the pension task force is August 25th, Wednesday.  Just a warning.  So your view from last time, we missed you, Michael. Any comments or concerns or questions that came out of the last meeting? I'm watching another on YouTube. And I really thought about when I was watching a meeting were so small, it's really hard to see who's speaking when you're watching. So it might be nice as we speak to say, just say, I mean, oh, just reflecting on some of the conversation around taxpayers paying for public employee pensions. And, you know, I just, I want to kind of avoid it at us first down, dynamic in terms of when we look at compensation between the private sector, public sector, it's really about total compensation and pension benefits are a part of providing the compensation to get those adequate critical public services provided. And I would love to see if we could, retirement security, both in the public sector and private sector are an issue, though. I would love to see if we could address that in the report and potentially look at options that might be able to look at in the future, like making a secure choice program and management, actually seeing that with state funds when it's available from, you know, unfunded liabilities, to really lift up all people. I mean, retirement, you know, pension benefits and retirement benefits in general are an economic development tool. They stimulate the economy, you know, retirees spend that money that circles into other goods and services. So just, you know, I'd really like to look at how we lift all boats up. Thank you. I will, I think that this is enough. That was Eric. Oh, yeah, sorry. That we certainly can make a statement to this exit. It would be good to have that. I think we probably can't go very deep into that. But I think in that report, there's no reason why, if we all agree, we couldn't just make a statement that we would like to encourage that development of the implementation of that program. Dan Dremrich, just to follow up on last meeting, I reached out to Paul Siebel and Dan Junich was waiting to hear back and confirm, and they're both available, so number nine, just trying to firm up what time works for them so that they don't both say 10 o'clock. But they're both available, so number nine, come to speak with us. One will be via zero. Yes, I did get that note from you and I sent back a reply saying good work, maybe a new sticky, and you suggested you wanted one that smelled. Yes. And I couldn't find it. You mean a scratch and sniff? Yes. A sticky that smells. Just to clarify, they probably smell. Other? Thank you, everyone. Andrew's on kind of a more technical level. And this is Eric again. I attended a pension conference this Monday and Tuesday, and I had the opportunity to connect with the NFC first, folks. We had that conversation last time where they weren't going to be able to make it in. That time wouldn't work for them, but I think they are actually open to coming to just speak to us. So maybe we could reach out to them again. Do you have a name of who you spoke to? Yeah, I spoke to Ron Hank, I'm the executive director. All right, I might get C, but I had it for work. Thank you. Here's the problem. I can follow up. Other comments, concerns? I don't know. I don't think it's 9 30 yet. Should we do the, is 20 minutes long enough to introduce the RFD recommendation? So I'll explain it. This is John Gannon for the record. So Michael and Dan and I met yesterday to review the two proposals we received. We went through the whole evaluation process, except for checking references. So Michael O'Grady this morning sent an email to the treasurer who both of these firms have worked for the treasurer in the past, one in the 2009 Department Commission and one on Disinvestment in 2016. And so we are seeking input from her with respect to which firm she would recommend. We hope to hear from her by lunchtime and then we'll take our final recommendation for the task force. So I guess if we won't do anything there, anything else that we need to, whether we should do before our schedule to be here at 9 30, they're going to be here on Zoom. I think that when not sure that this makes a difference, but if they're on Zoom, we might, if we have questions or comments, I think we're going to have to really try to project our voices or maybe even I might get slapped down here, but when we're speaking, just take off your mask when you're speaking to them and then put it back on because it is really hard to project and hear through the masks. Is that acceptable, Mike, to do that? Correct. I thought there was a mandate. No, it's a strong and hard, strong and hard. Can I say an opportunity? This is an opportunity for compassion for your teacher going back to school who will be teaching six and a half hours a day in the master's. Yeah, I like to look for opportunities. Oh, really? Anything else before we, what time is it? 9 15. 9 15. Well, we have 15 minutes. If anybody has anything they'd like to talk about before, or we can see if they're ready, but if we schedule them for 9 30, I suspect that's when they'll be there. That's when the Zoom invite was. Mike should be able to learn. They're not in there yet. I just sent it in the way together to make sure. Okay. So anything else that anybody would like to? Well, I guess I would report that the ashore has come back to the subsidization information, so we just need to put that on the agenda and talk on the meeting. I'm going to use a schedule calendar. So September is our next meeting. How much time do you think we should start on that? Well, when we apply to the state employees, so that's something we should take into consideration. I mean, I think the whole group task force should hear the report. But then we probably should, from that point, how we want to handle whether the family works just because it impacts just state employees. So I do have two things that we could talk about right now. Are we not meeting the week of the 27th of September? I don't have a reading schedule for that. Okay. And then maybe we could take a couple of minutes right now to talk about at the last meeting. Dan brought the question about any public hearing. And I don't know how we want to do that. I've been thinking about that and I don't know if anybody has suggestions. About how that might work. It might be nice if we were going to do something to have one north and one south. And maybe split up the committee so that we didn't all have to go to both of them. But I don't know if that works or not. I have no idea. Are you ingestioning trying to find a physical location where we would? I don't know. Oh, yes. Like in a gymnasium. I don't even know whether schools are going to be open to outside. I mean, last school year that there was no side activities coming into. I don't know if there's a town hall or something like that. We just got word superintendent that thought it was a big thing, but it might have been just our district that said that schools can't have that was actually second hand about a party that was going to happen. So we should just think about doing zoom somehow. I'm fine with that. I think sometimes zoom allows for people that would normally be able to get their child care needs to also participate. Even though I really do like human elements being in person connecting. I wonder just function wise. During the circumstance, we're looking at the two might be most efficient. We have to do this after our draft report, which would have questions and suggestions to lay it over. And do we do it in place of a meeting or in addition? Yeah, I would pose an addition just because our meetings are nine to four and actually getting teachers and state employees in reverse during that time. I think it would be comfortable adding on in the evening time for a couple of hours. Guests with us. Okay, well, let's think about that then for some kind of a public hearing about when exactly and setting up our zone for doing the outreach. Introduce our guests. No, they're both. You're both there now. One picture and one. Okay. Sorry. Let me check to make sure that they're there. Good morning, Keith. Good morning, Alex. Are you on now? There we go. Morning. So let me introduce Keith Brannard, who's the research director for the National Association of State and Administrative Retirement Administrators and Alex Brown, who's a research administrator for the National Association of State Retirement Administrators. And so just so you all know, I forwarded them the requests for information that we wanted that we have from our last meeting. And so I believe they are prepared to talk about pensions this morning. If we want quality, just given the amount of time they had to prepare, that is something that I don't think they're going to discuss this morning. So Keith and Alex, it's the floor is yours. And thank you very much. Good morning. Do I have the ability to share my screen? We're working on that. Do you hear that, Alex? So you can share your screen now. Okay. I think that the acoustics in here are not the best. And we all have masks on. We're going to try to project, take off our masks when we're speaking. But if you can't hear us, if people have questions or concerns, please speak up. And I guess the question I would have is, do you want us to ask questions as we go through? Or would you like to do your presentation and we reserve questions for when you're done? We talked about it earlier and we think that there are some natural transition points in our presentation where we could pause and ask for questions on the preceding material. Great. Thank you. Great. Well, are you able to see my slides? Yes, we can. Great. Thank you. Well, first I want to express our appreciation to the task force for your interest in public pension issues in your state and for the opportunity to discuss those issues here with you this morning. This slide provides just a broad overview of how we expect the discussion to unfold this morning. We're going to cover some public pension issues, especially pertinent to Vermont. We'll provide a comparison of benefits between the Vermont state employee system and teachers retirement systems and regional peers for the task force request. We'll talk a little bit about pension reform trends nationally and some of the experience that you've had here in Vermont. As a part of that pension reform discussion, we're going to spend a good amount of time talking about COLA's and so we've prepared a comparative discussion of COLA arrangements to highlight that plan design element specifically as well. Starting with a broad overview, some summary statistics pertaining to public pensions in Vermont. These statistics are all as of fiscal year 2020. Most of this information is provided by the U.S. Census Bureau. Census counts approximately five billion in public pension assets in Vermont, the overwhelming majority of which are held by the state employees and teachers retirement systems. You can see the counts of active members. Active members are those currently working and accruing service credit toward an eventual retirement benefit and then annuitants are those currently receiving currently retired and receiving retirement benefits. 248 million in employer pension contributions to Vermont retirement systems made in FY20. 457 million in benefits paid out in FY20 and this is a point that's often lost in the discussion of public pension finance that there's a lot of money being dispensed by these pension funds on an annual basis. 457 million here in Vermont and then we've listed the FY 2020 actuarial funding levels for the three statewide systems here in Vermont. State employee system just a little over 66 percent funded. The teacher's retirement system a little over 51 percent funded and most well-funded system is the statewide municipal system just under 76 percent funded as of FY20. So some of the factors that we're going to discuss at the beginning of this presentation are listed here on this slide. Factors working for and against public pension plans improving their funding condition among the factors working in favor of public pension plans improving their funding condition. Actuarially sufficient and surplus contributions. The surplus contributions will refer to contributions received by public pension plans above the actuarially determined employer contribution rates. Investment returns above assumptions obviously is another factor driving improvement in public pension plan funding conditions. More aggressive amortization policies and we'll get into amortization policy in more detail later on but more aggressive amortization policy would be a policy that more rapidly eliminates an unfunded liability and therefore creates more rapid improvement in the funding condition of a public pension plan. Participants working longer if participants work longer they receive their retirement benefit later and in general for shorter duration and then as we'll look at in great detail later pension reforms that reduce unfunded liabilities another key factor working in favor of public pension plans. Couple things working against public pension plans at the same time lower investment return assumptions which we've seen a number of in recent years and especially so in recent months. Lower rates of payroll growth. Payroll growth is chiefly determined by the number of public employees and growth in their salaries both of which have tended to be low at least in the aggregate or national picture recently and lower rates of payroll growth generally correspond to higher required employer contributions. The opposite of participants working longer would be participants retiring sooner and this is something that we're monitoring especially pertaining to the the pandemic conditions that we're living in and potential impacts on participant decisions to either retire sooner delay retirement but if participants are found to be retiring sooner then they're going to be receiving that retirement benefit for a longer period of time than they otherwise would if they work longer. Then updated mortality assumptions to reflect improved expectations and life expectancy to the extent that public pension plans are making corresponding updates to their mortality assumptions. This could add to the liability and cost of the pension plan as well and so we'll start we we have a number of charts now that we prepare we we like to communicate about these issues through charts primarily starting with this first chart distribution of public pension funding levels for FY 20 there are about 120 or so plans indicated on this chart each plan is represented by a bubble the size of the bubbles is roughly proportionate to the size of the plan liabilities the larger bubbles equal larger plans smaller bubbles equal smaller plans. The actuarial funding level is the most popular and widely cited metric for assessing the the condition of a public pension plan but it's not the only relevant metric and in fact I think this is the only slide in which we discuss directly the funding ratio but it's it's good to set the stage and see especially where two largest statewide plans here in Vermont compare on a national basis and so you can see the position of the Vermont state employee system and teacher retirement system indicated here on this chart just to orient you to the position of some other notable public pension plans on this chart the the large bubble there in the center of the chart is the California public employees retirement system the nation's largest public retirement system directly to its left is the California state teachers retirement system second largest I believe a couple of the larger bubbles over to the the right hand the the upper northwest quadrant of this chart that are among the largest and most well funded public pension plans in the country include the wisconsin retirement system the new york state local retirement system new york state teachers retirement system tennessee consolidated retirement system south dakota north carolina and others and so it's really interesting you know we we think that when you take all of the totality of all of the actuarial assumptions and methods all of the funding conditions all of the actuarial experience for the largest hundred and twenty or so public pension plans in this chart this is this is what you get a fairly wide range from about 40 percent that with one outlier down there below 20 percent to several plans funded at you know 85 percent or greater and then the median and aggregate you know in the in the low 70 percent funded ratio so beginning with with this slide we're going to get into the employer contribution experience and i'd like to ask keep the takeover for a moment thanks alex so good morning everybody before i get going on this part uh any comments or questions to this point are you okay yes one question great one question just in terms of that last slide you know the median uh funding percentage being about 71 percent or so um how do we view what is a sort of a healthy funded percentage you know there's a there's a wide range there just be interested in your perspective on that i mean obviously a hundred or better but you know in in more practical terms you know how should we view what what a healthy hundred percent is i'll i'll take a i'll take a shot at that uh if i might and uh often you will see the the benchmark of 80 percent referred to as a as an indication of a healthy pension plan in the public sector we believe that's a bit of a myth or a misnomer 80 percent does have relevance uh among corporate pension plans that are regulated by the federal government 80 percent trigger certain requirements and events for corporate pension plans our overarching view with regard to the the condition of a public pension plan is that it's problematic if if funding the plan um continuously going forward is causing fiscal distress for the plan sponsored for the state and the cities that are that are providing as alex indicated the funding ratio is one measure uh among many uh it's most recognized and popular measure of the condition of a public pension plan but we would submit that uh there could be a plan that's funded as say at 70 percent uh that is actually in in better overall condition than a plan that might be funded at say 90 percent uh and that has to do with the reason for among other things the reasonableness of the uh actual assumptions and methods the fiscal condition of the plan sponsored the states and cities that are sponsoring it and and other factors so really our um our metric is whether not uh funding the plan adequately is causing is or is not causing fiscal distress we have any question uh just a brief question the on the previous slide the small bubble below 20 percent just curious what that one is um if you can identify that yeah that's the uh a kentucky retirement system uh plan for uh non-hazardous employees i believe is that reiki that's correct when we started this measurement there was a another plan uh west virginia teachers was funded about that same level and uh that was about 20 years ago and they are now funded uh right around the median right around 70 percent they've made a concerted effort to uh pay off their unfunded liability they've applied a portion of a state budget surplus monies to that uh they've can consistently paid their required contribution and so on they've not reduced benefits but they have made a concerted effort to uh eliminate their unfunded liability molly did you have a question use the mic i'm wondering if the graph that we're looking at is um representative of other years you said you've been doing this about 20 years or is it changing significantly right now or least in recent year so we started measuring uh in fiscal year 01 which was the uh all-time high in the aggregate for public pension funding levels they were funded at right around 100 percent at that time there were many plans that were funded at 100 over 100 percent and you might recall that during the late 1990s the investment markets were very strong there were i think four consecutive years of double-digit investment return periods and then there was a very sharp market decline that lasted from 2002 until 2002 and that was followed by another market decline in 2007 to 2009 and as a result in the aggregate public pension funding levels have dropped from 2001 at uh when they were about 100 to now about the low 70s um we would point out though that this aggregate funding level has been steady now for eight or nine years uh once all of the investment losses of the 08 of the great recession and the capital market decline at that time were fully recognized uh public pension funding levels in the aggregate have been very stable right around 72 percent give or take a little bit and of course these figures don't include the very strong market returns of uh that were experienced through fiscal 21 which we'll be seeing in the coming years so next we'd like to sorry go ahead no uh there doesn't seem to be any more questions so go right ahead thank you so um you all may be familiar with the annual required contribution and the actuarially determined contribution uh those are terms that are provided by the governmental accounting standards board um and the annual required contribution or arc was in effect through fiscal 2014 and it was supplanted in 2015 by the actuarially determined contribution um for all intents and purposes they're basically the same measure which is the sum of the normal cost the cost of the uh retirement benefit that's accrued each year by planned participants plus the cost to amortize will pay off the plan's unfunded liability over a period of time and the the fidelity to the arc or ADC uh is an indicator of the employer's commitment to the uh to funding the pension plan and you can see uh 20 years of the experience of the state employee's retirement system and the teacher retirement system in receiving its required contributions uh and certainly the last decade or so uh Vermont Vermont has been faithfully uh funding at least uh in some cases uh more so um it's uh annually actuarially determined contribution so we we took the major one question hold on just a moment one question sorry thank you i'm a member of house appropriations so i'd like to know where you have the last slide um i don't think it represents accurately what we've actually put in it shows and i'm now staring at it from afar but the Vermont state employee's funding um 2010 2009 in the 85 percent we put in 100 percent i'd like to know where you got that slide from please normally we get this information either from an actuarial valuation or a financial report and we would be happy to go back and check that and get back with you and the committee please yes sir so we took that information pertaining to the major statewide plans in every state um we divided the actual amount received uh into the actuarially determined contribution uh for each of the major plans in every state plus the district of columbia over the 19 years that ended in fiscal year 19 that's the latest that we have all of the data and so each of these bars represents one state uh you can see the hundred percent line there Vermont is just north of the hundred percent line you can see the weighted average um and sort of a wide range uh new jersey is the one to the far left and they have consistently shorted their pension contributions and they they face uh some some challenges with regard to funding their pension plan but in the last few years they have been making an earnest effort to get back to full funding and in fact in the coming fiscal year that's must be the fiscal year that just began they had for the first time in more than 25 years fully funded their pension contribution but you can see where Vermont lays out just north of 100 percent for this time frame so i'm i'm going to pick it back up here um Keith mentioned in the slides that he just presented the component parts that comprise the actuarially determined contribution the normal cost or the cost to fund an additional year of benefit accruals for current active participants and the amortization payment to amortize or pay down the unfunded liability and importance of the plan's amortization schedule and these next few charts will drill down a little bit on those components for a comparable set of plans to Vermont and look at the Vermont experience as well so this first chart is presenting the distribution of total normal cost for social security eligible general employee and teacher plans for FY 20 there are approximately 104 plans on this indicated on this chart each represented by a bar the the median is just below 12 percent and that should be labeled on this chart but it's uh it's between 11 and a half and 12 percent and then you can see the position of the three statewide plans in Vermont state employees as normal cost just above the median 12.7 percent or so municipal system just over 11 percent and the state teachers system is below the median at 10.6 percent approximately one interesting thing worth noting about this chart so and as of FY 20 all of the statewide normal costs for the statewide systems here in Vermont are more or less clustered at or around the median level if we had produced this chart for FY 19 as we did at an earlier for an earlier presentation to the legislature here in Vermont these normal cost figures for the statewide plans of Vermont would have been much lower they would have been congregated around the left-hand side of this chart but as you all know you recently reduced the assume rate of investment return for the pension plans here in Vermont from 7.5 percent to 7.0 percent and that decrease produced a corresponding increase in the normal costs for these plans but despite that increase and it's a pretty substantial decrease of the investment return assumption that was enacted and despite that pretty significant action your normal cost rates are still more or less around around the median for comparable plans so next we look at the distribution of total normal costs paid by employees for the same group of social security eligible general employee and teacher plans for FY 20 and so what this chart is looking at so as as you know employees make contributions toward the cost of their eventual pension benefits and what this chart is looking at is the percentage of the normal cost rate those normal cost rates that we just looked at earlier that employees are funding themselves through their own contributions and you can see for two of the statewide systems here in Vermont the state employees and municipal system that percentage is over 50 percent so employees so participants in those systems through their own contributions are funding over one half of their eventual retirement benefit just under 50 percent for the state teacher system and then you can see the the median here for this group is approximately 49 percent the benefit funded through employee contributions and then this third chart is presenting the distribution of the actuarially determined employer contribution that is directed to amortization of the unfunded liability again for that same group of comparative plans for FY 20 and so what what we're looking at on this chart is the percentage of the total employer's required contribution that is dedicated toward funding the unfunded liability as opposed to funding the normal cost so you can see that for the median plan 70 percent of that required employer contribution is directed to the unfunded liability and for the plans here in Vermont the municipal system which again as we looked at a couple slides back is the best funded most well funded of the three statewide plans here in Vermont just a little over one half the required employer contribution to the municipal system is dedicated to the unfunded liability and then as the statewide plans you know decline and funding level on the servers it's just 66 percent or so funded so a little over 70 percent of the required employer contributions to CERS are dedicated to paying down unfunded liabilities and and 80 percent that figure is 80 percent for the most poorly funded system here in Vermont the state teachers retirement system and another way we look at pension costs and employer spending on pensions is to look at the percentage of the pension contributions as a percentage employer pension contributions as a percentage of all state and local government spending which is what is reflected here on this chart this is for FY 19 the latest year that this information is available this information is maintained by the US Census Bureau and you can see that the median percentage of spending on pensions is just under four percent the aggregate is that one percentage point higher a little over five percent though the reason that the aggregate is much higher than the median is you've got several large states such as California, Illinois, Pennsylvania and New York whose a percentage of spending on pensions is much higher than the median and therefore is driving that aggregate figure to be higher you see the position of Vermont just towards the left hand side of that chart just under three percent of all state and local spending in Vermont is represented by employer pension contributions and this chart invites a comparison among states but there are several considerations that are worth mentioning that are driving differences in these pension spending percentages you know obviously benefit levels vary social security participation or lack thereof is a factor there approximately 40 percent of public school teachers and two-thirds of public safety officers as well as substantially all public employees in a handful of states are outside social security and they tend to receive higher benefits and those benefits tend to cost more to fund to compensate for their lack of social security participation relative to states whose public employees are participating in social security alongside their participation in a public retirement system so that's a big factor that can drive differences in pension costs among states also levels of unfunded liability as another factor differences in actuarial assumptions and methods and as Keith noted a moment ago employer fidelity to paying the full required cost it is the case that some employers don't pay what they should toward their pensions other employers in other states may be paying much more than they're required to pay and so those differences and contribution effort funding discipline can be reflected on this chart so that's just important to keep in mind okay i'm going to go again before i do any questions i think we're all set for now thank you all right thank you i'm going to talk about demographics for a moment the nation's workforce is maturing as a nation we are growing older as a workforce we are becoming more mature and in a retirement sense maturing means a higher number of those who are receiving a benefit relative to those who are working and contributing to the pension plan and we've plotted on this chart the ratio of active members those who are working and contributing to the state employees and teacher retirement systems in vermont and compared that ratio to the national average and you can see a lot of similarity there vermont is is a little bit below but definitely in the ballpark and you can see the change over the last 20 years beginning at the onset of the measurement period in fiscal year 2001 for the united states as a whole there were more than three active workers in public retirement plans that state and local retirement systems um working contributing relative to each individual who is receiving a benefit also known as annuitants in vermont those were a little bit lower but the rate of decline for the nation as a whole has been steeper and you can see that the three lines come close to converging right around 1.2 during at the most recent measurement period at the end of the measurement period in fiscal year 20 and this has implications for how a pension plan is funded and we can talk about one of the more important implications with the next slide puts so cash flow for a public pension plan is a relevant indicator and that decline in the active to annuitant ratio is a contributor to cash flow and cash flow is calculated as the non-investment revenue primarily if not exclusively contributions into the plan minus money out primarily benefits also administrative expenses and then divided into the value of the assets and so what this chart is showing is that most public pension plans have a negative cash flow they are paying out each year more in benefits than they're receiving in contributions this is a figure that generally has been declining getting lower in a manner roughly consistent with that chart we looked at a moment ago relating to the active to annuitant ratio if one were to go back to the 70s and 80s when we were all much younger and we had more people coming into the public sector workforce getting out of college relatively fewer retirees almost every public retirement system had a positive cash flow some to the tune of four or five percent and in the aggregate that figure has steadily declined to where you see it here today a negative cash flow is not necessarily an indication of fiscal distress for a pension plan it's the normal course of a pension plan it's something that is expected by your actuaries if a plan is not receiving its full required contribution of course that can contribute to a negative cash flow and it also can be an indication of fiscal distress or it can certainly cause fiscal distress but by itself a negative cash flow like this is not necessarily problematic I would point out the one bar on the far left hand side there and that is a plan with a positive cash flow and that plan we mentioned a little bit ago that's the Kentucky retirement system and that's the very poorly funded plan and Kentucky in the last few years has really come to terms or tried to come to terms with the scope of their problem and one of the challenges that they were facing was that their payroll was not growing their state workforce was not growing in fact it was shrinking and they found that the conventional method of funding their pension plan as a percentage of payroll was inadequate that payroll was growing so slowly in fact it was shrinking that they were having to increase contributions artificially and significantly in order to adequately fund their plan so they switched to a an actuarial method of funding their pension plan that's based on a consistent dollar amount rather than as a percentage of payroll and that's why they're up there at four percent that's just come about in the last year or two they recognize that they were going to have to infuse more dollars into their pension plan if they were going to eliminate their unfunded liability and that leads us to talk for a moment about payroll growth I'd like to analogize for a moment funding a pension plan to paying off a mortgage and there are a number of similarities and it's a helpful way to think about eliminating an unfunded liability so if one were to take out a mortgage and you had a required payment you might have set the terms of that mortgage based on an expectation that your salary would grow at say three percent annually and then you would begin paying that each year or each month and that salary that you're making is the basis of the of the income that you would be using to pay your mortgage similarly public pension plans have an expectation for growth in payroll and payroll as you might expect is the product of the number of participants active participants working times their salaries that all ends up to the combined payroll of each plan and actuaries typically well actuaries make an assumption about payroll growth three percent is a typical assumption we've seen that come down a little bit recently but three percent still is most typical and when payroll growth is not when payroll growth falls short of the assumption or the expectation that means basically that the source of income that's being used to fund the pension plan has less than it was anticipated again back to the mortgage analogy it's like having a salary that is not meeting your expectations but you still have that required payment and so as a percentage of payroll which is the way that you typically will recognize your required employer contribution that required contribution is going to be higher and so you can see on this chart we've plotted what a three percent annual growth would look like going back to fiscal year 09 as the base year and then we've compared that with the public pension median that's 113 public pension plans that make up that median and then we've plotted the state employees and the teacher retirement system in a payroll sense the state employees have come much closer to their assumption you can see just falling just short of the three percent annual growth there are about six or eight more percent more state employees in vermont today than there were a decade ago but teachers have a different experience and there are fewer teachers i don't remember the percentage but it's a significantly fewer teachers today in vermont public school teachers in participating in the plan than there were 10 years ago and that is reflected in this in this black line here on the bottom that's indicating a very slow rate of payroll growth that's payroll growth probably of around of around an average about one percent each year and so as a result the the source of the of the revenue or the source of the of the income if you will that the state or its school districts will be using to make its pension contribution is smaller smaller than the actuaries expected and as a result the required contribution as a percentage of pay has had to go up and so that explains part of the reason why the teacher retirement system contribution has had to rise in recent years is because there's not been much of an increase in their salaries combined with a declining actual number of public school teachers so we're we're going to shift the focus here to investment return assumption and investment experience but before we shift focus i'd like to pause and ask if there are any questions about the preceding material go ahead Eric thank you both for that information i think it's very helpful in putting things in contact related to those graphs that show the distribution of plants do you have one for employer costs i saw employee costs there but just trying to put in the perspective the employer costs to across so i i think the question pertains to the percentage of the total normal costs paid by employees in FY 20 and i we didn't produce a corresponding chart identifying the percentage produced by employers but we could and or it could just be interpreted as the difference between 100% and the percentage paid by employees would give you the percentage paid by employers Alex could you go back to that could you go back to that chart please Alex yeah so i was thinking about more you know i do have a copy of those 2019 charts it's amazing to see how the charts have changed with the with the assumptions there is one distribution of employer pension pension contribution rates and what it looks to me is like as a percent of payroll across plants and i'd just be interested in knowing how that's where that so are you are you asking how much as a percentage of payroll employees are paying no employers for the two state plants but really not not that in context of all the other plants so you're asking how much employers are contributing across the country as a percentage of pay correct correct so in in the that figure runs a wide range and just as a reminder we're talking here about only about school teachers and general employees not including police officers firefighters and so on for social security eligible plans in the median that figure is around 1415% and it runs a range from below 10% to 50% and more thank you that was that was my question okay we have a couple more questions so go ahead mike thank you thank you keep an out it's my question i guess relates to an earlier graph and then that missed actual assumption that we just went through but it was interesting that vermont was on the top of the state distribution list in terms of the arc funding but we were sort of i guess in the bottom percentage in terms of the funding ratio so i was going to you know what explains that other than actually you know other than actuarial assumptions i guess missed if anything could be multiple things we're not sure that would come out in what's known as an attribution analysis that an actuary would do but it could be any combination of actuarial experience that is people living longer than you expect people retiring sooner than you expect investment returns that have fallen short of expectations those would be the the leading culprits there may be others and and to that i would add that on this chart the experience of the most recent decade in which the state employees and teachers systems in many years have received over 100 substantially so in several of these years of their required contribution is most likely driving the very favorable position of vermont on this chart but but those contributions were you know were made in recent years had these surplus contributions been made in the earlier part of this measurement period then you know vermont's position on this chart probably would still be about where it is currently but potentially with a higher corresponding funding ratio because those excess contributions would have had two decades to generate investment returns yeah thank you that's very helpful go ahead peter grab that mic thank you this is against peter faker you mentioned that the as a percentage of of payroll the median nationwide was i think you said 14 percent is that just pension does that include opeth does not include opeth that's pensions for self-security eligible employees general employees and teachers and i was right when you said 14 percent median yeah if i'm remembering correctly it's right in there 14 15 percent okay thank you and i should add that you know as alex indicated earlier not every employer is paying their full required contribution although in recent years i think on a national basis employers have really made a a much stronger effort to adequately fund their their plans but also there's variation in actuarial assumptions and other things that affect that that's where about where it lays out 14 15 percent other questions don't see any other questions okay so as i mentioned we're gonna shift focus a little bit and talk about the investment return assumption experience and the general investment performance in recent years beginning with this slide which identifies the public pension fund sources of revenue for 30 year period ended in 2020 this is based on information maintained by the us census bureau and this is pretty much how it falls out for any 30 year period that you look at and we generally update this chart every year employee contributions for the 30 year period represent approximately one trillion in revenue to public pension funds or about 12 percent so a an important source of revenue certainly a key source of stable and predictable contributions coming into public pension funds but a relatively small percentage of the overall picture employer contributions we get a little bit higher in terms of dollars and percentage 2.4 trillion or 28 percent but the overwhelming majority of long term revenue coming into public pension funds is sourced from investment earnings 60 percent a little over five trillion and as i indicated a moment ago this is pretty consistent for any 30 year period that you look at you know 60 to 60 to 65 percent or so of public pension fund revenues are derived from investment earnings and the reason we like to present this chart is because we think it emphasizes the importance of investment performance and the investment return assumption for public pension funds given that most of the money that they're taking in is generated by investment earnings and so then this chart is looking at one question here go ahead thank you so again this is Peter Fagan i assume you may get to this but certainly leading into the chart would be a you know since this is a rolling third year what is the average annual return and the combined annual growth rate on the investments that is demonstrated in this chart nationwide so i had some difficulty hearing the question but i think it was asking about the average annual investment return annual return on the investments in other words you can use combined annual growth rate as another to ask a question i'm not looking for you know for uh three five ten i just want to know um the your average so uh we actually have some data on that for for different time periods that we might present that and see if that information is responsive to your question and if not we can discuss further but that's coming up in a couple slides great thank you so given given the importance of or given the reliance of public pension funds on investment earnings that really emphasizes the critical importance of getting the investment return assumption right and there have been a number of changes in recent years to investment return assumptions which are identified on this chart there's a lot going on on this chart just to orient you a little bit the different shaded sections of the bars correspond to a number of plans using a specific investment return assumption or an investment return assumption within a specified range corresponding with the labels on the axis and you can sort of follow the the movement from left to right on this chart and you can see beginning in about f y 10 f y 11 or so um you see uh uh acceleration in the pace of changes to investment return assumptions and when i say changes i'm from talking about uh reduced investment return assumptions um and that uh has pretty much continued um all the way until uh present day um our our data set on investment return assumptions is prospective so it includes changes that have been announced but have not been reflected in an in an actuarial valuation yet and so that's why our data set goes through f y 22 and you can see that the median at the beginning of the measurement period was eight percent and it remained at eight percent um for the better part of a decade or so and then has begun to steadily decline uh to you know seven and a half percent seven and a quarter to its present level of seven percent um which is also uh the assumed rate of return used for the statewide plans here in vermont um having just come down from seven and a half and you can see uh you know just how much of an outlier um you know you would have been at seven and a half a percent um just a little bit previously um before making that reduction to seven percent which is now consistent with the median investment return assumption sorry i'm not sure what that glitch was but nobody's trying to ask a question so i i think we'll chalk it up to uh Aaron okay well um moving on um you know i mentioned uh the uh period of significant changes to investment return assumptions began in f y 10 11 or so corresponding with the you know just coming out of the great recession a period of very low interest rates low inflation um forecasts for expected investment returns across many major asset classes were trending lower and so that was really driving the the decision by many uh plans to reduce their assumed rate of return um which has uh as i mentioned continued until the uh until the present year were um learning about uh new um reduction to an assumed rate of return seemingly uh every week or every couple of weeks um and we expect that activity to continue so why is this important well as we just saw um majority of public pension fund revenues arrive from investment earnings and uh all else equal a decrease to the uh assumed rate of um investment return will produce an increase to the employer's required cost if you're expecting less um income to come in from investments then that means uh more must be sourced from elsewhere primarily employer contributions um and as we'll see in a moment when we look at pension reform employee contributions that um needed to increase as well to correspond for the diminished uh expectations for investment income so now we're gonna talk about investment performance um and i'll ask uh keith to present this section thank you alex so these are investment returns for periods ended 6 30 20 um that's the end of your fiscal year of course and uh it's fiscal year a year ago um and we have the uh data for fiscal year ended 21 um but we're focusing on 20 because we're focusing on the we have the other data the axiorial data for the uh for the plan for that period as well and so this is a helpful comparative uh you can see for the one-year period of vermont we've taken the vermont teacher retirement system there are minor differences very minor differences in the asset allocation of the three statewide funds and also very minor differences in their returns we're using the teacher retirement system but the others have had a very similar experience a little bit different but very similar so you can see where the actual return falls out in the most recent periods one and five years the vermont plans have outperformed the national median over the 10-year period it's falling short um i'm uh certain that that uh falling short there the 10-year period has been a contributor um to the uh the plans uh at least in part of course to the plan's uh axiorial condition um and then over the longer timeframe 20 years it's uh it's a poor return uh relative to the expected return but compared to the national median it's very similar ladies and gentlemen may uh welcome it is so weird you know i haven't spoken on this podium since this was up i feel like we're oh there's something between us anyway welcome it is a total joy to have you here in our beloved and i have to say glorious state house i am allison clark's i am one of your three winter county state senators and it is a total pleasure to welcome you back after a year's hiatus of the first year's welcome to you class of 24 it's wonderful to have the vermont first year's uh here in our beautiful state house our living museum and we're long enough to work here normally every day when our short session is in session we're thrilled that you've chosen law school vermont needs energy your engagement your diversity and that you bring to our all great little and mighty state i'm just curious because you are all new to vermont i saw most of you are anyway some of you are vermonters how many of you are from another country oh great some but not as many as we talk in another year's we we have how many from the west who've been burned east okay great and how many from the midwest oh great and from the south i'm not sure we want you here but i'm great right given back only just given your vaccination rates remember vermont is we're a little nation proud at 85.2 percent vaccinated and how many of you are from the east great and how many vermonters great great to have you i too came to vermont because of the law school and uh 30 years it was 30 years ago it's hard to believe but 30 years ago my husband oliver good enough uh who you will some of you will get to know who's one of your professors at the law school uh we changed our lives completely came up from new york uh so that he could be and work and make his life at vermont law school our eldest son word good who's class of 15 he came to vermont as a two and a half year old went away to university actually went abroad to university came back here and uh is now actually your state's attorney for wins county so be careful in wins or county when so we're using we're showing here the s and returns of the s and p 500 using those as a proxy for a public pension fund investor returns of course investor returns tend to not be as high as the s and p 500 because that's pure equities but it is an indication of the strength of returns and so we've got three fiscal years laid out here the first one is shown in blue and the investment return in the for the s and p 500 of that for that fiscal year was 5.4 percent and we saw a moment ago that vermont's investment return for the portfolio was 4.5 percent above the national median of about 3.3 percent and then there are many plans that have a fiscal year end date that is consistent with the calendar year end 1231 you can see the s and p performance for that period was 16.3 percent and uh let's see i believe that the median public pension fund investor return for that period was about 11 percent 11 or 12 percent and then we've just closed the fiscal year 21 for plans that have a fiscal year end date of june 30th and that's where we really experienced some spectacular returns uh median return for public pension funds for the year ended 6 30 21 was around 25 percent uh and vermont reported a similar figure right around 25 a little north that um but those are not being recognized yet actuarially um you should expect to see actuarial valuations for the uh your statewide plans in december or january uh and those actuarial valuations will be the first official glimpse you see of the effect on the plan's condition and funding level of these spectacular investment returns and i'll finish this segment on returns with a sort of a sobering note and that is projected returns by asset class so horizon actuarial services puts this together they gather a consensus of blue chip market forecasters and these are these are names that you would recognize there's 20 or 25 nationally recognized investment consulting outfits that predict what asset classes will return individual classes will return over the next 10 years or so and you can see there's been a fairly steady decline uh in expected returns going forward uh you know u.s. equities are the largest single component of most public pension portfolios uh also international equities uh bonds real estate is right up there and so if one were to assemble a a typical diversified portfolio um and if these returns were to be realized we'd be looking at returns over the next decade of maybe six or six and a half percent so that spectacular 38 percent we saw in the s and p 500 last year uh may not be uh repeated any time so so the uh the task force indicated an interest in discussion uh discussing um public pension plan amortization policies and so we've uh prepared some material for that discussion um but before we transition to that subject i want to pause and take another opportunity for any questions about the uh preceding uh investment discussion i do have one question regarding the previous slide with the us i would presume a lot of the public pension plans are roughly 60 40 equities to to treasuries bonds etc cash like instruments and if they're paying oh two percent going forward uh obviously the hope is for for most pension plan is for yields to curry on the on the treasury but as long as we have a a large and potentially growing uh debt it would behoove the federal government to be able to afford that by keeping uh by keeping those yields low so that they can afford it it makes it difficult for two plans to make anything shy of you know to try to reach their goals uh on an annual basis because they're plugging in 40 percent at below two percent are plans looking or changing from a 60 40 structure to something different yes sir they are they have been for some time the structure in lieu of a 60 40 i would say that on a broad level the structure is something closer to 50 uh 25 25 that's a 50 percent us and international equities 25 to bonds not just us treasury but also corporates and so forth and then the other 25 percent uh so-called alternatives that would be private equity hedge funds real estate thank you i don't see any other questions oh go right ahead great so uh shifting focus to amortization policy which we define here on this slide as the rules and processes that determine the length of time and the structure of payments required to systematically eliminate an unfunded liability or to recognize a surplus an amortization policy is an important component of a plans of funding policy and a key determinant of the plan's cost and funding outcomes an amortization policy is defined further by several key elements a non-exhaustive list of which are found on this slide is the amortization period open or closed a closed amortization period essentially calls for the unfunded liability to be eliminated within a specified timeframe conversely an open or rolling amortization period essentially resets each year a plan with a closed amortization period may choose to amortize the entire unfunded liability over the same period or may instead use layered amortization which is an approach that creates a new amortization schedule for each year's actuarial experience establishing the length of the amortization period is another important decision all else equal a longer amortization period will produce lower amortization payments relative to a shorter amortization period but if that period is particularly lengthy that may come at the expense of the plan's ability to address its obligations within a reasonable timeframe and then conversely a shorter amortization period will result in higher payments and more rapid elimination of the unfunded liability the amortization method is another important factor and Keith alluded to this a little bit in his previous comments amortization payments may be determined as a constant percentage of payroll with amortization peer payments expected to increase over time commensurate with expected payroll growth or another approach is a level dollar approach which produces amortization payments that are consistent in dollar terms on an annual basis and again this is not an exhaustive list or other important elements to amortization policy other than those listed here Alex I've got another question in the queue thanks Alex again regarding the layered amortization approach how many of those hundred and five plans how many plans are utilizing a layered amortization schedule for losses and and and has that is that a recent trend that is growing or shrinking so we identify we recently collected some pretty detailed information on amortization policies including the use of layered and non-layered amortization and we identify approximately 60 percent of the plans that we collected this information for which is a little over 100 plans that are using closed amortization period because layered versus non-layered is only relevant to plans that are using closed amortization so 60 percent of plans using closed amortization periods are also using layered amortization 40 percent of plans with closed amortization periods are using non-layered amortization and you may also you know wonder how many plans are using closed versus open amortization the overwhelming majority over 90 percent or so of the plans that we examined are using closed amortization so of that you know 90 percent 60 percent of those are using layered amortization and in terms of trends you know we haven't we've only collected this information for the most recent year but our sense and then you can tell a little bit of this from the latest actuarial and financial reports because they identify you know the initial layered year which in general corresponds to the year that the plan adopted layered amortization you know some plans have been using this approach for decades I think you know that I've seen initial layered years of 1999 2000 2001 thereabouts but I would say that most common the most common year of adoption is around 20 2013 to 2016 or so so definitely for most plans adoption of layered amortization has occurred more recently but not necessarily in every case so this slide titled amortization policy preferences reflects material that is sourced largely from the paper the white paper that is cited at the bottom of the slide actuarial funding policies and practices for public pension plans which was published a couple years ago by the conference of consulting actuaries and this paper is generally considered to be the the gold standard resource for identifying amortization policy and recommended best practices and we provide the citation here at the bottom we'd be happy to provide you with a direct link to this resource following our presentation today as well if you'd like and what this paper recommends is the use of layered amortization multiple fixed amortization layers so a new layer for actuarial experience some plans also use different layers for different sources of unfunded liability such as benefit increases or changes to actuarial methods or assumptions also can be reflected in their own layers the paper identifies an ideal amortization period for actuarial experience gains and losses between 15 to 20 years and they say further that an amortization period longer than 20 years becomes difficult to reconcile with demographic matching to promote the policy objective of intergenerational equity basically meaning that the funding period is too long to be consistent with the objective to fund the pension plan over the over the generation that is expected to benefit from the public employees who are providing public services and earning those pension benefits and then the paper also identifies the fact that a period shorter than 15 years can introduce untenable volatility in the cost of the plan and funding level obviously an amortization period that is exceptionally short will produce payments that are much higher relative to a longer period and if if the period is very short then you can also have extreme volatility from year to year as those actuarial gains and losses are reflected over and funded over a shorter period of time and so I mentioned we collected this information for about 100 or so statewide pension plans including the state employees and teacher systems here in Vermont and we identify that the amortization approach used by the retirement systems here in Vermont is a closed level percent of payroll approach non non-layered and per statute scheduled to amortize in 2038 and so you know pursuant to the material that we just saw on the last slide as that as that date gets nearer that 2038 date gets nearer it could produce some exceptional volatility if the actuarial experience in those years you know as we approach 2038 deviates significantly from actuarial assumptions and so that's something to be aware of as that statutory date approaches and so we're at another transition point here where we'd like to present and discuss the benefits comparison that we prepared and that I believe was distributed to all attendees of the task force in advance of this meeting but before we move forward with that I just want to make sure that there aren't any questions about amortization policy or any of the preceding material yes we have a question thank you for that presentation on amortization it's very helpful the conference on consulting actuaries uh with the recommendation for layered amortization do they put forth a recommendation as far as uh funding uh like you know as level dollar or what percent of payroll this Keith I don't recall as Alex indicated we'd be happy to share that with you I think that it's probably would be to the actuary is axiomatic that if you're not if you if you don't have an expectation to be meeting your payroll growth assumption you might be better off using level dollar or else lowering your payroll growth assumption uh to better align with your experience because if you're if you're trying to fund the plan at a payroll growth assumption that you're not reaching consistently you're going to be underfunding your your plan and the cost is going to be rising but we will we will take a look at that and get back thank you any other questions folks all right I think we are ready to shift gears thank you okay thank you madam chair as Alex indicated we're going to take a look at this chart that we provided hopefully y'all have a copy there either electronically or hard copy and that is the handout it's a one pager that reads a landscape benefit levels for general state employees and school teachers representative gannon asked that we put this together this is a comparison of the basic elements of retirement plan provisions for vermont teachers and state employees and your regional peers there in new england and the state of new york and one takeaway that we'd like to to leave with this chart is that the retirement benefit contains multiple components that we've tried to identify the primary components of a retirement benefit here on this chart so security of course alex excuse me alex talked a little bit about social security earlier as a reminder 25 30 percent of employees of state local government in united states do not participate in social security that includes substantially all public employees in massachusetts many in main some in rhoda island and so whether or not an employee participates in social security is an important consideration for obvious reasons in assessing their retirement benefit you can also see the age and years of service the information that's provided here relates to those employees who are hired today many or most of the plans that are listed here have so-called tiers i think that vermont also has tiers that are benefit levels for those who are hired previously but for comparative purposes we've provided the information just for those employees who are hired today and so you can see the the the retirement multiplier the age years of service the cost of living adjustment or post-retirement benefit enhancement how much employees contribute uh the something alex talked about earlier the employer normal cost how much the employer is contributing toward the normal cost and then total employer contribution and so this the information that's on here largely defines the normal cost that's sort of how the actuaries determine the normal cost is looking at taking into account all of these these different factors and so you know it's a little bit difficult to say well is vermont better than or less than or more generous or less generous than the others because there's different buttons different levers here different points of emphasis and vermont might have a little bit more generous um cost of living adjustment than some of your peers but the retirement multiplier is a is a little bit lower compared to say Connecticut teachers and for those in New York who work long enough they can hit two percent then again it's higher for some some of the folks the state employees in Connecticut Rhode Island they're participating in a hybrid plan so it's difficult to say you know which is more generous and that's why we'd like to look at the normal cost because the normal cost is an indication of the overall cost of the plan and even that is not perfect but it's a better indicator. I have a question for you um Andrew Emeridge uh looking at the employee contributions you said that the information here is off from someone being hired today correct? Yes sir. I believe the employee contributions for teachers is not five percent I believe it is percent or a change that happened back in 2010 um just a note. Did you say for teachers is six percent? Correct so new teacher today the employee contribution is six percent not five percent. Thank you very much I'm sorry for that error and we will correct it. Thank you. Are there other questions? We have more slides to go through if uh if you have one question go ahead Molly. Hi I'm Molly um I had a question in the age and years of service I just want to understand that where it's like 63 slash 10 65 slash 10 does that mean those people after 10 years are getting full benefit? So let's take New Hampshire for example 65 and 10 uh a New Hampshire um the public employee who has 10 years of service at age 65 will qualify for a full or unreduced retirement benefit that's right. Have the two together age 65 and 10 years. Yeah I have to hit both there there is an example or two of any here uh in fact you've got it for Vermont teachers at any age I'm sorry any years of service uh any age in Connecticut if you've hit 35 years of service but generally when those two go together you have to hit them both. Thank you. So just again clarify I want to make sure I understand that also Molly uh Andrew speaking so that means for example using New Hampshire if you started teaching at 55 and then for 10 years at 65 you hit your age and you've worked for 10 years so you're eligible to retire at that point with your full benefit. That's correct. Great thank you. Not shown on here are reduced retirement benefits which most retirement systems provide um that will allow an employee to retire at an earlier age for uh what's typically an actuarial reduction or maybe a higher reduction than actuarial but we did not show that on here. All right I have one more question. Sorry it's kind of a follow-up question just to make sure I get that that change that that different structure and those other states so if you are working in the part of your career for 25 years in New Hampshire but you're not yet 65 you don't get your full benefit until your turn 65. That's right New Hampshire has effectively has said that they're not going to pay every time a benefit for for these employees until age 65. I think fire public safety has a lower threshold but for uh general employees and teachers that's right you got to hit that age. Thank you. Sorry Alice please go ahead. I was just going to say if there are other questions we'd be uh happy to take those at any point moving forward here and um but now we'll initiate a discussion of uh pension reform which uh uh is somewhat related to the benefits comparison information that we just looked at so we'll we'll stay on the subject for most of the remainder of our presentation. So starting with this slide talking about pension reforms in recent years since 2009 corresponding with the with the Great Recession and the substantial increase in unfunded liabilities associated with the investment losses 2007-2008 and the corresponding recessions which substantially challenged many public employers' ability to pay higher required costs to finance those newly created unfunded liabilities. Corresponding with with those events nearly every state modified public pension benefits funding arrangements were both and we identify here on the slide a couple different ways in which plan designs were altered. Higher contributions is a big one often from employees usually from employers as well and higher employer contributions could take the form in different cases of the legislatively legislative enactments to increase statutory contribution rates or just employers whose contribution rates are tied to actuarially determined rates having to pay more as those actuarially determined rates rose. Lower benefits was another common pension reform and that took a number of different forms corresponding to some of those categories on the benefits comparison that keep this described on lower multipliers are probably the most direct way of reducing pension benefits. That change was I think in all or nearly all instances aimed at new new hires only exempting current active participants more required years of service or a higher retirement age required to qualify for a normal or unreduced retirement benefit and then another big category of changes was to post-retirement increases known as cost of living adjustments or colas in many cases those were reduced or in some cases even suspended or outright eliminated during this period. We saw an increased use of what is known as hybrid retirement plans and we'll get into more detail on hybrid plans as we move forward. A major overarching theme of this period of pension reform has been the establishment or the clarification or strengthening of existing shared risk provisions and the concept of risk and shared risk for public pension plans is something that we also will address in greater detail as we move forward in this section. And so this slide attempts to catalog our understanding of pension reform as you have experienced it here in Vermont. Our understanding is that legislation enacted in 2008 and again in 2011 increased employee contribution rate for current active participants of the Vermont state employees retirement system. This change is pretty consistent with what other states have done both in the type of change and who is affected. We saw many states increase employee contribution rates through legislation and oftentimes those changes were directed to current active participants as well as new hires. For the teachers retirement system our understanding is that 2010 legislation specified a couple different plan design changes including an increase of the employee contribution rate until such time as the teachers system reaches a funding ratio of 90 percent and as we saw earlier the current funding ratio was just above 50 just above 51 percent so that 90 percent threshold is likely a long ways off. And we saw also that those that change was paired with an increase of the normal retirement eligibility requirement for some current active participants specifically current active participants more than five years away from the previous requirement as of June 30th 2010. And so that change was a little bit typical and non-typical. It was typical in the sense that many other states during this period chose to increase either the age years of service or both elements comprising normal retirement eligibility but in most cases those changes were aimed only at new hires. So exempting all current active participants and so what makes Vermont a little bit unique in this regard is applying that increase to at least some current active participants. And then also a part of that 2010 legislative package was an increase to the benefit multiplier and the maximum benefit percentage and this is also a little bit unique in the sense that it increased benefits for certain participants in most states. Pension reform legislation was solely meant to decrease benefits and there was no corresponding benefit increases at least in most cases. A couple considerations that we want to highlight with regard to pension reform as I talked about a little bit on the previous slides. Pension reform can be divided into one of two broad classes. Changes that affect future hires only. Changes that affect current active participants as well and current active participants could be further classified as those currently working and accruing service credit toward an eventual retirement benefit or those who are already retired and receiving their retirement benefit. Most benefit changes in other states affected new hires only. Some however did affect a current active participants particularly changes to COLA's. The dominant affected group there was those currently retired and receiving benefits also in some cases current active participants had their COLA's modified during this period. Another consideration is that in order to reduce the plan's unfunded liability by a benefit changes which is oftentimes the goal of pension reform that sort of necessarily requires that the benefit levels of current active participants or retirees be reduced. Obviously you know future hires do not there's no actuarial accrued liability for that group. There there is only liability for your current active participants or your retirees and so it sort of follows logically that if you want to reduce that liability through pension reform then that's going to require making changes that affect either current active participants retirees or both. And then relatedly this third point reducing benefit levels only for future hires may alter the plan's cost trajectory so may result in a change to the to the long-term cost curve but that will take many decades to reflect in the condition and cost of the pension plan and those types of reforms aimed at new hires only by themselves will not reduce the unfunded liability of the plan. And so then just you know further emphasizing that point the most dramatic effects on unfunded liability have occurred by altering the cost of living adjustments for current retirees and this is the case because for many plans including here in Vermont as we'll look at in a moment a substantial percentage of the actuarial accrued liability is committed to those who are currently retired and receiving benefits so it then makes sense that the most significant changes to those liabilities will occur when benefits for those currently retired are modified and typically that's done through modifying the cost of living adjustment rather than the the base pension benefit that those retirees are receiving so I'd like to turn it over to Keith to continue the pension reform discussion. Thanks Alex so following on to what Alex just said what actuaries will do in their valuation you can find you can find this in the valuations for these plans is they will attribute the liabilities and the unfunded the liabilities associated with the different groups and generally they divide these groups into two broad classes one is actives those who are working and contributing and the other is inactive which is those who are retired and receiving a benefit and also those who have terminated but have kept their money with the system and presumably will retire at some date in the future and so according to their actuarial valuation for the state employees 62% of all of the liabilities in that plan are associated with folks who are retired or inactive and 64% for the state teacher retirement system what that means is those liabilities for those groups for those plans is fairly baked in and really the only if you wanted to affect those liabilities if you wanted to reduce those for those who are not active that would require a change to the cost of living adjustment provision that would affect those populations you could also affect the liability associated with active members and the way that we're not making a recommendation here please don't misunderstand us we're just talking in theory here but the way to do that would be to reduce benefit levels going forward we don't purport to speak to the legality of that or the political nature of that we're just pointing out actuarial facts thanks Keith so this slide will begin a series of maps that we've prepared and use regularly to communicate about pension reform these these maps provide a good indication of the scope of different types of pension reform nationwide not necessarily the magnitude but we think that they're very useful starting with states that have increased employee contribution rates since 2009 as we indicate here 38 states have made this change and the magnitude of these increases to employee contribution rate varies across states in some cases the increases were substantial in other cases phased or incremental some of the the majority of the these increases affected current active participants although some increased employee contribution rates applied only to new hires there are a couple of states that were non-contributory prior to enacting for the first time an employee contribution rate for some of their participants you might also be wondering why two of the states appear to be shaded differently that would be Utah and Maine and that sort of feeds into a subject that we're going to get into in greater detail later of shared risk and very specifically variable contribution rates Utah and Maine pass legislation that provided for the potential for employee contribution rates to rise but so far those increases the the conditions required to produce those increased employee contribution rates have not yet materialized so we thought it was appropriate to indicate differently here on this map next we're looking at states that reduce pension benefits since 2009 40 states indicated here on this map and again corresponding to the introductory slide this would reflect all of those different ways that we identified in which pension benefits base or core pension benefits can be reduced so this is lower multipliers longer vesting periods increased normal retirement eligibility requirements either a higher retirement age or more years of service required to qualify for an under reduced retirement benefit all of that reflected in this map and again the magnitude of the changes and who was affected by the changes will vary from state to state and then next we're looking at states that have made adjustments to cost of living adjustments since 2009 and cola changes fell into one of three broad categories generally represented by the different color shading on this map states shaded in green made changes to colas affecting new hires only that that's easily the minority of changes aimed at new hires only states shaded in blue made changes affecting current employees and new hires and so all of the all the changes indicated here on this chart flow down so if current active participants were getting their cola modified those modifications also pertained to new hires as well and then the overwhelming majority of cola changes as indicated by the states shaded in beige affected current retirees as well and these changes could be anything from from lowering the cola percentage to eliminating the cola outright or suspending it sometimes indefinitely sometimes until a designated funded ratio is reached or sometimes for a specific period of time such as two or three years 30 states made changes to cola since 2009 which you know is certainly lower than the number of states that increase employee contributions or lower benefits but it's worth pointing out the fact that not every state provides an automatic cost of living adjustment to its public employees with retired public employees states such as texas pennsylvania george and north carolina and others only provide ad hoc cost of living adjustments which require the approval of an external entity such as the legislature or the retirement board in order to grant that benefit so effectively those states that don't provide an automatic cola didn't didn't have a benefit to to cut or modify but in many cases those states that only provide ad hoc colas have also not granted that benefit in a significant amount of time and so we're going to move next to a discussion of risk sharing and shared risk elements of public pension plan design which i'd like to ask if keith would present thanks alex uh yeah as alex indicated risk sharing has been a dominant theme of pension reform over the last decade or so perhaps matched by just outright lower benefit levels or higher employee contributions but aside from those we've seen an awful lot of risk sharing provisions the the universal retirement equation that we sometimes refer to c plus i equals b plus e the money that comes in has to equal the money out contributions plus investment earnings equals benefits plus expenses it's a simple mathematical reality you can't pay a benefit with money that you don't have so over time the money that's coming in the money that's going out has got to equal at least the money that comes in and in a traditional at least theoretical defined benefit or pension plan if it happens that revenues are not sufficient to pay benefits contribution rates need to rise more often than not those higher contribution rates have come from employers not always but usually and the idea of risk sharing brings in the the chance that employee contributions or benefit levels could be adjusted under conditions like that when there's not when there is projected to not be enough revenue or assets to pay promise benefits three broad types of risk that retirement plans encounter investment risk the risk that investment performance may fall short of the assumption or expectation inflation risk the risk that inflation will erode the purchasing power of the retirement benefit and then longevity risk how long people will live and if you've got a group of retirees who are out living their their expectations in a pension plan it comes at the cost of the plan if it's a defined contribution or an individual retirement account then that risk is borne by the individual they have a risk of out living their retirement assets but at a high level three types of risks that pension plans must consider and the plan design is based around so as i as i mentioned in the traditional defined benefit plan the employer has borne all of the risk but that traditional theoretical plan really has has not been in place in the public sector certainly not for many years for most plans increasingly especially over the last decade but incrementally over the last 20 or 30 years we've seen more and more risk moved to be borne by employees and we now see a fairly wide array of levels of risk and types of risk that are borne by employees as you might expect in a typical defined contribution plan an employee bears all or nearly all of the risk how long they're going to live how much they contribute how their investment performance is and so forth in a traditional pension plan employers as we mentioned typically bear all or most of the risk but in reality in current public pension plans that we see across the country we've seen this wide array of risk sharing between employees and employers and again the predominant theme we've seen in recent years is a shifting of different kinds of risk to different degrees from employers to employees so this is a continuum that Nazra put together that's intended to sort of illustrate this risk it's obviously not a binary thing it's it it occurs on a continuum there's lots of shades of gray in here and so on the left hand side you really have your excuse me you have your traditional corporate pension plan and corporate pension plans don't have employee contributions the employer contributes all of that the employer bears all of the risk and that is the plan that is mostly gone away in the private sector there's not very many employees in the private sector that are participating in a traditional defined benefit plan and the public sector generally probably falls around 10 or 11 per a clock on this if you think of it as a clock where you've got a defined benefit plan in place but the employees are sharing some of that risk and then toward toward the top of that about noon on the think of it thinking of it as a clock you've got traditional hybrid plans combination to find benefit to find contribution plans where risk is fairly evenly distributed between employees and employers cash balance plans similarly and a moment ago alex referred to these plan designs that we'll talk in more detail about in a moment in which benefit levels or employee contribution rates might change and then as you get over to the right hand side of the chart you get into defined contribution plans with reducing levels of employer participation and risk so beginning with this slide we move from the theoretical to the practical examples of risk sharing among public pension plans before we move forward I'd like to pause and ask if there's any questions I have a couple of questions going back to some of the benefit changes side one's just a simple first is simple clarification and this is Eric speaking as well you said that most benefit changes have not focused on current actives but some of those previously implemented in Vermont did is that correct I think that mainly applies to the teacher system yes I think I indicated that Vermont is not an outlier in the sense that you made benefit reductions but you are somewhat of an outlier in the sense that those benefit productions affected some current active participants rather than just new hires which was the prevailing approach in other states and it's worth mentioning as Keith alluded to in one of his earlier remarks that states differ with regard to their legal protections for accrued pension benefits and so those you know differences in legal protections will limit in some cases the extent of the reforms that can be applied to different groups some states you know have legal prohibitions against making changes to pension benefits for current employees at all so effectively those states don't have that option to do what you did here in Vermont thank you two more questions you mentioned I believe it was West Virginia at one point in that they really improved their funded ratio doing so without benefit changes so I was just wondering if you could speak a little bit more to the strategies that they've implemented I'll take a shot at that what West Virginia did was just made a focused and concerted effort to fund their plan you all might might remember the tobacco settlement monies where every state got some money from the big lawsuit that was filed against the big tobacco companies and West Virginia applied a good portion of that I think like eight hundred million dollars to pay down the unfunded liability of the teacher retirement system on a few occasions when they had budget surpluses they applied a portion of those budget surpluses to pay down their unfunded liability so it was mostly just through an effort to fund their plan thank you the last question goes to that attribution of risk and it's something we've discussed a little bit here it's a task force that we have certain targets that are in our enacting legislation they relate to how the unfunded liability a deck have increased since we made assumption changes primarily and those assumption changes affects you know all planned participants retirees those close to retirement and current acts yet we've been trying to be thoughtful about how how those groups affected and I think that it brings in you know considerations of intergenerational equity that essentially you may have a smaller group responsible for liability to crude over a larger group do you have any thoughts on how to consider intergenerational equity in our work here I guess I might say that the big challenge of providing a retirement benefit requires quite a balancing act you've got to accommodate the the needs and demands and expectations of different your major stakeholder groups and who are those groups well those are employees of course who public employers need to attract and retain you've got employers that need to attract and retain and then you've got taxpayers who are paying a good portion of the cost of the benefit and it's very easy to develop a retirement plan that favors one group over those others but ultimately for a retirement plan to be effective and to be sustainable it's got to meet the needs of all of those groups and that's really the big challenge so you know right now I suppose that you could come up with a plan design that significantly lowers benefits for for new hires or say those who are not yet vested in your plan and spares everybody else including taxpayers and retirees and Actives who've been there a longer period of time the problem is that you're going to employers especially are going to have a much more difficult time attracting and retaining qualified workers so whatever changes are going to be made have got to keep in mind the the needs of balancing the those needs of different stakeholder groups have a question uh Andrew speaking I'm going back a little far I think to the uh extra handout talking about the benefit levels the uh Vermont New York New Hampshire Matt Connecticut Rhode Island um I was just wondering do you have the average benefit payout for the different states and the the different sections um if you could if you don't have that on hand because that's something you could get to us and I would also just be kind of curious to know what the funding ratio is of these different states and um also thinking back to a previous slide where I was looking about the financial um percentage commitment towards pensions for the entire state budget I believe yeah the the average payout the the average payout is a knowable figure and we're happy to get that for you although I would caution that pension payouts will vary by employee group teachers tend to have the most longevity teachers tend to work a full career or more so relative to general employees and so in a typical plan average years of service for a teacher will be 25 or 30 years whereas the average teacher average tenure for a general employee will be maybe half of that or perhaps less um and so if you were to get the that that data the average pension payout say for the Massachusetts or the yeah the Massachusetts teacher retirement system that will be different than that of the state employees retirement system uh but those will be different from the New Hampshire retirement system the New Hampshire retirement system is unified they put them all together there you've got all the public safety and the uh state employees and local government employees and teachers as well and so um there's limited utility in comparing the average pension payout uh it it's just important to be sure one is comparing apple staffs but we'd be happy to get that information for you thank you for that explanation that makes sense I appreciate it and sorry one other thought and that is of course the uh availabilities or not of social security right so Alex is this yours or mine uh this is mine um I'll present the next couple slides and then give you an opportunity to make some final remarks um so as I mentioned we're we're going to move away from the theoretical discussion of risk sharing toward uh the practical application of risk sharing to public pension plans and we'll talk about a couple specific examples of risk sharing plan design elements that are here listed on the slide flexible employee contribution rates adjustable benefit levels uh hybrid plans and contingent or limited cost of living adjustments so first we have another map this is identifying states that added shared risk plan design elements since 2009 in some cases some of these states had previously implemented shared risk plan design elements but they made some change to strengthen or clarify those elements and again just like the other maps this is a provides a good indication of the scope of activity in this area not necessarily the magnitude all different magnitude of changes reflected in this map but almost half of the country since 2009 has implemented what we would characterize as a risk sharing plan design element in accordance with one of those different different example elements listed on the previous slide since 2009 and we expect more states to adopt risk sharing plan design elements moving forward and we're going to go through some examples of a risk sharing elements that have been used in the public sector and Keith why don't you start us off and just take this as far as you're able and I'll pick it up after you thank you so these are some examples of contribution rates for employees that can vary in these states the Arizona state retirement system Nevada PERS which Arizona state retirement system excludes a public safety personnel it's teachers and state employees and local government workers who are not police officers and firefighters Nevada this pertains to just about everybody there and Wisconsin same thing just about everybody the contribution the full contribution rate is shared equally between the employer and the employee main is interesting it's very similar 55 45 split but there's an upper limit on the amount that the employee as a percentage of pay that employees are required to pay similarly Iowa 6040 employer employee split all new hires in California and this pertains to teachers and participants in Cal PERS it does not necessarily include some of the other plans they are required to split the normal cost between employees and employers at least so employees must pay at least one half of the normal cost and then as the notation indicates many employees in Montana and North Dakota are contributing at a rate that is promised to decline when the plan funding level reaches a future designated threshold and we would note that when you link the employee contribution rate to the plan's actual cost that is exposing employees to all of the plan's risk inflation longevity investment performance and so on because all of that is borne out and ultimately in the contribution on the other side of the ledger flexible benefits Michigan enacted an unusual and I think interesting plan design a few years ago newly hired school teachers in Michigan since 2018 excuse me participate in the plan that is measured annually and when the actuary finds that the mortality or longevity experience has improved by at least one year that is when teachers in that plan are found to be projected to live at least one year longer than the normal retombinates for that plan ticks up by one year and whenever it hits a full year that required retombinage ticks up one as well your neighbors to your north New Brunswick Canada they provide an interesting plan it's a basically a hybrid contains two basic components core benefit you might think of as a typical pension plan and a second component that is variable and that benefit at retirement could vary depending on the investment performance and the actual experience of the plan and then a few years ago in Texas used in employees and this pertains to all employees in the city firefighters police officers and general employees participate in a plan in which they set a target employer contribution rate and if or when the that required contribution rate varies strays from that target by more or less than 5% than a series of triggers sets in that begin with a reduction in benefits may also include changes in contribution rates and actuarial methods and assumptions so as long as the employer contribution rate stays within that range and benefits and contributions stay the same but if the experience causes the required contribution rate to get outside of that range then there's a series of very specific changes that begin to take effect have a question Andrew speaking thinking of the Michigan public schools retirement system would the opposite be true if the mortality decreased by a full year that the retirement age as well decreases that's a good question i'm not sure when they established that plan that they thought about that and i don't know we'll be happy to look let's let's hope that that does not materialize but we'll see to look to find out for you yes fingers crossed yeah that's a great question and i would also take the opportunity to point out another feature of that plan design for michigan public schools and that is that individuals who are within a certain number of years from qualifying for the existing normal retirement age i believe five years out from qualifying for the existing normal retirement are exempted from any from any increases so so those closest to a retirement are that chain that increases not applied to those participants yeah great point alice thanks for sharing that and members i have to apologize i literally have to go catch a plane and so i have to go and but i'm going to leave this in the hands of my capable colleague alex and it's been an honor and a privilege to be with you we'll do our best to get back with you with some of the unanswered questions and of course you should always feel free to reach out to us if you have questions about public pension issues thanks very much thank you so much for being with us today okay so we don't have don't have too much further to go as far as the prepared material and then we can take some questions at the at the end here so i mentioned another example of risk sharing elements of public plan design is hybrid plans and undoubtedly you've heard a lot about hybrid plans i probably know a little bit but we'll just go over generally the two most commonly recognized types of hybrid plans the first so-called combination hybrid plans or db dc hybrid plans a combination hybrid plan uh is a provides a benefit comprised of multiple elements a more modest traditional pension plan combined with mandatory or at least default participation in a defined contribution plan and the way that this plan shares risk is obviously employees bear all or most of the risk within the dc plan component and the employer is bearing some of the risk associated with the defined benefit plan but that risk is lower because the defined benefit a portion of the hybrid plan is lower compared to a standalone defined benefit plan so there's a balance of risk sort of inherent with these combination hybrid plans another commonly recognized type of hybrid plan is a so-called cash balance plan a cash balance plan provides a retirement benefit based on the accumulated balance of a notional or hypothetical retirement account that provides participants with a maximum annual interest crediting rate employer risk in cash balance plans is lower because generally that maximum interest crediting rate is lower than the plans assume great of investment return many cash balance plans do provide the opportunity for excess interest credits above that interest crediting rate typically dependent on favorable investment performance so there's a little bit of a shared gain component to cash balance plans as well to the extent that employees may share in that strong investment performance through increased cash balance interest credits and in most cash balance plans all or at least a portion of the benefit is available to be annuitized upon attainment of certain retirement eligibility criteria so sort of similar characteristically to a traditional pension benefit that is paid in the form of a lifetime annuity cash balance plans in many cases have that same ability to pay that benefit as the form of an annuity as well and so hybrid plans are have certainly grown in popularity in recent years but they have been in place in the public sector in some states for a very long period of time so we're looking back to a 1995 this is a heat map so the darker the shade of the state the greater percentage of public employees in that state participating in one of those two hybrid plan types so when we go back almost three decades ago to 1995 we see that there were hybrid plans in effect in two states Texas and Indiana and Indiana for substantially all public employees for a very long time going back to the late 1940s in fact is the hybrid plan in Indiana and then in Texas similarly going back to the 1950s or so for municipal and county employees in that state who participate in a cash balance plan and then we fast forward to the present day and we see that there are many more states that have adopted hybrid plans but it is also the case that many of these new hybrid plans applied only to new hires so their percentages of public employees participating in hybrid in these hybrid new hybrid plans is still very low in many of these cases Virginia, Tennessee and Kansas are good examples of states that applied they created new hybrid plans for substantially all newly hired public employees in those states and you can see their participation thresholds are you know still pretty low but are expected to increase as employees in the previous years retire and are replaced by hybrid plan participants is a pretty interesting contrast going on in New England between Connecticut and Rhode Island a Connecticut created a new hybrid plan a couple years ago that it you know was typically applied to new hires only and so therefore you know less than five percent of public employees currently in that state are participating in the hybrid plan teachers are also exempted from that new hybrid plan in Connecticut as well so only applied to a certain state employees and then Rhode Island on the other hand created a hybrid plan about a decade or so ago but rather than apply that change to only the new hires certain current active participants were also required to participate in that hybrid plan which results in a participation rate of over 75 percent and growing and so you can you can just sort of see the relative popularity of hybrid plans and the level of participation in those states that have adopted hybrid plans on this map. I have a quick question and speaking thinking about Texas from 1995 to 2021 am I reading it correctly that previously Texas is 26 to 40 percent of participants in hybrids but now it's 11 to 25 percent yeah so that's just sort of a statistical anomaly the the employee groups covered by the hybrid plan in Texas up until a couple months ago was just county employees and municipal employees and so you know in 1995 those participants represented you know 26 percent or greater of all public employees in Texas and then you know I guess here by 2021 there have been more teachers and you know state employees hired that have driven that percentage of county and municipal employees to be lower than 26 percent and therefore within that 11 to 25 percent category but it's pretty consistently you know 25 to 27 percent or so now we will expect to see that percentage increase in Texas because a couple months ago the Texas legislature established a new cash balance plan for newly hired state employees in 2022 and onward I believe so now in addition to the county and municipal employees who have been participating in as a long-standing matter in cash balance plans you'll also have the state employees so that participation threshold in Texas will be expected to rise moving forward thank you and so we also mentioned another method in which a public pension plan share risk among employers and the participants is through a contingent or limited cost of living adjustments and broadly speaking contingent or limited cola refers to a post-retirement benefit adjustment whose amount or in some cases whose provision depends on some external factor such as the investment return the plans funding level perhaps the rate of price inflation in the economy or some other factor and there are a number of examples here in which contingent and colas can be made to be contingent or limited including delayed onset or minimum age so you have to be a retired for a certain number of years before you can receive a cola or have attained a minimum age it's a 65 or 67 or something like that to begin receiving a cola so effectively in those examples the employee or the participant is responsible for bearing all of the inflation risk up to the point at which they're eligible to receive a cola so if that's you know two years or four years out of retirement they're responsible effectively for bearing the inflation risk up to that point other plans apply the cola only to a portion of the pension benefits so the first say $10,000 in pension benefits is eligible to receive a cola and for the for the rest of the benefit the participant is bearing the inflation risk for any benefits that they're receiving that are not covered by a cola and then colas that are linked to investment performance or linked to plan funding level you know those cola designs are effectively sharing all of the different types of risk inflation longevity and investment because to the extent that those different actuarial factors can affect the funding level of the plan then the participants are essentially exposed to those risks through a cola linked to the plan funding level and we conclude with a handout of cola arrangements that I think was distributed in advance of this meeting I'm going to attempt to share it here on the screen in case anybody does not have a copy and we can quickly go over that resource so hopefully this is a presenting on on your screen there in the room what this handout is identifying is the a little bit greater detail of the variations to a cost of living adjustments among public retirement systems and we list them list some specific examples according to these different contingent or limited cola categories including delayed onset minimum age and you can see the variation here in a delayed onset or minimum age colas retirees or participants hired since 2015 in the state of Nevada receive a cola only after three years of receiving benefits and then that cola increases as a percentage the longer that the participant has been retired so that's a sort of an interesting spin on the delayed onset concept and then you can see your neighbor to the west here in New York state and local retirement system in New York state teachers retirement system participants who retire from those systems have to be have to meet a certain age and a years of service requirement to begin to receive a cola so the participant retires before meeting those requirements and they they're not eligible to receive a cola until they have attained those ages some some plans provide colas that are non-compounded so a compounded cola provides an increase not just on the the base retirement benefit but also on colas that have been awarded previously a simple cola by contrast applies that benefit only to the the original base benefit and so we identify three plans that provide only a simple cola or three examples I should say of plans that provide a simple cola one plan Mississippi public employees provides a simple cola until reaching age 60 and then adds the compounding effect thereafter so I mentioned earlier in the pension reform discussion that a number of plans effectively suspended their colas with the suspension sometimes term-specific Colorado para for for two years and then up in Maine for for three years and you can see some other examples another method of implementing a cola suspension is to essentially suspend the cola and definitely as New Jersey did until the plans reach a designated funding level which is is going to be pretty far off in New Jersey we have pretty poorly funded pension plans so their participants are not going to receive a cola for some time another common method of providing colas is to tie the benefit to investment performance a number of states adopt that approach among the more interesting approaches is that which is used in South Dakota so South Dakota is sort of an interesting example in that they're statutorily required to maintain a funding level on a market basis of 100% and if they fall below that threshold they're required to take corrective actions to bring themselves back within 100% funding on a market basis and so to accomplish that they've got this pretty interesting cola design where the cola is linked to the annual rate of inflation with a maximum of three and a half percent and a minimum of zero percent and is further determined by the cola that is payable given the plan's recent actuarial experience that would result in maintaining a funded ratio of at least 100% so effectively they they pay annually in cola what they can afford to pay while maintaining a 100% funded ratio so if that's if they can't pay a cola without dipping below 100% funded then the cola for that year is zero and similarly you know if they can if they can pay one and a half or two and a half percent whatever depending on the rate of inflation as well and maintain that 100% funded ratio then that's what they pay and in that year so it varies depending on their expected funding condition and then finally we list a couple examples where the cola's applied only to a portion of the benefit in some cases also with delayed onset so again in these cases where cola's applied only to a portion of the benefit you've got the you've got you've got a shared risk situation going on up until the portion of the benefit that the cola applies to and then for any additional benefit that the participant is receiving they're effectively responsible for dealing with the inflation risk on that excess benefit and that is the that's the conclusion of our prepared material and if there are any additional questions about this section or anything if Keith or I discussed previously I'd be happy to do my best to address them now go ahead Andrew speaking questions particular to this the presentation was great thank you for all that information I'm curious if you can speak to changes that any states implemented that they thought would be impactful that that fired actually did not have the determined impacts of the desires yeah I can give you a couple specific examples so one change that was pretty common pretty commonly enacted since 2009 that we didn't spend a lot of time discussing but is relevant to this question is increases to the vesting requirement so otherwise known as the amount of time an employee must work in order to qualify to receive an eventual pension benefit prior to 2009 it was typical to see vesting periods of three to five years and following this period of significant pension reform we you know began to see vesting periods of much higher than that sometimes seven years sometimes as many as 10 years that a new hire must work to qualify to receive a benefit from the plan and and at least two examples I can think of and there may be more vesting periods were increased and then those increases were rolled back after the public employers in those states experienced difficulty attracting and retaining public workers who were you know leaving you know potentially not choosing to work for a public employer because of an exceptionally lengthy vesting period for who were deciding to leave a public service because they they didn't think that they would meet that lengthy vesting requirement so that's one very specific example of a change and and furthermore I believe in those states that implemented longer vesting periods you know those changes were not found to be substantial drivers of cost reduction so not only you know were they not saving any money but they were jeopardizing public employers ability to attract and retain the type of talented workers they were you know trying to recruit the public service excuse me go ahead Eric yeah I'd like to echo in his comments on on just thanking you for the presentation so a lot of food for thought really helpful one item we discussed as a task force is this goes back to one of your first slides and looking at things that were before a pension plan against it is how to incentivize people to actually work longer and we've talked about some ideas but I'd just be interested if you've seen states do anything interesting in that in that regard or or any other incentives to kind of drive a year that would result in costs sure so obviously you know the most direct incentive you know for employees to work longer would be to increase either the age required age and or years of service required to attain a normal or unreduced retirement benefit you know that can provide a significant incentive to work longer to be able to eventually receive a retirement benefit that's not subject to actuarial reduction another example that we've seen and we could provide specific examples if you're interested as an escalating multiplier so the way that works is you know you've got a benefit multiplier you've got different levels of benefit multipliers that correspond to different lengths of service and I think New Mexico implemented this most recently for their teacher's plan so they've got a lower multiplier for those who retire with 10 years of service and then it's correspondingly higher as you go up the number of years of service resulting in you know a maximum multiplier at say 25 or 30 years of service and so you know that can provide an incentive to work longer to receive an eventual retirement benefit that's calculated on the basis of a higher multiplier thank you any other questions from task force members about this information we've been presented this morning yeah I have one question sir you know one thing I was thinking about based on the presentation is whether you know there might be a couple of specific states that have recently gone through some reform initiatives in the last you know two, three, four, five years that are similar to Vermont that would be good to hear from them directly you know you know if you had any you know jumping to you in Maine and Rhode Island to me just because they're New England states and they took a couple of different approaches I think it'd be interesting to hear from them as to why or why not certain approaches were taken but you know those states or any other states have you have any recommendations on that well so you know every state is unique in several regards and you know some states and some plans that are in geographic proximity to you and Vermont are different in important ways that you know make them perhaps not appropriate comparative states you know Maine and Massachusetts might be good examples of that participants or public employees I should say in those states substantially all public employees in those states are outside social security so those states have sort of a different you know benefit framework that they're operating under in the sense that the benefits they provide you know are generally more generous than those provided by states whose public employees are also covered by social security you know because they've got a compensate for the for the lack of expected social security income so when we look at states that are you know whose situation is appropriately comparative to Vermont's it's important to consider factors like that but we we could certainly give that some thought and maybe provide some specific examples of states that are you know we think are characteristically similar to Vermont you know whether they're in geographic proximity or elsewhere that might be interesting and relevant to compare from a pension reform perspective it'd be great go ahead Peter thank you so different states fund their pensions different I'm sure in Vermont um total pension and OPEB liability cost is approaching closely 14 of our general fund revenue on an annual basis and it's getting difficult to to afford that uh it is it's up there um I've heard I've for example I read once that New Jersey actually increased tolls on the guarded state parkway or the New Jersey Turnpike are both and that money actually goes to use the unfunded liability but do you have some kind of a of a presentation or chart or whatever that demonstrates what different states do so um yeah with with regard to a New Jersey and the toll revenue um that we refer to examples like that as so-called dedicated funding sources or dedicated revenue sources basically revenue streams that have been established for exclusive purpose of delivering extra revenue to the pension plan for purposes of reducing the unfunded liability New Jersey's a good example a couple years ago they dedicated the the lottery fund and the annual lottery fund proceeds to paying down the unfunded pension liability their pension plans there are another number of other arrangements um particularly states whose revenue is dependent on the taxes levied on the extraction of natural resources like Montana, Louisiana, you know coal and oil states have in recent years established dedicated revenue sources tied to you know a percentage of those natural resource taxes to fund their pension plans we do list a number of those and similar examples on our website that's nazra.org under the funding policies topic page you can find a list of other states and local governments that have implemented dedicated revenue sources to fund their pension plans I guess you know the the challenge there is that um that's that's then you know pulling uh revenue away from uh you know potentially another uh another source to fund the pension plan so it's not necessarily you know creating new revenue it's it's just moving it around you know from one place to another. Andrew you have another question um so again the benefit levels for kind of the these states compared to Vermont it's really useful to have um is it possible to get for kind of a state similar to Vermont spread out around the country you know thinking California would be a great comp but are there some other states um where we could get some info that might Vermont. Yeah um we can certainly pull something together um you know one factor that we've looked into a little bit is different states uh level of urbanization urbanization defined as you know the the percentage of the total state throughout presidents living in or near cities and in general we find that states with a higher percentage of urbanization generally provide you know higher pension benefits accounting for these factors like that we've discussed like social security participation or lack thereof and so that might be one metric within which to develop a comparative group including Vermont would be to look at states whose uh um you know level of urbanization is is similar to yours here in Vermont Vermont's obviously one of the the least urbanized states in the country. And I have one other question um one of the things we've been talking about as an idea is possibly giving people the option to opt in to increased employee contributions in return for um years of service credit are there any states doing something similar like that um some creative thoughts? I I think there are examples um well so uh in Pennsylvania Pennsylvania legislature a couple years ago implemented a new tier for new newly hired state employees and public school employees and that new tier includes an elective option for those needs of defense um where they can elect uh to choose between either a pure defined contribution plan or one of two hybrid plans and the two hybrid plans have different employee contribution rates and different multipliers so essentially if you want to receive a higher benefit um you cannot opt into doing so by paying a higher employee contribution rate if you want to um you want to retain more of your take home pay you can pay less in employee contributions and um receive a less generous retirement benefit so that's the that's one example that that comes to mind um and there uh there are likely others as well. All right any other questions from task members? All right well Alex I want to say thank you again for uh for being with us this morning bringing us a wealth of information that I suspect will take most of us a little time to to digest um and I do appreciate your willingness to to follow up with answers to a few of our questions and um and so thank you so much I think we're done here for this morning and um Alex you have a great day. My pleasure uh thank you for the opportunity to discuss these issues with you this morning um we do intend to follow up and we would encourage you to reach out to us if you have any questions or wish to continue the discussion. Thank you. Thank you. Thank you. All right. That was quick to see what time it is. It is 11 45 and that's us at a much needed lunch break. Um back at one.