Panel supports pensions' tweak

Won’t fall, road retirees told

The annual fixed 3 percent cost-of-living increase for retired state highway employees would change to the lesser of 3 percent or the change in the consumer price index for urban wage and clerical workers under a bill backed by a legislative committee Monday.

"Although the rate will fluctuate, the new benefit calculated each July 1 will not be less than the previous year's benefit" under the legislation, said Robyn Smith, executive secretary for Arkansas State Highway Employees Retirement System.

In a voice vote with no audible dissenters, the Legislature's Joint Committee on Public Retirement and Social Security Programs recommended House and Senate approval of Senate Bill 155 by Sen. Bill Sample, R-Hot Springs.

SB155 "will affect everyone in the system, including retirees, current employees and future employees" because it is a revision of the calculation used for the cost-of-living adjustment in the future, Smith said.

The cost-of-living-adjustment for retirement benefits will be 2.07 percent in July if the Legislature and Gov. Asa Hutchinson enact SB155, she said.

The retirement system includes 3,406 working members with an average annual salary of $41,664 a year, 2,371 retired members based on their service with an average annual benefit of $32,795, and 405 disabled retirees with an average annual benefit of $16,588, Smith said.

The legislation is needed, she said, because actuaries want retirement systems to change their mortality tables to more accurately calculate the cost of a pension for a population that has a longer life expectancy than in previous generations.

Changing the retirement system's mortality tables increased the system's unfunded liabilities by $88 million and increased the system's projected payoff period for the unfunded liabilities from 23 years to 48 years, she said.

In the system's latest actuarial valuation on June 30, the system's unfunded liabilities totaled $242 million with an "infinite" projected payoff period, according to actuaries with Gabriel, Roeder, Smith & Co. of Southfield, Mich.

Unfunded liabilities are the amount by which the system's liabilities exceed an actuarial value of the system's assets. Actuaries often compare them to a mortgage on a house.

"The projected impact [of this bill], had this calculation change been in place, was a reduction in the unfunded liability of $70 million and the reduction in the funding period to 26.9 [years], which is in the acceptable limit of a 30-year ... period" under state law, Smith said.

"The board, rather than asking for more money in [state] contributions or an increase in current employee contributions, it attempted to make deliberate changes to the system in order to preserve the pension benefits all are counting on in the future," she said.

The system's investments are valued at about $1.3 billion, Smith said after the meeting.

The state contributed $19.2 million to the system in fiscal 2016, which ended June 30, while the system's employees paid $9.4 million into the system, she said.

A Section on 03/14/2017

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