Ok, so this is where I really show that this is all foreign to me. For sure: There probably should be questions asked if a class scores all F's anywhere. Obviously. Something went wrong there.

But why would this automatically cause the teacher to be the one to retire?

Are there documents or books on this? This system seems so alien to me. And yet it does seem to produce some amount of competent graduates who can -eg- launch a spacecraft into lunar orbit.