State Treasurer Beth Pearce and some lawmakers from the Senate Government Operations Committee were at odds Wednesday over the proposed creation of an oversight commission to make recommendations on the state’s ongoing public worker pension crisis.
The pension bill being considered by the Senate committee is H.449, an act relating to the membership and duties of the Vermont Pension Investment Commission and the creation of the Pension Benefits, Design, and Funding Task Force.
“I think the language here goes too far, and it puts them in a position … where you are now creating another role for the General Assembly. And that division of labor between investments, the pension board, the board of trustees, the retirement division, and the legislature I think needs to stay,” Pearce said.
Under consideration is a proposed 10-member independent commission comprised of various financial and public sector representatives. According to the text of the bill, the Vermont Pension Investment Commission is “responsible for the investment of the assets of the Vermont Vermont State Teachers’ Retirement System, the Vermont State Employees’ Retirement System, and the Vermont Municipal Employees’ Retirement System pursuant to section 472 of this title, 16 V.S.A. § 1943, and 24 V.S.A. § 5063.”
Pearce said if lawmakers get too involved in managing the public benefits policy, that may violate IRS rules.
“You are now putting politics into what the pension boards are doing,” she said. ” … You are now getting into the issue of the exclusive benefit rule.”
Pearce explained that the “exclusive benefit rule” is an IRS rule that means that the managers of these state pension funds must make each policy decision based solely on the outcome for the beneficiaries — no other factors should apply.
Pearce ultimately said she could support such a commission for advisory purposes only, but her caution remained strong.
Some lawmakers in the committee meeting said they support a new commission, arguing generally that as long as this body is relegated to a strict advisory-only role, then it should not be problematic.
“I wish we had this 15 years ago,” Sen. Alison Clarkson, D-Windsor, said. “I wish we had a group of people who really were dedicated to paying more attention.”
Sen. Jeanette White, D-Windham, shared that she felt the commission will just be helpful.
“This committee has no authority to do anything,” she said. “The only thing they have authority to do is to make recommendations.”
She added that she expects members of the House and Senate Government Operations and Appropriations committees may comprise much of the commission.
Also concerned about this proposal was Steve Howard, executive director for the Vermont State Employees Association. He suggested that oversight committees have a history in Vermont of gaining too much power.
“My concern is that the full legislature has that responsibility, and what I’m worried about — as this is a politically volatile issue as you can see, it’s something that people care deeply about — is that the legislature will frequently allow oversight committees to defer those decisions to a much smaller group of legislators,” he said.
Pearce, a Democrat, has been an outspoken critic of politics mixing with state retirement systems, even when it puts her at odds with top Democrat party leadership. In January 2016, when Vermont Democrats were pushing strongly for “divestment” strategies that get pension funds out of oil/gas-related stocks, she opposed the movement.
“From our end, legislating investments is bad practice,” she said. “My first priority is to protect the 49,000 active, vested, and retired members of the system, the beneficiaries, and the taxpayers who put dollars into that system.”
White said the bill may advance to the Senate floor by the start of next week. It could possibly be passed out the Senate and go back to the House chamber. However, she expressed doubt that the bill will make it to the finish line this legislative session.
“We are quickly running out of time,” White said. “Hopefully we will have something we can agree on.”
Taxes impacting pension fund performance?
Pearce believes there one misconception regarding a substantial portion of the massive debts accumulated recently in the retirement system — namely it’s not all underfunding to blame for its shortfall. She said there have been major shifts in workforce demographics and taxes could be a factor.
“Primarily teacher turnover and teacher retirement had a major impact and if I’m looking at this from an oversight committee, I want to know why?” she said. “And I think that’s very important, and we talked about other decisions in there, but the reality is the biggest mover in the teachers’ system was that, and I think it has some relationship, frankly, to property tax.
” … What I’ve said on many occasions is if you squish the balloon on one side, it pops the balloon on the other, and the committee may want to take a look at what is the full impact of that.”
She emphasized that officially the Treasure’s Office is neutral on the politics of the property tax.
Click here to watch the entire committee discussion from Wednesday.