Summary of H.F. 2573 (Erickson); S.F. _______ (       )

H.F. 2573 (Erickson); S.F. _______ (       ) amends Minnesota Statutes, Sections 122A.46, 136F.43, 354.094, and 354A.091, the teacher extended leave of absence provisions, to sunset the programs by disallowing the granting or processing of a new extended leave of absence after July 1, 2005, to engender a legislative review of the programs during the 2005 Legislative Session.

Background Information on the Teachers Extended Leaves of Absence Retirement Credit Provisions

Minnesota’s public defined benefit plans are a personnel policy tool of the employer in that they serve to attract sufficient numbers of new employees, to promote retention of capable existing employees, and to out-transition long-term employees at the end of their fully productive working life, by providing those long-term employees with retirement plan income which is sufficient, in conjunction with personal savings and social security, to allow the individual to retire without a significant drop in the standard of living.

Leave of absence provisions are found in most Minnesota defined benefit public pension plans and permit the individual to receive either full or partial service credit for a period of break in service to the employer. The provisions are somewhat unusual in that they are providing service credit in the retirement plan for a period of time during which the individual was not providing service to the employer. The provisions presumably are justified in that they serve as retention tools. Another factor may be that the leave, if used to receive additional training or education, further enhances the productivity and value of the employee to the employer.

Some plans have few leave of absence provisions. The General State Employees Retirement Plan of the Minnesota State Retirement System (MSRS-General), for example, has a military leave of absence provision, and a generalized leave of absence provision it utilizes for other forms of leave. Teacher plans tend to have several leave of absence provisions, each tailored to a specific leave type. The Teachers Retirement Association (TRA) has a sabbatical leave provision (Section 354.092), paternity/maternity leave (Section 354.093), extended leave of absence (Section 354.094), medical leave (Section 354.095), family leave (Section 354.096), and military leave (Section 354.53). The first class city teacher plans have similar leave types, and there are some additional leave types which apply only to Minneapolis Teachers Retirement Fund Association (MTRFA) or St. Paul Teacher Retirement Fund Association (SPTRFA) basic members.

In 1977 (Laws 1977, Chapter 447, Article IX), several teacher mobility incentives were enacted by the Legislature. The teacher mobility incentives included extended leaves of absences, with a continuation of full teacher retirement plan pension coverage, a teacher early retirement incentive program, and a part-time teaching with full-time teacher retirement plan pension. The teacher mobility incentives were enacted as part of the 1977 school aids bill, represented a policy initiative of the House of Representatives under Speaker Martin O. Sabo, and were developed to reduce a growing proportion of senior, highly compensated teachers. The program was intended to allow a teacher to take a five-year leave of absence to attempt to make a career change without disrupting the teacher’s retirement coverage for the period. The program was not reviewed by the Commission in 1977 and has never been subjected to any detailed scrutiny by the Commission.

The extended leaves of absence program as enacted in 1977 (Laws 1977, Chapter 447, Article IX, Sections 1, 3, and 6) permitted school district boards to grant an extended leave of absence without pay to full-time elementary or secondary school teachers with between 10 and 20 years of total teaching service and is under age 55, with the leave length of up to five years in duration. A teacher on an extended leave had a reinstatement right at the beginning of any school year during the leave, retained seniority and teaching contract rights during the leave, but the leave period was not included for the teacher’s placement on the steps and lanes salary grid. If granted an extended leave of absence, the teacher was eligible to receive allowable service and salary credit if the teacher paid the member contribution to the Teachers Retirement Association (TRA) or the first class city teacher retirement fund association, based on the salary for the year preceding the leave and payable no later than the end of each fiscal year for which service and salary credit is sought. If the teacher pays the member contributions, the school district is obligated to pay the applicable employer contributions. No service credit was available if the teacher was placed on an unrequested leave of absence, if the teacher’s contract was terminated, or if the teacher was covered by a Minnesota public pension plan other than a volunteer firefighter relief association for the same period.

The extended leaves of absence program (Minnesota Statutes, Sections 122A.46, 136F.43, 354.094, and 354A.091) has been modified 17 times since 1977.

• In 1978 (Laws 1978, Chapter 764, Sections 79 through 82, 116, and 120), the school aid bill, modified the qualifications for an extended leave to require five years of employment by the school district and ten years of total teaching service, required a school district report on denials of extended leave of absence requests, and shifted the responsibility for the payment of employer retirement contributions to the State of Minnesota.

• In 1979 (Laws 1979, Chapter 334, Article VIII), superintendents and area vocational technical schools were included in the extended leave of absence program, but superintendents were not obligated to be reinstated at the conclusion of the leave, and teachers on an extended leave of absence were permitted to render substitute teaching service.

• In 1980 (Laws 1980, Chapter 454, Sections 1, 2, 3, 4, and 5), state university and state community college faculty members were permitted to utilize the extended leave of absence program.

• In 1981 (Laws 1981, chapter 358, Article 8, Sections 2, 9 through 12, and 14 through 17), in the school aids bill, an annual limit of 300 applications was set for the State payment of employer contributions for extended leaves of absence and the State payment was limited to the first three years of the extended leave of absence.

• In 1983 (Laws 1983, Chapter 314, Article 10), part-time teachers were included in the extended leaves of absence program and the limit on the number of teachers covered by State-paid employer contributions for extended leaves of absence was reduced from 300 to 250.

• In 1985 (First Special Session 1985, Chapter 12, Article 11, Section 5), the deadline on extended leave of absence member contribution payments was extended to 30 days after TRA notification if that is later than June 30 of the year to be credited.

• In 1986 (Laws 1986, Chapter 444), gender-specific provisions in the extended leaves of absence provisions were replaced with non-gender-specific references.

• In 1987 (Laws 1987, Chapter 284, Article 6, Section 5), the TRA extended leave of absence provision member contribution payment deadline was further extended, to September 30, with six percent interest after June 30.

• In 1989 (Laws 1989, Chapter 293, Sections 77 through 79), in an education bill, "area vocational technical school" references were revised as "technical institute" references, and also in 1989 (Laws 1989, Chapter 329, Sections 20, 21, 23, and 24), the school aids bill, the State payment of extended leave of absence employer contribution amounts ended.

• In 1991 (Laws 1991, Chapter 130, Section 34), references to the State payment of extended leave of absence employer contribution amounts were removed, and also in 1991 (Laws 1991, Chapter 340, Section 12), the TRA extended leave of absence provision was amended to require that each employing unit certify extended leaves of absence it granted before the end of the fiscal year in which the leave was granted and eligibility for participation in the program was restricted to teachers who have a right of reinstatement to their position at the conclusion of the leave.

• In 1992 (Laws 1992, Chapter 598, Article 3, Section 1), interest on late extended leaves of absence employee contributions was increased from six percent to 8.5 percent.

• In 1995 (Laws 1995, Chapter 141, Article 3, Section 20), references to "teachers retirement fund" and teachers retirement association in the TRA extended leaves of absence provision were clarified.

• In 1996 (Laws 1996, Chapter 305, Article 1, Section 80), references to the Minnesota State Colleges and Universities System extended leave of absence provision were revised.

• In 1998 (Laws 1998, Chapter 397, Article 11, Section 3), cross-references affected by an educational law recodification were revised.

• In 2000 (Laws 2000, Chapter 461, Article 3, Section 32), the employer extended leave of absence certification deadline was reset to the date that the leave was granted from the end of the applicable fiscal year.

• In 2001 (First Special Session Laws 2001, Chapter 1, Article 2, Section 22), a reference to the Minnesota State Colleges and Universities System was corrected.

• In 2003 (First Special Session Laws 2003, Chapter 12, Article 3, Section 2), the TRA extended leaves of absence provision permitted school districts and collective bargaining units to enter into an agreement for the employer to pay all or part of the member and employer retirement contributions for teachers on leave.

Comparison of Extended Leave of Absence Provisions

The following compares the provisions of the general statewide and major local retirement defined benefit plans with respect to crediting allowable service for extended leaves of absence:

Discussion

H.F. 2573 (Erickson); S.F. _______ (       ) would sunset the extended leave of absence retirement coverage provisions of the laws governing school districts, the Minnesota State Colleges and Universities System (MnSCU) system, the Teachers Retirement Association (TRA), and the first class city teacher retirement fund associations to induce a legislative review in the 2005 Legislative Session of the appropriateness of continuing the programs.

The proposed legislation raises the following pension and related public policy issues that may merit Commission and legislative consideration:

1. Appropriateness of the Provision From its Duration. The policy issue is the appropriateness of a 2005 sunset of the teacher retirement plan extended leave of absence provisions in light of their existence for 27 years. Most current teachers were hired since the 1977 enactment of the provisions (85.72 percent of all teachers statewide have less than 25 years of service credit; 84.78 percent in the Teachers Retirement Association (TRA); 88.57 percent in the Duluth Teachers Retirement Fund Association (DTRFA); 94.70 percent in the Minneapolis Teachers Retirement Fund Association (MTRFA); and 89.22 percent in the St. Paul Teachers Retirement Fund Association (SPTRFA)), and those teachers presumably have come to expect that they may be able to utilize the program at some time during their career. However, the problem of a top heavy senior teacher workforce that appears to have prompted the development of the program in 1977 is unlikely to still exist and, if the program was actually an effective countermeasure to that development, it can be argued that it should have produced the desired result by this time.

2. Appropriateness of the Program in the Light of Pending Teacher Shortages. The policy issue is the appropriateness of the retention of the extended leave of absence program for teachers when the State has been predicted to be facing a looming teacher shortage. While the shortage predictions became less frequent during and after the 2003 State budget crisis, the demographic factors (i.e. attained age, accrued service, and distribution by teacher licensure area) that gave rise to teacher shortage predictions during the period 1999-2002 should still exist and should be factored in when considering the value of continuing the program. If the State will experience a general teacher shortage or a shortage in specific subject areas, a program that encourages teachers to potentially leave the professional will make the problem worse.

3. Appropriate Length of the Sunset Notice. The policy issue is the appropriateness of providing one year of notice of a sunset in an ongoing program and the difficulties that this may cause for teachers who are potentially planning to utilize the program. The sunset is intended, first and foremost, to spur supporters of the program to rally arguments in favor of the program, thereby allowing the Commission and the Legislature to better evaluate the desirability of the program. If the program has few vocal supporters for its continuation in the year before the planned sunset, an actual sunset should not work any great harm on the teacher population. If significant concern is raised by the teacher population and they marshal substantial policy arguments for its continuation either in connection with the proposed legislation or in the interval between now and July 1, 2005, the planned sunset could be delayed for one or two years or could be eliminated entirely.

4. Unclear Data and Evaluation Criteria for Review. The policy issue is the uncertainty of the extent of data that may be available for a future legislative review of the teacher extended leave of absence retirement coverage program and the lack of any clear established criteria to be used by the Legislature in such a review. Because the program was developed so long ago, because the program was rolled into a larger education aid bill rather than a pension bill, and because the program was developed outside the Commission with a minimum of available information to the Commission about its intent and aims, it may be difficult to obtain the necessary information for use in a review and may be even more difficult to identify the appropriate criteria to be used for that review. Testimony will be needed from TRA and the first class city teacher retirement fund associations about the data on extended leaves of absence that they have obtained and retained over time.

5. Potential Need to Resolve Inconsistencies Between TRA and Other Extended Leave of Absence Provisions. The policy issue is the appropriateness of retaining the current extended leave of absence provisions since the TRA extended leave of absence provision has been modified to a greater degree than the first class city teacher retirement fund association extended leave of absence provisions, resulting in inconsistencies between the two provisions. If the programs continue, the programs may benefit from a provision-by-provision comparison between the two applicable statutes and a reformulation of the program with the critical deficiencies or differences.

6. Inconsistencies in Various Leave Provisions. The policy issue is the broader need for the Commission to reevaluate the various retirement service credit for leave provisions because the provisions vary between funds and those inconsistencies may not be based on sound policy differences. In surveying the leave provisions of the various plans, differences are obvious. There is a particularly troubling lack of consistency within plans or across similar plans regarding leave payment requirements. Contribution requirements often differ, and there are often differences in salary bases used to compute any required contribution amounts, the time limits for making contributions, and interest payment requirements when payments are not received until well after the leave occurs. This lack of consistency creates unequal treatment of similar individuals, raising equity issues for the individuals and subsidy effects among employees and contributing employers.