Retirement Changes will not occur in 2009!
On Tuesday, the Missouri Congressional delegation received a response from the Social Security Administration (SSA) and the IRS to their December 17th inquiry (see story below) into the handling of issues regarding Missouri’s section 218 agreements and their application to Missouri educators. The delegation asked the agencies to confirm in writing that any enforcement would be prospective and that the compliance date of July 1, 2009 would be dropped. The actual response received on January 7, 2009 can be viewed at this link SSA Response.
The agencies agreed that the enforcement would be prospective and that the July 1, 2009 date would not be adhered to. Although the specific language of the letter suggests the July 1, 2009 date may still be in effect – Senator McCaskill's office received verbal confirmation from both agencies that there will not be any enforcement actions taken on July 1, 2009. They are hopeful this provides relief to districts that are currently negotiating contracts.
The agencies also stated their desire to resolve the situation by July 1, 2010, but would be in a better position to advise the delegation after the 60 day evaluation. Based on the current positive and collaborative work environment in the state, including the IRS, SSA, Missouri Office of Administration and the Public School Retirement System as well as various stakeholders in the education community, the Missouri Congressional delegation believes the situation is on the right path to a resolution that is fair and reasonable, and appreciates the agencies commitment for such a resolution. The Congressional delegation will have a briefing on the findings of the 60-day evaluation team which is now meeting.
If you have the opportunity, please convey your gratitude to our U.S. Representatives and Senators for their help with this issue. It is because of their involvement that the July 2009 enforcement date has been eliminated.
On December 12, the Missouri Congressional offices in Washington D.C. met with representatives from the IRS and Social Security for a briefing regarding the Missouri’s 218 agreements with Social Security. As a follow-up to this meeting, the Congressional delegation has sent a letter to the IRS and SSA which summarizes concerns raised during the meeting. A copy of this letter is available by clicking on this link: December 17, 2009 Congressional Letter.
It is encouraging to see that our federal elected officials expressed concern about providing adequate time for Missouri school districts and employees to conform to any new ruling. As the letter states, “It is unfair to ask these employees to make such important life decisions without full knowledge and adequate time to assess the impact of potential changes on their monthly paychecks and future retirement income.” To that end, the group has requested that the SSA and IRS eliminate any set implementation deadline, including the proposed July 1 deadline, until there is a clear understanding of what changes should be made.
A working group has been formed that includes the IRS, SSA, Office of Administration and PSRS. This group plans to report on a course of action after 60 days. The congressional delegation has asked for a report from the working group at the conclusion of their meetings. As soon as I receive any information on the progress of this group, I will share it with you.
At this point, no immediate action is necessary. We need to allow some time to work through the processes that are in place. I believe all of our elected officials understand the enormity of this issue. It is also unclear as to how leadership changes in Washington, D.C. and in Jefferson City, will impact this issue.
I appreciate the many calls, emails and letters sent to elected officials regarding this issue. It has made a difference.
State Social Security Administrator Tom Sadowski sent a letter on November 21, 2009 to the Commissioner of the IRS and Commissioner of the Social Security Administration asking them, "to suspend any enforcement actions until we have sufficient time to ensure that the school districts can comply. Based on comments from the educational associations, I believe a delay until July 2010 would be welcome and appropriate." Sadowski went on to list nine points to support his request for the delay. A copy of his letter is below.
Sadowski Letter To SSA and IRS
The
Issue
As a result of an IRS
audit of two Missouri school districts, the Social Security
Administration (SSA) has changed its position on which Missouri
public school employees are exempt from paying social security
taxes. This change in position by the SSA does not
affect who is eligible for membership in PSRS. The change has
no impact on school employees in PEERS.
In the past, all school district employees working in any capacity who possess a certificate issued by the Department of Elementary and Secondary Education and who work at least 17 hours on a regular basis were excluded from social security coverage. The new ruling by SSA states that the only public school employees exempt from paying social security are PSRS members in the positions of teacher, teacher-secretary, substitute teacher, supervisor, principal, supervising principal, superintendent, assistant superintendent, nurse or librarian as those positions are described by the Office of Administration and SSA. Individuals employed in all other positions must pay social security taxes beginning on July 1, 2009.
What is the basis for
this change?
Over the
last 40 years, Missouri school districts have entered into Section
218 agreements. These agreements said those covered by the
Public School Retirement System (PSRS) were exempt from paying
social security. At that time, the group identified by state
statute as members of PSRS included those individuals employed in
the positions of teacher, teacher-secretary, substitute teacher,
supervisor, principal, supervising principal, superintendent,
assistant superintendent, nurse or librarian who were duly
certificated under the laws governing the certification of
teachers.
In 1984, Missouri statutes were changed and the definition of those eligible for PSRS became “any person who shall be employed by any public school on a full-time basis and who shall be duly certified under the law governing certification of teachers…” It has been interpreted since that time that any public school employee who is eligible for PSRS is exempt from paying social security.
While the 1984 change does establish eligibility for PSRS, the IRS and SSA said the change has no impact on the earlier 218 agreements and the definitions remain as originally established for purposes of determining what positions are subject to FICA withholding.
Who is
impacted?
The exact
positions that will be impacted by this decision have not been
identified by the Missouri Office of Administration. Go to
this web site for current information http://oa.mo.gov/acct/faqs.htm
It is safe to say that thousands of Missouri educators who are current members of PSRS and exempt from paying social security will be impacted including some central office administrators, instructional aides, certificated transportation employees, certificated food service employees, certificated maintenance employees, certificated parent educators, and many others.
To be exempt from paying social security one of the following conditions must be met: (1) The position must be one of those identified in the original Section 218 agreement or (2) if the position was created after the agreement, the employee is only exempt if the employee was required by State law to have a Missouri teaching certificate when the position was created. The Office of Administration has also indicated that most, if not all, extra-duty stipends will be subject to social security withholdings. Individuals who are currently in the PEERS retirement system are not affected by this issue.
How will this impact
current PSRS members who now will be required to pay social
security taxes?
Employees
who are now in PSRS will retain all the benefits and service credit
they have accumulated until July 1, 2009. However, if they
are a “non-exempt” employee, beginning July 1, 2009 they will pay
two-thirds of the required PSRS contribution (9%) and full social
security (6.2%) for a total estimated retirement contribution of
15.2% of his/her salary. The school district must match this
amount paid to PSRS and the SSA.
If an employee is paying
2/3 of the PSRS contribution, how will the retirement benefits be
impacted?
PSRS is in
the process of determining the impact of the statutory 2/3
provision on PSRS benefits.
Explain how much a person with $60,000 in PSRS “salary” would pay for retirement.The PSRS contribution calculation for PSRS only is estimated to be on July 1, 2009: $60,000 x 13.5% = $8,100. If the person is a non-exempt employee, the PSRS contribution calculation will be $60,000 x 13.5% x .6666 = $5,400 plus social security of $60,000 x 6.2% = $3,720 for a total contribution of $9,120.
Online
Presentation by Alan Thompson,
General Counsel for PSRS provides a background on the issue and
explanation. Click on the link below to view:
Thompson
Presentation
Documents Related To This Issue
Nov. 17 Letter from Missouri Senators and Congressmen
Senator Bond's Letter to Social Security
Office of Administration Website With More Information on this Issue
Education Roundtable Resolution
Modification Agreement for Category 1 School Districts
List
of Districts By Category
Districts Category Undetermined
Memo from OA to all Category 1 School Districts
Memo from OA to all Category 2 School Districts
Memo from OA to all Category 3 School Districts