A legislative commission recommended Monday that pension officials scrap a proposal to privatize one part of the state retirement benefit system but lawmakers didn’t address plans to cut the rate of return on annuity payments.
The Pension Management Oversight Commission can’t tell the administrators of public employee and teacher retirement accounts what to do. But the group did vote to ask them to keep the administration of annuities – which lets retired workers turn lump sum payouts into monthly benefit checks – in house.
The Indiana Public Retirement System Board of Trustees is likely to take up the recommendation at a meeting on Friday, said Jeff Hutson, a spokesman for the pensions agency.
“I think the board will take it very seriously. They’ll look at the recommendation,” Hutson said. “They’ll consider it, but I don’t know what they’ll do about it.”
The annuity is one of a two-part retirement system administered by the Public Employees’ Retirement Fund and Teachers’ Retirement Fund. The system includes a defined benefit plan, which is funded by government and schools for its employees, and a savings account that can be funded by employees or employers.
Upon retirement, the worker can take the savings account as a lump sum, roll it into a different retirement account, or convert it to an annuity to spread its benefits over the length of retirement.
Currently, retirees who opt to annuitize their savings can do so with a 7.5-percent interest rate, which is well above market rates and the amount the state is earning off the money that’s invested. The gap creates an unfunded liability that retirement board members decided was no longer acceptable.
So the group voted in July to use market rates for the annuities – and hire an outside vendor to establish the rates and administer the program.
That drew criticism from retirees and the groups that represent them, and lawmakers spent hours last month taking testimony on the issue. The change is expected to reduce annuity payouts to future retirees by an average of $900 to $2,100 annually.
But Sen. Phil Boots, a Republican and the chairman of the Pension Management Oversight Commission, said the 7.5-percent interest rates “can’t be justified by actuarial tables.”
“The interest rates people are earning today aren’t anywhere close to market rates,” he said.
So the oversight commission opted not to recommend a specific interest rate. Instead, lawmakers zoomed in on the privatization issue.
“This is very, very important to thousands of people within these programs,” said Rep. David Niezgodski, D-South Bend.
“We’re just recommending this come in house,” he said. “It will be in the best interest of the members.”