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Lawmakers aim for ‘sustainable solution’ in pension benefit quandary

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Lawmakers aim for ‘sustainable solution’ in pension benefit quandary

Sep 21, 2023 | 7:00 am ET
By Leslie Bonilla Muñiz
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Lawmakers aim for ‘sustainable solution’ in pension benefit quandary
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As lawmakers weigh pension benefit options, it's unclear what retired public servants can expect. (Getty Images)

Indiana lawmakers enraged retiree advocates when they chose not to offer a pension benefit increase in the most recent budget cycle — for the first time in decades.

Lawmakers aim for ‘sustainable solution’ in pension benefit quandary
Rep. Brian Buchanan, R-Lebanon. (Indiana General Assembly)

Instead, they’re taking the period between legislative sessions to hunt for a lasting fix. It’s a decision worth millions of dollars, and that impacts thousands of retirees participating in the Indiana Public Retirement System (INPRS).

“That’s what we’re focused on, is a long-term, sustainable solution,” Sen. Brian Buchanan, chair of the pension-focused interim committee, said Wednesday.

A push for a plan

The Indiana General Assembly has typically given benefit increases on an impromptu basis, generally during the biennial budget session. Benefits often don’t keep up with inflation.

So they’re often supplemented in two ways: with a 13th check, as in 2019 and 2020, or using a cost-of-living adjustment (COLA), like in 2021.

The strategies add to retiree income differently: the 13th check is an additional, one-time check on top of the year’s 12 other monthly payments, while the COLA is a percentage increase for all payments moving forward.

It’s natural to go for an ad hoc approach, INPRS Chief Actuary Andy Blough said.

“I want to project out future benefit payments, I want to figure out what those cost and I want to fund them. (But) it’s very difficult to take three data points that are all different and make a prediction,” he said.

No COLA or 13th check for Indiana retirees

“That uncertainty leads us to a preference for very short-term, very tactical funding,” he said.

But some key state leaders have soured on the status quo, with Senate President Pro Tem Rodric Bray noting in May that finding ways to support retirees every two years wasn’t as efficient as having a long-term plan.

Budget negotiations at one point offered a COLA of 0.4%, Bray said at the time, but everyone agreed that wasn’t enough — sparking the interim committee’s mandate.

How the options stack up

The Indiana Public Retirement System has nearly 530,000 members from more than 13,000 public employers across the state. It manages more than $46.6 billion on their behalf.

Small individual-level changes, therefore, can have multi-million-dollar impacts in the aggregate.

A 13th check, for example, sends just $150 to retirees with 10 years of public service, $275 to those with 10-20, $375 to those with 20-30, and $450 for those with 30 or more years, according to INPRS.

But, in fiscal year 2024, that 13th check would add up to $60 million across the four biggest plans with supplemental allowance reserve accounts.

Still, as a one-time payment, the 13th check generally costs less than a COLA. For that, INPRS must keep enough money to pay the adjustment over the entire period a retiree is receiving benefits.

A 0.4% COLA in fiscal year 2024 would cost $85 million, according to INPRS.

But 13th checks also mean retirees receive less in benefits over time than through a COLA.

Who’s on the hook

State government, alongside numerous local entities, would foot the bill should lawmakers decide on an automatic COLA.

A 0.5% COLA would cost the state an additional nearly $60 million. But local units would save almost $25 million.

Lawmakers aim for ‘sustainable solution’ in pension benefit quandary
Rep. Jeff Thompson works on the House floor. (Monroe Bush for Indiana Capital Chronicle)

Under a 1% COLA, however, the numbers balloon: to $808 million for the state and $1 billion for local units. INPRS also looked at 1.5% and 2% COLA options, each with costs well into the billions.

Asked if he’d support the lower 0.5% COLA, Rep. Jeff Thompson — chair of the powerful Ways and Means committee — said the proposition required more consideration.

“Obviously, the cost is pretty small compared to the state budget, but do you want to commit to that long term?” he told reporters. “I want to think, talk to some folks, and we’ll see.”

He didn’t rule out action in the upcoming session, given “more time, more data and more understanding.”

But lawmakers typically shy away from making expensive decisions in off-budget years, a sentiment Buchanan echoed when asked about next session.