April 17, 1978

Mr. Thomas Todd 
State Superintendent 
Elementary and Secondary Education 
New State Office Building 
Pierre, South Dakota 57501

Official Opinion No. 78-15

Calculation of prior service credits under §  3-12-83

Dear Mr. Todd:

You have requested an opinion from this office based on the following factual situation:

FACTS: 

For the school year 1973-74 “A” was employed as an administrator of school district “X.”  “A” re-entered the employ of a public school employer and was therefore required to be a member of the teachers' retirement system as provided by SDCL 13-45-42(3) in effect for the school year 1973-74 and repealed effective July 1, 1974 (See Opinion No. 74-13, 1973-74 AGR 263). “A” became a member of the retirement system July 1, 1974, but had never been a member prior to July 1, 1974.  The rate of contribution for the school year 1973-74 to the teachers' retirement system was 5% employee, 5% employer on the first $7,800 of annual salary (SDCL 13-15-6(13), 13-45-30 and 13-45-36). 
    
Since there was no employee contribution or employer contribution made for the school year 1973-74, the retirement system has requested school district “X” to contribute 10% of a salary of $23,000 to the retirement system under SDCL 3-12-84.  It is school district “X's” position that the obligation of the district should be 10% of $7,800 with compound interest at not more than 10% for the period of time of payment.  “A” has now left the employment of “X” and has requested a refund of his contribution to the retirement system.

Based on the above factual situation, you have asked the following question:

QUESTION: 

What is the proper amount that should be paid by school district “X” to the retirement system for “A” for the school year 1973-74?

SDCL 3-12-83 provides: 
    
A current contributing member of the system may receive credited service by election to make, or have made on his behalf contributions, based on his current compensation at twice the member rate, for each year of service for which he wishes to receive credit, if: 
     
(1)  The current contributing member of the system could have established credit for any South Dakota public service by making contributions under this chapter or any prior law; or 
     
(2)  The current contributing member was not permitted to establish credit for any South Dakota public service. 
    
The amount of the credited service and the rate of contribution shall be at class A rates unless the service for which credit is sought was rendered as a class B member in which case class B rates shall apply.  In the event the member fails to make an election before July 1, 1976, his right to buy back such credited service will lapse.

The legal issue to be answered in responding to your question is whether the money school district “X” owes the retirement system is the purchase of prior service credit under section 3-12-83, or whether it is a delinquent contribution payable under 13-45-38 and 3-12-71 through 74, inclusive.

At the time the contribution of school district “X” in this situation first became due to the system, it appears that it was merely a delinquent contribution, which could and should have been paid by the school district, or deducted from school district “X”, under section 13-45-38.  The facts are, however, that this was not done and the law which provided for the rate of contribution by the school for 1973-74, at the rate of 5% employee, 5% employer on the first $7800 of salary (Chapter 13-45), was repealed by the 1974 Legislative Session.  Thus, I do not see how the old rate could now be the basis of school district “X's” reimbursement of the system.

When the consolidated retirement system was established, and benefits were calculated on actuarial data of the systems, the basic assumption was that any future liabilities imposed on the system for new prior service benefits would be at new rates established for the purchase of prior service credit.  The practice of the retirement system has consistently been to require people buying prior service credit to pay for it at present rates under 3-12-83, not under old pre-1974 rates under the old systems.  If this procedure were allowed, the new system would be placed in the untenable position of having to bear the actual burden of supporting new benefits based on prior service credit at the old rates for people who are now buying such prior service credit. Placing this burden on the system was not contemplated under Chapter 3-12, nor, in my opinion, is it appropriate for this office to impose it by opinion.

The facts are that Mr. “A” and school district “X” did have the opportunity and obligation to pay for Mr. “A” in 1973-74 at the rate established under Chapter 13-45.  The facts are also clear that this was not done.  Thus, when the provisions of Chapter 13-45 were repealed, and prior service credit became calculated under the provisions of section 3-12-83, school district “X” and Mr. “A” lost their ability to pay for prior service credit under the old rates. Clearly, in my opinion, there could not be prior service credit granted so long as payment for it was not made.

As previously discussed, the basis of the new rates under section 3-12-83 was also established in part based upon actuarial analysis of the various systems being considered.  At this time, the assumption was that future benefits imposed on the system would be established at rates under 3-12-83, which took into account the increased level of benefits under the new system. In my opinion it was not contemplated that new prior service credit benefits be imposed upon the system on the basis of rates established under the pre-1974 retirement systems.

It is my view that school district “X's” obligation is now affixed at the rate established under Chapter 3-12, and that they cannot now satisfy their obligations by paying at the old pre-1974 rate.  The fact that Mr. “A” is leaving the employment of school district “X” is not material to the decision reached in this matter.

Respectfully submitted,

William J. Janklow
Attorney General

WJJ:DOC:jo