States Curbing 'Double Dipping' by Teachers

Many are requiring rehires to make contributions to pension fund

By Stephen Sawchuk

Ed Week

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.”

Legislative Changes

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.

SOURCE: National Conference of State Legislatures

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 ...

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The Associated Press contributed reporting to this article. Library Intern Ruth Lincoln contributed research.