Workers expect their defined contribution plans to play a greater role in their retirement income than annuities.
Aug. 03--INDIANAPOLIS -- The annuity options for retiring public employees, including teachers, may have been much worse if it wasn't for the intervention of a small group of Hoosier lawmakers, including state Sen. Karen Tallian, D-Ogden Dunes.
In July 2013, the trustees of the Indiana Public Retirement System, known as INPRS, voted to eliminate state-managed annuities for new retirees starting July 1, 2014.
At that time, retirees would be required to turn over their lump-sum annuity savings account to a private financial company if they wanted a lifetime monthly benefit to supplement their modest pension payments.
INPRS officials said longer life expectancies and a promised 7.5 percent interest rate made the state-managed annuity unsustainable in the long run and could lead to unfunded liabilities if the state's returns on annuity-backed investments dropped significantly.
Led by Tallian, the General Assembly'sPension Management Oversight Commission said in October that decision was unacceptable.
The panel concluded that, even if INPRS reduced its annuity interest rates to market rates, the state-managed option remained superior because it is fee-free and not seeking to earn a profit like a private insurance or financial management company.
INPRS trustees rejected the commission's recommendation and unanimously voted in December to move forward with privatization.
The Republican-controlled General Assembly moved quickly after convening in January to overrule that decision.
House Bill 1075, cosponsored by Tallian and state Rep. Chuck Moseley, D-Portage, barred privatization prior to 2019, though it permitted INPRS to lower its annuity interest rate toward market rates.
The legislation passed the House 83-0 and the Senate 39-8, but minor differences in the two proposals sent the measure to a House-Senate conference committee where Republican Gov. Mike Pence got involved.
"We tried to get rid of privatization altogether, but the governor's office put the kibosh on that -- threatened to veto it," Tallian said. "We tried everything that we could."
In the end, the House, Senate and governor agreed to a three-year moratorium on privatization and an annuity interest rate phasedown to 5.75 percent for retirees after Oct. 1, and 4.5 percent or the market rate, whichever is lower, for retirees purchasing an INPRS annuity after Oct. 1, 2016.
The law permits INPRS trustees to privatize its annuity program starting Jan. 1, 2017, though lawmakers are likely to change that before privatization can take effect.
Tallian believes it was an good compromise.
She said while privatizing the annuities might have prompted many public employees to retire before the changeover -- potentially decimating the knowledge base of government offices due to an exodus of experienced workers -- the stepped-down interest rate should not significantly affect anyone's retirement income.
"I can't imagine that difference, standing by itself, would have forced somebody into retirement," she said. "It's still a good deal."
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