Employer contributions to the Public Employees Retirement System will need to increase from the current 14 percent of employee salaries to at least 16 percent to cover increased pension benefits for retirees who served in the military, members of the Consolidated Public Retirement Board were advised Wednesday.
That could increase employer premiums for state agencies by at least $14.6 million a year, based on payroll figures from the state auditor’s office.
Last month, the state Supreme Court ruled that the CPRB has been short-changing public employees who served in the military by granting credit for military service during armed conflicts only for those conflicts that have been spelled out in state law.
The court ruled that it was unfair to grant additional service credit for retirees who, for instance, had served in the Persian Gulf War, but not those who served in Iraq or Iran.
That greatly expands the number of state employees who will be able to add up to five years of credit to their pensions for military service. That means a hypothetical employee retiring with 20 years of service who otherwise would have been eligible for an annual pension equal to 40 percent of his final salary would instead receive a pension of 50 percent of his final salary.
In 2006, a fiscal note for a bill that would have provided the same expansion of service credits as the Supreme Court decision estimated the change would increase pension benefits by about $42.5 million a year, and increase the PERS unfunded liability by about $236 million.
At its meeting Wednesday, the board took no public action on the expanded military service credits, but instructed staff to come up with recommendations for compliance with the Supreme Court decision at the board’s next meeting, on May 28.
Also Wednesday, Investment Management Board executive director Craig Slaughter told the board that state pension funds are doing very well through February.
At the two-thirds point of the budget year, the state’s two largest pension funds, for teachers and for public employees, are both seeing 12 percent return on investments, Slaughter said. That’s well above the 7.5 percent interest rate needed to keep the plans solvent.
Slaughter said he does not foresee any major movement, up or down, in the stock market in the short term.
“It’s just sort of going nowhere, so I expect it to remain about the same when I come back next month,” he told the board.
He said investment advisors are monitoring the Ukraine crisis, but said it is not affecting investment strategies, with the possible exception that Russian-based businesses are not attractive investments at the moment.
“It’s unsettling. That’s about the best thing you can say for it,” Slaughter said. “The thing that worries me most about it is what it may lead other countries, other demagogues, to do. You never know what the thing is that will throw the world into chaos.”
Reach Phil Kabler at email@example.com or 304-348-1220.