PERS Solution #4: Give older employees the option of a “work-back, pay-back plan.”
Current law allows Tier 1 and 2 retirees to be employed for up to 1,039 hours per year while collecting retirement benefits (with exceptions for certain low-population counties). These retirees earn a salary for their positions and continue to collect their retirement benefits. During such periods of employment, they do not accrue further retirement benefits and their employers do not pay into the PERS system for these employees.
Employees who are eligible to retire may qualify for a program whereby they continue to work in their current positions, begin to draw the retirement benefit to which they are entitled, but no longer accrue retirement benefits thereafter, provided:
- The employee earns no more than the salary for his/her pre-retirement position and contributes 6% of salary to the employing jurisdiction’s PERS Liability Reduction Fund;
- The employing jurisdiction contributes the applicable PERS employer pension contribution rate to buy down its unfunded liabilities;
- Participation is subject to annual approval by the employing jurisdiction and is consistent with IRS rules for early retirement programs for qualified plans; and,
- Employment is limited to no more than five years after retirement.
Analysis of Effects
Here is how the numbers would work, based on employer contribution rates scheduled for July 1, 2019 through June 30, 2021. “UAL” = unfunded actuarial liability.
|% Employer pays for accruing benefits||% Employer pays to buy down UAL||% Employee pays to buy down UAL||Total UAL buy down|
|OPSRP (Tier 3)||8.92%||13.64%||0.0%||13.64%|
|OPSRP (Tier 3)||0.0%||22.56%||6.0%||28.56%|
As shown by the table above, employer payments would generate as much as 35% of salary for each such “work-back/pay-back” position to be applied to the reduction of the employer’s unfunded actuarial liability (UAL) – compared to roughly 14% reductions for the continued employment of Tier 1 and 2 employees.
Employees would come out ahead as well. Participating employees would secure compensation (in salary and pension benefits) that would exceed what they would otherwise receive from working longer, assuming they worked five years and set aside a portion of the their early retirement benefits for later years.
PERS Solution #4 and the 2019 Legislature
Senate Bill 149, sponsored by Sen. Tim Knopp, proposes to study this option.
The -1 amendment to SB 768, drafted as LC 1388, incorporates the plan described above. Read Tim Nesbitt’s testimony on this proposal here.