The following FAQ has been compiled based on MASA member questions regarding the impact of the ongoingBatista v. ORS lawsuit, with answers provided in conjunction with our legal counsel at Miller Johnson.
This information is not intended as legal advice. It is for general informational purposes only. For specific legal advice related to your situation, please consult with a qualified legal professional.
Additional information will be added as it becomes available.
(Updated 11/22/23)
ORS Specifics
What years will ORS consider “under” this ruling? Will this go back to 2019 or Sept. 2023?
It is first important to remember in all of these questions that the September 14, 2023, ruling of the Michigan Court of Appeals is not a final ruling at this point. If this Decision becomes law, however, it will have general applicability for any situation where section 3a(3)(f) of the retirement act would need to be applied. As a result, anyone that does not have a final decision on their pension award would likely be subject to the final ruling on the application of the law.
Is the “no salary increase” piece retroactive to the pension calculation for people who are currently retired?
It should not be. If those individuals have a final award from ORS for their Final Average Compensation and pension amount. Those individuals would be vested in that decision and ORS should not be able to reconsider their pension award retroactively.
What years is the Final Average Compensation (FAC) being based on?
The ruling would not impact the method used to calculate the FAC, only the method to determine what is or is not “compensation.” An individual’s pension would still be based on their three highest paid consecutive years (or best three of five depending on the plan).
What is to prevent a superintendent from using a loophole of resigning from their current district rather than retiring, get hired as any level employee (e.g. teacher) at another district, and retire after the first paycheck to receive compensation based on three-year Final Average Calculation?
The benefit of a superintendent leaving their current district would be to potentially “uncap” their compensation because they are now working for a new reporting unit. This would only be beneficial if the superintendent is working for an amount greater than what would otherwise be their Final Average Compensation at their current reporting unit. To get the full benefit of that movement, however, the superintendent would need to work for three years at the new reporting unit, which would become their new FAC.
If districts are paying ORS tax on the salary paid under the contract, shouldn’t that salary be considered in the calculation?
ORS has generally taken the position that if their audit or final review results in a determination that compensation is less than was reported by the school district, the school district must modify its report (or ORS will do so itself if the district refuses) and then ORS will return any overpaid contributions. We see no reason why ORS would not follow the same process under this ruling.
For Superintendents who are not receiving the correct amount of retirement due to ORS not counting certain parts of compensation for which the district and the employee paid ORS costs on, is ORS refunding the employee and the employer contributions for all the years they were paid to ORS?
Based on the information that we have ORS is not currently making any final decisions on pension awards because this ruling is not a final decision that closes the case. If this ruling were to stand, however, we would anticipate that ORS would refund any contributions for compensation that it determined to be in excess of what is allowed by law.
If my annual percentage increase is only applied based upon my annual evaluation score, is that considered “merit pay” and then would be covered by the alt. sections of ORS?
Possibly. It is impossible to make attempted determinations in individual cases without seeing contracts, etc. That having been said, section 3a(2)(h) makes clear that “[m]erit pay as established by a reporting unit for the purpose of rewarding achievement of specific performance objectives.” A contract that bases increases on specific performance objectives could be considered merit pay. That having been said, ORS has created criteria that it includes in the Reporting Instruction Manual (RIM) in addition to what is contained in the statute that it uses to determine whether a form of pay is “merit pay.” Those criteria are in section 4.02 of the RIM and include: “A specific performance objective is established before the fiscal year or onset of pay period during which the employee takes action toward achievement of the performance objective;” and “The performance objectives associated with the merit pay are measurable and time bound.” Section 4.02 also provides that merit pay “cannot be paid for the specific purpose of increasing the employee’s final average compensation.”
Salary Schedules/Contract Changes
Does vacation pay, longevity pay, and/or annuity pay count toward the Final Average Compensation? If so, can those clauses in an existing contract be redone?
Subsection 3a(2)(d) of the Retirement Act specifically lists longevity pay as “compensation.” Board payments into a tax-sheltered annuity (i.e., 403b) are also considered compensation, under section 3a(2)(b) so long as they paid “as remuneration for service under this act.” In this regard, we have advised that it is important that tax-sheltered annuity payments are not listed in contracts, or could not be construed, as a “benefit” or “fringe benefit” (which are excluded as compensation by section 3a(3)(d)).
Under section 3a(2)(f), vacation pay is only considered compensation when it is paid “while absent from work.” Subsection 3a(3)(a) excludes from compensation payments for “unused sick or annual leave.”
As for redoing a contract, we would caution against making any drastic changes at this time, given that the decision is not final. If changes are made, it’s important to be careful that an individual does not get put into a position where ORS denies the compensation under section 3a(3)(e), which excludes “[r]emuneration paid for the specific purpose of increasing the final average compensation.” Thus, we do not recommend modification of a contract without specific legal advice.
What constitutes a salary schedule?
(e.g. If our administrators get the same percentage increase as the teachers negotiate, is that a normal salary schedule? / My contract lists what I will be paid for the next three years. Is that a salary schedule? / Our administrative salary increases are tie-barred to teacher increases each year. Does that count as a salary schedule?)
This is precisely one of the issues we are asking the Supreme Court to consider. The Court of Appeals’ ruling provided that it “[a]ssum[ed] without deciding” that normal salary schedules could exist outside of collective bargaining agreements, but then went on to provide that “plaintiff members work under personal employment contracts and are not subject to anything that could reasonably be construed or described as normal salary schedules.” Given that, it would appear that the current ruling would exclude from the phrase “normal salary schedule” anyone paid under an individual employment contract. To the extent that interpretation may be overly-broad, the court did not provide any guidance.
Is it possible for a District to create a “collective bargaining unit” for all non-affiliated members with salary schedules for each position? Would ORS honor this as a bargaining group and salary schedule?
It is extremely difficult to predict what ORS would do in any given situation, especially one such as this where there is very little history to review. That having been said, it is our belief that ORS has respected such administrative groups for principals and assistant principals in the past, so it is possible they would do so for other administrators, so long as they were in a classification of three or more members. This is based on the court’s ruling that in classifications of two or less, those individuals must be “shoehorned” into a different normal salary schedule even if one applied to their position.
Will a Board-created schedule be accepted by ORS as their “salary schedule” and acceptable annual increases? If so, should all districts simply create salary steps for Cabinet-level employees, especially if there are less than three employed by the district?
Again, it is hard to predict what ORS will do in any given situation. That having been said, if this ruling were to become a final ruling in the case, it would be advisable for school districts to create normal salary schedules for administrators. It should again be noted, however, that under the current Court of Appeals ruling, ORS would not apply that District-created salary schedule to any classification of less than three members.
Can we create similar salary schedules from a retrospective standpoint?
Retroactive salary schedules could certainly be created, but it is unlikely that ORS would respect such retroactively created schedules unless ordered to do so by a court.
Can we group our Central Office administrators into a group that is more than three to validate our current and future salaries?
Possibly. Section 3a(3)(f) focuses on “classifications” of three or more. As a result, to make such a grouping more acceptable to ORS, the individuals would likely have to have the same or similar titles or responsibility levels to be considered within the same “classification.”
As we are helping new Superintendents structure their first contacts and others transition to new districts, do you feel there are “new” or better areas to focus on for retirement now or upcoming?
As of now, we are focusing on reversing or modifying the current ruling and attempting to get a legislative fix for the statute. Again, the current ruling is not a final ruling. We do not believe it is prudent to attempt to radically restructure superintendent contracts or encourage individuals to leave their jobs (and create instability in the educational system) at this time when we do not have a final answer from the courts.
Legal/Court Related
Can we get an injunction on ORS while the courts are processing it?
We are exploring several options in an effort to prevent ORS from applying the current ruling of the Court of Appeals. That process will not be easy, but we are doing all we can at this time.
What is the expected timeline for the Supreme Court to accept or deny the application for appeal? If they accept, what is timeline for the case being taken up?
The Supreme Court generally works in terms that are not unlike a school year. They begin in late summer/early fall and process cases through June. We are hopeful that the Court will take our case and take it for this term. If that occurs, we could have an answer by June 30, 2024. However, this is by no means a guarantee. It is entirely possible that even if the Court were to accept our case, it would delay hearing and a decision until the 2024-25 term. We will be taking any possible measures to get the case reviewed and (hopefully) heard as soon as possible.
Additional Questions
The problem is that many of us started low and then our Board increased our salaries once we “proved” ourselves. How can the ORS justify using the FAC if we stayed somewhere long-term and our Board, who is our boss, saw fit to increase our wages? Shouldn’t longevity and years of work count for something?
We are unsure how ORS will interpret and apply the current ruling should it become a final ruling. That having been said, as previously noted, “longevity” should be considered by ORS as it is specifically listed in the Retirement Act as a form of “compensation.” As for other increases, it would depend on how ORS applied the mandate that superintendents (because they are always in a classification of less than three) be “shoehorned” into another contract. The Court of Appeals’ decision provided that some raises may be considered as compensation in such cases but did not explain how that process is supposed to work.
If this isn’t rolled back retroactively, how can that be fair to individuals retiring now who would no longer have equal protection of property?
The current ruling is an interpretation of the law as it currently exists. From our understanding, ORS is not currently issuing any “final” decisions on pension awards until the matter is fully settled. As for Equal Protection, courts generally hold that interpretations and applications can be modified up until an individual is fully vested in a right. By not issuing final decisions, ORS is attempting to delay that vesting point. It should also be noted that as plaintiffs in this case, we raised Equal Protection arguments relative to the NSI. One of the points we have asked for currently is the possibility to reconsider our case on Equal Protection (and other constitutional claims) in light of the current ruling.
What about those of us who have retired and have been receiving “reduced” pension amounts due to NSI rulings by the ORS – they aren’t processing our appeals?
We cannot speak to what ORS is or is not doing. It is our understanding, however, that appeals based on NSI are not moving very swiftly through the system – likely because ORS is trying to determine what will be the final state of the law.
Some retirees aren’t receiving a pension check at all, and it’s been months since the retirement was submitted to ORS. How is that legal?
We are working on multiple methods to try to push ORS to move more quickly in processing the payment of pensions to retirees. It is our understanding that once payment is approved, ORS is paying fully for months that have been missed, but the process has obviously been slow. While the Retirement Act does state that a retirant will receive payment for each month after they are retired, the law unfortunately does not require that the initial payment be made within a certain time following retirement.
What advice would you give to someone retiring at the end of the calendar year (Dec. 31) or end of this school year (June 30)?
It is difficult to provide any advice in that circ*mstance and to do so with any certainty since the current decision is not a final decision in the case at this time and we are unsure how or when this matter will fully conclude. We are hopeful that we will have a more complete picture of the state of the law by June 30, 2024, but that is still unclear.
That having been said, if you are considering retirement you should attempt to reach out to ORS to request an audit of what they will hold your FAC to be under the current ruling. From what we have seen, the interim pension awards that are being provided to those that have retired since June 30, 2023, have been reduced significantly from the estimated awards provided by the pension estimator on ORS’s website. As a result, if you are concerned as to whether your pension would be enough to support you if it is reduced from your estimated FAC, it may be prudent to wait for further clarity before retiring.
