Early Separation Incentive Plans – ESIP’s
As administrators are gearing up to develop staff contracts for the 2018-2019 school year, Early Separation Incentive Plans, or “ESIPs” are something Districts may want to consider as a way to restructure staff for the coming school year. ESIPs offer a financial incentive to certificated and/or non-certificated employees who elect to retire from the district in exchange for an early, irrevocable notice to the District that the employee intends to retire or in order to assist the District in reducing the number of teachers who may be subject to mandatory staff reductions. ESIPs may also provide financial benefits to the District.
The process for developing an ESIP starts with drafting the District’s plan. Our team has created a checklist Districts may utilize in order to facilitate the development of a District’s ESIP with legal assistance. When approaching counsel about developing an ESIP, the following are specifics the District can include during initial communication that will assist your attorney in developing an ESIP that fits your District’s unique needs:
- What is the applicable school year for the ESIP?
- What incentive will the District be providing?
- Monetary payment?
- Health care benefits?
- What are the eligibility criteria for the ESIP?
- Does the District want it to be available to certificated employees only?
- Does the District want to impose a requirement that participants have a certain number of years of service in the District?
- By what date do the employees need to be eligible for retirement?
- What is the period of eligibility?
- This would usually begin on the date of the adoption of the policy by the Board of Education and end the date the Notice of Intent is due.
- What date would the District like the Separation Agreement returned?
- The Separation Agreement should be returned no earlier than forty-five days following the District’s distribution of the ESIP documents.
- What date would the District like the Notice of Intent returned?
- This should be earlier than the Separation Agreement deadline.
- Who in the Superintendent’s office does the Notice of Intent need to be returned to?
- Does the District want to terminate payment in the event of the employee’s failure to complete the final employment contract?
- Does the District want to allow employees to become eligible through buying back PSRS service prior to the due date for the Separation Agreement?
- Does the District want to terminate payment in the event of the employee’s death prior to final payment?
- Under what conditions, if any, does the District want to allow employees to withdraw their Notice of Intent to participate in the ESIP?
Once the ESIP is in final form, the District’s Board of Education must approve it before it’s published for employees to review. When the ESIP is presented to employees, employees who wish to participate in the ESIP will be given a Notice of Intent to Participate form and a Separation Agreement that contains a form resignation. They should be required to fill out and return the Notice by a certain date that is earlier than the date the District requires employees return the Separation Agreement and resignation letter. After employees turn in their notice of intent to elect early separation, they will not be allowed to withdraw the notice unless the terms of the ESIP allow them to, in emergency situations, or upon approval by the Board.
By law, employees must be given 45 days to review the Separation Agreements before they are required to be turned in. The Older Workers Benefit Protection Act (OWBPA) requires this 45-day review period, and notice to the employee that they should consult their own legal counsel when they review the agreement, in order for employees to “knowingly and voluntarily” waive any rights to sue the District for discrimination.
Finally, the signed agreements and resignation letters will then be presented to the Board for their review and approval.
In order for an ESIP to truly provide Districts with advance notice of an employee’s intent to separate, due to the 45 day review requirement, ESIPs should be developed and approved as early in the school year as possible. Generally, we recommend ESIPs are approved by the Board and presented for employee review on or before mid-January at the latest, in order for employees to turn in their signed separation agreements and resignation letters in March.
Something employees may consider when deciding whether to participate in an ESIP would be the tax implications of accepting monetary compensation in exchange for early separation. One option an employee may exercise would be to authorize the District to withhold all or part of the compensation payment to be directed to the employee’s own retirement account, such as an IRA, to avoid immediately paying taxes on the amounts withheld. The employee’s ability to direct these payments would depend on whether the employee’s plan would allow the contribution and the contribution didn’t exceed the annual contribution limit for the plan. Employees should discuss any implications of this contribution to their Public School Retirement System (PSRS) or Public Education Employee Retirement System (PEERS) benefits with their respective retirement system before making this contribution or directing the District to make the contribution on their behalf.
Also of note, PSRS/PEERS sent out an email in January 2018 requesting to review any ESIP a District plans to present its employees this school year to ensure that the ESIP presented would not prevent employees who participate in the ESIP from accessing their retirement benefits. ESIPs themselves do not prevent employees from being able to access their retirement benefits, but certain terms could jeopardize an employee’s access to retirement benefits if they are included within an ESIP.
In order to ensure that an ESIP does not prevent retirees from accessing retirement benefits, the ESIP cannot require the retiree to work or volunteer in any capacity after retirement in return for salary, including health insurance benefits. If an employee is under either a written or unwritten agreement for future employment or paid volunteer work, the employee is not considered to have properly terminated his or her employment, therefore rendering the employee ineligible to receive PSRS benefits.