Administrative Directive

AD97-01 Issued 3-3-97 Exemption From the Post-Retirement Earnings Limitation

TO:

All County Superintendents of Schools,
District Superintendents of Schools,
Community College Districts, and
Other Employing Agencies

FROM:

EXECUTIVE OFFICE

SUBJECT:

Administrative Directive 97-01

Exemption From the Post-Retirement Earnings Limitation

PURPOSE

The purpose of this Administrative Directive is to inform employers of statutory provisions that permit an exemption from the post-retirement earnings limitation under specific, limited circumstances. The exemption provisions are provided under Section 24216, which was added to the Education Code by Assembly Bill (AB) 948 (Chapter 394, Statutes of 1995).

Section 24216 became operative on July 1, 1995, and will be repealed as of July 1, 2000, unless another statute is enacted prior to that date to delete or extend the operative period of the exemption provisions. Exemption periods that begin prior to July 1, 2000, will continue beyond July 1, 2000, to the end of the exemption period.

SCOPE

This Directive applies to all county superintendents of schools, school districts, community college districts, and all other employing agencies that employ individuals to perform creditable service under the State Teachers’ Retirement System (STRS) Defined Benefit Plan. The Directive states the requirements that must be met in order to qualify for an exemption from the post-retirement earnings limitation pursuant to Education Code Sections 24214 and 24215.

DISCUSSION

The discussion in this Directive focuses primarily on the statutory provisions under which a retired member may be granted an exemption from the post-retirement earnings limitation as enacted via AB 948. Within this discussion, the term “retired member” refers to a member of the STRS Defined Benefit Plan who retired for service. A retired member who performs creditable service as defined in Education Code Section 22119.5 and who is not granted an exemption from the earnings limitation is subject to the earnings limitation provisions of Education Code Sections 24214 and 24215. These provisions are applicable regardless of whether the service is performed as an employee of the employer, an employee of a third party, or as an independent contractor or consultant.

It should be noted that the statutory provisions of Section 24216 regarding an exemption from the earnings limitation are not applicable to members who retired for disability.

The provisions of Education Code Section 24216 establish two specific circumstances, with specified conditions, under which an exemption from the post-retirement earnings limitation may be granted.

  1. EXEMPTION FOR A LIMITED-TERM APPOINTMENT OR ASSIGNMENT

    A retired member may be granted an exemption from the post-retirement earnings limitation for a limited-term appointment by the Superintendent of Public Instruction or limited-term assignment by a County Superintendent of Schools as a trustee or administrator in a financially insolvent school district pursuant to Education Code Section 41320, et seq. A retired member who accepts the limited-term appointment or assignment may be exempt from the post-retirement earnings limitation for no more than two years, providing specific criteria are met.

    The appointment or assignment must be made pursuant to the provisions of AB 1200 (Chapter 1213, Statutes of 1991). AB 1200 added Sections 41320.1, 41325, 41326, and 41327 to the Education Code. These sections provide that, under specified conditions, the State Superintendent of Public Instruction shall assume the legal rights, duties, and powers of the governing board of a Kindergarten through Grade 12 school district and may appoint a trustee or an administrator to act on behalf of the State Superintendent. The appointee will perform the functions of the governing board of the district.

    These sections also provide that, under specified conditions, the County Superintendent of Schools may directly oversee the operation of a financially distressed school district and may assign a fiscal advisor to serve during the financial recovery process.

    A retired member who received additional service credit pursuant to the Golden Handshake provisions of Education Code Section 22714, 22715, or 22716 is prohibited by the provisions of Section 24216 from being eligible for an exemption from the post-retirement earnings limitation.

    The exemption from the earnings limitation for the retired member will commence on the date of appointment or assignment and will end no more than two calendar years from that date. Compensation earned by the retired member for creditable service performed after the exemption period ends will be subject to the earnings limitation in effect at the time the compensation is earned.

    The provisions of Education Code Section 24214 authorize the System to reduce the member’s retirement allowance if compensation is earned in excess of the earnings limitation.

     

  2. EXEMPTION FOR EMPLOYMENT IN AN EMERGENCY SITUATION

    A retired member may be granted an exemption from the post-retirement earnings limitation for employment in an emergency situation to fill a vacant administrative position consistent with the provisions of Education Code Section 24216. A retired member who accepts employment in an emergency situation to perform creditable service may be exempt from the post-retirement earnings limitation for up to one-half of the full-time equivalent (FTE) as defined in Section 22138.6.

    The retired member must be employed to fill a vacancy in an administrative position that was unanticipated and occurred due to circumstances beyond the control of the employer. For example, the vacancy is the result of an event such as death, disability, unanticipated resignation from employment, or other unplanned termination of employment.

    A vacancy that occurs as a result of the employer offering a Golden Handshake retirement incentive does not qualify as a situation beyond the control of the employer and the retired member employed in that position would not be eligible for an exemption from the earnings limitation. In addition, a retired member who received additional service credit under the Golden Handshake provisions pursuant to Education Code Section 22714, 22715, or 22716 is prohibited from being eligible for an exemption from the post-retirement earnings limitation.

    The position must be an administrative position requiring an individual who has highly specialized skills, knowledge, and experience. The employer must determine that no one currently employed by that employer is both qualified and available to fill the position on a temporary basis. Although a person may be qualified and available, if he or she is a candidate for the permanent position, that person would be an inappropriate choice for employment in the emergency situation.

    The employment must be on a temporary basis until an individual can be recruited to fill the position on a permanent basis. The recruitment process for a permanent replacement must be expected to extend over several months.

    A retired member who is granted an exemption in this situation may perform creditable service for up to one-half of the FTE for the position. Compensation earned by the member will be monitored by STRS to determine when one-half of the FTE has been worked. Compensation earned from creditable service beyond one-half of the FTE is subject to the earnings limit in effect at the time the compensation is earned.

    The provisions of Education Code Section 24214 authorize the System to reduce the member’s retirement allowance if compensation is earned in excess of the earnings limitation.

    EXAMPLE OF COMPENSATION EXEMPT FROM EARNINGS LIMITATION:
    FTE for the position = $85,000
    Salary earned by retired member = $75,000
    Salary exempt from earnings limitation = $42,500 (_ FTE)
    Salary subject to earnings limitation = $32,500
    FY 1996-97 earnings limitation = $17,850
    Excess earnings = $14,650 ($32,500 – $17,850 = $14,650)
    The System will withhold 100% of the retired member’s monthly allowance until an amount equal to the excess earnings has been offset against the member’s retirement benefit.

ACTION

During the operative period of the provisions of Section 24216, exemptions from the earnings limitation for retired members who fill vacancies in specified administrative positions will be granted or denied based on the information provided to STRS by the Superintendent of Public Instruction, the County Superintendent of Schools, or the employer (whichever is applicable to the individual situation). Proper completion of the form applicable to the specific instance for which an exemption is being requested will provide the criteria required by STRS to determine whether or not the exemption can be granted pursuant to the provisions of Education Code Section 24216(a) or 24216(b).

All information provided is subject to audit by STRS’ Office of Audits pursuant to Education Code Section 22206. Action required to request an exemption is as follows:

The appointment, assignment, or employment and the exemption from the STRS earnings limitation must be reported in a public meeting of the governing board. A copy of the board’s minutes, along with the certification form, must be submitted to STRS.

STRS recommends that the necessary certification form be submitted prior to the appointment, assignment, or employment of a retired member to fill a specified vacancy in order to minimize any adverse consequences that could occur upon denial of an exemption.

The employer must report to STRS through the standard reporting process all compensation earned by the retired member under the exemption provisions. The employer must include the pay rate appropriate for the position filled by the retired member and the pay period in which the compensation was earned.

  1. EXEMPTION FOR A LIMITED-TERM APPOINTMENT OR ASSIGNMENT

    To request an exemption for a limited-term appointment or assignment pursuant to Education Code Section 24216(a)the Superintendent of Public Instruction or County Superintendent of Schools must submit documentation to STRS to substantiate the eligibility of the retired member for an exemption from the earnings limitation. Submission of the required documentation must be on the “Exemption Certification – Limited-Term Appointment/Assignment,” STRS form (SR 0164), included in this Directive.

    Once the exemption has been approved by STRS, the period of the exemption will begin on the date the retired member is appointed or assigned and will end no more than two calendar years from the date of appointment or assignment.

  2. EXEMPTION FOR EMPLOYMENT IN AN EMERGENCY SITUATION

    To request an exemption for employment in an emergency situation pursuant to Education Code Section 24216(b)the employer must submit documentation to STRS to substantiate the eligibility of the retired member for an exemption from the earnings limitation pursuant to Education Code Section 24216(b). An exemption will be granted subject to the following conditions:

    1. A vacancy exists in an administrative position due to circumstances beyond the control of the employer;
    2. The vacancy occurred on an emergency basis (i.e. the employer did not have prior knowledge of the circumstances under which the position became vacant);
    3. The recruitment process to fill the vacancy on a permanent basis is expected to extend over several months;
    Submission of the required documentation must be on the “Exemption Certification – Emergency Employment of Retired Member,” STRS form (SR 0165), included in this Directive. The employer must substantiate why no currently employed person is qualified and available to fill the position on an interim basis. A retired member employed in a position such as school principal, generally will not qualify for an exemption. However in a small school district, where no currently employed person has the required experience or skills for service as a principal or if an available and qualified person is a candidate for the permanent position, an emergency exemption may be granted.

CONTACT

Questions regarding this Administrative Directive, the attached forms, or the related procedures for requesting an exemption from the post-retirement earnings limitation should be directed to the STRS Benefit Adjustments Unit supervisor, Sheba Lamba, at (916) 229-3588 or Marlene Wilgus at (916) 229-4664.

Signed,

JAMES D. MOSMAN
Chief Executive Officer

Commands