AJC Watchdog: First Alert

Keeping watch on those who hold the public trust and money

Smaller, aging workforce troubling finances of state pension plan

State auditors this week released end-of-the-fiscal year reports on the state's two major pension systems - the Teachers Retirement System and Employees Retirement System - which have a combined more than $80 billion in assets.

While the majority of Georgians not in either pension system know little about the them - including how much retired state employees, teachers, principals, judges, lawmakers, etc. receive - taxpayers contribute far more to the systems than they do to run most state agencies. And hundreds of thousands of Georgians either receive benefits or will in the future.

Unlike in some other states, Georgia's retirement systems have been relatively well-funded and well-managed. But in years when the financial markets drop or grow little, the numbers don't work in the pension systems' favor.

That is particularly true for ERS. During fiscal 2015, which ended July 1, the retirement system for state employees saw its net position drop more than $300 million, according to the report.

The report says investment income dropped 76 percent in fiscal 2015 after years of big gains. At the same time, benefits being paid to retirees increased 5.9 percent, or nearly $87 million.

The report said the number of retirees receiving benefits is increasing. So more state employees are retiring at a time when the state payroll in most agencies is expanding little, if at all. Meaning there isn't a huge number of new people paying into the system

That has been true since around the time of the Great Recession, when state officials began lopping jobs off the state payroll.

"The ERS population is aging," said Bill Tomlinson, a former state budget director and member of ERS. "That is creating pressure on the system."

In fact, there are 15,000 fewer "active members" - employees paying into the plan -  than there were in 2008, according to Jim Potvin, executive director of ERS.

In addition, the state pays less into the system for new hires who are part of the hybrid retirement plan -  part traditional pension, part 401 (k) - that was instituted in 2009.

While the state employees fund saw a net drop of more than $300 million last year, the teachers system improved by $360 million in the same mediocre stock market setting.

Both systems were helped last year by big increases in "employer contributions," i.e., taxpayer funding. The state contributed about 20.7 percent more to the ERS system last year, and employer contributions to the teacher system went up 10.7 percent. Combined, the increases cost the government - the state or school districts - an additional $227 million last year.

The increased contributions by the state may spur some lawmakers to take another stab at legislation to shift new teacher hires to 401 (k) type plans and away from pensions, which guarantee a monthly check based on years of service and highest salary the teacher earned.

While the issue stalled this spring, members of the governor's education funding task force said they planned to take another look at it. And at least one lawmaker is promising to push legislation to put all new hires on 401(k)-type plans.

The bill that stalled earlier this year would implement a hybrid retirement plan for teachers hired after 2016 similar to the one in existence for state employees.  Teacher advocacy groups fear that reduced contributions from future teachers would erode its solvency. The audit reports put out on the two pension systems this week may add to their concerns.




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About the Author

James Salzer has covered state government and politics in Georgia since 1990.