This is an archived article that was published on sltrib.com in 2009, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
It's called double dipping. The law allows schoolteachers and other public employees to retire and take pension benefits from the state retirement system, then go back to work full time --- often in a similar job -- and receive large 401(k) contributions from their employer while continuing to earn a salary and take pension benefits.
There's nothing nefarious about this. Some people say it's a just reward for public servants who have worked their entire careers for substandard pay.
Unfortunately, the state retirement system can't afford it. If the Legislature doesn't change the rules, double dipping could cost the retirement system $900 million over the next decade. The Utah pension system is already underfunded by about $6.5 billion due to the hit it took when the stock market crashed. That's why the Legislature must put an end to double dipping.
Utah provides a defined benefit pension. The employee receives a lifetime benefit based on years of service and average salary. The employer funds the plan.
This is different from a defined contribution plan, such as a 401(k), in which an employee has an individual account to which both she and the employer contribute. The employee decides how to invest the money. There are no guaranteed benefits.
Often, a worker can retire after many years of service and begin to draw his defined-benefit pension. But if he goes back to work for a different agency that is part of the state pension system, the law requires that the employer contribute to the retired employee's 401(k) account at the same rate as it would have contributed to the defined-benefit pension plan. That rate can range from 12 percent to an astonishing 39 percent of salary for re-employed retirees.
This costs the system in two ways. First, because the employee retires earlier, he begins to draw his pension benefits at a younger age. The system pays out the benefit for more years, so it costs more over the life of the beneficiary, even though an employee who retires early receives a smaller benefit due to fewer years of service and, often, a smaller final average salary. Second, because the employee has retired earlier, the pension system does not receive contributions from the employer for as many years as if she had kept working.
The Legislature should end this system. Pension payments should be suspended for retirees who return to full-time public jobs, and their employers should continue to contribute to the pension system rather than to 401(k)s. And, the worker should continue to earn credits toward a higher pension.