Tennessee Treasurer David H. Lillard Jr., is proposing closing the state's defined benefit pension plan to new employees on June 30, 2014, and creating a new hybrid plan.
The new plan, which would be effective for new hires on or after July 1, 2014, would contain a defined benefit plan component that would require a 5% employee contribution. The state would target a 4% employer contribution, according to a plan summary on Mr. Lillard's website.
The defined contribution component would require a separate 5% employer contribution and a 2% employee contribution, with an opt-out feature.
Currently, state and higher education employees make no contributions, while elementary and high school teachers contribute 5% of salary. Employer contributions range from 15.03% for state and higher education employees to 8.88% for elementary and high school teachers.
The $36.3 billion Tennessee Consolidated Retirement System, Nashville, is well funded, said Mr. Lillard in a news release, but “it is important to take a long view when trying to anticipate what a retirement plan's future costs will be. Based on the actuarial projections and other information my staff and I have studied, we believe changes are needed now to protect taxpayers, employees and retirees in the future.”
“In 2003, state taxpayers were spending about $264 million annually to support the pension system,” Mr. Lillard said in the release. “That number had grown to $731 million last year. Based on projections we have seen, the cost could go up by one-third or more over the next 10 years if changes aren't made, which would push the taxpayers' total annual expense above $1 billion.”
Mr. Lillard had “good discussions” with the Tennessee General Assembly's Council on Pensions and Insurance on Monday regarding potential legislation, according to Blake Fontenay, Mr. Lillard's spokesman, and the council will continue to discuss the proposal.
As of July 1, 2011, Tennessee Consolidated had assets of $36.68 billion and actuarial accrued liabilities of $40.069 billion, for a funding ratio of 91.54%, according to the retirement system's most recent comprehensive annual report.