Panel backs bill on interest rate for teacher retirement

A legislative committee on Monday advanced a bill that would modify the method used by the board of trustees for the Arkansas Teacher Retirement System to set the interest rate for deferred retirement plan accounts.

In a 15-1 vote, the Joint Committee on Public Retirement and Social Security Programs recommended House and Senate approval of Senate Bill 184 by Sen. Bart Hester, R-Cave Springs.

State law now requires the system’s board of trustees to determine the interest rate paid on deferred retirement accounts. Under the system’s current rules, the interest rate on these accounts is required to be from 2 percent to 6 percent.

If SB184 is enacted, system officials would give the trustees’ operations committee probably three or four options on a variable interest rate for the deferred retirement plan accounts and a fixed interest rate before the start of the fiscal year. The the committee would make a recommendation to the full board of trustees, which would make the final decision, said system Executive Director George Hopkins.

The system had 3,864 deferred retirement plan participants as of June 30, according to system actuary Gabriel, Roeder, Smith & Co.

“Our actuaries assume on average that we would be paying 5 percent [on deferred plan accounts],” Hopkins said. “If we have to cut costs, we would want our actuaries to assume that we would be paying less than 5 percent. For instance, if our actuaries changed their assumptions that we are only paying 4 percent, that would save right at $5 million a year.”

SB184 also would allow the board of trustees to establish, if justified by investment returns, a “participation incentive rate” for deferred retirement plan members, in addition to the applicable interest rate for the fiscal year. That “would incentivize some people who may otherwise retire” to continue working, Hopkins said.

The system’s trustees have sought authority from the Legislature for various options to raise more money and cut costs partly because the system needs to adopt new mortality tables that “are very expensive,” he said. The system also needs to cut its projected 8 percent-a-year investment return “into the lower middle sevens, and when we do that, even though our system has not changed one dollar in terms of our assets, it increases our unfunded liability and our years to [pay that off],” he said.

The system’s investments are valued at more than $15 billion. School districts and other system employers paid $408.6 million into the system last fiscal year, while their employees contributed $128.6 million.