Pension board, lawmakers hash out annuity worries

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The Indiana state pension system is pressing ahead with a proposal to privatize state employees' annuity savings accounts, even as legislators consider placing a hold on the move for five years amid widespread concerns that state workers would lose valuable benefits.

The legislative battle — and concurrent push to privatize a piece of the state's pension system — continues a long-running fight that has pitted concerns about the solvency of the state's pension system against worries that state workers will be forced to retire early in order to collect a valuable piece of their pension.

When state workers retire, Indiana allows them to reinvest the sum of their annuity savings accounts with the state and earn 7.5 percent each year on the amount they invested. For instance, a worker that reinvests $30,000 would receive $2,250 each year. Or they can simply take the money in a lump sum.

The program is popular among state employees, in part of because of the guaranteed payouts at a good rate during a time when many states are cutting retirement benefits. The Indiana Public Retirement System, or INPRS, sparked an outcry last year when it was looking at privatizing the administration of those annuity savings accounts, or ASAs, in a move that would likely cut annual payouts from 7.5 percent to roughly 4 percent.

Leaders with the state's pension system argued the state could not sustain 7.5-percent payouts and, ultimately, voted in favor of having a private vendor control the payouts. In a Dec. 13, 2013, letter to state lawmakers announcing the privatization plan, INPRS Chairman Ken Cochran pointed out the state fund delivering those payouts already was operating $143 million in the red.

But now, state lawmakers are considering a bill that would block privatization of the plan for five years. Rep. Woody Burton, R-Whiteland, drafted the measure, which is heading to the Senate for consideration. He said he has spent much of the session in talks with Gov. Mike Pence's staff and House budget leaders developing a compromise.

"What I have a problem with is somebody who has 20 or 25 years (working for the state) and they want to retire in the next two-three years. This would require them to retire this year, ahead of time, otherwise they stand a chance of losing some of their benefits," he said.

INPRS surprised some lawmakers last month when it issued a request for proposals from companies interested in managing the plan. But INPRS spokesman Jeff Hutson said the agency is doing what it needs to be ready for the privatization if Burton's proposal does not pass.

"If they don't pass legislation, we have got to be up and running with this thing by Oct. 1," Hutson said.

An 11th hour effort during last year's session to scrap the annuity payouts altogether was canned by House Speaker Brian Bosma, R-Indianapolis, after concerns were raised by some lawmakers. And a legislative committee spent the summer studying the issue but ultimately declined to take action.

The INPRS board voted unanimously this past December to approve the plan, but Hutson said all efforts would be placed on hold if the Burton measure passes.

"There's absolutely no plan to make any agreements with any vendors until we know what the General Assembly is going to do," Hutson said.


  • Everyone's math is wrong
    The State isn't guaranteeing a rate of return. Assume you have $100,000 saved in the ASA at the time of retirement. The annuity payment today would be 7.5% of that amount annually. Thus, you would receive $7,500 per year. Reducing the payout to 4% would cost you almost half of your annuity.
  • 7.5%
    Bringing government employee benefits in line with private industry is long overdue. Most of us would be thrilled to earn 4% on our investments without having to do anything. This needs to be changed and those employees need to be VERY THANKFUL for the very expensive benefits they still receive in the form of generous vacation, holidays, and sick pay. Those of us in private industry do not receive these rich benefits and are very tired of being taxed to provide them for others.
  • No need to privatize
    INPRS is an efficiently run organization that has spent millions updating their systems to handle these payouts. Yes, the 7.5% guaranteed rate is too rich, solution is easy by making the payout rate = to the actuarial rate.
  • 7.5%???
    That's pretty rich. I'm not sure exactly how these are structured, but if the state is guaranteeing retirees 7.5% returns on money invested, that's nuts. That's one of the things that got Detroit in trouble! The article seems to imply this isn't really about privatization, but about bringing promises in line with market reality.

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