News From Terre Haute, Indiana

Indiana Legislature

September 30, 2011

State lawmakers want to deal with pension now

Commission members don’t want to leave job for others to do

INDIANAPOLIS — Some Indiana lawmakers are vowing to find a longterm solution to a $14 billion problem in the state’s public pension funds.

Several legislators, speaking at a meeting of the legislative Pension Management Oversight Commission, said earlier this week they don’t trust future legislators to tackle the politically thorny problem of fixing the state’s underfunded pension plans. 

“I question whether future legislators will have the forbearance to do the right thing given the historical record,” said State Sen. Greg Walker, a Republican from Columbus who chairs the commission.

It was a sentiment echoed by Rep. David Niezgodski, a Democrat from South Bend, who said the $14 billion in unfunded pension liabilities, should serve as “a wake up call” to legislators. “For a long period of time we haven’t done the things we should have done,” Niezgodski said.

What to do is the dilemma. The state is obligated to keep solvent the pension funds of nearly a half-million current and past public employees, including teachers, firefighters and police officers.

The state’s pension funds are short $14 billion. Most of those unfunded liabilities are from obligations made to public school teachers before 1996, when the state overhauled its public pension system and changed the way payments were made into the system.

But the 1996 fix wasn’t enough to solve the problem. Legislators have had to set aside increasing amounts of tax dollars coming out of state’s general fund to keep the pension funds solvent. They agreed to set aside $870 million in fiscal year 2012 to help cover the state’s obligations. That figure will increase each year, until it peaks around 2030, at $1.2 billion.

At this week’s meeting, commission members floated the idea of shifting people out of the pension funds and into 401(k)-type individual retirement plans favored by the private sector. It’s a move Alaska and Michigan have already made and other states are contemplating.

But that idea met resistance from firefighters and police officers who say their pension plans carry a critical element: death and disability benefits that guarantee that families of officers who die in the line of duty are taken care of.

Tim Downs, the president of the Indiana Fraternal Order of Police, cited the example of Terre Haute police officer Brent Long, who was fatally shot in July while serving an arrest warrant on a fugitive. Downs said Long’s public pension plan will pay out generous benefits to Long’s widow and two young children. Had he been enrolled in a typical 401(k)-type plan, making minimum contributions, the benefits would have been much less, Downs said.

“Brent’s widow has some peace of mind, knowing her children will be taken care of,” Downs said.

Pension experts at the meeting said a voluntary shift — allowing public pension members to leave their plans and move into a 401(k)-type plan —  likely wouldn’t save the state much money.

Steve Russo, executive director of the Indiana Pension Retirement System, said in other states where pension fund members were offered a lump sum payment to leave their pension programs (and the guaranteed retirement incomes that come with them), less than 5 percent of public employees made the switch.

“They see it as too risky,” Russo said. Under the guaranteed public pension plans, the state has to meet its promised obligations to fund members, even if the state’s investments have lost money.

In 2007, Indiana’s pension funds’ assets totaled $27 billion. By March of 2009, the value dropped to $17 billion. It’s back up to $25 billion, Russo said.

Other states have attempted to remedy similar pension problems. New Jersey passed a law to increase pension contributions made by employees and end automatic annual increases. In Colorado, South Dakota and Minnesota, public employees are suing their states for changes to pension plans that include increasing employee contributions, raising the retirement age or curbing cost-of-living increases.

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