LITTLE ROCK — Five bills that proponents say are aimed at improving the financial sustainability of the Arkansas State Highway Employees Retirement System are trying to wind their way through the Legislature.
The Senate approved three of the bills Tuesday, after the Joint Committee on Public Retirement and Social Security Programs endorsed all five bills on Monday.
The system has about $1.6 billion in investments and more than 7,000 working and retired members.
The system included 3,714 working members with an average salary of $44,691 a year and 3,483 retired members and beneficiaries as of June 30, said Robyn Smith, executive secretary for the system.
The average pension for the system’s retired members is $32,970 a year, while the average pension for disabled retirees is $15,862 a year and the average pension for beneficiaries is $15,442 a year as of June 30, she said.
The five bills include:
• Senate Bill 102 by Sen. Bill Sample, R-Hot Springs, which would allow the system’s board of trustees to set the employer contribution rate with final approval by the Arkansas Highway Commission, said Rep. Les Warren, R-Hot Springs, who is the bill’s House sponsor.
The board of trustees will set an employer contribution policy tied to actuarial calculations and funding requirements for a projected 30-year pay-off period for the system’s unfunded liabilities, Warren said.
“When conditions are such that additional funding is required to stabilize the sustainability of the system, the board of trustees will recommend to the Arkansas Highway Commission an increase in the employer contribution rate until such time that the actuarial calculations support a return to normal funding levels,” he said.
“This change would provide a safety net for the system for any future funding issues that might arise,” Warren said. “We would no longer have to wait for a regular session of the General Assembly [to change the employer contribution rate].” The current employer contribution rate is 14.9% of pay.
The state paid $23.2 million into the system in fiscal 2020 that ended June 30, while employees paid $10.2 million, according to Smith.
The Senate on Tuesday voted 35-0 to send SB102 to the House for further consideration.
• Senate Bill 103 by Sample, which would increase the employer contributions paid on working members participating in the deferred retirement plan from nothing to 14.9% of pay for tier-one members in their first five years in the plan and from 6.9% to 14.9% of pay for tier-two members after their first five years in the plan, if they haven’t reached the age of 65, Warren said. That would take effect July 1 for all deferred plan participants.
That would increase the annual cost to the state Department of Transportation by about $3.9 million a year, he said.
The bill also would change the employee contribution rate for the deferred retirement plan period, starting with new employees hired after June 30, he said. The bill would increase employee contributions for tier-one members from nothing to 7% and for tier-two members from 6% to 7% of pay for these new hires only, he said.
The Senate on Tuesday voted 35-0 to send SB103 to the House.
• Senate Bill 104 by Sample, which would change the average salary definition used in the retirement benefit formula from the highest annual compensation paid during any 36 consecutive months of service to the highest annual compensation during any 60 months of service, Warren said.
“This change would eliminate salary spiking for retirement purposes,” he said.
“Should this bill be enacted, this policy change would be phased in by developing a benchmark benefit based on each employee’s high three years [of salary] as of June 30, 2021,” Warren said. “For individuals who retire or enroll in the [deferred retirement plan], their retirement benefit will be calculated using the higher amount of either the high three-year consecutive salary as of June 30, 2021, or the higher five-year consecutive average salary at the time of retirement or enrollment in the [deferred plan].”
The bill would result in a 2% to 2.5% reduction in the average retirement benefit for an employee, but the employee could delay retirement or enrollment in the deferred retirement plan for a brief period. He said calculations show a delay in retirement of one to six months would earn a member at least the same or greater retirement benefit if the bill is enacted.
The system uses “the high state salary” for service throughout state government for setting the retirement benefit of an employee, and the bill would change that to the high salary paid for service at the Department of Transportation, Warren said.
• Senate Bill 105 by Sample, which would reduce from two years to one year the minimum period that the spouse of a retired member had to be married to the member, before the member retired or participated in the deferred retirement plan, to receive annuity benefits upon the death of the retiree, according to the committee’s actuary.
The Senate on Tuesday voted 35-0 to send SB105 to the House.
• Senate Bill 106 by Sample, which would defer the payment of the health care offset until a working member’s deferred retirement plan period is complete.
This would apply only to new enrollees in the deferred plan after June 30, Warren said.
The Department of Transportation pays insurance matching funds for employees enrolled in the state’s health insurance plan and deferred plan participants are included in that match, he said.
“This bill would eliminate [deferred plan participants] from receiving two benefits for health care,” one from the retirement system and one from the Department of Transportation, Warren said.
“When the individual terminates employment [with the department], they would begin receiving the health care offset or stipend as part of the monthly retirement benefit payment,” he said.
Smith said the health care offset is $75 a month for 10 to 15 years of service, $100 a month for 15 to 20 years of service, and $125 a month for 20 years plus of service.
The system’s investments were valued at $1.6 billion as of December, she said. As of June 30, the system has an unfunded liability of $307.5 million with a projected pay-off period of 39.5 years, she said.
Smith said the bills are projected by actuaries to reduce the system’s unfunded liability to $290.6 million and the projected pay-off period for the unfunded liabilities to 21.6 years.