The Indiana Public Retirement System (INPRS) continues to be well positioned to pay the pensions of current and former employees of state and local governmental entities across the Hoosier State, including teachers.
INPRS Executive Director Steve Russo told the Legislature's Pension Management Oversight Committee Monday that Indiana's prepaid defined benefit pension plans collectively had a 85.3% funded status as of June 30, 2024.
That's down from an 89.1% funded status at the end of the 2023 state budget year. But Russo insisted the decrease was expected, due in part to higher employee salaries and legislative changes, and is manageable by INPRS.
"In my opinion, our pension funds remain well-funded," Russo said.
In contrast, the most recent available data shows Illinois' statewide public pension plans are just 43.8% funded — among the lowest in the nation.
Russo said the combined value of Indiana's pension accounts grew 7% to $49.9 billion during the 2024 state budget year that ran from July 1, 2023, to June 30, 2024.
"I believe it's highly likely, once we get our final adjustments in, that we'll be able to say that we closed the year right at $50 billion of assets for the first time," Russo said.
He explained the funded status decreased, however, due to $1.2 billion in new unfunded liabilities associated with rapid salary increases for government workers triggering higher pension payments down the road, and House Enrolled Act 1004 (2024) directing INPRS to begin funding toward a plan to give retired INPRS members either an annually indexed 13th check or 1% annual cost of living adjustment (COLA).
INPRS expects all but the oldest retirees will opt for the COLA because the benefit compounds over time. But it still remains to be seen whether the Republican-controlled General Assembly actually awards the benefit and how it chooses to do so.
In any case, Russo said so long as employers continue making their actuarially required annual contributions and investment returns come in at a "conservative" 6.25% five-year rate of return, he's confident INPRS will be approximately 90% funded in 2028, and 95% funded around 2033.
Russo also is predicting the General Assembly by 2029 or so largely will be able to end its approximately $1.2 billion in annual appropriations for the pay-as-you-go pre-1996 Teacher Retirement Fund.
He said recent contributions of billions of dollars in surplus state revenue to the account has boosted it to a 68% funded status with unfunded liabilities of just $4.3 billion, compared to more than $11 billion of unfunded liabilities less than a decade ago.
"We're at, or very near, the peak of money going out the door in that plan, and it's starting to head down," Russo said.
At the same time, Russo cautioned the panel, whose membership includes several lawmakers eager to enact deep tax cuts, that investment volatility and other factors might still compel additional appropriations for the fund even after it reaches fully funded status.
State Sen. Rodney Pol Jr., D-Chesterton, a member of the committee, said he appreciated the panel's productive discussion concerning the funded status of Indiana's pension funds.
"Transparency and fiscal responsibility are key to securing the future of our retirees. (I'm) grateful for the hard work to help our public retirees!" Pol said.
Indiana's pension program is known as a hybrid plan because it features both a modest employer-paid pension and an employee-owned but state-managed annuity savings account to which employees must contribute at least 3 percent of their annual salaries.
In response to a new state law, Russo said INPRS has eliminated its investment exposure to Chinese government and military entities.
Russo also said INPRS is continuing to work with the state treasurer to evaluate whether one of its investment managers is making investment decisions unduly centered on achieving environmental, social or governance (ESG) goals.
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