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Changes To ‘Rehiring Retired Teachers’ Bill May Create Challenges For School Districts

By Katherine Joyce, NCASA Executive Director

The N.C. Senate this week approved a revised version of Senate Bill 399 intended to help school districts address staffing shortages by allowing them to rehire retired teachers under a new option. As revised, however, the bill could create some legal and financial liabilities for LEAs that choose to rehire retirees under the law if ultimately enacted.

Senate Bill 399 would allow certain retired teachers to return to work in high-need schools and still receive their full retirement benefits. In order to qualify, a high-need retired teacher would have to meet the following requirements:

  1. Have retired on or before February 1, 2019 after attaining one of the following:
    • The age of 65 with 5 years of creditable service.
    • The age of 60 with 25 years of creditable service.
    • 30 years of creditable service.
  2. Be re-employed by a local school board to teach at a high-need school, defined as a school that, at any point on or after July 1, 2017, is/was a Title I school as defined by federal law and/or receives an overall school performance grade of D or F as calculated by the State Board of Education.

Under this proposed law, high-need retired teachers would be hired under a renewable one-year contract and paid on the 1st step of the teacher salary schedule (currently $35,000). State salary supplements or bonuses would not be provided, but the bill would require that these teachers be provided any applicable local salary supplement. If the teacher is being re-employed to teach STEM (science, technology, engineering, and math) or special education, then he or she would be paid on the 6th step of the salary schedule (currently $40,000). No high-need retired teacher could move to higher salary steps.

The bill’s main sponsor, Sen. Rick Horner (R-Nash), amended the bill in the Senate Pensions Committee on Monday to address concerns raised by the State Treasurer’s staff, who said the original bill could have threatened the tax-exempt status of the Teachers’ and State Employees’ Retirement System (TSERS) by allowing certain retired teachers to continue receiving their full pension while re-entering full-time employment with a LEA. Current return-to-work laws require retirees to sit out for six months, return only to positions not requiring membership in TSERS (meaning they must work less than 30 hours per week over nine months in a permanent position), and be subject to earnings restrictions. Those restrictions allow the retiree to earn either 50% of their gross pre-retirement salary or the current 2019 limit of $33,560, whichever is greater.

The amended Section 5 of the bill also poses some new challenges for LEAs that might choose to operate under it in the future. That section would direct the State Treasurer to seek a private letter ruling from the IRS regarding provisions of the act that change the computation of post-retirement earnings of high-need retired teachers. It would allow the Treasurer to use up to $75,000 from TSERS assets in pursuing that ruling, to ensure the system’s tax-exempt status is preserved. The bill provision also would prohibit any TSERS beneficiary re-employed as a high-need retired teacher from resuming full-time employment in any position that would allow him or her to draw a higher pension when leaving service again, pursuant to current state law. Lastly, it would require the Retirement System to correct any failure to comply with this provision by passing on any associated costs to the employing school district.

This latter requirement is perhaps the most concerning for LEAs that might use this new law in hiring teachers in the future, but there also are some legal concerns regarding potential age discrimination issues that should be considered. These legal concerns stem from limiting potential increases in retirement benefits for high-need retired teachers (under this new law) and not for others who still could work under current return-to-work laws. Also note that the LEA would have no choice on which law would apply to retired teachers they are employing, thereby making it likely that both sets of rules would be in use for that district’s teaching pool.

The new law would take effect July 1, 2019 and would expire June 30, 2021. It also would be repealed automatically 30 days from the state’s receipt of any IRS determination that the new provisions would jeopardize the tax status of TSERS. If that determination is made, then LEAs that have used the new law in employing high-need retired teachers would be subject to their portion of the financial penalties passed on to the state.

The amended bill easily passed the full Senate Tuesday afternoon and has been sent to the House for further consideration. NCASA will continue working on this bill in an effort to eliminate the potential legal and financial concerns for LEAs and make the bill a helpful new tool for overcoming the teacher shortage statewide, as the bill sponsor intends it to be.

Katherine Joyce