Coalition releases report on Vermont’s unfunded pension liability crisis

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.

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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.

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.

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12 thoughts on “Coalition releases report on Vermont’s unfunded pension liability crisis

  1. What is $4,500,000,000 in pension fund shortages?

    Vermont has twice as many state employees as NH, and half as many citizens.
    4 times as many employees earning the next round of retirements and lifetime medical.

    $3500 plus interest accruing, per Vermonter, or $14,000 plus interest per family of 4 !!!!!

    BUT wait – there’s more!! , National Debt is far worse

    Woops !!! Sorry ’bout that !!

  2. “Vermont’s state and public school teacher workforce is aging and retiring, which will increase these unfunded liabilities.”

    Not to mention that the retiring teachers are all being replaced by younger teachers who will also retire one day with unfunded retirement benefits. We’ve been warning and watching this phenomenon grow worse for decades. There’s no sign in the legislature that the government/education monopoly is going to change. And those of us who would like to migrate out of the State can’t sell our property for anywhere near what we have into it because we’re actually selling a liability to anyone foolish enough to move here.

    My property tax, for example, is, by far, my greatest annual expense. It’s like paying a second mortgage…in perpituity. And for what? Glorified day care.

  3. With all this hand wringing about underfunded pensions, I have yet to hear or read anything about how we got here in the first place. It’s all about the debt, its rate of grow and finding the funds to deal with it. It would seem that understanding the root cause of this mess would be helpful in finding a solution.

  4. This should serve to show how costly public sector unions make it for the rest of us – most of us do not have the same earning power or similar benefits to turn to for ourselves or families but must saddle the burdens of the highest wage earners.

    Reducing classroom size, privatizing education as much as possible and dump as many state workers as necessary asap would cover it over a relatively short period of time.

    • In addition to your suggestions, the Legislature must act to phase out defined benefit plans and phase in defined contribution plans as rapidly as possible. The sooner the better.

      • Again, consider the breach of Article 9 in the VT Constitution, which states, among other things, “…previous to any law being made to raise a tax, the purpose for which it is to be raised ought to appear evident to the Legislature to be of more service to community than the money would be if not collected.”

        Unfortunately, the Legislature is an ‘accessory after the fact’. With 40% of Vermont workers now employed by Vermont’s government, health and education sectors, its voting block is an unassailable super-majority… as Benj. Franklin warned would become” so corrupted as to need Despotic Government, being incapable of any other.”

    • Only one I can see who can and will right this ship is John Klar…by 2-1 more Dems than Republicans or Indies vote for Comrade Phil…he is in thrall to the existential threat to vast majority of VTers and enemies to state prosperity…we are radioactive to business for all of the reasons highlighted and discussed on TNR…
      Pls stop blaming ‘aging poulation’ while placing in statute the ‘right’ to murder children born live following fourth trimester ‘abortion’…also cheerled and fully supported by Phil Scott…and handing abortion mill sponsors Planned Parenthood over $1 million to continue their reign of terror over the unborn youth of our state.

      I too am leaving…will likely take a year to make house merely saleable. Only salvation of our state will take a mover and a shaker plus standing up to the communists who have over run our state…

      • Biggest reason for leaving is RKBA..biggest slap in the face ever received by an official personally who had my complete support…daughter lives in NH…got out of car on one visit to hear gunfire in the distance…felt so comforted…inquired as to where it was coming from…they said it’s ‘controversial’…in VT would have been illegal…good freaking riddance…

  5. Thanks for the effort in cooperation with the Business Roundtable to dig deeper into this problem.

    I wish the executive summary included the principal recommendations for action.

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