Indiana lawmakers grilled the head of the state's pension system Tuesday on a decision to push future retirees into a market-based system that could almost halve the amount they earn from annuity plans.
The Indiana Public Retirement System voted unanimously last month to change how much new retirees earn from their annuity savings accounts, or ASAs. The state currently allows retirees to return a lump-sum amount earned over their time working for the government to the pension fund, in return for guaranteed monthly payouts based on 7.5 percent of that lump sum.
More than half of the roughly 425,000 retirees enrolled in Indiana's major pension plans, the public employee retirement fund and the teacher's retirement fund are enrolled in the annuity plan. But employees who retire after July 1, 2014, would have to look to market-based rates and a sharp drop in that guaranteed money.
INPRS Executive Director Steve Russo told the panel the new payout would likely drop from 7.5 percent to a figure equaling the 10-year Treasury Note rates plus another 1.5 percentage points. The 10-year Treasury yield on Tuesday was listed at 2.75 percent, making the new payout likely 4.25 percent.
The pension board's July vote followed a last-minute push by the Senate's lead budget-writer, Luke Kenley, to end the annuity payouts over concerns the state could not afford them. But lawmakers, including House Speaker Brian Bosma, R-Indianapolis, said the decision needed a public vetting and pulled it from the state budget.
Democrats on the panel said they were caught off guard by the changes.
"This is a big decision that affects a lot of people," said Sen. Karen Tallian, D-Portage. "Frankly, I had expected that this was something that would be vetted before PMOC, at one or two meetings, rather than have you just come back and say, 'Well, this is what we did.'"
But Russo pointed out the pension board's meetings are open to the public and they have been discussing the change for more than a year.
"I have no doubt in my mind there was complete and utter transparency," he said.
Russo said the board was concerned about the long-term viability of paying out 7.5 percent on the annuity plans when the state's pension funds are only expected to earn 6.75-percent interest. However, according to the General Assembly's legislative analysts, they are 100-percent funded.