HOUSE BILL REPORT

SB 5852

As Reported by House Committee On:

Ways & Means

Title: An act relating to the public employment of retirees from plan 1 of the teachers' retirement system and plan 1 of the public employees' retirement system.

Brief Description: Addressing the public employment of retirees from plan 1 of the teachers' retirement system and plan 1 of the public employees' retirement system.

Sponsors: Senators Hewitt and Brown.

Brief History:

Committee Activity:

Ways & Means: 3/14/11, 4/14/11 [DPA].

Majority Report: Do pass as amended. Signed by 19 members: Representatives Hunter, Chair; Darneille, Vice Chair; Hasegawa, Vice Chair; Alexander, Ranking Minority Member; Bailey, Assistant Ranking Minority Member; Dammeier, Assistant Ranking Minority Member; Carlyle, Cody, Dickerson, Haigh, Hudgins, Kagi, Kenney, Ormsby, Parker, Pettigrew, Seaquist, Springer and Sullivan.

Minority Report: Do not pass. Signed by 8 members: Representatives Orcutt, Assistant Ranking Minority Member; Chandler, Haler, Hinkle, Hunt, Ross, Schmick and Wilcox.

Staff: David Pringle (786-7310).

Background:

The various plans of the Washington State Department of Retirement Systems (DRS) each contain rules prescribing the circumstances under which a retired employee may return to employment within a retirement system-covered position and continue to receive retirement benefits. Between 2001 and 2007, the rules for the Public Employees' Retirement System (PERS) and Teachers' Retirement System (TRS) Plan 1 underwent a series of changes, including the addition of rules that permitted PERS and TRS Plan 1 members to work for up to 1,500 hours per year for three years (or certain part-time equivalents) without suspension of retirement benefits. For the Plans 2 and 3 of PERS and TRS, as well as for the School Employees' Retirement System (SERS) and the Public Safety Employees' Retirement System (PSERS), upon returning to employment into a retirement system-covered position, a retiree generally is able to receive retirement benefits for the first 867 hours of employment each year.

Separation From Service.

A member must separate from service in order to qualify for a retirement allowance. Separation from service is defined in the PERS and TRS to mean that the member has no oral or written agreement to resume work with his or her employer after entering retirement. After entering retirement status, a member may begin his or her retirement allowance on the first day of the month following the month that he or she applies for retirement benefits. The date that retirement benefits begins is referred to as a member's "accrual date."

Length of Separation From Service.

Members of the PERS, TRS, SERS, or PSERS who re-enter employment with an eligible employer within one month of retiring are subject to a benefit reduction. The reduction is equal to 5.5 percent of the monthly benefit for every eight hours worked that month and is applied until such time as the retiree remains absent from eligible employment for at least one full calendar month.

Retirees from the PERS, TRS, SERS, or PSERS who have been separated from service for one calendar month after their accrual date may work up to 867 hours per calendar year without a reduction in pension benefits. Retirees from the TRS Plan 1 who have been separated for one and one-half month, or retirees from the PERS Plan 1 who have been separated from service for three calendar months, and whose hiring meets specific approval and recordkeeping requirements, may work up to 1,500 hours per calendar year without a reduction in pension benefits. Once the 1,500 hour limit is exceeded, pension benefits are suspended until the beginning of the next calendar year.

The number of years a PERS Plan 1 or TRS Plan 1 retiree may work for 1,500 hours without a reduction in benefits is limited. Each retiree from these two plans may only work for a lifetime cumulative limit of 1,900 hours beyond 867 hours per calendar year.

False Claims.

Both the PERS and TRS have provided sanctions for filing false statements to the DRS since 1947. A person (employer or employee) who files a false record or false statement to the DRS in any attempt to defraud the retirement systems for a claim related to separation from service or qualification for retirement is guilty of a gross misdemeanor.

Higher Education Retirement Plan.

State institutions of higher education are authorized to offer the Higher Education Retirement Plan (HERP) to faculty and other employees whose positions are designated as eligible by their respective boards. The HERPs are administered by each institution, unlike the other state retirement systems that are administered by the DRS. The HERPs provide defined contributions, typically 5 percent of pay from each of the employer and employee until age 35, 7.5 percent of pay from each until age 50, and the employer matching up to 10 percent of pay from age 50 until retirement.

The HERP Plan also has a guaranteed defined benefit, called the HERP Supplemental Benefit, which pays a monthly supplemental allowance to insure that the HERP member receives a total benefit worth about 50 percent of the average of a member's highest two consecutive years of salary. The value of the member's defined contributions, calculated as if they had been invested in a model portfolio, are subtracted from any HERP Supplemental Benefit obligation. The HERP Supplemental Benefit costs are paid out of institution operating budgets, and are largely not pre-funded. Current and projected HERP Supplemental Benefit obligations have grown in recent years.

Positions covered by the HERP are not considered to be DRS-covered for purposes of the post-retirement employment rules in the PERS, SERS, or PSERS.

–––––––––––––––––––––––––––––––––

Summary of Amended Bill:

Public Employees' Retirement System (PERS) and Teachers' Retirement System (TRS) Plan 1 provisions permitting retirees to receive benefits while employed in retirement system-covered positions for up to 1,500 hours per year are eliminated, limiting all PERS and TRS Plan 1 retirees to receipt of benefits to the first 867 hours of system-covered employment. Employment in positions covered by Higher Education Retirement Plans offered by public higher education institutions are added to the types of employment that are included within the PERS and TRS Plan 1 post-retirement employment benefit eligibility rules.

Amended Bill Compared to Original Bill:

The amended bill applies the reduction of hours of receipt of benefits while engaged in covered post-retirement employment to both current and future Public Employees' Retirement System (PERS) and Teachers' Retirement System (TRS) Plan 1 retirees, rather than only to retirees that leave service after September 1, 2011. The amended bill also adds employment in positions covered by Higher Education Retirement Plans offered by public higher education institutions to the types of employment that are included within the PERS and TRS Plan 1 post-retirement employment benefit eligibility rules.

–––––––––––––––––––––––––––––––––

Appropriation: None.

Fiscal Note: Available.

Effective Date of Amended Bill: The bill contains an emergency clause and takes effect on July 1, 2011.

Staff Summary of Public Testimony:

(In support) None.

(Opposed) None.

Persons Testifying: None.

Persons Signed In To Testify But Not Testifying: None.