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Pearce plan cuts pension shortfall, keeps defined benefits – but it’s not pain-free

Guy Page

By Guy Page

Recommendations proposed by State Treasurer Beth Pearce would, if successfully enacted, reduce the pension fund shortfall and maintain defined benefits, she said in a January 15 report.

Beth Pearce

However, the retirement payout for current employees would likely be smaller, while the shortfall would be reduced by “only” $2.2 billion. The entire pension fund shortfall is $2.9 billion. 

Pearce made the recommendations as the Scott administration waits for the results of a pension fund “stress test” now underway by the Pew Charitable Trust’s Public Sector Retirement Systems Project. Pew’s involvement is looked on with suspicion by the Vermont State Employees Association, who note the think-tank’s bias towards defined contributions but not defined benefits. In other words, employees know how much for retirement is being deducted from their paycheck, but the actual payout would not be guaranteed. 

Pearce’s recommendations would:

  1. Maintain a defined benefit system for all current employees and retirees. 
  2. Benefit changes would not affect current retirees, only current employees. 
  3. Continue employee contributions as set by actuaries. 
  4. Reduce cost of living increases for active employees upon retirement, increase employee contributions, and/or increase age/years worked requirements for pension eligibility.
  5. Spend federal pandemic economic recovery funds, if available, on pensions and reducing the pension shortfall.

Pearce doesn’t sugar-coat the pain: “The implementation of these proposals will significantly reduce benefits and increase employee contributions. From a risk sharing perspective, employees are taking on a substantially greater portion of the actuarial losses.”

The decision to accept any of these proposals is up to the state pension investment boards, and to the Legislature. 

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