An overhaul of the state’s pension fund that changes the contribution system for future employees to one more closely resembling private-sector retirement plans has passed the Tennessee General Assembly.
The bill, HB948/SB1005, sponsored by Rep. Steve McManus,R-Cordova, and Sen. Randy McNally, R-Oak Ridge, intends to change the state employee retirement plan to a hybrid system to safeguard against possible future insolvency, as faced by many other states around the country.
The legislation, which goes into effect July 1, 2014, would require new state employees going forward to contribute a portion of their income to their pension fund. The employees can also decide whether to choose their own investments, or allow the state to continue managing the pension investments.
It applies to government employees hired after the law takes effect; current state employees and retirees would remain under the old plan.
“The fundamental goal of a hybrid plan is to require employers and employees to share in the investment risks and costs equitably,” McManus said on the House floor, after explaining the new contribution and benefit rates under the measure.
McManus added that another purpose of the bill was to allow Tennessee to continue to provide competitive benefits for “career public employees,” while protecting the state from “unfunded liabilities.”
The proposed change to the state’s pension fund received some pushback from Democrats on the House floor.
Although this legislation might be good for some states around the nation, House Minority Leader Craig Fitzhugh said that he did not think that it was necessary to make these changes to the Tennessee Consolidated Retirement System.
“This is a $35 billion TCRS that we collectively, and through the years, have worked hard to maintain,” said the Ripley Democrat. “It is in good shape. And, if we had to do something to split it and start over with new-hires having only a partial defined contribution plan and a partial defined benefit plan, that would be fine. But ladies and gentlemen, at this stage in the game, we don’t need to do that.”
However, according to McManus, the desire to overhaul the pension program comes from several factors considered by the Treasurer’s office.
These factors include things such as the volatility of the financial markets, new federal requirements for pension fund reporting and the strain placed on these programs by the increased life-expectancy of Americans.
The changes to the pension fund are also opposed, for reasons similar to those voiced by Fitzhugh, by representatives from state employee advocacy groups, such at the Tennessee Education Association.
“It puts an employee’s retirement security in jeopardy,” said Jerry Winters, a former lobbyist for the Tennessee Education Association who now works on government employee retirement issues. “Again, the only good thing here is that the current participants are protected, but going forward, I think young people are going to have to really look at where they’re going to be 20 and 30 years from now.”
The bill passed the House 71-16., and passed the Senate 32-0.
It’s now headed to Gov. Bill Haslam for his signature.