Indiana pensions hit as economic doldrums continue

Back to TopCommentsE-mailPrintBookmark and Share

Indiana pension funds took a temporary hit last year and may not rebound as much as public workers would like, based on long-term economic trends outlined for lawmakers Tuesday.

The state's public pensions collected 1 percent interest on average last year, rather than the 7 percent the Indiana Public Retirement System originally expected. That immediate hit, plus a long-term decline in expectations, led pension leaders to tell members of the General Assembly's Pension Management Oversight Committee that pension plans may have to kick in more money next year.

Steve Russo, executive director of the Indiana Public Retirement System, said state investments underperformed last year as a result of continued economic troubles in Europe, partisan gridlock in Washington that nearly shut down the federal government and low interest rates set by the federal reserve. The poor performance caused Indiana's unfunded pension liability to increase from $3.5 billion to $4.9 billion.

"Contribution rates are going to be impacted this year because we haven't hit our number," Russo told state lawmakers.

But he said other states that currently appear in better shape than Indiana when it comes to pensions could end up being hit harder.

"There are some states out there who still have that 8 percent bogey out there that makes their funded status look good," Russo said. "But they're facing some pretty significant contribution rate increases because pension is a 'pay me now or pay me later' game. All the actuarial assumptions in the world don't change how much of it you have to pay out. That's defined by benefit policy."

It's not clear how much contributions would have to rise this year, but the increases could hit Indiana's counties, towns and cities, whose pension funds are managed by the state Public Retirement System. Local government plans account for close to two-thirds of the money invested by Indiana's Public Employee Retirement Fund.

David Bottorff, executive director of the Association of Indiana Counties, said he and his staff were briefed on the new pension numbers last week and plan to alert county leaders about the potential hit soon.

State pension obligations have garnered attention as conservative activists and tea partyers have shifted the national debate to focus on government debt and spending. Studies from various Washington think tanks have pegged the problem in the tens of billions of dollars for most states and estimated the aggregate problem at about $2.5 trillion.

For the most part, Indiana's pensions are on more solid footing than states such as California and New York. Indiana does not account for nearly as many public employees as some larger states, and it also does not pay the health care of retirees and other benefits like some other states.

However, the state has obligations in the form of commitments made to teachers hired before 1996. Unlike the other pensions managed by the Public Retirement System, the pre-1996 teacher plan is paid for annually out of the state budget.

The amount lawmakers spend on the teacher plan increases gradually each year. They spent $725 million last year and are expected to spend $747 million next year. The state is expected to spend upward of $1 billion annually from the budget in 2025 through about 2035, before costs start dropping as fewer retired teachers collect pensions.

Indiana's public pensions, excluding the pre-1996 teacher plan, are funded at 81 percent of what is owed workers. But if the teacher portion were added in, that amount funded would drop to 63 percent.

National think tanks have relied on that latter figure in lumping Indiana in with most other states having trouble keeping their promises to workers.

Gov. Mitch Daniels was asked last December about news reports that Indiana's pension liabilities were greater than his administration portrayed. He answered by arguing that the billions in unfunded teacher pensions should not count against the state's standing and accused one news outlet of "erroneous" reporting.


Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. So much for Eric Holder's conversation about race. If white people have got something to say, they get sued over it. Bottom line: white people have un-freer speech than others as a consequence of the misnamed "Civil rights laws."

  2. I agree, having seen three shows, that I was less than wowed. Disappointing!!

  3. Start drilling, start fracking, and start using our own energy. Other states have enriched their citizens and nearly elminated unemployment by using these resources that are on private land. If you are against the 'low prices' of discount stores, the best way to allow shoppers more choice is to empower them with better earnings. NOT through manipulated gov mandated min wage hikes, but better jobs and higher competitive pay. This would be direct result of using our own energy resources, yet Obama knows that Americans who arent dependent of gov welfare are much less likely to vote Dem, so he looks for ways to ensure America's decline and keep its citizens dependent of gov.

  4. Say It Loud, I'm Black and Ashamed: It's too bad that with certain "black" entertainment events, it seems violence and thuggery follows and the collateral damage that it leaves behinds continues to be a strain on the city in terms of people getting hurt, killed or becoming victims of crimes and/or stretching city resources. I remember shopping in the Meadows area years ago until violence and crime ended make most of the business pack you and leave as did with Lafayette Square and Washington Square. Over the past 10 to 12 years, I remember going to the Indiana Black Expo Soul Picnic in Washington Park. Violence, gang fights and homicides ended that. My great grandmother still bears the scares on her leg from when she was trampled by a group of thugs running from gun fire from a rival gang. With hundreds of police offices downtown still multiple shootings, people getting shot downtown during Black Expo. A number of people getting shots or murdered at black clubs around the city like Club Six on the west side, The Industry downtown, Jamal Tinsley's shot out in front of the Conrad, multiple fights and shootings at the skating rinks, shootings at Circle Center Mall and shooting and robberies and car jackings at Lafayette Mall. Shootings and gang violence and the State Fair. I can go on and on and on. Now Broad Ripple. (Shaking head side to side) Say It Loud, I'm Black and I'm Ashamed.

  5. Ballard Administration. Too funny. This is the least fiscally responsive administration I have ever seen. One thing this article failed to mention, is that the Hoosier State line delivers rail cars to the Amtrak Beech Grove maintenance facility for refurbishment. That's an economic development issue. And the jobs there are high-paying. That alone is worth the City's investment.