Public Retirement & Social Security Programs-Joint

to walk over, um, for the committee photo we'll have the And OK, good. My back road Tighten up a little All right, we'll call this meeting to order. chair sees a quorum. Most well attended committee meeting we have. Um, first of all, I will re well, actually, I don't have any comments. Does my co-chair have any comments? Alright, I'm gonna recognize um Blake to kind of go through a little bit of the agenda just so we can. Know how to follow the exhibits and everything, so Blake. Members, uh, with this being a session committee, the packets are a little bit different than they are in interim. It's not gonna say exhibit on there, but the order of your packet is the order of presenters on the agenda. Um, the only one that is not is the Asher's packet, which, uh, Ms. Smith brought it in the slides that you will see are in that booklet. Uh, we will have all the presentations on the screen as well, though, I just wanted to walk that, walk you through that as well. So, all right, thank you. So first up, item B. I have Jodie come to the table and You would state your name for the record and you were recognized to start your presentation. Do that first. Good afternoon. Uh, my name's Jody Carrero. I'm the actuary for the committee, uh, for those of you I've not met yet, uh, we'll give you analysis and cost analysis of, of all the bills that you have to To work on through the session and um and we're available, our information is there on the slide and. And, uh, you can chase us down. So my job today is to, to do a little bit of overview and to define some terms that all of those directors will be using and then I'll be using as we go through all of this. Uh, we've already, uh, joked a bit about the alphabet soup that in all the names of all the systems, but, uh, and then you have all the actuarial definitions, so there's a lot of alphabet soup and we'll try to, to work through all of that. The I just now started my timer, so my 10 minutes starts now, right? Representative Warren? OK, good. Uh. I always like to do this. This is important work, as you know, uh, there's the number of participants, the real live people that participate in all of these systems. You add all those numbers up, there's 290 Arkansans that, uh, are participating in these systems. That's, uh, about 1 out of every 9 adults over 18 people in the state. That directly benefit. 39% of those 114,000 of those are receiving a benefit. Uh, in total, these systems are gonna pay out almost $2.5 billion in retirement benefits. This fiscal year. And retirement benefits typically go to people's pockets and are spent that month. So that's $2.5 billion that'll be spent in the state, mostly in the state, uh, in the next year, so. That's a good thing, uh, the retirement systems are predominantly defined benefit plans and defined benefit plans define the amount you receive per month at retirement age as opposed to having an individual accounts. And here's a pretty good slide. We won't spend much time here, but it just kind of outlines the difference between defined contribution plans, which you see a lot of times in, in private industry, 401k plans and the like, and to find. benefit plans in the, the big difference is there's not individual accounts. There's a monthly annuity that's defined by these, and that's, that's what we, we want to do. So, uh, our main retirement systems are defined benefit, but in addition, uh, most of the employees I have available to them some type of individual account plan. Uh, that they can defer into if they want. Uh, in fact, the law is, is that, um, employees of the state of Arkansas. Automatically enroll in the, the diamond plan. So any pension plan is taking in other people's money and putting it out there, and that includes a lot of duties and we're not gonna cover these in a lot, but I wanna just put the slide up there just to say there, there's a lot of things that are already in federal law and state law about what the duties of these systems are, and, uh, this will probably come up as we go through. So we may come back to this slide as we go through. The session. The basic formula for pensions is like with a lot of things, it's money ends got equal money out. We have to have the money in. So the money in comes from the contributions from the employer and employee and investments, and that equals the benefits plus the expenses. So from that standpoint, it's pretty simple. It gets more complicated as we go though. Uh, luckily someone wrote down and put this in law years ago to put the basic financial objective of every system, and it's important point, so we'll stop here for a second to establish and receive contributions that expressed his percent of active member payroll remain approximately level from generation to generation of the state's citizens. That section goes on to say the contribution has to cover the cost of benefit commitments made in a year plus a level payment. over a reasonable number of years to pay for unfunded. So that's, that's the whole idea of doing that. So how do you make all those calculations? Well, you have to have assumptions and assumptions are not made up, they're studied and, and, uh, and, and matter a lot to giving a good idea of what the costs are. And here's just a quick list of some of the key assumptions, some are economic, some are demographic, and when those change, that changes the cost of the plan or what money is gonna be needed to come into the plan, but We said we need to do some definitions, so let's do a few. present value of benefits is kind of the first thing. Any pension plan has got to, uh, determine this. And using all of those assumptions, you define a, a stream of benefits that is gonna have to be paid out, take the present value of all of those back to today's day using the economic assumptions, and you end up with a present value of benefits. So the system basically just very simply works by saying we've got to collect money. Until somebody retires and then we have to dispense the money after they retire, so the whole idea of calculating contributions and everything is based on how do we ramp up and then how do we pay those out? You'll hear us also talk about a crude actuarial liabilities. The accrued actuarial liability is the mount for active people that's allocated to the service that's already been served. Some people call that the earned benefit and then there's benefits as you continue to work that you will earn afterwards. And those payments are discounted and do that. So, back to our picture real quick, we have retirement age at the peak, but if we come up to someone that's a few years away from retirement age. They are accrued liability would be still working up that, uh, level. So the actuarial accrued liability grows with years of service and over that work life, it'll become equal to the present value of benefits that we retirement then, uh, we come in and we're paying out some every year and we still have to value, but the level that we value it at goes down as people, as people age. Next big term that gets used a lot is normal cost. The normal cost. Uh, and I've looked to see where the word normal comes from. I'm not sure what makes it normal, but that's what it's been called forever, but the normal cost is the cost that's allocated to your service. So if I work another year, I earn some more benefits, so I have to add the normal cost to the crude liability at that point in time. So remember part of that objective was to fully cover the cost of benefit commitments made during the year. So how many more coins do we need to stack up each year. Another term that you'll hear all of them use is gonna be actuarial value of assets. All of our systems use some type of smoothing. You'll also hear smooth value or actuarial value or funding value, and that's just not the market that fluctuates, so you pick a point in time, you may be on the up or the down, but it, it smooths out those peaks and valleys a little bit so that the contributions don't go up and down as extremely and makes the contribution a little more predictable. A big term that we hear a lot. is the unfunded actuarial liability, and it's important to understand this because when we say I'm funded, that sounds like it's something that's old today. But an unfunded liability is the amount of the accrued liability that is not yet covered by current assets. So, uh, it's not a payable, but it is the, it, it measures what that target is supposed to be, um, Again, based, based on what we've talked about already, uh, fully funded accrued liability does not mean it's a paid off accrued liability. It means we're on target because as time goes by, the liability goes up or after you retire, it begins to go down. And then you have to pay off that unfunded. One good illustration that pulls all these terms together that is helpful to a lot of people is the, uh, as I call it the defined benefit house. So what's the defined benefit house? So if my house is the actuarial accrued liability, then when I have assets that come in, I have that actuarial value of assets and that kind of corresponds to the equity that I have in my house. So, as I go through life, I want my equity in my house. To be greater because I don't want to make big house payments after I retire. So we want to get it, get things funded. Uh, so the unfunded actuarial liability that we talked about is corresponds to in a sense, the mortgage on the house. And then the normal cost is just your addition or your maintenance or however you want to look at that. It's, it's what's there. So the appropriate question at this point is, how do I know if my house is well funded. So when everybody talks about their plan and, and what's going on with their plan. What questions or what metrics do we kind of use? And let me give you two very important ones that you'll hear a lot. One is funded percentage, which is the assets over the total accrued liability. So in other words, I want my equity to be at a reasonable level and moving toward 100%. And that's what I need to do, to be well funded. And then the second thing is that I'm contributing enough in terms of the house contributing enough to pay my mortgage and to pay for that maintenance or additions, however you want to look at that. Which is just that normal cost plus reasonable payoff of the unfunded that was in the primary objectives that we talked about, so contribution rate is normal cost plus a payoff of the unfunded. What's a reasonable period? Well, current law suggests it's got to be less than 30 years. Some places in the law even suggest 18 years, all the systems are trying to work toward an 18-year or less, uh. Equivalent funding period, you may hear that term. What's your equivalent funding period. So the information that you get from us each time when the, when we present a bill or when we give you information for a bill, we'll be looking, going back to this illustration, we'll be looking at what changes. So let's say there's a bill and there is one right now that would change the retirement eligibility. Uh, so I've gotten accrued liability at this retirement age, and I've measured all of this. So we have a bill that changes the retirement age to a different age. OK? So what happens to the coin here picture magic zoom. 3 things happened just then. OK? The stack got a little higher because I'm gonna have to pay more benefits. Uh, it moved a little bit to the left, which means I have to start paying them sooner. And I have to ramp up faster. So that means the normal cost goes up, the accrued liability goes up, and then the payoff for the accrued liability. So those are the things that we would, uh, have in a cost letter that you'll get with the various bills. So, um, that's, that's my notes for right now. Uh, I'm happy to answer any questions or uh we'll come back to all this as we go along in your folders, there will always be Blake has put, uh, an actuarial definitions and a copy of this presentation that'll be there every time. And then also some disclosures that go with one of the reports we write, and those are in your folder every time. So That you're recognized. I want to add a few things to this. We have the retirement committee has a contract with an actuarial firm. For every time we're in session and to cover us even in the off times. But, uh, Jodi's firm is who we have the current contract with. Every time a bill comes to retirement, he does an actuarial study on it to tell us, uh, the impact that it's going to have. And so you will have that study before, uh, committee. And he will be available to you to talk about. That study and make sure that you understand what he's saying with this study. The other thing that I want to point out is that it's also very important that you understand the reason we talk about being As close to 100% funded as we can. is because If For some chance One of these retirement systems can't meet their obligations. The state of Arkansas is on the hook. So that's why it is really important. We don't want to do anything to jeopardize the well-being of any of these systems, we want to make sure that when we do stuff. It's a wise decision. We're getting information from them on the Results of investments, how well funded they are, so we just have to make sure that we do. Really good work in here so that the retirement funds are there for everybody that's in it, everybody that's coming in it and those who are retired. If you combine the benefits. From Lotfi Ashers, teachers, and apers you have a huge economic impact. On each one of our counties. Huge. I don't know what that total number is, but it is huge. So we want to keep making that contribution to all of our counties and cities. But we've got to make wise decisions in here to do that. So that's why what we do here and what our directors do. is so important. And when we pass bills we got to make sure that they're solid. Thank you, um, members, any other questions from the committee? Seeing none Thank you, sir. That will take us to item C. And the first one up C1 is, uh, Mr. Clark. you would. Just I think this one's just a handout and it's not on the screens that's correct. Yeah, good afternoon committee members, uh, Mr. Chairman, thank you so much. uh, David Clark, state your name. Sorry. Go ahead, David Clark, the executive director of the local police and fire retirement system or Loy as it's commonly referred to also serve as the executive director of the Arkansas Fire and Police Pension Review Board or PRB, uh, which serves as a regulatory board for 31 closed local plans around the state, local plans being the local fire and local police plans. Uh, when I say close, that means that there was no new hires added to those plans after the end of 1982. There's another 255 of those local plants that Laffey administers or they consolidated the plan with Lopi and the cities are are paying off the contributions that are owed for to fully fund the benefits. And ultimately those 31 remaining local plans should consolidate at some point in the future, which means the PRB as an agency could be dissolved, and that would be one less agency to, to have to fund. My comments today, they will be based primarily on Loy and I will keep them brief so that we can move the agenda along for you. Uh, in your handout is a two-page document. The first page is a picture of the state of Arkansas and it shows the benefit payouts for the month of January 2025. And you'll see that there were 9,000328 people that received $16.4 million in benefit payments for the month of January and as Chairman Warren noted, we do touch benefit recipients in all 75 counties. So every month, people in all 75 counties are receiving benefits from Loy. The second page shows a few more metrics. There was 13,0738 active police officers and firefighters at 776 lofy covered police and fire departments around the state. Uh, I think other than aper's Loy has the most number of of departments that are covered by a retirement system. The active member population was made up of uh right at 7200 paid members, these are the career members and about 6500 volunteer members think of the rural volunteer fire departments when you think of uh the volunteer members. And there's also another 800 members that use the simultaneous service credit provision and what this allows is for the person to be covered at a paid department and at a volunteer department at the same time and accrue retirement service credit of both departments for the same month of service, and it is fully funded by employer contributions. It's a very unique provision for a lot. And Lay's fiscal year operates on a calendar year just like the cities and towns, so at the end of 2024, our most recent fiscal year, a total of $214 million in benefits were paid out and about 93% of those payments remained in Arkansas, so they turned over in the local economies. And uh for from an actuarial perspective of the most recent evaluation that was completed was at the end of 2023, as I mentioned, we're on the calendar year, so we're still closing 2024, and we will complete evaluations, uh, mid-year for 24, but as uh snapshot at the end of 2023, the system was 76% funded, so when you think back to Jodi's, uh, discussions as far as moving to a fully funded status, the system is working towards being fully funded. So if you have requests for uh benefit increases that affect the retirement system, please be mindful of the 76% number and the fact that we're still marching towards a fully funded position. Now the amortization which Joie touched on as well for paid services at 17.7 years and for the volunteer side is at 28.5 years, and those are closed periods. The market value of assets at the end of 2023 was 3.15 billion 2024 was a very good year, uh, the assets increased by about a half a billion dollars. We're at 3.6 billion and uh so we just, we're we're grateful. We had two back to back years that were very strong, 23 and 24. For this session we have one request on the loppy side, that's House Bill 1119 by Chairman Warren and Senator Hammer, and that's to amend the delinquency section of code and then for PRB we also have one request there as well, and that's House Bill 1118 by Chairman Warren and Senator Hammer, and that is to hand off the administrative functions for premium tax from PRB to DFNA. You remember earlier I mentioned about the uh the PRB being dissolved at some point in the future. This is planning for that inevitable. date so that we can make sure that premium tax is properly handled. DFNA thankfully has been really good partners to work with us on this bill and they're willing to assume those functions. Mr. Chairman, those are my prepared comments and I'm available for questions at the appropriate time. Thank you. Thank you, uh, Senator Hammer, you're recognized. Thank you, Mr. Chair. Um. I'm asking because I just can't recall right now the number of volunteers, a number of volunteer firemen that are in the system. What was the number you gave? Well, the total volunteer count is 6500. Now that does include. Roughly. 250 volunteer police officers and the rest are firefighters. 6500. Yes, sir. And what I'm where I'm going with this, with the declining number of volunteers in the volunteer fire department. What kind of impact is that gonna have on the system and would it be measurable as far as the impact it would have. For the existing departments if the membership were to decline at a, you know, significant number, meaning the 6500 became something 5000, you know, or something like that where it was a marked decrease that would obviously put upward pressure, significant pressure on the employer contribution rates. Right now it's $60 per member per month, but remember premium tax covers 90% of that amount, so the employers are only having to pay and the employers, meaning the volunteer departments are only having to pay $6 per member per month. But those numbers would go northward if we had a decrease, a material decrease in the population. If you were a statistics or data that would show historically like over the last 5 years, because we've been kind of preaching this message, you know, the last 5, 10 years about the declining number of volunteers in the volunteer fire department. have you tracked any to see what the effect has been, say, over the last 5 years. Yeah, it's, it's actually remained fairly stable, uh, so, uh, but you know, when we have so many departments that I think that's a big factor is because uh I don't remember the actual volunteer department only account, but our total department account is 776. So we we have a lot of departments that are covered by the system. That includes paid service as well though. So you got 776 of the volunteer fire department that are volunteer fire department, police and fire departments statewide. That's everybody paid service volunteer service because I think there's like north of 950 volunteer fire departments. That's correct. So of that and I'm, I'm just gonna say 300 because it could be greater if you're looping volunteer pretty good, you know, estimate, that's exactly right. That's, that's, we have about 300 that are not yet covered by the system. And now a lot of those, by the way, those were very like syn. go, you know, number counts as far as, uh, in the single digits, I mean like less than 10 people per department, so they're, they're very small departments. What would happen to the system if we were able to get those other 300 into the system, would it? I mean, how would it, would it boost it, hurt it? No, that would be a positive because service credit only begins uh on whenever they adopt coverage, so there's no prior uh service credit brought in so there's no unfunded liabilities being added to the system. It's just on a going forward basis, so we would have more contributions coming in and granted more service credit, but we're charging the actual required contribution for each month of service. OK, I'd like to get the exact number of volunteer fire departments separated from the police department. I'll get that to you. I'll get to the committee. Yes, sir. Thank you, Mr. Chair. Committee. Thank you. Any other questions? Seeing no, thank you very much. Thank you. I'll take us to Miss Fetcher. Uh With papers Good afternoon, Amy Fetcher with Apers. I'm gonna try to manage two computers up here, so bear with me. So Aper's mission is to deliver secure retirement benefits and exceptional service to our members. We do that through our 45 core values, accountability, professionalism, excellence, respect, and service. papers is a defined benefit plan which Jodie was telling you about and we are funded through our employee e-contributions, employer contributions, and our investment returns. We administer 3 different systems, the public employees, the Arkansas judicial retirement System and the Arkansas State Police retirement system. They all have different laws, different benefits, and 3 different board of trustees that govern the systems. As you can see from the slide, there's around 88,000 if you're looking at active members, retirees, and beneficiaries around 88,000 in the APR system, um, just around 300 in the judicial and 1300 state police. I always like to say that I mean we manage and administer 3 systems, and I poke my colleagues and say that we work 3 times as hard as they do. This next graph shows our funding sources, uh, and represented where the money comes from back to 2015. As you can see the um, the dark green is the member contributions, the blue is the employer contributions, the lighter green is the investment returns and income, and then there's a gold bar that you can barely see, which is any kind of other transfers or other fees that we get on some of the systems. So this graph represents how heavily dependent on that investment return we are. The financial health of the system, all the numbers on this presentation are as of June 30th, uh, 2020. 4, yeah, 2024. What year is it? Um, and at that time, the, the, uh, trust fund was at 11.7 billion. Our actuarial rate of return is 7% and so you can see the return, the last two years in 2024, it was 10.4% and in 2023, 8. 8%. The funded status for all three of the system, APR is at 84%, judicial at 95 and state police at 79, and that'll be important as you see legislation coming through this committee. Remember benefits that the um, Formula is your final average compensation times a multiplier that can depend on when you come in, came into the system and whether you're contributor or non-contributory at that time and your years of service. Just always remember everybody's retirement benefit is like their DNA. It's different for every person and it's unique to you. So just have them call apers if they have any questions and we'll be happy to walk through it. The benefits by county or it's also there in millions. You can see that we have over 500 employers with APRS, so we have all of the counties, a lot of the cities, municipalities, um, some of the universities and other smaller entities, but all of them are named in code. Last year we paid about 683 million in benefits across the state and you can see it broken down by county in your district, how much was paid out? We recently, last year, completed a strategic plan for the next 3 years starting this month. Um, I believe it's the first strategic plan the agency's ever done. We set 4 goals, and that is to want to strengthen the funded status of all the systems to enhance the member experience to foster and retain a highly skilled workforce and to optimize the security, integrity and usability of our information systems. Our legis of packaged this session is just 7 bills that covers the 3 systems that kind of focuses on those four areas, some technical corrections, tax intercept, fraud and collection of overpayments or a statute of limitations. And there's just some things that have already been mentioned, many of these, what we look at when we're looking at legislation and things for you all to consider about the cost to administrate, you know, I like to throw in with us having those three systems to administer our, um, retirement counselors have to learn those three different plans, so it, it really takes about a year to get somebody completely trained, those, uh, positions right now are at a GSO 7, and so it is very impactful when we have turnover of staff and. how we can administer and give good service to our members. Um, and then the plan benefits, uh, in the 2021 session, the, uh, employee contributions moved, uh, they, a law was passed. They're currently at 5.75% of your payroll that you contribute into APRs, um, it will move up 0.25% every July 1st until we get to 7% in July of 2029. That was after, um, some town halls across the state were done and the resounding, um, comments we got from employees was that they would rather their contributions increase, then their benefits decrease. So that was what happened at that time, and that's it. My contact information is on there for you. Please reach out to me if you have any questions or if your constituents do, I'm always here to help and so is the staff, and I'm happy to take any questions. All right, Senator Boyd, you're recognized. Thank you, Mr. Chair. So, and, and you might, one of you might have answered this and I apologize to somebody called me on that to visit about something, so the federal government supposedly passed this windfall elimination provision. Does that help our state employees? Calling in reinforcement. Oh, that's, that's great. I just, I've been wanting to ask for a while and now that I'm on retirement, I thought, why not, right? Mm Mr Chairman Mark White, Arkansas Teacher retirement system. Short answer is no, uh, it only applies to individuals who have work experience working for a government entity in a state that does not participate in Social Security, so all of our Arkansas uh in state employees and teachers all participate so if their experiences here, it does not affect them, however, if they have some previous work experience in Texas, Missouri, or Louisiana, it could affect them because those states do not participate in Social Security for most of their employees or. Some fire police plans as well. Thank you. Alright. Any other questions? Seeing that, oh. Representative Rye. Thank you, Mr. Chairman. Amy, uh, on the page of financial health. It shows vares is 84%. And then, uh A JRS 95 and ASPRS 79. A couple years ago, Amy, was that not As? Was that about 78%, is it just getting better or something like that. Sorry, since I've been there, it has, uh, continued to improve. It's been in the 80s ever since I've been there. I don't know how long it was when it was in the 70s. I'd have to go look. I'm sorry. Amy, that basically is that not something that just lets us know where we're at as far as the funding that's coming in and the part that's going out. Yes, and the unfunded liability, yes. Thank you. Thank you, Mr. Chairman. Thank you. Singing other questions. Thank you for your presentation. Thank you that'll take us to C3. It's Robin Smith, um. Members, you have a, a spiral bound. presentation at your desks and I think it'll be on screen as well. If you would state your name for the record, and then you are recognized as soon as you're set up and ready to present. Good afternoon. My name is Robin Smith. I'm the Asher's executive secretary, and although it doesn't look like it, Amy and I did not coordinate today for our presentation, and we will not be singing. First, I'd like to draw your attention to the spiral bound booklet in front of you. This hand, this handout will provide a brief overview of our system and the benefits Ashers provides. If you peek inside the front cover, I've provided my contact information if you'd like to discuss anything at a later time. Also in the booklet in the appendix section, I've included the slides, uh, on pages 11 and 14, that we'll be looking at this afternoon. The Arkansas State Highway employees retirement system. was established in 1949. It is the single employer defined benefit plan of the Arkansas Department of Transportation. It is managed by 7 trustees, and if you look at pages 9 and 10 in your booklet. There's a brief bio of each trustee. Over the last few sessions we've worked with you, the legislature, to make changes which have improved the health of our system, and I wanted to take a little time to provide a status update and inform you of Rasher Asher's recent activities and accomplishments. As you can tell by this slide, uh, it's Appendix B, Asher's is a mature system or ratio of active employees to retirees is pretty even. You can look in fiscal year 2022, the number of retirees briefly surpassed active employees. However, as of June 30, 2024, Asher's is back to a slight increase in active employee members at 3,872 while the number of retirees and beneficiaries remain fairly level at 3,0625 annuitants. Asher maintains regular communication with these stakeholders through employee and retiree newsletters as well as in-person meetings. In October 2023, our staff members from retirement insurance, payroll and human services, human resources, held meetings with the administrative staff from our districts and divisions, those employees serve as our satellite subject matter experts around the state to assist employees in their personal benefits. These meetings were held as an educational forum to discuss policies, procedures, address recurring issues as well as answer any questions. Then during this past summer our staff traveled and presented at 10 retiree associations meetings. The retirees were updated on the status of the system as well as any upcoming insurance changes. And finally this fall, we held a total of 24 insurance open enrollment meetings around the state. Ourdot Insurance and retirement staff participated along with representatives from Arkansas Diamond and Transamerica, who, who also presented, uh, These meetings allowed field employees to have one on one discussions regarding their personal insurance and retirement needs. Like all defined benefit plans, Asher's relies on income from the investment of the employer and employee contributions to build those annuity benefits. Our members are counting on a retirement. If you look at Appendix C, we have provided a comparison of Asher's investment returns to the median pension plan over the last few decades. Reading from left to right, if you look at the first column, one year, that's calendar year 2024. Asher's return on investment was 11.72% as compared to 9.56 for the median plans. If you go over a couple of bars to 5 year, the 5-year period, Asher's earn 9.54 as compared to the median 7.15. And then let's look at the last column, that's since inception, um, Asher's has outperformed the median pension funds, 7.81% to 6.82%. Since the last session, Asher's, uh, developed and adopted a strategic plan. This plan documents a long-term operating framework designed to assist our board of trustees and responsibly and effectively executing the mission of the system. The keystone of the strategic plan is the system's funding policy, which describes how benefits are financed in a in a manner consistent with Asher's statutory and fiduciary duties to pension beneficiary. ies The board selected 4 metrics to focus on in determining how well the system is progressing toward our goal, the goal being fully funded. These metrics will be used to determine when changes to the plan may be warranted. The metrics to be reviewed are funded percentage, equivalent funding period, cash flow percentage, and actual contribution rates compared to actuarially determined contributions. To enhance this review process, the board adopted a red, yellow, green stoplight approach, which has been incorporated into our annual actuarial reporting. A green light implies we're progressing toward our goal, a yellow light suggests there is an increased risk to the plan, and red signifies a significant risk to the plan that requires attention. It's important to note that for this purpose, risk refers to the risk of our fully funded goal, not reaching that in a timely manner. It does not mean the risk of running out of money. If you look at Appendix D, the chart at the bottom defines the parameters of each key metric within each risk indicator. The top portion shows Asher's status as of as of June 30. So as of June 30, we were 83.6% was our funded percentage. We were at 18.5 years for our funding period, or cash flow was green at 6.2% and our actual contributions and comparison to the actuarially determined contributions was 98.8. So 2 green lights, 2 yellow lights, but the two yellows are closing in on, on the desired targets and trending in a positive direction. And everyone's favorite slide, the economic impact map shows that, uh, the distribution of Asher's benefit payments by county for calendar year 2024, we paid out almost $110 million within the state of Arkansas, resulting in a positive impact for local economies by providing our retirees with spending power in all 75 counties. Mr. Chair, that concludes my presentation. Thank you for your time. I look forward to working with you this session. Thank you, members, do you have any questions? Seeing none, thank you for your time and your presentation. And Finally, uh, C4, Mr. White, if you would. There's a presentation in front of you. Members in a packet and State your name for the record as soon as you're set up, you're recognized to begin. Thanks Chairman Mark White, Arkansas Teacher retirement system. I appreciate the opportunity to come and present to you today, uh, as, as you can see since I'm last I have about 2 hours' worth of material that I'll work through, um, I'll see if I can shorten that down some though. Alright, so for Arkansas Teacher retirement system, our mission is providing retirement security for Arkansas's past, present, and future public service, public education professionals, uh, you can see our vision there. I always like to add to that though that even though that is our number one. priority. We do keep two other priorities in mind at all times. One is we know that we are a key incentive for recruiting and retaining, uh, the most qualified employees in our public schools, uh, and we see that talking with teachers and survey results, we know that they place great value on this benefit and so we always keep that that effect on our schools in mind and secondly as an Arkansas system, we do, uh, want to create investment and jobs in Arkansas. Uh, when you look at our investments that we have in businesses here in Arkansas, both direct investments as well as stocks, bonds, and other investments. We have $982 million invested here in Arkansas and we know that our investments have helped create thousands of jobs, so that's something we're very proud of. Uh, we discussed earlier with Mr. Carrero about, uh, what a defined benefit plan is, uh, so I won't add anything there other than one quick point as I talked to members, the one thing that I hear from them more than any other of why they value uh this system and the benefit it provides is that it is a lifetime benefit, uh, they know that once they retire they will receive that benefit from us for every month for the rest of their life, no matter what, uh, and they don't have to worry that they might outlive that benefit, uh, last time I. Checked our oldest member was 107, uh, we have more than a dozen members that are 101 or older, uh, and each one of those members has been receiving a benefit every month from our system in some cases 40 or even 50 years, and that's, that's why they value our system and that's also that we're we're proud to support our teachers with we have a little over 142,000 members across the state, uh, we cover all of the employees of our public school district. Uh, education cooperatives as well as uh some of the state agencies, primarily the Arkansas Department of Education, uh, we also have some employees in higher ed. Most higher ed institutions have most of their employees are in other systems we do have some scattered throughout higher ed. And uh one term that I don't think it's been mentioned today, but you will hear this and that is vested, uh, when a member becomes vested in one of our retirement systems, that just means that they have are now guaranteed a monthly benefit from the system when they retire. And so for ATRS, our members become vested when they have 5 years of service credit with us. Um, for that same membership, uh, in December we paid out just under $120 million in benefits around the state, uh, to, uh, more than 57,000 retirees and beneficiaries, more than 90% of those live within Arkansas, uh, so those are are dollars that are going into our economy locally. I know most members I talked to when they get that uh amount from us in their bank account each month. They don't suck into savings. They're spending that they're buying groceries, they're going to Walmart, they're paying their utilities. So these are. uh, more than 1.4 billion over the, over the course of the year, that will be uh coming through us into the Arkansas's economy. Average benefit is about $2050 a month for the average member. Our net assets, uh, we are at 22.7 billion as of the end of the calendar year, uh, and we do have a very diversified portfolio for those funds, uh, you can see they're just under half of our assets are in public, publicly traded stock or what we call total equity, and that is international, not just US equity, but also uh stock markets around the world that we're invested in. And you can see the remaining uh types of investments in which we're diversified. We're also diversified, as I mentioned, geographically about investing around the world or diversified by managers and that we have literally hundreds of investment managers that we rely on to help invest our funds for us, uh, also diversified by, uh, industry sectors because at the end of the day we want to have a good return. We also want to have a risk that's acceptable to the board, and we want a lower volatility, uh, so that we. Don't have those huge ups and down swings we see in the stock market, uh, and so that's why we're invested, for example, we have uh more than 60,000 acres of timber that we own here in Arkansas as well as more than 10,000 acres of farmland, and those are assets that they can hold a steady value no matter what the stock market does. So we like to have a number of assets that aren't necessarily correlated with that return from the stock market. Our returns, uh, last fiscal year our return was 11.4%, uh, which we're very happy with that was on top of 9.2% the year before, uh, and we've had a sustained record of success. The 5 year return, uh, 9.2% 10 year return 8.7%, uh, but maybe the most important point is to look at that dotted red line. That's our assumed rate that we use for our actual actuarial projections, which is 7.25% and you can see that we have. So an individual years we may fall below that over time we have, uh, met and well exceeded that assumed rate, uh, for our actuarial projections. And then this shows our status uh for the actual projections over the last decade. You can see that we were trending in the right direction on both of the metrics that've been talked about today, funded ratio we're 85% right now, which is an increase, uh, over the last decade. The amortization period at 20 years, which is the lowest we've been in quite some time, uh, but really this, this graph shows progress, but really it understates our progress because twice in this last decade we have changed. the assumptions that underlie our projections to make them more conservative, uh, if we were still operating under those same assumptions from 10 years ago, we would be in the 90s for our funded status, uh, but the board made those decisions to be more conservative, more realistic in our projections for how we think that we'll do in the coming years. And then finally, uh, as far as leadership, uh, we are governed by a 15 member board, uh, 1111 of those board members are elected directly by our members, the remaining 4 are what we call ex officio members, which are the uh Secretary of Education, the state bank commissioner, state treasurer, and state auditor. Uh, all those members have a fiduciary obligation to our members and they follow that through to act in the best interest of our members. We have 76 full-time employees at the system, uh, and 2 I want to mention to you, uh, one, Rod Graves, uh, back here you can give away Rod Rod is our deputy director for investments, uh, oversees the investment side of the house and then Sara Lanham, who is out of town today, was not able to be here. She is the deputy director over the member services side and so throughout the session you'll see either me or one of them on behalf of the system and we'll always be happy to help you and answer any questions that you may have. Um, two last points I want to make one and again this is true for all of all of the systems you see today, just remember that we're all self-funded. We do not rely on general revenue to our systems in any way for our administration, uh, we found ourselves entirely through the assets of our members, uh, and then secondly on legislation, uh, you'll see about 7 bills that we're asking you all to consider their combination of some technical correction and uh clean up bills as well as some bills to fill in some gaps in coverage. Uh, where we see some opportunities for our members we'll make things a little more fair and a little more equal across our members. Nothing that reduces any benefits or harms any member's interest. With that, I will, uh, in my presentation I'd be happy to answer any questions. Thank you, Mr. White. Uh, Senator Hammer, you are recognized. You may have said I just didn't hear where you ranked in the nation now as far as retirement systems. Uh, for on on investment return, uh, we were in the 18th percentile for last fiscal actually last two fiscal years, uh, the 18th percentile compared to other public pension plans nationally. OK. And As far as the 7.25 assumed rate of return. The dotted line you referred to, um, Just help me understand as far as the obligations against that 7.25. Is that how much above what the obligations are. As far as When, when do you hit the panic button when it hits the 7.25, because we've been at the panic button before. So when do you hit the panic button? You would hit the panic button if you have multiple years where you're falling below that and where you're seeing that your 5 year, your 10-year return is falling below that, uh, in determining that, uh, estimated rate, we make projections going forward 1020, and 30 years of what we think the markets will move and how that will affect our, uh, investments and so both our investment professionals as well as our actuaries have looked at that and think that's a reasonable minimum number for where we will do over. the next 1020, 30 years. And is that Eat away at the, you know, you could, I'd use the term reserves, like everything above the 7.25. That when it when it starts, it's because it's eating up the reserves or eating up the profits that you've accumulated over the previous years, right? So do you, and the reason I'm saying that or where I'm going, do you need to, do you think we ought to move the 7.25 number, are you, are you positive solid that that's where it needs to stay. Uh, as of right now, I think that's where it needs to stay, uh, and I've been watching that. There was a trend nationally for funds, pension funds to reduce their, uh, assumed rate over the last decade. Particularly because we're in a 0% interest rate environment and that really changed some of the underlying assumptions. Especially now with interest rates higher, I don't see any reason why we would consider lowering that assumed driver return and as we as we perform above that which we have, you know, uh, pretty consistently that just reduces that uh unfunded liability even faster. OK, all right, thank you. Thank you, Senator Hammer, uh, representative. I want to encourage you guys to get to know these directors. And and their staffs because. It's real common to get calls from teachers, it's real common to get calls from sheriffs, uh. Highway uh state highway workers going, hey, I got a call, uh, a question about my retirement plan. And you're not gonna know all the answers. But it's great to have these people to call and be able to say, hey. Who do I need to put them in touch with so introduce yourselves. Get to where you know these people. Because even if they're tied up, they've got great people to help. And I think I'm right in saying this, every one of the uh retirement systems here, it's 5 years to be vested, right? 10? OK. OK. I was gonna to say legislators we're, we're 10 years, uh, and, and Amy's packet, she gave a uh formula. And in this committee you may hear people wanting to change the multiplier, uh. What are some of the other things that might affect the. Do what? Um. Yes, so all those things. Affect the payout. Of what we're going to be paying these retirees. So like our multiplier for legislators is 0.02. If you wanted to increase that to 0.05, then we're all going to be, that's going to change the payouts. And it's gonna affect the Uh, what's in the funds. To pay people From here to eternity. So you have to be careful when. You get some of these items that affect the payouts that are gonna be given to the retirees. So anyway, look at that formula. And just get an idea, but please go meet these people and get to where you know them and you can pick up the phone and call them when you have constituents that have issues. Thank you, Representative Representative Rye. Thank you, Mr. Chairman. You know, Mark, The way that I'm seeing this and I think this is right, but you know, when you look at this benchmark of 7.25. That's what it's gonna take to stay where you need to be healthy, but then you have all this up and above. Which is looking real good at this point. Is that not right, sir? That's exactly right. OK, sir. And, and again, I also wanna emphasize it's not just we can we can, we may have individual years where we fall below that, and that's OK. It's just overtime over 1023 years are meeting or exceeding that and in our history we always have. Thank you, Mark. Thank you, Mr. Chair. Absolutely. All right. Thank you, Mr. White. Thank you members, um. We have uh bill filing deadline for this committee for retirement committee on Friday, January 31st, so if you have anything that's. Coming up, get it, get it in and since everything has to have actuarial reports, we will not have committee next Tuesday, but it will be 2 weeks. So we'll have, have this committee committee on Tuesday, uh, upon adjournment of both chambers in 2 weeks and. With that we are adjourned.