A rise in school districts hiring private companies to provide substitute teachers and clean buildings means fewer school district workers are contributing to the state's retirement system for public school employees.
The trend has resulted in what the system's staff believes is an annual loss of about $15 million, George Hopkins, the system's executive director, told a group of Northwest Arkansas superintendents this month.
System trustees proposed 20 bills this legislative session. One bill has become law and the other 19 are assigned to committees.
Arkansas Teacher Retirement System
• Pension trust fund worth $15.25 billion
• For employees of schools, universities, education-related agencies and educational nonprofit organizations
• One of five state-supported retirement systems that provides retirement, disability and survivor benefits
• 339 participating employers, including 293 schools, 33 state colleges and universities and 13 state agencies
• 124,449 members statewide, including 45,070 retirees receiving benefits and 79,379 active contributing members
• In Benton and Washington counties, the membership includes 4,232 retirees and 12,353 active contributing members
Source: Staff report
House Bill 1287 would require school districts to make a one-time choice of paying for outsourced employees to be members of the Arkansas Teacher Retirement System or paying a surcharge on the salaries of outsourced employees who are part of the school's daily operation. The bill is in committee.
Other proposals are aimed at providing trustees with greater flexibility to respond to downturns in investment returns, Hopkins said.
The retirement system is one of the most important pieces of the education system in Arkansas, said Rep. Johnny Rye, R-Trumann, who sponsored HB1287 and another bill on behalf of the retirement system.
"The board for the retirement system, they're very much in the know. They have a good director," Rye said. "I just felt the need to help them."
The system provides retirement, disability and survivor benefits to employees of Arkansas public schools and educationally related public agencies.
The goal is to provide trustees with options to ensure the long-term stability of the retirement system through disruptions in the economy and those caused by changes in financial standards, Hopkins said. The board and staff will work to minimize any impacts on members and maintain benefits at current rates while ensuring sustainability.
"We would rather the board have those tools and not go to the Legislature and have them fix it," he said. "They would rather try to fix it and maintain it to be sustainable and fair."
One actuarial change on the horizon will lower the assumed rate of return from 8 percent to 7.5 percent. The move will create a $75 million gap in funding.
Actuaries also want the system to have enough money to pay off all benefits over 18 years instead of the current period of about 30 years, Hopkins said. The law allows adjustments when the period to pay all benefits is greater than 30 years. Several proposals would allow for adjustments, such as to employee and employer contribution rates and benefit stipends, when the period is less than 30 years.
The proposed legislation allows the board to implement changes without current retirees seeing reductions in regular monthly benefits, Hopkins said. Some proposals target issues, such as salary manipulation. Any changes can be reversed as conditions improve.
Hopkins said he is listening to concerns and working to find middle ground with all the proposals. The board does not want to reduce benefits or raise contribution rates, but it needs an "emergency brake" when going downhill, he said. The system has not raised employee contribution rates in 47 years. The last increase in the employer contribution rate occurred in 2005.
The proposal to require districts to pay the retirement system for outsourced employees has raised some budget concerns for superintendents, said Charles Cudney, director of the Northwest Arkansas Education Service Cooperative. Cudney understands Hopkins and the trustees are looking long term, erring on the conservative side, he said.
Ensuring stability in the teacher retirement system is a priority because it rewards the longevity and service of school employees who often make less than they would in the private sector, Cudney said.
Few districts hired private companies to provide services 10 to 15 years ago, but there has been rapid growth in recent years with districts contracting with companies for custodial services, health services, school security, transportation, food service and substitute teachers.
When Cudney was superintendent in Greenland from 2010 to 2014, the district contracted out custodial services.The custodians worked in the schools, but were employees of the contractor. The district did not pay for their retirement benefits.
"This has created a problem," he said. "The prediction would be that's going to continue to grow based on recent history.
"What they plan to do makes sound judgment, certainly of someone who spent their career managing school budgets," Cudney said. "The bills have to be paid."
The proposal is to implement the required payments for outsourced employees over a four-year period, and the surcharge would be capped, but the details remain in negotiation, Hopkins said. The original bill included a surcharge cap of 10 percent that will be amended to 6 percent after a compromise reached during a recent meeting with administrators in North Little Rock.
"A lot of districts have determined that outsourcing is a way to save money, to do things more efficiently and get better services," Hopkins said.
Conversations are ongoing among superintendents across the state about the proposal, said Gentry Superintendent Randy Barrett, a member of the governance and retirement committee for the Arkansas Association of Educational Administrators. It's just one proposed change to the retirement system that could affect school district budgets, he said.
The teacher retirement system, established in 1937, was designed with the expectation that all employees of a school district would be part of the system, including bookkeepers, secretaries, aides and substitutes, Barrett said.
Gentry School District, like many districts, now uses a private company for substitute teachers to have access to a wider pool of substitutes, he said.
If the legislation passes, Gentry likely would choose the surcharge, but that's revenue Barrett would have preferred to spend on classrooms, he said. A greater priority is ensuring a solid retirement system, he said.
"Do I want the retirement system to go into a tailspin? Of course not," Barrett said. "I support what Mr. Hopkins is trying to do."
Metro on 02/13/2017