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ZZUNUSED
State to save on educator pensions
CHARLESTON -- West Virginia officials have estimated an upfront savings of $22 million from the recent mass transfer between state-run teacher retirement plans.
The chance to switch from a 401(k)-style retirement program to a more traditional plan proved more attractive to younger educators than expected, a joint legislative interim committee tracking pension issues learned Monday.
That leaves the Teachers Retirement System with more time to collect and invest contributions from these new enrollees before they reach retirement age, actuary Harry Mandel said.
"It was a very favorable group," Mandel, with the Consolidated Public Retirement Board, told lawmakers.
The Legislature allowed members of the state's 401(k)-style retirement program to join TRS after numerous teachers complained of not having enough money in their individual investment accounts. Some teachers said they were afraid to retire as a result.
Nearly 15,000 active enrollees made the switch, which took effect July 1. A breakdown provided by Mandel showed that at least three-quarters of eligible enrollees in age groups ranging from 20-somethings to those 60 through 64 made the move. The largest segment to move to the traditional plan was among those 55 to 59, at 83 percent.
Less than 70 percent of those age 65 to 90 made the switch, while those 70 and older were least likely to take part with just half transferring, Mandel said.
"Fewer older members transferred than we expected," Mandel said.
These older members of the Teachers' Defined Contribution plan would have been the most expensive to TRS, as they would retire sooner and after contributing less money than their younger colleagues. They would remain burden if lawmakers were to consider a future chance to transfer, Mandel told lawmakers.
While those who transferred had been investing in their accounts to generate benefits, the traditional plan promises them a pension based on years of service and final salaries. The funds transferring with them equal 83 percent of the funding needed to provide those benefits, a better level than expected and far better than the 51.3 percent for TRS overall, Mandel noted.
"It appears to me we are significantly better off than we thought we would be," said Sen. Brooks McCabe, D-Kanawha.
The state created the 401(k)-style plan because of TRS' funding woes. But nearly $2 billion in extra payments by the state into the traditional program, plus a multiyear plan for erasing its unfunded liability, helped prompt lawmakers to reopen it to teachers and other eligible educators in 2005.
TRS charges 6 percent of pay to its enrollees, while those who transferred had been paying 4.5 percent under their old plan. The Legislature budgeted $25 million and allowed for low-interest loans to help those transferring make up the past difference in those contribution rates.
Paltry returns in the 401(k)-style program have been blamed on neglect by individual account holders as well as on poor advice from state-hired firms. At least one pending lawsuit faults a subsidiary of insurance giant AIG for steering account holders toward its investment option, deemed ill-suited for a long-term retirement account.
