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October 7, 2013

Changes to pension benefits prompt pushback

State eliminated guaranteed interest rates in exchange for market rates for employees.

INDIANAPOLIS — The pre-retirement workshops offered to public school teachers and public employees around the state are rapidly increasing in attendance, as word gets out about potential reductions to their retirement benefits and some legislative pushback in response.

An official with the Indiana Public Retirement System, known as INPRS, said attendance at the September pre-retirement workshops — designed to help people budget for retirement —quadrupled over the normal month’s attendance, to more than 2,000 soon-to-be retirees concerned about the coming changes.

At issue is a July decision made by the Indiana Public Retirement System Board of Trustees to use a private vendor to administer the annuities savings plan that retiring public employees can use to turn lump sum payouts into monthly benefit checks.

In making that change, the board also voted to eliminate the current 7.5 percent interest rate the state has long guaranteed on those annuity payouts and switch over to market rates, which currently are at about 4 percent to 4.5 percent.

The change is expected to reduce annuity payouts to future retirees by $900 to $2,100 annually.

The change doesn’t go into effect until Oct. 1, 2014, and but it’s already generating political heat. At the September meeting of the legislative Pension Management Oversight Commission, some lawmakers on the panel said they’ll push for state pension officials to back off privatizing the annuity savings plan, and continue to administer it with lower return rate.

“I think there’s agreement that we need to reset the interest rate so we won’t have a drain on our [pension] funds,” said Sen. Karen Tallian, a Democrat from Portage who sits on the commission. Where there’s strong disagreement, she said, is the plan to turn over the annuity savings plan to an outside vendor.

The pension board staff has argued that it doesn’t have expertise to set what would be continually changing market rates and that’s why the pension board wants to hire an outside agency to manage the annuities. In doing so, it would shift more risk away from the state and the pension funds it manages, which have about $27 billion in assets.

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