‘Hot seat’ retirement practice on the hot seat

The practice of allowing state employees to return to work for state government after taking early retirement is commonly known as “hot seating.” Under current regulations, the state pensions these people have earned are suspended if the employee earns more than $15,000 a year in this post-retirement work.  But when the returning worker is hired as an “independent contractor,” monthly pension payments are not suspended.

Last week, the Legislature’s Joint Committee on Pensions and Retirement began a study of the issue, prompted by a legislative audit in September that revealed at least 35 retired state employees earned more than $15,000 in state salaries in 2011 and that 31 of them worked as independent contractors for the state.

The problem, as noted by legislative manager Aaron Allred, is that West Virginia has been far too lenient in its definition of retired state employees who return to work as independent contractors. He pointed out the example of retired Personnel Director Joe Smith. In this case, Smith had a consulting contract in 2005 with then-Gov. Joe Manchin.

Even though he was considered working for the state as a vendor, Smith actually had administrative authority in the governor’s office and had signature authority to approve employee promotions and pay raises. And he was still collecting his full pension.

But major changes that would wipe out this practice of “double dipping” by many retired state employees could cost the state millions of dollars annually in additional pension payments, according to Harry Mandel, actuary for the state’s Consolidated Public Retirement Board. He said it could potentially mean a 5 to 10 percent boost in overall costs that are currently more than $60 million annually.

The legislative interim committee that is studying this issue is primarily looking for ways to reduce future state pension costs by reducing the retirement benefits for those who are hired in the future. The options considered so far include increasing the retirement age for state employees to at least 62. The committee also wants to consider increasing the employee contribution rate to the state pension plan from 4.5 percent to 6 percent.

Other possibilities include changing the calculations for pensions from 2 percent of the salary times years of service to 1.75 percent or even 1.5 percent. Another option would put a ceiling of 70 percent of salary as the maximum pension benefit no matter how many years of service are involved.

But the first order of business should be consideration of changes to the law that have been in limbo since a 1967 attorney general’s opinion that said retired public employees cannot have their pensions suspended under the law if they return to work for the state as independent contractors.

The state has been far too lenient in defining retirees as independent contractors in the opinion of Allred. As he noted, this is a case of a political philosophy of whether someone should be able to draw a retirement check and a payroll check from the state at the same time.

Meanwhile, at a time when the governor is recommending a reduction in next year’s state budget, the House of Delegates has announced it is granting nearly $45,000 worth of pay raises to some of the key staff members. A total of 14 employees in the House will be receiving $44,982 in increased salaries.

The largest raises go to the top aides to House Speaker Richard Thompson, D-Wayne, and House Majority Leader Brent Boggs, D-Braxton. Dan Kimble, who is chief of staff for the Speaker, received a $7,705 raise that increases his annual salary to $98,000 a year. Jennifer McPherson, who is Boggs’ assistant, was given a $9,391 raise to increase her pay from $33,109 to $42,500 per year.

The House of Delegates has also hired Eddie Belcher — a onetime regional representative for governors Manchin and Earl Ray Tomblin — to the position of legislative assistant. He will earn $30,000 annually in that role. Belcher had worked in constituent services for both Manchin and Tomblin until he was fired by Tomblin last summer.

He also worked for Attorney General Darrell McGraw until he decided to run unsuccessfully this year for the Kanawha County assessor’s job.

Finally, the recent ruling by the West Virginia Public Service Commission to not allow Appalachian Power Company to let residential customers pay higher prices for their electricity service to help lower the cost of electricity for a closed Century Aluminum plant in Jackson County so it could resume production was a well-reasoned decision. The PSC instead said Appalachian Power would have to assume any financial losses that it might incur if it provided a special rate to help the factory resume production.

It seems unlikely the power company will want to shoulder that financial burden just to get the Ravenswood factory back on line because of the potential risk to AEP’s bottom line. Century shut down its operations in Jackson County in 2009 and has consistently maintained it needs special tax breaks to resume operations now.  There is also a separate issue of retirees who want Century to honor their pension benefits that were taken away after the plant closed. So prospects for the plant resuming operations seems bleak at this point.

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