LITTLE ROCK — The Arkansas Teacher Retirement System trustees plan to ask the legislature to increase the rate that they can charge school districts and other system employers from 14 percent to 15 percent of employee payroll, the chairman of the system’s board of trustees said Monday.
Board Chairman Richard Abernathy said a 1 percent increase would cost system employers about $28 million more a year, and he wants the state to pay the increased cost.
Abernathy hopes lawmakers pass the legislation early next year to give the trustees the authority, effective July 1, to increase the rate by 1 percent.
School districts and other employers already pay about $400 million a year to the system, said system Executive Director George Hopkins.
If state government taxpayers pick up the $28 million tab, then it will help teachers, other employees and system retirees avoid more severe cuts in retirement benefits, Abernathy said.
Abernathy said he hopes lawmakers make the system’s request a high priority to help attract and retain quality public school employees, although he understands “there are other budget needs out there and other budget issues.”
The system’s trustees on Monday authorized Hopkins to draft proposed legislation authorizing the trustees to increase the rate it charges school districts and other employers.
Gov. Mike Beebe is “open to discussing ideas for finding the needed funding, but simply adding it onto our proposed budget is not a feasible option,” said Beebe spokesman Matt DeCample.
“Our proposed budget is already facing a $138 million shortfall for Medicaid, adding an additional $28 million in required [general revenue] spending for ATRS would only exacerbate that problem,” said DeCample.
Among other things, trustees also authorized Hopkins to draft proposed bills that would enable trustees to reduce the $75 monthly stipend paid to most retirees, and create a new tier of retirement benefits so people hired in the future would receive reduced benefits.
Also being prepared - legislation that would enable trustees to increase the amount school employees contribute to their own retirements.
Hopkins said the trustees would have “a buffet list” of “undesirable options” to save money under these bills, but they would make the final decisions.
Increasing the 6 percent of salary charged to working members to 7 percent would raise about $20 million a year and increasing the rate to 8 percent would raise about $40 million a year, according to Hopkins.
The members contribute about $117 million a year to the system, he said.
Hopkins told the trustees that the system’s members are divided about paying more of their salary to the system.
He noted that the trustees already have authority to base retirement benefits on members’ four or five highest-salaried years rather their three highest-salaried years - a move that would save money.
The trustees decided against drafting proposed legislation to eliminate the $75 stipend paid to most system retirees.
A bull market would ease the problem.
If the system earns an investment return of 17 percent this fiscal year, “we may not have to do anything,” Abernathy told the trustees.
System actuary Gabriel, Roeder, Smith & Co. of Southfield, Mich., told the trustees that the system’s projected period for paying off its unfunded liabilities exceeded 100 years on June 30, 2012. The projected payoff period was 66 years on June 30, 2011.
The period for paying off its unfunded liabilities increased as of June 30, 2012. Among the problems: The system’s investment returns were lower than expected in fiscal year 2012 and the system’s investment losses in fiscal 2009, said actuary Judith Kermans of Gabriel, Roeder, Smith & Co.
The system either needs to earn substantially more than an 8 percent investment return or increase the 14 percent of employee payroll charged to system employers to reduce the payoff period for unfunded liabilities to about 30 years, she said. A combination of higher investment returns, charging system employers more than 14 percent of payroll or other changes also might cut the payoff period to about 30 years, she said.
Kermans said public retirement systems across the nation have increased rates and cut some retirement benefits during the past few years.
Arkansas Teacher Retirement System officials are trying to come up with “realistic alternatives” without hurting system members, she told trustees.
The system’s unfunded liabilities totaled $4.655 billion on June 30, 2012 - up from $4.375 billion - according to Gabriel. The unfunded liabilities are the amount by which the system’s liabilities exceed the actuarial value of the system’s assets.
The system has 71,195 working members with an average age of 45, average service of 10.1 years and average annual salary of $34,362, Gabriel reported.
The system also has 34,160 retired members with annual benefits of $709 million or $20,755 annually and 4,432 deferred retirement participants with an annual payroll of $268 million.
The system’s investment value increased by $421 million to $11.774 billion in the quarter that ended Sept. 30, according to system investment consultant Hewitt Ennis Knupp of Chicago.
The system’s investment return was 4.2 percent in the last quarter, 16 percent in the year that ended Sept. 30 and 8.3 percent-per-year in the 10-year period that ended Sept. 30, Hewitt Ennis Knupp reported.
In other business, the trustees also authorized a private equity investment of up to $25 million in EnCap Investments’ EnCap Energy Capital Fund IV. EnCap Investments has offices in Dallas and Houston.
EnCap Investments is trying to raise $4.25 billion for the fund, which is being formed to make equity investments in oil and natural gas exploration and production companies in the United States and Canada, according to a report from system private equity consultant Franklin Park based in Bala Cynwyd, Pa.
Front Section, Pages 1 on 12/04/2012