Indiana officials expect saving $1B a year as teacher pension plan hits funded status

State officials say they expect a $1 billion annual payment to an Indiana teacher pension fund won’t be needed within the next couple of years.

Republican legislative leaders hailed Thursday’s announcement from state pension officials that the fund covering teachers hired before 1996 could be regarded as fully funded as soon as Indiana’s 2028 fiscal year.

That fund’s large unfunded liability has been a persistent worry of legislative budget writers.

They’ve directed $4.3 billion in extra payments to the fund since 2018, when annual state appropriations to cover its pension payments were expected to continue until at least 2037.

The largest of those extra payments was ordered in 2022 with $2.5 billion directed to the pension plan from state reserves that were swollen with federal COVID-19 pandemic relief funding.

Steve Russo, executive director of the Indiana Public Retirement System, told a legislative committee that projections were that a $160 million state payment in 2027 would get that fund to 100% funded status.

But he cautioned that poor investment returns in coming years could mean more direct state money for what is known as the pre-96 pension fund covering about 52,000 retired and 4,000 active teachers.

“I don’t want to, in any way, portray that once we think we get this thing to 100% funded, and we make a payment that gets it there, that that means you’re done,” Russo told the pension oversight committee. “There’s risk going forward with this.”

Top legislators, however, cheered the pension fund announcement as giving the state “financial freedom and fiscal flexibility.”

“It’s a big win for Indiana and an achievement many other states can’t attain,” Senate Appropriations Committee Chair Ryan Mishler said in a statement. “This is a result of our commitment to pass balanced budgets, work within our means and keep our financial promises to retired teachers in our state.”

House Speaker Todd Huston said taxpayers would benefit from the state avoiding future $1 billion annual payments to the fund that was designed decades ago under a “pay-as-you-go” model. That money would be freed up for other priorities or tax relief.

“Through increased annual contributions to the teachers’ retirement fund and additional one-time investments, Indiana has strengthened retirement security for our teachers, saved our schools billions and reduced a major long-term cost for taxpayers,” Huston said.