FOUR teacher pension bills advance.
Four bills that would allow the Arkansas Teacher Retirement System to raise more money and-or cut its costs cleared the Joint Committee on Public Retirement and Social Security Programs on Monday.
Senate Bill 218 by Sen. Jeremy Hutchinson, R-Little Rock, allows the retirement system’s trustees to increase the rate charged to employers, including school districts, from 14 percent of their employees’ payroll to 15 percent if the system’s projected payoff period for unfunded liabilities exceeds 18 years, rather than 30 years as current law allows, said system Executive Director George Hopkins. The increase in the bill would be in increments of 0.25 percentage point a year.
Any increase in the employer rate may only occur if the system implements cost savings from member benefit programs or increased member contributions, or both, measured after July 1, 2013, equal to the value of the employer rate increase before or at the same time. Any employer rate increase would be paid out of the Department of Education budget, Hopkins said
A 0.25 percentage-point increase in the employer rate would raise about $7 million a year, said committee actuary Jody Carreiro.
School districts and other system employers paid $408.6 million into the system in 2016, while their employees contributed $128.6 million, according to Hopkins. The system has more than $15 billion in investments and more than 100,000 working and retired members.
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.
Hopkins said teacher retirement system members may retire early after 25 years years of service — if they haven’t reached 60 years of age — with 85 percent of their retirement benefits under existing law.
House Bill 1286 by Rep. Johnny Rye, R-Trumann, allows trustees to further reduce benefits when a person retires before reaching 28 years of service. The early retirement reduction is now 5 percent for each year of leaving early; the bill would allow a reduction of up to 15 percent a year.
The board chairman indicated the maximum reduction would be 10 percent for each year of early retirement before 28 years of service, Hopkins said. That would mean a member retiring early after 25 years of service could receive 70 percent of his retirement benefits, he said before the committee advanced HB1286.
House Bill 1373 by Rep. Gary Deffenbaugh, R-Van Buren, allows the system’s trustees to cut the stipend for retired members from $75 a month down to as low as $1 a month. The cut would be allowed if the projected payoff period for its unfunded liabilities exceeded 18 years rather than 30 years as current law allows, Hopkins said.
Reducing the retired members’ $75 stipend to $50 a month would save the system about $15 million a year, which is equivalent to a 0.5 percentage-point increase in the 14 percent rate of payroll charged to system employers, Hopkins said before the committee endorsed HB1373.
HB1374 by Deffenbaugh gives trustees the authority to reverse the 2009 compounding of retired members’ 3 percent cost-of-living adjustment if the system’s projected payoff period for its funded liabilities exceeds 18 years, Hopkins said. Current law allows that change if the payoff exceeds 30 years. The system’s board of trustees would be reluctant to reverse the compounding of the cost-of-living adjustment, which would be complex to do, he said.
“It may not happen at all,” Hopkins said before the committee recommended House and Senate approval of HB1374.