Public Retirement & Social Security Programs-Joint

Morning members we're going to go against started chair sees a quorum before we start I want to just read a short paragraph of the rules to make sure that we're all on the same page in the event something should happen that way we were reminded what the rule says before it happens and maybe it won't happen. But with regards to opening meeting after seeing a quorum court consist of eleven members takes eleven votes to pass the bill though can be a mixture of any member of the committee the vote is not divided in the house and Senate for roll call vote when requested by at least three members first call members of the chamber of the presiding cheer so as in today I would be calling the Senate that excluding the vice chair and chair next call members of the other chamber including vice chair and chair and then call the presiding chairs chambers vice chair and chair so just in the event down the road a little things going to happen but at least we got a point reference to say we know what we do and if it did happen that's how we'll handle things if we get into a close one so with that let's see everybody here this morning Mr culture you any announcement anything such. I'm good thank you Mr all right and we've got the Asher bills for today the intent is to do teacher retirement bills next week and so we've got Asher's today teachers retirement next week and will begin to sprinkle in the membership Bills after that and so with that I think represent warn you're going to present on the bills today if you will please go to the front table in. We'll get started. And if we'll just for the record please name title and that would also robin applied you to go ahead and do that so we got that on record please. Thank you Mr chairman. Les Warren. I am actually presenting for senator sample who that an appointment away from here this morning Vesco the. Robin Smith to join me so if you would. Robin Smith Asher's executive secretary. All right before we proceed we have the actuaries duties on all five of these correct for the ones that are required correct we do okay all right members thank you find all that your packet there of we've got Senate bill one oh two to start off with represent war which please proceed thank you Mr chairman the purpose of this bill is to revise the method for adjusting the employer contribution rate. Currently a change in the employer contribution rate require statutory action by the legislature Asher's proposes to change the this method to an administrative action by the answers board with final approval by the Arkansas highway commission the ashes board of trustees will establish a contribution policy tied to actuarial calculations in funding requirements for a thirty year amortization period of unfunded liability when conditions are such that the divisional funding is required to stabilize the sustainability of the system the Asher's board of trustees will recommend to the Arkansas Highway Commission in increase in the employer contribution rate until such time that the actuarial calculations support to return to normal funding levels. Let me explain why this is needed this change would provide a safety net for the system for any future funding issues that might arise if conditions are such that the system needs additional funding to improve sustainability the timing of an increase in funding could make all the difference in the system's recovery. We no longer have to wait for a regular session of the General Assembly. The expected results because this would be a safety net only employed when needed based on actuarial calculations there would only be a cost or dot. If and when the authority was exercised and let me point out a person lot the board of trustees currently have the authority to set employer contribution rates based on actuarial calculations so we're just going with trying to get Asher's in the same category. I'd be open to any questions. Members shall have any questions. Represent right. All representatives this is just for the new ones going out or is this the whole. This is this is the employer side of cedar we're just in the employer contribution thank you Sir thank you for a reference or a any other members. Right robin you anything that in are you good. Okay. The members no other questions anybody speak for the Bill. They want to speak against the bill. Nobody signed up to speak against and for the bill which will of committee. Got a motion over here made a second. Your second over here any other discussion questions. All favor say aye hi the post. All right thank you pass your bill congratulations one eight three seven Senate bill one three. All right. The purpose of this bill is to revise employer and employee contribution rates for active employees in the deferred retirement option plan. Asher's drop is comprised of two groups Q. one in tier two tier one covers the first five years of an employee's participation in the drop tier two is for those employees in the drop who participate participated for more than five years and who have not yet turned sixty five years of age. This bill will increase the employer contribution requirement. On the Asher's drop. It will increase the tier one from zero to fourteen point nine percent in tier two from six point nine percent to fourteen point nine percent. This would be consistent with the employer contributions for active employees and would take effect July first two thousand twenty one for all drop participants. Apers teachers state police and lobby currently required employer contributions up for drop participants. It would change the employee contribution requirements during the drop period starting with new hires. We're just doing new hire share the contribution rate would be increased from zero percent to seven percent for the tier one group and from six to seven percent for the tier two group this would be consistent with the contributions for active employees with only applies to new cars going forward what the currently requires employee contributions for tropica splits. Why this is needed this change would provide parity for Asher's with the other state systems with regard to the employer funding. the expected result from this this additional employer funding would result in a seven point five million dollar reduction in the unfunded liabilities and a fifteen year decrease in the funding period this increase in employer contribution would result in an annual cost to our dot. Absolutely three point nine million so the cost is to our dot only. I'll be glad to and answer any questions. For any questions from a member's. He got one over here okay just push button or if you would please recognize you generate for. Thank you Mr and I'm just just ask in the you said this but I just wanna make sure so is it increasing the the contribution rate from the employer from the employer only. It's both the employer rate and then the employee rate for new hires okay. So the because what again I was just the statement was that there's no cost other than to are not. But actually it will cost the new employees more than it would the existing employees correct. Yes a moment let me go on and dress robin you can correct me if I'm wrong but all the other systems continue to have employee contribution when they're in drop Asher's has not had that feature okay so we're trying to make it consistent with all the systems and have employee contributions continue when they get into drop. Can I yes ma'am go ahead okay so the employer pays would start immediately so if it's the immediate calls would be to or not when those in new hires go into drop they would just continue their contributions that they have done their whole career so yes it would be a cost of at that time but we don't really have a way to calculate that because it's based on demographics and we don't know who those people will be. But it does save your sorry go ahead choice serve just stir so that I'm clear so they just continue the same rate that they have been we'll go of been doing during their in their career will it change the amount by which they can draw the actual amount that will be put in to drop his or any change to that now okay not this. And when you go to tier two is just the first five years on the drop because when you go to tier two currently employed. It's percent and it's moving that to the the same level for the for new hires clarification thank you. Thank you senator generate for us Senator Elliott my question was answered Mr okay. Any other members have any questions. Anybody signed up to speak against the bill. A budget signed up to speak for the bill. No one speak for against the bill any other questions rainy other members. What will committee. motion over here any second. Second all right a discussion to the motion second. All favor say aye. Any post. Congratulations your bill passes. Thank you Mr chairman all right and let's go on to Senate bill one oh four. Thank you. The purpose of this bill is to revise the calculation for the final average compensation used in setting the retirement annuity benefits currently Asher's uses the high thirty six consecutive months of salary to calculate the annuity benefit this bill would revise the calculation basis to a consecutive average salary. Using the high sixty consecutive months. Once is needed this change would eliminate salary spiking for retirement purposes. Should this bill be enacted this policy change would be phased in by developing a benchmark benefit based on each employee's hi three years as of June thirtieth two thousand twenty one. For individuals who retire or enrolled in the drop their retirement benefit will be calculated using the higher amount of either the hi three year consecutive salary as of June thirtieth two thousand twenty one or the higher five year consecutive average salary at the time of retirement or enrollment in the drop. This legislation would would result in a two to two point five percent reduction in the average The New the benefit for an employee should the employee choose they could delay retirement or enrollment on the drop for a brief period and calculations that we've run show anywhere from one to six months and have a benefit that is equal to or greater than what it would have been at this change not been made. This revision to the near the benefit calculation would result in an estimated reduction of seven point three million in unfunded liabilities and an approximate decrease of four point five years in the funding. Asher's like the other systems uses the high state salary for setting the and at the end you would be benefit this bill would change the high salary used for benefit calculations to the high bar dot salary rather than the state hi salary. The contributions received Fund in an individual's annuity benefit or based on their salary with our got it at some point the employee transfers to a higher paying position covered by another state supported retirement system. Esters is required to pay out a higher benefit and what contributions gathered would fund. R. dot career employees are paying the difference. Because many individuals do not establish the reciprocal service until retirement. We do not have the data to calculate what the impact this change would have on the system. But I'm gonna give you two examples first an employee began with our dot in the early eighties in a job where they made nine thousand dollars. Employee left the department and went to college to become a school teacher now almost forty years later they are ready to retire using. Arkansas teacher final average salary they will receive a monthly benefit from Asher's of a hundred and eighty five dollars and eighty one cents using our dot high. Consecutive average salary they would have received monthly benefit of nineteen dollars and seventy five cents Asher's is having to cover the benefit difference of a hundred and sixty six dollars and six cents a month for which no contributions were collected to fund. This higher benefit cost the system approximately two thousand dollars a year for that one individual. Second example that I'll give you a seasonal employee left or not and went to work for another state agents their service time at Ardagh was around point seven years. When I retired with twenty eight years of state service their salary was ninety six thousand dollars. Rather than the benefits that are not being seven dollars and fourteen cents a month based on the salary contributions collected to fund Asher's they will receive a hundred and twenty four dollars and fifty four cents a month from Asher's their service time at a position covered by papers results in a monthly increase of a hundred and seventeen dollars and forty cents annually this increase in benefit costs Asher's an additional fourteen hundred dollars for that individual. What we're saying with this is that when a person works at one system. They make contributions and the employer matches. That employees. Retirement benefit is from that system. It is based on what that system got and what that system has earned. They go to another system they have different salaries different contribution rates different employer matches they are an income on the investments that system is based on different numbers so. They get a retirement benefit from that system based on what they did in that system. To put. The. Numbers from that system on another system is making the other system pay out at a higher rate than what they've gotten. contributed to it so if we're trying to keep the system stable. Then we're going to be putting an undue burden on the lesser system that had an employee when they first started out making less money so what we're trying to do is just say we're going to let the system play out at the rate that was collected and. Earned in this system play out at a higher rate. So. That's a lot of information I know but. I will take questions. I think Mr take you look like you've got now. Okay Senator Elliot. Thank you Mr president warned of. I think I didn't did I did not digest all of that when I read the bill that was the whole. It was a lot more than I figure it out It is the same person let's say it is how we is the employee losing anything at all or is it that the employee is getting everything that the employer employee is due at that point or retirement but I know that agency is make in that hole. Okay let let me break it down into two different components because or issues with this bill. The first item is the. As far as the different systems paying the deferred retirement in amounts. I think it's only fair that what this system brought in and earned. That's how they should pay out nation be forced to pay. When a person came to work over here and made a much higher salary sure that just hurts the systems so that issue I'm saying we need to do that. As far as it goes with the final average compensation. Okay. Asher's has the ability and and robin has done an outstanding job of working her employees. We are dealing with defined benefit plans here which means that. Most retirement plans today or defined contribution plan G.. But we still maintain defined benefit plans which is incredible. And we want to continue doing that but in order to do that we have got to maintain whatever it takes to get the financial stability and strength at certain levels. So robin has worked with the members of Asher's. And they're saying okay we understand we're gonna go from a. A final average salary company the. computation of thirty six months to sixty months thirty years to five years in and it's going to change the calculations a little bit and what robin this done is a calculation chart for them showing okay if you want to keep the same benefit that you would have had. You're gonna have to work this many months additional now then the other thing that we're we're looking at here is that. She's got a. A base for them. She's letting them have what the three year final average compensation was as of June thirtieth two thousand twenty one they can't go be below that. So compare that to whatever their final five year average compensation is and. The if that's lower they get the final average compensation as of June thirtieth two thousand twenty one so there's a place misstep wished. We're not letting them go below that. So there's protection for them but what they're saying is we understand that we want the financial stability of our program. To take care of us. For a retirement years and we're willing to make a little adjustment here the examples that robin gave me there is a little bit of a monthly difference but the benefit to the program is significant. And that's what I think as a retirement committee we have the responsibility to do. Is to ensure the long term benefits of these programs so and this will go into effect for the folks. This this change will take place twenty twenty this year or who who's affected by now or they into tears because I'm sure I'm going to get this question yes it will go into effect senator July first twenty twenty one twenty twenty one yes if I'm if I'm a person right now who has switched from R. docks eighty two I don't know. DHS I work at our dot for. Say I'm that person now I worked there six years and but now operated DHS twenty years and I'm perhaps looking at retirement in two three years what does what's going to happen it July first twenty twenty one what does that mean to me okay I'm not gonna be better off I would be the same you're safe because and when you have left your you get the three year plan leveraging nothing is retroactive this is gonna be going for you get it as of June thirtieth two thousand twenty one okay so seller Senate I'm still that person you've got that safety measure emplacement all right so it's just going forward with the is it new people or is it that I'm that person who was is I'm that person who moved from Ardagh to DHS I've been there ten years I'm not retiring anytime soon M. I. A. M. I. hi I'm not affected by that is that not at all because I was already there. There are there is a difference and all that rob and address it there's a different perspective than mine but there is a difference and what we're we're getting is that they are saying okay we're willing to accept that difference. Because we want our system strong day whose day Asher's members okay they have worked with all the answers members okay and I'm not so that was my next question is who who finally was part of making this decision and more people contacted and we of I guess robin can help me with that I mean this this is everyone of these bills have been run through Asher's membership I'm not saying that there's out there in every one hundred percent you don't have to read that sentence. Overall they're saying okay we recognize we need to do this go for okay. Let's do this let's robin I think is anxious to say something then let her respond. Senator Elliot I've got some others in the queue and. But jumped back into the sponsor me that's fine that's that's all I need is your and love and you want to respond sure there's two pieces of this bill as I'm listening to your questions you're not questioning the three to five at this point you're questioning the art ought to state house salary and what I would say is we don't even know who a lot of those people or they don't establish the reciprocity they leave us we don't know where they've gone and then they come back forty years later and all the sudden we've got a much higher bill than what our numbers with a projected because we didn't know that they were a they went to another system you know it per S. it comes down to What did we collect contributions on and they get their benefit based on the number of years of service with us our years of service by get them to early retirement with another system you know they have ten with us twenty with a person they can retire but so we but we only pay our benefit on the ten years that they worked for us they get are multiplier for that ten years and we have a higher multiplier than some of the other systems but what it comes down to is all the sudden we're having to pay on the salary that we haven't received another dom on for ten years and didn't even know it was coming until they came into to retire. So We did email or the membership of Asher's and it's also been posted on our website we also contacted the retirees risk associations they're real good about getting information out in their area so we have put that information out there. But represent a right. They were rolled Senator Rapert officer thank you Mr chairman now you got there a state employee but they start with one system and they end up with another one yes okay what are the two merged or they still separated when the folks actually start return. We would give them what they would have a benefit from us in a benefit from the other system to. Thank you. Senator Rapert. Thank you Mr. On on this and and I want to ask something actually get clarification. R. H. the other bills already passed it on it pertains to this. Are any of the other systems. Requiring the employee to continue contributions. Once they declared draw. Lafitte S. lot fees the only one and Asher's does on tier two. K.. Because I had somebody blowing me concerned about you know why you would want to can go ahead and contribute when you're benefit won't change. So that that was a question so that thank you for internet. So this is going to from three to five. Is there any of our other systems and have this require teachers changed in twenty seventeen that three to five okay teachers did okay. And then it's so that which you should read to be your your salary for the past five years is that right that's correct. And again I I know and I'm just asking here because. I understand that every change that we make of this nature obviously makes the plan more solid if you're elongating and all these things but but it obviously is a detriment in some ways to the the affected employee. So. I really had not recalled in the presentations earlier that there was a problem. Necessarily in this retirement plan so could you radiate reiterate for me why you need to do it right now like this. Well. It goes back really to twenty fifteen is when the the issue really came into focus when we had to change mortality tables mortality tables we took a real hit we had to upgrade orders because for one we have a a higher and our workforce skews to a older workforce so you have a shorter period of time to collect those contributions in order to fund their benefit It also just shows the issue because we had been using the same mortality tables assigned contribution rates since the early eighties but when the actuary which is not our current actuary but when they brought it to us to change which was kind of a movement in the industry at that point we took a big hit and are unfunded liabilities went through the roof are pending period went to infinity and so starting at that point is when we've started making some strategic changes they haven't necessarily been the most popular changes but we've talked with our people instead we have to make changes because we all are relying on the system we all want to retire so we started with the expenses going out we reduce the color from a flat three percent to one tied to the CPI so we we started with expenses last session we came in we asked for an increase in employer and employee contribution rates which had not been changed since the early eighties and then this is kind of a final piece of ever areas where we could find some balance to reduce that that funding period in those unfunded liabilities down and and hopefully get us to where we need to be which would be under the thirty year amortization period okay couple points and again you know. I'm all about doing things that need to be done for sound purposes right I just wonder is as far as the highway department is. With you making changes that. I guess you would say upsets the balance of reciprocity between the systems. Do you think that that may end up negatively affecting your ability to attract people. And very good people because many times as we've seen over the years is that you know you've only got a certain top tier positions. And those will turn over all the time and so what you see is some good talent there is in one. Last over here working for another department sometimes be tapped to come over here I'm just I'm just asking to make sure that you don't. You don't create a situation that you see having an unintended consequence in a very so that's all I'm saying is that I would I just in concert always when I asked the question because I would not want to creating a barrier for you to attract talent in any unintended consequences they're the same to not necessarily be the same concern is doing more more judgment to to get around trying to liability all the way down to nothing because you could come in here and follow all sorts of bills to check your that it would get people flying in so that's all I'm asking and it's it's definitely not a get and having to do with the sponsors and everything like that is just asking questions because we all wanted to be a good result so was there any consecutive rations about the reciprocity in those kind of things. the you know. In the early nineties we actually work state high and somebody change that pours I will say that we we find it more with people who have left are not words the issue it's mostly seasonals that are going to have a really big career for enough for me I'm talking about this change though. Senator be different. I'm not talking about the past implement this change reducing the. Reducing the. I'm not sure how this will my question is to to restate it you're you're changing the rest of the reciprocal nature of what you're standards going to be compared to some of the others now not teachers because you said that but not the others the state plan so market my question is have you considered would that be a detriment of concern to you about attracting talent in the future since you're not going to have that same unit means they can stay over here get three year high last rather come over you get five. It would be a higher bar for them especially for some of those people with twenty twenty five years of service they're getting their end of career this got a lot of executive talent you're looking to fill those roles that sort of thing wait in the the Department hasn't normally had a lot of people that came in at a high level from another agency okay in in our experience now I can't speak to everyone else but are you expecting all of the other Plans to come in with the same changes at some point. Some code yes we will cross of the has there been a discussion of that there's been a discussion as to having the flexibility within the code where each system can make that choice for themselves or thank you. Our members any other questions from the membership. Let me just make sure I've got this in my mind right so what this bill is basically doing his or somebody work for few years at our dot then the gross been majority their time in another system and they get ready to retire. When they retire the system where they spent the majority the time is going to pay the lion's share of their retirement and you will be picking up the slack for the difference for the minimum years that they worked with you all. Is that kind of the hundred thousand foot simple explanation yes okay or anything else you wanna say about your bill. Okay I'm close for the bill okay we'll hang on on that one as well make sure you do one respond anything said so are there any other questions from the membership. Jerky Senator L.. Okay could you just maybe. Like I read this and I didn't get all this. When we when the members are received that was was there discussion on that they just received information. At we. We put it out on the website I said they could call me we've had maybe twenty calls in or house and that's about it but we've had for those who called we had one on one discussions with them. Okay. Let me ask you refresh my memory when we did the tour around the state was this topic discussed as part of the what might need to be done when we tour the state. Now because at that point we're waiting on our actuarial violation to kind of make decisions store legislation okay and when you did all the communication with your membership both current and the retired population how long ago did you do that that you sent the information to him about this bill it's been probably three four weeks okay or so they the membership. Has known about three or four weeks right I got an email was posted on the website and then it went back out this week in a newsletter okay or any association president for retirement they knew they've been in this discussion to write okay all right any questions from the committee membership. And I signed up to speak against the bill. For the bill. Represent when you have any closing comments yes I just wanna remind you that there is a safety net on this they do get the. Final three year average final compensation as a safety net as of June thirtieth of this year so that's in there and and I do want to to complement robin because they work hard to make sure that they're doing whatever it takes to. Keep their plan the strong in other this month third term and every year robin has come to me and said we need to make some moves. And they continue to do what they need to to make their planned strong so I appreciate what she's trying to do and I think this is a good move so I appreciate a good vote okay. No other questions from membership ever have a chance speak for against what's the will of committee. Got to do pass second. Get a second any discussion to the motion second. All favor say aye are any post. Okay noted and the bill passes thank you represent warrant. Congratulations on passing a bill you're now down to one oh five. They get easier at this point because. The this one is pretty straightforward at this bill proposes to change the marriage requirement for option B. spousal survivorship from two years to one year of when employees are selling selecting a retirement option there are three choices straight life option eighteen years certain or a hundred and twenty months and then option B. fifty percent survivorship for life in retirement for a spouse to be eligible for the fifty percent survivor benefit they must have been married for two years prior to the retirement date for active employees who died in service the spouse is eligible to choose survivorship if they have been married for one year so we're just changing that from two years to one year this bill provide consistency within the policies of the system as well as bring the system in line with the marriage requirements for social security benefits. The questions from members. I'm just curious is it required that we have to have a time frame it all in there and why can't it just be from the moment they say I do what we have to build into your buffer. All right. That the do you all have an answer hundred I'm sure Sir like you said that that. I'm sorry deathbed okay death of men are very good just wanted it out there all right anybody else have any other questions. But shall not speak against the bill. And I signed up to speak for the bill. No one signed up to speak for against the bill you'll love having income issue bill represent warranty ready. Lows for the bill which will committee. Got a motion and a second any discussion to motion second. All favor say aye. Any post. Congratulations your bill passes all right one one of six Senate bill one of six thank you Mr chairman the purpose of this bill is to discontinue the inclusion of the death of the health care offset in the benefit amount deposited to the individual accounts for active in please participating in the deferred retirement option plan. This is for new enrollees only in the drop let me explain the order pays insurance match on active employees enrolled in the state health insurance plan dropper dispense are included in that match this bill would eliminate drop employees from receiving to benefits for health care one for more dot in one from Asher's when the individual terminates employment from are not they would begin receiving health care offset or stipe and is part of the monthly retirement benefit payment. The expected results the removal of the health care offset from inclusion in the deposits made to drop accounts would result in an estimated reduction in the unfunded liabilities of two point one million in the funding period would be reduced by approximately one point three years this change would apply to those individuals and rolling and drop after June thirtieth two thousand twenty one. So right now we've got a double D. up we're just trying to make it words just a single benefit. Members have a question. The Senator Ingram. you alright so you're paying twice home health care Brian in so you would have a savings from of only paying once right but that is savings is going back to the employee and the it's going back to the employee so it'd just be zeroed out there won't be any savings either what for for the. employer. The savings would be within the plan savings would be within the plant it doesn't go back into the pocket over the individual okay we we went out of a planned so it would just be a savings in the plan okay I misunderstood thank. All right. Any other questions from members. And I signed up to speak for the bill. Invasion of speak against Bill. No one signed up to speak for against the bill represent worn having thing in your clothes and you want to say I'm close for the bill and appreciate a good vote all right you've heard the bill presented in a do you know which will of committee motion. Motion second. Got a second all right a discussion to the motion second. All favor say aye. Any post. All right congratulations you passed a bill. Our members that completes all the bills from order and also complete shell bills on the agenda got a couple quick announcements for your member please. First of all next week of of S. I've been asked by several members are we gonna be here next week because it's presidents day of check with the leadership and as it is right now we will be here so plan on being here some changes at the last minute just what your emails will make the announcements in the chambers but right now plan on being here next week and we will be taking up teacher retirement bills which by my count I think we got about about nine showed prime make to make the agenda on the twenty second where to go for that apers and a few members bills and then we should have all the agency bills all the way more focus on membership Bills and also I have it on good authority that next week at eight fifteen they'll be exactly eleven cream filled chocolate long John donut we need eleven to make a quorum and committee so first come first serve and with that being said no other business come before the committee. We are journey.