The House has approved and sent to the governor for his signature a bill that changes the pension system for state employees and teachers hired after July 1, 2014.
Drafted by state Treasurer David Lillard, SB1005 would create what is described as a “hybrid” between the present defined-benefits plan, which guarantees retirees a fixed pension based on years of service and earnings, and a defined-contribution plan, which has no guaranteed benefit level.
The bill passed the Senate 32-0 and won 71-16 approval in the House. All no votes came from Democrats.
Explaining his no vote, House Minority Leader Craig Fitzhugh praised the proposal as well designed, but said it is simply not needed in Tennessee because the state retirement system has adequate funding — unlike those in many other states.
But Lillard and sponsors of the bill — Sen. Randy McNally, R-Oak Ridge, and Steve McManus, R-Cordova — said long-range projections show the Tennessee Consolidated Retirement System could face problems and the legislation will head them off, without affecting current state workers and teachers.
Andrea Zelinski has details on the legislation:
Under the current system, state employees, workers at higher educational institutions and teachers can now calculate their retirement payout by multiplying he number of years on the job by their average salary over their five highest-paid years by a multiplier of 1.575 percent. K-12 teachers also contribute 5 percent of their salary to the pool.
The new system folds in a defined contribution element. The multiplier would change to 1 percent, and workers would make up the rest through aligning with state investments or use programs like a 401(k).
Under the changes, employees would largely have to wait until 65 to cash in on their benefits, or until their total years of service added to their age equals at least 90. Currently, retirement benefits can kick in after 30 years of service or after the worker reaches age 60, although the timeline is shorter for public safety workers.
The “Hybrid Retirement Plan for State Employees and Teachers” is aimed at new employees hired after June 30, 2014 — meaning the 122,000 current retirees and the 217,000 public employees now in line for pension benefits are grandfathered into the current system. Local governments can also opt into the plan for new hires.
Compared to other states, Tennessee is in good shape on the pension front. A study by the Pew Center found a $1.38 trillion gap across the country between promises of a pension and the money states have put away to pay those bills in 2010.
The system in Tennessee was 90 percent funded that year, well above an 80 percent threshold used to determine whether programs are fiscally sustainable. Wisconsin was the only state to fully fund its pension plan in 2010, and almost three dozen states fell below the 80 percent threshold.