February 7, 1975
Representative Linda Lea Miller
State Capitol Building
Pierre, South Dakota 57501
OFFICIAL OPINION NO. 75-22
Subject-Teacher's Retirement System
Dear Representative Miller:
You have asked for my opinion based on the following fact situation:
CONTRIBUTIONS TO RETIREMENT SYSTEM
Teacher A (1973 Retiree) Teacher B (1974 Retiree)
Total yrs. Service. . . . . . .40 Total yrs. Service. . . . . . .40
Yrs. contributory service. . . 14 Yrs. contributory service. . . 15
Final Salary. . . . . . . $11,000 Final salary. . . . . . . $11,000
Amt. of Contribution Amt. of Contribution
3½% of $4800. . . . . . . .$1,512 3½% of $4800. . . . . . . .$1,512
3½% of $6800. . . . . . . . 840 3½% of $6000. . . . . . . . 840
5% of $7800 . . . . . . . . 390 5% of $7800 . . . . . . . . 780
Total paid in . . . . . .$2,742 Total paid in . . . . . .$3,132
1974 retiree contributed. . . . . . $3,132
1973 retiree contributed. . . . . . $2,742
Total difference. . . .. . . . . $ 390
Retirement Benefits
Teacher A (1973 Retiree) Teacher B (1974 Retiree)
.3%x$4800x26 yrs.= $ 374.40 1%x$11,000x40 yrs.= $4510
1%x$7800x14 yrs.= 1092.00
Total per yr. . . . . $1466.40
Monthly benefit= $ 122.20 Monthly benefit. . . . . . $ 376
10% increase (July 74) 12.20
Aug. 1974 benefit= $ 134.40 Aug. 1974 benefit. . . . . $ 376
1974 retiree gets per month. . . .$376.00
1973 retiree gets per month. . . .$134.40
Difference each month. . . . . $251.60
Based on the foregoing facts, you have asked the following specific questions:
(1) May Teacher B receive more in one year than his total contribution, or does SDCL 3-12-91 prevent this?
(2) May Teacher B receive credit for all of his years of prior service without purchasing coverage for them, or should he receive the same credit as Teacher A?
(3) May Teacher A purchase all of his years of prior service and get the same benefit as Teacher B? This is of concern because a recent Attorney General's opinion forced into the system teachers who formerly had exercised an option not to belong. What will their prior service benefits, if any, be?
(4) SDCL 3-12-46 provides for a single, consolidated retirement system. Why should Teacher B get more benefits than Teacher A if they are under the same system?
In answer to your first question, SDCL 3-12-91 contains the following:
Upon retirement after July 1, 1974, a class A member shall receive a normal retirement allowance, commencing at his normal retirement age or thereafter, equal to the larger of one per cent of his final compensation for each year of credited service as a class A member, or two per cent of his final compensation for each year of credited service as a class A member less other public benefits. In no event, however, shall the annual retirement allowance payable to a class A member on account of contributory service as a Class A member exceed his aggregate member contributions without interest.
The last sentence of the foregoing provision makes it clear that the upper limit on a class A member's annual benefit is his total contribution without interest. Under your fact situation Teacher B could not receive more than $3,132 per year or $261 per month.
In answer to your second question, Teacher B may only receive benefits based on "credited service." SDCL 3-12-91. Credited service is defined in SDCL 3-12-47 (17) as:
(a) Years of service for which member contributions were made;
(b) Years of noncontributory service credited prior to July 1, 1974 previously credited under the provisions of the retirement systems consolidated pursuant to §3-12-46;
(c) Any period of authorized leave of absence or sick leave with pay for which deductions for member contributions are made, deposited, and credited to the fund;
(d) Any period of authorized leave of absence or sick leave without pay or temporary layoff, during or for which a member obtained credit by payments to the fund made in lieu of salary deductions;
(e) Any period during which a member is on an authorized leave of absence to enter military service, provided that the member returns to public service upon discharge from military service.
Under the definition of credited service, Teacher B could receive credit for his 15 years of contributory service. SDCL 3-12-47 (17) (a). It is not clear whether Teacher B has credit for noncontributory service prior to July 1, 1974 (under the previous teacher retirement system), SDCL 3-12-47 (17) (b), for time on sick or military leave, SDCL 3-12-47 (17) (c, d & e). Teacher B could have purchased credit for prior service, but apparently did not elect to do so. SDCL 3-12-83 to -85. Therefore, Teacher B should have been limited to the benefits based on his 15 years of contributory service unless he has credit for noncontributory service prior to July 2, 1974, under the previous retirement system.
In answer to your third question, only Teacher B could purchase prior service credit and only while he was a contributing member. SDCL 3-12-83 and -84. Once a teacher has retired, he is bound to his credited service status at that time. Therefore, both Teachers A and B are bound to their years of credited service at the date of their retirement.
For those teachers who were forced into the system on July 1, 1974, with no prior credited service, 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 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 2, 1976, his right to buy back such credited service will lapse.
and SDCL 3-12-84 provides:
If a current contributing member of this system has other public service for which he is not entitled to retirement from another public retirement system, he may elect, at any time within two years of entering this system, to deposit or have deposited on his behalf an amount equal to twice the class A rate of contribution multiplied by his annual compensation at the time of making the election, for each year of other public service for which he wishes to receive credit as a class A member.
The only qualification on purchase of prior service is that it is at the current rate based on his current compensation. With that qualification, a currently contributing teacher may purchase any of his prior service. See Official Attorney General's Opinion 75-9 (January 27, 1975).
In answer to your fourth question, Teacher A, who retired under the previous teacher retirement system, is stuck with the benefits provided by the previous retirement system. SDCL 3-12-123 and -124 demonstrate the Legislature's recognition of Teacher A's predicament by providing for an increase in his existing benefits. To receive the new benefits of the consolidated system a teacher must retire after July 1, 1974, as Teacher B did. SDCL 3-12-91. While SDCL 3-1246 refers to a "consolidation," this is retroactive for administrative purposes only. The consolidation as it relates to benefits is prospective. If Teacher A and Teacher B are ever to receive equal benefits, remedial legislation will be necessary.
It is unfortunate that this opinion may result in the reduction of benefits for some class A members, however, the law is clear. In my capacity as legal advisor to the state I am not allowed to read policy considerations into any of the statutes as long as they are clear on their face. I am issuing this opinion while there is still time for the Legislature to act to resolve this problem if they so desire.
Respectfully submitted,
WILLIAM J. JANKLOW
ATTORNEY GENERAL
WJJ:MAG/dh
