State Treasurer David Lillard appeared before the Pension and Insurance Committee this week to present his proposal to reform the state’s Tennessee Consolidated Retirement System (TCRS) pension plan. The proposed changes, which would only affect new employees hired on or after July 1, 2014, were brought to the legislature to ensure future generations of state employees, higher education employees and K-12 teachers will receive the benefits promised to them during their time as state employees.
Founded in 1945, Lillard said the TCRS is in good financial shape due to the commitment of every governor and General Assembly since 1972 to fully fund it “no matter how hard it was.” He also attributed its success to a good investment strategy and fair benefit payouts to employees. However, he cautioned lawmakers that “changes are needed now to protect taxpayers and keep promises to employees.” Lillard said the new changes proposed represent a proactive approach to ensure the security and stability of pension benefits for current employees, retirees, as well as future employees that will be hired in years to come.
From 2009 through 2011, 43 states enacted major changes in state retirement plans for broad categories of public employees and teachers to address long-term funding issues according to the National Conference of State Legislatures. Although Tennessee is doing better than other states with similar pension plans, earnings have fallen short of 7.5% increases needed to meet expectations over the past five years. Lillard said changes are needed because it is uncertain how much money the retirement system’s investments will yield in the future. He also pointed to new Governmental Accounting Standards Board rules that require cities and states to disclose all pension obligations. Without changes, the new rules could interfere with Tennessee’s credit rating and ability to secure bonds at the best possible rate.
Senate Bill 1005 would change the current defined-benefits system for new employees hired after June 2014 to a hybrid plan that includes elements of defined-benefits and defined-contribution programs. A defined-benefit plan guarantees retirees a fixed pension benefit based on their years of service and earnings, while defined-contribution plans do not have guaranteed payment levels but rather specified contribution levels by the employer.
For more information, visit the TCRS website and select the tab titled “Proposed State & Teacher Plans”.