As more school agencies are dealing with furlough days at the collective bargaining table and in their instructional programs, we continue to receive many questions about how to implement furlough days and what impact they may have on work calendars and retirement benefits.
In order for furlough days to have the least detrimental impact on employees' retirement benefits, the following must occur:
- Furlough days must be applicable to the entire class of employees
- The reduction in work days must be reflected in the work calendar and the total number of days worked per year for each class of employees
- The salary reduction impact of furlough days must be reflected by revising the salary schedule downward for each class of employees
STRS Employees
For State Teachers' Retirement System (STRS) employees, it is critical to revise the salary schedule downward to reflect the new, lower "compensation earnable." If it is not adjusted downward, then the furlough days must be reported as nonpaid days and can have the effect of reducing the service credit earned below 1.0 for the year.
Here is a sample calculation for reflecting furlough days in the salary:
Salary before furlough days: $50,000 per year
Number of work days before furlough days: 183 per year
Number of furlough days starting in 2009-10: 5 per year
Calculation: 5 days divided by 183 days = 2.7322%
2.7322% times $50,000 = $1,366
$50,000 minus $1,366 = new salary of $48,634
Or: $50,000 divided by 183 days = $273.224 per day
183 days minus 5 days = 178 work days per year
$273.224 times 178 days = new salary of $48,634
The employer will have to do a negative retroactive pay adjustment for STRS if the number of work days is reduced midyear.
In order to preserve a full year's service credit for full-time STRS employees, the furlough days cannot cause the reduction in work time to fall below the following (per Education Code Section 22138.5):
- 1,050 hours per year for teachers in adult education programs
- 190 days or 1,520 hours per year for principals and program managers, including advisers, coordinators, consultants, and developers or planners of curricula, instructional materials, or programs, and for administrators (except for administrators at a county office of education at 215 days or 1,720 hours per year, including school and legal holidays per local board policy)
- 175 days or 1,050 hours per year for all other positions serving pre-kindergarten through grade 12
STRS plans to do a webinar within the next month or two to explain further how to deal with furloughs. We'll let you know as soon as we are advised of a date and time for the webinar.
PERS Employees
In order to preserve a full year's service credit for full-time Public Employees' Retirement System (PERS) employees, they must work at least:
- Ten months if they are paid monthly
- 215 days if they are paid daily
- 1,720 hours if they are paid hourly
Essentially, if a PERS employee works at least ten months of service full time, a full year of service credit is earned.
Pending legislation, AB 1651 (De La Torre, D-South Gate), would assure that the PERS retirement benefits of employees in K-14 school agencies subject to mandatory furloughs are not impacted. This would be accomplished by including the amount of service and compensation that would have been credited and paid had the member not been subject to mandatory furloughs on or after July 1, 2008. However, the bill is silent on how the cost of that benefit would be paid for. The first hearing on the bill was postponed, and the bill has not yet been heard.
Final Compensation
In terms of the final compensation calculation, both STRS and PERS provide some flexibility. If the final time period worked is not at the highest salary earned by the employee, a time period (12 months or 36 months, depending on the situation) other than the final time period can be used for retirement purposes. There are specific instructions provided with the retirement applications for STRS and PERS that spell out the requirements.
--Sheila Vickers, Michele Huntoon, CPA, and Deborah Harmon