Vermont lawmakers are pushing a plan to reduce a widening shortfall in the state's retirement systems by asking teachers and state employees to pay more into their pension plans and work more years.
During a March 24 meeting, the Vermont House Government Operations Committee proposed teachers base contribution rates be raised by 1.25% to 2.25% and that most state employees be increased by 1.1%, according to a proposal posted on the Vermont General Assembly website.
The proposal also bumps up the age at which most workers can qualify for retirement benefits, requiring them to reach full Social Security retirement age, which is currently 66 or 67. Some groups of teachers and state employees can now retire as early as 62 or with 30 years of service.
In addition, employees will receive a lower overall benefit as it would be based on the average of their seven highest consecutive years of salary rather than the three highest as is now the case, according to the proposal.
The Vermont House Government Operations Committee estimated that the $2.3 billion Vermont State Teachers' Retirement System had an unfunded liability of $1.93 billion as of June, the close of its fiscal year, while the $2.2 billion Vermont State Employees' Retirement System had an unfunded liability of $1.04 billion. The funded ratios for the teachers' and state employees' pension plans were 51.3% and 66.4%, respectively, according to projections in the proposal.
Neither VSTRS spokesman Joe Mackey nor VSERS spokesman Robert Hooper immediately responded to a request for comment.
The unfunded liability amounts as well as employer contributions defined in the proposal as "actuarial determined employer contributions," or ADEC, are projected to increase significantly for both retirement systems, the lawmakers warned in the proposal.
The unfunded liability and ADEC payment for the Vermont State Employees' Retirement System is expected to increase by $225 million and $36 million, respectively, in the fiscal year ended June 30, 2022. For the Vermont State Teachers' Retirement System, the unfunded liability would rise by $379 million and the ADCE by $60.6 million, according to the proposal.
"The costs for dealing with pension liabilities are likely to escalate further in future years and create increasing pressure on budgets," the committee said in the proposal. "The time to make the necessary changes to put the state on a stronger path toward resolving these issues in future years is now."
The proposal would not apply to existing retirees and active employees who are within five years of current normal retirement eligibility.
In addition, the lawmakers in a separate proposal called for the overhaul of the Vermont Pension Investment Committee, a seven-member committee that makes and manages investments for three separate pension systems for teachers, state employees and municipal workers collectively known as the $5.3 billion Vermont State Retirement Systems. The proposal would replace VPIC with a new 15 member Vermont Retirement Commission, which would include the State Treasurer, the Commissioner of Finance and Management and two gubernatorial appointees with investment, financial or actuarial experience.
VPIC Chief Investment Officer Eric Henry said the committee has not yet formed an opinion on the governance change proposal.
One of the objectives of the proposed governance changes is to "increase the level of professional expertise and range of perspectives represented at the decision-making table," the lawmakers said in the proposal.