Vermont’s Expanding
Pension Crisis
1
Presented by David Coates
to the Ethan Allen Institute
June 19, 2012
2
The Messenger !
David Coates presentation to EAI June 19, 2012
Discussions Points
3
• The Problem
• Key Information
• Possible Solutions
David Coates presentation to EAI June 19, 2012
The Problem
4
6/30/11
6/30/09
Unfunded pension liabilities
for state and teachers
$1.2B
$1.1B
Unfunded retiree health care
benefits for state and
teachers
$1.8B
$1.6B
$3.0B
$2.7B
Totals
David Coates presentation to EAI June 19, 2012
The Problem
5
Total unfunded pension and retiree health care liabilities
6/30/11
6/30/09
State
Teachers
$ 1.4B
$1.6B
$ 1.1B
$ 1.6B
Total
$3.0B
$ 2.7B
David Coates presentation to EAI June 19, 2012
Governmental Accounting Standards Board
6
Unfunded pension liabilities must
be considered on an equal footing
with other obligations.
David Coates presentation to EAI June 19, 2012
Key Information
7
From the state’s comprehensive annual financial report (6/30/11)
General Fund Revenues
$ 1.2B
Total Assets
Total Liabilities
Net Assets
$ 3.2B
$ 1.6B
$ 1.6B
David Coates presentation to EAI June 19, 2012
Key Information
8
Unfunded Pension Liabilities (total)
Unfunded Retiree Health Care
Benefits (total)
TOTAL
$ 1.2B
1.8B
$ 3.0B
State
Teachers
Pension Fund Assets
as of 6/30/11
$1.3B
$1.5B
% Funded
79.6%
63.8%
David Coates presentation to EAI June 19, 2012
Annual Required Contribution
(from Actuarial Reports at 6/30/11)
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Pension (ARC)
State
Teachers
Payments Made
State
Teachers
Net
David Coates presentation to EAI June 19, 2012
6/30/11
6/30/13
$44M
48M
$92M
$ 39M
60M
$ 99M
$38M
50M
$88M
$ 39M
65M
$104M
$<4M>
$
5M
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“This funding shortfall represents the single
greatest risk to the financial integrity of the
system.”
Beth Pearce, State Treasurer
November 7, 2011
David Coates presentation to EAI June 19, 2012
Annual Required Contribution
(from Actuarial Reports at 6/30/11)
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* Retiree Health Care Benefits (ARC) 6/30/11
State
$ 67M
Teachers
42M
$109M
Payments Made
State
$ 27M
** Teachers
-0$ 27M
Net
$<82M>
* Pay As You Go method
** Paid by the Teachers Pension Fund
David Coates presentation to EAI June 19, 2012
6/30/13
$ 73M
45M
$118M
$ 29M
-0$ 29M
$< 89M>
Key Assumptions and Plan Provisions
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Early Retirement Age
* Normal Retirement Age
State
55
62 or 30yrs
65 or Rule of 87
* Amount of Pension
* Subject to different plan provisions
David Coates presentation to EAI June 19, 2012
50%
60%
Teachers
55
62 or 30yrs
65 or Rule of 90
50%
60%
Key Assumptions and Plan Provisions
13
Retiree payment for Health Insurance
20% (before 7.1.08)
Tiered (after 7.1.08)
Investment Earnings Projection by Actuary
Year 1
Year 5
Year 6
Year 9
Year 17
David Coates presentation to EAI June 19, 2012
6.25%
7.75%
8.25%
8.50%
9.00%
Key Assumptions and Plan Provisions
14
Average Compensation
State
$51,270
Teachers
$54,109
Employee Contribution
Rate (to 6/30/16)
(to 6/30/19)
(thereafter)
6.4 %
5.1 %
4.85%
5.0%
-----
Cost of Living Increases
1.5 %
1.5%
David Coates presentation to EAI June 19, 2012
Possible Solutions
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• Change to a Defined Contribution Plan (401(k) Type)
• Eliminate Health Care Benefits for new state and teacher
retirees but not existing retirees
• Require state workers and teachers to shoulder more of the
annual benefit costs
• Tie pension and retiree health care eligibility to Social
Security retirement age
• Eliminate cost of living increases on pensions
David Coates presentation to EAI June 19, 2012
Possible Solutions
16
Silence the Messenger !!
David Coates presentation to EAI June 19, 2012