, i am not at maximum salary but still about $33,000 above a new hire with no experience or additional credits.
So, there are additional conditions which must be considered when trying to evaluate potential dollar savings from such incentives.
The State has given the OK, waiting for the Mayor to act.
I agree that Mulgrew’s rhetoric about cost savings from early retirement incentives even if younger teachers were hired as replacements is may be overblown. However, that only applies when the retiring worker is replaced, which does not generally happen when this remedy is used during budget crises. If they are not replaced, early retirement of the most senior workers generally saves more on both current costs and future pension obligations than laying off younger workers.
When replacement is brought into the picture, things become much more complicated. You need to compare the present discounted costs of replacing the senior teacher with a few years left until reaching full retirement age now versus later. The detailed calculations would be complicated, but the difference in present discounted costs of hiring a new teacher now versus later is likely to be minimal because the biggest costs occur far in the future and a therefore heavily discounted. By contrast, differences in present discounted costs of a senior teacher retiring now versus later are likely to be substantial, because those costs will occur in the near future and hence be discounted lightly.
Melody, because of the nature of teacher pension structures, early retirement incentives for teachers with many years of experience essentially equates to paying for two low-cost teachers–one who’s working in the classroom for a salary and one who’s retired and earning a pension. The district is also on the hook for health care benefits for two teachers instead of one. You’re right about the effectiveness point, but you’re missing that it’s not a 1-1 trade.
Rick and Melody: bumping and seniority-based layoffs are important problems, and early retirement incentives are one way to address them (I’d prefer just getting rid of bumping and seniority-based layoffs personally…). My post argues they do not have a very strong financial argument.
I don’t get it Chad. One of the prime arguments of the you reformistas for breaking seniority-based layoff rules is that “the research shows” that, beyond a certain point, effectivenss does not increase with experience. Consequently, since salaries do increase with experience, we are paying senior teachers more than equally effective younger ones.
Remarkably, you now appear to be making a claim that senior teachers are really not all that much more expensive, so replacing them with younger ones is not really so cost-effective, after all.
If that’s true, then you are making a case for seniority-based layoffs. As you know, “the research shows” that early career teachers are the least effective — and many don’t stick around anyway — so if they don’t actually cost that much less, why should they not be the first to be let go?
Mike Mulgrew has offered an opinion that cannot be dismissed by anyone with knowledge of New York City’s history regarding budget deficits. If the current plan to layoff 4,000 teachers is put into effect the human cost will far outway any monetary cost (if the beancounters know what they speak)that may be a consideration years from now. Also, the effect that BUMPING will have in the schools, in particular the new small schools touted by this administration will not only lead to chaos but failure rates that if the grading of schools stays as is, will lead to more school closings.
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