Pensions, A letter from Rep. Copeland Hanzas
Bennington Banner
April 19, 2021
Written by Rep. Copeland Hazas the Chair of the Government Operations
On Tuesday, May 4 from 5:00-7:00 p.m., the House Committee on Commerce and Economic Development and the House Committee on Government Operations will hold a joint public hearing to listen to employees and employers in Vermont about the issues faced with unemployment insurance during the COVID-19 pandemic.
The public is invited to register to speak at the hearing or submit written testimony. To register as a speaker at the hearing, please sign up here: https://legislature.vermont.gov/links/public-hearing-unemployment
Vermonters deeply value our teachers, troopers and state employees. Many of the most active and engaged citizens in small town Vermont are retired state workers and teachers. While these public servants do not make as much as they might in a private sector career, the opportunity to earn a pension and have the guarantee of income in retirement is key to the recruitment and retention of these important workers, and a huge benefit to our local economies. Unfortunately, it has been clear for decades that those benefits paid out to future retirees cannot be sustained by the investment earnings of the funds and the normal contributions from the employer and active employees alone.
While Vermont did underfund the employer side of the contributions to pensions in the 1980s and 1990s, the legislature has spent over a decade trying to catch up, using a plan to pay down the unfunded liabilities. During this time the “ADEC,” the state’s annual employer contribution to the retirement systems, has ballooned to more than $200 million last year and $316 million this year.
In January, Treasurer Pearce released a report revealing that the overly optimistic projections for returns, poor fund performance, and demographic challenges had masked the true scale of the pension crisis. While it’s a good thing that retirees are living longer, the ratio of beneficiaries to active workers has fallen to less than one worker for every retiree today. When combined with healthcare and other retirement costs, the total unfunded retirement liabilities have grown to over $5.6 billion.
Speaker Jill Krowinski has made it clear that with a once in a lifetime infusion of funds into the state, this is the year to tackle the unsustainable growth in costs and save the pension plans, putting $150 million in additional money on the table to invest in the future of the pension funds. We must make changes to put the pensions on a sustainable path, or we may soon be forced to give in to those who call for an end to the guaranteed income of our defined benefit plans, leaving employees at risk of their money running out in retirement.
As the chair of the House Committee on Government Operations, I have hosted countless hours of testimony which has produced two key proposals in a bill to address the pension crisis (H.449). The first part of our bill addresses the governance of the pension funds by creating an independent Vermont Pension Investment Commission (VPIC) to expand and replace the current committee overseeing the pension systems. The second part of the bill establishes a Pension Design, Benefit and Funding Task Force to meet over the summer and make recommendations to address the crisis.
The governance changes at VPIC may sound complicated, but they are key to putting the pension funds back on track. These changes will give pension plan members confidence that the fund decisions are not clouded by politics. We must put an end to the “conspiracy of silence” between employee and employer representatives on the boards who have perennially voted to keep short-term costs low by voting for overly optimistic returns and experience projections, pushing the reckoning off into the future and making it increasingly painful to fix the problems.
In House Gov Ops, we have heard many understandably frustrated workers blame “the state” for mismanaging their pension investments. The legislature does not manage or even weigh in on the management of the pension funds. The boards managing the pension funds have always included representatives chosen by the teachers and state employees themselves. The legislature’s role is to pay the bill when their decisions lead to poor performance, and that bill grew by about $100 million in this year alone.
The work of the Pension Task Force is arguably the harder part of the reforms in H.449. At the urging of teachers and state employees, our committee added more employee voices to the proposal we voted out last week. The 15-member Task Force will be made up of six employee representatives, six legislators (three House, three Senate), two commissioners from the Administration, and the director of the Retirement Division from the State Treasurer’s Office. Every option will be on the table, from plan reforms to new revenue sources and alternative plan designs.
If Vermont is going to continue to provide a defined benefit pension that is attractive to educators and state workers, and that younger workers can count on, we have to invest more and make structural changes to the plans. This is a hard year to have these conversations, but the funding that is available now to help Vermont tackle this pension crisis is an opportunity we cannot afford to waste.
H.449 will improve the governance of our pension funds and empower the Pension Task Force to engage with Vermonters and the unions representing our public sector workers so that the legislature can set our public retirement systems on a sustainable path in this biennium. If we succeed in this difficult work, Vermonters and the teachers and state workers who serve them will benefit for generations.