A state audit recommends the Legislature do away with double dipping by public employees, a practice in which retired workers go back to work and collect their salary and pension.
Auditors reported Wednesday that the practice would cost the pension fund covering public employees nearly $900 million over the coming decade.
"It seems the Legislature has opened these doors," said House Speaker David Clark, R-Santa Clara. "I don't know that we should be surprised when we create that significant financial incentive that people are taking advantage of it. ...There needs to be and should be significant changes."
Auditors recommended legislators change Utah's law to suspend the pension of any retiree who returns to work for the state or municipal work force until the employee ultimately retires.
But it's unclear if the state can change the rules for those who already have retired and been rehired into the system.
"That's going to be the big trick," said Sen. Dan Liljenquist, R-Bountiful, chairman of the committee that oversees the state retirement system, who is considering broad changes to the program in the coming session. "Certainly I think we can do it prospectively. Whether or not you can go backwards is the question."
But there are other recommendations -- for example requiring employers to pay into the state's pension plan instead of into workers' 401(k) -- that Liljenquist said can and should be made immediately for all state and local public employees.
Double dipping is receiving greater scrutiny because the recession has battered the retirement system's investments. The market value of the Utah Retirement Systems fell from $21 billion to $15.9 billion, and the return on investments was 31 percent below the projected level of growth.
The number of employees who are double dipping is relatively small, but growing. In 1995, there were just 125 retirees who were back on the job; as of last December, that number had shot up to 2,166. More than 1,200 were in public education and another 350 worked in state or local public safety or fire departments.
There were nearly 104,000 workers at the city, county, school district or state level who were active participants in the public employee retirement system in 2008.
"If you look at the growth, it's becoming an expectation and not an exception, and that's becoming a big problem," Liljenquist said. "It's accelerating; I think that's the key, and our system wasn't designed that way."
Auditors said double dipping has created an incentive for employees to retire early and return to work so they can collect their pension, salary and a generous 401(k) payment. That costs the retirement system money for two reasons: First, because the employee draws a pension from the retirement fund for more years, and second, because there is no contribution to the retirement system on behalf of the re-employed worker.
State law also requires the employer to make a considerable payment to 401(k)s.
Auditors cited estimates that double dipping has cost the state more than $400 million between 2000 and 2008 -- between the additional amounts paid out to re-employed retirees and the loss of their contributions to the pension fund. The growing trend in double dipping means these factors will cost the fund nearly $900 million more during the next decade unless the program changes.
Auditors said no other Western state allows retirees to return to work with a full salary, pension and 401(k) contribution and no other U.S. state contributes to the rehired employees' 401(k).
In 2008, 401(k) contributions cost the public employers $14.6 million. The projected costs are $91 million during the next decade. Auditors recommended that the Legislature stop paying into 401(k)s and instead put the money into the Utah Retirement Systems' pension plan.
The audit also identified situations in which employees spent most of their career in in the public workforce as a part-time employee, then changed to full-time status shortly before retirement and collected full-time employee benefits. Auditors suggested finding a way to prevent that practice.
» Utah's Applied Technology Centers provide a cost-effective alternative to two-year college training, according to a legislative audit.
» The report released Wednesday compared the cost of training in several programs and found that it was lower across the board at ATCs. Part of the difference, the audit said, is that faculty at ATCs are paid less and the schools have lower overhead than colleges.
» Auditors also found that two ATCs -- the Southwest ATC and Dixie ATC -- received state funding for cosmetology and livestock training that they outsourced to private providers and the audit questioned the appropriateness of the partnership. They recommended clear policies be developed to identify when student instruction can be outsourced.
