MONTPELIER — A proposal to expand the committee overseeing the state’s retirement investments and create a task force to address the pension system’s multi-billion-dollar unfunded liability was voted out of the House Government Operations Committee on Wednesday.
The bill, which as a committee draft has yet to be assigned a number, proposes changes to the Vermont Pension Investment Committee, expanding its membership and changing its name.
It also establishes a Pensions, Funding and Design Task Force, which will study how the state will reduce its unfunded liabilities and annual payments. The proposed fiscal 2022 budget allocates $300 million in pension amortization payments, also known as ADEC (actuarially determined employer contribution).
The task force took form when legislative leaders backed down from a proposal aimed at reducing the $3 billion unfunded pension liability and $2.6 billion unfunded liability for health and other benefits for retirees.
Leaders, including Speaker Jill Krowinski, said they were tackling the problem so that the pension funds would remain solvent, and to avoid burning more general fund dollars on larger ADEC payments every year.
But the original proposal floated by the Government Operations Committee was widely panned by state employee unions, some of whom called the combination of longer required service, higher contributions and smaller benefits ”a betrayal.”
Instead, the House opted to address governance of the pension system and convene a summer task force representing the Legislature, the Scott administration and employees that would hopefully return in the fall with a plan of action. Its report is due in September.
The proposal passed by the committee addresses some concerns raised by both labor and state officials about the initial bill.
In response to those concerns, the Vermont Troopers Association, the union representing state police, was added to the task force. And the committee added a third teachers’ union appointee to the task force, while scrapping proposals to include a school board member and a business community representative.
The finished product, approved 9-2 with no votes from Robert Hooper, D-Chittenden 6-1, and Rep. Tanya Vyhovsky, D/P-Chittenden 8-1, proposes the newly-renamed Vermont Pension Investment Commission expand to 10 members and independent status.
The expanded membership includes one member (and one alternate) each of the teachers, state employees and municipal employees retirement systems; two financial experts appointed by the governor; the state treasurer, the commissioner of financial regulation or designee; a member representing a municipal employer, appointed by the Vermont League of Cities and Towns; and a member representing a school employer, appointed by the Vermont School Boards Association.
The commission’s responsibilities include setting the investment rate of return, annual asset allocation studies reviewing the expected return of each fund, including a risk analysis; and an “experience study” every three years testing the plans’ actuarial assumptions.
The Task Force’s goals include, but are not limited to:
• Setting pension stabilization targets that reduce unfunded liability and the state’s annual ADEC contributions,
• Proposing new benefit structures “with the objective of adequate benefits within the established cost containment benchmarks,” including shared risk for employee contributions and cost of living adjustments;
• Evaluating alternative retirement plan designs, such as hybrid or defined contribution plans (such as a 401k);
• Finding permanent and temporary revenue streams to fund the system, “including a review of whether all or part of retirement income should be tax-exempt; and
• Studying ways to prefund other post-employment benefits and reduce post-employment health care costs.
The task force is to include: Three current members of the House of Representatives, not all six from the same political party, appointed by the speaker; three current members of the Senate, not all from the same party, appointed by the Committee on Committees; the director of the retirement division within the state treasurer’s office; the commissioner of financial regulation or designee; the commissioner of human resources or designee; three members appointed by the Vermont-NEA; two members appointed by the Vermont State Employees Association (VSEA); and one member of the Vermont Troopers’ Association.
The unions had raised concerns that state employees and teachers are outnumbered by management on the task force. But committee members questioned whether its fair to characterize lawmakers as “management,” since they represent employees in the Legislature as well.
“Yes I received hundreds of emails the past two days all saying that the balance [of the task force] is somehow wrong,” vice chair John Gannon, D-Windham 6, said. “But I’ll be honest: I am starting to feel insulted by those comments. ... [the criticism] seems to lump us with management as enemies of labor. I totally disagree with that.”
Vyhovsky said she still has “unmet concerns” that the committee process moved too quickly on the bill, without time to explore changes or call witnesses.
“I really want this to be a collaborative process, It doesn’t feel like we’re beginning on that foot,” Vyhovsky said.
But Mike Mrowicki, D-Windham 4, told committee chairperson Rep. Sarah Copeland Hanzas that he thought she “made exceptional accommodations for certain members of the committee,” and promoted a process that retained civility despite the high stakes and external pressures.
“The important thing was to keep this process moving,” Mrowicki added in an email. “We also hope this bridges the divide between those saying ‘what’s the problem / why the hurry’ and those saying ‘we need to act sooner rather than later.’ This is a serious problem needing serious attention.”