With no advance warning, the House Government Operations Committee on Wednesday rolled out a reform plan for Vermont’s underfunded public sector pensions. And from the unions’ point of view, it could hardly be worse.
Before I get to the details, I’ll define “no advance warning.” On Wednesday morning, the committee first heard a proposal to restructure the pensions under a single Vermont Retirement Commission. That plan was posted to the committee’s website very shortly before the hearing began. Two lawmakers broadly hinted that they were reading it for the first time, with no chance to digest or formulate questions.
Ditto the pension reform plan. It was posted to the committee’s “Documents & Handouts” webpage only two minutes before its hearing was to begin.
For an issue as complicated as pension reform, this is unconscionable.
Well, it’d be fine if we were at the beginning of a normal legislative timeline with plenty of hearings and back-and-forth and rewrites of the legislation. But as far as I can see, we’re not going to get any of that. As I said in my previous post, legislative leaders are hellbent on enacting pension reform this year. If they’re going to hew to that ambitious timeline, Gov Ops would have to vote out an actual bill within days.
There were a few signs of exactly how rushed these proposals were. Rep. Bob Hooper asked if a cost analysis had been done on the new Retirement Commission. The answer was “No.” Later he noted that the reduction in benefits seemed out of proportion with projected savings; apparently a full fiscal analysis has yet to be done.
Whenever they want to slow-play an issue, legislative leaders usually claim that there’s not enough time to give the issue the scrutiny it deserves. If this pension plan gets fast-tracked, I don’t ever want to hear that excuse again.
After the jump: The grim details.
Overall, the vast majority of the financial pain would be offloaded on teachers and state employees. They would see reductions in benefits and increases in their costs, and they’d take on a lot of additional risk as well. There’s not a hint of finding a new revenue source for the pension funds. (Well, except for the employees themselves.) The state would kick in a one-time additional payment that amounts to maybe one-twentieth of the funds’ current shortfall. After that, nothing.
If I were a union member, I’d be mad as hell. If I were a union leader, I’d be threatening the Democratic Party and any lawmaker who votes for this plan with a complete cutoff of support — starting with committee chair Sarah Copeland Hanzas and vice chair John Gannon, who cobbled together this plan.
And if I were a Democratic or Progressive lawmaker, I’d vote against this plan.
Elements of the plan include:
- A one-time additional state payment of $150 million. That’s over and above the actuarially recommended payment for this year. But no commitment to additional payments in the future. (The combined shortfall of the state employees’ and teachers’ pension funds is around $3 billion.)
- The changes to retirement benefits would not apply to current retirees or those within five years of retirement eligibility. This is even more draconian than the proposal floated by Treasurer Beth Pearce, who suggested applying the new plan only to future hires.
- A new restriction on cost of living adjustments. Currently, COLA applies to a retiree’s entire pension. Under the new plan, COLA would only apply to the first $24,000 of each pension.
- The standard for salary years considered when calculating the value of a pension would get tougher. Currently, it’s based on an average of the three highest consecutive annual salaries for a beneficiary. Under the new plan, it would be seven consecutive years. In the vast majority of cases, this would reduce the value of a retiree’s pension.
- The required vesting period for an employee to qualify for a pension would double, from five years to 10.
- Most employees would see significant increases in their payroll deductions for their pension plans.
- Retirement eligibility ages would rise for virtually all employees. The new standard for almost everyone would be Social Security’s full retirement age.
- Employees would be put at risk for future shortfalls in the funds. They could see their payroll deductions increase, and COLA adjustments decrease.
In sum, this is a plan that puts employees and retirees on the hook for curing past and future mismanagement of the pension funds. Seems a bit unfair, considering that it was state leadership that caused the problem in the first place. It’s death by a thousand cuts. It’s pretty much everything that union leadership doesn’t want to see in a reform plan.
Technically, defined benefit plans would be preserved. But the actual meaning of the phrase would be significantly diluted. Employees would enjoy substantially less security for their golden years.
This plan is centrist Democratic politics at its worst. It’s something Bill Clinton might have tossed out there alongside work requirements and lifetime limits for welfare benefits and his draconian crackdown on crime. It abandons the party’s traditional base. It does nothing to protect workers or to more fairly distribute the burden of providing for retirement.
IF this is the best the Democratic majority can do, well, they should pay the consequences in reduced union support in the 2022 election.
(House Gov Ops will take testimony on the VRC plan and the pension reform plan over the next two and a half days. Friday afternoon at 4:00, there will be a public hearing on the proposals.)
A small issue in the scheme of things, but didn’t Beth Pierce announce that the pention shortfall had increased by a billion in the past year to a total of $4B as a result of overly optimistic projections on the ROI of 7% ?