[V]ermont’s retirement funds are in good shape, but there is room to improve the system, according to the state treasurer.
An annual actuarial report this week recommended that the state earmark $48.5 million for the state employee retirement fund in the fiscal year 2017 budget. That is a $2 million increase over the previous year.
The report also recommended paying $82.7 million for the teacher’s retirement fund in FY 2017 — an increase of $6.5 million over the previous fiscal year.
The boards of trustees that oversee the two funds voted to adopt the recommendations and pass them along to Gov. Peter Shumlin for consideration in the creation of the next year’s budget.
But Pearce is hoping to work with the Legislature and the administration to retool the system so that the state pays down the liability sooner, a process she likened to restructuring a mortgage.
“I would like to see us make some changes to the funding schedule so that we pay it down at a faster rate,” Pearce said.
According to Thursday’s reports, the state’s assets currently meet 75.1 percent of the total obligation to the state employees’ retirement system. For the teachers’ fund, the state has 58.6 percent of the total need.
Pearce met with lawmakers last month to begin discussions of how the system might change.
Under the current schedule, the unfunded liability for the state employees’ and teachers’ retirement funds will continue to grow until 2022. After that, the ratio is expected to improve. Under statute, the liability is due to be paid off in 2038.
Pearce met with lawmakers last month to begin discussions of how the system might change.
Pearce would like to see the state take action so that the turning point occurs sooner than 2022.
“It’s a win-win,” Pearce said. “You’re improving the financial position of the plans at the same time lowering the overall interest cost to the taxpayer.”
Over the past five years, the state has made several changes to the systems. In 2014, the state reorganized the teachers’ retirement fund so that health care expenses are handled from their own fund.
Outgoing Finance and Management Commissioner Jim Reardon hailed the actuarial report on the state employee retirement system as a “pleasant surprise.” Reardon said the $2 million increase for the FY 2017 budget is a reasonable uptick for what he considers to be an essential expense.
“It’s very short-sighted and near-term thinking to not fully fund your annual required contributions,” Reardon said.
The long-time state finance chief, who leaves office this week, is committed to fulfilling the increased required payment to the state pension fund, despite a budget gap that is likely to be significant.
Earlier this month, the legislative Joint Fiscal Office predicted that the budget gap for fiscal year 2017 could ring in at $100 million or more. That projection is largely driven by Medicaid running over budget, with the state expected to shoulder as much as $70 million of the tab.
Reardon said that the costs of human services are “crowding out the needs across the rest of state government.”
“I’m of the viewpoint that you can’t allow one section of the state’s budget to override or crowd out the demands and needs on the rest of the state budget,” Reardon said.
