DRS Email 10-018, Furlough/Temporary Layoff

  • Notice No.: 10-018
  • Date: August 16, 2010
  • Applies to:All Employers
  • Subject: DRS Email 10-018, Furlough/Temporary Layoff

Senate Bill (SB) 6157 was passed by the 2009 legislature. It allowed any compensation forgone by a Public Employees’ Retirement System (PERS) member, due to a furlough during the 2009-2011 biennium, to be included in the average final compensation calculation of that member’s retirement benefit. The qualifying factors are a reduction in hours and salary and the furlough must have been an integral part of the employer’s efforts to reduce expenditures.

SB 6503 was passed by the 2010 legislature and added members of the Teachers’ Retirement System (TRS), Washington State Patrol Retirement System (WSPRS), Law Enforcement Officers’ and Fire Fighters’ Retirement System, (LEOFF), and Public Safety Employees’ Retirement System (PSERS) who work for State Agencies or Institutions of Higher Education.

What is a furlough?

A furlough is a reduction in work hours and a corresponding reduction in salary. The term would also apply if an individual took a voluntary leave without pay as part of an employer’s expenditure reduction efforts.

Who may be affected?

All members of PERS.

Members of TRS, WSPRS, LEOFF, and PSERS who work for State Agencies or Institutions of Higher Education.

The member must have all or part of the 2009-2011 biennium in their average final compensation (AFC) time period.

Key Points
  • Employers should report normally – hours worked and compensation paid
  • Retirement contributions should only be taken on compensation paid
  • Members will only be impacted if their AFC period includes the 2009-2011 biennium
  • A member does not have to retire during the 2009-2011 biennium to benefit from SB 6157 or SB 6503
  • Early and mid-career employees are less likely to have furlough in the 2009-2011 biennium impact their AFC period
How does a furlough impact reporting by employers?

Employers should report actual hours worked and compensation paid. If DRS determines that the 09-11 biennium could impact a member’s AFC period, the employer will be asked to verify the use of furloughs as part of an expenditure reduction effort. Also, the employer will be asked for the amount of compensation foregone by an employee due to the furlough, the hours that would have been worked and the period in which the work would have taken place. DRS is not prescribing the documentation employers should keep on the furloughs. This may be done by employer resolution, documentation in an employee’s personnel file, or any other method that will allow an employer to respond to future requests.

How does a furlough affect a member’s retirement benefit?

SB 6157 and SB 6503 provides only for lost compensation due to a furlough, it does not grant service credit.

  • Earnings: In furlough cases, there will be a reduction in earnings reported by the employer. This reduction could be a small amount per month or full months of leave without pay. In applying SB 6157 and SB 6503, DRS will confirm the furlough impact on earnings with the employer.
  • Service Credit: Depending on the retirement plan and the length of the furlough, service credit may be affected as the member will be granted service credit (full or partial) based on the hours of service reported each month. In situations where members of Plans 2 and 3 lose service credit due to a furlough, they have the option of purchasing the time as an authorized leave of absence. Plan 1 has no such provision.
  • Retirement Benefit Calculation: The AFC period is determined by consecutive service credit months of a member’s highest earnings. The member must still have sufficient service credit in the months the furlough took place in order for DRS to include it in the AFC.
Examples:

Ben’s employer determines that its expenditure reduction efforts during the 2009-2011 biennium will include reducing Ben’s work hours. Ben is a fulltime employee earning $3,000 and will be subject to two furlough days per month for six months. If this period falls within Ben’s average final compensation period will it qualify under the law?

Yes.

City of Summerville decides to give all of their employees a 2.5% cost of living increase instead of 5.0% they had hoped to give as a part of their expenditure reduction effort. Would this reduction qualify under the law?

No, this is not a reduction of salary and hours.

What other budget reduction situations generally will not qualify as a furlough under these provisions?

  • Across the board pay cuts
  • Other pay cuts that are not a result of a reduction in work hours
  • Not providing expected pay increases, even if previously promised to employees, such as foregone cost of living or merit pay increases
  • The salary foregone by a member who is terminated or voluntarily resigns, even if it is part of the employer’s budget reduction strategy
Questions

Should you have questions, please reply to this notice or call Employer Support Services at 360-664-7200 (option 2) or 1-800-547-6657 (option 6 then option 2).

George Pickett

Assistant Director of Administrative Services

Communications