5-2-14 – The Foolish Retirement Fund “Fix”

by John McClaughry

For years the Vermont State Teachers Retirement Fund has been paying out health benefits to retired teachers. The money for these payments comes out of the fund balance itself – and that balance is around 60% funded. In short, the money put aside to pay teacher pensions is being robbed to pay today’s retiree health benefits.

Everybody who knows anything about this knows this is a very bad idea. If you keep robbing the fund to pay current expenses, there will be even less in it ten, twenty or thirty years from now when today’s teachers retire.

Two weeks ago Treasurer Beth Pearce announced a plan to pay these benefits out of other funds. That was good. But what other funds?

Pearce proposes to create a new Fund and “lend” it $28 million from the state’s cash reserves for 10 years. However, these cash reserves are the very same reserves designated as part of the state’s fiscal safety net called the General Fund Stabilization Reserve and “Rainy Day Fund.” At the end of fiscal 2015, House budget writers project these reserves to have $77.3 million. Thus, should Vermont hit another recessionary period say in four years, the rainy day funds will find themselves over a hundred million dollars short – in fact, they will have disappeared.

It’s ridiculous to pay retiree health benefits out of a pension fund, and it’s ridiculous to borrow the needed millions by raiding the rainy day fund.

There would be enough left over after funding  Modest Government to remedy the pension fund problems, over time.  But there’s never enough left over after funding Big Government.

John McClaughry is the founder and current vice-president of the Ethan Allen Institute.

{ 1 comment… read it below or add one }

Gary Richardson May 2, 2014 at 10:31 pm

We’ve known about this stealing from the teachers’ retirement fund to pay for the health benefits of retired teachers. This clear promise made by the Legislature for the teachers, is running out of money and will be broke in less that five years. Isn’t it time for the teachers to demand that the Legislature meet its obligations? Think of some weapons the NEA has to pressure the elected officials. They could announce, for example, that the NEA will no longer spend that huge amount of members’ union dues to support Democrats and Progressives running for the Vermont House or Senate. Or maybe the teachers will refuse to stand at the polls holding the signs supporting the Democrat/Progressive teacher-candidates. Wow! Or maybe, just maybe, the teachers could ….. Well, there are other things that would meet the need. All it takes is some courage and a little bit of anger.

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