H.F. 404 (Kelliher); S.F. 536 (Dibble) authorizes a certain Minneapolis Teachers Retirement Fund Association (MTRFA) teacher to make the additional employee contributions by June 30, 2003 based on full time equivalent salary that would have been required if he had been in the qualified part-time teacher program, with the school district mandated to pay the remainder of the full actuarial value. A qualified part-time teacher program agreement for the applicable period must be filed with the MTRFA by June 15, 2003.

Mr. Kantar is an MTRFA member with 29 years of teaching service who intends to retire soon. During the 2001-2002 school year, he entered into a job-sharing arrangement with another MTRFA-covered teacher, Mr. Dennis Sponsler. A memorandum of agreement relating to the job-share agreement is attached, signed by Mr. Kantar, by the school district’s Director of Labor Relations, and by the union president.

No qualified part-time teacher agreement was filed with the MTRFA, and based on Mr. Kantar’s letter it appears one was never signed. Mr. Kantar assumed that the memorandum of agreement for the job-share arrangement or other forms that may have been signed relating to that job-share were sufficient to ensure his future retirement benefits were not harmed. Mr. Kantar is seeking a legislative remedy that would treat him as though he were in the qualified part-time teacher program during this job-share period.

The following provides some history of qualified part-time teacher provisions in Teachers Retirement Association (TRA) and first class city teacher fund association law, as the provisions apply to K-12 teachers. Various features in these laws specific to Minnesota State College and University (MnSCU) faculty are not noted here. This section also indicates the problems that have arisen in the K-12 qualified part-time teacher provisions from 1990 to the current date, and notes actions the Legislature took to address these problems. The Commission may wish to consider the various approaches used in the past in addressing Mr. Kantar’s situation.

In general, retirement benefits (service pensions) are based on the years of service credit earned by the member and the individual’s high-five average salary. In the teacher plans covering K-12 teachers, the high-five average salary is the average salary for pension purposes for the five successive years that produce the highest average. Generally, the high-five average salary occurs during the last five years prior to termination of service and retirement. An individual who worked part-time as a teacher late in his or her career could harm the high-five average if the individual were not in the qualified part-time teacher program. The high-five years might include the period of reduced salary, or the high-five average salary might be pushed back to the period prior to the part-time service. Either way, the retirement benefit could be noticeable less than would be the case if the individual had worked full-time right up to retirement. The qualified part-time teaching provisions (Section 354.66 for TRA members or Section 354A.094 for the first class city teacher fund members) help the teacher avoid this problem. By treating the teacher for pension purposes as though they were providing teaching service full-time, the full-time equivalent salary (rather than the actual part-time salary) will be used to determine the high-five average salary.

1. Initial Enactment in 1977; Nature of Program. The qualified part-time teacher programs were first enacted in 1977 (Laws 1977, Chapter 447, Article 9). When passed, the programs seemed intended to assist individuals who wished to transition into retirement. Program enrollment was limited to individuals having at least 20 years of teaching service. For teachers who are admitted into the program, contributions are made to TRA or to a first class city teacher retirement fund association, whichever is applicable, based on full-time equivalent salary, although the individuals are employed as teachers only part-time. Given the full-time equivalent contributions, the applicable retirement association treats the individual as though they were employed full-time, avoiding harm to the individual’s eventual retirement pension.

2. Program as of 1990. Although the qualified part-time teacher programs were amended during the 1970s and 1980s, the general nature of the programs remained unchanged. As of 1990, the program was available to teachers with at least 20 years of teaching service, providing that the school board agreed to the arrangement. The individual must work at least the equivalent of 50 full days and total compensation could not exceed 67 percent (two-thirds) of full-time equivalent salary. Although the individual is working part-time, the employee must pay employee contributions based on full-time equivalent salary. The employer must make employer contributions to the retirement fund based on the actual salary earned. The employer contribution amount based on the difference between the actual salary and the full-time equivalent salary must also be paid to the retirement fund by either the employee, the employer, or the employee and employer in combination in any proportion they may agree upon. The teacher is not permitted to use this program for more than ten years, and while in the program the individual is not permitted to be an active member of any other Minnesota public pension fund, other than a volunteer firefighter pension fund.

3. 1994 Changes. The first qualified part-time teacher program revisions during the 1990s occurred in 1994. The LCPR heard testimony from representatives of teacher groups which claimed that the programs were little used. Possibly in reaction to this testimony, the Legislature revised the programs in ways that seem intended to increase use of the programs (Laws 1994, Chapter 521).

1. The first change required the employer to pay the full-time equivalent employer contributions for any participants in the program who had 20 or more years of service. The employee could no longer be required to pick-up any portion of the employer contribution amounts. This lessened the financial burdens on teachers using the program who had 20 or more years of service, but it increased the financial burden to the school districts.

2. The second change broadened the program’s scope. The programs were revised to permit any vested teacher (any teacher with at least three years of service credit), rather than only teachers with at least 20 years of service, to use the program, providing that the arrangement was agreeable to the school district. Given this change, the program could be used by older teachers in mid-to late career, but younger teachers who may wish to work part-time due to family considerations or any other reason could also use it.

3. The third change improved the information reporting to the retirement fund. Because of reporting delays, TRA was often unaware of which covered teachers were on a leave of absence or were in the qualified part-time teacher program. Consequently, the retirement plan administration was unaware that various members needed to be informed of special contribution requirements or contribution deadlines applicable to the teacher’s situation. This harmed teachers, and in some cases harmed the fund, by failure to receive contributions in a timely manner. TRA began addressing its information needs through legislative bills in which it requested revisions in its school district TRA membership reporting laws. A change in the TRA qualified part-time teacher law enacted in 1994 (Laws 1994, Chapter 528, Article 3, Section 32) was part of this general effort. The change required the teacher and school district to enter into the qualified part-time teacher agreement early in the school year and to promptly notify TRA of the agreement and its terms. The agreement had to be transmitted to TRA by October 1 of the school year, or the agreement was not deemed valid.

4. 1995 Changes. The 1994 program changes had unintended consequences, one of which was addressed during 1995. While the mandate requiring the school district to pick up all of the full-time equivalent employer contributions for teachers with 20 or more years of service gave these teachers a financial incentive to use the program, it also had the effect of discouraging the school districts from offering the program. Various school districts reacted to the mandate by excluding any teacher with 20 or more years of service from the program.

To address this situation and its ramifications, the 1995 Legislature made three changes.

1. The Legislature eliminated the requirement that the school district must cover the full-time equivalent employer contribution relating to any employee in the program who had 20 or more years of service. The prior policy was reinstated, which required the school district and applicable employee to reach agreement regarding who would pay that portion of the contributions.

2. Teachers who taught part-time during the 1994-1995 school year, but were denied access to the qualified part-time teacher program because of the employer’s reluctance to pay the full-time equivalent contribution amount, were permitted to gain full service credit for the period. To be eligible for this treatment, the employee had to make an additional lump sum payment by the end of August 1995, to the pension fund reflecting all required contributions based on full-time equivalent salary rather than the actual part-time salary, and the employee had to submit a letter or similar document from the applicable school board stating that the board would have allowed the employee into the program during the 1994-1995 school year if the mandated employer contribution requirement had not been in effect.

3. The Legislature passed a provision mandating that any teacher with 20 or more years of service who was in the qualified part-time teacher program be permitted to return to full-time teaching. The Legislature was concerned that some teachers might wish to return to full-time teaching if the school district insisted that, in the future, the employee take on a larger share of the total contributions required under the program. The Legislature mandated that any teacher in the part-time teacher program who wished to return to full-time teaching be permitted to do so. (These 1995 legislative session changes are found in Laws 1995, Chapter 262, Article 1, Sections 1,5, 6, and 16.)

5. 1996 Special Laws. Given the 1994 change to TRA’s qualified part-time teaching law which mandated that agreements between the applicable school district and the employee under this program must be filed with TRA by October 1 to be valid, it was inevitable that the Legislature would be asked to address the problem of late filings. The Legislature considered two requests in 1996. One dealt with a New York Mills part-time teacher and the other with a Hastings part-time teacher (Laws 1996, Chapter 438, Article 9, Section 3 and 4). Both cases involved employer error. The Legislature permitted the two individuals to be treated as though they had been in the qualified part-time teacher program providing all requirements for the qualified part-time teacher program were met except for the school district’s failure to file the agreement with TRA by October 1. The full service and salary credit were credited to the individual providing that the eligible individual made any remaining payment required to meet the full-time equivalent employee contribution. The school district was required to pay any remaining employer or employer additional contributions, plus 8.5 percent interest on any employee and employer contributions required under these special law provisions. Full payment had to be made to the retirement fund by June 30, 1996.

The 1996 Legislature also addressed another qualified part-time teacher program problem, this one in Minneapolis (Laws 1996, Chapter 438, Article 9, Section 5). A different type of employer error seemed to be involved. Rather than a failure by the school district to file in a timely manner, the employer appears to have provided excess compensation to individuals admitted to the program. Some individuals who were approved by Special School district #1 for qualified part-time teacher program for the 1994-95 school year received compensation in excess of that permitted under the program at that time (in excess of 67 percent of full-time equivalent compensation). These individuals were permitted to receive full-time service and salary credit providing the employee makes any further employee and employer contributions required under the program, without interest. Payment had to be made by June 30, 1996.

6. 1998 Changes. Several changes occurred in 1998, all found in Laws 1998, Chapter 390, Article 3. The Legislature revised the October 1 filing deadline language in TRA’s qualified part-time teaching program provision. The change may stem from continuing problems with school districts failing to file in a timely manner, causing the employee to not receive full-time equivalent service and salary credit. As revised (Laws 1998, Chapter 390, Article 3, Sections and 4), the agreement between the school district and employee to permit the individual to be in the qualified part-time teaching program must be completed by October 1. However, the agreements could be filed with TRA as much as 15 months late. If the agreement is filed by October 1, no penalties apply. If filed after October 1 (but not more than 15 months after October 1) the school district is fined $5 per day of delinquency. The corresponding section for first class city teacher plans (Section 354A.094, Subdivision 3) was also revised. While an October 1 deadline had been added to TRA law in 1994, no corresponding changes were made in first class city teacher plan law until 1998. In 1998, the first class city teacher plan provision was amended to specify that the agreements must be executed by October 1, but could be filed up to 15 months late, with a $5 per day fine for each day of delinquency. The TRA and first class city provisions which specified that compensation under the program must not exceed 67 percent of full-time equivalent salary were revised to permit up to 80 percent salary.

7. 1999 Changes. TRA’s qualified part-time teacher program provision was revised to permit legislator’s who are also teachers to make contributions under the qualified part-time teacher program although they are making contributions to the Legislator’s Plan or Unclassified Plan due to the legislative service.

8. 2000 Special Laws. The Legislature passed a special law (Laws 2000, Chapter 461, Article 11, Section 7) which authorized two Anoka-Hennepin teachers, one born on October 16, 1947, and the other on October 19, 1957, to participate in the TRA qualified part-time teachers program despite a failure to execute the agreement with the school district before October 1 of the academic year. The applicable teachers were required to make full-time equivalent contributions before any applicable corresponding employer contributions are made. A portion of the late filing penalty was waived (one-quarter of the penalty) if the agreement forms were filed with TRA by May 30, 2000. If the forms were not filed before July 1, 2000, the authority provided by the law is voided.

The Commission staff has no records indicating that the substance of Laws 2000, Chapter 461, Article 11, Section 7, was heard or approved by the Commission. The provision was added to the omnibus pension bill on the House floor through an amendment authored by Representative Jerry Dempsey.

H.F. 404 (Kelliher); S.F. 536 (Dibble) authorizes a certain Minneapolis Teachers Retirement Fund Association (MTRFA) teacher to make the additional employee contributions by June 30, 2003 based on full time equivalent salary that would have been required if he had been in the qualified part-time teacher program, with the school district mandated to pay the remainder of the full actuarial value. A qualified part-time teacher program agreement for the applicable period must be filed with the MTRFA by June 15, 2003.

Mr. Kantar requests that he be allowed to be covered by the qualified part-time teacher program for the 2001-2002 school year, although it appears no agreement specific to the qualified part-time teacher program was signed. Mr. Kantar’s initial letter seeking legislative relief included a copy of a memorandum of agreement for job sharing. It included the statement that "while Mr. Kantar participates in the agreement the district shall pay full MTRFA benefits." That statement is confusing and provides no clear indication of what the district is required to do under the agreement, because the district does not pay MTRFA benefits. MTRFA benefits are paid by the MTRFA, not the school district. A later letter from Mr. Kantar to Commission staff may provide more specific information relevant to the LCPR and Legislature. The letter included a page from what is indicated to be the Teacher Contract, 1999-2001, for the Minneapolis school district. The page, covering provisions for probationary/tenured teacher job share positions, states that for the tenured job-share partner with a minimum of 25 years of service in the district in the job share arrangement (Mr. Kantar has nearly 30 years of service), the "District will pay into the retirement fund at the teacher’s full–time service rate to allow the teacher to earn full-time service credit with the MTRFA." If this provision is applicable for the school year in question, the 2001-2002 school year, this can be interpreted as a contractual requirement that the school district authorize these individuals for qualified part-time teacher program coverage. The LCPR may conclude that the school district erred in not ensuring that Mr. Kantar sign necessary forms for the qualified part-time teacher program.

As of this writing, LCPR staff has not received any written response from the school district addressing Mr. Kantar’s situation. Thus, we do not know whether the school district feels it is responsible for harm, or alternatively, whether the school district believes it was mandated under its contract with teachers in the district to ensure that Mr. Kantar was covered by the qualified part-time teacher program.

Mr. Kantar has claimed in letters that he never would have taken part in the job share program if he had known that it would harm his retirement benefits, suggesting that if he were informed that he needed to sign qualified part-time teacher forms to protect those benefits, he would have done so. However, there is some question whether he took sufficient steps to avoid harm. To ensure that the job-share arrangement would not reduce his pension, he should have contacted the MTRFA, which administers his pension program. There is no indication that he contacted the MTRFA to ensure that he would not be harmed. Any teacher or other public employee should take great care to ensure that his high-five average salary, and hence his pension, is not harmed by part-time work in the years just prior to retirement. It is also reasonable that Mr. Kantar should have noticed that full-time equivalent employee contributions were not being deducted from his paycheck. Mr. Kantar wanted full-time salary and service credit in the MTRFA for the job-share arrangement, and it should have been obvious to Mr. Kantar he would not receive full salary and service credit in the MTRFA if he was not making employee contributions based on full-time equivalent salary.

Ms. Kilberg indicated in her response that the MTRFA has no record of Mr. Kantar contacting the MTRFA about the qualified part-time teaching program prior to entering the job-share arrangement. Mr. Kantar did call in September 2002 and informed the MTRFA that he entered into a job share agreement during the prior year, but September 2002 was much too late to do anything about the qualified part-time teacher program. That agreement needed to be signed before October 1 of the prior year.

Ms. Kilberg’s letter indicates that the MTRFA informs its members about the qualified part-time teacher program through articles in its newsletter. An article appears annually in the September newsletter, reminding teachers about the program and the need to have agreements signed by October 1. Information is also sent to schools. Ms. Kilberg was not aware of independent efforts that the school district may make to alert teachers, and recommended contacting the school district for that information.

The MTRFA could periodically review its records, identifying all cases where teachers with long service have a considerable drop in reported salary from the prior year, or no salary. Cases that are not explained by retirement, full or partial disability, leave-of-absence forms, or qualified part-time teacher agreements filed with the MTRFA could be given further follow up. This would have detected Mr. Kantar’s situation sooner. An issue for the LCPR is whether failure to undertake that review leads to a conclusion that the MTRFA harmed the individual. While it is possible to detect cases like Mr. Kantar’s from a records review, the LCPR may conclude that MTRFA efforts to inform teachers about the program through newsletters and other means are sufficient, and that the responsibility for Mr. Kantar’s current situation rests with the school district and Mr. Kantar.

The proposed legislation raises the following pension and public policy issues:

1. Sufficient Need for Action. The issue is whether this situation has sufficient merit and warrants the time necessary for a legislative solution, given other issues before the LCPR and the Legislature, and given other possible resolutions not involving the Legislature.

2. LCPR Acting as a Judicial Body. Situations like Mr. Kantar’s require the LCPR to act as a judicial body, weighing evidence, determining blame or harm, and developing financial remedies, which the LCPR is not well equipped to do. Situations where the evidence is clear or the employer or some other party acknowledges blame are most easily handled.

3. Alternative Resolutions. Mr. Kantar could seek a remedy to compensate him for harm not involving the Legislature, either through the courts or through a grievance procedure or other arrangement between Mr. Kantar and the school district. For example, if the school district concludes that it harmed Mr. Kantar, an arrangement which paid to him the full actuarial value as identified by the MTRFA ($63,564 minus the additional employee contributions the individual would have made if enrolled in the qualified part-time teacher program) should fully compensate for the reduced MTRFA annuity value, assuming that salary escalates as assumed in the full actuarial value calculation, that the individual does retire as assumed in the calculation, and that the school district should pay any additional employer contribution required.

4. Actuarial Condition of MTRFA. The LCPR may wish to consider the MTRFA’s financial condition as indicated in the most recent actuarial results. The MTRFA is in a weak position to take on additional unfunded liability, and any increase in that liability will be born by all parties who play a role in retiring the unfunded liability, which includes the state. The MTRFA has a very large unfunded liability given the size of the fund, and the contributions to the fund are not sufficient to put this fund on a path to becoming fully funded. At some point, some final remedy to address MTRFA liabilities will be needed. The state already heavily contributes directly to the MTRFA, as indicated in the chart as "Direct State Funding," and a final solution may require more state money. To the extent that a solution for Mr. Kantar increases liabilities and unfunded liabilities in the MTRFA, the burden may ultimately shift to the state, although the state played no role in creating any harm.

Minneapolis Teachers Retirement Fund Association (MTRFA)

June 30, 2002, Actuarial Valuation Results

Membership
Active Members		5,720
Service Retirees		3,283
Disabilitants		21
Survivors		268
Deferred Retirees		1,043
Nonvested Former Members		2,620
Total Membership		12,955
Funded Status
Accrued Liability		$1,659,512,000
Current Assets		$1,027,883,000
Unfunded Accrued Liability		$631,629,000
Funding Ratio	61.94%
Financing Requirements
Covered Payroll		$266,429,000
Benefits Payable		$108,777,000
Normal Cost	10.85%	$28,891,000
Administrative Expenses	0.27%	$719,000
Normal Cost & Expense	11.12%	$29,610,000
Normal Cost & Expense	11.12%	$29,610,000
Amortization	17.93%	$47,771,000
Total Requirements	29.05%	$77,381,000
Employee Contributions	5.90%	$15,714,000
Employer Contributions	8.67%	$23,102,000
Employer Add'l Cont.	0.00%	$0
Direct State Funding	7.02%	$18,679,000
Other Govt. Funding	0.94%	$2,500,000
Administrative Assessment	0.00%	$0
Total Contributions	22.53%	$59,995,000
Total Requirements	29.05%	$77,381,000
Total Contributions	22.53%	$59,995,000
Deficiency (Surplus)	6.52%	$17,386,000

5. Range of Legislative Resolutions. If the LCPR concludes that Mr. Kantar’s problem should be addressed by a legislative solution, the issue is what the terms of that resolution should be. H.F. 404 (Kelliher); S.F. 536 (Dibble), uses the full actuarial value model where the school district is required to cover all of that cost above the additional employee contributions that the individual would have made if he had been placed in the qualified part-time teacher program. This model seems appropriate if the Commission concludes that the school district had a responsibility under its contract with its teachers to ensure that Mr. Kantar was placed in the qualified part-time teacher program. Although Mr. Kantar should have been more attentive to the situation, the Commission may conclude that the school district bears full responsibility to avoid harming Mr. Kantar or the MTRFA.
   
   Amendment LCPR03-080 is a delete-all amendment that the Commission may wish to consider if the Commission concludes that the district was not obligated under its contract with teachers in general, or through the specific time-sharing contract Mr. Kantar signed, to ensure that he received full time salary and service credit for the part-time employment. In this case, the Commission may wish to avoid harm to the MTRFA by requiring Mr. Kantar to pay the full actuarial value of the service and salary credit purchase. That full actuarial value was estimated by the MTRFA to be $63,564.
   
   A second alternative is to permit a salary/service credit for contributions plus interest. Delete-all amendment LCPR03-081 provides that treatment. The eligible individual would be authorized to make employee contributions on the difference between the part-time and full-time salary. The school district would pay the applicable employer, employer additional contributions, and 8.5 percent interest all contributions, including the employee contribution. This approach may be an appropriate if the MTRFA caused harm, while Mr. Kantar and the school district did not. Perhaps the MTRFA could have taken some actions which would have detected Mr. Kantar’s situation earlier, but the evidence LCPR staff has gathered suggests that far more responsibility rested with Mr. Kantar, and particularly with the school district. Perhaps the Commission will be convinced otherwise by verbal testimony. However, the Commission should be aware that a solution that places the burden on the MTRFA without sufficient contributions to offset that liability creates more unfunded liability. Given the MTRFA’s current financial condition, that burden may ultimately flow through to the state taxpayers.

6. Scope. The issue is scope; specifically, whether this is an isolated case or whether other Minneapolis teachers are in a similar circumstance. Presumably, there are other Minneapolis teachers nearing retirement who entered into job sharing arrangements recently. If an error was made in handling Mr. Kantar’s case, others may have been similarly treated and the LCPR and the Legislature may be presented with similar requests. If there are other similar situations and unfunded liability is permitted to be added to the MTRFA, the impact on the MTRFA will be considerably larger than the actuarial value estimate provided by the MTRFA to address only Mr. Kantar’s pension problem.

7. Cost. Allowing Mr. Kantar access to the qualified part-time teacher program during the 2001-2002 school year is estimated to create $63,464 in liabilities in MTRFA (the full actuarial value). How that cost is borne by the various parties depends on the solution used. If the bill as introduced or a revision of that bill that retains the full actuarial value requirement is enacted into law, the MTRFA is not harmed, assuming that the full actuarial value estimation method is accurate. Under a contributions plus interest approach, the additional employee contribution would be $2,652, while the additional employer contribution would be $3,787. Interest is an additional $547. These total approximately $7,000, considerably less than the $63,564 full actuarial value estimate. The portion of that full actuarial value that is not covered by the contributions plus interest would add to the MTRFA unfunded liability.