On July 1, 2016, the General Assembly allowed the TRS Early Retirement Option to sunset, and as a result approximately 200,000 active and inactive TRS members will be eligible later this year for a refund of the total contributions they paid between 2005 and 2016 to help fund the ERO program. In response, TRS recently issued guidance to its membership outlining the important aspects of ERO sunset, including notice of the reduction in active members’ TRS payroll contributions from 9.4% to 9.0% effective as of July 1, 2016, and the timeline and options for eligible members to manage refunds of their previously made ERO contributions.
Although the refunds will be made by TRS directly to its members, school districts should review the terms of their collective bargaining agreements (with particular emphasis on salary schedules and retirement benefit increases), employment contracts (with particular emphasis on contribution pick-up language) and applicable benefits policies to determine whether there is any impact on employee compensation structure going forward.
For example, because an employer’s “pick-up” of the employee TRS contribution in addition to stated salary itself constitutes reportable compensation, the elimination of the ERO portion of the contribution rate in such cases generally will decrease the employer’s total pick-up, resulting in a decrease in overall reportable earnings. Conversely, if the employee’s TRS contribution has been salary reduced from stated salary, a reduction in the withheld TRS contribution rate will reduce the TRS withholding, generally resulting in more take-home salary but no change in overall reportable compensation.
Also, 6% “cap” arrangements in contracts should be reviewed in situations in which the employee TRS contribution is picked-up in addition to salary to determine whether the .4% reduction in the TRS contribution rate will bring the employee’s salary increase under 6% and create an obligation for an equivalent amount of other previously capped reportable compensation to be paid. Collective bargaining agreement terms and schedules may require additional analysis based on the history of negotiations and district past practice, and districts are advised to consult with their labor counsel accordingly.
For inquiries into how the expiration of the Early Retirement Option may impact your district, please contact Heather Brickman, Barbara Erickson or any of our labor or personnel attorneys.