On January 1, 2015, new regulations adopted by the California State Teachers’ Retirement System (“CalSTRS”) will go into effect and significantly impact what forms of compensation CalSTRS will consider to be creditable. The new regulations will apply only to CalSTRS members who were not subject to the Public Employees’ Pension Reform Act of 2013 (“PEPRA”), meaning that it will apply to employees who became CalSTRS members before January 1, 2013. They will affect compensation earned for creditable service on or after January 1, 2015.
The most significant impact of the new regulations will be that certain forms of “remuneration in addition to salary” will no longer be creditable, starting January 1, 2015. These will include allowances commonly found in school district administrator employment agreements, such as transportation allowances and other reimbursable items and business expenses. These will also include cash payments in lieu of fringe benefits, such as health benefits.
In addition to these changes, the new regulations clarify that pay for assignments in addition to a member's full-time assignment will be creditable to the Defined Benefit Supplement (“DBS”) Program. These include extra-curricular duties for which the employee receives a stipend, such as coaching assignments. Likewise, compensation that is paid a limited number of times, has a specified end date, or is otherwise not permanent will be creditable to the DBS Program.
Importantly, school districts will have a limited opportunity to revise existing contracts that include compensation that will no longer be creditable under the new regulations, such as allowances and cash-in-lieu payments. Specifically, prior to January 1, 2016, the parties to such a contract may agree to permanently restructure those forms of compensation into salary. To be “permanent,” the restructure must: (1) be made within the employer’s standard bargaining or employment contract negotiation timeframes; and (2) not be implemented for a class of one and then reversed upon hire and negotiation of the first contract of the immediate successor. If properly restructured, the compensation will be creditable beginning on the effective date of the restructure. Districts should review all applicable contracts well in advance of the January 2016 deadline to determine whether any restructuring is needed.
If you have any questions regarding this matter, please call one of our six offices.
F3 NewsFlash prepared by Dean T. Adams, Jordan I. Bilbeisi and John W. Norlin.
Dean is a Partner in the F3 San Diego office.
Jordan is a Senior Associate in the F3 San Diego office.
John is Special Counsel in the F3 San Diego office.
This F3 NewsFlash is a summary only and not legal advice. We recommend that you consult with legal counsel to determine how this legal development may apply to your specific facts and circumstances. Information on a free NewsFlash subscription can be found at www.f3law.com.
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