In light of the recent Michigan Supreme Court decision in the case of Batista v. ORS, MASSP has updated our Building Administrator Contract Guide to reflect important changes that address how compensation is credited for retirement purposes under the Michigan Public School Employees Retirement System (MPSERS). The decision affects both individual employment contracts and collectively bargained agreements and highlights the need for all Michigan school administrators to review and potentially revise their contracts and salary schedules. These updates reflect the best available current guidance, but please note that there is still significant uncertainty that administrators must be aware of as they negotiate contracts.
Key Changes to Retirement Compensation
The Michigan Supreme Court ruled that compensation used to calculate retirement benefits must be part of a “normal salary schedule.” This decision has significant implications for principals and other administrators whose employment contracts may not conform to the Court’s definition. According to the ruling, a valid salary schedule must meet several criteria to ensure that compensation is eligible for inclusion in the calculation of “final average compensation.”
The Michigan Supreme Court is still reviewing how compensation for retirement is calculated, and the final outcome is yet to be determined. However, based on opinions issued by the Court so far, MASSP’s updated guide provides the following key recommendations to help building administrators align contracts as best as with the Court’s ruling given the current level of detail available:
- Defined, District-Wide Salary Schedules: The safest available course of action given our current level of understanding is for districts to adopt district-wide salary schedules for all administrative positions. These clearly defined salary schedules should be based on the classification of each position as salary schedules that apply only to an individual employee likely do not meet the Court’s criteria.
- Salary Schedule Components: In order to be counted toward retirement, all qualifying compensation, not just salary, should be included in a salary schedule. This includes things like longevity pay, merit pay, and annuity compensation. Eligibility for these compensation elements can be outlined in an association agreement, individual contract, or board policy, but the payment amounts should appear in the salary schedule.
- Governing Body Approval: The salary schedule must be formally approved by the school district’s governing body and must be documented in writing.
- Normal Salary Schedule: Any salary increases that are not part of this approved schedule may not be counted toward an employee’s retirement benefit calculation.
Background on the Case
The Court’s decision arose from a legal challenge to how the Office of Retirement Services (ORS) calculated pension payments. Under state law, pension payments are based on a formula that includes an employee’s years of service and their final average compensation. The legal challenge brought by MASA on behalf of its members stems from a decision by ORS to apply its own guidelines that limited how much the salary increases for some school employees (primarily superintendents) could count toward the pension calculation. That method of limitation was invalidated by the Supreme Court, but the court also ruled that state law clearly envisions all employees being subject to a salary schedule, which the Court defined as a:
- Written document, that is
- Established by law or approved by the district’s governing body,
- Reflects the timing and sequence of compensation, and
- Applies to job classifications (not individual employees),
Given the difficulty of applying this definition to school administrators, especially those with individual contracts, and the need for additional interpretation by the lower courts, the ruling has created uncertainty that has yet to be resolved.
Next Steps for Principals and Administrators
MASSP strongly encourages principals and other school administrators to review their employment contracts in light of this ruling. Even for those who are part of collective bargaining units that already have salary schedules in their contract, it is critical to ensure that the collectively bargained agreement includes a formal salary schedule that fits the court’s definition.
For further information and sample contract language, principals can refer to MASSP’s updated guide.
Important Note
The Building Administrator Contract Guide is intended solely for informational purposes and does not constitute legal advice. Due to the lack of clear guidance related to retirement allowances and pension payments, we cannot guarantee that the schedules and language suggested will be accepted as sufficient documentation for an individual’s Final Average Compensation. Please consult your own attorney for any specific legal questions you may have.