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 ADOPTION
TO: All Concerned Persons
1. On July 30, 2009, the Teachers' Retirement System of the State of Montana published MAR Notice No. 2-44-415 pertaining to the public hearing on the proposed adoption of the above-stated rule at page 1183 of the 2009 Administrative Register, Issue Number 14.
2. The board has adopted the following rule as proposed, but with the following changes from the original proposal, new matter underlined, deleted matter interlined:
NEW RULE I (2.44.530) DETERMINATION OF INCENTIVES AND BONUSES AS PART OF A SERIES OF ANNUAL PAYMENTS AND INCLUDED IN EARNED COMPENSATION (1) through 1(b)(iv) remain as proposed.
(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) and (vii) remain as proposed.
(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) through (e)(i) remain as proposed.
(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) remains as proposed.
(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 should submit the published information described in (1)(b) to the Teachers' Retirement System for review prior to submitting contributions for those compensation amounts.
(4) As used in this rule, "annual salary" means the salary to be paid to a member of the Teachers' Retirement System in a particular year as set forth in the employer's salary schedule or in a written employment agreement, without consideration for pay for additional duties, bonuses, incentives, fringe benefits, or other additions to remuneration.
(4)(5) 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, and administrative rules clarifying 19-20-715, MCA.
AUTH: 19-20-201, MCA
IMP: 19-20-101, 19-20-102, MCA
3. The board has thoroughly considered the comments and testimony received. A summary of the comments received and the board's responses are as follows:
COMMENT #1: Commenter stated that, to the extent bonuses or incentives paid as part of a series of annual payments are agreed to through collective bargaining, and are reflected in a collective bargaining agreement, those provisions will not have separate indications of the anticipated duration of the payment of the bonuses or incentives as required by (1)(b)(iv), and requested clarification in the rule that a separate indication of intended duration will not be necessary.
RESPONSE #1: The retirement system agrees that additional indication of the intended duration of the payment of bonuses or incentives as part of a series of annual payments is not necessary if the agreement to make such payments is reflected in a collective bargaining agreement, as the term of a collective bargaining agreement is sufficiently stated and the provisions of a collective bargaining agreement continue unless affirmatively removed or amended in subsequent negotiation and execution of the collective bargaining agreement. However, the retirement system does not believe any modification of the proposed rule is necessary because the requirement set forth in (1)(b)(iv) is substantively met by inclusion of an agreement to pay a bonus or incentive as part of a series of annual payments, which meets all other requirements of this rule, in a collective bargaining agreement.
COMMENT #2: Commenter stated that the use of the term "annual base salary" in the rule may be misleading because that term is generally understood to mean only the salary paid to a first-year teacher, rather than the annual salary intended to be paid to any given employee based on the negotiated salary schedule of a school district. Commenter indicated that the term "scheduled salary" is the term generally used to refer to the annual salary to be paid to any particular teacher under a collective bargaining agreement, and suggested that the rule should be modified to refer to "annual base salary or scheduled salary."
RESPONSE #2: The retirement system did not intend to refer to the salary to be paid to first-year teachers in a school district as a basis for calculation of bonuses or incentives for all certified employees of the school district, but rather intended to refer to the annual salary agreed to be paid to each employee under a collectively bargained salary schedule or under an employment agreement for those employees not in a bargaining unit. However, the retirement system believed a better modification would be to use the general term "annual salary," and to define that term within the rule to encompass all categories of employees reportable to the retirement system and the manners in which their annual salaries may be documented.
COMMENT #3: Commenter stated the requirement in (3), that employers must submit the published information required under (1)(b) prior to submitting contributions on the reported amounts, may be unreasonable; inquired whether an employer's failure to do so would prevent consideration of a bonus or incentive paid as part of a series of annual payments as part of earned compensation; and suggested (3) should be removed.
RESPONSE #3: The retirement system agrees that the failure of an employer to submit the published information required under (1)(b) prior to submitting contributions to the retirement system should not bar a determination that a bonus or incentive payment was made as part of a series of annual payments, if such bonus or incentive payment otherwise meets the requirements of this rule. However, the retirement system disagrees that the provision should be deleted in its entirety as prior notice to the retirement system by an employer that it is paying bonuses or incentives it believes should be included as part of earned compensation allows the retirement system to review the bonus or incentive payments to determine whether they are appropriately included as earned compensation prior to crediting a member with earned compensation on the basis of payment of a bonus or incentive. A bonus or incentive improperly credited as earned compensation would have to be rescinded at a later time, potentially to the detriment of the member, including that the member may be required to repay overpaid benefits with interest. Therefore, the retirement system is maintaining the provision but has changed the language from "must submit the published information" to "should submit the published information."
COMMENT #4: Commenter requests that (5) be modified to clarify that the exception for increases that result from collective bargaining agreements in ARM 2.44.518 applies to this rule.
RESPONSE #4: The retirement system disagrees that it is necessary or appropriate to reference a specific current rule or any discrete portion of a current rule that clarifies the statutory provisions applicable to this rule, but agrees it is reasonable to reference all administrative rules that clarify the statute providing for the 110% cap to avoid creating the impression that the 110% cap applies to bonus or incentive payments made as part of a series of annual payments exclusive of any exceptions or limitations to the application of that statute as otherwise provided by administrative rule.
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 October 5, 2009.