Pension problem provides no easy path forward

The state’s underfunding, which took place predominantly in the 1990s, totaled $172 million. When the missed returns on these investments are factored in, state underfunding accounts for between one third and one half of today’s unfunded liability. In an attempt to make up the total unfunded liability, the state has invested more and more money each year, including fully funding — and often exceeding — the state obligations every year since 2007. In the coming fiscal year, 13 percent of our state’s general fund will go to teacher and state employee retirement benefits if we remain on the current path, and this number is expected to continue growing exponentially.

Both the employees and the state pay into Vermont’s pension system. Under the system’s design, however, all additional liability from demographic changes or pension investments not meeting their predicted returns falls to the state.

Due to this growing responsibility placed on the state, in the current fiscal year only 16.4 percent of the contributions that went into the teachers’ retirement system, for example, were from employee contributions; the rest were from the state budget.

Employees contribute a fixed percentage of their salary, which have always been contributed in full, but the state carries the risk and the state’s proportional contribution is growing.

It is also noteworthy to place Vermont’s situation in a national context. We are certainly not alone in the pension challenges we face.

So, where does this leave us? In January, the treasurer released a report recommending changes in the pensions system to create a path toward closing the unfunded liability, and the House Government Operations Committee followed up last month with a proposal of its own. These proposed changes were met with strong pushback.

I received countless emails from teachers and state employees sharing concerns about the proposals, as well as more general feedback that now is an incredibly difficult time to be considering these changes on top of other enormous stressors faced by essential workers during a pandemic. As one constituent wrote, “Teachers and other essential workers have done more than their fair share over the past year.” Another wrote, “Teachers are working so hard now and it is not the time.”

I have worked hard to seek as much feedback as possible. In addition to email correspondences, Reps. Daniel Noyes and Kate Donnally, Sen. Rich Westman, and I held a special meeting with the Lamoille North NEA. I also reached out on social media to ask people to sign up for 15-minute conversations. I found these conversations invaluable in helping me understand the range of perspectives on the pensions issue in this community alone, and to elevate the thoughts and needs of this community in the statewide conversation.

Once this feedback was incorporated, the step forward that the Legislature has arrived at is to immediately consider changing the governance structure of the committee that makes investment decisions for the money in our pension system, as well as to set up a working group to discuss the nuances of a more permanent plan going forward. The working group will complete its recommendations by this fall, and leave us ready to return to the pension issue immediately upon our return in January.

I am disappointed that we are not making more immediate progress. I also truly hope and believe that slowing down the process will allow for a more inclusive way of reaching consensus and a more nuanced and thoughtful final plan. I also see great benefit in separating the problems of the pandemic from the issue of pensions and being able to have these difficult conversations at a time when we will once again be able to speak face to face.

I am committed to digging into this problem and will continue vouching for those who have been planning their lives around anticipated retirement benefits, as well as for everyone who pays taxes into the state budget and relies on other state services that have been squeezed due to the magnitude of the unfunded pension liability.

I want to be upfront that there will be no perfect solution or easy path forward, and we may need to make some very difficult choices.

Lucy Rogers, a Democrat from Waterville, also represents Cambridge in the Vermont House of Representatives.