MONTPELIER — Those concerned the state hasn’t gone far enough to address $4.5 billion in unfunded pension and retiree health care liabilities hope they’ll find traction this year with the Legislature.
Earlier this week, the Vermont Business Roundtable released a report, readable online at bit.ly/0118pension, offering options lawmakers can pursue that the group believes will put Vermont’s teachers, state employees, retired state employees, as well as taxpayers, in a better position to weather an economic downturn.
With the report’s release, the Roundtable also held a news conference at the State House. It was lightly attended, and while some of that likely had to do with other goings-on, pension and health care obligations haven’t been a hot topic around the Capitol building, according to Lisa Ventriss, president of the group.
“Nevertheless, it’s gotten to the point where our state’s net worth is now in a negative posture, our bond rating has been reduced and the liabilities keep growing, so we simply cannot do nothing. We can’t adopt that policy option. We have to do something, and we think we’ve got some good recommendations that will benefit not just future beneficiaries of the plans but taxpayers, as well,” said Ventriss.
The report offers five recommendations. One is start conducting annual “stress tests” of the pension system that would look at how the funds perform during hard economic times. Other initiatives include: improving governance and transparency; exploring cost-sharing policies; creating a defined contribution, hybrid or other plans for new public employees; and developing an amortization plan for retiree health care plans.
“We put them all out there because I think at the end of the day all of those, or a variation, should be done, but I think the one that needs to be done first this year is the stress test for all of the retirement plans,” said David Coates, retired managing partner at KPMG, who worked on the report. “It’s a test that determines whether the state can pay the obligations in the future.”
Coates said risk assessment done by the Vermont state treasurer doesn’t go far enough.
According to Ventriss, only one legislator attended the news conference. That was Rep. Cynthia Browning, D-Arlington, who said, in response to the briefing, she had decided to draft a bill calling for the implementation of a stress test.
Browning said last session, she and Rep. Linda Joy Sullivan, D-Dorset, introduced two bills dealing with the pension issue that went nowhere. One, according to a memo she shared with the Rutland Herald, was H.649 that would “change the division of the cost of the Actuarially Determined Contribution between the state and the employees and teachers in terms of the pensions.” The other, H.447, “imposes a tax of 1% on the retirement allowance of retired state employees and teachers and a tax of 1% on premiums paid for any retiree who received post-employment benefits but does not receive a retirement allowance.” Funds from the tax would have gone toward paying down the unfunded liability.
Ventriss said the subject matter is quite dense and difficult to follow for people who don’t track financial matters. The numbers also are quite intimidating, “but this is also a topic that wades into sacred cow territory, as well, because these are benefit programs that have been in place for a very long time and people don’t want to change,” she said. “Change is hard for people, and so I think that could be another reason, as well.”
The Roundtable plans to continue to push lawmakers for action, and to make a case to the public.
“We’re kind of like a bug flying around, and we’re going to hit a windshield, and that windshield is going to be an economic event that’s outside of anybody’s control,” said Roundtable member, John Pelletier, director of The Center for Financial Literacy at Champlain College. “It will either be a recession that’s going to dramatically reduce tax revenue, as it always does in the state because we’re so heavily dependent on income taxes, or it’s going to be a dramatic market break.”
Not all parties agree with the Roundtable’s outlook.
“After an initial review, I was surprised to see a lack of acknowledgment of the numerous steps this office has taken over the last 15 years to help address the funding challenges presented in the report,” wrote State Treasurer Beth Pearce in an email. She said her office’s annual report, readable at bit.ly/0117Annual, outlines what’s been done by her office.
“Collectively, these actions, since 2005, are estimated to save $1.5 billion in costs associated with pension and (other post employment benefits) liabilities over time. Included in these actions were increases to employer contributions for both state employees and teachers, as well as benefit changes which increased the retirement age for newer employees,” Pearce wrote.
Darren Allen, communications director for the Vermont-NEA, the state’s teachers’ union, said Friday the steps the state has taken on this are adequate.
“We fundamentally disagree with the annual gnashing of teeth that the Vermont Business Roundtable has over the pension,” he said. “The pensions are serious, the underfunding as we know, and have known, was mostly the result of the state shirking its responsibility for almost a decade, and policy makers have acknowledged that.”
Allen said the Vermont-NEA believes the Roundtable would like to see the pension system replaced with something more like a 401k plan.
“We look at this, and we see these same people have been saying the same thing, and it’s clear to us their agenda is to dismantle the defined benefit program that’s been in place for decades, and it’s disheartening, but not surprising,” he said.
He said the stress test the Roundtable is calling for is a “red herring.”
“There is a group of anti-public pension think tanks that peddle these so-called ‘stress tests,’” said Allen. “We trust the treasurer; we trust the trustees of the retirement system; we trust the Joint Fiscal Office; we trust the administration; we trust folks who look at these things who give a real picture of where we are.”
Ventriss said the Roundtable has been talking about this since at least 2008, and its members understand getting lawmakers to move will be a slow process.
“It’s the second year of a biennium, everybody is going to want to get out early and campaign for re-election, so this year might be, again, an education year. But if we can begin peeling off some of these recommendations and get some legislative champions and some community stakeholders who are interested in advancing these options, then that would be a win,” she said.