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F I S C A L I M P A C T R E P O R T
SPONSOR Altamirano
ORIGINAL DATE
LAST UPDATED
02/14/06
HB
SHORT TITLE Educational Retirees Returning to Work
SB 714
ANALYST Geisler
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY06
FY07
FY08
$1,750.0
$1,750.0 Recurring Educational Re-
tirement Fund
(Parenthesis ( ) Indicate Expenditure Decreases)
Conflicts with HB 100, SB 300
SOURCES OF INFORMATION
LFC Files
Responses Received From
Educational Retirement Board (ERB)
Public Education Department (PED)
SUMMARY
Synopsis of Bill
Senate Bill 714 provides new requirements for members retired under the Education Retirement
Fund who wish to participate in the return to work program while still drawing retirement bene-
fits. On or after July 1, 2006, only public school teachers or instructors in post-secondary educa-
tional institutions would be allowed to retire and return to work without suspending retirement
benefits. Also the bill would require that if any return to work memberís earnings total $30,000
or more during a calendar year, the member shall make contributions to the fund beginning in the
month following the month that his earnings reach that amount. Note that currently the employer
contribution is required for return to work retirees.
Educational retirees that have returned to work prior to July 1, 2006 can continue in their current
status.
pg_0002
Senate Bill 714 Ė Page
2
FISCAL IMPLICATIONS
ERBís actuaries have reported that there has not been a negative actuarial impact on the ERB
fund from the return to work program to date. A preliminary estimate of the fiscal impact is that
it would provide an additional $1.75 million to $2 million in revenue yearly to the educational
retirement fund.
SIGNIFICANT ISSUES
The ERB has approximately 67,200 active members and 27,200 retired members. Approximately
960 members (or 3% of retirees) are participating in the return to work program. A study last
year showed that about 70% of the return to work retirees are teachers.
There is concern that the current system, which allows retirees to return to work without any in-
come limitations after sitting out year, is encouraging earlier retirements, which may have a long
term negative impact of the solvency of the ERB fund. There can also be a public perception
problem of a system which allows a member to receive both a salary and a pension.
The original intent of the legislation was to help alleviate the teacher shortage by enticing retired
teachers to return to the classroom. The program was developed with the aid of ERBís actuaries
who stated that the program would be actuarially neutral if retirees were required to wait one
year from retirement before returning to ERB employment. It was thought this would prevent
large numbers of members from retiring earlier than normally contemplated to take advantage of
a double stream of income.
Any provision that entices a member to retire earlier than normal means the fund will have to
pay out retirement benefits longer than was actuarially expected, thus having a negative effect on
the fund. As noted above, ERBís actuaries have indicated that the RTW program has had no
negative actuarial effect on the ERB fund. That means that so far the program has not been a
financial burden to ERB. This, of course, could change in the future. There is a concern among
some that there will be continued attempts to change ERBís RTW program to shorten the wait-
ing period from one year to 90 days as provided for by the Public Employees Retirement Asso-
ciation. This and other possible proposed changes could easily have a negative actuarial effect
on the fund.
PERFORMANCE IMPLICATIONS
The Department of Education notes that the return to work program has contributed significantly
to addressing New Mexicoís teacher shortage since 2001. Enacting any provisions that would
curtail or discourage teachers from returning to work while drawing retirement benefits would
impact the gains made in addressing this shortage. While this bill does limit somewhat the finan-
cial incentive for return to work, it does not appear so significant as to significantly discourage
teachers from participating in the program.
ADMINISTRATIVE IMPLICATIONS
ERB may incur some costs to change their software to reflect the change in statute and some
administrative resources to deal with member questions.
pg_0003
Senate Bill 714 Ė Page
3
CONFLICT
House Bill 100 and Senate Bill 300 will phase out the current return to work programs for public
and educational retirees as of July 1, 2006. Return to work retirees employed before July 1, 2006
will not have their status changed.
ALTERNATIVES
Consider broadening the bill criteria to allow all educational employees to participate, which the
current statute allows.
WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL
The current return to work program will continue until its statutory sunset date of January 1,
2012.
GG/yr