May 7, 2021
As laid out in many Civic Federation blogs over the last several years, the State’s two pension buyout plans, which were enacted as part of the FY2019 budget legislation, were supposed to generate hundreds of millions of dollars of budgetary savings. But issues with implementation and with the savings projection itself meant that only a very small portion of those savings have actually been recognized. The Commission on Government Forecasting and Accountability reported in November that none of the three state pension funds whose members qualify for the buyouts reported actuarial savings for the buyouts in FY2020.
However, the programs remain open until June 2024 and the State continues to issue bonds to cover the payouts, most recently in March 2021. As of March 2021, the State had issued $737 million in buyout bonds of the $1.0 billion authorized by the General Assembly. The Official Statement for the March 2021 bonds included an update on where the buyout programs stand as of February 2021. For a description of the provisions of the buyout plans, see this blog.
State Employees’ Retirement System (SERS)
SERS was the first of the three State pension plans to begin offering members the buyouts—in December 2018—or six months after the legislation went into effect. SERS was expected to have the highest participation rate of the three plans, which has been borne out so far. As of February 6, 2021, SERS has processed payments in the amount of $178 million for both buyout plans. The participation rate for the automatic annual increase (AAI) buyout was 25% and the inactive pension buyout was 1%. The average payout for the AAI buyout was $105,800 and the average pension buyout was $142,000.
Teachers’ Retirement System (TRS)
TRS is the largest of the State’s five pension funds, but it wasn’t projected to account for as much of the projected savings as SERS. TRS began offering the first of the buyouts in January 2019 and has spent $398.8 million of bond proceeds on both buyout programs as of February 15, 2021. The participation rate in TRS for the AAI buyout was 17.2% and the inactive pension buyout participation rate was 10.4%. The average payouts were $132,700 and $122,000 for the AAI and inactive buyouts, respectively.
State Universities Retirement System (SURS)
SURS began implementing both buyout plans in June 2019 and as of February 15, 2021, has expended buyout bond proceeds of only $20.7 million with a total of 70 participating members in both buyout programs. The participation rate was less than 1% in both programs. The average payout was $106,327 for the AAI buyouts and $469,086 for the inactive buyouts.
Also in the March 2021 Official Statement, the State noted that it expects that the buyout programs will result in a reduction of the three pension funds’ unfunded liabilities, but also said it is “unable to quantify the amount or timing of any such reduction at this time.” At the time the buyouts were implemented, the Civic Federation noted its misgivings with the lack of vetting of the legislation in public hearings, the assumptions backing the projection of savings and the fact that the only actuarial analysis released was for different legislation entirely with different buyout provisions.
The Federation continues to urge the State to provide a full actuarial analysis of any proposed pension legislation in order to inform elected officials, participants and the general public of the potential impact of any pension changes.