After a bruising showdown between Democratic lawmakers and the state’s largest public-sector unions last year over the state’s growing pension shortfall ended in a stalemate, the Senate on Thursday unanimously advanced a compromise bill brokered with labor leaders.
S.286 would enact into law a set of recommendations put forward by a special task force composed of lawmakers and representatives from the state employees and teachers unions. Both sides will pay in more, but the deal is ultimately expected to cut the state’s future debts by about $1.7 billion, according to the treasurer’s office.
“This is a major win for Vermont public employees and for Vermont taxpayers. This is also a result that many thought impossible,” Senate President Pro Tempore Becca Balint, D-Windham, said in a statement released shortly after the chamber adjourned. “The bill the Senate voted on today will protect the public pension system and will save Vermonters millions and millions of dollars over the coming years.”
The state’s pension debts have weighed the Legislature down for years, eating up ever-growing shares of the General Fund. But the debate took on added urgency in January of 2021, when State Treasurer Beth Pearce proposed a series of benefit cuts after a reevaluation projected liabilities had grown by some $600 million.
The problem is in part the Legislature’s doing. Budget writers underfunded the state’s obligations for decades up until 2007. But aging demographics and anemic investment returns also seriously compounded the problem. House lawmakers last year put forward their own proposal, which reflected many of Pearce’s suggestions, but shelved it quickly amid backlash. Instead, they created a task force to find an alternative.
The panel nearly failed to strike a deal, with both parties still deeply far apart with just weeks to go before the Legislature was set to reconvene. Balint, the Senate leader, ultimately dispatched Senate Appropriations chair Jane Kitchel, D-Caledonia, to intervene and find a middle path. It worked.
“My apologies to Sen. Kitchel for the fact that during December, she had ‘ADEC’ ‘VSRS’ ‘VSTRS’ dancing in her head rather than the sugar plum fairies that shouldn’t have been there,” Sen. Jeanette White, D-Windham, the task force’s co-chair, told colleagues on the Senate floor Thursday, referring to acronyms for Vermont’s pension systems and the state’s annual contribution to them.
The deal that came out of the task force asks more of both the state and employees. Workers are agreeing to gradually increase their contributions. After the multi-year phase-in is done, teachers will be collectively paying in $10 million more each year, and state employees will be paying in $14 million extra.
The state is not creating new taxes — including on the wealthy, as unions had suggested — to more aggressively pay down the system’s debts. But S.286 would commit the state to making an extra $200 million one-time contribution to the system. The teachers’ pension, which was the most badly underfunded, would get $125 million. State employees would get $75 million.
That one-time contribution will yield compounded interest over time, and the bill also promises to re-invest those savings in order to pay off the pension’s debts more quickly. The bill also commits 50% of any future General Fund surpluses to the pension system.
Gov. Phil Scott has assiduously kept clear of pension talks since the start, arguing that lawmakers should take the lead on finding a solution. Mike Pieciak, commissioner of the Vermont Department of Financial Regulation, participated in the task force and voted for its recommendations, but made clear his endorsement did not speak for the governor.
In mid-March, the day after S.286 was formally introduced, Finance Commissioner Adam Greshin wrote to lawmakers to ask that two changes be made to the bill.
Scott would like employees to be offered the option to enter into 401(k)-style defined contribution retirement plans, Greshin said, instead of the pension plan. And Scott would like the pension to adopt a risk-sharing model in which employees pay in more (or less) depending on the retirement system’s investment returns.
“If structural change is not more robustly incorporated in this bill, we will find ourselves returning to this topic in future years,” Greshin wrote.
An amendment to S.286 submitted by Senate Minority Leader Randy Brock, R-Franklin, would have changed the bill to allow employees to choose a defined contribution plan instead of paying into the pension.
“Today we have a much more global workforce. People don’t expect to stay in the same company or the same governmental office, typically for the next 20 or 30 years. And also, so many people — particularly younger people — want to have a choice,” he told his colleagues on the Senate floor Thursday.
Brock’s amendment failed on a voice vote, although Republicans appeared to back it. (Individual votes are not recorded during voice votes.) When the unchanged bill subsequently came up for a vote, all Republicans present voted in favor, and the measure passed on a 28-0 vote.
Brock’s proposal is opposed by Pearce, who has long argued Vermont should steer clear of defined contribution plans. Doing so “would not address the unfunded liability, would undermine retirement security for our public employees, and at the same time, is a less cost-effective mechanism for providing retirement services,” she wrote in a statement.
Pearce also said that while S.286 would ultimately save the state less than the recommendations she put forward over a year ago, she supported it.
“I believe it represents a step forward and commend both the task force and the General Assembly for moving on the issue,” she said.
It’s unclear how forcefully the Republican governor — who has not been shy about vetoing bills sent his way by the Democrat-controlled legislature — will press his point.
“It’s too early in the process to threaten a veto, as it hasn’t even moved to the other body yet, but the Governor has consistently said his support for reform will require meaningful structural changes,” Jason Maulucci, Scott’s press secretary, wrote in a statement. “The bill as drafted, though it takes some positive steps, just kicks the can down the road, and we would be in this same position in the not too distant future.”
S.286 is scheduled for a final vote in the Senate on Friday, and would then head to the House, where it is not expected to meet much resistance. That chamber’s leadership has already endorsed the task force recommendations that served as a blueprint for the bill.
“We know the House shares our goals on this bill. Now is the time for Governor Scott to show his support for public employees and get on board with the agreement we’ve all worked hard to reach,” Balint said in a statement.
