David Coates, a respected Vermont business person, recently shared an opinion piece expanding on the concern he has expressed regarding the financial soundness of the state teachers' retirement system and state employees' retirement system to the Vermont Municipal Employees Retirement System ("State pension woes become municipal woes," Feb. 4). There has been much in the press about the health of public pension systems across the country and personally, and David's concerns would be well-founded if targeted to them. I do have to draw the line when he asserts that there are problems with VMERS when he states: "(N)ot only is the state in a crisis mode, but so are many of our cities and towns."
VMERS is the defined benefit retirement plan for 6,577 municipal and school employees working for 442 local governments. We currently have 2,146 retirees drawing benefits. It was created by the legislature in 1974 and the legislature continues to control the benefits provided and sets the employee contribution rates. A five-member Board of Trustees governs the operations of the system -- the state treasurer, two representatives of municipalities and two representatives of local government employees. This board sets the employer contribution levels among other duties. Currently, local governments (ultimately their taxpayers) contribute an average of 6.375 percent of payroll to VMERS while the employees contribute an average of 6.983 percent of payroll, depending on which of the four plans available they are in.
Mr. Coates accurately states that VMERS had a $5 million surplus in 2008, just as the Great Recession started. What Mr. Coates didn't disclose was that in 1999, VMERS was funded at 125 percent of what was actuarially required to assure that all retirees would receive all the benefits that had been promised. That basically meant that taxpayers and employees had contributed almost $23 million more than what was required. That caused the VMERS Board to lower the employer (read "taxpayer") contributions by 8 percent and the employee contributions by almost 17 percent. We also at that time implemented one of the solutions Mr. Coates now advocates for -- a defined contribution retirement plan for those who wished to chose that option and implemented a similar plan to set aside money for retirees' health care costs. Municipal employees are not entitled to health care insurance unlike the state employees' and teachers' plans. The defined contribution plan is an option for those municipalities who wish to offer it and for those employees who believe that is the better retirement option for them, but it remains an option not greatly used. We also purposefully reduced our contribution rates and deposited funds into health savings accounts that would benefit retirees without ballooning the liabilities of the taxpayers.
In 2008, we had just gotten down to a 100 percent funding status when our investments tanked along with the rest of the world's portfolio. Mr. Coates compares that figure with the $82 million unfunded liability as of 2013 after the System had absorbed all losses from the market crash five years prior. (Retirement funds generally do not count gains and losses within a one year period, but rather phase them in over five years to smooth the impacts of market volatility.) That still leaves VMERS funded at 84.4 percent of full funding.
In response, we have raised contribution rates for both employers and employees twice with the second increase going into effect on July 1, 2014. The rates for the vast majority of employees in the system are still below those we were charging in 1999. Our actuarial report shows (on Page 8 of the report) that our combined contribution rates now in effect are more than sufficient to fully meet all the financial needs of the system over time.
VMERS is a well-funded, responsibly structured public pension plan. Its benefits are competitive, certainly not excessive. The responsibility for assuring fiscal soundness is shared fairly equally between employers and employees. The problems seen in other pension plans come from politicians and employee groups agreeing to increase benefits while side-stepping the long-term funding responsibilities. Until the market downturn, VMERS had been operating at a surplus since its inception 35 years before. The VMERS Board of Trustees remains committed to returning to that status in the near future and remaining that way, assuring that municipal employees have a safe and secure retirement to look forward to.
Steven E. Jeffrey is the Chairman of the Vermont Municipal Employees Retirement System. He has been on the board since 1982.