by Rep. Scott Beck
For many decades there has been significant distrust of government. The 1960s and 70s, and the Vietnam War and Watergate turned the tide of public sentiment from which it has never regained its footing. There is no point in placing blame, said events are too far in the rearview mirror and those policymakers are no longer in positions of power.
Government can only influence public sentiment going forward in an attempt to reverse this unfortunate situation. At the top of the pyramid of actions government can take to restore the public’s trust is accountability.
Currently, mismanagement and a change in accounting rules share equally in having caused a $5.7B unfunded liability in Vermont’s Teacher and State Employee retirement systems. Vermont has attempted to eliminate this unfunded liability for over a decade, but instead it has grown from $1B to $5.7B in just the last 13 years.
On Wednesday, a proposal to repair the Vermont Teacher and State Employee defined benefit retirement systems was introduced in the Vermont House of Representatives. The proposal is detailed and contemplates significant, some would say draconian changes to retirement benefits promised to educators and state employees that have foregone private retirement savings and investment. Educators and state employees have dutifully paid every contribution required of them since the formation of the defined benefit pension funds, every cent.
The proposal reduces the State’s annual required commitment (ADEC) to retire the unfunded liability by $80.4M. It does this by decreasing the benefits of educators and state employees more than 5 years from retirement by $520M. It also increases the employee contribution amount by as much as 2.25%, part of the increase to help with the unfunded liability and part to address the increased normal cost paid by employees based on demographic shifts, average final compensation, and expected fund investment return.
When Vermont decided to create a defined benefit system and require state employees and educators to join, it assumed all risk associated with these plans. Vermont chose not to manage that risk correctly and it now has an unfunded liability of $5.7B.
The State is 100% responsible for the $5.7B unfunded pension liability, this is where accountability lies. The State needs to own it and come up w a plan to address it. Employees are 100% responsible for the normal cost that supports the benefits they will enjoy. Employee contribution rates will need to increase by about one percent to modernize the normal cost contribution, which supports the increased cost of guaranteed benefits.