Nursing shortage clause complicates pension issue
SIOUX CITY – Ten years ago, a shortage of nurses in rural Iowa prompted the state Legislature to pass a measure allowing retired state health care professionals to return to work earlier than usual to fill the void.
While some groups say the law has successfully closed the nursing gap and is no longer necessary, others say the special exemption for health care professionals is still needed to recruit in areas far from major cities. The exemption allows retirees to return to work part time.
With the exemption set to expire this summer, both sides are scrambling to make their cases heard in the Statehouse, whose members aren’t necessarily thirsting for pension reform in an election year.
On one side, the Iowa Hospital Association, which lobbies for public hospitals, is arguing the exemption should be extended to allow state hospitals to better compete with the private sector. The clause has been extended three times since 2004, and about 130 public providers have used it since then.
“Hospitals are unique in that half of Iowa hospitals are private, half are public,” said Scott McIntyre, a spokesman for the agency. “Without this provision, a retiree could simply drive down the road a ways and continue part-time work in the private sector.”
Nearly all state employees have the option to return to work after at least four months of retirement, but the exemption lets public health care providers return after just one month. The shorter window helps providers quickly fill part-time needs when short-staffed, the IHA argues.
On the other hand, the Iowa Public Employees Retirement System the state’s largest pension system has been pushing for an end to the exemption because return-to-work employees cost the state more than young, newly hired employees.
Typical public employees covered under IPERS contribute a portion of salaries to an IPERS-managed retirement fund, which their employers also contribute to. Upon retirement, the employees receive a guaranteed monthly check based on how much they earned and how long they served.
Under Iowa law, however, IPERS members can retire and return to IPERS-covered employment while still collecting benefits from their original stint and also accruing new benefits under the second stint, a practice commonly called “double dipping.”
IPERS is not proposing eliminating double dipping altogether, rather just an end to the health care exemption, which 310 employees utilize, according to IPERS. A recent IPERS study shows health care professionals tend to retire younger, represent an increasingly larger portion of new retirees and earn twice as much as other return-to-work employees.
Though only about 3 percent, or roughly 10,000, of the 104,933 IPERS retirees have returned to work to earn a new paycheck while collecting a pension, a majority of those are licensed health care professionals, who represent 9 percent of the IPERS workforce.
In total, IPERS is composed of 342,652 members, of whom 165,095 are current employees. Educators are the largest group, making up 54 percent of IPERS.
Separately, the Sioux City school district is developing plans for an early retirement system as a potential cost-saving mechanism at the request of school board members. A different board voted in 2009 to end the previous program.
By allowing more public employees to retire and return to work earlier than usual, IPERS officials believe it could open the floodgates for other groups that may also want an exemption, leading to a trend that could raise costs even more.
“While it’s difficult to quantify the actual cost for a group of this size, it’s important to note that there is a cost,” IPERS spokeswoman Judy Akre said. “In addition, allowing an exclusion of this nature for one group can set a precedent. In other words, it’s a slippery slope.”
The practice is believed to cost IPERS $4 million a year to cover the cost of older employees who retire and return to work. Another $5 million is diverted from IPERS since many employees who return to work part time are refunded all pension contributions they make once they end their second stint.
That $9 million in potential savings is a considerably small chunk, the IHA argues, considering IPERS investment assets totaled nearly $25 billion at the end of fiscal 2013.
“Our argument is, this should be permanent,” IHA spokesman Scott McIntyre said of the exemption. “Shortages are always going to be an issue in rural Iowa, and this (exemption) does not have a negative impact.”
However, IPERS argues any potential savings demand attention because the agency faces a $6 billion shortfall, or about $2,000 per capita, in money owed to current and future retirees. While that shortfall is trending to be fully erased in 27 years, the debt has been reduced in only one year since the Great Recession.
ON THE SIOUXLAND FRONTLINES
Regional health care facilities say they can fill open positions in a matter of weeks, and few if any of their nursing staffers take advantage of the return-to-work provision.
At Siouxland District Health, Health Director Kevin Grieme said no one has retired and returned to work on a part-time basis in the past decade. As a result, any change to the pension guidelines would have no impact.
Siouxland District Health has 12 nurses on staff and can fill vacant positions within six weeks.
“In the public health system, I am not hearing about a shortage,” Grieme said. “For us right now, basically I’m not really expecting an impact. If there were to become a nursing shortage, then we would have an issue.”
Nurses at Siouxland District Health say there is little turnover because the job and benefits are good. Retiring early also means finding a way to get by without Medicare until age 65.
“I don’t think we’re seeing it right here, right now in Northwest Iowa,” nurse Amber Hunwardsen said of the shortage. “Maybe in 10 years, with the baby boomers, there will be a shortage.”
At Floyd Valley Hospital in Le Mars, a vacant position can be filled in as few as two to four weeks depending on the time of year.
Hospital Human Resources Director Mary Helen Gibson said the eight regional nursing schools make recruitment easy.
“We have a fairly steady pipeline of nurses to tap and recruit,” she said. “And we have a lot of promotions from within. I would say we have four to 10 applicants for a position.”
The Iowa Board of Nursing also said while some people say there is a shortage of nurses in rural Iowa, it has not seen any data to support the claims.
Health care has remained the strongest industry in the state despite the economic recession, according to Iowa Workforce Development. The field has added nearly 15,800 jobs since January 2008.
But McIntyre said the growth is fueling the shortage, which is reflected in vacancy rates.
The Iowa Hospital Association’s annual survey indicates there is a 5 percent vacancy rate among registered nurses in Iowa in 2012. The rate was as low as 2 percent in 1996 and as high as 8 percent in 2001.
The average turnover rate for a registered nurse in 2012 was 13 percent, the survey said. McIntyre added that the average age of nurses in Iowa is 43.
A ‘CULTURE OF ACCEPTANCE’
Many members of the state Legislature do not see an urgent need for public pension reform because IPERS has returned to a nationally accepted standard funding level of 80 percent, said Deb Thornton, a research analyst with the Public Interest Institute, a conservative think tank in Mount Pleasant, Iowa.
“There is a wait and see approach,” she said. “And we’re so much better off than many states, goes the thinking.”
By policy, the Public Interest Institute doesn’t advocate for specific legislation. But in general, the group supports a shift from Iowa’s defined-benefit system to a 401(k)-style system, under which investment performance solely determines benefits, placing most financial risk on employees.
That shift, however, isn’t likely to happen soon as long as public employee unions keep fighting hard against reforms that could affect their memberships, said Don Racheter, president of the PII. Union campaign contributions have helped Democrats win a majority in the state Senate, while Republicans control the House and governorship.
“There has to be a package of reforms,” Racheter said. “Maybe if the composition of the Senate changes and unions don’t control the agenda, maybe we could get some actual pension reform.”
Racheter said the status quo on pension reform in Iowa has created a “culture of acceptance” in the Statehouse and that people at the top including Gov. Terry Branstad need to set an example. Branstad draws a $130,000 salary as governor while also collecting a $50,000 pension for his prior 26-year service as a lawmaker.
REFORMS UNLIKELY THIS SESSION
In 2010, the Legislature passed several reforms to the retirement formula, which became fully effective in 2012.
The reforms included reducing early retirement benefits, increasing employment time for full vesting to seven years, increasing contributions from employers and employees to the system and allowing contribution rates to float up or down by as much as 1 percent.
Those reforms have helped IPERS gain solid fiscal footing following the Great Recession, said state Sen. Thomas Courtney, D-Burlington, who was appointed co-chair of the Public Retirement Systems Committee last year.
“I don’t know how many changes we’re going to see in IPERS,” he said. “I think we’re in pretty good shape.”
In the last year, IPERS reduced its unfunded liability of $6 billion by $129 million, a savings IPERS claims is a result of the 2010 reforms and a boost from healthier than expected investment returns.
The asset boost represents the first time the system has reduced its liability since 2008, when the system was 89 percent funded. And while it’s impossible that all IPERS members will retire at once, forcing the state to come up with $6 billion, some still see the funding gap as a lurking problem.
“You can’t really saddle the kids and grandkids of today with those kinds of debt burdens and expect no negative impact on people’s lives,” Racheter said.
Rep. Dawn Pettengill, R- Mount Auburn, who co-chairs the pension committee with Courtney, said the committee made no recommendations in its first report send to the Legislature on Jan. 16.
Some proposals have a chance of passing, such as requests to increase state funding for the Municipal Fire and Police Retirement System and the judicial system.
The future of IPERS’ request to end the back-to-work exemption for nurses remains uncertain as the committee seeks more information.
According to minutes from previous pension committee meetings, some lawmakers are open to extending the exemption but have concerns about making it permanent especially if the move opens the door for other employee groups to seek a return-to-work exemption.
“My county hospital has lobbied me,” Pettengill said. “It will be a political decision likely.”