Frequently Asked Questions Unit Faculty Payment of Payroll over 12 Months

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1 Appointment Frequently Asked Questions Unit Faculty Payment of Payroll over 12 Months Q. Is a faculty member required to be on 12 pay versus their contract (9-, 10- or 11- pay)? A. Yes. The University System understands that there can be financial hardships for faculty; we also understand that not all faculty members have the opportunity to receive off-contract appointments. We also realize that all faculty members are required to pay the state of South Dakota for health and flex premiums during the off-contract months. In addition, the University System and the Union negotiated in good faith the 12 pay requirement. Q. A faculty member who provides service for 9 months (August 22 May 21, for example) but is paid over 12 months (9/12) begins employment at the University on August 22nd. Does the faculty member receive his/her full annual salary? A. Yes. A 9-month faculty unit member paid over 12 months will receive their full annual salary over the following period - August 22 through August 21 of the next calendar year. Q. A faculty member who provides service for 9 months (August 22 May 21, for example) but is paid over 12 months (9/12) begins employment at the University after the first payroll of the calendar year (i.e. January 2). Does the faculty member have to go on the payroll cycle effective mid-year or will he/she be enrolled during the following academic year? A. Faculty unit members who begin employment mid-year will be required to be on 12 pay effective with their first full contract of the next academic year. Compensation Q. What is the difference between pay dates and contract service dates for faculty? A. A lot of confusion can occur between Pay Dates and Contract Service Dates, especially when dealing with 9, 10-, or 11-month service paid over 12 months. Service or contract date refers to the dates the faculty unit member actually works or provides service for the University. Pay dates are the corresponding dates for which the faculty unit member is paid for those services. Q. What is the difference between base contract versus overload, summer, or additional work outside of base? A. Base pay is the payment for the contract service dates. This is a contractual amount that both the employer and the employee have committed to in the annual contract. All other additional work is paid when earned. Q. A faculty unit member is currently employed 100 percent at University. What happens if the home or another department wishes to pay the faculty unit member for some additional work this semester? A. Whether the service is performed in the home unit or not, any payment for services beyond 100% requires prior campus approval. The requesting unit must submit for approval. The costs for that additional duty will be the responsibility of the department that is requesting approval. Q. A 9-month faculty member will be working over the summer on a research appointment or on a summer instruction appointment. How should the monthly salary be calculated for the summer appointment? March 13, 2012 Revision 1.5-1

2 A. The faculty unit member will still receive the monthly base salary as he or she would during the academic year. The summer contract will be in addition to the monthly payroll amount. For example, a typical 9-month faculty member who had a full 3-month paid research assignment in summer would receive their base salary over all 12 months and would receive their summer payments in addition. See example below to help illustrate. On Contract September Base Pay On Contract October Base Pay On Contract November Base Pay On Contract December Base Pay On Contract January Base Pay On Contract February Base Pay On Contract March Base Pay On Contract April Base Pay On Contract May Base Pay Off Contract June Base Pay + Summer Pay Off Contract July Base Pay + Summer Pay Off Contract August Base Pay + Summer Pay Q. Since the payment of additional overloads, summer appointments, and research appointments would require payment when earned because they are not part of the base contract pay, could the faculty unit member request that the payments be paid at an optional payroll period based on needs? A. No, because these payments are not a part of the base pay [contract period] the faculty unit member will receive any additional overloads, summer appointments, and research appointments when earned and in accordance with system/university guidelines. Summer session payments are paid as follows: 4 Week Session One payment at the conclusion of the session. 8 Week Session Two equal payments over the entire session. 12 Week Session Three equal payments over the entire session. 16 Week Session Four equal payments over the entire session. Q. How does the payment impact effort certification if you are grant funded? Effort certification is a required process documenting grant effort. A. The payroll system has the technology to handle both effort certification as required under federal law and payroll payments paid over 12 payrolls. Leave Q. Are faculty members who are eligible for leave accrual affected by this change and how do they utilize their eligible leave? How does the payment over 12 months affect the use of leave? A. The Board of Regents implemented a leave request system for various types of leave for faculty unit members who may be eligible to accrue leave during the contract period dates (9, 10, or 11). The request for leave would still flow through the leave request system during the contract dates approved on the annual contract. Once approved, this would then automatically enter the system payroll. Assuming the faculty unit member has a sufficient leave balance, they will still receive their monthly allotted salary. No eligible leave will need to be requested when a faculty unit member is not on contract, such as during the summer for typical 9-month faculty members. March 13, 2012 Revision 1.5-2

3 Benefits Q. What are the differences in salary distribution between the 9-month and 12-month payrolls and how will my benefits be impacted? A. A faculty member s salary will be paid to the member at equal installments over a period of 12 months. The following examples provide a detailed description of monthly deductions and total gross to net pay. 9 Payrolls = $5, September through May for a total of $50,000 gross. The example below provides for a detailed description of monthly deductions and total gross to net. CONTRACT PAID OVER 9 MO. EXAMPLE -Allow for rounding Description: 9 mo/sept-apr May Annual Total 9 month Allow for rounding: Annual Salary: $50,000 5, x 9 Total 50, Pay Summary: Amount x 8 Amount x 1 Monthly Gross 5, , , Monthly Deductions 2, , , Monthly Net 3, , , Deduction Summary: Fed Income Tax - Married , Social Security (.042) , Medicare (.0145) Retirement , Dep. Health $300 spouse +2/ , Dental Enhanced EE , Vision EE Disability Medical Reimbursement , Life Insurance 2X age Parking Sept - April only Subtotal 2, , , Deductions Sept - April x 8 18, Deductions May x 1 1, Total Annual Deductions 19, March 13, 2012 Revision 1.5-3

4 12 Payrolls = $4, September through August for a total of $50,000 gross. The example below provides for a detailed description of monthly deductions and total gross to net. CONTRACT PAID OVER 12 MO. EXAMPLE - Allow for rounding Description Contract Salary Amount Deferred Contract Period Q. If I have a deduction for a 403(b) or a 457, will the transition affect my deductions? Off Contract Divided By 12 Pays Amount Amount Allow for rounding: Annual Salary $50,000 50, Monthly Assigned Divided Salary by = Deferred Amount 4, , , , Total Base Contract Accrued/Paid over 9 Months x 9 x 9 x 3 Total 12, , , , Off-Contract Payment 12500/3 = Pay Summary: Amount x 12 Monthly Gross 4, , Monthly Deductions 1, , Monthly Net 2, , Deduction Summary: Fed Income Tax - Married , Social Security (.042) , Medicare (.0145) Retirement , Dep. Health $300 spouse +2/ , Dental Enhanced EE , Vision EE Disability Medical Reimbursement , Life Insurance 2X age Parking Subtotal 1, , Total Annual deductions 19, A. You will want to review how much you have chosen for a contribution amount. The system will automatically change your contribution from 8 payments to 12 payments. This will not change the monthly amount that is sent through payroll but will change the annual amount starting with calendar year So, for example, if the faculty unit member has $ per month for 8 pays, the system will change that to 12 pays. Instead of March 13, 2012 Revision 1.5-4

5 contributing $4000 annually, you will now be contributing $6000 annually. The system has a maximum allowable limit and the faculty unit member may wish to modify contribution amounts to reflect the 12 payments. To contact the South Dakota Retirement System for your 457 Supplemental Retirement Plan, please call June Larson at (605) To make changes to your 403(b), please go online to Q. How will the transition impact a faculty member s flex and health benefits? A. Health benefits include Health Insurance and Life Insurance and, while they are renewed during open enrollment, July 1 st payments are pulled from faculty starting during their normal contract period. Therefore, these benefits are minimally impacted, except the deduction amount will reflect 1/12 versus 1/8. These benefits are minimally impacted. Flex benefits are supplemental benefits selected by the faculty member during open enrollment (dental, vision, etc.). These benefits begin in July and are calculated for payment from July through June. The Board of Regents through the Payroll System pays for those flex benefits during the summer months and typically faculty unit members make up the difference during their contract period. Because of this, faculty unit members will be in arrears with the flex benefits. To assist in payment of those benefit costs, the payroll system will allow the faculty unit member to make these payments over a four-month payment, if requested. If the faculty member has a family status change or an enrollment change midyear, premium rates may change. Q. What happens to my AFLAC deductions if I am moving to 12 pay? A. The Shared Payroll Center is in the process of communicating the payroll change to AFLAC. They will process your payment deduction amount to a payment over 12 months. A reduction of costs per month will be reflected, and the annual amount would reflect the same. Q. How is my retirement through South Dakota Retirement System (SDRS) calculated? A. When to retire under SDRS is a very personal decision, which impacts people differently. It is very similar to the decision we all must make as to when we begin Social Security benefits, i.e. 62 or 65 or later. There is no one size fits all answer for when a unit faculty member should retire. Please note that the SDRS system is composed of many different entities (state agencies, BOR, K-12, city and county governments, judicial, and law enforcement, to name several) and different classifications and salaries of people (faculty, career service, city and county workers, teachers, secretaries, custodians, and judges, for example). The formulas designed for the retirement system have been based on the total SDRS system needs Credit for Service: When looking at the rules for SDRS, faculty members, regardless of base pay periods receive credit for all quarters, even if not currently on summer appointment, so long as they receive payment in that quarter. This means that faculty who receive payment currently from September through May receive credit for all four quarters due to payroll payments. The fact that the payroll will be paid over 12 months does not change the credit for the quarters. As an example, if a faculty member was paid over 9 months at $5, from September through May, he/she would receive credit for the quarters July September, October December, January March, and April June. This is because they received payment in those quarters. Likewise, if that salary was paid through 12 months, those same quarters would receive credit as they had in the 9-month payroll. Final Average Compensation (FAC): The final average compensation (FAC) is determined on the highest 12 consecutive quarters in the last 40 consecutive quarters. Let us say for purposes of an example that a faculty unit member retires August 30. The SDRS formula would look at the previous 12 consecutive quarters of earnings out of the last 40 quarters of March 13, 2012 Revision 1.5-5

6 earnings. Any employee who has not been in the system for 10 years would have all quarters of earnings included to find the 12 highest consecutive quarters and to determine the FAC. To simplify and assist in a very basic calculation, see the example below and please note this example is meant to be illustrative. Actual final average salary can be found at MySDRS online at Annual Salary = 62, Assumption: No Salary Increase/No Summer Appointment Year/Qtr 9/9 Salary Payment Retirement May /12 Salary Payment Retire in May / 2 (April - June) 13, , / 1 (January - March) 20, , / 4 (October - December) 20, , / 3 (July - September) 6, , / 2 (April - June) 13, , / 1 (January - March) 20, , / 4 (October - December) 20, , / 3 (July - September) 6, , / 2 (April - June) 13, , / 1 (January - March) 20, , / 4 (October - December) 20, , / 3 (July - September) 6, , / 2 (April - June) 13, , / 1 (January - March) 20, , / 4 (October - December) 20, , / 3 (July - September) 6, , FAC 62, , March 13, 2012 Revision 1.5-6

7 Formula Cap: There is a cap in the formula for salaries in the previous four quarters as compared to the current four quarters. For example, if a faculty member receives total salary of $61, in 2011 and the same in 2012, and then in 2013 he/she receives total salary of $64, (6 percent increase), the final year s salary would be capped at $64,166.66, which is 105 percent, when computing the Final Average Salary. This example shows that the 105 percent is compared to the entire year and caps the salary to mitigate final payments that might cause inflation to the FAC. SDRS implemented this to avoid high levels of leave payouts or other types of payments that were not necessarily reflective of true annual income. In addition, if a faculty unit member s final quarter of earnings is 105 percent greater than ANY previous quarter of earnings, the final quarter will be capped at 105 percent of the highest previous quarter. The SDRS Cost-of-Living (COLA) commences each July 1 after a member has terminated employment and has received a retirement benefit for a 12-month fiscal year period per SDRS regulations. Therefore, to be eligible for a COLA benefit after the first year of retirement, an individual must retire prior to July 1. While SDRS is currently reviewing this, the faculty unit member may choose to retire prior to July 1 to be eligible for COLA the following July. Or, if the faculty unit member were to stay on through the completion of the August payroll, he/she would be eligible to receive an additional quarter of service. Again, each member s needs are different and unique. All questions should be directed to SDRS. Each member will need to base retirement needs on personal circumstances. All examples in this FAQ are only examples and cannot be used to estimate your unique retirement needs. Please contact your local SDRS representative or the Pierre SDRS office online at Q. Will moving to 12 pay affect my retirement? A. The program provides each faculty member with options to maximize his/her retirement benefit. The retirement benefit is based on the final average compensation as defined above, times the years of credited service, times the multiplier. It is possible the transition year could have an adverse effect on those who retire within the first three years after implementation. To avoid that consequence, faculty who are at or near retirement will have the option to stay on the 9 month pay until the end of academic year Electing this option will avoid consequences so long as the retirement occurs as planned. For all other unit faculty members, the 12 pay option provides new opportunities to time your effective date of retirement in order to maximize retirement benefits. In effect, a faculty unit member can choose, based on the SDRS formula, to retire at a time that maximizes your final average compensation or a later date that captures an additional quarter of credited service, whichever works out to the unit faculty member s benefit. Separations Q. Do any faculty unit members have the option of grandfathering to the 9 payrolls? A. Yes. Faculty unit members who are eligible to retire are able to request to be grandfathered in. This grandfathering clause was negotiated in the collective bargaining agreement to allow unit faculty members who are eligible to retire the ability to choose remaining on the current 9 pay or selecting to moving to the 12 pay. The period of time grandfathering exists is a three-year period starting with academic year through academic year Q. Since faculty members may be eligible to be grandfathered in due to the fact they could be eligible for retirement, what does the faculty member need to do? March 13, 2012 Revision 1.5-7

8 A. Faculty unit members who believe they would elect to be grandfathered must communicate with the Human Resource Office at the University. A faculty unit member will be required to provide the Personal Benefit Statement from SDRS that is mailed annually or obtained from the SDRS website. Q. What happens if as a faculty member I accept the election to be grandfathered in and then I decide not to retire? A. In any event, the grandfathering is for a period of three years only. If the faculty member does not retire, he/she will have elected to be moved to payroll over 12 months. Since this could impact your retirement contact the Retirement System so you have clear understanding. Please contact your local SDRS representative or online at Q. What happens if a faculty member is moved to 12 payrolls and would like to retire or terminate at the completion of a contract? A. BOR Policy 4:36 allow faculty unit members to voluntarily terminate and receive payment of the remaining contract. All employment status will be ended as of that last date of the voluntary termination. Q. What needs to be done when a faculty member retires or terminates? A. Planning for retirement is very important and advance notification to the South Dakota Retirement System is encouraged to make sure that you can retire when you wish to and that all required paperwork is submitted and accepted. All faculty unit members who are grandfathering or not grandfathering and who may be eligible to retire should contact SDRS to determine the best solution for their needs. Notification to the Human Resource Office at the University is also required. March 13, 2012 Revision 1.5-8