Michigan school districts this week are receiving lists of former and current public school employees who are entitled to their shares of a $550 million refund for retiree healthcare paycheck deductions deemed unconstitutional by the state Supreme Court.
The Office of Retirement Services began sending the data to districts on Wednesday in an effort to begin the process of issuing the repayment to 274,742 former and current teachers and other school employees by Jan. 22.
But the state’s largest teacher’s union — concerned over possible inconsistencies in how individual districts will refund the money — is asking Court of Claims Judge Stephen L. Borrello for a status conference to issue “refund guidelines” to ensure that every school employee who is owed money receives it.
Further, an official with nonprofit Michigan School Business Officials, which advises districts on legal issues, said multiple unanswered questions remain about how districts will handle taxing refunded money that is subject to FICA taxes and how it will be reported to the IRS, said Robert Dwan, an associate executive director at the MSBO.
“I’m concerned about the speed of getting those funds back and not having it done accurately. The biggest thing we can do wrong is rush this transaction,” Dwan said.
The MSBO is meeting with school audit firms on Friday to discuss the range of taxing issues for districts and employees in an effort to provide guidance to both sides, Dwan said.
“There is probably several different scenarios we can be in on the taxation side. ... The actual process of payroll is not the issue. It’s the unintended consequence of not paying it properly or not reporting it properly,” Dwan said.
Getting a handle on those scenarios and issuing a range of guidelines to districts could take weeks but shouldn’t interfere with the state sending the money to districts on Jan. 22.
Doug Pratt, a spokesman for the Michigan Education Association, said Wednesday he is getting numerous calls from districts and current and former school employees who are concerned about how the refund will reach them, how it will be paid and how it will be processed.
“Michigan has over 400 school districts, so refunds could be done 400 different ways. We want to get ahead of that with clear guidelines,” Pratt said.
Officials with the state said on Tuesday districts across Michigan are getting spreadsheets detailing which employees worked between July 2010 and September 2012 and were subject to unconstitutional paycheck deductions.
The state will then distribute refunds to individual school districts, which will then be tasked with repaying employees, said Kurt Weiss, a spokesman for the Michigan Office of Retirement Services. The total refund will include interest, meaning the state will send roughly $554 million to districts.
Weiss said the courts did not prescribe guidelines or a methodology for how to return the money and the state cannot prescribe guidelines to districts.
“Because it varies by each district and depends on how each district has handled the taxation on that money, which is why we are returning the money to the district so they can account for how they handled the taxation,” Weiss said in an email.
According to the MEA’s website, the union and other plaintiffs in the 7-year-old case have asked a judge to require the state to develop guidelines “consistent with court decisions for how this money should be returned. This will keep school districts from handling questions inconsistently — and ensure those districts aren’t left to clean up the state’s mess after years of frivolous appeals in this case.”
Pratt said for many employees, the refund will be simple if they work in the same place today that they worked during the time period of the deduction.
“But what about those who’ve retired? Or left the profession? Or died waiting for their money to be returned? Both school employees and school districts deserve clear answers about how to properly handle the return of this money to those who earned it,” Pratt said.
The MEA is urging refund recipients to prepare for the refund by gathering their own records, such as copies of paychecks from that time period, and reaching out to a district if the person no longer works there to ensure contact information is current.