An arbitrator will decide how to resolve a teacher-pay issue the Albert Lea School District faces this year as a result of an oversight by the state Legislature last year.

Arbitration had been set for Feb. 9. The Albert Lea school board postponed it to Feb. 20 to seek further negotiation with the Albert Lea Education Association, the local teachers’ union. However, last week, the school board decided to move forward with arbitration, probably happening in early to mid-March.

Superintendent Dave Prescott said the two parties seem to be going in the same direction but remain too far apart. An arbitrator hasn’t been selected.

The issue centers around 403(b) tax-sheltered annuities. Last spring, state lawmakers increased the maximum annual contribution the state can match toward the 403(b); however, that didn’t work for a handful of school districts with contract language worded to set that annuity contribution at the maximum allowed by the state, rather than worded as a flat dollar figure or a percentage.

The old amount was $2,000 a year for employees with 18 years of service or more, and that amount had remained the same for nearly 15 years. As of Aug. 1, 2008, the amount rose to whatever maximum the IRS sets, which is currently $7,750 and, as of Jan. 1, will be $8,250.

Albert Lea was an affected district. Many legislators have said they didn’t realize the measure, intended for state employees, would impact school districts, too.

The state max went up in the middle of Albert Lea’s two-year pay contract with its teachers, throwing a monkey wrench into what already had been agreed upon.

The teachers and the school board volleyed proposals back and forth, but the proposals were too far apart, said Larry Kellogg, director of finance and operations for the Albert Lea School District.

And there is another item about the 403(b) plan in the present contract that needs arbitration, too. That issue is about the date when teachers need to notify the district for modifying their contribution to the plan, Kellogg said.

“The board just felt it would be everybody’s best interest as far as time and money to have the arbitrator settle a couple points of interest,” Kellogg said.

Kellogg has estimates of the potential cost.

If the school board wins on both points, the district won’t face extra expenditures. If the board loses on both points, it could cost the district up to $176,000. If the board loses the first point and not the second, the price tag would be about $70,000.

So here are the two points the arbitrator will review, as Kellogg summarized:

1. Must the district increase the amount it will match for the 403(b) contributions because the contract calls for matching the maximum amount allowed by the state, even if the state changes the law, or can the district stick with the contribution from the time of the contract signing in 2007 because going up wasn’t the spirit of the contract or the new law?

2. The present contract says teachers need to notify the district by Dec. 1 of modifications in the amount they contribute. Because of the changes to the 403(b) plan as a result of new IRS regulations, there was an IRS deadline of Dec. 12. This caused confusion among teachers on whether to notify by Dec. 1 or 12. Which date is correct?

The present teacher-pay contract expires June 30. All rulings would be retroactive.

Prescott said the result of the arbitration will set a tone on 403(b) annuities as the district and teachers begin negotiating the next contract this spring.