The St. Paul, Anoka-Hennepin, Minnetonka and Hopkins districts are suspected of offering retirement contributions that exceed statutory limits.
The school superintendent contracts in St. Paul and a few other metro districts contain taxpayer-funded retirement benefits that appear to be more generous than permitted under state law.
The excess benefits range from a few thousand dollars in some cases to tens of thousands in others. By law, those funds are supposed to be returned to the school districts if the retirement plans do not comply with the requirements.
However, the statute contains no enforcement mechanism, so it’s not clear who, if anyone, might make that happen.
Peter Hendricks, an attorney and parent who served on the St. Paul school district’s defunct budget finance committee, has been researching the matter and spoke last week before the Legislative Commission on Pensions and Retirement.
“Many school districts do comply with the statute, but there are four districts that clearly do not,” he said, detailing contract provisions from St. Paul, Anoka-Hennepin, Minnetonka and Hopkins.
Spokespeople for three of the districts denied their contracts violate the statute, and Anoka-Hennepin’s Jim Skelly said the district is reviewing the contract with incoming superintendent Cory McIntyre to ensure compliance.
Statute dates to 1971
The statute dates to 1971 when the Legislature was upset that many school districts were creating and funding supplemental pension plans outside of the regular Teacher Retirement Association pension.
“The Legislature decided that this practice was inappropriate and that the creation of additional pension plans was an unwise policy. The Legislature also apparently felt that pension benefits should be as uniform as possible geographically throughout public employment,” according to a 2003 summary from the Legislative Commission on Pensions and Retirement.
Since 2008, the statute has said public employer contributions to supplemental plans must contain a dollar-for-dollar match from the employee and must not exceed 50 percent of the annual IRS limit for employee deferred compensation.
This year, the IRS limit is $22,500, plus another $7,500 for employees 50 and older.
That makes the statutory limit on public contributions this year either $11,250 or $15,000, depending on the employee’s age. Those amounts could increase slightly in the coming years as the IRS raises its contribution limits.
Hendricks found the St. Paul contract for Superintendent Joe Gothard to be the most egregious of the districts he reviewed.
Besides a 1:1 match of up to $9,000 per year, which is allowed, the district makes an annual unmatched contribution of $10,000. There’s also an unmatched employer contribution worth between 5 and 10 percent of Gothard’s salary, which vests only if Gothard still is working for the district on June 30, 2026.
Over the life of Gothard’s three-year contract, which runs from July 2023 through June 2026, that adds up to nearly $88,000 in unmatched contributions.
District spokeswoman Erica Wacker said the provisions do comply with the statute, but did not explain what part of Hendricks’ analysis the district disputes.
“The district is in compliance with Minnesota statute and IRS code in regard to supplemental pension/deferred compensation plans for the superintendent’s contract,” she said by email. “… If any part of the superintendent’s contract is found to be out of compliance at a later date, it would be amended as needed.”
The contract for Anoka-Hennepin’s new superintendent, Cory McIntyre, says the district will contribute up to $17,800 in matching funds toward a tax-sheltered annuity during the 2023-24 fiscal year. Depending on how much of his salary McIntyre defers and when he does it, that could put the district over the statutory limit.
“The district has reviewed the testimony provided to the Legislative Commission on Pensions and Retirement and is also reviewing the contract with Superintendent McIntyre to ensure compliance when his contract begins on July 1, 2023,” Skelly said by email.
David Law, who left Anoka-Hennepin for Minnetonka last year, gets a retirement allocation worth 10 percent of his $275,000 base salary each year of the contract. His contract says he can choose to deposit that $27,500 in a tax-deferred savings account.
In addition, Minnetonka offers Law as much as $10,500 in matching funds toward a retirement plan.
The district argues the contract complies with the statute because they don’t consider the 10 percent “retirement allocation” to be an employer contribution; rather, it’s money the district provides Law that he can use as his employee contribution.
“The district will then match up to $10,500 of the superintendent’s own contribution, which is within the limits allowed,” spokeswoman JacQui Getty said by email.
“All of our district contracts are monitored by outside financial firms to ensure compliance with state and federal guidelines on the 403(b) limits and on district contributions, and we are confident that the superintendent’s contract remains consistent with those expectations,” she added.
Rhoda Mhiripiri-Reed’s contract in Hopkins includes a retention incentive to be deposited in either a deferred compensation plan or health savings account at the end of June in the amount of $28,933, or one-eighth of her current base salary.
That provision requires no employee match, but the district thinks it complies with the law.
“We believe that our superintendent contract is within the amounts outlined in Minnesota Statue,” spokeswoman Jolene Goldade said by email. “As well, our superintendent contract uses specific language to limit any contribution amounts according to state and federal limits. Should the contractual amounts be found to exceed any limit, we would modify accordingly.”
The state pensions commission suspects many local governments provide excess retirement contributions, but it’s unclear who might do something about it.
Susan Lenczewski, the commission’s executive director, told lawmakers following Hendricks’ presentation last week that the relevant statute is “full of requirements” that have not been enforced. Those include not only the limits on employer contributions but also rules about the supplemental pension plans disclosing information on the fees they charge and rates of return.
“As far as who needs to enforce these, that’s been the never-ending question,” Lenczewski told lawmakers. “I don’t know where to turn for this.”
Hendricks already has tried the Legislative Auditor, whose staff researched the matter but didn’t reach any conclusions before referring it to the State Auditor.
The State Auditor’s office told the Pioneer Press it’s “aware of this concern” and is looking into it.
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