INDIANAPOLIS | State pension officials refused Friday to back off their plan to privatize annuity payments for retired state and local government employees, despite a strong legislative recommendation that they reconsider.

The trustees of the Indiana Public Retirement System (INPRS) voted unanimously to keep working toward an October 2014 start for annuity privatization and to take "under advisement" the legislative call for the pension agency to continue running the annuity program.

INPRS Executive Director Steve Russo said it's not clear what the General Assembly's Pension Management Oversight Commission meant when it instructed INPRS on Monday to keep annuities in-house and establish an interest rate "that will not create an unfunded liability."

Russo said any investment has the potential to create unfunded liability, making it impossible for INPRS to continue administering annuities if it is to avoid any unfunded liability risk.

"These two things contradict each other," Russo said. "It's possible that by keeping it in-house our members could get less."

State Sen. Karen Tallian, D-Ogden Dunes, said there was nothing unclear about the unanimous, bipartisan resolution instructing INPRS to cancel its annuity privatization plan.

"We gave them a pretty straightforward recommendation. We want this to stay in-house and them to offer these annuities at an interest rate that is reasonable on the day that the annuity is purchased," Tallian said. "If (Russo) needs any specific guidance, I'm sure any of the members on the commission would be happy to help him out."

She hinted that legislation to undo annuity privatization may be coming in January if INPRS doesn't get the message before then.

INPRS trustees decided in July to eliminate next year the state-managed annuity option for new retirees, and require them to turn over their lump-sum annuity savings account to a private financial company if they want the lifetime monthly benefit an annuity provides.

Pension officials claim longer life expectancies and a promised 7.5 percent interest rate makes the state-managed annuity unsustainable.

Lawmakers believe INPRS annuity administration produces better returns for participants, even if interest is reduced to market rates, because it offers lower fees compared to private management and is not seeking to earn a profit.

The change has no effect on the modest defined benefit also paid to retired public employees.