Updated at 6:41 p.m.
To make up for the state pension system’s growing shortfall, Vermont educators and state employees should work longer, contribute more and benefit less. That’s according to a long-awaited legislative proposal unveiled Wednesday in the House Government Operations committee.
In many ways, the lawmakers’ pitch largely mirrors recommendations that state Treasurer Beth Pearce made in January, asking employees to shoulder the bulk of the system’s expanding unfunded liability. The proposed changes would not apply to existing retirees or employees within 5 years of retirement.
Between trimming benefits and asking for higher contributions, the plan would cost school workers a cumulative $300 million. For state employees, the cost would be about $200 million. Legislators are offering to pay in more state dollars, too: an extra $150 million one-time contribution.
As she introduced the plan Wednesday morning, Rep. Sarah Copeland Hanzas, D-Bradford, acknowledged that the proposal was sure to spark fierce pushback from employees “in the context of promises made.” But the status quo also places the state government on the hook for a bill that balloons unpredictably each year, she argued.
“From the standpoint of the General Assembly, whose job it is to pay (an annual contribution), I would say that we didn’t realize that we would have to pay (a cost) that increases by $36 (million) or $60 million in a year,” said Copeland Hanzas, who chairs the government operations committee. “Nobody likes the situation that we’re in.”
That includes the Vermont-National Education Association, the state teachers’ union, which quickly panned the proposal.
“The Speaker seems to prefer taking money out of the pockets of teachers rather than ask the most fortunate among us to pay more,” Vermont NEA president Don Tinney said in a written statement. “This is a particularly cruel way to thank teachers for their hard work supporting students during a pandemic.”
Labor unions had been warily anticipating the plan, which was drawn up behind closed doors in recent weeks by a group of legislative leaders convened by House Speaker Jill Krowinski, D-Burlington.
The proposal still must win the approval of the full House, Senate and Gov. Phil Scott before becoming law — a challenge given that the legislative session is already more than halfway over. But Legislative leaders have made clear they intend to pass pension reform this session, despite the union’s pleas that they take their time and study the matter over the summer.
Speaking to her colleagues in the government operations committee Wednesday, Rep. Tanya Vyhovsky, P/D-Essex, urged lawmakers to consider taking it slow.
“We’re asking people to work longer, pay more, get less. We’re going to pay more,” she said. “It just feels like a lot, really quickly.”
But Vyhovsky’s appeal for a lengthier, more deliberative process gained little traction with fellow committee members.
“I think what I’ve been hearing through all this is this situation is not going to get better on its own, and waiting is not going to help the unfunded amount get smaller,” said Rep. Michael Mrowicki, D-Putney.
Retirees currently receive an annual cost-of-living adjustment on their full pension benefit, tied to the Consumer Price Index. For most members, the adjustment has a 1% minimum and 5% maximum, which applies once a retiree starts collecting benefits.
The House proposal would preserve the cost-of-living adjustment but apply it only to the first $24,000 of a retiree’s benefit. There would not be a 1% minimum, but the 5% maximum would stay. Adjustments would not apply until a retiree turned 67 (or 60 for law enforcement).
Payroll deductions for pensions would increase for all employees. But the House plan also introduces a new “employee risk-sharing contribution” that would kick in when the pension plan’s investment returns fell short of expectations. These “risk-sharing” contributions would be higher for employees with higher salaries.
The retirement age would also generally increase, and for most employees would be pegged to eligibility for Social Security. In most cases, a retiree’s pension benefit is calculated using the three years at which they received their highest salary. That would change to the seven years during which they received their highest pay, reducing the average benefit.
Currently, employees must work five years before being eligible for normal retirement benefits. This plan would double that, and require 10 years of service.
Lawmakers are also contemplating reforming the pension system’s governance. Another proposal released earlier Wednesday morning in the committee would create a new 15-member commission to oversee the system.
Legislators are concerned that its current managers have not been vigilant enough about the fund’s returns consistently coming in below expectations. The new plan would require the commission to conduct “experience studies” every three years to keep better tabs on the pension’s performance. It would also require that all investment management fees be disclosed publicly.
Little in the House proposal is likely to please labor unions representing teachers and state employees, who have called on lawmakers to enact an income tax surcharge on the wealthy to pay down the system’s growing debts.
Steve Howard, the executive director of the Vermont State Employees’ Association, said he was still digesting the plan, and noted that the one-time, $150 million state contribution was welcome. But with Vermont awash in federal relief funds, he argued it also wasn’t a particularly difficult offering for lawmakers to make.
“If we’re going to be asked to do something we don’t like, what’s Phil Scott and the legislature going to be putting into this that they don’t like?” Howard said. “Because spending the federal government’s money is not a sacrifice.”
The government operations committee is expected to take testimony on the proposals into next week. It was scheduled to hold a public hearing on pensions Friday between 4 and 6 p.m., but mere hours after the proposal’s release, those attempting to register for a slot were already being told there was no more room. In his statement, Tinney slammed House leaders for allotting “only two hours on a Friday afternoon” to a subject with “serious financial implications for thousands of Vermonters.”
Within hours, House lawmakers had released another notice: a second public hearing would be scheduled for Monday as well. Members of the public can sign up here.
