Indiana News

Pence and House GOP Differ on Tax Rebate Law As Well As Tax Cut

Half of excess reserves go to pensions; Pence would use for roads

3/26/2013

 

Indiana's public pension funds are staying out of a budget debate over how much to set aside for unfunded pension liabilities.

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Indiana's automatic tax refund gives taxpayers only half of any excess state surplus. The other half goes to shore up state pension funds. Governor Pence has proposed steering that half to highway funding instead.

House Republicans contend that's too uncertain a funding source for roads, and would direct a portion of gasoline sales taxes there while leaving the tax refund rules intact.

Indiana Public Retirement System executive director Steve Russo says that decision is up to Pence and the legislature. He says both approaches fully fund the state's seven pension plans.

Actuaries consider pension plans fully funded if they have the money for 80% of expected payments. The seven funds are at a combined 81%, with five of the seven individual funds above the 80% line.

Last year, the automatic refund law boosted pension funds by $206 million, enough to nudge three smaller pension plans for judges, prosecutors, excise and conservation officers, and gaming agents above the 80% threshold.

The state accounts separately for the old pay-as-you-go pension fund for teachers who started work before 1996. Because the state budgets annually for those payments -- currently more than $700 million a year -- it's considered fully funded, even though its cash-on-hand is well below the 80% level.

Pre-1996 payments have been increasing by a steady 3% a year. If the state maintains that pace, Russo says it could begin to spend less in 15 years, and achieve 100% funding in 2036. The state also sets aside money each year in a pension stabilization fund. Russo says spending more of those dollars would allow the state to flatten the annual general-fund spending instead of increasing it, but would mean the state would have to continue making room in the budget for pension payments for an additional 14 years. He says INPRS doesn't advocate either of those approaches over the other, but warns benefits will have to be paid one way or the other -- the only question is how the state plans for it.

Although the House budget continues to give pensions first crack at excess reserves, it doesn't call for any such payments in the next budget. The plan projects a surplus below the threshold which triggers the tax rebate and pension stabilization payments. If the state collects more than expected, the pension and tax rebate provisionis would kick in.

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