SENATE BILL REPORT
ESSB 5937
As Passed Senate, June 7, 2001
Title: An act relating to postretirement employment for teachers' retirement system, public employees' retirement system, and school employees' retirement system retirees.
Brief Description: Changing postretirement employment restrictions for teachers' retirement system, public employees' retirement system, and school employees' retirement system retirees.
Sponsors: Senate Committee on Ways & Means (originally sponsored by Senators Shin, Rasmussen, Jacobsen, Winsley, Kohl‑Welles and McAuliffe; by request of Governor Locke; Superintendent of Public Instruction).
Brief History:
Committee Activity: Ways & Means: 2/21/01, 3/8/01 [DPS].
Passed Senate: 3/14/01, 48-0.
First Special Session: Passed Senate: 5/16/01, 47-0.
Second Special Session: Passed Senate: 6/7/01, 41-0.
SENATE COMMITTEE ON WAYS & MEANS
Majority Report: That Substitute Senate Bill No. 5937 be substituted therefor, and the substitute bill do pass.
Signed by Senators Brown, Chair; Constantine, Vice Chair; Fairley, Vice Chair; Fraser, Hewitt, Honeyford, Kline, Kohl‑Welles, Long, Parlette, Rasmussen, Regala, Roach, Rossi, Sheahan, B. Sheldon, Snyder, Spanel, Thibaudeau and Winsley.
Staff: Pete Cutler (786‑7454)
Background: All state administered retirement plans impose restrictions on the ability of retirees to collect their retirement allowances if they return to employment in jobs that would be covered by the same retirement plan. The policy assumption underlying these restrictions is that the retirement income is provided for the purpose of permitting the employee to have financial security after he or she leaves the workforce. The federal Internal Revenue Service (IRS) has established guidelines for pension plans to follow in order to qualify for favorable tax treatment. The IRS guidelines do not limit a retiree's ability to return to work after the retiree has separated from service with an employer, and generally require that pension payments begin no later than when the member turns age 70 and six months.
Deferred Compensation Program payments are treated as "deferred income" by the IRS; they are not considered to be retirement or pension income.
Prior to April 2000, Social Security retirees under age 70 were subject to a reduction in their benefits if they had earnings over a certain level. Now there is no offset for retirees who reach the Social Security normal retirement age, which is currently age 65, but will increase eventually to age 67. Persons who are younger than the normal retirement age receive a $1 reduction in their Social Security retirement benefits for every $2 earned above the annual earnings limit, which is about $10,700 for 2001.
TRS 1 retirees who have the one calendar month break from employment may work up to 525 hours (75 days) in a school year without a reduction of their allowances. Those who work as substitute teachers in districts that have a shortage of substitutes may work up to 840 hours (120 days) without a reduction. PERS 1, PERS 2, SERS 2 and 3, and TRS 2 and 3 retirees who have the required break in service may work up to five months in a calendar year without a break in service. The statutes dealing with post-retirement employment were significantly amended in 1990 and 1997 as a result of changes proposed by the Joint Committee on Pension Policy (JCPP).
In the summer and fall of 2000 the Joint Committee on Pension Policy reviewed the issue of the limits on PERS 1 and TRS 1 post-retirement employment. The JCPP has proposed legislation for the 2001 session that would permit all TRS 1 retirees to work up to 840 hours in a school year without a reduction in benefits, and PERS 1, PERS 2, SERS 2 and 3, and TRS 2 and 3 to work up to 867 hours in a calendar year without a reduction in benefits.
Summary of Bill: TRS 1 retirees may work 1500 hours in a school year , and PERS 1 retirees may work 1500 hours in a calendar year, without having their pensions suspended. PERS 2, SERS 2, SERS 3, TRS 2, and TRS 3 retirees may work up to 867 hours in a calendar year without a suspension of benefits. The Department of Retirement Systems, Department of Personnel, Superintendent of Public Instruction, and Health Care Authority are directed to jointly develop publications for use during the 2001-03 biennium to explain options for, and implications of, post-retirement employment for PERS 1 and TRS 1 active members and retirees. The ability to work 1500 hours without a reduction in pension is limited to the period ending June 30, 2004, for TRS 1, and the period ending December 31, 2004, for PERS 1. TRS 1 retirees who are re-employed as certificated employees under the bill are not included in the coverage of continuing contract statutes, nor various other statutes in the education code.
Members of PERS 1 and PERS 2 who are at least age 70 and six months old may apply for retirement without separating from employment. Persons who elect to receive a benefit under this option will not make contributions nor earn service credit while they are receiving their retirement allowances.
The Department of Retirement Systems must provide the State Actuary with information regarding the level of post-retirement employment reported for PERS 1 and TRS 1 retirees. The office of the State Actuary must review the actuarial impact of the temporary expansion in post-retirement employment and report to the Joint Committee on Pension Policy no later than July 1, 2003. The joint committee must solicit information from the Superintendent of Public Instruction, the Department of Personnel, the Office of Financial Management, the Department of Retirement Systems, and the Health Care Authority regarding the program impacts of the bill, and must report to the legislative fiscal committees no later than October 1, 2003 on any proposed changes to the bill. The Legislature reserves the right to amend or repeal the new PERS and TRS 1 post-retirement employment provisions.
Appropriation: None.
Fiscal Note: Requested on March 9, 2001.
Effective Date: July 1, 2001.
Testimony For: This bill will help the state and school districts retain the services of highly skilled and experienced employees in an increasingly competitive job market. Persons have earned their pension benefits with their prior service.
Testimony Against: Concerns: The bill should be clearer about the impact of post‑retirement employment on collective bargaining agreements, continuing contract provisions, eligibility for benefits, and other matters. It would also be better if all employees had a right to continue their employment and collect their pension, not just those that an employer chooses to rehire.
Testified: PRO: David Ellick (AWSP); Ken Kanikeberg (OSPI); Doug Tanabe (DOP); Wolfgang Opitz (OFM); John Charles (DRS); Doug Nelson (PSE); John Kvamme (WASA). CONCERNS: Lynn McKinnon (WPEA); Bob Maier (WEA).
House Amendment(s): PERS 1 and TRS 1 retirees may work up to 1500 hours in a year without a reduction in their retirement allowances. However, if the retiree works more than 867 hours in the year, the retiree's employer is required to make employer pension contributions for that retiree for the entire period of employment during that year. This would require retroactive payment on the part of the employer.
The House amendment also eliminates the section from the bill that would permit PERS 1 and PERS 2 members who are over age 70 and 2 to collect a retirement allowance without having a break in service.