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F I S C A L I M P A C T R E P O R T

SPONSOR Gardner

DATE TYPED 02/25/05 HB 1040

SHORT TITLE Payment of Public Retirees Returning to Work

SB

ANALYST Geisler

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

Significant Recurring

General, Other

State Funds,

Federal

(Parenthesis ( ) Indicate Expenditure Decreases)

Conflicts with: HB 207, SB 788, SB 875, HB 1024

SOURCES OF INFORMATION

Public Employees Retirement Association (PERA)

Corrections Department (DOC)

SUMMARY

Synopsis of Bill

Effective July 1, 2005, House Bill 1040 would require PERA affiliates who employ PERA retir-

ees to pay the retired member’s contribution as provided by the PERA Act.

Significant Issues

House Bill 1040 transfers the financial responsibility for making the PERA employee contribu-

tion for return to work retirees from the employee to the employer. Retirees who return to work

with public-affiliated employers are required to remit nonrefundable retired member contribu-

tions when their post-retirement earnings reach $25,000. Retired member contributions will con-

tinue to be required through December 31, 2006, allowing for two full years of actuarial experi-

ence to determine the full actuarial cost of PERA’s expanded return-to-work provisions. Begin-

ning January 1, 2007, the employer contribution rate will be adjusted annually at the determina-

tion of PERA to cover the full actuarial cost of PERA retirees for post-retirement employment

with PERA affiliates.

House Bill 1040 -- Page 2

FISCAL IMPLICATIONS

The impact to PERA is neutral as it will still receive the same combined contribution level from

employers and employees. The cost will increase for PERA-affiliated employers who choose to

hire PERA retirees since they will have to pay the retired member’s contributions to the PERA

fund. The Corrections Department provided an estimate of the cost increase to the employer of

$1,885 per return to work retiree. Not all of the approximately 1,500 retirees who have returned

to work will earn $25,000 which will trigger the employee contribution. However, if one-third

of the group does exceed the cap, and the employer paid the $1,885 required employee share for

the employee the fiscal impact would be approximately $942 thousand per year.

PERA notes that since it will be more expensive for an employer to hire a retiree rather than an

active PERA member this may influence the hiring practices of public employers. This may

trigger later retirements and there may be a gain to the Fund.

ADMINISTRATIVE IMPLICATIONS

HB 1040 will have a minimal administrative effect on PERA. Under current law, retirees remit

nonrefundable retired member contributions when post-retirement earnings reach $25,000 and

will be required to do so through December 31, 2006. Whether the employer or the retiree is re-

sponsible for paying the contributions, the employer is responsible to remit both the retiree or

employer portions to PERA.

CONFLICT, DUPLICATION, COMPANIONSHIP OR RELATIONSHIP

House Bill 207 will reinstate an earnings limitation for retired members returning to work to

$30,000. The earnings limitation will not be applicable to retired members who are already em-

ployed by an affiliated-public employer prior to July 1, 2005, who will continue to make retired

member contributions through December 31, 2006. Beginning January 1, 2007, the employer

contribution rate for these retired members will be adjusted annually at the determination of

PERA to cover the full actuarial cost to the Fund of their post-retirement employment.

Senate Bill 788 would exempt retired state police members and retired municipal police mem-

bers from the PERA Act’s statutory 90-day separation from service requirement to temporarily

fill certain vacant public safety positions, which result from an active employee’s activation or

deployment to a federal call to active duty.

SB 875 raises the threshold for remitting nonrefundable retired member contributions for post-

retirement earnings to $30,000, and repeals the sunset provision for retired member contributions

(December 31, 2006). SB 875 lengthens the separation from service requirement for post-

retirement employment, including independent contractors, to 12 months.

House Bill 1024 amends the PERA Act to limit those PERA–affiliated public employers eligible

to hire retired PERA members to: 1) a municipality with a population of less than 20,000; or 2) a

county with a population of less than 50,000.

House Bill 1040 -- Page 3

OTHER SUBSTANTIVE ISSUES

Since removal of its earning limitation for retirees who return to work with affiliated-public em-

ployers, PERA has experienced historically heavier end-of-year retirements. For example, for

the year 2004 PERA retired 1,878 of its members. The number of back-to-work-retirees has es-

calated from 363 on October 31, 2003 to 1,501 through December 31, 2004. The number of re-

tirees who have returned to work correlates very closely with the increased retirements in 2004

and represents approximately 7% of annuitant payroll.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

Retirees who return to work with public-affiliated employers will be responsible for remitting

nonrefundable retired member contributions when their post-retirement earnings reach $25,000

until December 31, 2006.

AMENDMENTS

PERA suggest clearer language relating to the employer paying the employee contribution:

On page 3, line 9, after the word share, delete the word “of” and replace it with the word “for”.

GG/lg