Upon the governor’s signing of Senate Bill 202, school districts will no longer be able to pass the responsibility of the Teacher Retirement System (TRS) surcharge to a retiree through payroll deduction, by imposing a fee, or by any other means to recover the cost.
Some school districts have become dependent on the retiree applicant pool for critical shortage areas and hard-to-fill teaching positions but have often passed the surcharge responsibility back to the retiree.
Senate Bill 202, passed in the 87th Legislative session and sent to the governor on May 29, 2021, amends Texas Government Code § 825.4092. This bill takes effect immediately upon signing and applies beginning with the 2021–2022 school year.
Because many contracts have been issued for the 2021–2022 school year, districts currently employing retirees may face a financial impact. The increased cost will vary from district to district depending on whether the district offsets the TRS surcharge and the approach used to calculate surcharges.
For example, a district’s pay scale may establish a salary of $68,000 for a teacher with 29 years of experience, but a retiree would pay as much as $13,460 in surcharges reducing their salary to $54,540, the annual salary according to the minimum salary schedule for a teacher with 20 or more years of experience. With the new restrictions, the district must absorb this cost instead of passing it to the retiree. The district will be obligated to pay the teacher $68,000, contribute 15.2 percent of the salary or $10,336, and pay an additional $6,420 if the individual is on TRS Care health insurance, for a total of $16,756 in TRS surcharges. This results in a cost of $84,756 to employ the retiree.
A school district employing a retiree may consider the following options:
- Pay the required surcharge for the 2021–2022 school year and analyze potential employment actions for the 2022–2023 school year to address budget concerns, if any.
- Work with the retiree to reach a mutual agreement to accept a resignation of the contract and employ them under the one-half time exception, eliminating the surcharge requirement.
The first option follows the intent of the law but comes with a financial cost to the district. If your district intends to reduce staff at the end of the 2021–2022 school year because of this change in law, please plan in advance and confer with your local counsel about the process to nonrenew these contracts.
The second option will only work if the retirees agree to resign their current contracts and accept part-time positions. With a retiree working in a part-time position, the district will avoid the cost of the surcharge but must make arrangements to cover half of an assignment. And, of course, the retiree will make less than expected due to the reduction in hours.
Senate Bill 202 will require action for districts that have passed surcharges onto rehired retirees in prior school years or that plan to hire a retiree for the 2021–2022 school year before school starts. If a district extended a Chapter 21 contract to a retiree prior to the effective date of Senate Bill 202 and utilized TASB’s Model Retire/Rehire Addendum with language indicating that pay would be reduced to offset expenses, this provision will not be enforceable when Senate Bill 202 becomes law. If a district plans to hire a retiree prior to the start of the 2021-2022 school year, the optional provision should not be included as part of the addendum.
Developing a plan and applying it consistently throughout the district is key. Districts must carefully consider the financial implication of hiring retirees in the future.
Karen Dooley is a senior HR consultant at TASB HR Services. Send Karen an email at firstname.lastname@example.org.
Stay up to date with all the latest HR news and trends by joining the HRX mailing list!