INDIANAPOLIS (WISH) – Plans to privatize part of Indiana’s public retirement system are off the table after an eleventh hour compromise at the Statehouse that has both public employees and taxpayer advocates declaring victory.
Last month, I-Team 8 exposed the risks behind a plan that would have cut Indiana’s guaranteed annuity rate payouts to public employees by nearly half. For nearly a decade, Indiana’s Public Retirement System (INPRS) has been paying annuity benefits out at 7.5 percent. But, private market rates have hovered closer to 4 percent over the last few years, meaning the state is only making about 60 percent of its investment back on the open market.
Taxpayers have been left on the hook to make up the difference, racking up $143 million in unfunded liabilities so far. In a letter to lawmakers late last year, INPRS board members warned that the figure would balloon to $343 million unless the system was privatized at market rates on October 1.
In January, INPRS began seeking bids from outside companies to manage the system.
But, last month, I-Team 8 found privatization would also have drastically reduced the value of some public employee’s annuity savings accounts by as much as 25-30 percent, unless they chose to retire prior to the planned switchover on October 1.
Legislators scrambled to search for another solution.
After weeks of negotiations and changes, House Bill 1075 was the final bill called for a final vote before the House adjourned for the year Thursday night.
It makes several changes to the proposed plan:
- Starting October 1, 2014, INPRS annuity payout rate, currently 7.5 percent will be cut to 5.75 percent. That will result in slightly lower payments to workers, but will also drastically reduce the risk to taxpayers
- Starting October 1, 2015 INPRS annuity payout rate will go down again to either 4.5 percent or to the prevailing private market rate, whichever is higher
- The deal also prevents INPRS from privatizing annuities prior to January 1, 2017
The deal is designed to give public workers additional time before they make the call on when they retire. It would not affect public pensions, only annuities.
“We all knew going into the session that the 7.5 percent was never going to be maintained,” the Indiana State Teachers Association wrote in a blog post following Thursday night’s vote. “The goal was to get the best rate possible for as long as possible. The enacted version gives some degree of breathing room for those most on the bubble to retirement. Most importantly, the uncertainty over the terms for the immediate future is now over, and if interest rates rise in the longer run, so too with the monthly annuity benefit payment rise.”
The measure now moves to Governor Mike Pence’s desk where he can sign it, veto it, or do nothing and allow it to become law.