News From Terre Haute, Indiana

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October 9, 2013

Changes to public pension benefits prompt pushback

More people attend meetings

INDIANAPOLIS — Pre-retirement workshops offered to public school teachers and public employees around the state are rapidly increasing in attendance, as word gets out about potential reductions to their retirement benefits and some legislative pushback in response.

An official with the Indiana Public Retirement System, known as INPRS, said attendance at the September pre-retirement workshops  — designed to help people budget for retirement — quadrupled over the normal month’s attendance, to more than 2,000 soon-to-be retirees concerned about the coming changes.

At issue is a July decision made by the Indiana Public Retirement System Board of Trustees to employ a private vendor to administer the annuities savings plan that retiring public employees can use to turn lump sum payouts into monthly benefit checks.

In making that change, the board also voted to eliminate the current 7.5-percent interest rate the state has long guaranteed on those annuity payouts and switch to market rates, which currently are at about 4 to 4.5 percent.

The change is expected to reduce annuity payouts to future retirees by $900 to $2,100 annually.

The change doesn’t go into effect until Oct. 1, 2014, but it’s already generating political heat. At the September meeting of the legislative Pension Management Oversight Commission, some lawmakers on the panel said they’ll push for state pension officials to back off privatizing the annuity savings plan and, instead, to continue to administer it with lower return rate.

“I think there’s agreement that we need to reset the interest rate so we won’t have a drain on our (pension) funds,” said Sen. Karen Tallian, a Democrat from Portage who is a commission member. Where there’s strong disagreement, she said, is the plan to turn over the annuity savings plan to an outside vendor.

The pension board staff has argued that it doesn’t have expertise to set what would be continually changing market rates, and that’s why the pension board wants to hire an outside agency to manage the annuities. In doing so, it would shift more risk away from the state and the pension funds it manages, which have about $27 billion in assets.

Jeff Hutson, a spokesman for INPRS, said the current 7.5-percent payout is unsustainable and threatens the viability of the pension programs. He also said the pension board would conduct a rigorous selection process for the outside provider and would still closely monitor how the annuities are being managed.

“This is about how we can best protect the pension funds, those who fund it and the members who depend on it being well-funded from the risk of what the market might do to that money,” Hutson said.

At the September meeting of the pension oversight commission, Nancy Guyott, president of the Indiana State AFL-CIO, said the changes being implemented by the state will reduce already modest retirement incomes.

The savings plan annuity is part of the two-part retirement system provided by the Public Employees Retirement Fund and Teachers Retirement Fund, which INPRS now administers for the funds’ 215,000-plus members.

The second part is the traditional defined benefit plan, which remains unchanged. On retirement, an employee can take the savings account as a lump sum or convert it to an annuity to spread benefits over the length of retirement. About half of the 6,000 to 7,000 pension funds’ members opt for the annuity.

Tallian wants the Pension Management Oversight Commission, when it meets Oct. 21, to recommend that the pension board keep the annuity management in-house.

And she wants the recommendation to be part of the commission’s final report issued before the end of the year. The commission doesn’t have the power to make INPRS roll back its decision to go with an outside vendor, but it could influence legislation that affects the state pension board.

Both the American Federation of Teachers and the Indiana State Teachers Association have said they oppose changes made by INPRS to the annuity management.

Those organizations worry that reducing benefits would make it harder for public schools to attract good teachers. They’ve also pushed for INPRS to push back the date that the new annuity management plan would take effect.

More info

• Information about changes in retirement benefits and a list of upcoming pre-retirement workshops for public employees is included on the Indiana Public Retirement System website at www.in.gov/inprs.

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