INDIANAPOLIS – The House Employment, Labor and Pensions Committee unanimously passed legislation Tuesday to temper a contentious pension cut for soon-to-be retired teachers and public employees.
House Bill 1075 now moves to the full House.
In Indiana, members of the Public Employees’ Retirement Fund and Teachers’ Retirement Fund have a hybrid system that consists of a defined benefit plan and an Annuity Savings Account component.
When someone retires, the person can take the money built up in the savings account as a lump sum or receive monthly annuity payments from the Indiana Public Retirement System calculated with an automatic 7.5 percent interest rate.
About 50 percent of retirees take the annuity option.
The Indiana Public Retirement System board decided to privatize the annuity system with a third-party vendor using market-based rates. According to state pension officials, the current market rate would be from 4.0 percent to 4.5 percent.
This would result in a cut of tens of thousands of dollars to beneficiaries.
The bill passed in committee would prohibit the annuity board from privatizing the annuity program for five years. This would give older employees who had planned to retire soon the chance to do so without major changes.
During that five-year period, the pension board can set the annuity interest rate annually – but not lower than the rate of return earned by the retirement accounts. The current rate is about 6.5 percent.
David Bottorff, executive director of the Association of Indiana Counties, called the bill a fair compromise.
He said his association encourages employees to plan retirement seven to 10 years out and employees were concerned the annuity plan would be dramatically reduced when people counted on that money.