Indiana is about to close a loophole that allows public employees -- including school administrators and clerks alike -- to stage quickie retirements to collect pensions, and then return to their jobs.
"They're called sham retirements," Jeffrey Hutson, chief communication officer for the state's Public Employee Retirement Fund, said last week.
They are the target of a new state law, going into effect July 31, that not only will stop pension payments to working public employees abusing retirement regulations, but also force them to disgorge any benefits they already have received.
"The new law simply reflects what already exists at the federal level," Hutson said. "You cannot do this and have either a handshake or a written agreement with your employer." He said anyone who legitimately retires and later is called back to work has nothing to fear.
The Lake County commissioners vetoed an attempt by some county government employees to have the county sanction the growing practice of employees retiring for 30 days -- just long enough to trigger state pension payments -- and returning back to their old jobs, and pay, with a wink and a nod from friendly bosses who have held their jobs open during that month.
The Times reported in March school officials in Highland, Lake Station, Munster and the Lake Central School Corp. in St. John indicated more than a dozen teachers and administrators either had taken 30-day retirements or had shown interest in doing so.
Molly Deuberry, director of communications for the Indiana Teachers Retirement Fund, said, "We know people retire, then go back to be re-employed. We don't know how many, because the schools don't have to report it to us." Hutson said his office hasn't been able to track the number of sham retirements in state, county and municipal government, either.
They said the problem began last year when the state shortened the time public employees could be separated from their jobs to be paid pension benefits, to 30 days from 90 days.
Commissioner Roosevelt Allen, D-Gary, said he voted against allowing the practice in county government, because one in 10 of the county's work force are currently unemployed. "It's unfair for those who can retire and live comfortably off their pensions, to disadvantage younger people coming out of high school, college and technical colleges and starting their families."
Commissioner Gerry Scheub, D-Schererville, said sham retirements are completely different from the early-retirement program he helped create in county government last year that would let the county rehire retirees on a part-time basis and could save taxpayers as much as $2 million.
"I wanted to reduce our insurance, vacation and longevity cost, but this practice shocked me, because the county and taxpayers had nothing to gain by doing this."
Scheub said the unregulated retire-rehires not only smack of double dipping, but also appear to be discriminatory, since it mostly benefits higher-ranking employees and their friends.
Lake County Council President Larry Blanchard, R-Crown Point, agreed there were abuses, but while the practice remains legal under state law, he had wanted the county to regulate it to ensure fairness.
"Elected officials have been doing it for years," Blanchard said. "Why is it OK for them and not for the average Joe? If they earned a retirement benefit, what does PERF care? If the person wants to go back to work and the employer is willing to have them back, state law says you can do it."
Hutson said, "Federal law requires our members to have a bona fide separation of service in order to be entitled to a benefit from a tax-qualified pension plan such as PERF. If there is abuse of the bona fide separation rule, a tax-qualified plan like ours runs the risk that it will be disqualified by the IRS. It would also put the employees in a difficult position."
Hutson and Deuberry said there will be no retroactive consequences to those who already have benefited. "We are not hunting people down for that," Deuberry said.
