Governor-elect must decide on pension funding

MONTPELIER — State Treasurer Beth Pearce has released the amount of money the state should set aside in next year’s budget for pension funds, leaving the winner of next Tuesday’s gubernatorial election to decide whether the state will provide 100 percent in their first recommended state budget.

Pearce said the actuaries have recommended the state contribute $52,065,396 into the state employees’ pension fund. That amount would cover annual contributions and continue on a course to have the state employees’ pension system retire all of its unfunded liabilities by 2038.pension

The payment in the pension, known as the actuarially required contribution, or ARC, was calculated by the state’s actuary, Buck Consultants, according to Pearce. She said the firm reviews census information to determine how much should be set aside. Last year, Gov. Peter Shumlin and lawmakers agreed to fully fund the ARC at $48.5 million.

“There is an expectation that it will go up over the years, at least the years out to about 2022 … and then start to lower over time,” Pearce said.

Not all of the $52 million recommended ARC payment will come from the state’s general fund. Pearce said she expects the state will need to contribute between 36 percent and 40 percent of that number from the general fund.

The teachers’ retirement system, the second major pension fund in which the state carries liability, will cost the state $88,408,437, in the 2018 fiscal year, according to Pearce. That’s up from $82.6 million in the current budget.

Last year about $3.7 million was paid by local school districts in federal funding for employees working under federal grants. It is not yet clear how much federal funding will be contributed in 2018, Pearce said.

Treasurer Beth Pearce

Treasurer Beth Pearce

“We have not calculated that as of this time, but I would assume it would be similar to that or slightly higher,” she said.

Pearce said the state is making up for a period of time in the past several decades when the state did not fund the ARC at 100 percent.

“Sometimes you’d be paying around 80 percent of the actuarial recommended contribution, and at one point as low as 38 percent of what the actuary recommended,” she said.

By not fully funding the ARC in the past, the state must now make up for lost investment gains that would have required less taxpayer funding now and in the future. Democratic Gov. Peter Shumlin, who is not seeking re-election, has included 100 percent funding for the ARC during his six-year tenure.

“You can’t earn investment return on those dollars and as a consequence it will cost taxpayers more over time. The decision to fully fund the ARC made by the Legislature and the administration is something that shows more financial discipline,” Pearce said. “I think we’ve seen a commitment by both the administration and the General Assembly to do that. That’s a good thing. That’s something the ratings agencies look at, the pension liabilities.”

Shumlin spokesman Scott Coriell said the administration will not include a recommendation in the budget it will hand off to the winner of the gubernatorial election. The administration is putting together a framework for funding state programs laid out in statute, he said.

“It’s up to the incoming administration to make the decisions and choices about what to fund or cut,” he said. “Come Jan. 9, we won’t be here anymore.”

“Every year the governor has proposed fully funding the pension funds but the decision about what to do is up to the next governor,” Coriell added.

Democratic gubernatorial nominee Sue Minter and Republican nominee Phil Scott are locked in a tight race to succeed Shumlin. One of them will need to submit a budget to the Legislature in January that sets the funding level for the two pensions.

Scott’s campaign did not directly address whether he would look to fully fund the ARC. The campaign released a statement Thursday saying that “providing a reasonable retirement plan to public servants is part of being a good employer.” He suggested the state revamp its retirement plans for new employees away from a defined benefits plan to a defined contribution plan.

“In a defined contribution plan, the State matches employee contributions up to a certain amount, which will help to limit the State’s liability over time and provide the employee with tax-preferred retirement fund,” Scott said in a statement. “For existing State employees and teachers, the State must honor the agreements it has already made. I do not think it is fair to ask employees to renegotiate the terms of employment agreements that were made years ago.”

Scott also said poor returns on investments and high fees “have contributed to the unfunded liability.” He said the state must “look closely at how it invests its funds” and move away from high-cost fund management “to more stable, lower-cost index funds.”

Elliott Bent, spokesman for Minter, said the Minter campaign could not yet respond.


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