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

SPONSOR Altamirano

ORIGINAL DATE

LAST UPDATED

02/14/06

HB

SHORT TITLE Educational Retirees Returning to Work

SB 714

ANALYST Geisler

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

$1,750.0

$1,750.0 Recurring Educational Re-

tirement Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Conflicts with HB 100, SB 300

SOURCES OF INFORMATION

LFC Files

Responses Received From

Educational Retirement Board (ERB)

Public Education Department (PED)

SUMMARY

Synopsis of Bill

Senate Bill 714 provides new requirements for members retired under the Education Retirement

Fund who wish to participate in the return to work program while still drawing retirement bene-

fits. On or after July 1, 2006, only public school teachers or instructors in post-secondary educa-

tional institutions would be allowed to retire and return to work without suspending retirement

benefits. Also the bill would require that if any return to work member’s earnings total $30,000

or more during a calendar year, the member shall make contributions to the fund beginning in the

month following the month that his earnings reach that amount. Note that currently the employer

contribution is required for return to work retirees.

Educational retirees that have returned to work prior to July 1, 2006 can continue in their current

status.

Senate Bill 714 – Page

2

FISCAL IMPLICATIONS

ERB’s actuaries have reported that there has not been a negative actuarial impact on the ERB

fund from the return to work program to date. A preliminary estimate of the fiscal impact is that

it would provide an additional $1.75 million to $2 million in revenue yearly to the educational

retirement fund.

SIGNIFICANT ISSUES

The ERB has approximately 67,200 active members and 27,200 retired members. Approximately

960 members (or 3% of retirees) are participating in the return to work program. A study last

year showed that about 70% of the return to work retirees are teachers.

There is concern that the current system, which allows retirees to return to work without any in-

come limitations after sitting out year, is encouraging earlier retirements, which may have a long

term negative impact of the solvency of the ERB fund. There can also be a public perception

problem of a system which allows a member to receive both a salary and a pension.

The original intent of the legislation was to help alleviate the teacher shortage by enticing retired

teachers to return to the classroom. The program was developed with the aid of ERB’s actuaries

who stated that the program would be actuarially neutral if retirees were required to wait one

year from retirement before returning to ERB employment. It was thought this would prevent

large numbers of members from retiring earlier than normally contemplated to take advantage of

a double stream of income.

Any provision that entices a member to retire earlier than normal means the fund will have to

pay out retirement benefits longer than was actuarially expected, thus having a negative effect on

the fund. As noted above, ERB’s actuaries have indicated that the RTW program has had no

negative actuarial effect on the ERB fund. That means that so far the program has not been a

financial burden to ERB. This, of course, could change in the future. There is a concern among

some that there will be continued attempts to change ERB’s RTW program to shorten the wait-

ing period from one year to 90 days as provided for by the Public Employees Retirement Asso-

ciation. This and other possible proposed changes could easily have a negative actuarial effect

on the fund.

PERFORMANCE IMPLICATIONS

The Department of Education notes that the return to work program has contributed significantly

to addressing New Mexico’s teacher shortage since 2001. Enacting any provisions that would

curtail or discourage teachers from returning to work while drawing retirement benefits would

impact the gains made in addressing this shortage. While this bill does limit somewhat the finan-

cial incentive for return to work, it does not appear so significant as to significantly discourage

teachers from participating in the program.

ADMINISTRATIVE IMPLICATIONS

ERB may incur some costs to change their software to reflect the change in statute and some

administrative resources to deal with member questions.

Senate Bill 714 – Page

3

CONFLICT

House Bill 100 and Senate Bill 300 will phase out the current return to work programs for public

and educational retirees as of July 1, 2006. Return to work retirees employed before July 1, 2006

will not have their status changed.

ALTERNATIVES

Consider broadening the bill criteria to allow all educational employees to participate, which the

current statute allows.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

The current return to work program will continue until its statutory sunset date of January 1,

2012.

GG/yr