Editor’s note: For the past year, The Ethan Allen Institute has been working with the Business Roundtable’s Pension Reform Task Force to better understand the problem of Vermont’s $4.5 billion pension liability and to explore some possible paths to a solution. The 31-page report resulting from this study came out in January. Here is the executive summary.
Vermont is obligated to help fund the pension and retiree health care plans that it provides to its 34,665 (as of 2018) teachers and state employees. While the state has made some payments to these plans over time, billions are owed—and the amounts owed keep increasing at an accelerated rate. The unfunded liabilities for the pension plans have increased almost 110 percent in about a decade, from $1.1 billion in 2009 to $2.3 billion in 2018. At the same time, the unfunded liabilities for the retiree health care plans have reached $2.2 billion, bringing Vermont’s total unfunded pension and retiree health care liabilities to $4.5 billion, with no sign of the increasing debt burden slowing down.
Due in part to these unfunded liabilities, for the first time in modern history, Vermont has a negative net worth, and the state’s bond credit ratings have been lowered, making it more expensive to borrow money for infrastructure improvements and other projects. Unfortunately, given past investment performance for these plans, the situation is unlikely to improve. An August 2019 Institute for Pension Fund Integrity report identified Vermont as “one of the top 10 worst performing pension funds” in the nation.
Most Vermonters aren’t aware of—and likely don’t have the time, let alone desire, to try and understand—the complexities associated with these unfunded liabilities. But they should, because they are likely to feel the impact. Participants in these plans could lose their benefits or see them dramatically curtailed. Taxpayers could see higher taxes, as these unfunded liabilities continue to grow and, ultimately, come due. The social safety net could be eroded because, as the costs of servicing these unfunded liabilities grow, less funds will be available for vital government services. And, economic development could suffer as potential investors shy away from a debt-ridden state.
And, trends indicate that the burden will continue to grow. Vermont’s state and public school teacher workforce is aging and retiring, which will increase these unfunded liabilities. There are more participants in these pension and retiree health care plans now than there were 10 years ago, and fewer working Vermonters available to pay the taxes to fund these plans. The purpose of this report is to educate stakeholders about the evolution and impact of these unfunded liabilities, utilizing facts and figures from reliable, objective sources, and to outline pathways and policy options for reducing these unfunded liabilities. Doing so will not be easy, as there are no quick fixes for a problem that has been growing for many years.
Read full report here.