Double dipping: bad manners and bad ethics? (7710)

Filed under: Focus |

Double dipping has become a standard practice for state employees in Colorado and elsewhere. And it has nothing to do with shrimp and cocktail sauce.

Double dipping, as it relates to state employees, is all about retirement and resurgence – public employees who retire, collect their PERA (Public Employees’ Retirement Association) pensions and then return to work for their same employer.

“Taxpayers deserve better from those serving in government,” said Mike Coffman, Colorado’s state treasurer in a news release. “I will propose legislation next session to stop this abusive practice.”

PERA regulations support what Coffman referenced as abusive practices through a 110-day rule, which allows employers to reinstate pensioned-retirees for 110 days per calendar year. If retirees choose to work beyond the 110 days, their monthly pension benefit is reduced by 5 percent. However, some retirees are hired on a contract basis, avoiding the 110-day rule.

After Coffman found out about a Delta County School District former superintendent who drew his pension while providing the district with management services under his newly created consulting firm, he decided to challenge the ethics of the employers who embrace the practice.

The Delta County interim school superintendent released a statement defending the practice: “In my belief, the reason why we were working with the consulting firm was because the 110-day limit would not come into effect. I know it’s not illegal.” It might be legal, but Coffman maintains “there is no question of its lack of ethics.”

Coffman said school districts find the practice to their advantage, even though he said it’s hurting the pension fund. “The state’s pension fund is bleeding red, and the little things like this are aggravating it,” he said.

It’s not only school districts employing pensioned retirees. PERA replaces Social Security benefits for all state and some local government employees, and all of the municipal employees in Colorado Springs are under PERA.

Of the 2,400 employees of the city of Colorado Springs, there are 14 retirees and all are under the 110-day rule, said Ann Crossey, the director of human resources.

In contrast, all of Colorado Springs Utilities’ 52 retirees are contracted through Manpower. Steve Berry, Springs utilities spokesman, said there are no former retirees working under the 110-day rule. The 52 workers collect full pensions while working full or part time on a contract basis for the utilities company.

“It saves us money to bring retirees back in, and it’s better than having to go out and hire a full-time paid employee with benefits,” Berry said. “We have to look at this from a customer perspective and what makes sense from a business point of view. These people also know the historical content, and it makes sense to bring in those people.”

It makes sense for the city-owned hospital, Memorial Hospital, to hire former employees who are receiving full pensions because of the shortage of clinical professionals, said Ron Burnside, the hospital’s chief human resource officer. “We have about 3,600 employees, and today we have 220 vacancies of which about half are clinical or registered nurse positions,” Burnside said. “We have 21 PERA beneficiaries working for us under the 110-day rule, and 17 of the 21 are working in caregiver, clinical roles, including registered nurses and technicians.

“Given the shortage of registered nurses and other health care professionals, having these experienced past employees available is a good thing, and it serves a valuable purpose.” Burnside said the hospital also is concerned with maintaining PERA’s viability. He is confident the hospital will be able to weigh in with Coffman’s ideas for reform.

Coffman’s ideas for reform will be based on whether to continue the practice or make it more restrictive. “Maybe we should suspend pensions while the people are back to work,” he said. No matter the reform, Coffman is certain that he does not want employers encouraging the practice.

But the school districts have incentive programs in place for returning retirees.

Of the nine El Paso and Teller counties school districts contacted, six responded to CSBJ phone calls.

School District 11 is the largest in El Paso County. Dave Schenkel, the district’s division head of human resources, reported that 90 teachers, 20 executive professionals, such as administrators and principals, and 21 education support professionals, including clerical personnel, are currently under the 110-day rule transition program. “It’s such a good program,” Schenkel said. “Teachers can retire and for one year collect their entire salary. After the transition year, they can come back and work as a substitute at a sub’s salary, as long as they watch the 110 days.” All the while, the retirees receive full pensions.

Cheryl Walker is the assistant superintendent of finance for Fountain School District 8. She said the district also offers teachers and other school employees a post-retirement transition year. The transition program allows a teacher or other school employee to retire in June and return in the fall under the 110-day rule, which is based on a calendar year. Because school districts operate over two calendar years, the school employee can work an entire year collecting full pay and full pension. “It doesn’t cost us as much because we don’t pay for benefits,” Walker said. “And the employee gets more money for another year.”

She said D 8 is in its second year of the transition program, and 23 former employees have taken advantage of the program during the last two years.

Other responding schools also reported established transitional year programs for retiring employees. Lewis-Palmer School District 38 offers a “transition retirement incentive program” and seven fully pensioned former employees are currently under the program.

James Drew, the director of communications for the Widefield School District 3, said employs 35 retirees are working under the district’s “transitional retirement incentive program.” And, under the same 110-day rule, Harrison School District 2 employs 37 retirees. Falcon School District 49 employs seven retirees, also under the 110-day rule.

“The practice has existed for decades,” said Phil Fox, the deputy director of the Colorado Association of School Executives, a support and lobbying organization for school principals and superintendents. Fox said neither PERA nor the school district is harmed by the practice. “It saves the school districts money,” he said. However, Fox said a new PERA ruling that goes into effect in 2006 mandating that school districts pay into the PERA system for returning retirees will create a wash in the system. But Walker said D 8 will pass those costs along to the retirees, who will, while receiving previously earned pensions, be credited again for added retirement benefits.

“Is this double dipping?” Fox asked. “It’s about Mike (Coffman) running for governor. We’re not happy about him making an issue where none exists. I am not going to sit idly by and let Mike Coffman close down a good deal for school districts because someone might be accused of abusing it.”

Coffman, however, does believe the issue is worth addressing, and doesn’t see it as something that necessarily garners a great deal of political capital.

“I think the political thing to do is to duck the issue just like the Congress of the United States when it comes to the solvency of the Social Security program,” Coffman said. “It’s not in my best political interests to fight what is a very strong organization, but it’s clearly within the interest of the taxpayers of Colorado and the long-term interests of the retirees of this organization to make sure we are moving in the right direction. This is rea
lly about putting an extraordinary burden on the next generation. PERA is headed south and swimming in red ink, and we have a window of opportunity to make changes.”

The definition of abuse is in the eye of the taxpayer. Fox said the transitional programs do not encourage early retirement more than any other retirement system. Is early retirement the issue? Or is it about double dipping?

“Social Security has the same threshold,” Fox said. “You can work so much before the retirement benefits are offset by added income.”

Fox may not be comparing apples to apples.

A school teacher who makes a $40,000 salary while collecting a full pension in his or her transitional year is not penalized. A retired Social Security beneficiary can only make about $15,000 to $20,000 per year above and beyond Social Security payment before he or she is penalized, said Matt Lang, financial advisor and owner of Monument-based M.R. Lang Investment Services. “The Internal Revenue Service calculates this for each individual,” Lang said. “A part-time job is often not worth the extra money for the Social Security beneficiary.”

Lang said double dipping in Colorado is small potatoes compared to Texas. Until June 2004, teachers in Texas were allowed, under a loophole in the regulations, to collect spousal Social Security benefits along with their state pension if they worked one day in a job covered by Social Security benefits. So teachers cleaned hallways and bathrooms for a mere eight hours to collect minimum Social Security benefits when they retired. Under a new 2004 ruling, Texas teachers will now have to work five years as opposed to one day as a janitor before they are eligible for Social Security spousal benefits.

Coffman will examine the practice, not only to protect the overall financial health of the program but also to address the plan’s $10 million unfunded liability. He said Colorado law is “meant to minimize double dipping.”