DISTRICTS’ contract workers addressed by bill.
Measure: Put them in retiree system or pay a surcharge
The growth in school districts using contract labor has affected employer contributions to the Arkansas Teacher Retirement System, and a committee approved a bill Monday that would either require districts to have contract employees join the system or have districts pay a surcharge on those salaries.
The Legislature’s Joint Committee on Public Retirement and Social Security Programs recommended House and Senate approval of House Bill 1287 by Rep. Johnny Rye, R- Trumann.
The increased outsourcing by school districts in recent years has reduced the growth in the number of the system’s members and the amount that the system collects from districts, said system Executive Director George Hopkins. The positions served by the contract employees include substitute teachers, school bus drivers and cafeteria workers.
School districts and other system employers paid $ 408.6 million into the system in fiscal 2016, while their employees contributed $ 128.6 million, according to Hopkins.
HB1287 would require a school district or other employer that enters into agreements to cover services common to its normal daily operation to make an irrevocable election to either become a participating employer in the system for those contract employees or “a surcharge employer” within 60 days of the outsourcing agreement being made, actuary Jody Carreiro said in a letter to the committee.
If the participating employer elects to have its contracted employees joins the retirement system, the employer would pay 14 percent of their salaries into the system under the bill.
Under the other option — paying a surcharge — the outsourced employees would not accrue service credit, but the employer would have to remit a monthly surcharge to the system, starting at 0.5 percent of salaries in fiscal 2018, which starts July 1. The surcharge would increase to 1 percent in fiscal 2019, 2 percent in fiscal 2020 and 3 percent in fiscal 2021 under the bill, according to Carreiro. The system’s board of trustees could increase the rate up to 4 percent in fiscal 2022 and later under the bill.
Carreiro said the system would experience a cost savings if the bill becomes law, but the full impact would depend on how many outsourcing agreements are in place and would be made in the future as well as how many employers would choose to participate in the system versus paying a surcharge.
“We would anticipate that most outsourcing employers are cost- conscious and would elect to pay the surcharge rather than the 14 percent full contribution rate,” Carreiro wrote in his letter to the committee.
A 4 percent surcharge eventually would produce $ 2.4 million a year for the system, if it’s assumed the system lost 3,000 outsourced employees between 2012 and 2016 with total payroll of $ 60 million, he said.
The bill also would allow the Division of Youth Services Education System to be a participating employer in the teacher retirement system and “may designate any or all of its embedded employees as eligible for membership.” Hopkins said it’s been difficult for the division to recruit teachers, and the division wants the option of having their contracted employees participate in the retirement system.
The bill “will allow us to hire the best and brightest of teachers,” said Carmen Mosley- Sims, assistant director of community services for the Youth Services Division.
In other business, the committee also recommended approval of two bills that would give the system’s board of trustees more flexibility to raise money and cut costs in the event of an economic downturn or other changes.
Senate Bill 186 by Sen. Bart Hester, R- Cave Springs, would allow the system’s board of trustees to reduce the multiplier used in computing future retirement benefits for contributory service if the system’s actuary certifies that the system’s projected pay- off period for unfunded liabilities is more than 18 years and the board determines the reduction is prudent to maintain actuarial soundness, Carreiro said. Current law allows the board to reduce the multiplier if the projected pay- off period for unfunded liabilities is more than 30 years, he said.
SB187, also by Hester, would allow the board of trustees to increase the rate charged to system members — now 6 percent — if the projected pay- off period for unfunded liabilities is more than 18 years, Carreiro said. Under current law, the board may increase the rate from 6 percent up to 7 percent if the pay- off period is more than 30 years.
The system has more than $ 15 billion in investments.
The system’s projected payoff period of its unfunded liabilities dropped from 33 years as of June 30, 2015, to 29 years as of June 30 last year, according to Gabriel, Roeder, Smith & Co. The total of the unfunded liabilities dropped from $ 3.7 billion on June 30, 2015, to $ 3.57 billion on June 30, 2016.
Unfunded liabilities are the amount by which the system’s liabilities exceed an actuarial value of the system’s assets. Actuaries often compare unfunded liabilities to a mortgage on a house.
As of June 30, the Teacher Retirement System had 68,368 working members with an average age of 44.4 years, average service of 10.3 years and average salary of $ 37,235 a year, Gabriel reported.
The system also includes 43,095 retired members with retirement benefits totaling $ 984 million — an average of $ 22,833 a year — and 3,864 deferred retirement plan participants with a total payroll of $ 239 million — an average salary of $ 61,853 a year — according to Gabriel.