Of all the issues likely to come up during the 2020 budget session, a solution for retirees on the state’s pension system — who have not seen a cost-of-living increase to their benefits in more than a decade — is sure to attract ample attention from state lawmakers.
Since cost-of-living adjustments for Wyoming’s pensioners were eliminated in the wake of the Great Recession, retired state employees have seen slight pay increases while weathering increases in their state health insurance premiums. And those premiums could increase further as the Joint Appropriations Committee weighs raising them in order to keep up with costs that have consistently outpaced inflation rates in recent years.
“There are legislators looking seriously at changing deductibles and changing benefits,” Gov. Mark Gordon told Wyoming AARP members in a telephone town hall meeting Tuesday night. “It was a little bit of a surprise to see that we had the challenge we did. We really tried to mitigate what the raise was going to be and do it over several years so it wasn’t such a big shock. It is still a shock. I don’t think we are unique in that respect.”
For the state’s retirees, however, those costs can add up. Paired with an average inflation rate of 1.5 percent annually over the past 12 years, the retirees have seen the buying power of their pensions diminish substantially, their fixed incomes eaten up by everything from rising medical expenses to higher grocery bills.
“These retirees have not had any pay increase, on top of their health insurance going up,” Betty Jo Beardsley, executive director of the Wyoming Public Employees Association, said Wednesday. “That means they have less funds to spend in their communities.”
It’s a subject that the Wyoming Healthy Retirement Coalition — which the association is a member of — is prepared to take on in earnest during the 2020 session next month.
On Monday, the organization — which formed nearly a decade ago after efforts to privatize the state’s retirement system — will be holding a town hall in Cheyenne to promote the re-introduction of a failed bill from 2019 sponsored by House Speaker Steve Harshman, R-Casper. If passed, that legislation would have offered the state’s retirees a lump sum increase to their pensions in an effort to offset some of these built-in costs.
It’s a proposal that proponents believe could gain some traction with legislators in the House — who narrowly defeated the measure last year — while having little impact on the state budget. According to a Legislative Service Office fiscal note on last year’s version of the legislation, a cost-of-living increase to the state’s existing pension would cost the state $5.5 million annually.
In a state where roughly one quarter of the workforce is public employees, according to the Bureau of Labor Statistics, any increase is bound to be popular and far-reaching. Facing down bleak budgetary prospects and a Legislature more favorable to cuts than increases under those conditions, however, an increase in expenditures to the state pension system becomes a big ask.
Special interest groups like the AARP, however, feel that ask is a worthy one.
“A (cost-of-living adjustment) is certainly a concept we support,” Tom Lacock, the associate state director for communications and state advocacy at AARP Wyoming, wrote in an email. “It has been 12 years now since there has been a (cost-of-living adjustment), and while we understand the condition of the state’s finances, inflation and rising costs of health insurance for state retirees mean the pension funds our retirees worked so hard to earn in their working life just don’t go as far as they used to.”
“During our teletown hall (Tuesday night) we heard from a man who saw the health insurance costs through the state go up $3,000 this year for he and his wife, who both retired after careers with the state,” he added. “That is real impact on those who can least afford it.”
There are millions of state and local public employees across the U.S who are not covered by Social Security, and are banking instead on government pensions as a main source of retirement income.
Researchers with the Urban Institute recently highlighted how these workers could face unique vulnerabilities with their financial security in retirement, especially as some states and localities seek to rein in spending on pensions by making benefits less generous.
An analysis the researchers conducted found that employees who are not in the Social Security system and who were hired in 2018 generally saw rules governing their pension plans that were more stringent than those for workers hired in 2008. The result is that the more recently hired employees will see lower retirement benefits.
For example, the amount these “noncovered” employees have to contribute to their plans and the time required to “vest” for their benefits both increased by about 8%, based on the analysis.
Changes like this for the noncovered employees were slightly smaller than the changes seen for public employees overall, according to the report. The researchers say that the reasons for the difference between the two groups are not fully understood.
Debates about the merits of expanding Social Security to cover all newly hired state and local public employees have simmered on and off for years now, with different groups at odds over whether the policy change would be a plus overall for retirees and their families.
When Social Security was created in the 1930s, state and local government employees were excluded from the program. Subsequent changes between the 1950s and early 1990s led to a situation where the program does now cover the majority of state and local workers.
But in 2018, about one-quarter of all state and local government employees, or around 5 million people, were working in positions that were not covered by Social Security, according to the Center for Retirement Research at Boston College.
Among these employees are state agency workers, firefighters, police officers and teachers.
The share of workers not participating in Social Security varies widely from state to state. Estimates cited in a 2011 Congressional Research Service report indicate that, at that time, nearly half of the noncovered employees resided in three states: California, Texas and Ohio.
Under federal law, state and local employees who are not covered by Social Security need to be enrolled in an employer-sponsored pension plan that provides at least equal benefits.
But the Center for Retirement Research, in a 2018 report, raised doubts about whether plans are meeting this standard after accounting for factors like long “vesting periods,” which determine when a person is eligible for benefits, as well as limited cost-of-living adjustments.
Another issue that the Urban Institute researchers bring up is that some employees do not work in government jobs without Social Security for their entire careers.
They point to findings that suggest that with about half of “defined benefit” state and local pension plans, workers have to spend at least 20 years on the job before the value of their pension benefits exceeds the value of their contributions into the system.
“Unlike other state and local government workers who are also covered by Social Security, noncovered workers may face greater risks to their retirement security if they change jobs and spend less than 20 years in the same pension plan,” the Urban Institute researchers note.
“They may also lack valuable protections the Social Security program provides,” they add.
The lack of “portability” with pensions when people switch jobs is an issue that’s come up in prior discussions about whether all public employees should be covered by Social Security.
Supporters of that option have also pointed out that Social Security, compared to pension programs, could also provide steadier cost-of-living adjustments.
But the 2011 CRS report notes that the net effect on retirement benefits under mandatory Social Security, versus the status quo, is hard to know entirely because it would depend to some extent on how state and local governments respond with changes to their pension policies.
Meanwhile, the International Association of Fire Fighters, a labor union, opposes mandatory Social Security, arguing it would jeopardize specialized retirement systems for firefighters, which tend to include earlier retirement ages than other plans.
Social Security itself has financial problems. Reserves in the Old-Age and Survivors Insurance trust fund—the main pot of money to pay benefits to retirees—will be depleted around 2034, according to federal projections from last year.
After that time, the estimates indicate that ongoing Social Security revenues would be adequate to cover about 77% of expected benefits paid out of the account.
Earlier estimates have shown that requiring all state and local government employees to enroll in Social Security would provide a mild boost to the financial health of the program.
More about the Urban Institute analysis can be found here.
Newly elected Kentucky Gov. Andy Beshear has released a financial analysis of a 2017 pension reform proposal that his predecessor Matt Bevin had commissioned and then kept hidden from the public. What the report shows will not be welcome news to those who claim defined contribution plans are the answer to saving struggling retirement systems.
“The proposed 2017 reforms would have cost the state more and forced out many more career employees,” Gov. Beshear said in statement when he made the analysis public last week.
According to the 65-page report, Bevin’s pension overhaul plan would have saved Kentucky money in the short term, but over the long term it would have cost state taxpayers more money while providing fewer benefits for retirees.
“It is unlikely that most of the potential savings will be realized as it is likely the system will experience an increase in the number of retirements when a member becomes first eligible for an unreduced benefit,” said the analysis, “as the new provisions provide a large economic incentive for the member to retire at first eligibility and seek other employment.”
One of the key aspects of Bevin’s pension reform plan was moving new employees in the Kentucky Retirement Systems into defined contribution plans instead of leaving them in the hybrid pension plan that was established in 2013. But the analysis said that the defined contribution plan would have been more expensive and cost 4% of employees’ salaries rather than the 3% with the hybrid plan.
The Kentucky Center for Economic Policy (KCEP) said “benefits for new employees had already been cut so substantially that there was simply no room to save money from additional cuts, and this shift actually increased costs.”
The report also said that closing the existing plan to new employees would have been costly over the long term because the plan would continue to pay benefits to retired members for many years but would have fewer employees paying into it.
“It is reasonable to conclude that the employer contributions will need to increase to offset the lost earnings,” said the report.
The actuarial analysis estimated that the eventual expected rates of returns in closed plans would have to be between 3.75% and 4.5% rather than the plans’ current assumed rates of 5.25% to 6.25%. It also said that it would have resulted in additional costs of $5 million to $11 million per year over the next 30 years.
Even though the analysis had been commissioned by Bevin when he was governor, he had blocked it from being made public. In 2017, Ellen Suetholz, a former state government attorney and member of the Kentucky Public Pension Coalition, submitted a request that the analysis be made public. But Matthew Kuhn, deputy general counsel for the office of the governor, denied the request saying that the analysis was just a draft and therefore not subject to the state’s Open Records Act.
Beshear, who was Kentucky’s attorney general at the time, found that the denial violated the Kentucky Open Records Act, a decision that was upheld in circuit court. Bevin sought and received a stay from the Kentucky Court of Appeals, which kept the analysis from being made public until it was released last week by Beshear.
“No amount of lipstick was going to make this pig attractive,” Jim Carroll, president of Kentucky Government Retirees, said in a Tweet. “Did Bevin think we didn’t know that closing down a DB plan incurs costs? Did he think we were stupid?”
Veronica Kay Garcia wrote in the Star-Tribune’s Dec. 7 Forum: “Pension inflation adjustment for retirees of the state of Wyoming is long overdue.” She makes several relevant points regarding Wyoming retirees. One point in particular is that there hasn’t been an inflation adjustment for 12 years. For your information, 107 is the age of our oldest retiree; 14 retirees are over the age of 100; 679 retirees are over the age of 90. 1970 was the retirement year of our longest paid retiree.
The WREP (Wyoming Retirement Educational Personnel organization) has been pushing for an inflation adjustment for the past several years, along with the state coalition of groups whose employees receive pensions from the WRS. The last legislature, 2019, we supported House Bill 314 introduced by Rep. Steve Harshman. It came close to passing in the House (26-30). This next year we plan to write every Senate and House representative to encourage them to pass an inflation adjustment.
Now going on 13 years, the need is very apparent. The WREP board has met with Gov. Gordon, the WRS board and Rep. Harshman to get their support. We are asking all retirees to please contact your House and Senate legislators to support some kind of inflation adjustment in 2020.
On December 1, retired public employees in Wyoming saw a 12% increase in the cost of their health coverage, which is taken directly out of their monthly pension checks.
Retirees receive, on average, $1,600 in pension benefits a month, and Betty Jo Beardsley – executive director of the Wyoming Public Employee Association – worries that many might have to start making difficult decisions.
She says for a Wyoming retiree, a 12% reduction amounts to half a month’s worth of groceries and four tanks of gas.
“So, we’re hoping that we can find a way to offset that premium increase, to help them with the impact to their actual take-home pay from their pension check,” says Beardsley.
Beardsley notes the entire state could soon start to feel the impacts. According to the National Institute on Retirement Security, expenditures stemming from pensions in 2018 supported 5100 Wyoming jobs, and each dollar paid in benefits supported $1.22 in total economic activity.
Joe McCord, a retired state worker, says Wyoming lawmakers have a role to play to fix what could otherwise have been a gradual rise in health costs. One option before the Legislature is to approve a 4% inflation adjustment for retired public employees, which would be the first such adjustment in 12 years.
But McCord says that still wouldn’t cover the hike in health insurance costs.
“You know, there’s a lot of state employees and retirees that don’t make a lot of money,” says McCord. “They’re living on a very small amount of money. And it needs to be adjusted – that health insurance needs to work for the people.”
McCord says Wyoming lawmakers also could opt to join 33 other states that have expanded Medicaid coverage. It’s projected that move alone would bring over a billion federal tax dollars into the state over the next decade, and expand health coverage to 27,000 residents.
In the early 1990s, a woman who was struggling entered my office. She had two little boys and an ex-husband who refused to pay child support. I sat her down, discussed her options for assistance and asked a question I asked many young women who entered my office: “What are you going to do for the rest of your life?” I asked her this question because my job wasn’t just to process food stamp requests or to make sure young families wouldn’t end up on the street — it was to mentor and guide young people to make sure they never needed assistance again.
As a retired benefits specialist for the Wyoming Department of Family Services (DFS), these types of stories are not uncommon. That woman with two little boys ended up using a Pell Grant provided by the government to go to college and, after graduating, she got a job working for a local church, making more than enough to provide for her young family.
I worked for DFS for almost twenty years, helping families throughout Wyoming when they fell on hard times. My coworkers and I shared the same goals because as a community we lift people up; we don’t leave them behind. Working for DFS brought me great joy because, for my entire professional career, all I wanted to do was mentor young women and make sure they didn’t make the same mistakes I did when I was younger. As a recovering alcoholic who has been sober for 46 years, I know that everyone has that drive inside of them to accomplish great things even when they think they can’t. As a benefits specialist, I found that drive in people and lifted them up when their challenges tried to bring them down.
When I retired thirteen years ago after years of service to my community, I was provided a pension. My pension is very modest. Some in the Legislature would like you to believe that all retirees move to Florida and sail to the Bahamas every weekend on their yachts. Like most Wyoming Retirement System retirees, I stayed right here in my community, where I volunteer with the local chapter of Alcoholics Anonymous and teach folks around the community genealogy through my church. I love Wyoming because this is my home.
Since I retired, each year it has become tougher to get by. In 2008, the Wyoming Legislature issued its last inflation adjustment for retired public employees. It has been a long 12 years since we have seen any relief. In that time, the price of groceries and healthcare has continued to increase and my modest pension benefit no longer covers all of the costs. Retirees’ health care deductibles are increasing and the cost of prescription drugs is skyrocketing. Many retirees like me aren’t able to keep up.
This coming legislative session, lawmakers should pass a 4 percent inflation adjustment for Wyoming’s retired public employees. Each and every one of us are pillars of our communities: we’re your kids’ little league baseball coaches, your neighbors, friends, family and the people sitting next to you at church on Sundays. We need this inflation adjustment or some of us will slip further into poverty, and be forced to rely on the various services I once worked to make sure no one would ever need.