"We're talking about, potentially, a 5 to 10 percent increase in overall costs," he said of eliminating any restrictions on retired public employees returning to work for the state.

Currently, the employer's share of contributions to the Public Employees Retirement System is more than $60 million a year.

Mandel said elimination of the current restriction, which suspends pension payments to retirees who earn more than $15,000 a year in post-retirement public employment, would encourage more public employees to take early retirement and then return to their state jobs, a practice known as hot-seating.

The discussion before the Joint Committee on Pensions and Retirement was prompted by a legislative audit last month that found that at least 35 retired state employees had earned more than $15,000 in state compensation in 2011, including 31 who had worked for the state as independent contractors.

In the audit, the legislative auditor's office had proposed that the Legislature should either eliminate any restrictions on post-retirement employment, completely ban retired state employees from working for the state, or revise state law to come up with a compromise.

CPRB executive director Jeff Fleck noted that nothing in current law prohibits retired public employees from working for the state as independent contractors.

"We haven't looked at it as a loophole, because it's perfectly legal at this point," he said, citing a 1967 attorney general's opinion that said retired employees cannot have their pensions suspended under the law if they work for the state as independent contractors.

However, legislative manager Aaron Allred said that the state has been too lenient in defining retirees as independent contractors.

"I guess you could give any one of us a 1099 and claim we're a contractor," Allred said, referring to the IRS form for payments to independent contractors.

"You have to go through a step-by-step process: Is this person a contractor, or is this person a state employee?" he added.

He cited the example of retired state Personnel Director Joe Smith, who entered into a consulting contract with then-Gov. Joe Manchin in 2005. While ostensibly working for the state as vendor, Smith had administrative authority in the governor's office, including signature authority to approve employee promotions and pay raises.

"The issue is the monetary impact on the system, and the political philosophy of whether someone should be able to draw a retirement check and a paycheck," Allred said.

The legislative interim committee is also looking at ways to reduce future state pension costs by reducing retirement benefits for future hires.

Options include increasing the normal retirement age for state employees from 60 to 62, increasing the employee contribution rate from 4.5 percent to 6 percent of salary; and reducing or eliminating credits for unused sick days and leave days.

Other options would be to reduce the multiplier for calculating pensions from 2 percent of salary times years of service to 1.75 percent or 1.5 percent, or to cap maximum pension benefits at 70 percent of salary, regardless of years of service.

Reach Phil Kabler at ph...@wvgazette.com or 304-348-1220.