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Retirement plan red ink threatens benefits

By Dave Williams

dave.williams@graypub.com

ATLANTA - A quarter-century-old compact between Georgia's government and its employees is being threatened by demographic forces beyond the control of either, and the large and growing number of state retirees don't like it.

Echoing a trend that's happening at the federal level, Georgia's pension fund is facing a fiscal crunch brought on by the swelling ranks of baby boomers who will be retiring in the next decade, Mike Nehf, director of the Employee Retirement System, told state lawmakers last week.

Testifying before a joint meeting of the House and Senate Retirement committees, Nehf said the plan's assets only cover 94 percent of its future liabilities. He said that number will fall to just 48 percent in 30 years, unless the state reduces the annual cost-of-living adjustments it pays out to more than 32,000 retirees from the current 3 percent to 2 percent or less.

"Our liabilities are growing faster than our assets," Nehf said. "We need to figure out how to stop this growth in unfunded liabilities."

But neither state retirees nor lawmakers are buying into the dire picture retirement system officials are painting.

Bill Tomlinson headed the state Office of Planning and Budget before retiring three years ago.

He said the retirement system's looming red ink is of its own making.

According to Tomlinson, the state cut back significantly on its contributions to the system during the 1990s, when the economy was booming and the system was flourishing from investments.

But when a recession hit early in this decade and investments plummeted, the state didn't restore its contributions back to previous levels, he said.

"We were partners in this," Tomlinson said. "The state has not kept up putting in the amount it needed to. ... It could be easily changed."

Rather than an unavoidable consequence of the baby boom, Tomlinson and others see the situation as an abandonment of the commitment the General Assembly made to state employees in the 1970s.

Under legislation adopted back then, state workers went without a pay raise that was provided to teachers and state University System employees. In return, the state agreed to pick up a portion of the employees' pension contributions.

"A lot of people work in state government because of the pension benefits," said Rep. Robert Mumford (R-Conyers), a member of the House Retirement Committee. "It's a tradeoff for the lower pay. We have to be very careful when we talk about decreasing pension benefits for our employees."

Like the retirees, Mumford and other lawmakers are skeptical whether the system is in the serious predicament its administrators claim.

"We've had other times where we've had some dips, when our assets weren't covering all of our liabilities," Mumford said. "It wasn't a crisis then."

With legislators reluctant to go back on promises made to retirees and state employees in the current work force, the best chance for change could lie in the way the system treats future hires.

Several bills are pending in the legislature that either would reduce retirement benefits for state workers hired after next July 1, or do away with the current system and allow employees to choose a 401(k) or similar plan.

Tommy Hills, Gov. Sonny Perdue's chief financial officer, said lawmakers need to examine the alternatives as soon as possible and make a decision.

The gap between the system's assets and liabilities only will grow larger unless something is done, he said.

"The longer we put off looking at new plan options, the less better funded we'll be," he said.