In response to recent news articles highlighting possible abuses within the LEOFF pension system, the Department of Retirement Systems (DRS) is now reviewing LEOFF employers for possible violations. The news media focused on situations where LEOFF members engaged in possible pension spiking just before their retirement. There were also examples of LEOFF retirees who had gone back to work for a public employer as an independent contractor, possibly in violation of pension system rules governing rehiring of retirees.
DRS now wishes to review all contract arrangements involving a DRS retiree from June 2010 through the present. DRS sent out the notice last week requiring all LEOFF employers to return a form attesting to the status of independent contractors and retirees by July 31, 2013.
Employers who are found to be in violation of the pension rules on hiring retirees will be liable for all pension overpayments that occurred, as well as employer and employee pension contributions that were not made. If an employer improperly classified a LEOFF 1 retiree as an independent contractor instead of an employee, the jurisdiction could also become responsible for the employee’s future LEOFF 1 medical costs. The retiree has no responsibility for any repayments in these situations.
If you are in a contractual arrangement with a public sector retiree (or before you enter into such an agreement), you should carefully review the terms with your legal counsel and DRS to insure that you are not in violation of any pension laws. Although no one factor determines independent contractor vs. employee status, it generally depends on the level of direction and control the employer has over the services the worker performs. See WAC 415-02-110 and the DRS Independent Contractor Status Questionnaire for more information.