Bobby J. Woolley
4007 SW 325th Street
Federal Way, WA 98023
Dear Mr. Woolley:
Pursuant to RCW 34.05.330(3), I have reviewed your appeal of the Department of Retirement Systems' (DRS) decision not to initiate a rule-making procedure to amend the definition of "school year" contained within WAC 415-112-015(10).
I understand that you believe the DRS should use the definition of school year found in RCW 28A.150.040. I also understand that DRS is concerned that using that definition is not consistent with the Legislature's intent as expressed in RCW 41.32 and would have unintended and adverse consequences for the members of TRS Plan 1.
I note that your April 13, 2004, petition to DRS and your subsequent appeal regarding its decision is essentially a repeat of your petition in 2001, except that in 2001 you were addressing a specific concern regarding the impact of the law on teachers working in school districts with extended school years. At that time you asked DRS to use the definition of school year found in 28A.150.040. I denied your appeal, and requested DRS review the need for legislation to address the specific concern you raised regarding extended school year teachers. Legislation passed in 2003 allowing an exception to the general approach of using fiscal years in TRS Plan 1 for those teachers working in a school district using an extended school year.
The Legislature has not changed RCW 41.32 or RCW 28A.150 since 2001 in a manner that would lead me to conclude that it intends for the definition of school year in RCW 28A.150.040 to apply generally to RCW 41.32. Therefore, I am denying your appeal of the DRS decision not to initiate a rule making process to consider your proposed definition of "school year."
The Department of Retirement Systems has reasonably interpreted RCW 41.32.498(2), which describes the retirement allowance for members and references "earnable compensation"; RCW 41.32.010 (10)(a)(i), which defines "earnable compensation for Plan 1 members and specifies that it includes salaries and wages for services rendered during a "fiscal year"; and RCW 41.32.010(12), which defines "fiscal year" as a year beginning July 1 and ending June 30 of the following year; to mean that the Legislature intends "school year" for TRS Plan 1 to mean fiscal year except in specific expressed cases. The interpretation is bolstered by the fact that the Legislature, when confronted with the issue of districts with extended school years, chose to make a limited exception. It is further bolstered by the fact that the Legislature, when it used the definition of school year contained in RCW 28A.150.040, did so by specifically and narrowly referencing it in RCW 41.32.013 to define school year for a specific purpose and a specific group of teachers. The fact that the Legislature chose in a specific section of one statute to reference a definition in a section in another statute that it found useful, does not mean it intended for DRS to do so in all other cases.
DRS is also justifiably concerned regarding the potential impact of changing TRS Plan 1 from being based on "fiscal year" to being based on "school year" as defined in RCW 28A.150.040. TRS Plan 1 service credit and average final compensation (AFC) is calculated on a yearly basis, not monthly as in other plans, and the AFC is the two highest consecutive years of salary. A wholesale change of the definition of "year" from July 1 through June 30, to September 1 through August 31, would permanently shift that yearly period for calculating benefits two months into the future. As an example of how this would impact members, future TRS Plan 1 retirees would have to wait until September to begin receiving their pension payments. Plan 1 members who need the full year of service to retire must have an effective retirement date after the completion of the year used in the benefit calculation. Since the AFC year would end in August instead of June, their effective retirement date and their first pension payment would be delayed two months by this change.
Another example of the impact is that school administrators are contracted with on a fiscal year basis, and work in each of the twelve calendar months. Under a change from the July through June approach to the September through August approach, administrators under Plan 1 would have a two-month gap in salary and benefits from the time their contract ended until the time their pensions started. It would also result in a lower pension calculation for these administrators, as their last and likely highest months of salary, and their vacation leave cash-out, would occur in a year where no salary would be reported for two months (July and August). The pension would be calculated using the highest two years, but the latest year might not be used since it only has ten months of salary. I cite these examples to illustrate that any changes in the WAC have to be made very carefully to avoid unintended and adverse consequences on plan members.
I understand that DRS has initiated a rule making procedure to update WAC 415-112. Included in that process will be changes in the language to clarify exactly when a provision relates to fiscal year, and when a provision relates to the time period September 1 through August 31 because of a specific statutory difference within RCW 41.32. I believe that is a reasonable approach to take in making sure the regulations are clear in the distinction between the time periods without triggering wholesale changes in legislatively directed policy. It also gives you and other members of the public the opportunity to provide testimony concerning each proposed change.
Thank you for your diligence in reviewing how the retirement statutes are being administered. While I am denying this particular appeal, I encourage you to continue to bring issues of concern to DRS and to the Select Committee on Pension Policy.