CHICAGO — Indiana is considering increasing its pension contribution levels over the next two years to bolster the funded ratios of state-supported pension plans to past high levels that were considered a top credit strength for the triple-A rated state.
The move comes as lawmakers are in the midst of crafting a two-year budget for fiscal years 2012 and 2013.
The House last week passed a $28 billion spending plan that includes a provision to increase pension contribution levels to 10.9% from 7% over the next two years.
The state would increase its contribution to 8.6% in 2012 and to 10.9% in fiscal 2013, fiscal officials said.
Like most states, Indiana’s pension funds took a big hit from investment losses in 2008 as a result of the financial crisis. Before 2008, two of Indiana’s three pension funds were funded at 100%, but they are now at 85.1% and 93%.
Though down, the funded ratios are considered strong by analysts.
The state has seen a rebound in investment income and the pension funds had total assets valued at $22.2 billion at the end of fiscal 2010, up from $19.6 billion at the end of fiscal 2009.
Indiana is among several states that are considering a variety of pension reform measures, including increasing contribution rates.
Steve Russo, executive director of the state’s pension funds, testified Thursday before the Senate Appropriations Committee that Indiana is “relatively fortunate” in terms of its pension liabilities.
The state’s main pension fund, the Public Employees Retirement Fund, is funded at 85.1% with a $2.2 billion unfunded liability.
The Teachers’ Retirement Fund is split into two funds — a closed fund for employees hired before 1996, which is only 33% funded, and an open 1996 fund that is 93% funded.
Together the two teacher funds have an unfunded liability of $11.1 billion, according to recent state figures.
Russo compared the state’s payments on the pre-1996 teachers’ fund to paying off a 30-year mortgage.
“The hens have come to roost on the benefit increases that were handed out in the good years,” he was quoted in a local newspaper as telling lawmakers.
The proposed pension contribution recommendations would total $1.3 billion in fiscal 2012 and $1.5 billion in fiscal 2013. The bulk of the money would come from the state’s general fund —$870 million in fiscal 2012 and $944 million in fiscal 2013.
The state would also tap $30 million of lottery revenue over the next two years. The state also maintains a Pension Stabilization Fund to help mitigate the impact on general fund appropriations.
Indiana’s other post-employment benefits liability is small compared to other states, totaling $462 million with an annual required contribution of $48 million, according to Moody’s.
The Senate will spend the next two weeks considering the $28 billion two-year budget passed by the House last Thursday. The two chambers will likely spend the latter half of April hammering out a final plan.
The state must pass a balanced budget by April 30.