Mount Vernon News

MOUNT VERNON — School funding in general is a labyrinth, and the way school employees are compensated can also be confusing. Employee salaries and benefits make up the bulk of school districts’ expenditures; on average, around 75 percent of the total budget. The remaining 25 percent is used for capital outlay for things such as buses, computers and other equipment; textbooks and other supplies; and for necessities such as utilities, sewer and water, insurance and trash removal.

In addition to a regular salary or wages, one form of employee compensation is what is known as retirement pickup. Van Keating, director of management services for the Ohio School Boards Association, said school employees have to contribute 10 percent of their income to the relevant school employees retirement system. Contributions are deducted from gross salary and are forwarded by the employer to the retirement system on a monthly basis. The employer — the school district — has to contribute another amount, currently 14 percent.

There are three main types of employer retirement pickups: Salary reduction, fringe benefit and fringe benefit included in compensation. Salary reduction means that for tax purposes the employee’s salary is reduced by the amount of the employee retirement contribution, 10 percent. The contributions are then paid by the employer.

With the fringe benefit pickup, the employer pays all or part of the employee’s retirement contributions and there is no reduction of the employee’s base salary. The pickup is not included in compensation calculations for retirement purposes.

The fringe benefit included in compensation option is also called pickup-on-pickup, and the pickup amount is included in compensation for retirement purposes.

Whether the school districts “pick up” the retirement contribution as a fringe benefit or as a tax-deferred option, Johnstown treasurer Tammy Woods said it means the employees’ take-home pay is somewhat higher than it would be without the pickup.

Picked up contributions are not included in taxable income for federal and state income tax purposes at the time the contributions are made, also adding something to the employees’ take-home pay. However, those amounts do become taxable when received by the employee in the form of a refund or retirement benefits.

Danville is the only local district which picks up 100 percent of the employees’ share, while North Fork picks up 3 percent, except for the superintendent and treasurer. North Fork pays 100 percent of the retirement contribution for its superintendent, as does Highland and the Knox County Educational Service Center.

The pickup-on-pickup for superintendents is what happens at Mount Vernon and Johnstown-Monroe, and is typically done for superintendents and often for treasurers.

“If I, as a school district, picked up your retirement contributions, that actually is another form of income for you,” Keating explained. “You’re taking home more, so that would also have to be calculated and figured into the retirement contribution. So when I pick up on the pick up, I’m not only paying that amount, but I’m paying the additional amount because I paid the first part. ... In essence, pickup on the pickup holds the treasurer and superintendent totally free in terms of paying anything toward their retirement.”

In other words, if someone is paid $30,000 a year, normally he or she would have $3,000 (10 percent) deducted from his or her pay for retirement, so he or she would actually get $27,000. If the employer picks up that $3,000, things change.

As an example, say the superintendent’s salary is $30,000. Instead of having the $3,000 deducted from the salary, the employer is paying it, resulting in the superintendent grossing $33,000 in terms of earnings. Because the superintendent is getting this additional income, the retirement system requires the district to pick up on that $3,000. That means that instead of $3,000, the retirement system will get $3,300 for that superintendent’s contribution.

Who does that help? Keating said that helps the school districts attract and retain qualified people.

“If you weren’t doing the pickup as a school district,” he said, “they would be expecting a different sort of salary, a higher one.”

The unconfirmed general wisdom among school financial officers, Keating said, is that every one-half percent a district picks up on the retirement contribution is equivalent to a 1 percent salary increase. Essentially, Keating said, it can actually save the taxpayers some money while letting the employees take home more money.

No matter what the schools choose to do, 24 percent of each district’s payroll goes to the school employees’ retirement systems.

Danville school treasurer Mary Payne contributed information for this article, as did Laura Ecklar from the State Teacher’s Retirement System.