State to use teachers' pension

INDIANAPOLIS -- A decision by lawmakers to tap the Teachers' Retirement Fund to help pay for the next two-year state budget could mean higher taxes when the wave of baby boomers now teaching leaves classrooms.\nThe budget the General Assembly passed last month will use $380 million from the Pension Stabilization Fund, which is set aside for pension payments in future years, to make it through the next two years without a tax increase.\nThe step could result in higher taxes or the loss of government services for Indiana residents years from now when more teachers retire.\nLast year, 34,646 pensioners got checks, which averaged $999 a month.\nDuring the next two years, total state pension payments are projected to reach an annual $956.6 million. Retirement costs are expected to reach a peak of $1.4 billion a year from 2024 to 2032.\nBecause of legal and moral obligations, there is virtually no risk retired teachers will not get paid as a result of the move. But taking money from the stabilization account, which was created in 1995, will leave less money in the future to back those retirement checks.\n"It's just really shortsighted," said William Christopher, the pension fund's executive director. "Legislators are digging themselves a big hole."\nWhen the pension fund's total savings are compared with the money owed to 82,156 current retirees and what will be owed to those hired before July 1, 1995, Indiana's fund ranks second-worst in the nation among 93 public funds.\nEven with assets totaling $5.1 billion, it has an unfunded liability of almost $8 billion.\nThe Pension Stabilization Fund was intended to limit the expected growth in pension payments from the state's General Fund in coming decades. That growth is coming because lawmakers decided decades ago against setting aside money for retirements while teachers were working, instead opting for a "pay-as-you-go" system, similar to Social Security.\nBut last year the stabilization fund lost 4.8 percent, or about $90 million of its value, in part because of the declining stock market.\nOfficials are unsure how much the stabilization fund will be hurt by removing $380 million and applying it to the $956.6 million owed to retirees.\nGov. Frank O'Bannon's budget proposal released in January included using the $380 million to ease Indiana's budget crunch. Lawmakers said they just followed his lead.\nThey also said they previously put $650 million in "extra" money into the stabilization fund, and now are entitled to take some out.\nPension experts agree that if the fund is tapped for just $190 million in each of the next two years, it could meet the demand state law places on it.\nBut in addition to drawing on $390 million in stabilization-fund money, lawmakers will not deposit the usual $60 million of lottery money in the stabilization fund in the next two-year budget.\nChristopher, who oversees the retirement fund, saw that as a step backward, too.\n"The new fund was founded on the idea local school districts should pay the full cost of new hires," he said. "This is essentially going back to the old way, where the state is assuming liability"