INDIANAPOLIS (WISH) – A proposal that could begin eliminating Indiana’s traditional public pension plan has passed its first hurdle at the Statehouse.
The proposed changes follow a series of I-Team 8 reports in early 2014 that exposed serious concerns about the Indiana Public Retirement System (INPRS) paying some annuity benefits at nearly double the rates offered on the private market. That caused the current pension system to pay out $143 million more in 2013 than it took in.
At the time, I-Team 8 found calls to privatize the system would also have drastically reduced the value of some public employee’s annuity savings accounts by as much as 25 to 30 percent, unless they chose to retire prior to the planned switchover. Legislators finally agreed on a compromise late in their 2014 session that will step down INPRS rates to 5.75 percent in 2015. Further rate cuts will take effect in coming years, tied to market rate fluctuations.
To prevent future losses, Rep. Woody Burton (R-Whiteland) proposed phasing out the state’s current pension system, known as a defined benefit system, by requiring any new public employees, including teachers, to enroll in a “401k-style” plan instead. In that system, known as a defined contribution system, employees would contribute to their own retirement accounts, as most private sector employees now do.
That plan would eventually end defined benefit “traditional” public pensions through attrition.
But, state and local labor unions vocally opposed that plan, Burton told I-Team 8. So, he proposed a compromise to make the defined contribution program optional. The changes were introduced as House Bill 1481 went before the House Employment, Labor and Pensions Committee. The bill now also includes additional incentives designed to entice employee participation.
“We need to raise the ante a bit,” Burton told I-Team 8 last month. “So, for every dollar an employee puts in, they can get two dollars back on return on the investment up to 7.5 percent of their income. And, that’s very attractive.”
That plan was not without dissent as it passed 6 to 3 through the committee, but Burton said language that sparked criticism in the bill has been ironed out. The measure passed the House Ways and Means Committee by a 21 to 0 vote Wednesday. A final vote on the House floor is expected next week.