CONTACT THE INDIANA PUBLIC RETIREMENT SYSTEM (INPRS), MEMBERS OF THE PENSION MANAGEMENT OVERSIGHT COMMISSION (PMOC), and YOUR OWN STATE SENATOR AND REPRESENTATIVE.
The Ball was in INPRS’ Court to Reverse Course on Privatizing TRF/PERF Annuity Savings Account Funds; INPRS Dropped the Ball Today.
Next Possible Decision Date: December 13, 2013.
Today, the Indiana Public Retirement System (INPRS) discussed the Pension Management Oversight Commission’s (PMOC’s) series of recommendations adopted unanimously this past Monday opposing the privatization of the ASA component of the Public Employees Retirement and Teachers Retirement Funds.
Specifically, PMOC’s recommendations were:
(1) The Commission considered the four proposals considered by the INPRS Board regarding the issuance of annuities to retirees for their ASAs. (NOTE: The four proposals were: (1) Do nothing; keep the rate at 7.5% and see in the long run if that is workable; (2) Keep the annuitization work in-house and reduce the discount rate from 7.5% to 6.75% to match INPRS’ new long-term rate of return assumption; (3) Keep the annuitization work in-house and have INPRS set an annual rate based on some market-principles; (4) privatize to a single outside vendor.)
(2) The Commission recommends that INPRS pursue an option that would keep the annuitization of ASAs in-house and to not proceed with a third- party contract. Instead INPRS should periodically establish an interest rate that will not create an unfunded liability in their managed funds.
(3) The Commission recommends the General Assembly not set a statutory interest rate at this time.
(4) The Commission recommends that the date to undertake these activities occur not earlier than October 1, 2014.
INPRS had representatives at each of the PMOC meetings in August, September, and October at which PMOC addressed the potential privatization of ASA fund annuities and ultimately unanimously opposed that course of action. Yet INPRS’ information today to the INPRS Board of Trustees reflected “confusion” as to PMOC’s intentions. There appeared to be an attempt to parse the wording of the recommendations to find leeway to keep working on the privatizing option. One INPRS Board of Trustee member did speak up and say that he didn’t believe that PMOC’s opposition to privatizing the ASA program was unclear at all.
At any rate, in response to the characterizations made today, the INPRS Board of Trustees has now deferred its decision to reconsider the privatization of member ASA funds until its next meeting, scheduled for December 13, 2013—and in the meantime, INPRS will continue to proceed with the implementation timeline for privatizing—preparing a Request for Proposal (RFP) to outside vendors.
Anyone who attended these PMOC meetings witnessed unabashed bi-partisan support to recommend a less draconian course of action that had been taken this summer by INPRS. Legislative and non-legislative members of PMOC made their opinions clear. There was public testimony on this issue on September 23, 2013, from a variety of stakeholder groups. Sen. Karen Tallian (D-Portage) offered up a motion in September and then re-offered it in writing at the October meeting to be incorporated as part of PMOC’s official final report. To argue that there is uncertainty as to where PMOC stands on the privatizing plans is dubious.
INPRS consistently contends it “follows legislative direction.” PMOC is the legislative oversight commission for INPRS and it gave its direction in the form of these recommendations.
WHAT THIS MEANS FOR US NOW:
INPRS’ delay in reconsidering until December means that we all must continue to communicate:
(1) with INPRS to make INPRS understand what we already know about PMOC’s intentions . According to the INPRS website, the email to communicate “suggestions” to INPRS = email@example.com
(2) with the legislative members of PMOC to let them know our disappointment in INPRS not accepting at face value the PMOC recommendations:
(3) with our own legislators and PMOC members to let them know our disappointment in INPRS not accepting at face value the PMOC recommendations and to further register our opposition to privatizing TRF/PERF member funds. The link to find your legislator is:
· House Switchboard: (800) 382-9842
· Senate Switchboard: (800) 382-9467
TELL YOUR STORY.
SUGGESTED TALKING POINTS:
Recap of INPRS ASA Issues
· By definition, there is a cost to privatizing that hasn’t been fully vetted. This results in questions about the value to the members of privatizing their funds.
· It is unclear what relationship the member will have to the private vendor versus the state.
· Originally, INPRS set a July 1, 2014 implementation date and it was only when ISTA and a few teacher members pointed out that current year teachers would be negatively affected retroactively did INPRS reconsider and move the effective date to October 1, 2014.
· Changing the implementation date solves the current year retiree issue. But there are many more members in the “pipeline to retirement,” especially those five to ten years out, who will likely lose significant funds each and every year of their retirement if these changes go through next year– members who had not anticipated or planned for such a drastic and unnecessary alteration to their ASA accounts.
· According to INPRS data, for every 1 percent reduction in rate from the current rate, members are projected to lose 8% in benefits.
· Members who gave many years of public service should not be penalized due to bad luck or timing.
· Simply put, this is a quality of life issue for those who have spent an entire career serving children and taxpayers. And it should never be forgotten that these retirees are also Hoosier consumers who will help drive Indiana’s economy.
· The privatization option is not the only prudent option available to INPRS. Let’s find a better solution that better balances the interests of INPRS in having a balanced fund and the members’ interests in maximizing income available to them.
· Indiana’s public pension system is, by all accounts, in good shape. There is no emergency here that requires this extreme about-face in terms of how INPRS administers the ASA funds of its PERF/TRF members.
· ISTA led last-minute efforts to remove language from the Budget Bill (HEA 1001) on the last day of the 2013 legislative session that would have had similar consequences to members of PERF and TRF.
· INPRS unilaterally adopted this policy before the first Pension Management Oversight Commission (PMOC) meeting could even take place in August.
· Of the four potential options INPRS considered when making its decision, INPRS chose the most extreme option of any that had been proposed and the one which transfers all of the risk to fund members.
· On October 21, PMOC gave recommendations to INPRS to do an about-face on privatizing member ASA funds.
· On October 25, instead of moving to reconsider its privatizing scheme per PMOC recommendation, INPRS deferred action until at least December 13, 2013—and in the meantime will continue working on an RFP to privatize.
Potential Loss to Those Retiring After October 1, 2014
(using current market conditions)
TRF (Teacher Retirement Fund)
Upon retirement, TRF members currently average (round figures) $90,000 in their respective TRF ASA account.
Today, when you retire, you have the option of keeping your ASA funds with INPRS and having INPRS annuitize them and then pay you a monthly retirement benefit that is the combination of your pension and your annuity distribution (currently, about 50% of TRF members who retire elect this option.)
INPRS currently uses a 7.5% discount rate in its annuity calculation, which provides about a $725/month ASA annuity payment assuming $90,000 is annuitized. Those payments equate to $8700 per year.
Under the INPRS change that will be effective October 1, 2014, and based upon figures provided by INPRS, the open market rates with an outside annuity provider would be between 4 and 4.5%. INPRS states that for TRF the reduction would be about $180/month. That equates to a reduction of $2,160 per year.
The loss of $2,160 per year times a 20-year life span post-retirement shows that this INPRS change cost the average member who chooses to annuitize with INPRS a total of $43,200 over the course of retirement plus whatever private sector administrative fees will be assessed along the way.
PERF (Public Employee Retirement Fund)
Upon retirement, PERF members currently average (round figures) $38,500 in their respective PERF ASA account.
Today, when you retire, you have the option of keeping your ASA funds with INPRS and having INPRS annuitize those funds and then pay you a monthly retirement benefit that is the combination of your pension and your annuity distribution (currently, about 50% of PERF members who retire elect this option.)
INPRS currently uses a 7.5% discount rate in its annuity calculation.
Under the INPRS change that will be effective October 1, 2014, and based upon figures provided by INPRS, the open market rates with an outside annuity vender would be between 4 and 4.5%. INPRS states that for PERF the reduction would be about $77/month. That equates to a reduction of $924 per year.
The loss of $924 per year times a 20-year life span post-retirement shows that this INPRS change cost the average member who chooses to annuitize with INPRS a total of $18,480 over the course of retirement plus whatever private sector administrative fees will be assessed along the way.