The Case for Defined Benefit Plans
The Vermont public employees, teachers, and municipal retirement systems provide essential public services for all citizens. The vast majority of these employees also live in Vermont and are Vermont taxpayers. They are concerned about their state, their local community, their families and our future. Employees have committed their professional lives to improve that future through public service.
My job as State Treasurer is to protect taxpayer dollars and strengthen our financial future. Retirement security is critical to that effort. All Vermont citizens are entitled to financial independence and dignity in retirement. Retirement should reward teachers, state, and municipal employees for their long careers in public service. It is absolutely necessary that our retirement systems be affordable to both the employee and to the taxpayer. However it is also important to recognize that retirement income is not merely an expense, but is an economic driver. Retirees with adequate and reliable income buy goods and services that, in turn, create jobs. A review done by my office indicates that 75.2 % of retirees in the teacher plan and 79.4% of retirees in the state employee plan continue to reside in Vermont, pay Vermont taxes and contribute to the local economy.
Despite their importance, public retirement plans are under attack across the nation. Arguments have been made to reduce benefits, eliminate benefits altogether, or convert to other types of plans that do not provide the same security as our defined benefit plans. I have a strong record of defending defined benefit plans. In repeated testimony to the Legislature and in public presentations, I have demonstrated that defined benefit plans provide needed retirement security and are cost-effective to the taxpayer. I will continue to advocate that position.
I have also implemented steps to put the retirement plans on an improved financial future. All pension plans across the nation took a big hit with the Great Recession. In Vermont, we have addressed this in a responsible and fair manner. I appreciate the efforts of state employees, teachers and municipal employees who stepped up to the plate in a collaborative manner to find solutions. We have saved hundreds of millions of dollars in the process, while also protecting benefits.
Over the last several years a number of initiatives have been taken to improve the financial condition of the plans.
Changes were implemented to preserve essential benefits while saving the taxpayers an estimated $20 million per year.
While significant underfunding of actuarially recommended funding took place in the past, especially in the teacher’s system, we have worked with the Administration and the Legislature to put Vermont on a track for full funding of our retirement systems.
Working with stakeholders in 2014, we fixed a historic funding shortfall in the teachers’ retirement health care system that will save taxpayers $480 million over 25 years.
This past year, we worked with Legislators to develop a new financing plan for the State’s pension liabilities that will save taxpayers over $165 million through 2038.
We have strengthened partnerships with public employees to ensure they have adequate and reliable income in their retirement years.
The Administration and the Legislature have a responsibility to fully fund its share of the pension contributions, even in difficult times. These contributions are an I.O.U for services rendered by employees and they have an obligation to fund them. I am proud that my efforts have contributed to the Legislature’s decision to fully fund the annual retirement contributions recommended by the state’s actuary. In fact, this year we were able to change the state’s pension statutes so that we can accelerate the contribution payment schedule in the future, saving millions of dollars of interest to the taxpayer, making improvements to the funded status of the plan over time, and providing additional security to retirees.
I will continue to advocate for cost-effective defined benefit pensions that are affordable for the taxpayer, while at the same time are fair to employees and protect their hard earned benefits.