State pension fund sees wave of retirements prior to rate drop

Indiana will see a big jump in public-employee retirements this year, possibly driven by a controversial drop in benefits that took effect Oct. 1.

In a recent estimate provided to IBJ, the Indiana Public Retirement System said it expects 11,140 retirements in 2014 from state and local government, including school districts.

INPRS would not break down the number of departing workers that are covered by the Public Employees Retirement Fund, or PERF, for state and local government civilian employees, and how many are teachers. Spokeswoman Jennifer Dunlap did say, however, that PERF retirements will rise 35 percent, and that the Teachers Retirement Fund, or TRF, will see a 10-percent increase.

INPRS declined to attribute the wave to its recent decision to lower its annuity savings rate from 7.5 percent to 5.75 percent, effective Oct. 1. “It would be difficult to identify any one factor as being the reason for INPRS members to retire,” Dunlap said.

INPRS reported that 83.5 percent of the retirements were effective Sept. 1, which was the deadline for members to receive the 7.5-percent annuity rate. The most high-profile retirement in that time frame was state Treasurer Richard Mourdock, who resigned Aug. 29 with four months left in his term.

An Annuity Savings Account is one leg of the INPRS system, and members have the option when they retire to annuitize their savings, which means they receive set monthly payments at a particular rate of return; roll the money into a privately managed account; or take a lump-sum payment.

INPRS says it couldn’t afford to continue paying such a high rate on its Annuity Savings Accounts when market interest rates are closer to 3 percent. A plan to outsource management of the ASAs last year touched off a struggle with lawmakers, who worried that it would force people to retire early.

Now because of a law passed in the 2014 legislative session, INPRS has to keep management of the ASAs in-house until Jan. 1, 2017. In the meantime, INPRS will ratchet down its payment rates. The next drop is Oct. 1, 2015, when INPRS will begin paying 4.5 percent, or the market rate, whichever is greater.