During the past five years, thousands of former employees in the Wisconsin Retirement System took advantage of a state policy permitting them to retire, draw their pensions, then return to work and draw two checks, a new audit has found.
The report by the Legislative Audit Bureau suggested tighter oversight of the practice and recommended that the Department of Employee Trust Funds (ETF) develop written procedures for conducting investigations when abuse is suspected.
According to the audit, from January 2007 through March 2012, the University of Wisconsin System and state agencies hired 2,783 WRS annuitants who had ended employment from 2007 through 2011.
The UW System hired two-thirds of the total.
For the most part, the audit could not substantiate much abuse of the practice. Most annuitants rehired by the state worked as part-time employees for less than one year, for example, and were paid either the same hourly wage or a lower hourly wage than they had been paid at retirement, while collecting their state annuities.
But a small number of annuitants worked for multiple years after retirement, for more hours per week than they had worked before retirement, or were paid a higher hourly wage than they received at retirement, the report found.
In addition, the vast majority of those who returned to work continued to collect their pension payments, the report stated. Only 26 out of the 2,783 rehired employees chose to suspend their annuity payments when they returned to state service.
“This audit report provides invaluable information and transparency on the issue of rehiring annuitants,” Rep. Samantha Kerkman (R-Randall), the Assembly co-chairwoman of the Joint Legislative Audit Committee, said. “These data give legislators a more complete understanding as we continue to consider this issue in our state government.”
The LAB surveyed all school districts and local governments in preparing the report. Almost 80 percent of respondents indicated that annuitants were hired for their skills and experience.
There are only a few restrictions on the practice.
For example, employees can be rehired and still collect their pensions only if there has first been a “good-faith termination.” Specifically, on the day they terminate employment, employees must give up any rights to any future jobs within the system to receive WRS benefits, and they cannot return to work for at least 30 days.
After a month, employees can apply for any eligible position.
But the practice carries with it the danger of double-dipping, that is, quitting a job with the intention of returning as a way to collect two checks rather than one.
The ETF does not have access to payroll systems and thus does not have the capacity to monitor employers and employees for abuse of the practice, the audit points out. That means it undertakes investigations only when the agency believes pension laws may have been violated, such as when it receives a complaint.
“If an investigation determines that a good-faith termination of employment did not occur, ETF can require an individual to repay all annuity amounts that were received,” the audit states.
What’s more, the report continued, the ETF does not have written policies or procedures for conducting such investigations but handles each one “in the manner it deems appropriate.”
The report underscored the difficulty of determining that a good-faith termination did not occur.
“From August 2009 through June 2012, ETF conducted 19 investigations, including 14 in which ETF determined there was insufficient information to conclude that good-faith terminations had not occurred and 4 in which ETF determined there was sufficient information to conclude that good-faith terminations had not occurred,” the report states. “One investigation was only partially completed when the individual withdrew the application to receive an annuity.”
In particular, the report found, state law prohibits workers who have not yet terminated employment from agreeing to work in a WRS-eligible position at a future date, but such agreements must be enforceable in order for ETF to determine that good-faith terminations did not occur.
“For example, individuals may indicate in their resignation letters that they desire to return to work, and their employers may subsequently hire them after the 30-day separation period,” the report stated. “In these situations involving unenforceable agreements, ETF determines there is insufficient information to conclude that good-faith terminations did not occur.”
In addition to the ETF developing written procedures for conducting investigations, the report said the Legislature could consider several options if lawmakers were concerned about abuse.
“If the Legislature is concerned that employers sometimes deliberately do not fill positions when employees terminate employment because they know they will hire annuitants shortly after the separation period ends, it could lengthen the separation period to 60, 90, or 120 days or more,” the report stated. “If the Legislature is concerned about maintaining the integrity of the separation period, it could prohibit individuals who have not completed their separation periods from working in positions that are ineligible for WRS participation, contracting with WRS-participating employers, and signing employment agreements that involve returning to work in WRS-eligible positions after the separation periods end.”
The Legislature could also limit the length of time annuitants are allowed to work for WRS-participating employers. The audit reported that neighboring states had adopted more stringent restrictions on the practice than Wisconsin.
The policy is not unusual, but it drew particular scrutiny in 2011 when a UW-Green Bay vice chancellor making $131,000 a year retired, only to return to work a month later earning the same salary in addition to drawing his pension.
That has caused some to call for abandoning the practice, but the report pointed to legitimate uses of the system, including hiring annuitants who have particular skills and experience and could fill short-term staffing needs.
Indeed, the report stated, the vast majority of rehired workers work less than a year after returning to work, and most worked fewer hours than they had.
“Of the 2,783 annuitants, 33.2 percent worked for less than six months after being hired, and 27.9 percent worked from 6 to 12 months,” the report stated. “In contrast, 1.5 percent worked for more than four years after being hired. We found that 78.8 percent of annuitants who worked continuously during their first six months of employment worked fewer hours per week, on average, than they had worked before retirement.”
In addition, the report stated, 91.7 percent of annuitants who worked continuously during their first six months of employment had hourly wages that were the same as or lower than their hourly wages at retirement.
State Sen. Kathleen Vinehout (D-Alma) said she supported the Audit Bureau recommendation for written procedures for investigating whether a rehired annuitant met the ‘good faith termination’ requirement, but she said the report reinforced the legitimacy of the system.
“The audit findings showed that in the majority of cases WRS annuitants are rehired for legitimate reasons,” Vinehout said. “They bring experience and expertise needed to fill short-term needs, such as a substitute teacher or training a new employee on complex systems.”
Vinehout called for a common-sense approach to dealing with any problems.
“ETF needs the resources to zero in on abusers, including those who got their post retirement job with a wink and a nod,” she said
All totaled, 28 state agencies directly paid $1.7 million to 266 individuals who terminated employment from January 2007 through December 2011, the report stated.
Richard Moore may be reached at firstname.lastname@example.org