The Arkansas Teacher Retirement System is in good financial shape after its projected period for paying off its $4.1 billion in unfunded liabilities shrank by a year as of June 30, an actuary told the system's board of trustees Monday.
Unfunded liabilities are the amount by which a retirement system's liabilities exceed an actuarial value of assets. Actuaries often compare the payoff period for projected unfunded liabilities to a mortgage on a house. The teacher retirement system's payoff period dropped from 29 years last year to 28 years this year.
The system is 80 percent funded, based on a $16.75 billion actuarial funding value of its assets and $20.9 billion in liabilities as of June 30, up from 79 percent in 2017, said Judith Kermans of the system's actuary, Gabriel, Roeder, Smith & Co. of Southfield, Mich.
"Most people would say that looks pretty good," Kermans said.
The trustees also learned Monday from the system's investment consultant that the market value of its investments increased, then fell but then made up some losses so far in the fiscal year that started July 1. The board also authorized up to $90 million in new private equity investments.
Trustee Richard Abernathy said after the meeting that he is considering asking fellow trustees not to renew their security monitoring contract with the New York-based law firm of Labaton Sucharow when they meet in February.
"I just thought they could have been a little more active in some of the discussions over here and I didn't see them try to help ... explain what went on," he said.
Then-system Director George Hopkins told lawmakers in July that the system directed its law firms not to pay any referral fees, after a special master's investigation discovered a $4.1 million referral fee paid to Texas lawyer Damon Chargois as part of a $300 million lawsuit settlement involving the system. The system was the class representative in the class-action lawsuit and represented by Labaton Sucharow.
Hopkins repeatedly told lawmakers that until a special master raised questions about the referral fee, he didn't know it had been paid to Chargois. The fee was part of $75 million in attorneys' fees awarded in a settlement with Boston-based State Street Corp. Hopkins retired Nov. 16.
ACTUARY REPORT
The system is state government's largest retirement system with about $17 billion in investments and more than 100,000 working and retired members.
The system includes 68,645 working members who aren't on a deferred retirement plan, are an average age of 44.2 years, and have average service of 10.2 years and average salary of $38,477 a year as of June 30. The system has 3,696 working members who are on a deferred retirement plan and have an average salary of $62,456 a year, according to a report from Gabriel, Roeder, Smith & Co. The system also had 4,029 retired members who returned to work as of June 30.
The system also includes 46,824 retired members with an average retirement benefit of $23,478 a year as of June 30, the actuary said in a written report.
Employers paid $420 million into the system in fiscal 2018, while working members paid $137 million, Hopkins has said.
Employers pay the equivalent of 14 percent of their employees' salaries into the system, while working members who pay into the system contribute 6 percent of their salary.
The actuary said employers and contributing working members will pay 0.25 percent a year more from fiscal 2020 through fiscal 2023.
The increased contributions are part of about a dozen measures aimed at cutting costs and raising more money in the next five years. Trustees approved the changes in November 2017. The changes will help make up for cutting the projected annual investment return from 8 percent to 7.5 percent -- which actuaries called reasonable, and system officials deemed conservative -- and approving new mortality tables that project members will live longer than previously expected.
The current median projected return of public pension systems is 7.38 percent, down from 7.5 percent in February. The current average projected return for the systems is 7.3 percent -- down from 7.33 percent in February -- according to the National Association of State Retirement Administrators, Gabriel reported.
"Although ... our returns have been pretty good for the last nine years, what we see from investment consultants is they are projecting for the next 10 years is not going to be real good, so that's affecting these assumptions," said Brian Murphy, an actuary for Gabriel.
Rep. Doug House, R-North Little Rock, said in an interview he plans to draft legislation aimed at ensuring the solvency of state government's retirement systems that wouldn't apply to existing working and retired members and beneficiaries.
"Now for future employees and all that, that's on the table and we're looking at it, but I don't know [what] it is going to finally look like until we get the numbers," he said. He said the options include creating a new tier of retirement benefits for future members.
INVESTMENT TOTAL
The value of the system's investments increased by $1.22 billion to $17.3 billion in fiscal 2018. The system's investment return of 11.6 percent ranks among the top 1 percent of the nation's public pension systems valued at more than $1 billion, Chicago-based investment consultant Aon Hewitt Investment Consulting reported in September.
In the first quarter of fiscal 2019, investments increased in value by $320 million to $17.66 billion as of Sept. 30, a return of 3.1 percent, according to the investment consultant.
A preliminary report on the investments showed their value dropped by $970 million from $17.66 billion to $16.69 billion in October, the investment consultant reported. The preliminary report shows only changes in stock market and bond investments, but not changes in the system's real estate, timber, agriculture, infrastructure and private equity investments. They will be reported later.
Markets rebounded in November, so investments have declined by roughly 1 percent in fiscal 2019, said P.J. Kelly of Aon Hewitt.
On Monday, the trustees approved private equity investments of up to $30 million each in the Franklin Park Venture Capital Access Fund LP, Franklin Park International Fund 2019 LP and the Arkansas Teacher Retirement System/Franklin Park Private Equity Fund LP.
A Section on 12/04/2018