State lets employees get pension and salary

LITTLE ROCK — When the Arkansas Department of Community Correction advertised a job opening last month, one of the 41 people who applied for the position had experience no one else could claim - he had held the job for the past nine years.

The applicant, Paul Brown, retired from his job as information technology administrator on June 1, began collecting a pension, then applied for the opening his departure had just created. After interviewing Brown and four other finalists, the department hired Brown back to his old job.

Department officials "selected the person they thought was best suited to the position," said Rhonda Sharp, a department spokesman.

The practice of public employees receiving a pensionand salary at the same time became the subject of public debate last week after it was revealed that some elected county officials have declared themselves "retired" by taking themselves off the payroll but without leaving office, a practice that the attorney general's office indicated may conflict with state law.

But many others covered by the Arkansas Public Employees Retirement System have qualified for a pension and full salary while still following the rules. Before this month, the law required elected officials to leave their jobs for at least 90 days before returning to work. For other employees, the minimum separation period was 30 days. A law passed during this year's legislative session extended the minimum period for both elected officials and state employees to six months starting July 1.

At state agencies, some officials say the brief retirements have helped them retain valu-able employees at a time when the state's work force is aging and more people are working past traditional retirement age. But retirement system officials say that when employees begin collecting their pensions before they are ready to stop working, it can cost the system more because the system must pay their benefits over a longer period.

During this year's legislative session, actuaries also told lawmakers the 30-day requirement may not be all right with the Internal Revenue Service, which regulates pension plans. The IRS wants to ensure that retirement money, which gets special treatment under the tax code, goes toward retirement-age workers - generally, those age 62 or older - or retirees, not to supplement the incomes of younger workers. Retirement systems found out of compliance can be fined or face taxes on contributions to the retirement fund.

Sen. Steve Faris, D-Central, who sponsored the 2009 law requiring extending the minimum separation period to six months, said the brief retirements among state employees had become more widespread than he envisioned in 1999, when he sponsored the law allowing them.

Back then, lawmakers were worried about the effect of Amendment 73 to the state constitution, which was passed in 1992 and established term limits for legislators. With more inexperienced legislators taking office, lawmakers hoped that allowing key employees to briefly retire and begin collecting a pension in addition to their salaries would preserve institutional knowledge in state government, he said.

"It was never meant for someone who was just a non-essential employee, who was just a good long-term employee, who reached retirement age, to just retire and lay around for 30 days and come back to work," Faris said. "It was meant to serve a specific niche."

He said he hopes the new law will create more opportunities for people to find jobs in state government.

"It's always good to bring young people with fresh new ideas to the table," Faris said.

Gov. Mike Beebe believes the short retirements have helped the state keep key employees, but the law allowing them "has probably become more widely used than it was intended to be," spokesman Matt DeCample said.

Keith Brainard, research director for the National Association of State Retirement Administrators, said six months is in line with what most states' pension systems require. Three to six months is typical, and several states don't allow retirees to return to work for an employer covered by the system at all.

"Really it gets down to plan design," Brainard said. "You want the design to be well thoughtout, so that people aren't retiringknowing that they're going to come right back."

Gail Stone, the Public Employees Retirement System director, said the change in Arkansas' law will probably result in a savings to the retirement system of less than $1 million a year, a tiny fraction of the $266.3 million her system paid out in pension benefits the fiscal year that ended June 30, 2008.

BIG INCOME BOOST

The retirement system does not keep track of retirees who return to work, but information from state agencies shows that at least 144 people currently on the state payroll were retired from their job for two months or less.

For more than half of those employees, including agency directors, prison guards and social workers, retirement lasted just a month.

The system covers 44,400 workers, including employees of most state agencies, many cities and all 75 counties.

Individual benefits, which the retirement system says are confidential, are based on an employee's years of service and salary. For a retiree with 28 years of service and a final average salary of $100,000, the benefit would range from about $49,000 to $58,000 a year, depending on the benefit option chosen and whether the employee had contributed to the system.

State employees can be paid for vacation days for the time they are retired, and they can redeem up to $7,500 in sick leave. If they return, they must start over in accruing vacation and sick leave. Those 62 and older can also receive a Social Security benefit, but the benefit is reduced if the employee is younger than 66 and earns more than $14,160.

Harold Sharp Jr., budget director for the Arkansas Economic Development Commission, said he retired and returned to work in 2006, at age 62, because of his participation in the system's Deferred Retirement Option Plan.

After he enrolled in the plan in 1999, the system began depositing pension payments in a tax-deferred account. At the end of seven years, the plan required him to retire or lose the more than $160,000 in the account.

By then, Sharp had gained new responsibilities, along with a bigger salary, making him less inclined to leave. And he discovered that private health insurance for him and his wife, a diabetic, would cost almost $700 a month.

So Sharp retired, then applied to fill the opening his retirement had just created. In the meantime, he spent several days of his retirement in the office, helping lay the groundwork for the department's budget proposal that fall.

Now, he collects a pension of about $2,000 a month in addition to his salary, which is $96,734.

"People talk about double-dipping, but I worked the full length of time, the full 30 years," plus seven years in a deferred retirement program, said Sharp, who is not related to Rhonda Sharp. "I don't think I've shorted anybody anything."

Larry Norris, director of the Department of Correction; David Guntharp, director of the Department of Community Correction; and Leroy Brownlee, chairman of the Parole Board, also said their participation in the deferred retirement plan was the reason for their brief retirements. About 1,800 employees who were in the plan as of Jan. 1 are exempt from the new law and can still return towork a month after retiring.

TAKING APPLICATIONS

Other top state officials who have taken month-long retirements include Randy Young, director of the Natural Resources Commission, and J.D. Gingerich, director of the Administrative Office of the Courts.

Under a policy directive issued by then Gov. Mike Huckabee in 1999, positions "cannot be reserved" for retirees who plan on returning, and "retiring state employees must apply for job vacancies just as any other applicant."

But Kay Barnhill Terry, the state's personnel administrator, said that restriction does not apply to top officials, who report directly to the governor, a board or an agency director. They need only to get approval from their bosses.

Openings for lower-ranking jobs must be advertised, meaning retirees must often compete with other applicants to get their jobs back.

After Brown retired as information technology administrator for the Community Correction Department, his job was listed onthe state's Web site, and the five finalists, including Brown, were interviewed by a panel of department officials and a representative from the Department of Information Systems.

One finalist, Donald Lewis, said he was never told that he was competing with the person who just left the position.

"It looks to me like if it's somebody that was doing the job satisfactorily, then there's no need to go through that process If they're planning on coming back," said Lewis, who is chief operating officer for a Little Rock technology firm. "It's kind of a waste of time for the people that are applying."

Another finalist, who asked that her name not be published because she is still looking for work, said she also didn't know that Brown was among the finalists.

"I'm very frustrated, but what can I do?" said the woman, who is 48 and has been looking for full-time work for more than two years.

Brown declined to comment.

Along with Guntharp and Brown, 11 other department employees have retired and come back to their jobs with the department over the past few years, including five who took their retirements in June. Rhonda Sharp said the department doesn't know of any retiree who wanted to come back to his job but lost out to another applicant.

POPULAR IN CORRECTIONS

At the Human Services Department, at least 36 of the department's 7,500 employees, including social workers, investigators and a secretary, had returned to work after retirements of two months or less as of June 1, according to state payroll records.

In addition to Norris, Correction Department employees who have taken one-month retirements include five of Norris' six top deputy or assistant directors, as well as the wardens of four of the state's 20 prisons and work release centers.

An additional 37 other department employees, including corrections officers and assistant wardens, have also returned after retiring for one or two months. Three of them took their retirements last month.

"It worked well for us," department spokesman Dina Tyler said. "One of the things that is critical to corrections is stability and experience, and it's allowed us to keep both of those."

During their retirements, Norris and other Correction Department officials had to park their state-owned cars and leave their laptop computers on state property. But they were allowed to keep their department-issued cell phones, in case the department needed to reach them, Tyler said.

The department also allowed them to stay in their state-owned houses at its administrative complex in Pine Bluff. Under the department's policy, employees who leave their jobs have 30 days to move out.

"If you're rehired, you canstay," Tyler said.

County and city employees have taken month-long retirements, too. In Little Rock, which has its own retirement system, a few employees have retired and come back to the same jobs, but their retirements lasted longer than a month and they have all since retired again, said Jim Bradshaw, the city's risk manager. He added that the city's retirees receive money and earnings invested on their behalf in a retirement account rather than a fixed pension.

OTHER AGENCIES

A similar law passed during the legislative session affects people covered by the Arkansas Teacher Retirement System. Those younger than 65 and with less than 38 years of experience now have to wait six months to return to work after retiring. Before this month, the minimum for those employees had been 30 days.

Among other state pension plans, the Arkansas State Police plan still has a 30-day minimum separation period, but no troopers on the payroll have taken advantage of it.

The Highway Employees Retirement System does not allow retirees to return to work for the department.

The Local Police and Fire Retirement System, which covers 4,200 police officers and firefighters across the state, stops the pension benefits when a retiree returns to work for an agency that participates in the system.

Retirees who receive a pension from the Federal Employees Retirement System can return to work, but their salary is reduced based on the pension amount.

Brainard, the research director for the National Association of State Retirement Administrators, said the IRS has said pension plans must require employees younger than 62, or another normal retirement age set by the plan, to have a break in service before receiving a pension. The IRS has not said how much of a break is adequate, but it wants to make sure that people aren't "gaming the system by retiring with the intention of coming back to work."

"With six months, it's a lot harder to do that than with one," Brainard said.