Wyoming lawmakers pass bills in attempt to expedite fully funding retirement plan

CHEYENNE — Wyoming's retiree population is quickly outpacing its workforce, and policymakers are considering ways to cover the state's retirement plan obligations with the least impact on public employees' paychecks.

Wyoming's eight existing retirement plans are underfunded by a total of $2.8 billion, and Wyoming Retirement System (WRS) officials said the state is on track, at its current contribution rate, to fully fund the plans in 41 years.

Not doing anything to change contribution rates is an option, said WRS Executive Director David Swindell, but it is within the state's best interest to cut that time period down as much as possible, in order to quickly reduce contribution rates.

"We'd like to pay it off sooner to get back to normal costs," Swindell said.

The Wyoming Legislature's Joint Appropriations Committee passed two draft bills last Friday in effort to reduce the state's funding period to 26 years.

Increase employee contributions

Draft bill 341, titled "Public employee retirement plan contributions," proposes raising employee and employer contributions by a quarter of a percentage point over each of the next two fiscal years.

A staff comment in the bill noted that if employer contributions remained unchanged, the employee "would be responsible for paying those contributions through a reduction in cash salary." Swindell told lawmakers the average public employee makes an annual salary of $61,000. Should draft bill 341 pass as written, employees' yearly contribution to the plan would increase by $304.

Gov. Mark Gordon submitted a letter in regard to draft bill 341, where he recommended increasing the state's subsidy of employee contributions from 5.57% to 6.07%, and allocating up $9 million out of the general fund to pay associated costs. Gordon said draft bill 341 "moves us halfway to the total contribution rate" with a 1% increase, split between the employer and the employee.

The total cost of this increase for the biennium is about $4.7 million in general fund money, according to the governor's letter, making the $9 million ongoing general fund recommendation "more than enough to pay all the associated costs, and we can afford to do that."

"What we cannot afford is to demoralize our workforce by increasing their burden at this time," Gordon wrote in the letter.

Rep. Tom Walters, R-Casper, noted that the bill seemed to act "as a vehicle" for the governor's letter. Committee co-Chair Sen. Tara Nethercott, R-Cheyenne, said she found it hard to believe that the state would pay the employee's share, pursuant to the governor's letter.

In contrast, Rep. Trey Sherwood, D-Laramie, said she supported picking up the state's share in retirement plan contributions "so we aren't taking more money out of our hardworking employees' paychecks."

Sherwood pointed out that many state agencies are struggling to fill full-time vacant positions, and it is important to keep salaries competitive. Retirement benefits are far from the minds of young workers who are still recovering from impacts of the COVID-19 pandemic and inflation, she said.

"It's the next generation of our hardworking employees we want to consider in this move," Sherwood said.

Sherwood suggested amending the draft bill to insert the governor's language to pick up the state's share of contribution to the retirement plan, increasing it from 5.57% to 6.07%, but the amendment failed.

Rep. Clark Stith, R-Rock Springs, who said he would vote no on the amendment, said the slight increase didn't seem like a substantial burden for employees.

"Without the amendment, the employee … would have to pay 21.3 cents instead of paying 20 cents (for a dollar's contribution worth of retirement benefits)," Stith said. "For my own retirement, if I want to get a dollar's worth of contribution, I have to pay a dollar. The employee retirement plan is a ripping good deal."

Members passed the draft bill almost unanimously, with a single "no" vote from Sherwood.

Move into a new actuarial plan

The WRS Public Employee Plan is the largest retirement plan in the state, with nearly 35,000 active employees, according to Swindell, who added that Wyoming has 31,000 retirees.

"The big picture here is that this plan is not going away," Swindell said. "It is on an upward trajectory, but it's really slow with current contribution rates."

Swindell described the retirement plan's current funding process as "glacial," projected to only be 88% funded by 2054. Until the $2.8 billion in Unfunded Accrued Liabilities (UALs) are fully paid off, he said, rates will only increase.

He explained that a UAL is the assets of the fund versus the liability of the fund. Since the financial crisis of 2008, pension plans across the country saw less investment income, which resulted in states either increasing contribution rates or reducing benefits in their retirement plans.

Wyoming chose to increase rates.

"The bill you just passed gets us halfway to where we need to be to pay this off ... and start saving money in 20 or 25 years," Swindell said, adding that the current contribution rate is 2% behind what it needs to be.

Draft bill 342, titled the "Public retirement-actuarially determined contributions," proposes calculating employee/employer contributions based on an actuarially determined contribution (ADC) rate.

Should the bill pass, ADC rates would adjust once every two years on July 1 of an even-numbered year. A measurement date would begin on Jan. 1, 2025, and an ADC report would be made to state agencies, legislators and employers. The adjusted rate would then be incorporated into the budget process in late 2025 and adopted into the 2026 budget, with a new two-year rate effective on July 1, 2026.

These rates would be split evenly between employers and employees, and employers would have the option to cover most, if not all, of the employee's share.

Paul Wood, a senior consultant at a Colorado-based national actuarial and benefits consulting firm, told lawmakers that moving into an actuarially determined funding formula would increase the funding ratio and significantly reduce the funding period.

Nethercott, who said she was in favor of the bill, noted it would "relieve" the Legislature of making big policy decisions by converting how contributions are determined through an actuarial system.

"In some ways, (bill 342) in my mind is the softer, gentler approach that allows a greater understanding because its effective date is '26," Nethercott said.

Co-Chair Rep. Bob Nicholas, R-Cheyenne, said that over the long term, the implication of the bill would still see "a substantial increase in costs to somebody."

"My thought is this is more complicated. It's a lot more expensive over time," Nicholas said.

The second bill was passed unanimously by the committee. Both bills will be considered during the upcoming biennial budget session, which begins on Feb. 12.