Democrats, labor question Indiana pension change

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A legislative panel will consider asking state officials to back off a plan to privatize public employee retirement benefits and reconsider significant cuts to the rate of return on their annuity investments.

The Pension Management Oversight Commission can’t tell the administrators of public employee and teacher retirement accounts what to do, but after 90 minutes of public testimony Monday against the changes already underway, lawmakers said they can urge officials at the Indiana Public Retirement System to reevaluate.

“It certainly seems like a little extra work could be done on this,” said Rep. David Niezgodski, D-South Bend. “This has been an extremely quick rush to judgment. What is the harm in waiting? Otherwise, it smacks of injustice.”

At issue is a decision the Indiana Public Retirement System Board of Trustees made in July to use an outside vendor to administer annuities that retired workers can use to turn lump sum payouts into monthly benefit checks. That private vendor could then base future retirees’ benefits on market-based rates, rather than using the current 7.5-percent interest rate.

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

Nancy Guyott, president of the Indiana State AFL-CIO, said the changes being implemented by the state will cause an “unneeded reduction in returns on what are very modest retirement incomes.”

State pension officials say they have little choice. They argue the 7.5-percent payout is unsustainable and puts the viability of the pension program in jeopardy.

Tony Green, chief council for the pension board, said the agency doesn’t have the expertise to continually set market rates. That’s why the board is seeking to hire an outside company to manage the annuities, he said.

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 or convert it to an annuity to spread its benefits over the length of retirement.

Dan Doonan, labor economist, research and collective bargaining services for the American Federation of State, County & Municipal Employees, said the state should focus on “experience-based annuities.”

“We should base the annuities on the last 10 years of returns instead of trying to predict the future returns we will get a better plan for the annuities,” Doonan said.

And critics of the state changes said more retirees might opt for the lump sum, rather than take the chance with lower returns. That could lead to poor decisions that leave them financially unstable.

Sally Sloan, a lobbyist for AFT, formerly the American Federation of Teachers, also said that state officials expect teachers and other public employees to be “highly qualified.” But she said a key to recruiting and retaining that type of employee is good retirement benefits.

“We believe this is detrimental, she said.

Sloan also said the window for employees to retire under the current system should be extended. Currently the state has set the new system to take effect for employees who retire after Oct. 1, 2014.

“People don’t make the decision to retire one year before,” he said. “They plan that out for seven to 10 years.”

Bill Murphy, president of the Retired Indiana Public Employees Association, said government pays about 11 percent into the defined pension benefit for employees. Then some employers pay in another 3 percent for the savings account. He said some of those employers may decide against paying that extra 3 percent for employees if they don’t believe the payouts make the benefit worthwhile or competitive.

Sen. Karen Tallian, D-Portage, proposed that the Pension Management Oversight Commission make a recommendation that the pension board keep the annuity management in house, rather than hiring a private vendor. The recommendation would be part of the commission’s final report, which is prepared before the end of the year.

Tallian’s recommendation would also urge the agency to set interest rates that are sustainable, acknowledging that – for now – would be less than 7.5 percent.

Commission Chairman Phil Boots, R-Crawfordsville, said the group will vote on that proposal next month.


  • Pensions
    CA CHING, CA CHING, CA CHING! YEAH, IT MUST BE THAT TIME OF YEAR AGAIN! My Union Boss down at the Town Hall emailed me yesterday and. Told me that this article was hitting the Papers today, and He told Me. to make it Look like I was Working till this Blows Over in a week. I know the routine! In a week, I'll be back to my usual activity of. Collecting A Paycheck for Doing Nothing! Hey, Private Sector. Workers; You really gotta Pony Up more Taxes! I need at least a 10 %. raise! My Cabin Cruiser at the Dock behind my Vacation House in. Florida needs a New Engine. My wife has been after me for a new car. She wants a BMW X6 G-Power Typhoon S! I told her I can't afford that. car. So then she says she will accept a Mercedes-Benz CL-Class and. Nothing else! I also got Private School Tuition of $ 40,000.00 due. in September. I got Credit Card Expenses coming out my AXX! That new 3000 sq ft extension on my house raised my property taxes $ 15,000. The maid and the housekeeper want raises. The gardener also wants a. raise. You see Bunky; It ain't easy in the Public Sector! So come on Private Sector Worker; Pony Up and Pay More Taxes so I can afford to. live here! You See; Life Is Not Fair, and the DemoRats will take. care of Everything! HAPPY DAYS ARE HERE AGAIN!
  • Pensions
    To All Public Servants And Retirees; Repeat After Me : " EVERYBODY GETS NOTHING "! Repeat 1000 times! Now, Doesn't That Feel Better!
  • The Ongoing Cycle
    Thanks. I concur. These pensions are part of the compensation for working for the state for lower wages. Any person with one brain cell knows the private sector pays more for comparable jobs. I know people with doctoral degrees who work in both academia and private sector. Guess who earns more? Snap, its the private sector. By about double in some cases.
  • The Ongoing Cycle
    When times are good people sneer at state workers for being losers and chumps who settle for low-paying jobs. When times are tight and jobs are scarce, people are jealous that state workers have jobs at all. If you are unhappy with the quality of state workers (another common complaint) try to imagine who we'd have working for us if we paid even less. Some state expenditures are pretty dubious - and usually the pet project of some ridiculous legislator - but I don't mind paying taxes for decent troopers, prison guards, highway engineers, folks who keep poisons out of our air and water, etc.
    • Donna
      Oh, and Donna, with the lower than private sector pay, the least the state can do is provide a half way decent pension plan to make up for it. Unless, of course, youre talking about Daniels, etal. The man who "is not president of purdue for the money", then agrees to a half million dollar salary annually. If he wasnt doing it for the money, he would have taken the job for a dollar a year salary. Kinda like Mayor Bloomberg does. I believe it is THOSE types of state workers you should be addressing, not the lowly worker who makes $27,000 annually.
    • Not What You Think
      Donna - wow, you certainly state lots of things that just arent true. First, lots of state workers make less than they would if they were in the private sector. Second, everyone i know that works for the state puts in an 8 hour day. Third, the people i know get no more holidays than the standard ones that everyone else gets. Fourth, no "extended sick time OR extended vacation time for them either. Just a standard amount seemingly comparable to those in the private sector. So, my question to you would be, just where are you coming up with all of this inaccurate information? Lol. You may think you know all of this as being "fact", however, you are sorely mistaken. Now, if youre talking the big wigs downstate or administrative higher ups, you just might be somewhat right, but the majority gets no such things. Wow. Please try and get educated before spewing all these incorrect things.
    • 11% and 7.5%
      As a taxpayer who has not had the luxury of looking forward to retirement with a defined benefit plan, but is forced to pay taxes toward the lucrative plans that government employees have managed to give themselves this makes me very angry. Public employees have managed to keep themselves protected from the ups and downs of 401K plans that those of us in the private sector have had to deal with. My proposal is that public plans be switched to 401K plans and stop taxing the citizens to keep providing retirements that we cannot afford to pay. I did not know that public employees received 11% payments from us, let alone an extra 3%! That is unheard of in the private sector. We Taxpayers need to rise up and stop this outrageously expensive benefit that is completely undeserved and should have ended 2 decades ago like it did for the private sector. This isn't even taking into account the rest of the lucrative benefits you have provided for yourselves in the form of extensive paid vacation time, extensive paid sick leave, a ridiculous number of paid holidays, and short work days - typically 7 or 7.5 hours per day. It's long past the time for public employees to be brought into the 21st century with the rest of us!
      • 7.5%?
        7.5% does seem high, when PERF claims they can't pay anything more than 0.26% for workers' annuity funds invested in their Guaranteed Fund. Shouldn't these two rates meet somewhere in the middle? If the guaranteed fund paid a reasonable return, workers could earn considerable interest during their careers, so that when they reach retirement age they can have more in their annuity accounts without having to close their eyes, cross their fingers and pull the lever on the stocks/bonds funds virtual slot machine? Then, a rate lower than 7.5% on the converted annuities could still provide a better monthly retirement benefit. At any rate, I'd be skeptical of the cost and benefit of hiring a private company to do what PERF should be able to do itself.

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