Increase in state pension system pay-in endorsed

Panel recommends eventual member contribution of 7%

Legislation that would gradually increase the amount that members of the Arkansas Public Employees Retirement System contribute cleared a legislative committee on Monday.

The Joint Committee on Public Retirement and Social Security Programs recommended House and Senate approval of House Bill 1348, by Rep. Les Warren, R-Hot Springs.

The bill would increase the percentage of salary that a system member pays into the system from 5% by 0.25% a year, starting July 1, 2022, over an eight-year period until that percentage reaches 7%.

“This will strengthen the APERS system significantly,” Warren said.

The system includes 44,373 working members with an average annual salary of $40,469 and 39,805 retired members with an average benefit of $16,003 a year as of June 30, according to its actuary.

State and local governments paid $299.4 million into the system in fiscal 2020, while system members contributed $71.4 million to the system, according to a system report.

The value of the system’s investments have exceeded $10 billion. As of June 30, the system’s unfunded liabilities totaled $2.42 billion with a projected payoff period of 23 years, according to the actuary.

Actuaries compare unfunded liabilities to a mortgage on a house.

Warren said state government’s retirement systems have looked “at every way that they can increase the stability of their plans, and being defined benefit plans that is not as easy as it is with defined contribution plans, so I applaud what they are doing and this is another good thing.”

The public employees retirement system is state government’s second-largest retirement system behind the Arkansas Teacher Retirement System.

In other action, the committee also endorsed Warren’s House Bill 1347 that would change the public employees retirement system’s cost-of-living adjustment for retirement benefits for system members hired on or after July 1, 2022, from 3% a year to the lower of 3% or the consumer price index each year.

“This needs to happen,” Warren said. “For several years, the 3% [cost-of-living adjustment for retired benefits] APERS has been paying more than the actual increase in the cost of living each year. That’s not healthy for the defined benefit plan, but nobody wanted to give up a benefit, so we are proposing it to begin with new hires.”

Sen. Joyce Elliott, D-Little Rock, asked whether the system’s members have been informed about the legislation.

System Director Duncan Baird said system officials gathered feedback from system members at the 11 townhall-style meetings held by the Legislature’s public retirement committee in the fall of 2019, and “there was a lot of discussion on the COLA at the town halls.”

“Every step along the way we’ved tried to both gather feedback as we crafted the proposal and then get additional feedback as we really formed the proposal and finalized that,” Baird assured Elliott.

The committee on Monday also recommended House and Senate approval of Warren’s House Bill 1346 that would change how the Arkansas Public Employees Retirement System computes the final average compensation that is used in calculating retirement benefits for a member hired by a system-covered employer, starting on or after July 1, 2022.

The final average compensation would be based on the average of the five highest years of annual compensation paid to a system member rather than based on the average of the three highest years of annual compensation paid to a system member under the bill.

On Monday, the committee also endorsed House Bill 1205, by Rep. Dwight Tosh, R-Jonesboro, that would change state law relating to the Arkansas Local Police and Fire Retirement System’s retired members who want to return to work.

Current state law allows a retired system member to return to work and continue drawing a retirement benefit if there is a separation of service of at least 180 days; there are no additional benefit accruals and he cannot return to the same employer, according to the committee actuary Jody Carreiro.

HB1205 would reduce the separation period from 180 days to 90 days and would allow a retired member to return to the same employer if he returns to an entry-level position or a position appointed by a mayor, city manager or city administrator, Carreiro said.

Tosh said the bill would allow a mayor to appoint a retired law enforcement officer as a city’s chief of police and also would allow a retired law enforcement officer to return in an entry-level position to allow the agency to use the officer as a resource officer or warrant officer, he said.

The employers would still make their employer contributions for the members who return to work to the system, he said.

The committee also recommended Senate Bill 5, by Sen. Bill Sample, R-Hot Springs, which would specify that the final average pay used to determine the reciprocal benefit retirement paid by the Arkansas Local Police and Fire Retirement System will be the final average pay while the member was active in the local police and fire retirement system.

Members who establish reciprocity with another system by April 1, 2021, and have member contributions with the Arkansas Local Police and Fire Retirement System will continue to use to use the highest final average pay of the reciprocal system to determine their retirement benefits, Carreiro said.