Vermont’s Expanding Pension Crisis

1. Vermont’s ExpandingPension Crisis Presented by David Coates to the Ethan Allen Institute June 19, 2012

2. The Messenger ! David Coates presentation to EAI June 19, 2012

3. Discussions Points • The Problem • Key Information • Possible Solutions David Coates presentation to EAI June 19, 2012

4. The Problem 6/30/116/30/09 Unfunded pension liabilities for state and teachers $1.2B $1.1B Unfunded retiree health care benefits for state and teachers $1.8B$1.6B Totals $3.0B $2.7B David Coates presentation to EAI June 19, 2012

5. The Problem Total unfunded pension and retiree health care liabilities 6/30/116/30/09 State $ 1.4B $ 1.1B Teachers $1.6B$ 1.6B Total $3.0B $ 2.7B David Coates presentation to EAI June 19, 2012

6. Governmental Accounting Standards Board Unfunded pension liabilities must be considered on an equal footing with other obligations. David Coates presentation to EAI June 19, 2012

7. Key Information From the state’s comprehensive annual financial report (6/30/11) General Fund Revenues $ 1.2B Total Assets $ 3.2B Total Liabilities $ 1.6B Net Assets $ 1.6B David Coates presentation to EAI June 19, 2012

8. Key Information • Unfunded Pension Liabilities (total) $ 1.2B • Unfunded Retiree Health Care • Benefits (total) 1.8B • TOTAL $ 3.0B • StateTeachers • Pension Fund Assets • as of 6/30/11 $1.3B $1.5B • % Funded 79.6% 63.8% David Coates presentation to EAI June 19, 2012

9. Annual Required Contribution(from Actuarial Reports at 6/30/11) 6/30/116/30/13 Pension (ARC) State $44M $ 39M Teachers 48M 60M $92M $ 99M Payments Made State $38M $ 39M Teachers 50M 65M $88M $104M Net $<4M> $ 5M David Coates presentation to EAI June 19, 2012

10. “This funding shortfall represents the single greatest risk to the financial integrity of the system.” Beth Pearce, State Treasurer November 7, 2011 David Coates presentation to EAI June 19, 2012

11. Annual Required Contribution(from Actuarial Reports at 6/30/11) *Retiree Health Care Benefits (ARC) 6/30/116/30/13 State $ 67M $ 73M Teachers 42M 45M $109M $118M Payments Made State $ 27M $ 29M **Teachers - 0 - - 0 - $ 27M $ 29M Net $<82M> $< 89M> * Pay As You Go method ** Paid by the Teachers Pension Fund David Coates presentation to EAI June 19, 2012

12. Key Assumptions and Plan Provisions StateTeachers Early Retirement Age 55 55 * Normal Retirement Age 62 or 30yrs 62 or 30yrs 65 or Rule of 87 65 or Rule of 90 * Amount of Pension 50% 50% 60% 60% * Subject to different plan provisions David Coates presentation to EAI June 19, 2012

13. Key Assumptions and Plan Provisions Retiree payment for Health Insurance 20% (before 7.1.08) Tiered (after 7.1.08) Investment Earnings Projection by Actuary Year 1 6.25% Year 5 7.75% Year 6 8.25% Year 9 8.50% Year 17 9.00% David Coates presentation to EAI June 19, 2012

14. Key Assumptions and Plan Provisions StateTeachers Average Compensation $51,270 $54,109 Employee Contribution Rate (to 6/30/16) 6.4 % 5.0% (to 6/30/19) 5.1 % --- (thereafter) 4.85% --- Cost of Living Increases 1.5 % 1.5% David Coates presentation to EAI June 19, 2012

15. Possible Solutions • Change to a Defined Contribution Plan (401(k) Type) • Eliminate Health Care Benefits for new state and teacher • retirees but not existing retirees • Require state workers and teachers to shoulder more of the • annual benefit costs • Tie pension and retiree health care eligibility to Social • Security retirement age • Eliminate cost of living increases on pensions David Coates presentation to EAI June 19, 2012

16. Possible Solutions Silence the Messenger !! David Coates presentation to EAI June 19, 2012