Working after Retirement

 

In order to operate at maximum efficiency, school districts sometimes re-employ or contract for the employment of retirees. By way of reminder, the Michigan Public School Employees Retirement Act (MCL 38.1361) has earnings limitations in place for current retirees, in addition to those in place for new retirees after July 1.

The Michigan Public School Employees Retirement System is a 401a federally-qualified trust that may only pay pensions to those who have bona fide terminations, including a severing of the employee/employer relationship for a duration of at least one month. For a termination to be bona fide, a retirement applicant cannot have:

• a promise of reemployment OR
• a contract for future employment in place prior to termination
• any assignment, task or other work-type contact in a school district for at least one month following retirement.

Key information to know:

• Earnings Limits for People Who Retire Before July 1, 2010
• Earnings Limits for People Who Retire On or After July 1, 2010
• Core Services Description
• Core Services Definition
• With disclaimer
• MASA response

 

Earnings Limits for People Who Retire Before July 1, 2010

The following text comes from an email sent out by ORS-Outreach on June 6.

The Michigan Public School Employees Retirement Act (MCL 38.1361) has earnings limitations in place for current retirees.  If their retirement effective date is before July 1, 2010, and they return to work directly for a Michigan public school, they may earn the greater of the statutory limits listed below without affecting their pension.  Note that this reemployment can only occur once an employee completes a bona fide termination and severs the employee/employer relationship for a minimum of one month.

• One-third of their final average compensation.  For this purpose, their final average compensation is increased by 5 percent (compounded) for each calendar year they are retired. In the first year of retirement, the earnings limitation is prorated.
    
• The earnings limit for someone the retiree’s age whereby full benefits are payable under the federal Social Security Act, as amended. There is no limit on earnings beginning the month that the social security full retirement age is attained.

 

For every dollar retirees earn over the annual statutory limit, they must return one pension dollar to the retirement system.

However, for those who retired before July 1, 2010, there are no limitations on post-retirement earnings:

• for retirees working in approved critical shortage positions
• retirees working for a school with an emergency situation approved by the Superintendent of Public Instruction
• retirees who are former teachers or administrators working in a teaching or research capacity at a university that is considered a reporting unit. 

Please see the ORS website at www.michigan.gov/ors for more details.

Additional note regarding third-party contracting of superintendents and/or teachers:  The law prohibits a reporting unit from hiring a retiree as an independent contractor or through a third party to be a superintendent or a teacher. 

• Under the Revised School Code, PA 451 of 1976, a superintendent must be hired directly by the school board. MCL 380.1229 states, “The board of a school district … shall employ a superintendent of schools, who shall meet the requirements of section 1246. The superintendent shall not be a member of the board. Employment of a superintendent shall be by written contract.”
• Similarly, the Revised School Code requires the board of a school district to “hire and contract with qualified teachers” (MCL 380.1231). If the Office of Retirement Services determines that someone has performed duties in a superintendent or teacher capacity as an independent contractor or through a third party, that person will forfeit their pension retroactively for the affected time period.

 

Earnings Limits for People Who Retire On or After July 1, 2010

The following text comes from an email sent out by ORS-Outreach on June 6.

Public Act 75 of 2010 amended the earnings limitations for those retiring July 1, 2010, or later. Under the new law (MCL 38.1361(8) and (9)), those who return to work directly for a reporting unit (including any charter school) are subject to an earnings limitation. If they exceed the earnings limitation (one-third of their final average compensation), they immediately forfeit their pension and retiree health care subsidy until the employment ceases. 

Note that this reemployment can only occur once an employee completes a bona fide termination and severs the employee/employer relationship for a minimum of one month.  In addition, retirees who perform any core services for a reporting unit (including any charter school), but who are employed by an entity other than the Michigan public school or work as an independent contractor, forfeit their pension and retiree health care subsidy until the employment ceases. 

A definition of core services was promised by June 2nd.

Role of Core Services in Decision Making

ORS released the definition of core services in early June, providing the following information.

For independent contractors those hired through a third party:
Amended section 61(9), MCL 38.1361(9), requires the forfeiture of a retiree’s pension and health care subsidy when a retiree performs “core services” at a reporting unit while employed by an entity other than a reporting unit or employed as an independent contractor. In addition, section 61(9) requires the retirement system to determine what “core services” are:
Notwithstanding any other provision of this Act, for any retirant who retires on and after July 1, 2010, who performs core services at a reporting unit as determined by the retirement system, but who is employed by an entity other than the reporting unit or as an independent contractor, the retirant shall forfeit his or her retirement allowance and the retirement system subsidy for health care benefits from the retirement system for as long as the retirant is performing core services at the reporting unit.

Additional fact:   It is the reporting unit’s responsibility to inform retirees that they will lose their health subsidy and pension if they enter into a contract with the reporting unit as an independent contractor or as an employee of a third party.

For retirees hired directly by a school district
Retirees hired directly by the reporting unit may earn up to 1/3 of their final average compensation and retain their health care benefits.

Core Services Defined
Since its 1986 inception, the Reporting Instruction Manual has defined different classifications of public school employees. The retirement system has determined that “core services” are those services that are important to the central purpose of a reporting unit, including but not limited to, the services provided by the following employee classifications:

Administration:
Assistant Superintendent (1120)
Principal (1150)
Program-Department Direction (1170)
Superintendent (1110)
Supervision-Management (1160)

Operation and Service:
Aide (1630)
Attendance (1680)

Professional – Business:
Accounting (1310)
Auditing (1320)
Personnel (1340)

Professional – Educational:
Counseling (1220)
Curriculum (1210)
Instructional Consulting (1250)
Instructional Media (1260)
Library (1230) Speech and Language Therapist (1280) Teaching (1240) Visually Handicapped Media (1270)

Professional – Other:
Psychological (1430)
Social Work (1440)

Technical:
Coaches-Recreational (1560)

ORS disclaimer:  Realizing each reporting unit is unique, the above list may not include all core services provided to a reporting unit. Retirees performing services in classifications not listed above may be determined by the retirement system as providing core services based on the circumstances existing in the reporting unit or the nature of the service being provided by a retiree. The retirement system may also determine a retiree at a reporting unit may be doing the work covered by one of these classifications and is, therefore, performing a “core service”.

MASA response
At first analysis MASA’s concerns remain that this definition does not balance the need to keep the retirement system solvent with the need for stability in critical needs areas that have direct impact on student achievement.

• A major fear is that ORS fails to provide a final list and reserves the right to expand the definition at their discretion.

• We remain concerned about the indirect implications of prohibiting future retirees from returning to serve in the capacity of critical shortage areas. While this could minimally impact the retirement system, this will significantly impair a district’s ability to fill these shortage positions in the future, resulting in a direct impact on student achievement and making it impossible for school districts to find support in these high demand professions.

• MASA is also concerned about the inclusion of instructional consulting. This addition adversely impacts the ability of districts to adequately staff shortage areas and remediate turnaround districts. MASA will continue to review the core services definition and work with ORS to seek further clarification where needed.