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

SPONSOR Smith

ORIGINAL DATE

LAST UPDATED

1-22-07

HB

SHORT TITLE Return to Employment for Certain Retirees

SB 184

ANALYST Aubel

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

NFI

Educational

Retirement

Board

(Parenthesis ( ) Indicate Revenue Decreases)

Conflicts with SB 310, HB 179, HB 313

Relates to SB 86

SOURCES OF INFORMATION

LFC Files

Response Received From

Educational Retirement Board (ERB)

No Response From

Public Education Department (PED)

SUMMARY

Synopsis of Bill

Senate Bill 184 would amend the Return to Work (RTW) provisions of the Educational

Retirement Act by accelerating the sunset date of the RTW program from January 1, 2012 to

June 30, 2008.

Educational retirees who have returned to work prior to July 1, 2008 would continue in their

current status.

Senate Bill 184 – Page

2

FISCAL IMPLICATIONS

ERB noted that the latest actuarial report indicated there were no actuarial ramifications from the

current RTW program on the ERB fund to date and, therefore, does not anticipate any fiscal

impact due to actuarial experience if SB 184 is enacted.

However, ERB conceded that the RTW program is difficult to administer, and ending the

program earlier may free up those resources allocated its administration, thereby reducing the

operating budget allocated to RTW by an indeterminate amount. These resources would be

redirected toward other operating activities.

SIGNIFICANT ISSUES

ERB has approximately 62,000 active members, 29,500 retired members, and approximately 925

members in a RTW status. Many ERB employers have used the RTW program to fill hard to

replace positions. This bill would most likely reduce new entrants into the RTW program.

The original intent of the RTW legislation for ERB was to 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

waiting period from one year to 90 days as provided for by the Public Employees Retirement

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

effect on the fund.

PERFORMANCE IMPLICATIONS

In the past the Department of Education has noted that the RTW program has contributed

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

that would curtail the ability of retirees to return to work would impact the gains made in

addressing this shortage. It is important to note that other strategies to increase and retain the

teacher pool have recently been implemented, such as the 3-tier salary schedule and the teacher

mentor program.

There would be no significant implications for ERB’s performance measures.

ADMINISTRATIVE IMPLICATIONS

As stated above, ending RTW early may free up administrative resources.

Senate Bill 184 – Page

3

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate Bill 184 conflicts with Senate Bill 310, which effectively ends the current RTW program

by June 30, 2007, one year earlier than Senate Bill 184, and substitutes a more limited program

commencing July 1, 2007.

Senate Bill 184 conflicts with House Bill 313, which is the duplicate bill of Senate Bill 310.

Senate Bill 184 conflicts with House Bill 179, which reinstates a $25 thousand earnings

limitation and retains the current sunset date of January 1, 2012.

Senate Bill 184 is related to Senate Bill 86, which involves RTW legislation for the Public

Employees Retirement Association.

All bills have provisions to grandfather RTW retirees prior to the date of enactment contained in

the respective bills.

TECHNICAL ISSUES

Senate Bill 184 would amend Section 22-11-25.1 NMSA 1978.

ALTERNATIVES

Several alternatives have been proposed, including maintaining the RTW program but reinstating

earnings limitations that would trigger suspension of pension benefits to discourage earlier-than-

anticipated retirements; ending the current version of RTW and replacing it with a version

targeted at those hard-to-fill vacancies; and keeping the RTW program for ERB but changing it

for PERA.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

The current return to work program for ERB will continue until its statutory sunset date of

January 1, 2012.

POSSIBLE QUESTIONS

1.

How has the RTW program impacted employee morale and upward mobility of the active

work force.

MA/csd