Audit calls for end to rehiring retirees

Rehiring retired government employees already collecting pensions could cost as much as $900 million over the next 10 years, a new legislative audit warns while calling for an end to the practice known as "double-dipping."

The audit, released Wednesday to a subcommittee of the Legislative Management Committee, comes as lawmakers are struggling to figure out how to make up a $6.5 billion shortfall in the Utah Retirement Systems fund as a result of last year's stock market plunge. The fund covers everyone from schoolteachers to police officers to state and local government employees.

"There needs to be and should be some changes," House Speaker Dave Clark, R-Santa Clara, said after hearing the audit report.

The 92-page report by the Legislative Auditor General's Office found that allowing rehired retirees to keep their pensions has already had more than a $401 million financial impact just over the past eight years alone.

About half of that amount, calculated by the retirement system's own Texas-based actuaries, is in lost contributions to the fund for the positions held by the rehired retirees. The rest is in benefits.

"It is a very expensive benefit for a limited number of employees," the report stated, despite assurances to lawmakers over the years that "double-dipping" would not hurt the retirement system.

"We knew it was a problem. We didn't know how deep," said Sen. Dan Liljenquist, R-Bountiful, the head of a legislative committee trying to figure out what to do about the retirement system shortfall. The price tag the audit put on double-dipping is on top of the shortfall, he said.

His committee will review the audit today, but Liljenquist said he's already decided future retirees should not be allowed to collect both a paycheck and a pension. Current rehired retirees, he said, could keep their pensions but should lose the contributions government employers are now making to their 401(k) plans. Instead, government employers should pay that money back into the retirement system.

Since the law was changed in 1995, more than 4,300 public employees have chosen to retire and then return to government work. Most are in public education, although the percentage of public safety employees rehired after retirement is much higher.

Also, the number of rehires is increasing at a faster rate than the number of retirees. Retirements increased 52 percent over 13 years, while the number of rehires jumped 323 percent, according to the report. The state has no mandatory retirement.

If that trend continues and the law isn't changed, auditors estimated that by 2018, the retirement system will lose nearly $900 million on rehired retirees, in lost contributions and additional benefits.