Audit of “Double Dipping” State Employees Recommends Changes

The nonpartisan Legislative Audit Bureau (LAB) recently released a report on detailing Wisconsin Retirement System (WRS) Annuitants rehired by WRS-eligible employers. At the request of the Joint Legislative Audit Committee, the LAB conducted the review to respond to concerns raised about WRS annuitants being rehired by WRS-participating employers and being granted both a salary and an annuity at the expense of state and local government; a practice which is commonly referred to as “Double-Dipping.”

More than 1,500 state and local government employers participate in the Wisconsin Retirement System (WRS), which provides post-retirement annuities funded by tax-deferred contributions from employers and employees. Federal law requires annuitants to have had good-faith terminations from employment. To meet this requirement, state law stipulates that on the day individuals terminate employment, they must have no rights to any future employment in any positions eligible to receive WRS benefits, and they must be separated from all WRS-eligible employment for at least 30 calendar days. If these conditions are met, individuals can receive an annuity and work in any position eligible to receive WRS benefits.

The LAB audit found that from January 2007 through March 2012, UW System and state agencies on Central Payroll hired 2,783 WRS annuitants who had terminated employment from 2007 through 2011. Local agencies responding to an LAB survey indicated that they hired 2,599 annuitants from January 2011 through March 2012.

The report found 1,161, or 41.7 percent, of those instances occurred in calendar year 2011, which is when a large number of state employees retired after Gov. Walker announced his plan to increase public employee contributions to their retirement and health funds.

Most annuitants hired worked part-time for less than one year and were paid either the same or a lesser hourly wage than they had been paid at the time of retirement. And while many employees and employers like the arrangement, the system can be abused, “a small number of annuitants hired by state agencies worked for several years after retirement or were paid an hourly wage more than they had been paid at retirement,” the study found. “This raises questions about the intent of these annuitants to truly retire.”

The Department of Employee Trust Funds (ETF) administers the WRS and is responsible for ensuring that the WRS complies with State and Federal law.

ETF does not have access to payroll systems that would allow it to systematically monitor all employers and employees. Therefore, it initiates investigations only when it believes that pension laws may have been violated. 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.

ETF does not have written policies or procedures for conducting investigations. Instead, it handles each investigation in the manner it deems appropriate. 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. One investigation was only partially completed when the individual withdrew the application to receive an annuity.

It can be challenging for ETF to determine that a good-faith termination did not occur. State law prohibits individuals 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. In these situations involving unenforceable agreements, ETF determines there is insufficient information to conclude that good-faith terminations did not occur.

State law does not prohibit an individual who has not yet terminated employment from agreeing to work for a different WRS-participating employer in a position ineligible for WRS benefits. This employment can begin during the separation period. At any point after the day an individual terminates employment, he or she can agree to return to work in a WRS-eligible position with any WRS-participating employer, as long as such employment does not begin during the separation period.

The LAB’s main recommendation from its audit is that the ETF develop written procedures for conducting consistent and complete investigations to determine if good-faith terminations from employment had not occurred. In the report, the LAB also discusses several options the Legislature could consider if it chooses to modify statutes governing how annuitants are able to return to work:

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.

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.

If the Legislature is concerned about the potential for annuitants to work for several years, it could limit the length of time annuitants are allowed to work for WRS-participating employers.

If the Legislature is concerned about determining the fiscal effects on the WRS of hiring annuitants or modifying statutes governing how annuitants may return to work, it could consider obtaining an actuarial opinion.

This topic was brought to light last year when two top UW-Green Bay administrators retired only to return a month later to their same jobs at the same salary, plus hefty pensions. The legislature responded by introducing two bills that would end the practice. Assembly Bill 318 would have terminated the annuity of a participant in the WRS who takes another public sector position where he or she is expected to work at least one-half of what is considered full time employment. A companion bill, Assembly Bill 352, would extend the waiting period between retiring and returning to work from 30 days to 180 days.