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Fri July 20, 2012
Could Wyoming’s Retirement System Be Changed?
Ever since the economic downturn of 2008, state retirement accounts have suffered as investment income plummeted. The downturn forced a number of states to cut back on retirement benefits for state employees. Wyoming’s state retirement system has always been recognized as one of the best in the country, but its value also dropped substantially following the 08 stock market crash. It’s led lawmakers to take action to turn things around. But at least one lawmaker is concerned that Wyoming has not gone far enough. Wyoming Public Radio’s Bob Beck reports.
BOB BECK: The way actuaries view retirement accounts is the ability of the state to pay the total liability it will have over the next 30 years. Right now the state has enough money in the bank to pay for 80 percent of the retirement benefits it will owe in the next 30 years. A retirement account is viewed as sound as long as the state does not dip below the ability to pay for 70 percent of the possible retirees.
So, while the state is doing ok, it has much less money in the retirement account than it did prior to 2008. That led state lawmakers to once again require employees to pay into the system and make changes that would affect new employees. State Senator Phil Nicholas of Laramie co-chairs the Joint Appropriations committee.
PHIL NICHOLAS: Our new employees that are coming on today and the next year and the next years are going to have lower benefits in order to pay for some of the issues we created over the last eight or nine years.
BECK: What Nicholas means is that while the stock market downturn hurt the retirement system’s income level, so did the fact that the state changed some things that increased benefits to retirees. Nicholas says one of those things was cost of living increases that were added to retirement benefits. He says lawmakers will end that practice.
NICHOLAS: We want people to know that so they can understand that when you retire, you can’t just retire on your UW or state retirement.
BECK: Nicholas says the hope is that these types of actions will return the retirement system to the point where it can easily pay 100 percent of its retirement bills. But that would depend on an investment return of eight percent.
Steve Sommers who chairs the Wyoming Retirement System Board of Trustees says that might be optimistic. Sommers says the first goal is to keep the fund steady and try to gradually increase it. But he admits that it might take awhile to get it back up to 100 percent.
STEVE SOMMERS: A lot of people are eligible and there’s more and more people retiring every year and they are retiring at higher salaries than what people were making ten years ago. And like I said, I think that’s one of the reasons why we’re not being able to gain a lot on that 20 percent liability.
BECK: While neither Sommers or Nicholas believes the state is in a crisis situation, Cheyenne Republican Representative Bryan Pedersen is not so sure. Pedersen is a financial advisor at RBC wealth management in Cheyenne where he meets me this day and he says the numbers he sees scare him. He agrees with Sommers that the eight percent return is unlikely and he takes that a step further.
BRYAN PEDERSEN: So let’s say that we got 7.75%. One quarter of one percent less a year going forward. You would become actuarially unsound in 2020. When you are actuarially unsound you are Wisconsin, Utah, all of these places that have cut or put on the ballot to cut all these different pension benefits.
BECK: So Pedersen brought a bill last year that failed, that he’d like reconsidered. It would change the state retirement system from what’s called a Defined Benefit system to a Defined Contribution. So instead of getting a guaranteed return from the state…new employees would get money to invest.
PEDERSEN: New employees that are hired have essentially what I’m gonna reference as a state 401K. And that’s a defined contribution, not a defined benefit plan. So they’ll get the same amount of contribution into their plan, but they will have control of the funds in it, but they will have the liability. And it’s quite frankly in my opinion a more honest way to do it.
BECK: Senator Phil Nicholas does not care for that concept, because he thinks it will backfire. He predicts most employees will be too timid investing their retirement and the state will end up bailing them out.
NICHOLAS: If their investments turn out poorly or not sufficient they’ll be back asking the legislature to subsidize them at that point. And my experience is that legislatures respond to that attention.
BECK: Sommers from the state retirement board says if the state made that dramatic of a change, lawmakers will have to remember that they will have to add money to keep the system whole until every employee in the current system retires. He thinks there are hybrid approaches that can be studied first.
SOMMERS: I think the way to go right now for the system is to continue down the course we are on and keep a close eye on it. And if we can’t start approaching that 100 percent and the legislature doesn’t want to come up with a contribution rate increase, then we need to look at something different. But there’s a couple of options before we get to that point.
BECK: In fact, a legislative committee is studying the issue trying to determine the best way to go. Governor Matt Mead says he is very interested in what they come up with but he makes it clear that he is not interested in making cuts to the benefits that employees under the current retirement system are expecting to receive. For Wyoming Public Radio, I’m Bob Beck.