By Guy Page
Gov. Phil Scott’s demand that pension reform include either a defined benefit or a defined contribution for new employees is “poison pill language,” the state employees’ union said in its April 15 newsletter.
Senate bill S286 was the result of a compromise deal reached by the Pension Benefits, Design, and Funding Task Force, following many years of failing to reach any significant agreements. Now the governor is trying to change the terms of the deal at the eleventh hour, the Vermont State Employee Association (VSEA) said.
“The Governor failed to propose these changes during five months of Task Force’s meetings,” the VSEA said. “Now, at the very last minute, the Governor is threatening the entire deal by demanding that the agreement be reopened, so the State can make major changes to the hard-earned, unanimously backed compromise.”
According to the Vermont State Employee Association newsletter, Scott last week wrote the following letter to the Pension Benefits and Design Task Force: “….we can support the reforms in S.286, An act relating to amending various public pension and other post employment benefits, with the addition of language that would allow for all new employees – regardless of classified or exempt status – to have a choice between a defined contribution or defined benefit plan and/or the inclusion of risk sharing provisions.”
Scott’s letter is a thinly-veiled threat to veto S286 unless changes are made. As followers of Elon Musk’s attempted takeover of Twitter know, ‘Poison pill’ is negotations slang for a proposal meant to kill a deal that’s on the table.
Scott’s request attempts to address the core problem of the government pension funds’ unfunded liability, which this year totals just under $6 billion: contributions not matching revenues needed for benefits.
For decades, state and school employee pension plans have featured both a defined contribution (a defined, or specific dollar amount to be contributed by employees) – and a defined benefit (a defined, or specific dollar amount to be provided in pension payments). Proceeds from contributions plus investment income have not matched pension benefits, incurring a shortfall.
According to a statement issued March 31 by the Senate Pro Tem’s office, there is over a $3 billion deficit in the state’s public employee retirement fund. The state’s unfunded liabilities for healthcare benefits for retired state employees and teachers alone is $2.75 billion.
The Senate pension bill:
- Makes no changes to the benefits of current retirees and beneficiaries.
- Invests $200 million in one-time funds toward unfunded pension liabilities and commits the state to ongoing additional payments.
- Phases in higher employee contribution rates for active members and modifies the Cost-of-Living-Adjustment (COLA) formula for all employee groups.