Over the past few years there have been many discussions among central office employees on what part of compensation is reportable for retirement.
Problems have arisen when certain employee contracts have included language that is outside of the reportable compensation rules for the retirement system. Some administrators have retired and unfortunately found that their contract included language that the administrator and their board thought complied, but did not.
The key is to make certain that annual compensation is clear and reported according to the retirement statute. State statute limits increases from contract year to contract year. With this issue negatively affecting recent retirees, several individuals from MASA, MSBO, MASB, and the Office of Retirement Services (ORS) have met to try and clarify what is allowable compensation, how it is reported, and what is the intent of an administrator’s contract. As a follow up there will be a posting on the ORS website to further explain reportable compensation.
There is no statutory authority to allow money attributed to the reimbursement of MIP or FICA, nor dollars given to be equivalent to those in the contract language, to be counted toward retirement. Therefore, it is imperative for administrators who have this type of language in their contract to have it reviewed and if appropriate, changed ASAP in order to have those funds fall within the allowable guidelines and be included in the retirement calculation.
What can you do today as a school business official? Work with your Superintendent and Board of Education. If it is the intent of your board to have those funds be counted towards retirement, then you may need to change the contract. It should reflect compensation as salary and not a reimbursement or equivalent for MIP or FICA. Once the change is made, it may take a period of time for any large increase in compensation to be recognized as reportable compensation. If you or someone in your district is within striking distance of retirement, it would be a good idea to have the Board officially address this issue now by re-wording, re-adopting and re-signing the contract(s) this fiscal year. Based on statute, the ORS uses a formula which limits the amount that can be annually increased from the previous year and still count towards retirement. Therefore, the sooner you make the change, the sooner the compensation will be fully recognized for retirement. If your district needs to clarify a contract of an individual, first review the website and the payroll guidelines RIM (Reporting Instruction Manual) and then work with ORS to understand the formula and work with your board to change the contract(s).
If you have any questions please contact ORS and have the wording reviewed.
Richard Montcalm is also a member of The Michigan Public School Employees Retirement System Board, which provides oversight of the Michigan Public School Employees Retirement System.