The MTRS is hearing that due to the anticipated economic impact of the COVID-19 pandemic, school district employers may be considering local cost saving measures and wondering how they would impact their employees’ retirement benefits. If your district is considering such measures, we encourage you to review the following information before finalizing contractual agreements affecting MTRS members.
1. Relevant statutes
- M.G.L. c. 32, § 4(1)(c) allows the MTRS to grant up to one month of creditable service for any authorized unpaid leave of absence.
- M.G.L. c. 32, § 5(3)(b) provides that for any authorized unpaid leave of absence occurring within the three-year (or five-year for Tier 2 members) period used for the member’s final average salary, the MTRS will use the salary rate in effect for the member immediately preceding the period of absence.
- M.G.L. c. 32, § 1 excludes from pensionable earnings any amount paid as a result of an employer having knowledge of a member’s retirement.
2. What is a cost saving measure that WILL NOT negatively affect MTRS members’ retirement benefits?
A cost saving measure that will not impact a member’s retirement benefit is an appropriately structured furlough, which requires a temporary (less than one month) unpaid leave of absence from the member’s regular work.
EXAMPLE: The Sample Public School District has a teachers’ collective bargaining agreement (CBA) covering the period from FY2019-20 through FY2021-22. The CBA establishes a 184-day work year for teachers. As a cost saving measure, the district and union sign a Memorandum of Agreement (MOA) for the FY2020-21 school year that designates two (2) of the 184 days as furlough days when the teachers will not work and will not be paid. The teachers will, in effect, be on authorized unpaid leave of absence during those two days.
The MTRS benefits for the employees covered by this CBA and MOA will not suffer a negative impact from this furlough because:
- The MTRS will grant creditable service for the two unpaid furlough days pursuant to § 4(1)(c); and
- Any teachers for whom the two unpaid furlough days fall within their final average salary period, will be granted the salary rate in effect immediately prior to the furlough days pursuant to § 5(3)(b). Thus, for retirement purposes, it will be as if they had received their full salary.
Important note: if the furlough days include the first day of the 184-day contract year, the salary rate in effect immediately prior will be the rate in effect at the end of the previous school year. Thus, it is best to NOT have the first day of the contract year as one of the furlough days.
3. Which cost saving measures WILL negatively affect an MTRS members’ retirement benefit?
As noted above, in order to apply M.G.L. c. 32, §§ 4(1)(c) & 5(3)(b), and preserve members’ retirement benefits, the cost saving measure must be the equivalent of an authorized unpaid leave of absence from work. In the past, school districts have implemented cost saving measures that were intended to have the same result as a furlough, and were often called “furloughs,” but did not achieve the desired result. Here are some examples:
- Reduction of the school year—let’s say a school district with a CBA requiring a 184-day school year signs a MOA reducing the school year by two days to 182 days, and reduces teachers’ pay by the two days. By reducing the school year, the two days cannot be considered unpaid leaves of absence since there would be no workdays during which employees were absent. In this case, the teachers would receive their full creditable service because they would work their new full 182-day school year, but their salary average would be based on the lower salary.
- “Volunteer days”—let’s say a school district with a CBA requiring a 184-day school year signs a MOA that reduces teachers’ pay by two days but requires them to “volunteer” to work on those two days. Since the teachers are working, they are not on authorized unpaid leave of absence, and therefore neither § 4(1)(c) nor § 5(3)(b) apply. As a result, the teachers will not receive creditable service for those days, and if they are retiring, their final average salary will be reduced by the two days’ pay.
4. What is the impact of a “salary freeze?”
In the past, some districts have negotiated a salary freeze during a period of severe budget cuts. However, in an attempt to help the teachers who are retiring during the period of the freeze, some districts carved out an exception for those teachers, such that they received the raise previously negotiated, but all other teachers in the district were paid at the previous year’s rate.
Unfortunately, if a school district implements any type of exception for members who are retiring, the associated compensation will not be included in the three-year salary average. Pursuant to M.G.L. c. 32, §1, 807 CMR 6.00 and 840 CMR 15.00, any amount paid as the result of an employer having knowledge of a member’s retirement is not regular compensation.
We hope this information is helpful as you plan your budgets
If you would like an opinion as to whether your district’s particular cost saving measure will have an impact on the retirement calculation of your MTRS members, please mail or email a copy of the relevant contract language to the attention of Jonathan Osimo, MTRS Assistant Executive Director for Member Services at firstname.lastname@example.org
With very best wishes to you and yours in this challenging time,
Erika M. Glaster