State retirement system crippled
Looming $16 billion shortfall threatens to tarnish the golden years of thousands of state employees. With fewer workers paying into the system, officials say benefits might need to be scaled back.

By JAMES SALZER
The Atlanta Journal-Constitution
Published on: 10/24/07

The state's employee retirement system is facing a potential $16 billion shortfall in coming years as baby boomers continue to retire and may have to scale back the program for future state employees, the program's director told lawmakers Tuesday.

Officials say they may have to change the program so it can continue paying full benefits in the future for the 70,000 state employees in the system and the 32,000 retirees already receiving benefits. The retirement system board approved a reduced cost-of-living increase last week.

The talk of any cutbacks has retirees up in arms. Some fear the benefit will be eliminated or slashed for future employees. They also worry their annual cost-of-living increases will be cut further.

"This is going to be a fight," said Bill Tomlinson, a retired former state budget director who has worked to organize retirees.

The problem is similar to what's ahead for Social Security at the federal level. The ratio of workers paying into the system to retirees receiving benefits will be shrinking, officials said.

"Our liabilities are growing faster than our assets," said Michael Nehf, executive director of the state's Employees Retirement System, in a presentation to a House-Senate panel studying the issue Tuesday.

"It's not something we have had to face before, with the baby boomers moving from active to retirement status ... and living longer."

The retirement system problems come on top of an estimated $15 billion to $17 billion cost over the next 30 years to pay for health care benefits promised to tens of thousands of retired teachers and state employees, according to a report by an outside firm released earlier this year.

Gov. Sonny Perdue and lawmakers began putting money away to fund that tab earlier this year, allocating $100 million for future retiree health care costs.

Nationally, the first of 80 million baby boomers — Americans born from 1946 to 1964 — signed up for Social Security recently. But in Georgia, the flood of boomer state retirees began even earlier because they often retire after working 30 years for the state. The state retirement system for teachers is not facing the same problems, he said.

State retirees have received 3 percent annual cost-of-living increases for more than a decade, even in years when the increase in the consumer price index — which measures the inflation of consumer goods and services purchased by households — has been lower.

If those kind of increases continue, Nehf told the House and Senate Retirement Committees, the unfunded liability — the amount owed to beneficiaries above the assets of the system — could hit $16 billion within 30 years. As of fiscal 2009, which begins July 1 of next year, it could reach more than $700 million.

Nehf said the state has several options beyond eliminating cost of living increases, which at 3 percent would have cost the system $250 million this year.

He said the state could also increase contributions from employees or the state treasury to help bolster the fund. And lawmakers are pushing bills, with the blessing of the Perdue administration, that could change the plan for new state employees. They would either have less of a standard pension-type package or start getting money from the state to put into retirement accounts.

"The longer we put off looking at options, the less well-funded (the system) will be," Tommy Hills, the state's chief financial officer, told the committee.

Legislators also are looking at opening up how the system uses its money, allowing it to invest more in stocks and international offerings, for instance.

Some retirees contend that the Perdue administration and retirement system officials are creating a false crisis to justify lowering payments to retirees and phasing out the current program.

Tomlinson said cost-of-living increases matched the average rate of inflation over the past 25 years. And he said the system made 14.72 percent return on its investments last year, about twice the figure used in projections Nehf presented to the committee. "I think it's a push to say, 'we don't want to put money into retirees,' " he said.