Vermont’s Expanding Pension Crisis Presented by David Coates to the Ethan Allen Institute June 19,

The Messenger ! 2 David Coates presentation to EAI June 19, 2012

Discussions Points The Problem Key Information Possible Solutions 3 David Coates presentation to EAI June 19, 2012

The Problem 6/30/116/30/09 Unfunded pension liabilities for state and teachers $1.2B $1.1B Unfunded retiree health care benefits for state and teachers $1.8B $1.6B Totals $3.0B $2.7B 4 David Coates presentation to EAI June 19, 2012

The Problem Total unfunded pension and retiree health care liabilities 6/30/116/30/09 State $ 1.4B $ 1.1B Teachers $1.6B $ 1.6B Total $3.0B $ 2.7B 5 David Coates presentation to EAI June 19, 2012

Governmental Accounting Standards Board Unfunded pension liabilities must be considered on an equal footing with other obligations. 6 David Coates presentation to EAI June 19, 2012

Key Information From the state’s comprehensive annual financial report (6/30/11) General Fund Revenues$ 1.2B Total Assets$ 3.2B Total Liabilities$ 1.6B Net Assets$ 1.6B 7 David Coates presentation to EAI June 19, 2012

Key Information Unfunded Pension Liabilities (total)$ 1.2B Unfunded Retiree Health Care Benefits (total) 1.8B TOTAL$ 3.0B StateTeachers Pension Fund Assets as of 6/30/11$1.3B $1.5B % Funded79.6%63.8% 8 David Coates presentation to EAI June 19, 2012

Annual Required Contribution (from Actuarial Reports at 6/30/11) 6/30/116/30/13 Pension (ARC) State $44M $ 39M Teachers 48M 60M $92M $ 99M Payments Made State $38M $ 39M Teachers 50M 65M $88M $104M Net $ $ 5M 9 David Coates presentation to EAI June 19, 2012

“This funding shortfall represents the single greatest risk to the financial integrity of the system.” Beth Pearce, State Treasurer November 7, David Coates presentation to EAI June 19, 2012

Annual Required Contribution (from Actuarial Reports at 6/30/11) * Retiree Health Care Benefits (ARC) 6/30/116/30/13 State $ 67M $ 73M Teachers 42M 45M $109M $118M Payments Made State $ 27M $ 29M **Teachers $ 27M $ 29M Net $ $ * Pay As You Go method ** Paid by the Teachers Pension Fund 11 David Coates presentation to EAI June 19, 2012

Key Assumptions and Plan Provisions State Teachers Early Retirement Age * Normal Retirement Age62 or 30yrs 62 or 30yrs 65 or Rule of or Rule of 90 * Amount of Pension 50% 50% 60% 60% * Subject to different plan provisions 12 David Coates presentation to EAI June 19, 2012

Key Assumptions and Plan Provisions Retiree payment for Health Insurance 20% (before ) Tiered (after ) Investment Earnings Projection by Actuary Year 16.25% Year 57.75% Year 68.25% Year 98.50% Year % 13 David Coates presentation to EAI June 19, 2012

Key Assumptions and Plan Provisions StateTeachers Average Compensation $51,270$54,109 Employee Contribution Rate(to 6/30/16) 6.4 % 5.0% (to 6/30/19) 5.1 % --- (thereafter) 4.85% --- Cost of Living Increases 1.5 % 1.5% 14 David Coates presentation to EAI June 19, 2012

Possible Solutions Change to a Defined Contribution Plan (401(k) Type) Eliminate Health Care Benefits for new state and teacher retirees but not existing retirees Require state workers and teachers to shoulder more of the annual benefit costs Tie pension and retiree health care eligibility to Social Security retirement age Eliminate cost of living increases on pensions 15 David Coates presentation to EAI June 19, 2012

Possible Solutions Silence the Messenger !! 16 David Coates presentation to EAI June 19, 2012