Statutory Limits on Post-Retirement Earnings for Public Employees
Retired public employees who return to public service are subject to statutory post-retirement earnings limits. If a retiree exceeds these limits, their pension system can withhold future pension payments to recoup the overearnings.
Chapter 32 of the Massachusetts General Laws governs retirement systems and pensions for public employees. In general, “[n]o person[,] while receiving a pension, disability pension or retirement allowance from the commonwealth, or from any county, city, town, district or authority[,] shall, after the date of his retirement[,] be paid for any service rendered to the commonwealth or any county, city, town or district.” See M.G.L. c. 32, § 91(a).
However, M.G.L. c. 32, § 91(b), creates an exception to this general rule: a retiree receiving a pension from a governmental unit under M.G.L. c. 32 “may . . . be employed in the service of the commonwealth, county, city, town, district or authority . . . for not more than nine hundred and sixty hours in the aggregate, in any calendar year; provided that the earnings . . . when added to any pension or retirement allowance he is receiving do not exceed the salary that is being paid for the position from which he was retired.” (emphasis added).¹
After a public employee has been retired for a full calendar year, this earnings limit increases by $15,000. See M.G.L. c. 32, § 91(b).
Finally, retired public employees who exceed their post-retirement earnings cap must return the excess compensation to their post-retirement employer or retirement board. See M.G.L. c. 32, § 91(c). See also Flanagan v. Contributory Ret. Appeal Bd., 51 Mass. App. Ct. 862, 866-868 (2001).
The Massachusetts Appeals Court explained the purpose of these limits: “[t]he statute reflects a clear policy that an employee of a governmental unit in Massachusetts generally may not retire, receive a pension, accept employment elsewhere in the government, and, by combining her pension and her new compensation, make more money than if she had not retired.” Bristol Cnty. Ret. Bd. v. Contributory Ret. Appeal Bd., 65 Mass. App. Ct. 443, 447 (2006).
OIG Investigation of Former Public School Headmaster
Linda Nathan, the former BPS headmaster investigated by the OIG, claimed that she was in compliance with M.G.L. c. 32, §91(b), because after her retirement, she served as the executive director of a non-profit organization affiliated with a public charter school, rather than as an employee of the public school itself.
However, her argument is irrelevant because M.G.L. c. 32, § 91(b), limits a retiree’s “employ[ment] in the service of the commonwealth, county, city, town, district or authority.”
The Massachusetts Contributory Retirement Appeal Board (CRAB) has repeatedly noted that the statute does not differentiate between a retiree who is paid directly by a public entity and one who is paid by a third party to provide services to that public entity. See Daley v. Plymouth Ret. Bd. and Pub. Emp. Ret. Admin. Comm’n, CR-11-441 and 13-409 (CRAB Aug. 7, 2014); Sarno v. Mass. Teachers’ Ret. Sys., CR-07-253 (CRAB Oct. 29, 2010).
At the conclusion of the investigation, the OIG found that:
- The non-profit organization paid Ms. Nathan to provide services to a public charter school.
- She spent more than 65 percent of her time providing service to the school, meaning that 65 percent of her salary should be attributed to public service.
- Her pension plus the portion of her salary attributable to public service exceeded what her salary would have been if she had remained a BPS headmaster.
Consequently, the OIG concluded that Ms. Nathan owes the Boston Retirement Board at least $67,979 for exceeding her earnings limits in 2017, 2018 and 2019.
The OIG recommended that the Boston Retirement Board conduct its own time analysis and reduce the former headmaster’s pension until she has repaid all her excess earnings. The Boston Retirement Board adopted the OIG’s findings and is negotiating with Ms. Nathan about recouping these funds.
Guidance for Public Employers Who Hire Retirees
Based on this investigation, as well as other investigations and reviews regarding pensions and post-retirement earnings, the OIG offers the following guidance to public bodies.
First, state and local officials who employ retirees should observe the statutory limits on post-retirement earnings, outlined in M.G.L. c. 32.
These officials should ensure that any retired public employees who return to public service work no more than 960 hours in a calendar year. See M.G.L. c. 32, § 91(b).
In addition, public employers should ensure that retirees who return to public service do not exceed their earning limit.
This limit is specific to each retiree and tied to that retiree’s last job. See M.G.L. c. 32, § 91(b).
Each retirement board may determine its own methodology for calculating the limit. Therefore, before hiring a retired public employee, the municipality should require the retiree to determine their earnings limit in consultation with both their last pre-retirement employer and their retirement board.
Regardless of how an individual retirement board determines the earnings limit, a retiree returning to public service may only earn the difference between their pension and their cap. Municipal officials should limit a retiree’s annual salary in accordance with that cap.
Retired public employees sometimes seek to obscure the earnings limit by asking to be hired as a consultant or through a corporation. Municipal officials should remember that M.G.L. c. 32, § 91(b), does not differentiate between a retiree who is paid directly by a public entity and one who is paid by a third party to provide services to that public entity.
Finally, public employers should remember that the state’s pension system is underfunded.
The state pension system's assets fall far short of the total value of benefits it owes to all current and future retirees.
In fact, the Commonwealth, which does not have enough current employees paying into the pension system to cover its annual pension payouts, must make annual appropriations to cover a portion of its pension costs. Most municipalities are in the same financial situation.
Although public officials often hire retired public employees, believing that taxpayers are getting expertise at a bargain basement price, retirees who return to public service put a further strain on taxpayers by collecting a paycheck and a pension simultaneously. While these retirees contribute valuable experience to the Commonwealth’s work force, employers should be aware that this experience comes at a cost.