Change appears to be in the cards for Utah's retirement system, perhaps including one revolutionary option of doing away with the nearly century-old pension system altogether for new hires and replacing it with individual 401(k)s.
"Something has to be done in my opinion. How does it look? What should we do?" are questions that remain, said Sen. Dan Liljenquist, R-Bountiful, chairman of the legislative committee that oversees retirement.
But the push for change was met with a unanimous chorus of opposition from public employee unions that urged lawmakers Thursday to go slow and give the current pension system a chance to recover from its battering by the economic downturn.
"We feel, as an association, the system is sound as it is," said Kory Holdaway, the lobbyist for the 18,000-member Utah Education Association and a former legislator. "There have been some bumps, there have been some challenges ... [but] we need to give it some more time. To react at a time when the economy is on the recovery is not something that we would support."
The crux of the problem is this: A plummeting stock market left the Utah Retirement Systems with about $6.3 billion in unfunded, long-term liabilities. To make that up and pay for the benefits for new employees, the state will have to pay a bigger chunk of retirement benefits, creeping up by $400 million by 2016.
Liljenquist says that is unsustainable because it means that a huge chunk of a new employee's compensation -- salary, benefits and pension -- would be committed to the retirement benefits. As a result, school districts, police and fire departments and state and local governments wouldn't be able to pay the salaries to lure new workers.
He's suggesting, in essence, that the state hit the reset button: Those currently in the pension plan wouldn't see much change; but things might be dramatically different for a new hire.
"For current employees, we may make adjustments on the margins," Liljenquist said, "but there won't be a substantial reduction in actual benefits we're offering because we're contractually obligated and it's the right thing to do. You don't change the game when someone is so close to retirement."
But new teachers, police, firefighters or government workers might see a system in which 8 percent of their salary is put into a 401(k), new employees are guaranteed more modest benefits, or perhaps a hybrid of both systems.
"We have to make prospective changes that reduce retirement benefits to ultimately compete on wages again," Liljenquist said.
Currently, three states and the District of Columbia have contribution plans -- 401(k)s -- as their primary retirement system; six states allow employees to choose between a defined benefit -- guaranteed pension -- and defined contribution; and four states have a mix of the two, according to a September report from the National Conference of State Legislatures.
But groups representing public employees, more than 100,000 of them are currently active members in the system, said Utah's retirement system is one of the top ones in the nation, and cautioned against drastic change.
Mike Galieti, a police officer and chairman of the Utah Retirement Systems Membership Council, said the advisory board -- made up of groups representing beneficiaries of the retirement plan -- has not agreed on what, if anything, should be done to shore up the pension plan, but it does not support replacing a defined benefit pension with a defined contribution plan.
"We believe the current systems are well-managed and viable as they are currently constituted," he said.
Robert Newman, executive director of the Utah Retirement Systems, reported that investments had grown 13 percent since the beginning of the year, well ahead of the projected rate of 7.75.
Jan Johnson, executive director of the Utah Alliance of Government Employees, said her members do not want to be left with just a defined contribution and questioned if the economic downturn was simply being used to justify a change.
"Even when the economy was healthy and we weren't in a recession, there were attempts to change from a defined benefit to defined contribution and members worry that the timing gives extra fodder," she said, urging lawmakers not to be reactionary. "We would just encourage you to take these people's lives into consideration."
Double dipping
Some lawmakers disagree over harm from double-dipping by public employees.
A legislative audit found that those workers who retire from one job and go back to work while drawing a salary and pension will cost the state retirement system $900 million in the coming decade. That's because those workers will collect a pension earlier and longer, and because the employer is not making a contribution to the retirement system on behalf of that employee.
But Sen. Jon Greiner, who is also the Ogden police chief -- and a double-dipper -- defended the practice. He said he has been able to recruit qualified, trained police officers who are about to retire from other departments and it was an important practice to have when he wasn't getting qualified applicants several years ago.
And Rep. Christine Watkins, D-Price, who is a double-dipping educator, said some teachers are asked to return to work because the district can't find qualified replacements "and feel a loyalty to the district."
