Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR Altamirano

DATE TYPED 03/16/05 HB

SHORT TITLE Public Retirees Returning to Work

SB

875/aSPAC/aSFC/aHAFC/

aHFL#1

ANALYST Geisler

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05 FY06

Minimal, see fiscal impact Recurring Educational Retirement Fund and Pub-

lic Employees Retirement Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Relates to: HB 16, HB 207, SB 788

SOURCES OF INFORMATION

LFC Files

Responses Received From

Public Employees Retirement Association (PERA)

Educational Retirement Board (ERB)

SUMMARY

Synopsis of HFL Amendment

House Floor Amendment #1 to Senate Bill 875 as amended clarify the House Appropriations and

Finance Committee amendments 2 and 3. As amended, the bill requires only a 90 day waiting

period for certain retirees returning to work: peace officers or water or wastewater facility op-

erators who are receiving the maximum pension under the member’s applicable coverage plan.

(All other employees still have a waiting period of twelve consecutive months where they could

not be employed as an employee or independent contractor of an affiliated public employer).

Synopsis of HAFC Amendments

The House Appropriations and Finance Committee amendments to Senate Bill 875 strike Senate

Finance Committee amendments 3 and 4 but restore similar language requiring only a 90 day

waiting period for peace officers or water or wastewater facility operators but require that the

member must have reached his or her pension maximum under the member’s applicable member

coverage plan.

Senate Bill 875/aSPAC/aSFC/aHAFC/aHFL#1 -- Page 2

Synopsis of SFC Amendments

The Senate Finance Committee amendments to Senate Bill 875:

1) Strike all Senate Public Affairs Committee amendments but restore similar language requiring

only a 90 day waiting period for certain retirees returning to work: peace officers or water or

wastewater facility operators.

2) Amend 10-11-43.3 to specify that for legislators retiring on or after July 1, 2005 that the pen-

sion under member plan 2 shall be calculated based on the average of the three highest per diem

rates in effect as determined on July 1 of each year of service of the legislator or lieutenant gov-

ernor. (The current method uses the per diem rate in effect on December 31 of the calendar year

of service).

Synopsis of SPAC Amendments

The Senate Public Affairs Committee amendments to Senate Bill 875 provide for a 90 waiting

period for retirees returning to work as peace officers or public utility employees. (All other em-

ployees still have a waiting period of twelve consecutive months where they could not be em-

ployed as an employee or independent contractor of an affiliated public employer).

Synopsis of Original Bill

Senate Bill 875 addresses the return to work (RTW) requirements for retirees from the Public

Employee Retirement System (PERA) and the Educational Retirement System (ERB) who return

to work and do not have to suspend their retirement. For PERA, the bill increases the waiting

period before re-employment from 90 days to one year and makes it applicable to independent

contractors. SB 875 also changes the cut off amount of earnings that a RTW retiree is allowed to

earn without having to make an employee contribution to PERA from $25,000 to $30,000. The

bill also eliminates the 2006 sunset provision on these employee contributions.

For ERB, SB 875 will require educational RTW retirees to make employee contributions to ERB

once they earn $30,000 during a calendar year. The bill also restricts the RTW eligibility to re-

tirees who would be employed as a teacher in a public school or an instructor in a post-secondary

educational institution.

Significant Issues

SB 875 establishes parity between ERB and PERA retirees in terms of a 12 month break in-

service requirement before they are eligible for RTW without pension suspension and a $30,000

earnings limit before the RTW retiree would be required to make employee contributions.

PERA believes that lengthening the break in-service requirement, as well as elimination of the

sunset provision for PERA RTW retirees may have a positive fiscal impact on the fund. ERB

notes that institution of employee contributions from ERB RTW retirees may help the actuarial

position of the fund, but expresses concern about dissention among ERB members (non-

teachers/instructors) who would not be eligible to participate after FY 05 in the RTW program.

Senate Bill 875/aSPAC/aSFC/aHAFC/aHFL#1 -- Page 3

FISCAL IMPLICATIONS

ERB notes that their actuaries initial review of the first 3 years of their RTW program showed no

negative actuarial effect to the ERB fund from the RTW program. They believe requiring an

RTW retiree to make a employee contribution is likely to have a positive impact on the fund.

PERA provides that SB 875 may have a positive impact on the fund, in particular if lengthening

the break in-service requirement triggers later retirements.

ADMINISTRATIVE IMPLICATIONS

SB 875 will have a minimal additional administrative impact on PERA. Under current law, re-

tirees remit non-refundable retired member contributions when post-retirement earnings reach

$25,000 and PERA must track and account for retiree contributions on an individual basis. SB

875 would change the earnings threshold to $30,000 and require tracking of a longer break-in-

service requirement (from 90 days to 12 months). ERB, which currently does not have to track

and account for RTW retiree contributions, will have an increased workload.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

HB 16, applicable to all retired members who return to work with affiliated public employers,

amends the PERA Act to reinstate an earnings limitation of $15,000 before suspension of pen-

sion benefits. HB 16 does not “grandfather” already employed retirees under the existing law

regarding post-retirement employment with affiliated public employers.

HB 207, introduced on behalf of the Legislative Finance Committee, proposes to impose a

$30,000 earnings limit for PERA retirees who return to work for public-affiliated employers for

those retired members who return-to-work on or after July 1, 2005.

SB 788 would exempt retired state police members and retired municipal police members 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.

OTHER SUBSTANTIVE ISSUES

SB 875 would make a 12-month break-in-service requirement applicable to independent contrac-

tors. Under current law, PERA retired members can return to work immediately under an inde-

pendent contract. An active member contemplating retirement can often secure post-retirement

employment prior to terminating public employment, often with the same employer. PERA is

aware of attempts by its members to retire, begin receiving pension benefits, and continue ren-

dering service under a “bridge” independent contract until they return to their previous employ-

ment. PERA notes that such hiring practices may violates the conflict of interest provisions of

the Governmental Conduct Act, Sections 10-16-1 to 10-16-18 NMSA 1978. Lengthening the

break-in-service requirements under the PERA Act would alleviate such abuses.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

Retirees who return to work with public-affiliated employers are required to remit nonrefundable

retired member contributions when their post-retirement earnings reach $25,000. Retired mem-

Senate Bill 875/aSPAC/aSFC/aHAFC/aHFL#1 -- Page 4

ber contributions will continue to be required through December 31, 2006, allowing for two full

years of actuarial experience to determine the full actuarial cost of PERA’s expanded return-to-

work provisions. Beginning January 1, 2007, the employer contribution rate will be adjusted an-

nually at the determination of PERA to cover the full actuarial cost of PERA retirees for post-

retirement employment with PERA affiliates. PERA retirees will be required to complete a 90-

day break-in-service before they are eligible to be re-employed by a PERA-affiliated employer.

Independent contractors will continue to be exempt from this break-in-service requirement.

The ERB RTW program will continue as is—retirees will have to sit out for a year before they

are eligible, and only the employer will make a contribution for the RTW retiree.

GG/lg:yr