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A Few Answers to Questions About MPSERS 3% Contribution Refund

Robert Dwan

By Robert Dwan, MSBO Associate Executive Director

DashBoard, Feb. 7, 2018

To set the stage, there has been a group that includes audit firm representatives, legal firm representatives, Office of Retirement Services, Michigan School Business Officials, Department of Technology, Management and Budget/Treasury that has been discussing the 3% issue for more than two years.

Much of the discussion has been focused on the Internal Revenue Service taxation issue and “preplanning” for the results of the Michigan Supreme Court ruling. As you know, the Supreme Court ruled in late December 2017 that the 3% retirement contribution that was required of school employees between July 2010 and January 2013 was unconstitutional and should be returned to those who paid it. Although we were somewhat surprised that the decision happened the week before the holiday break, it was nice to finally have some specific discussions on refunding the deduction and interest earned in an appropriate and expedited manner.

Now that ORS has provided the contributions back to districts as of Jan. 22, 2018, districts are working to determine the best way to disperse each employee’s refunded amount. Depending on how the district treated the original contribution, the refunds may generate reporting and taxation responsibilities. The details of how to handle your situation will be very specific to your initial handling of the deduction.

The solution has a direct relationship to the district’s original tax treatment, but the required reporting is similar in that it appears to be a W-2 issue for 2018 for current or former employees. There are some circumstances that may require a 1099 if the member is now deceased, and there is also state law that addresses a hierarchy of who you can issue the payment to with respects to spouse, children, etc. MSBO collaborated with representatives of Plante Moran as the lead and other school audit firms to work through the district-specific guidance. We recommend that you contact your audit firm for their recommendations based on your circumstances.

For now, we are still suggesting that business offices take CAUTION and GO SLOW on processing the payments. Although we don’t want to delay payments to employees that are rightfully due, doing this right the first time is essential. We strongly suggest your business office keep in touch with your district’s audit firm and/or attorneys for specific guidance on your situation. There are several local decisions that will need to be made regarding the payments. Once these are known, we recommend communicating a timeline to your personnel so they know what to expect.

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