Big Dippers Worse Than Double Dippers


newjerseywatchdog.org has been focusing on double dippers – public employees who are also receiving public pensions.  This is not illegal in New Jersey though this focus might make it so.

However, the problem is that any ‘reform’ of this practice could cost taxpayers much m0re in the long run.  That is, public employees receiving pensions, might be forced to suspend their pensions during the term of their reemployment but when they do finally retire those pensions could well be increased with additional pension credits from this new employment and possibly actuarial adjustment of the original pension.   The practice might be stopped under public pressure but, outside the spotlight, regulations propagated by public employees could more than offset any immediate savings or else whatever law change comes about could simply be ignored.

For example, there was an abuse that was supposed to be corrected in 2007 yet it lingers:

Back in August, 2010 I noticed that the Kenilworth borough attorney was improperly in the state pension system (and his accruals were thus being paid for by us taxpayers) so I emailed the NJ Division of Pensions:

To:  Pensions NJ <Siebel.CRM-Admin1@treas.state.nj.us>
Subject:  20100821-38592–Pension Enrollment–Member Question

Confirmation #: 20100821-38592

It is my understanding that municipal attorneys  contracted for legal services are not to have that service counted for pension purposes.  As explained in the article linked to, I believe this is not the case.

http://blog.nj.com/njv_johnbury/2010/08/municipal_attornies_in_the_nj.html

and received this response:

Dear Mr.  Bury

This is in response to your recent inquiry.

Effective January 1, 2008 Chapter 92, provides that if a person is employed under a professional service contract,( which would include the title attorney) membership in PERS, TPAF or DCRP is prohibited.

Thank you for contacting the Division of Benefits.

Marilyn Moore
Enrollment/Purchase Bureau
NJ Division of Pensions and Benefits

to which I requested clarification:

To:  Pensions NJ <Siebel.CRM-Admin1@treas.state.nj.us>
Subject:  Re: 20100821-38592–Pension Enrollment–Member Question

Thanks for the response.  That helps.  Though, one thing I would like to confirm:

Based on the wording in your response I assume there is no grandfathering.
That is, a municipal attorney contracted in 2007 and before with a locality would not be allowed to stay in the plan and accrue more benefit credits after 2007 even with no break-in-service though their service credits through 12/31/07 would remain?  That is my understanding now.

Thank you.

and got it:

Dear Mr. Bury

This is in response to your recent inquiry.

You are correct there is no grandfathering.
“Effective January 1, 2008, Chapter 92 provides that if a person is employed under a professional services contract, membership in the PERS, TPAF or the DCRP is prohibited with regards to that service. Individuals enrolled in the PERS or TPAF who are performing professional services pursuant to a contract entered into prior to January 1, 2008, will continue to accrue pension credit for the remainder of that contract year. However, the individual will not be eligible for any further retirement system credit for the performance of those services after that contract period expires. “

Thank you for contacting the Division of Benefits.

Marilyn Moore
Enrollment/Purchase Bureau
NJ Division of Pensions and Benefits

I bring this up because today Union County had their reorganization meeting and among the appointments was:

2012-14 CHAIRMAN ALEXANDER MIRABELLA: Appointing Manuel R. Grova, Jr., Esq. as Special Counsel for the County of Union Planning Board for a term commencing January 1, 2012 and terminating on December 31, 2012, at an annual salary of $27,500.

Manuel R. Grova, Jr., Esq. became the Union County planning board attorney around the time of the conviction of the prior attorney and also serves the borough of Roselle and the city of Elizabeth, all with pensions attached.

Reportedly, New Jersey is investigating.  Hopefully they will have more luck than the park police investigating Vince Foster’s death.*

.

.

* OK, a bit of a metaphorical stretch but it was hard to work in my preferred paradigm: how New Jersey judges are judging cases about what their net salaries should be.

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6 responses to this post.

  1. Posted by Tough Love on January 9, 2012 at 2:48 am

    John, Focusing on this section of your discussion … “However, the problem is that any ‘reform’ of this practice could cost taxpayers much more in the long run. That is, public employees receiving pensions, might be forced to suspend their pensions during the term of their reemployment but when they do finally retire those pensions could well be increased with additional pension credits from this new employment and possibly actuarial adjustment of the original pension. ”

    Unless there is some strange, unusual, and very beneficial adjustment to the original pension, is seems unlikely the reform you discuss would, for the full career sheriff’s deputy types (currently double-dipping), increase the cost to taxpayers. Let’s try an example …. Suppose an officer retired with 100K salary after 25 years at age 55 with 65% of pay or $65,000 initial (COLA-adjusted pension … with inflation assumed to be 2.5% in the next few years). Now let’s look at what happens over a one year period (a) staying in the pension … and lets assume it’s his 1-st year retired, vs (b) pension suspension and working 1 more year and THEN retiring.

    Under (a) it’s clear he gets $65,000

    Under (b) and assuming his pay is $102,000 for that next year (i.e., a 2% raise), and, being back in the pension he accrues another year of service at .026% of pay raising his multiplier to 67.6% of final pay after 26 years. If he retired at the end of that one additional year, his starting pension would be .026 x 26 years x $102,000 = $68,952. This $68,952 compares to $65,000×1.025=$66,625 the officer would have received in his 2-nd year if he stayed retired.

    So where are we …

    The trade off is giving up the $65,000 for ONE single year, to get a annual (COLA-adjusted) pension that is higher by $68,952-$66,625=$2,327 annually. Now assuming the PV of a COLA adjusted life annuity of $1/yr to a 56 year is just about $22, then the PV of the increased COLA -adjusted annuity is 22x$2,327=$51,194.

    So it appears that the officer would have foregone $65,000 to obtain a greater pension (starting one year later) where the PV of the increased pension amount is only $51,194 and therefore LOWER that the $65,000 foregone. In fact, for there to be an equivalence …. no benefit or disadvantage …. the annuity factor would have to rise from the 22 I assumed to 28.63 … certainly higher than reasonable (without assuming a much higher level of inflation).

    Extending this to retirement 2, or 3 or more years later would likely not change this analysis, so I fail to see how the reform cannot benefit taxpayers by saving money. Of course I realize we have to PAY the officer for his service for the extra year worked … and assuming he is worth what we are paying him, that should not impact the conclusion I arrived at.

    Did I miss something ?

    Reply

    • 1) In the private sector if you defer your retirement your benefit gets actuarially increased so you don’t lose any money in PV terms.

      2) The participants affected would be older (since they are retirees) so any continuing accruals would have a larger value.

      3) If they do decide to do reforms, it will be the bureaucrats with a vested interest in the calculations who will be deciding what is ‘fair’ outside of public glare. They might decide allowing both (1) and (2) above is ‘fair’.

      4) Salary extremes: Returnees might be rehired to head some department for which they would get a much higher salary that would now be applied to their entire period of service. On the other extreme they may be returning at a lower salary to build up service credits to be applied to a much higher prior average salary.

      Reply

  2. Posted by Dave S on January 9, 2012 at 11:23 am

    There’s nothing inherently unfair in an individual having a series of non-overlapping full time jobs with pensions accrued over time. The proper focus of pension reform is forward looking change. The professional services issue has been addressed. The COLA issue was “addressed” and frozen in the reform. It is (properly) under court challenge at this time. It does seem the planning board attorney was multi-dipping. The real reform is to cap total pensions or in the alternative to phase them out for new hires so the system eventually sunsets and is replaced with a 401(k) type system. It is unreasonable to impose change retroactively on current mid range career employees.

    Reply

    • Posted by Tough Love on January 9, 2012 at 12:25 pm

      “Real” reform MUST include a significant reduction (50+%) in the rate of pension accrual for FUTURE service for CURRENT (not just new) employees. Such change is ROUTINE in Private Sector Plans when circumstance warrant it, and Public Sector workers should get equal, but not better protection.

      Reply

  3. Posted by Javagold on January 9, 2012 at 12:41 pm

    and public employees get ANY pension……….WHY ????????????

    Reply

    • Posted by Tough Love on January 9, 2012 at 2:48 pm

      JAVA, You can’t look at separate components of “total compensation” (cash pay + pensions + benefits). They must be examined together. It is quite appropriate for Public Sector “Total Compensation” to equal that of Private Sector workers in comparable jobs (or jobs with similar risks, if not directly comparable). The problem today, is that “cash pay” in the 2 sector is now very close in all but a few occupations, and that being the case, there is ZERO justification for taxpayer funding of greater Public Sector pensions and better benefits. And right now, the taxpayer paid-for share of Public Sector pensions are ROUTINELY 2x, 4x (even 6 times for safety workers) greater in value at retirement than the pensions of their Private Sector counterparts. This is unsustainable, unnecessary to attract and retain a qualified workforce, and patently unfair to taxpayers.

      Reply

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