BEFORE THE TEACHERS' RETIREMENT SYSTEM
OF THE STATE OF MONTANA
In the matter of the adoption of New Rule I pertaining to the determination of incentives and bonuses as part of a series of annual payments and included in earned compensation
NOTICE OF PUBLIC HEARING ON PROPOSED ADOPTION
TO: All Concerned Persons
1. On September 11, 2009, at 9:00 a.m., the Teachers' Retirement System of the State of Montana will hold a public hearing in the Board Room of the Teachers' Retirement System of the State of Montana building, 1500 E. Sixth Avenue, Helena, Montana, to consider the proposed adoption of the above-stated rule.
2. The Teachers' Retirement System will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice. If you require an accommodation, contact the Teachers' Retirement System no later than 5:00 p.m. on September 4, 2009, to advise us of the nature of the accommodation that you need. Please contact Jenny Stark, Teachers' Retirement System of the State of Montana, 1500 E. Sixth Avenue, P.O. Box 200139, Helena, Montana, 59620-0139; telephone (406) 444-3754; fax (406) 444-2641; TDD (406) 444-1421; or e-mail firstname.lastname@example.org.
3. The proposed new rule provides as follows:
NEW RULE I DETERMINATION OF INCENTIVES AND BONUSES AS PART OF A SERIES OF ANNUAL PAYMENTS AND INCLUDED IN EARNED COMPENSATION (1) An incentive or bonus payment paid to a member is part of a series of annual payments, and therefore included in earned compensation, only if:
(a) the incentive or bonus has been paid to the member for at least five consecutive years;
(b) the employer publishes, in some official manner (in board minutes, in a collective bargaining agreement, in employment contracts, etc.):
(i) its intent to make the incentive or bonus payments;
(ii) who will receive the incentive or bonus payments;
(iii) the criteria for determining the award and amount of the incentive and bonus payments with respect to all employees and certification classes to receive the payments;
(iv) the anticipated duration of the incentive or bonus payments;
(v) the specific annual amount of the incentive or bonus payment or the specific percentage of annual base contract salary by which the incentive or bonus payment will be calculated;
(vi) how the incentive or bonus payments will be made (annually, monthly, etc.); and
(vii) the date by which the payment will be made.
(c) the incentive or bonus payment amount in each year is the same or is subject to fluctuation only if the payment is determined as a percentage of annual base contract salary, in which case, the percentage increase in annual base contract salary is the same in each year for all employees of the certification class (teacher, administrator, or superintendent);
(d) continuation of the incentive or bonus payment is relatively certain and not subject to budgetary discretion, revenue stream factors, or award or payment criteria that puts the payment at any greater risk of nonpayment than the base salary; and
(e) eligibility criteria and payment calculation methodologies do not weight the award of or amount of incentive or bonus payments in a manner that disproportionately increases compensation to employees based on years of service or age, including that:
(i) if an incentive or bonus is paid to one employee of a certification class, the incentive or bonus must be paid to every member of that certification class; and
(ii) the amount of the incentive or bonus paid to each employee of a certification class must be the same, except that the incentive or bonus payment amount paid to each member of the certification class may be calculated as a percentage of each employee's annual base contract salary, in which case, the percentage of annual base contract salary to be calculated must be the same for all employees of the certification class.
(2) If incentive or bonus payments that are otherwise part of a series of annual payments have not been paid to a member for at least five consecutive years at the time the member retires, any amounts reported in the three-year period that constitutes a member's average final compensation will be included in average final compensation as termination pay Option 2 as provided under 19-20-716, MCA.
(3) An employer who wants incentive and bonus payments that are part of a series of annual payments included as part of the earned compensation of its employee(s) must submit the published information described in (1)(b) to the Teachers' Retirement System for review prior to submitting contributions for those compensation amounts.
(4) Bonus and incentive payments that are part of a series of annual payments are subject to the 110% cap set forth in 19-20-715, MCA.
AUTH: 19-20-201, MCA
IMP: 19-20-101, 19-20-102, MCA
STATEMENT OF REASONABLE NECESSITY: The adoption of this rule is reasonably necessary to describe the circumstances under which a bonus or incentive payment will be deemed to be part of a series of annual payments, and therefore, will be included in the definition of earned compensation (see 19-20-101(6)(e), MCA) for purposes of calculation of retirement benefits. In general, pursuant to 19-20-101, MCA, bonus and incentive payments are not included as earned compensation. This standard exists to prevent "salary spiking" - the payment of nontypical amounts of money by employers to retirement system members at times and in manners that have the effect of inflating the member's average final compensation for purposes of calculating the member's retirement benefit without sufficient contribution to the retirement system to pay for the enhanced benefit. While bonus and incentive payments that are made as part of a series of annual payments may be included in earned compensation, it is necessary for the retirement system to describe the circumstances under which bonuses and incentives will be deemed to have been made as part of a series of annual payments in order to ensure that all employers and members are aware of the applicable standards, that all similarly situated members are being treated in the same manner, that each member of the retirement system is provided equitable benefits based on the member's normal service and salary, that the deleterious effect on the retirement system arising from isolated salary increases is avoided, and that the retirement system continues to be operated in an actuarially sound manner.
4. Concerned persons may submit their data, views, or arguments either orally or in writing at the hearing. Written data, views, or arguments may also be submitted to David L. Senn, Teachers' Retirement System of the State of Montana, 1500 E. Sixth Avenue, P.O. Box 200139, Helena, Montana, 59620-0139; telephone (406) 444-3376; fax (406) 444-2641; or e-mail email@example.com, and must be received no later than 5:00 p.m., September 11, 2009.
5. David L. Senn, Teachers' Retirement System of the State of Montana, has been designated to preside over and conduct this hearing.
6. The Teachers' Retirement System of the State of Montana maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request that includes the name, e-mail, and mailing address of the person to receive notices and specifies for which program the person wishes to receive notices. Notices will be sent by e-mail unless a mailing preference is noted in the request. Such written request may be mailed or delivered to the contact person in 4 above or may be made by completing a request form at any rules hearing held by the Teachers' Retirement System of the State of Montana.
7. An electronic copy of this proposal notice is available through the Secretary of State's web site at http://sos.mt.gov/ARM/Register. The Secretary of State strives to make the electronic copy of the notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that if a discrepancy exists between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered. In addition, although the Secretary of State works to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.
8. The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled. Senator Dave Lewis was the primary sponsor of House Bill 91 (2001) which inserted subpart 19-20-101(6)(e)(iii), MCA, excepting bonus and incentive payments from earned compensation unless such payments are part of a series of annual payments. Senator Lewis was contacted in writing via e-mail from David L. Senn on June 30, 2009, of the retirement system's intent to engage in rulemaking, which written notice to the primary sponsor included a draft copy of this proposed rule notice.
By /s/ Denise Pizinni By /s/ David L. Senn
Denise Pizzini David L. Senn
Rule Reviewer Executive Director
Teachers' Retirement System of the State of Montana
Certified to the Secretary of State July 17, 2009.