The dog that didn’t bark under the Gold Dome this year — and hasn’t in some time — is pension reform for the state’s teachers.
Oh, it whimpered a bit: There was even a bill to eliminate automatic cost-of-living increases for retirees. But it was clear all along the bill wasn’t intended as a serious proposal but more as a shot across the bow.
Unfortunately, that’s been the problem with even discussing pension reform. Anyone mentioning the need to do something different is seen as a threat. And that’s in part because those doing the mentioning have tended to approach it from an ideological perspective. So we’ve seen little more than an exchange of warning shots, directed either at teachers or at lawmakers.
It doesn't help that the numbers involved are so large. Having to add almost $600 million over two years to shore up the Teachers Retirement System, as the Legislature has done, and still not having it fully funded, will send people to their usual corners. But if nothing is done, $600 million could become an annual addition to the budget. That would drain the lion's share of new state-revenue growth even when the economy is good, not to speak of what would happen in a recession and revenues and stock prices alike were falling.
All of this should concentrate minds in every corner to find a new approach.
The beginning of a new approach has also been evident this year, if you know where to look. This past week, Leonard Gilroy of the Reason Foundation’s Pension Integrity Project explained to members of the House Budget and Fiscal Affairs Oversight Committee why Georgia needs to make changes and how other states have gone about it.
There are a few key takeaways. First, the usual depiction of reform as a fight to take away a defined-benefit pension and replace it with a defined-contribution, 401(k)-style plan is wrong-headed, he said, because there are good and bad examples of both types of plans.
“For us, pensions are a math problem,” Gilroy says. “This is not an ideological issue.”
To underscore that point, Gilroy offers seven objectives to guide lawmakers as they consider changes: keep promises to current teachers and retirees; provide retirement security; stabilize contribution rates to the plan (which have been rising quickly); reduce risk; lower costs for teachers and taxpayers alike; ensure benefits are attractive enough to maintain a quality teacher work force; and adopt best practices for governance of the plan.
None of that should sound like a vast conspiracy to rob teachers of what they’ve been promised.
“We want to honor that commitment,” says Rep. Chuck Martin, R-Alpharetta and chair of the budget committee. “This is not about taking anything away from a current retired teacher, or someone currently teaching in Georgia. In fact, this conversation has to happen to ensure the current benefits (are maintained).”
A change is most likely in order for future teachers. Otherwise, we’ll continue adding future liabilities at a clip that outstrips employees’ contributions to the program. Depending on the assumptions one makes about things such as rate of return on investments, Gilroy said, TRS’s unfunded liabilities already are between $18.6 billion and $58.6 billion.
But to reiterate, the point is not necessarily to deny them a defined-benefit pension. Rather, it should be to design a plan, of whatever type, that meets those reasonable objectives.
The longer lawmakers wait to start figuring out what that plan might look like, the harder their work will be.
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