March 5, 2014


HB 1075—the bill to ensure that the Indiana Public Retirement System (INPRS) keeps its annuitization work in house and to ensure that members receive as favorable a return on an in-house annuitization as possible needs further work.


As it stands now in the bill, INPRS would be prohibited from privatizing the work of annuitizing members’ ASA funds for 5 years.  That is a good thing.  INPRS has been doing this work for decades and does it more efficiently.


However, the bill also sets forth a formula that only looks at market-based criteria figured twice a year on October 1 and April (based on the interest rate on current 10-year US Treasury notes as of the immediately preceding  September 1 and  March 1 plus 1.5%)—so the annuitization rate will fluctuate as market conditions fluctuate. Using current figures, the rate INPRS would be using would be in the mid-4% range—which would result in about a 25% cut from current calculations on October 1, 2014. The bill also has a floor of a 2% rate and a cap of a 10% rate should interest rates fall or climb dramatically.

Remember, this only affects those who had intended to have INPRS annuitize their ASA funds. Data tells us that is about half of the members of TRF/PERF.


Remember, too, if interest rates rise, before the date of calculation, the annuitization rate will rise accordingly.


ISTA and other groups have advocated for not only a market-based rate criterion but an INPRS plan performance rate criterion—to meld the two criteria together. This is extremely defensible—INPRS has a long history on the rates of return it achieves and would have the effect of raising the rate INPRS would be charged with using.


There is talk of moving the 5 year prohibition down to 3 years. At this point, that move would be less objectionable (we can deal with those issues in the next few years) but more work can be done on improving the formula to determine the interest rate.


Therefore, please contact Rep. Woody Burton who has been a champion on this cause and your own Senator and Representative and simply ask that this bill go to conference to work on improvements.