Massachusetts is relying on a “deeply flawed” honor system to ensure that retired employees who return to the public sector obey state limits on their earnings, according to state investigators, who found that there is little to no oversight and that even calculating how much a retiree can make is extraordinarily complicated.
Inspector General Jeffrey S. Shapiro said there’s no central agency that monitors whether retirees in the state’s multibillion-dollar retirement systems are abiding by laws that dictate how much they can earn from a public agency while still collecting their taxpayer-funded pension.
Instead, his office wrote in a new report, the rules are primarily enforced “through a self-monitored honor system,” where oversight of the state’s roughly 240,000 retirees and beneficiaries — thousands of whom can be working part-time public jobs at any time — can range from “weak” to ineffective to “non-existent.”
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Officials who track what retirees earn are then faced with a Byzantine process, in which the caps on earnings can fluctuate wildly from retiree to retiree. Even when officials find that someone has abused the rules, violators face no penalties beyond having to pay back excess earnings, Shapiro’s office said.
“It was just shocking. The more work we did on this, the more troubling it was,” Shapiro said in an interview. “It’s problematic to me that a billion-dollar enterprise relies on retirees doing a calculation on a dinner napkin at home at their kitchen table.”
Under state law, those who are newly retired from a state or municipal job face two sets of limits if they return to the public workforce in Massachusetts: They can’t work more than 1,200 hours in a year, and they can only earn the difference between their pension and the current salary being paid to the person who now holds their old job.
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For example, if the job the person retired from now pays an $80,000 salary, and the retiree is collecting a $50,000 annual pension, the income from their new part-time, post-retirement public job is capped at $30,000. After being retired for one full calendar year, the retiree can then earn an additional $15,000.
The limits are designed to stop so-called double dipping, and to prevent retirees from taking home more taxpayer dollars than if they had simply continued working in their original job.
For smaller agencies and municipalities, hiring back retirees is often a more inexpensive option than hiring a younger full-time employee. Local officials have also argued that some of the highly technical jobs they’re seeking to fill on tight budgets often don’t draw many qualified candidates, making a retiree an attractive choice.
But tracking the math from retiree to retiree is complicated, Shapiro’s office found. For example, should the person now filling a retiree’s job get a raise, then the retiree’s cap goes up. But if the state approves a cost-of-living adjustment for retirees’ pensions — as it does most years — the cap then can go down.
Further, only a handful of the state’s 104 retirement boards actually require retirees to report whether they are working. Collectively, thOse boards pay approximately $9.3 billion to public retirees and their survivors each year, with the average pension running about $41,000.
There are other complications, according to the inspector general. Investigations and disputes over a retiree’s earnings can often take years to resolve, particularly if they go to court.
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In one example, the state teacher’s retirement system received a tip in 2009 that a retired school administrator was working for a public educational collaborative and making more than should be allowed. It ultimately determined he had made $815,747 above the limit, but the case dragged on for more than a decade until he exhausted his administrative appeals.
“Enforcement [of the law] is reactive, mostly directed at the most egregious cases. Penalties for exceeding the earnings cap are minimal,” Shapiro wrote in a letter to Governor Maura Healey and state lawmakers, which is attached to the report. “This should not be the case for the Commonwealth’s retirement system, which is a billion-dollar enterprise.”
Given the state’s decentralized tracking system, it’s difficult, if not impossible, to determine how many retirees could be earning more than they’re allowed. But after analyzing five years of data covering roughly 17,000 retired teachers who returned to work while collecting a pension, Shapiro’s office said it found that 259 appeared to be earning above their individual caps.
Separately, when the Massachusetts Teachers’ Retirement System launched investigations in 2019 and 2020 into 25 retirees who appeared to be earning the most post-retirement, at least 13 had made more than their cap allowed, in some cases by hundreds of thousands of dollars. One retiree, who was “overpaid” by more than $365,000, ultimately waived her roughly $20,000 annual pension rather than have it garnished, according to the report.
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Erika Glaster, executive director of the teachers’ retirement system, said she’s not aware of “any widespread” efforts by retirees to skirt the earnings limits. But the complex rules are confusing and oftentimes retirees who earn more than they should aren’t even aware they exceeded their cap, she said.
”The way it is today really isn’t working,” Glaster said. “It’s a difficult piece of the statute to administer.”
Shapiro’s office is pushing lawmakers to consider changes, including giving more power and funding to the Public Employee Retirement Administration Commission, a state regulator of the 104 retirement systems, or creating a new enforcement agency to track retiree earnings. His report also recommends public entities be required to create measures to both track a retiree’s earnings cap and report that information to the state.
The state should also simplify how retirees’ caps are set by using a “calculated retirement salary average” instead of tying it to the salary of a person’s past job title, which can fluctuate depending on the agency, according to the report.
Andrew Napolitano, a spokesperson for the state treasurer’s office and state retirement board, said officials there support the inspector’s general’s recommendations, including to empower an agency to enforce limits on post-retiree earnings.
The report, Napolitano said, “demonstrates there is a real lack of oversight.”
Frank Murphy, chairman of the Cambridge Retirement Board, said that given how complex and “labor-intensive” it is to monitor retiree earnings, he doesn’t believe a single agency could handle it.
“Once you put the onus on one agency to track thousands and thousands of people, it’s not going to work well at all,” Murphy said.
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Bill Keefe, executive director of the Public Employee Retirement Administration Commission, said Tuesday that the agency was still reviewing the inspector general’s report and is willing to “be a part of any conversations the Legislature may have.”
Whether the Legislature would embrace many of the inspector general’s recommendations is unclear. In recent years, lawmakers have largely moved to loosen — not tighten — the rules on the system.
In 2020, they waived the earnings cap entirely to allow state and local officials to recruit workers out of retirement to fill open positions amid the pandemic. The next year, they hiked the cap on retirees from 960 to 1,200 hours a year, allowing more than 130,000 retired state employees and teachers — plus thousands more who retired from municipal government — to work the equivalent of a 23-hour average workweek for a public entity while continuing to earn their pensions.
Healey has pushed her own proposals, including one to allow state or local officials to lift the cap on earnings for retirees for positions with a “critical shortage of qualified applicants.” She is separately seeking to allow the retired police chief who heads Massachusetts’ police training agency to take home both his $150,000-a-year salary and a municipal pension.
Matt Stout can be reached at matt.stout@globe.com. Follow him @mattpstout.