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State board notes drop in earnings

by Michael R. Wickline | May 12, 2021 at 3:53 a.m.

The state treasury's interest earnings on its $4.5 billion investment portfolio last quarter dipped to $9 million, Treasurer Dennis Milligan told the state Board of Finance on Tuesday.

By comparison, the interest earnings in the quarter that ended March 31, 2020, totaled nearly $23.2 million, Milligan reported.

The covid-19 pandemic officially arrived in Arkansas on March 11, 2020, and has impacted the global economy, he said.

On another matter, the Board of Finance voted to meet next Tuesday to continue its review of health insurance plans for state employees and public school employees. Actuaries for the state Employee Benefits Division briefed the board on the plans for nearly two hours.

On the state's investments, the board learned that earnings peaked at $116.9 million in fiscal 2019 before dipping to $80.7 million in fiscal 2020 as interest rates declined. Fiscal 2020 ended June 30 last year.

During the first three quarters of fiscal 2021, the treasury had $24.2 million in interest earnings, according to Milligan's report. That's a decline from the $69.3 million earned in the first three quarters of fiscal 2020.

"While we continue to see historic activity in the stock market, the fixed income market is not experiencing the same rebound," the Benton Republican told the finance board.

The relationship between the stock market and the bond market is one resembling a see-saw, meaning that "when one is up, the other one is lower, and you know we are still seeing the impact of covid on the bond market," Milligan said.

"In some respects, 2020 has turned into a lost year for bond investing," he said. "We are starting to see some rebounding in the sector compared to the nine-month turnaround of the stock market."

In addition, "we are starting expectations of rising inflation, and we are monitoring its impact on the bond market specifically in addition to the economy as a whole," Milligan said.

HEALTH INSURANCE

The finance board is reviewing the State and Public School Life and Health Insurance Board's April 20 recommendations for changes to the health insurance plans for state employees and public school employees.

The Board of Finance will make recommendations to the Legislative Council, which oversees state operations when the Legislature is not in session.

That's because Act 1004 of this year dissolved the insurance board and temporarily transferred its duties to the Board of Finance. The board will make decisions and policy determinations until the General Assembly adopts a permanent governance system to ensure solvency of the two health insurance plans.

During the Board of Finance's second meeting on this matter in the past five days, board Chairman Larry Walther said Tuesday the board needs to assess the former insurance board's recommendations, including raising premiums of both plans in 2022, plus consider other options before making recommendations to the Legislative Council.

Walther said he would like the board to meet during the next several Tuesdays.

"I am not saying [the board's decision] has to be done in three weeks or five weeks or 10 weeks," Walther said. "But we also do all understand on Jan. 1 that employees need a health care plan that we have recommended, so the sooner we get our job done and make that recommendation to the state Legislature, the better off we are going to be, and the better off the employees are going to be."

Walther said the other consideration "is the idea of getting the [health insurance plans] in the hands of the employees and the retirees so they have adequate time to evaluate it" before the enrollment period begins in October.

Under the defunct insurance board's proposals, active school employees would face a 10% increase in premiums. Retirees under 65 would face a 15% increase, while retirees older than 65 would see a 20% increase.

Active state employees would see their premiums increase 5%, while retirees, regardless of age, would have a 10% increase in their premiums. The state also would increase its monthly funding per employee by $50 a month under this plan.

Both plans would reduce the wellness credit for active employees from $50 to $25 a month, create a $50-a-month non-wellness contribution for active employees and eliminate the wellness preventive-screening requirement to see a doctor in person.

These proposals are projected to reduce the public school employees plan's forecast deficit from $70 million to $29.7 million for 2022 and turn the state employees plan's projected deficit of $33.3 million into a surplus of $6.2 million, according to state officials. Both plans have dwindling reserve funds.

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