Retirement Bills Advance

Post date: Mar 1, 2011 4:37:19 AM

House Retirement Bills Pass Out of Committee

House Bills 1002, 1007 and 1011 all recently passed out of the House Economic Development committee and are headed to a vote on the House floor. While all of the house bills will preserve the defined benefit system for school employees, they will eliminate automatic cost of living increases, some calling for no increase until the system is fully funded, which is unlikely to occur for decades, if ever. Currently, educators generally receive a 2 percent COLA, compared to 4 percent for public employees.

The retirement house bills will:

  • Eliminate your already reduced cost of living increase unless the legislature specifically allocated $120 million to $170 million in a given year to fund it.
  • Diminish your spending power overtime.

SB 892 Creates Hybrid Retirement System for New Teachers

SB 892 just passed out of the Senate Retirement committee. SB 892 would create a hybrid defined benefit/contribution system for new teachers.

  • Forces new teachers to make a permanent one-time choice between a defined-benefit pension plan or a defined-contribution 401(k)-type plan.
  • For new teachers choosing a defined-benefit pension plan, changes the retirement calculations to reduce the retirement checks from the current levels, reducing the retirement factor from years of service*final average salary*2 % to become years of service*final average salary*1.5%.
  • Increases retirement age for new teachers and no provision for trading 120 days of sick leave for a year of service.
  • Could reduce employer contributions and caps their contribution. Currently, school employees contribute 7 percent of their salary to retirement, while a district contributes 9.5 percent. The bill would allow employers to pay “up to” 10 percent.

SB 892 is modeled after the hybrid approach Utah chose to take last year to limit taxpayers’ liability and keep money flowing into the old plan. New teachers would be able to choose either a traditional pension plan or a 401(k)-type plan, with the district contributing up to 10 percent of an employee’s salary to whichever plan a teacher chooses. But there is an important twist: the district will never pay more than 10 percent of a new employee’s salary to the pension plan. If the plan becomes too underfunded, employees who have joined the plan will have to pay a percentage of their paycheck to help eliminate the shortfall.

Switching workers to 401(k)-type plans can make the underfunding problem for existing pension plans even worse. As contributions move to individual investment accounts, less money goes into the traditional plan to help finance pensions promised to other workers.