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Friday, August 15, 2008

Ind. Gov't. - More on: "Indiana taxpayers contribute millions to lawmakers' generous pension plan"

Here are some thoughts on the earlier ILB entry today based on Matt Tulley's Indianapolis Star story. Tulley wrote, in his story about the new pension law:

Under the old law, the state contributed an amount equal to 20 percent of a legislator's salary to a 401(k)-type account. The new law cut the contribution rate to about 9 percent. But along the way, lawmakers nearly doubled their base salary, from $11,600 to about $22,600. The difference: Twenty percent of the old base is $2,320, while 9 percent of the new base is $2,034. * * *

[In addition] all lawmakers will have their pension match based not only on their salaries, but also on thousands of dollars intended to cover expenses [which now will be included in the defintion of "salary"].

I reported something similar in a March 4, 2007 ILB entry, citing the revised IC 2-3.5-5-5.5, which states that after Dec. 31, 2008, "salary" includes (1) salary, (2) per diem, and (3) leadership allowances. I asked:
Q - What does this mean? A - It seems to mean that the new 2009 "salary" of about $21,700 is not the "salary" for the purposes of legislative PERF. The definition in IC 2-3.5-2-10, itself applicable only to legislators, is expanded here to include the per diem allowance and leadership allowances. [Note: Tully and I made the same mistake - see below.]

Q - Why is this important? A - because the new subsection (c) provides that:

The state shall make a contribution to the defined contribution fund on behalf of each participant on June 30 of each year. The amount of the contribution is determined by multiplying the participant's salary for that year by a percentage determined for that year by the PERF board under subsection (d).
Okay, but the figures in the database don't show this. They don't show that a legislator got 20% of his $11,600 salary in past years. This would be $2,320 (5 x $2,320 = $11,600). But look, for instance, at the 2007 matching contribution for Pat Bauer. It is $6,411. This is not 20% of a base salary of $11,600; 5 x $6,411 = $32,055.

*What's wrong here? The definition of "salary" in IC 2-3.5-2-10 already included per diem:

Sec. 10. "Salary" means:
(1) the salary; and
(2) the business per diem allowance and the subsistence allowance treated as compensation for federal income tax purposes;
paid to a participant by the state, determined without regard to any salary reduction agreement established under Section 125 or Section 457 of the Internal Revenue Code.
As added by P.L.6-1989, SEC.1. Amended by P.L.5-1992, SEC.1; P.L.4-1992, SEC.2; P.L.195-1999, SEC.1 and P.L.205-1999, SEC.2.
So what legislators have been receiving all along has been a 4:1 match, not of their $11,600 legislative salary, but a 4:1 match of their legislative salary plus their per diem.

To illustrate, taking 1992-2007 of Rep. Bauer's salary, assuming the statutory salary was $11,600 for each of those years, the total salary would have been $185,600. The 20% match for this would be $37,120.

But the total match shown for 1992-2007 is $84,792, which is presumably based on salary plus per diem.

What does this all mean? (1) That the "4:1" match legislators have received in the past has been much larger than anyone realized, because the definition of "salary" was not limited to the statutory salary amount. (2) That the new law, taking effect in 2009, actually may be a sacrifice, relatively speaking.

Posted by Marcia Oddi on August 15, 2008 12:54 PM
Posted to Indiana Government | Indiana Law | Legislative Benefits