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story.lead_photo.caption Arkansas Public Employees Retirement System Executive Director Duncan Baird is shown in this photo.

Most of the bills proposed by the Arkansas Public Employees Retirement System trustees to reduce the system's unfunded liabilities failed to clear the Legislature during this year's regular session.

The session, which started Jan. 14, went into recess April 10 and wraps up for good Wednesday.

The 92nd General Assembly approved only one of these bills sought by trustees. It will reduce the interest rate paid to system members on their contributions.

Key lawmakers said system trustees and officials didn't sufficiently inform the system members about the need for the changes. Retirees from all the public systems, fearful of what changes might be approved, packed the meetings of the Legislature's retirement committee during the session.

Lawmakers plan a tour this summer to inform members of state government retirement systems about the condition of the systems and get their feedback.

The Arkansas Public Employees Retirement System is the government's second-largest such agency with more than 80,000 working and retired members. The system's investments were valued at $8.58 billion as of March 31, said system Executive Director Duncan Baird.

The system's unfunded liabilities were $2.27 billion on June 30 with a projected payoff period of 26 years, according to system actuary Gabriel, Roeder, Smith & Co. Unfunded liabilities are the amount by which a system's liabilities exceed an actuarial value of the system's assets. Actuaries often compare unfunded liabilities and the projected payoff period to a mortgage on a house.

[RELATED: Complete Democrat-Gazette coverage of the Arkansas Legislature]

"There was just so much misinformation during the session that people were worried about their benefits being cut," said Sen. Bill Sample, R-Hot Springs, who is a co-chairman of the Joint Committee on Public Retirement and Social Security Programs.

"People were stirred up by [Rep.] Doug House," Sample said, referring to the Republican from North Little Rock.

House, who is a former retirement committee co-chairman, has become the leading legislative advocate for getting the state systems to reduce their unfunded liabilities. To accomplish that, the systems can raise more money from employers and members. They also can cut costs.

"I became potentially the lightning rod and whipping boy on all of this and my colleagues were glad for letting me do that because I got all the cussing instead of them and they could blame me," House said. "I made my point and got the truth out. What I am trying to do is to make sure that every retiree receives every dollar they were promised under the law and that's my only goal."

Sample said House didn't do a good job of presenting his ideas.

"It was more he was in the Army giving orders than making recommendations," Sample said in an interview.

In response, House, a retired Army colonel, said, "He's entitled to his opinion."

The public employees system included 38,105 retired members who received total retirement benefits of $530.8 million (or an average of $13,929 a year) as of June 30, according to actuary Gabriel, Roeder, Smith & Co. The system also included 46,231 working members with an average annual salary of $37,302 as of June 30.

State and local governments paid $276.7 million into the system, while employees paid $64.7 million in fiscal 2018, which ended June 30, the actuary reported.

The governments pay the equivalent of 15.32 percent of their employees' wages into the system. In August, the trustees decided to keep that amount for the next two fiscal years, starting July 1. Most of the working members pay 5 percent of their salaries into the system.


Sample said he plans for the legislative retirement committee to hold several regional meetings across the state starting in May or June. The meetings will allow retirement systems to inform their working and retired members about the condition of their systems. The meetings also will allow lawmakers to hear from members.

"The safe thing is to let it ride and make visits across the state and get the buy-in from the membership and collectively come back in two years and say this is what we collectively recommend we want to do," said the committee's other co-chairman, Rep. Les Warren, R-Hot Springs.

Warren said there was some uncertainty about the system's legislative agenda after the unexpected departure of system executive director Gail Stone -- who retired effective Dec. 31 -- and the trustees' hiring on Jan. 8 of Baird, then the state budget administrator. Baird started working at the system April 1, a little more than a week before lawmakers stopped meeting.

System Deputy Director Jay Wills served as interim executive director between Stone's departure and Baird's arrival.

John Bridges, executive director of the Arkansas State Employees Association, said he wants state employees to "have a say into picking what changes we need to make the retirement system healthy."

Rep. Ken Bragg, R-Sheridan, said the retirement system is pretty healthy.

"There is no emergency to do something," Bragg said. "We are going to work with the [employees association] and the board and try to do some work and educate people on the need and see what we what we can do."

Candace Franks, chairman of the Public Employees Retirement System's board of trustees and the state bank commissioner, said, "I think in the future, the board needs to do some outreach and visit with our members about possible changes that the retirement system needs to make.

"There was probably not as much communicated as needed to happen and that probably affected [the fate of the trustees' bills] as much as anything, and that's just my opinion," she said.


Under current state law, retirees get a compounded 3 percent cost-of-living adjustment each year. The same increase is given by the Arkansas Judicial Retirement System, Arkansas State Police Retirement System and Arkansas Local Police and Fire Retirement System, officials of the systems said.

In January, the system trustees decided to ask lawmakers to give them the authority to set the annual cost-of-living adjustment for retired members between the consumer price index and a 3 percent rate that's not compounded.

Wills told the legislative retirement committee on April 1 that the system was unable to get a sponsor for that legislation and instead supported a substantially similar bill -- House Bill 1256 by House.

HB1256 would have allowed the trustees to decide whether to make an annual cost-of-living adjustment at all and if so, how much to grant, up to a simple -- not compounded -- 3 percent a year. The base amount would have been the current benefit received or the initial retirement benefit after July 1.

Changing the annual compounded 3 percent increase to House's flexible proposal was projected to reduce unfunded liabilities by at least $439.1 million and their projected payoff period from 26 years to 17 years, according to the committee's actuary, Jody Carreiro.

Wills said someone receiving a 3 percent compound cost-of-living adjustment will get only $42 more for each $1,000 of retirement benefits than someone receiving a 3 percent simple adjustment at the end of 10 years.

"If we continue on the course we are going on with no changes, and nothing happening, and we have another serious market downturn like 2008 the impact on all the people, the retirees, the state employees, is going to be massive and very painful, so [put] faith in the trustees to manage this so that the impact can be as little as possible over a period of time, say eight years or 10 years, to get the system healthy again," House warned the legislative retirement committee.

"In other words, a little preventative work now will save a lot of painful work later and that's where we are at."

But at that April 1 meeting, Sample pressed Baird, who was on his first day on the job, "Is this something we can put off for just a little while, while we give all the membership an opportunity to weigh on this? You are not going to go broke before this happens, are you?"

Baird replied that House's legislation was very similar to the bill that the board of trustees proposed.

"I think ultimately that determination as the timing of whether you look to do it today or whether we look at doing it down the road is really up to ... the will of the committee and the will of the Legislature," said Baird. Baird, before working for the state, was a Republican state representative from Lowell from 2009-15 and a co-chairman of the Joint Budget Committee for his last two years in the House.

Eventually, the bill died in committee, after the committee heard from three system retirees opposed to the bill. House's motion to recommend approval of the bill failed to get a second from the committee's other 19 members.


The system trustees also asked lawmakers to approve legislation that would:

• Increase from 5 percent to 6 percent the share of salary that members pay into the system. It would have increased the rate by 0.25 percent a year starting July 1, 2020. The bills were House Bill 1359 by Bragg and Senate Bill 244 by Sen. Bart Hester, R-Cave Springs.

• Change the final average compensation used in computing retirement benefits for newly hired members based on their highest 60 months of compensation rather than the 36 months under current state law. House Bill 1339 by Bragg would have allowed the trustees to increase that period to a maximum of five years. Senate Bill 245 by Hester would increase that period to five years without the trustees' action.

• Cut the multiplier used in computing retirement benefits for newly hired members. The multiplier is now 2 percent of the final average compensation times years of service after July 1, 2007. The proposal would change it to 1.8 percent of final average compensation times years of service for all members hired July 1, 2020, and thereafter. The bill was Senate Bill 243 by Hester.

• Cut the interest earned by system members on their contribution balances from 4 percent to 2 percent a year. The change is for system members who withdraw their employee contributions.

The last bill was the only one of the trustees' legislative package aimed at reducing the unfunded liabilities that got any traction in the retirement committee. House Bill 1358, by Bragg, is now Act 526.


In contrast, bills for the system for highway employees zipped through the Legislature this year with no fanfare.

Trustees for the Arkansas State Highway Employees Retirement System will be able to increase how much working members and the Department of Transportation pay into the system. They also will be able to revise the annual cost-of-living adjustment for retirees.

Act 295 (Senate Bill 201 by Sample) will allow the system's trustees to increase from the current 6 percent to 7 percent of salary the amount paid by working members. The increase would come if recommended by the trustees' actuary, but be limited to a change of 0.5 percent a year. Act 295 also will allow the trustees to increase the amount that the Transportation Department pays into the system. The amount is now equal to 12.9 percent of the employee's salary and that would rise to 14.9 percent if recommended by an actuary.

The increases would raise $3.1 million more a year in department contributions and $1.5 million more a year from the employees, after fully implemented, according to system Executive Secretary Robyn Smith. In fiscal 2018, the department paid $19.2 million and working members paid $9.1 million into the system.

The system had 3,343 working members with an average annual salary of $43,108 and 2,523 retired members with an average annual benefit of $33,550 in fiscal 2018, Smith said. The system also had 427 disabled retirees with an average annual benefit of $16,785 and 486 beneficiaries with an average annual benefit of $15,390.

Act 294 (SB200 by Sample) will remove retirees' health insurance supplement, which ranges from $75 to $125 per month, depending on the length of service, from the cost-of-living adjustment.

The measures are projected to reduce the system's projected payoff period for unfunded liabilities "from infinity to somewhere around 32 years," Smith told lawmakers almost two months ago.

The highway employees system's unfunded liabilities totaled $281 million at the end of fiscal 2018 with an indefinite projected payoff period. The system's investments are valued at $1.4 billion, Smith said Thursday.

Two years ago, lawmakers approved Act 610 of 2017 (SB155 by Sample) that changed the annual fixed 3 percent cost-of-living adjustment for retirees to the lesser of 3 percent or the change in the consumer price index for urban wage and clerical workers. That move also was aimed at reducing unfunded liabilities; Carreiro projected a $77 million reduction.

"I told Robyn Smith, "I would love it if I could clone you,'" Warren said.

SundayMonday on 04/21/2019

Print Headline: Arkansas legislators cool to retiree filings


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