States Examine, Recalibrate Double-Dipping Policies

States Examine, Recalibrate Double-Dipping Policies
August 12, 2011

Stephanie McGill

Stephanie McGill writes from Washington, D.C. (read full bio)

Six states have proposed legislation this year restricting “double-dipping,” in which public employees retire early and collect a pension, then rejoin the state workforce, sometimes in their previous position, to retire again later with a second pension, says a report from the National Conference of State Legislatures.

With strained budgets and underfunded pensions, states view the restriction as an opportunity to trim waste, says the report’s author, Ron Snell, a senior fellow for NCSL.

Unions Encouraged Practice
Double-dipping has been common for years, says Andrew Biggs, a resident fellow at the American Enterprise Institute, and greatly encouraged by public-sector unions. Local and state-level unions, he said, secured legal protections for public employees who engage in the practice.

“A lot of double-dipping occurred because teachers quit their job, not to retire, but to become a teacher again.” Biggs said. “They are gaming the system and getting away with it.”

Biggs says it’s no surprise unions support and have pushed for such measures.

“The union’s job is to represent the best interest of the employee, the teachers,” Biggs said. 
Arizona, Arkansas, Maine, Maryland, New Mexico, and Utah altered their policies on reemployment in 2011, the report notes.

In many states, workers can work overtime in their last year or two on the job to spike their final salaries and receive higher pensions, since payouts are often calculated by worker’s final salary, said Terry Moe, a senior fellow at the Hoover Institution. 

“Some reforms do need to be made,” Moe commented. “No retired public employee should be allowed to double dip by collecting more than one public pension.”

Partial Measures Proposed
Some states are considering legislation that limits but does not ban double-dipping. This fall, Maine is implementing a law which, according to Kathy Morin, manager of legislative affairs for the Maine Public Employees Retirement System, “Limits, but does not ban, the ability for certain retirees to return to work.” 

The new law limits retirees’ second salaries to 75 percent of the new position’s compensation, and does not permit reemployment to continue more than five years. 

Such reforms are part of a national debate on teachers’ pension plans, says Kelly McCutchen, president of the Georgia Policy Foundation. 

“Our teachers still have the traditional antiquated defined-benefit plan,” McCutchen said. “That is what is causing the problem.” 

Defined Benefit vs. Defined Contribution
Until recently, most public school teachers have retired with a defined-benefit plan, a public pension guaranteeing a lifetime annuity at a specific rate. Pressured by lack of funds, states have investigated private pension-type policies, where workers contribute, and employers often match, a certain amount with each paycheck. 

Any state employee hired after 2008 in Georgia is under a defined contribution plan, McCutchen explained. This leaves a multitude of older teachers, however, who are receiving defined-benefit public pensions and have incentives to retire early and then return to their jobs. 

“We have termed it double-dipping, but it is actually [caused by] a failure to reform education pension plans,” he said. 

Destroying Public Faith
Report author Snell says restricting double-dipping probably won’t save money and boost job circulation significantly, because a teacher who returns to teaching while receiving a previous pension does not cost the state additional money. 

“The salary would still be paid to someone,” he said.   The central problem, Moe said, is that double-dipping destroys the public’s opinion of government employees and faith in pension systems meant to provide for workers in old age, not lavish public money upon them for the last 30 years of their lives. 

“You have teachers who retire at 55 years old, and so they are getting 80 percent of their salary [as a pension],” Moe explained. “Then they turn right around and go back to work as teachers.” 

Most states are currently looking into reforming double-dipping and educator pension laws, McCutchen said. Further reforms will not only save money for taxpayers, he said, but also offer teachers greater job flexibility. “If you’re not going to make a career of teaching, it allows you to move on to other careers after retirement,” he said

Internet Info: "Pensions and Retirement Plan Enactments in 2011 State Legislatures," by Ronald K. Snell:  http://www.ncsl.org/LinkClick.aspx?fileticket=ty70-VuYhz4%3d&tabid=22763

Stephanie McGill

Stephanie McGill writes from Washington, D.C. (read full bio)