Higher Education Employees Emphasize Risk to Taxpayers with Pension “Reform”

As Senate Bill 1005 and House Bill 948 go up for another committee vote Tuesday, March 26, higher education employees question the full cost analysis and the potential risk that this “reform” may cost taxpayers more in the long run, not less.

March 25, 2013

Dear Governor Bill Haslam,

As representatives of 1,400 campus workers and Tennessee residents, we are concerned that there has been insufficient attention paid to the costs associated with the state’s pension reform plan. While the Treasurer’s reform proposal included three options for reform and one recommendation, all options did not receive a full cost analysis available to the public.

A thorough cost analysis is particularly important because research from the National Institute on Retirement Security has shown that the effects of these reforms are often misleading. Their study “A Better Bang for the Buck” shows that it costs employers 46% less to operate a defined benefit (DB) plan than it does for a defined contribution (DC) plan while delivering the same level of benefits. Since taxpayers are the employer for state employees, we must ensure that money is not wasted and the costs of all pension reform options are fully examined. In line with this research, many states and municipalities have conducted feasibility studies of switching from the DB pension to a DC plan. Each of these studies have found that such a move would save little to no money in the long term, and could actually increase retirement plan costs in the near term. Perhaps not surprisingly, none of these states or municipalities opted in favor of the DC switch.

The Tennessee Consolidated Retirement System is in very good fiscal health, and it is unclear why there is a need for changes that may increase the burden on taxpayers. And while the proposed changes only affect new employees, it is important that the state provides quality benefits for all members of their workforce, regardless of their tenure. We are asking you to reconsider the expedited approach of these reforms and submit each proposed reform to an actuary to measure the costs and make that information available to the public. Without this information we should not be moving forward on such an important measure.

Sincerely,

Tom Anderson

President, United Campus Workers

UT Knoxville Facilities Services employee

Resources:

Better Bang for the Buck report
Study of the Wisconsin Retirement System