Legislature and State Budget and State Government and Public Pensions and Government & Economic Development

Next state budget to spend $117M more on pensions

April 1, 2011
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Indiana lawmakers plan to set aside more money in the next two-year budget to help deal with unfunded pension liabilities, but experts warn the amount needed to pay retirees will only grow in the next 15 years.

The amount set aside for public workers' pensions would increase from $835 million this year to $952 million in the second year of the $28 billion budget that has cleared the House and is pending before the Senate, the Evansville Courier & Press reported Friday.

The proposed 14 percent increase is due in part to the state taking responsibility for local police and firefighter pensions in the property tax overhaul approved three years ago and increasing payments due as part of old pension plans that are being phased out.

Pension for public school teachers hired before 1996 were guaranteed, but no money was deducted from their paychecks or set aside by their schools.

"The hens have come to roost on the benefit increases that were handed out in the good years," said Steve Russo, executive director of Indiana's pension funds.

Russo predicted payouts to teachers hired before 1996 will peak in 2027 at more than $1.2 billion per year. Some of that money will come from a dedicated fund into which the state sends tens of millions of Hoosier Lottery revenue every year, but most will come from Indiana's general fund.

Unfunded pension liabilities now account for 5 percent of Indiana's budget, an amount expected to grow until the number of those retirees who are dying outpaces the number who are retiring and being added to the program.

"It's going to keep getting worse," said Rep. Jeff Espich, a Uniondale Republican who chairs the budget-writing House Ways and Means Committee.

Until deaths cause the pension costs to decline, there's nothing the state can do "unless you default on your obligation to those teachers," Espich said.

"Until all those people get out of the system," he said, "we haven't got to our biggest problem."

The Public Employees' Retirement Fund makes up much of the rest of the state's unfunded liabilities.

Indiana is now on a "pay as you go" plan, which means state, municipal and public safety workers pay a portion of their salaries, and the agencies that employ them also pay.

"It's an obligated part of their benefit package," Espich said.

All of those payments are tax dollars, but the state's philosophy has been that setting them aside now will help avert a fiscal crisis later.

As a result, the Public Employees' Retirement Fund is 85 percent actuarially funded, compared with 33 percent for the pre-1996 teachers' plan, Russo said.

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