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PERS board raises concerns over changes to state retirement plan

The Public Employees Retirement System board is raising a number of questions about a potential change in the state retirement plan.

The interim Government Finance Committee is considering a bill draft – that would change the system from its current “defined benefit” plan to a “defined contribution” plan. Under it, new state employees who came on board after January first, 2016 – with exceptions for those who have separate plans – would be required to enroll in a “defined contribution” plan – much like a 401-K plan. Discussions about a change escalated when the PERS plan lost equity in the 2008 stock market crash. And since that time, the Legislature has been asked for fixes to bring the plan back to fully-funded status.

"The only way to get rid of the unfunded liability responsibility for the state is to go to a defined contribution plan," said the Committee chairman, Rep. Jeff Delzer (R-Underwood).

PERS executive director Sparb Collins told the committee the PERS board believes there should be more study. Collins says money is needed to take care of now and future retirees who were on the defined benefit plan. The Committee has been looking at funding sources – such as the foundation aid stabilization fund – to find the money. But Collins says that would take a Constitutional change – and a vote of the people.

"If this doesn't happen, there will be a huge unfunded liability in the plan," said Collins. "In fact, thatg unfunded liability could be $3.6 billion."

Collins says the PERS board suggests that no change be made until a funding source is identified to keep the current plan solvent.

The plan was set up so the state and the employee would roughly split the contributions 50-50. But Collins says in the 1980s – when the state was struggling financially – employees agreed to forego raises – and in return, the state picked up some of the employees’ share of the retirement contributions – so workers now pay in about three percent of their salaries. Collins says this could change if the plan passes.

"It may cause employees to reconsider their 3 percent commitment,"  said Collins. "And as we pointed out to you in 2011, there is the potential for a legal argument to be made that a contract has been broken by having them even make these 3 percent. It's a risk you need to be aware of."

State workers had been given an option to enroll in a “defined contribution” plan. But Collins told the Committee the majority of those who chose that option aren’t happy with it – because they feel it won’t be adequate.

"We see 75 percent of the existing members (in the defined contribution plan) who feel they made a mistake transferring to that plan," said Collins. "Sixty-nine percent would not recommend it. And 70 percent are not confident that they have enough money to retire on."

The committee will hold another meeting – before it makes a decision on whether or not to recommend the bill draft.

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