Here’s Cary School Board President Scott Coffey’s take on McHenry County College’s early retirement plan for faculty members:
After a quick review of last week’s COTW meeting video and the board packet, there seem to be a couple of issues of concern.
First, the packets did not contain any analytical schedules outling estimated costs or savings.
The discussion did mention that perhaps 10 of the 23 SURS-eligible employees may take the buyout, but I saw no document that identified costs and subsequent savings.
The risk is that the buyout cost for an employee may take many years to reach the break-even point depending on the salary of the newly hired replacement teacher.
If the administration is not actively and effectively managing the replacement costs after the retiree leaves, the promised savings target may not be achieved.
Second, the post-employment, lump sum payment is based on health insurance premiums that the retiree would have to pickup until they are Medicare eligible.
Typically, these post-employment bonuses are made in the form of 403-b deposits directly into the employee’s account. There was no mention that these bonuses were 403-b payments.
Why is that important?
Because 403-b payments are exempt from FICA.
Given that these bonuses are paid post-employment, they are not considered creditable earnings under SURS.
Also, given the top tier payout of $106K, this amount exceeds the IRS maximum 403-b contribution limit of $54,000.
So, it appears these payouts would be subject to FICA tax and MCC would be on the hook for the employer portion (an additional 7.65%).
This was not identified in today’s packet or in last week’s discussion.
Lastly, given that the payouts were supposed to assist the retiree in paying their new health insurance premiums, aside from the retiree having this amount reduced by the FICA tax, it would also be subject to Federal and State income tax further reducing the net benefit.
There was no discussion or documents that addressed the tax implications of this program.
Of course, the above is all my opinion.
But I would recommend MCC get a professional on the outside to review this program before they offer it.