Iowa state Treasurer Michael L. Fitzgerald might favor establishing an optional state defined contribution plan if pending legislation is enacted to raise contributions and lower benefits of the $20.16 billion Iowa Public Employees' Retirement System and other state retirement systems, he said.
Mr. Fitzgerald, a trustee of both IPERS and the $350 million Iowa Public Safety Peace Officers Retirement System, which is also included in the bill, said he dissented when the IPERS board voted to endorse the legislative proposal.
“We are reacting too quickly to shore up the funding of the system,” he said.
“The system is solid right now. We were 95% funded before the market collapse. The market came back very strongly last year and it could come back strongly this year. If it does, that means we overreacted and raised the cost to taxpayers,” he added.
“Right now, in hard economic times, I'd say to "no' to asking taxpayers” and system participants to pay for a rise in contributions, he said.
Under terms of the bill, the contribution rate would rise to 13.45% from 11.95% starting next year and could rise one percentage point annually thereafter. Employers generally pay 60% of the contributions and employees, 40%.
Also, the bill raises the limit on annual contribution rate increases to one percentage point from half a point.
But no limit on the total contribution rate is in the bill, designed with the goal to help bring the system back to full funding, although IPERS has to go through a legislative approval process to change it, according to Julie Economaki, IPERS spokeswoman.
If the legislation is enacted, Mr. Fitzgerald said he would consider having a bill introduced to create a voluntary defined contribution plan, allowing participants to choose between having contributions go into the new plan with immediate vesting or to the existing defined benefit plan.