States Curbing 'Double Dipping' by Teachers
Many are requiring rehires to make contributions to pension fund
A practice once embraced by legislators to keep high-quality teachers and principals in their schools is coming under fire as a spate of laws have passed to restrict “double dipping” among educators.
A term used pejoratively by critics, double-dipping refers to policies that allow a public employee to retire, draw down a pension, and then be rehired—sometimes in his or her previous position.
To give a hypothetical example, a teacher who retires with full benefits at age 55 with 25 years of service and a final average salary of $65,000 a year would receive on the order of $32,500 a year in a typical teacher-pension plan. By double-dipping, such a teacher could net close to $100,000 a year.
In just the past six months, five states have passed laws affecting double-dipping policies, according to the Denver-based National Conference of State Legislatures. And the action seems to be part of a longer-term trend: Ten states passed laws restricting double-dipping in 2010, and six did in 2009, according to the group.
The legislation, for the most part, does not outlaw the practice, which is also often called “return to work.” But it does make it costlier for districts and educators to participate. (Most of the laws apply to other public employees, too.)
‘It Looks Unfair’
Just what is driving the recent flurry of revisions remains unclear. Lawmakers supportive of such changes have cited budget shortfalls and unfunded pension liabilities. Even teachers’ union officials acknowledge that, if not appropriately structured, double-dipping can undermine the long-term health of defined-benefit pension systems.
But observers say the legislation may also reflect changes in the discourse surrounding public-pension systems for educators.
Such issues include whether the cost of those plans is justified; concerns wrought by unfunded liabilities, exacerbated by the sputtering economy, that have been identified in many state plans; and perhaps most pervasive of all, a sense that the plans are more generous than those offered in the private sector.
To some taxpayers, “it looks unfair that they’re paying taxes for someone to get a pension and a salary and wonderful benefits, when they themselves are maybe stuck with Social Security in their old ages,” said Ron K. Snell, a senior fellow at the NCSL. “There were rational public-policy motives behind [these incentives], but you get examples that appear plainly unattractive of people with pretty substantial pensions returning.”
Many of the examples of double-dipping that have caught the attention of the national news media have involved higher-paid superintendents and principals, rather than teachers. In Ohio, for instance, a quarter of principals received payouts from the State Teachers Retirement System and simultaneously collected paychecks, while about a sixth of superintendents did so, according to a 2010 report by eight newspapers on double-dipping in that state.
In general, rules governing double-dipping vary by state in terms of their features. Arizona and New Mexico, for instance, both require employees to wait a year before they can return to a full-time job; in Florida, the waiting period is six months. In Nevada, employers must show that the rehiring is taking place in a “critical shortage field.”
Some states are altering the rules for “double dipping”—the practice of returning to public employment while collecting a pension. Laws enacted since January:
Arizona SB 1609: Establishes an alternative contribution rate, based on the contribution required to account for the unfunded liability of the retirement system plus the cost of long-term disability benefits. Retired members do not accrue credited service or retirement benefits.
Arkansas SB 127: Requires employers to make retirement contributions to cover the costs of retirees returning to active service.
Maine LD 1043: Bars retired state employees or teachers after July 2011 from working longer than 5 years and at a maximum of 75 percent of the salary established for the position.
New Mexico HB 129: Requires retired teachers to contribute the same amount as active employees into the retirement account; it also excuses employers from having to pay both employer and employee contributions.
Utah SB 127: Permits re-employment after a 60-day waiting period, but only if the retiree receives no employer benefits and does not earn more than either $15,000 or half his or her final average salary.
The advent of double-dipping can be traced to the 1980s and 1990s, when a general trend of states’ lowering retirement ages for educators collided with an increased demand for teachers, according to Mr. Snell.
Many of the initiatives were originally short-term plans designed to help find faculty members for schools in hard-to-staff subjects or in rural locales, where it is typically more difficult to tap high-quality talent for positions.
But the plans often came to be embraced by both employees and employers and were extended past their original dates.
Especially when the plans were coupled with lower retirement ages, educators could draw their pensions for additional years while continuing to pull in a salary. School districts in some states, in the meantime, were able to save costs on their end, too. Until recently, neither Arizona nor Arkansas, for instance, required employers to make contributions into the pension system for retired teachers that they brought back as employees.
Retirement experts say such policies undermine the actuarial assumptions of the pension system, a situation that occurred during the economic downturn.
Unlike defined-contribution plans, defined-benefit plans pool funds. Contribution rates are determined by actuaries, who take into account factors like life expectancy and retirement ages. They also assume that retiring employees will be replaced by new hires, and new contributors. Not so with “return-to-work” programs.
“We’re paying out benefits but not taking a contribution into the system,” said David Cannella, a spokesman for the Arizona State Retirement System, or ASRS, which supported recently passed legislation there requiring a contribution by employers. “That’s fine if you’re at 100 percent funded status, but we have a portion of the contribution that goes to paying down our debt. The fund is harmed if we don’t capture the portion of the contribution rate that goes to the unfunded liability.”
Rising unfunded public-pension liabilities have raised much concern across the nation, with some estimates putting them in the realm of $3 trillion in total.
The newly passed laws use a variety of tactics to lower the cost of double-dipping. They including requiring either districts or their employees to contribute to the pension system on behalf of the returning employees; capping the amounts rehired employees can earn; or making them wait longer before returning to their jobs.
Lawmakers supporting such bills generally point to the issue of costs. State Rep. Lucky Varela, a Democrat who sponsored a recently passed bill on the issue in New Mexico, said lawmakers “felt it was important for [educators] to pay their share in order to get not only the pension but also to draw a salary at the same time.”
Teachers’ unions are proponents of defined-benefit pension plans. At the same time, the issue of double-dipping has proved a difficult one for them to address.
Bill Raabe, the director of collective bargaining and member advocacy for the 3.2 million-member National Education Association, said the union shares concerns that double-dipping can affect actuarial predictions. It says states should also ensure that retired-rehire programs offset the loss of a new contributor into the system.
In addition to the actuarial problems, the NEA worries that double-dipping could create separate classes of teachers.
“Some districts bring employees back at lower pay and don’t provide them benefits. We think that kind of disrupts what we’ve bargained for,” Mr. Raabe said. “In some places, these retirees may not be part of the bargaining units.”
The American Federation of Teachers, in a recent report, called on state officials to end the practice of double-dipping. But the 1.5 million-member union also said that lawmakers must meet their obligations to fully fund defined-benefit pensions.
Nevertheless, some state unions have fought attempts to end the programs.
NEA New Mexico opposed, on two counts, recent legislation that requires retired teachers who have been rehired to pay an amount into the retirement fund equal to that paid by active teachers.
First, those contributions had previously been paid by districts, not teachers; and second, the state in two previous budget bills had already raised active teachers’ premiums. Under the changes, retirees returning to the classroom will be docked up to 11 percent of their wages, but not earn more retirement credit.
Eduardo Holguin, the communications and government-relations director for NEA New Mexico, said the change will harm middle-income teachers who will continue to depend on the program.
“The rising cost of retiree health care is going to keep them in the classroom,” he said. “One of the things that they’re going to consider is, ‘How far away am I from 65? Can I afford to pay insurance on a static retirement check?’ ”
At the same time, Mr. Holguin acknowledged that the program, was not well targeted to the highest-need fields, helping put it within legislative crosshairs.
“We didn’t necessarily stick to hard-to-teach areas, and that soured some of the legislators on Return to Work,” he said. “It made it very easy for [human resources] departments not to look really, really far for candidates. If we’d have focused on just the hard-to-staff subject areas, we’d have been in much better standing.”
Tinkering at the Margins?
How much funding the new pieces of legislation will raise depends on how many districts and educators make use of return-to-work programs in the future, even with the restrictions.
Arizona’s new law, which takes effect in 2012, could raise $32 million to $600 million over the life of the plan, according to ASRS’s Mr. Cannella. The plan is currently worth $28 billion in total.
But some observers maintain that the state action on double-dipping amounts to tinkering at best.
Robert M. Costrell, a professor of education reform and economics at the University of Arkansas at Fayetteville, has criticized the way public-employee retirement plans affect the teacher labor market.
He acknowledges that curbing double-dipping could raise some cash, but contends that fails to deal with other structural deficiencies with public pensions. ("Pensions Blamed for Costing Schools New Talent," April 22, 2009.)
For instance, he notes, Illinois lawmakers last year raised the age of full retirement for public employees to 67 and did away with double-dipping. But the overhauled system, which took effect on Jan. 1, 2011, still relies on new enrollees to cover the cost of retiree payouts and penalizes teachers who choose not to stay in the teaching profession, he argues.
“States will pass bills that deal with these smaller pension phenomena,” Mr. Costrell said, “but it doesn’t really solve their fiscal problems or the fundamental structural problems of these systems.”
Vol. 30, Issue 36, Page 28Published in Print: July 13, 2011, as States Curbing 'Double Dipping' of Retirees Returning to Teaching