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Last updated on Friday, January 17, 2014
(STATEHOUSE) - A bill in the House would slow down a proposed state employee pension reform, a change that’s needed to save taxpayers money according to the State Pension Board.
Retirees receive both a monthly pension payment from the Indiana Public Retirement System (INPRS) as well as money from an annuity savings account. Employees get to choose whether to receive the money in a lump sum or in monthly annuity payments with an automatic return rate of 7.5%.
Last year, the board voted to privatize the annuity system, guaranteeing only market rates to those who choose to receive the monthly annuity payment. "They recommended that they basically give up the fiduciary responsibility given to them by the Legislature," said David Patterson with the American Federation of State, County and Municipal Employees.
AFSCME organized dozens of people to lobby state lawmakers on Thursday to support a bill (HB 1075) that would delay the pension board's decision by five years. "Basically, the board did that to protect the integrity of the fund and to avoid a $343 million unfunded liability that would ultimately be paid for by taxpayers," said Jeff Hutson, spokesman for INPRS. He says the unfunded liability comes from the guaranteed 7.5% interest rate, which is typically higher than rates of return the annuities receive on the open market.
Patterson doesn't believe there is an unfunded liability, even though the future obligations of the Public Employees Retirement Fund are just over 80-percent funded according to Hutson - the obligations for the Teachers Retirement Fund are 93-percent funded.
Opponents of the change contend that the state is trying to essentially give away money to big banks. "(The banks) usually take 30-percent as operating expenses and another 10-percent as profit. The current system works for retirees, and it works for taxpayers," said Patterson.
The change to the annuity would not change the bulk of retirement funds for state workers and teachers. "It would not have any impact on the larger part of the monthly pension that they get from the retirement fund that is not related to the annuity account," said Hutson.
But Hutson does say the change could result in lower payments to some retirees, but only if they choose the monthly annuity payment directly from INPRS - currently, about half of retirees do so.
The bill to delay the change for five years was passed unanimously this week by the House Employment, Labor and Pensions Committee and now goes to the full House.
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