Summary of H.F. ____ (     ); S.F. 2039 (Betzold)

H.F. ____ (     ); S.F. 2039 (Betzold) permits Dr. Julie Ann Archer-Kath, described as a class of Teachers Retirement Association (TRA) members designed to be limited to her alone, to obtain 1.66 years of previously disallowed allowable and formula service credit from TRA, and the associated salary credit, for a career-ending paid leave of absence period from Independent School District No. 13, Columbia Heights, in 1998-2000 with the repayment of any previously received refund of a contribution overpayment if a refund was taken. The authority to obtain the service credit would expire on July 1, 2005.

Public Pension Problem of Dr. Julie Ann Archer-Kath

Dr. Julie Ann Archer-Kath is a former school administrator for Independent School District No. 13, Columbia Heights, who had a dispute with the school district, filed a discrimination action against the district, and settled the action in 1998. The settlement agreement provided that Dr. Archer-Kath would be considered on leave with pay for two school years, 1998-1999 and 1999-2000, and would be considered on an extended leave of absence without pay through the end of the 2004-2005 school year and that Dr. Archer-Kath would file an irrevocable letter of resignation with the district court, effective if she attempted to be reinstated with the district. Although required by the settlement, Independent School District No. 13 failed to file with the Teachers Retirement Association (TRA) a copy of its actions approving the settlement agreement, failed to file with TRA an extended leave of absence without pay for the 2000-2001 to 2004-2005 school years, and failed to report to TRA that Dr. Archer-Kath had no reinstatement rights. Ultimately, after providing information to Dr. Archer-Kath during her marriage dissolution action that proved inaccurate by virtue of the school district reporting failures, TRA audited her service and salary credit record and disallowed 1.66 years of service and related salary credit as unauthorized service periods because the settlement agreement constituted a severance payment since it lacked a right of reinstatement after the conclusion of the leave.

Dr. Archer-Kath, while rendering some substitute teaching service for Independent School District No. 272, Eden Prairie, during the 1999-2000 and 2000-2001 school years, appealed the TRA Executive Director’s ruling to the TRA Board, lost on a unanimous TRA Board vote, appealed the TRA Board decision to the Minnesota Court of Appeals, lost unanimously before the three-judge Court of Appeals panel, and appealed to the Minnesota Supreme Court, which denied certiorari.

Dr. Archer-Kath seeks service credit for the balance of the two-year (1998-2000) paid leave of absence beyond her substitute teaching service credit and for the associated salary credit.

Discussion and Analysis

H.F. ____ (     ); S.F. 2039 (Betzold) grants Dr. Julie Ann Archer-Kath 1.66 years of service credit and related salary credit for a two-year paid leave of absence that occurred at the end of her regular public teaching career as part of a discrimination lawsuit settlement and that was disallowed by the Teachers Retirement Association (TRA). The proposed legislation raises several pension and related public policy issues, as follows:

1. Equitable Considerations With Respect to Dr. Archer-Kath. The policy issue is the equitable considerations that would favor or disfavor a grant of additional service and salary credit for Dr. Julie Ann Archer-Kath. The proposed legislation is akin to a service credit purchase, although the period in question was covered by regular contemporaneous member and employer contributions. A major policy issue with service credit purchases is the weighting of the equitable considerations favoring or disfavoring the special legislation. Some testimony from Dr. Archer-Kath may be necessary to assist the Commission in assessing these considerations. After a long career with Independent School District No. 13, at least 21.5 years of teaching service, Dr. Archer-Kath became involved in a dispute with the district that led to litigation and a settlement that involved her departure from her district position. The nature of the dispute is not part of the public record and its potential contribution to an understanding of the equitable considerations is unclear. The school district failed to meet its various reporting requirements under the settlement, leading TRA to over-credit Dr. Archer-Kath’s service and salary credit until there was a subsequent salary audit. As part of her marriage dissolution property settlement in 2001, before the salary audits, Dr. Archer-Kath received a benefit estimate from TRA that overstated her future TRA benefit because it included the 1998-2000 paid leave service and salary credit and she contends that she relied on the TRA misinformation to her detriment. That reliance is Dr. Archer-Kath’s principal equitable argument.

2. Appropriateness of Disregarding a Severance Pay Arrangement. The policy issue is the appropriateness of legislation that would re-characterize as TRA allowable service credit and salary credit a paid leave of absence settlement that has been determined by both TRA and by the Minnesota Court of Appeals as an impermissible severance pay arrangement. For leaves of absence, TRA law requires that the person have the right to a reinstatement to employment at the end of the leave for the leave to be creditable. TRA concluded that Dr. Archer-Kath’s leave was contingent on her termination from Independent School District No. 13 employment without a reinstatement right, thus making it a severance pay arrangement. TRA appears to have had some difficulty over time in policing the compensation arrangements of school administrators to avoid having severance arrangements included in a person’s retirement annuity. Given the available facts, the arrangement between Dr. Archer-Kath and Independent School District No. 13 appears to have been correctly determined by TRA to be a severance pay arrangement, which is not creditable under current TRA law, and that determination should not be overturned lightly.

3. Appropriateness of Overturning a Court of Appeals Decision. The policy issue is the appropriateness of acting to recommend proposed legislation which has the effect of overturning a decision of the Court of Appeals. In Julie Archer-Kath, Relator v. Teachers Retirement Association, A03-304, an unpublished opinion filed on November 18, 2003 (copy attached), the Minnesota Court of Appeals found that TRA did not have the authority to grant service and salary credit for a settlement agreement that constituted severance pay and applied to the Archer-Kath case the decision in Axelson v. Minneapolis Teachers Retirement Fund Association, 544 N.W.2d 297 (Minn. 1996) that where a public pension plan lacks authority to act, a claim for a benefit based on promissory estoppel cannot be upheld. The Axelson decision, applied in Archer-Kath, is a valuable constraint on the prevailing view of the Minnesota Courts that public pensions are subject to contract law remedies or will be treated as quasi-contracts under the doctrine of promissory estoppel. A legislative reversal of the Archer-Kath decision could send the wrong signal to the Court and could also threaten future applications by the Minnesota Courts of the Axelson ruling.

4. Appropriateness of the Treatment of the Proposed Service and Salary Credit Acquisition. The policy issue is the appropriateness of the proposed granting of service credit and salary credit to Dr. Archer-Kath based on the 1998-2000 payment of regular member and employer contributions rather than treating the service and salary credit as a service credit purchase and requiring a full actuarial value payment from some source or sources. Since Dr. Archer-Kath’s desired service and salary credit is outside the allowable service and covered salary definitions in TRA law, rather than ongoing regular teaching service and salary, it logically should fall outside the normal contribution requirements and any additional pension liability that may be imposed on TRA by the proposed service and salary credit acquisition should be offset by comparable additional full actuarial value payments from some source or sources. The full actuarial value payment requirement for 1.66 years of additional service credit and for an estimated $8,063.00 of additional final average salary credit likely has not yet been calculated by TRA. TRA should be asked to provide the pension liability increase that would be associated with the proposed service and salary credit grant in this proposed legislation.

5. Appropriate Party or Parties to Pay Full Service Credit Purchase Amount. The policy issue is the appropriate party or parties to pay any additional amount for Dr. Archer-Kath to obtain the proposed additional salary and service credit acquisition as viewed as a service credit purchase, as discussed in policy issue number 4. Although the Commission’s Principles of Pension Policy do not currently cover the issue of the allocation of a prior service credit purchase payment obligation in the event of alleged employer culpability, Commission practice since 1998 or 1999 has been to mandate significant employer funding of a prior service credit purchase if the employer caused or contributed to the service credit loss. In this instance, according to the Court of Appeals, the Columbia Heights Public School District was required to report several things to TRA and did not report, including failing to file a copy of the School Board action ratifying the settlement with Dr. Archer-Kath, failing to file a leave report with TRA, and failing to report to TRA that Dr. Archer-Kath had no reinstatement rights under the settlement. If Independent School District No. 13 had filed any of the three items, TRA would have been on notice that there had been a change in Dr. Archer-Kath’s employment and could have avoided giving Dr. Archer-Kath the impression in the information for her marriage dissolution action that she had a greater TRA benefit than she had actually earned, which was the basis for her promissory estoppel claim that was recently rejected by the Court of Appeals. Whether or not the school district reporting failure constituted sufficient culpability in order to impose additional payment obligations on the district is a question that the Commission may wish to explore.

6. Precedent. The policy issue is whether or not there exists prior comparable legislation that would be a precedent for this proposed special legislation and whether or not the proposed special legislation would constitute a potentially unfavorable precedent for future special legislation. Although there has been a significant quantity of special service credit purchases and similar service credit acquisitions over the past two decades, the Commission staff cannot identify any comparable past special legislation substantially identical to this circumstance. If the proposed special legislation was recommended by the Commission, it could be expected to generate comparable future requests, especially if the additional service and salary credit is acquired without requiring any additional member payments. If the proposed service credit acquisition does require additional service credit purchase payments, especially additional payments by the member, that could dampen its potential use as a precedent.