Legislation giving the Arkansas Teacher Retirement System’s trustees authority to increase the amount charged to school districts and other system employers won the endorsement of a legislative committee Monday.
Senate Bill 162 - sponsored by Sen. Eddie Cheatham, D-Crossett - would allow the trustees to increase the rate charged to system employers from 14 percent of employee payroll to a maximum of 15 percent, effective July 1, 2013, if a system actuary projects it would take more than 30years to pay off the system’s unfunded liabilities.
The legislation also would require any employer rate increase be paid from funds appropriated to the state Department of Education.
It is one of several bills that the system is asking lawmakers to approve to increase system revenue and decrease costs and, thus, reduce a projected payback period of more than 100 years for the system’s unfunded liabilities.
System Executive Director George Hopkins said the earliest trustees could raise the rate charged to system employers would be July 1, 2015,because it’s clear that lawmakers don’t intend to appropriate money to the Education Department for fiscal 2014 to pay for the rate increase.
If the trustees increased the rate from 14 percent of employee payroll to 15 percent, that would cost system employers about $28.4 million more a year, he told the Legislature’s Committee on Public Retirement and Social Security Programs. System employers pay about $400 million year into the system, he said.
System actuary Gabriel, Roeder, Smith & Co. of Southfield, Mich., projected that it would take the system more than 100 years to pay off the system’s unfunded liabilities of $4.6 billion as of June 30, 2012. The projected payoff period was 66 years on June 30, 2011.
If the system earns investment returns beyond 8 percent a year, that would help reduce the system’s projected period for paying off its unfunded liabilities, Hopkins said. So far this fiscal year, the system has earned an investment return of about 13 percent and its investments are valued at roughly $12.75 billion, he said.
State Rep. Les Carnine, R-Rogers, asked system officials whether the system’s trustees would increase the amount charged to the system’s working members at the same time that they increased the amount charged to system employers because he said lawmakers might otherwise be hesitant to approve SB162.
Richard Abernathy, chairman of the system’s board of trustees, said the system’s trustees need to spread the effect of reducing the projected payoff period for the system’s unfunded liabilities between system employers, working members and retired members.
“We need to do a little here and a little there and spread this out,” he said.
Senate Bill 123 by Sen. Bruce Maloch, D-Magnolia, would allow the system’s trustees to increase the rate charged to working members who pay into the system from 6 percent of salary to a maximum of 7 percent if the unfunded liabilities remain above 30 years.
Senate Bill 130 by Sen. Jeremy Hutchinson, R-Little Rock, would allow the system’s trustees to cut the $75 monthly stipend paid to retired members, if the the unfunded liability payoff period is more than 30 years.
Both SB123 and SB130 are pending in the Senate, after clearing the Legislature’s retirement committee last week.
The committee Monday also endorsed a possible cost-savings measure for the system, Senate Bill 164 by Cheatham.
The bill would let the system’s trustees establish a voluntary buyout program, which would allow a member, surviving spouse or other beneficiary to accept a one-time lump sum payment in exchange for cancellation of their member and retirement benefit rights in the system. The system’s savings from such a program would depend on its structure and the number of members selecting the buyout, actuary Jody Carreiro said in a report to the committee.
But a bill allowing the system’s trustees to create a new tier of retirement benefits for system members hired on or after July 1, 2015, failed to clear the committee. House Bill 1198 by Rep. David Kizzia, D-Malvern, would allow the trustees to, among other things, increase the age and years of service requirements to receive full retirement benefits for new system members and cut the 3 percent annual cost-of-living adjustment that these new system members would get after they retire.
Committee Co-Chairman Sen. Robert Thompson, D-Paragould, said he doesn’t like the idea of veteran teachers having “a gold plated” retirement plan and essentially having new system members pay for it through reduced retirement benefits.
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, the actuaries reported.
The system has 34,160 retired members with yearly benefits of $709 million or an average of $20,755 each and 4,432 deferred retirement participants with an annual payroll of $268 million.
Also Monday, state Sen. Bill Sample, R-Hot Springs, said he’s withdrawing Senate Bill 201 which would allow judges to serve additional terms after turning 70 years old without forfeiting their retirement benefits. Afterward, Committee Co-Chairs Rep. Allen Kerr, R-Little Rock, and Thompson said the bill lacked the votes to clear the committee.
Under Arkansas Code Annotated 28-8-215, judges and justices who turn 70 aren’t penalized as long as they retire when their term is complete.
Northwest Arkansas, Pages 7 on 03/26/2013