The Register-Herald, Beckley, West Virginia

October 15, 2012

Lawmakers weigh curbs on public pensions

By Lawrence Messina
Associated Press

CHARLESTON — Future West Virginia public employees would have to work longer before retiring, pay more toward their pensions and lose ways to boost their benefits under a proposal being discussed at the Legislature.

As the baby boomer generation continues to retire, those that replace them may end up with leaner pension benefits as lawmakers consider joining other states in tackling funding shortfalls made worse by the Great Recession.

A joint House-Senate committee is weighing several options in the face of an estimated $5.6 billion gap between on-hand assets and benefits promised by five state retirement programs.

The main plan for public employees would see the biggest changes from the proposal under review. Those retirees now receive an annual pension based on years of service and the average of their three final annual salaries. The proposal would increase the range of the average to five years for new hires, potentially decreasing the benefit.

New hires would retire at age 62, instead of the current 60. They would lose early retirement incentives and see the credit for unused sick or annual leave cut in half, with two days of credit for each day of leftover leave reduced to one day credited toward their tenure.

But the biggest change would shift the contribution burden toward pensions from the state to the employees, increasing their share from 4.5 percent of their pay to 6 percent.

Harry Mandel, actuary for the state Consolidated Public Retirement Board, declined to put a dollar figure on these proposed changes when he outlined them to the joint interim committee last week. But he estimated that they would save an amount equal to nearly 2.5 percent of the payroll for the program’s 36,200 or so active enrollees.

“It’s basically a fairly significant savings if we look at all future hires,” Mandel said. “What we’re really impacting is what we call the normal costs, the costs of benefits being earned during the year.”

For teachers, covered under a separate plan, the proposal would similarly halve unused leave service credits and hike the retirement age from 60 to 62. This pension plan is the state’s largest, with 31,000 retirees and nearly 36,000 active employees, but also accounts for $4.3 billion of the $5.6 billion unfunded liability. Their benefits are already based on a five-year salary average. The proposed changes would cut costs by less than 1 percent of payroll, Mandel said.

The remaining state-level plans, for troopers and the judiciary, have fewer options for cuts, Mandel noted. One State Police plan is closed to new enrollees, while the other is supposed to help West Virginia recruit and keep troopers while competing against neighboring states and federal law enforcement. The judicial pension plan, meanwhile, created a second tier that offers lower benefits for those enrolled as of mid-2005, Mandel said. That plan is also by far the state’s best-funded, and has nearly $29 million more in assets than it’s promised in benefits.

West Virginia is not alone in revisiting public pensions. Already suffering from funding shortfalls, a federal report estimates state and local pension plans lost $672 billion on the stock market during fiscal years 2008 and 2009. Neighboring Kentucky, for instance, has raised retirement ages. Illinois has cut benefits for new hires, while New Jersey has hiked employees’ share of pension costs.

But a number of these states have adopted changes not likely to appear in West Virginia. At least 10 states have frozen or reduced the annual increases meant to help pensions keep pace with inflation. West Virginia offers no cost of living allowances for its teachers or rank-and-file public employees. At least 13 states offer both traditional pensions and 401(k)-type plans that offer benefits drawn from individual investment accounts. West Virginia experimented with a defined contribution plan for teachers within the last 20 years, but shut that program down in 2008 and allowed most enrollees into the traditional pension plan.

West Virginia does not recognize or bargain collectively with unions that represent teachers or other public workers. Ernie “Spud” Terry lobbies for public retirees. Citing the long-running quest for cost of living increases and income tax exemptions, he questioned the proposal’s resulting burden on future retirees.

“We are opposed to any foot in the door,” Terry said. “Once you get started on those kinds of things, it’s kind of like piranha. Once you get a taste for cutting programs, you cut deeper and deeper.”