Frequently Asked Questions (FAQs) About the Penalties & Interest Project General Project Information Question What does Go Live mean? When will the penalty and interest regulations be effective? Answer Go Live is the date when the SAP system will be operational and ready for use. The system went live August 29, 2011. The current proposed effective date for the penalty and interest regulations is July 2012. Regulations Approval Process Question How does the regulation approval process work? What is the timeline for implementing Penalties and Interest Regulations? Where can I find a copy of the current draft regulations? Who can I contact if I have an official comment about the P&I regulations? Answer The current draft (version 4) of the regulations was approved by CalSTRS executives. The Office of Administrative Law published the Notice of Proposed Rulemaking in the California Regulatory Notice Register on August 22, 2011, officially starting a second 45 day comment period. CalSTRS will be collecting comments from stakeholders through October 6, 2011, CalSTRS determined additional changes were required and opened a 15 comment period from November 2 16. These changes were submitted for approval to the Teacher s Retirement Board. If no further comments are received, the regulations will be sent to the Office of Administrative Law in late November. The rulemaking process is anticipated to be completed by the end of 2011. However, the current proposed effective date, as specified in the text of the regulations, is July 1, 2012. The latest copy of the draft regulations is located on the Secure Employer Website. Click on the Reference Items link and enter penalties in the search field for all P&I information. Please note that these are draft regulations currently not in effect and are subject to change. Full instructions can be found in the Notice of Proposed Rulemaking that can be found on the Secure Employer Web site and CalSTRS.com. Submit comments by October 6, 2011 to: Office of the General Counsel California State Teachers Retirement System P. O. Box 15275, MS 03 Sacramento, CA 95851 0275 Fax: (916) 414 1722 E Mail: Regulations@CalSTRS.com 1
Who can I contact if I have questions about the P&I regulations? All questions regarding penalties and interest regulations and system automation can be directed to P&I@CalSTRS.com or call a member of our Business Readiness Team Jeff Pearce: (916) 414 6826 or Bill Frerichs: (916) 414 5436. Penalties & Interest - General Why is CalSTRS implementing penalty and interest charges? Will CalSTRS be making changes to any of the current reporting rules or time requirements? What groups have been involved in Penalty and Interest discussions? Will there be an appeal/dispute process? Why doesn t CalSTRS raise the contribution rates for everyone instead of enforcing penalties and interest? A lack of accurate and timely information and contributions results in materially inaccurate benefit estimates; over and under benefit payments; and incorrect calculations and valuations. In addition, this problem increases the unfunded status of the plan due to lost investment earnings and lost State contributions. CalSTRS has a fiduciary responsibility to ensure that the fund is made whole and members receive accurate benefits. While there may be changes to how Report Sources (and their Report Units) process contribution files and remittances in order to avoid penalties and interest charges, the current reporting rules and time requirements that are spelled out in the Education Code will not change. CalSTRS conducted over 20 pre notice meetings around the State with over 1000 employers/stakeholders attending. CalSTRS representatives also attended several CASBO sessions and CTA meetings. In addition, the P&I project team is working closely with a small group of pilot team employers to ensure that the automation solution meets the needs of employers. The Penalties and Interest system includes an electronic dispute process that allows Employers to dispute any penalty being assessed. The disparity between the projected actuarial liability and projected actuarial income (the unfunded liability) is affected by many factors. These factors include the contributions rates; the timeliness of data from the Employers; and contributions from the member, the employer, and the State of California. The contribution rates that apply to everyone are a factor of that unfunded liability. The portion of the unfunded liability that is due to late data and contributions can be allocated to those responsible for contributing their share of the fiscal consequences to the unfunded liability through penalty and interest charges. This will ideally reduce the overall liability and, therefore, may also reduce the need for higher contribution rates. 2
Has CalSTRS compiled a list of the most common penalties or conducted trend analysis so Employers can begin to address problem areas now? We are currently analyzing data in an effort to provide Employers information on how penalties may apply. Summary level penalty estimate reports have been sent to start the process of determining trends. Detailed reports are available by request and will be used as part of the Business Readiness Assessment process in determining ways to assist each employer in avoiding penalties and interest charges. Most common problem areas include: Stipend reporting / Equalized pay reporting Variable / Time sheet staff using earned service dates Variable / Time sheet staff delayed payroll processing System ability to generate a supplemental file when needed Penalties & Interest Rules/Examples When a substitute or part time employee qualifies for mandatory CalSTRS membership in another County or District, how am I supposed to know when that qualifying event happens? While there are many ways to determine qualifying events through systematic or manual means, CalSTRS offers the following tools to help all parties involved in determining the proper membership status for an employee: The Secure Employer Web site s (SEW) business rules provide immediate feedback on the file submission when an employee s membership status on a contribution file is other than expected. This feedback includes information indicating if a person reported as a non member appears to qualify for mandatory membership. SEW has a feature called Employer Notifications, where any membership status changes that occur in CalSTRS systems are communicated to ALL Employers that have reported for that employee for the past two (2) years. Additionally, SEW provides Remote Employer Access Program (REAP) access to contribution reporting data reported by ALL Report Units for an employee, allowing any Report Source or Report Unit (with permission) visibility into potential membership qualification situations, even if that membership qualification occurs in another County or District. Finally, employers are encouraged to submit a Fast Track Match File and/or Fast Track MR87 File to verify the current membership status of any number of employees. Responses to both files are processed in only 30 minutes and reflect real time data within CalSTRS system. 3
What does the effective date of the written employment agreement or the effective date of the provision in the agreement mean? There are many effective dates within the written employment agreement, which do I use? What will constitute discovery? How will notification work? How will retroactive pay increases be impacted? Will there be penalties associated with non member reporting? Will the 60 day election process be exempt from penalties? Can penalty charges be passed on to individual teachers if they are at fault for creating the penalty? Will corrections/adjustments to data that represent service dates prior to the effective date of regulations be subject to penalties and interest? While there may be many effective dates within the agreement (e.g. The pay raise in this agreement will be made effective retroactively back 9 months from the ratification of this agreement), the effective date is either when the entire written agreement is in effect or ratified, therefore making each provision change in the agreement actionable (e.g. The day the Board signs the employment agreement) OR the date a retroactive pay raise provision is set within the agreement to be effective (e.g. The 3% retroactive pay raise within theis agreement will take place on Dec 1 which may be different from when the board signs the agreement. If an employer (Report Source) discovers or is provided information that is substantiated and authorized and requires modifying previously reported contributions, it is the employer s responsibility to provide the proper reporting data to CalSTRS and correct the problem within 60 days of that date of discovery. Examples of discovery may include: an updated contract, a request for adjustment from CalSTRS, or submission of a transcript that impacts compensation. See the latest version of the regulations for notification requirements. Once notified, CalSTRS will compare the date of notification (i.e. the date the notification was sent) with the contribution adjustment to determine lateness. If the contribution reporting is received more than 60 days from that notification date, it is considered late. Retroactive pay increases which meet certain criteria (e.g. made to an entire class of employees*) are exempt from penalties and interest if the data and contributions are received by CalSTRS within 90 days of the effective date of the agreement of the effective date of the provision within the written employment agreement. * Other conditions apply, see the regulation text for full details Reporting that does not affect contributions (e.g. non member lines or assignment code adjustments) are exempt from ALL penalties and interest. The periods of time that are mandated by legislation or regulations are exempt from penalties. See the regulation text related to this exemption for specific due date information. The Report Source is responsible for paying all penalty charges. CalSTRS recommends that each employer consult labor laws and legal counsel. No. Adjustments/corrections to contributions for service already reported and with services dates prior to the regulation effective date are not subject to any penalties. Also, adjustments to data having a net zero effect on contributions are not subject to penalties and interest. However, new reporting (non adjustments to previously reported service) and related contributions will be subject to penalties and interest, but only so far back as the regulation effective date. 4
I have part time timesheet employees that get paid on a different payroll schedule than contract employees; will I get charged penalties/interest? Will traditional stipend (or similar multi month) reporting / remitting be penalized? Is there anything I can do about that? How does the Defined Benefit part time service exclusion work for penalties and interest? The reporting and payment due dates for part time, timesheet employees is extended additional days to accommodate the Employer s particular published pay schedule. See the How does the part time service exclusion for Defined Benefit work for penalties and interest? question for more information. Reporting and remitting for stipends has traditionally been handled through reporting the entire work period (e.g. multiple months) and remitting the contributions to CalSTRS per the last month worked Example: Jane worked Nov Feb as a coach, and the expectation of pay is written into their agreement as the end of Feb. Contributions remitted within 5 and 15 business days of the end of Feb. and reported within 44 calendar days of the end of Feb and reported with Nov 1 Feb 28 service period dates. However, In order to avoid the penalties that would be incurred in this case, the service can be reported as earned in February (i.e. Service dates of Feb 1 Feb 28) CalSTRS made changes to the draft regulations that went before the Office of Administrative Law in response to feedback from many Employers. The provision for part time service that was added to the draft regulations for both the reporting and the contribution remittances allows for the published pay date to be used in determining the due dates for both remittances and reporting. This is in contrast to full time service where the due dates are derived from the service period end date. This means, for part time service, the reporting will be due 44 calendar days from the published pay date, and the remittances for that reporting will be due 5 and 15 business days from the published pay date. EXAMPLE: Type of Service Service Period End Date Full Time 3/1/11 3/31/11 Part Time 2/14/11 3/15/11 Published Pay Date 95% of Money Due 100% of Money Due Reporting Due 3/31/11 4/7/11 4/21/11 5/14/11 3/31/11 4/7/11 4/21/11 5/14/11 Note the different service period end dates Automation Question Will Report Units (school districts) have the ability to initiate a dispute? Answer Any user granted permission from his/her Employer Administrator can initiate a draft dispute, including Report Units. The Report Source, however, is the only entity that can submit the dispute to CalSTRS. 5
Is there any consequence to over paying CalSTRS? When searching for penalty assessment data in the Penalty Assessment and Dispute Management area of the Contribution Account Portal, I received an error message of No data has been selected What does that mean? I see a new Associate Deposits screen when I transmit my file. What do I do here? What happens if I skip the Associate Deposits step or no deposits are available to associate with my file? I received a Contribution Variance Notice. What does this mean and what do I do next? I received a Refund Notification. What does this mean and what do I do next? How do I avoid a Contribution Variance? Every time an employer submits a file and associated contribution to CalSTRS, a reconciliation of data and money is performed. All overpayments will be immediately refunded and under payments will result in the collection of a receivable. It means your file has been processed by CalSTRS and the total contributions due on that file have not been settled against the Open Bill for contributions. Once the Open Bill for contributions (i.e. Contribution Receivable) has been fully paid, Penalties and Interest calculations will be performed and the data will then show in the Penalty Assessment and Dispute management area of the Contribution Account Portal and that error will not appear. A new feature was added to the Secure Employer Web site to allow Employers to associate the deposits that have already been submitted with the file you are currently transmitting. To avoid delays in processing your penalty assessment, please check the boxes relating to the deposits that should be associated with the file you are transmitting. If deposits are available to associate, please do so. If this step gets accidentally skipped, your file will be processed into the contribution account portal and you will see an open bill (i.e. Contribution Variance Due). You will also see any payments submitted in the payments area of CAP. In order to apply the payment to the open bill, please advise CalSTRS Accounting which payments to associate to your file by submitting a remittance advice through SEW, and make sure to include the STRS Media ID, which can be found in the File Summary screen of the transmitted file in SEW. This means a dunning notice has been generated for your report source regarding a Variance Due (the difference between the calculated amount due per your file and the remittance deposits associated with that file). Go to the Invoices and Notices section of the Contribution Account Portal and select Dunning under Notice Type, with a Contribution Dunning description. Contact Employer Help if you have further questions about this process. This means a contribution file amount due was overpaid by the associated deposits for that file. The overpayment will be processed through the State Controller s Office. Please allow two to three weeks for the State Controller's Office to process your refund. First, make sure your system is calculating the Contributions Due for that file at a line by line basis, then summing them up. Simply calculating 8% Second, if you have made changes to your file using SEW s online corrections feature, be sure that your contribution payment still matches the contributions due for the corrected file. To verify the correct contribution amount, check your File Summary page for any Variance Errors. Variance Error V004 will state the exact amount of contributions due for the entire file. Although you are not required to correct the variance error on your file, you must send in the correct contribution amount shown there. 6
Will the P&I system be able to handle a large volume of users? Yes. CalSTRS anticipates accommodating a user base similar in size to the Secure Employer Web site without appreciable delays or interruptions. Automation Billing Is CalSTRS considering a penalty or invoice threshold or will Employers be invoiced for pennies? How is CalSTRS planning to invoice Employers for penalties and interest and what are the terms of payment? How will we get billed for penalties and what kind of details will I receive? CalSTRS is considering a minimum threshold for invoicing. That minimum threshold has not yet been determined. Currently, however, the law does not allow for a threshold, so invoicing will occur for any amount due. CalSTRS will present the penalty invoice, by file submission, to the Report Source through the P&I web portal. The terms of payment are Net 30, meaning the payment to CalSTRS is due in full within 30 days of the issuance of the invoice. Each month an invoice and various reports will be available in the Contribution Account Portal through SEW. Similar to other notifications in SEW, Report Source Employers will receive an email notification when the invoice is posted to the system. Each invoice includes any charges due to CalSTRS. The reports include details supporting the charges. Reports can be used to research the cause of penalty and interest charges and, if needed, to dispute charges with CalSTRS. Automation Pilot Period What are the ramifications of a July 2012 effective date for the regulations? This is the date on which penalties and interest are set to be made effective per language written into the regulations. Penalties will begin to be assessed and invoices sent to the Report Sources beginning on this date. 7
What is this pilot year or pilot period I ve heard about? The production go live date of the automation tool to calculate and present penalties and interest charges to Employers is set for August 29, 2011. The regulations that clarify the Education Code around penalties and interest are written to be effective July 2012. This period from Aug 29 2011 to July 2012 will be a pilot period for the penalties and interest process and system. During this period, the penalties and interest system will be fully operational (with the exception of Dispute Management) with penalty and interest calculations being generated and mock assessments being performed. This pilot period provides both CalSTRS and Employers with the opportunity to analyze, define, and apply best practices for reporting and remittance processes and resolving issues that cause penalties and interest charges. It is crucial that Employers take advantage of the opportunity during this pilot year to use and understand the full functionality of the new system without the financial consequences of real penalties and interest charges. CalSTRS is committed to supporting Employers in implementing changes necessary to avoid penalties and interest charges. Therefore, it is highly recommended that during this pilot period, Report Sources work closely with CalSTRS and their Report Units to reach our common goal of reducing, and ultimately totally avoiding, penalties and interest charges while ensuring timely and accurate reporting and remittances to CalSTRS. Things to known about the pilot period: The default date of discovery of adjustments to contributions, affecting the contribution adjustment data penalty is set to 44 days past the service period end date for purposes of full exposure and education during this period. The regulation effective date will be set to July 1, 2008 for purposes of full exposure and education during this period. The effective date will be reset to July 1, 2012 when the pilot period is complete. The penalty calculation rules are based on version 2 of the regulations, which can be found in the Secure Employer Website reference items. Version 2 of the regulations does not include the exemptions added to various sections, including the part time and bargained retro exemptions. See regulations for full details of the difference between version 2 and the current version of the regulations. 8