Alarms sound about talk of merging state employee and teacher insurance plans | Arkansas Blog

Wednesday, August 20, 2014

Alarms sound about talk of merging state employee and teacher insurance plans

Posted By on Wed, Aug 20, 2014 at 7:37 PM

SEN. JIM HENDREN: Says insurance and retirement system merger will be on a task force meeting agenda next week.
  • SEN. JIM HENDREN: Says insurance and retirement system merger will be on a task force meeting agenda next week.
I was contacted today by a teacher who's been involved in work on the disparity in health insurance coverage between state employees and public school employees. She wrote about a task force meeting next week that will go beyond insurance to discussion of potential merger of the Arkansas Public Employees Retirement System and the Arkansas Teacher Retirement System.

This would be a $20 billion combination and a challenging question as to benefits and state contributions.

The teacher who wrote me — and who believes the teacher retirement system is stronger  — believes this is beyond the purview of the committee reviewing insurance. She does not want to be combined with APERS.

The notice of the meeting said this about the Aug. 26 task force meeting:

At the request of Senator Jim Hendren, the Chair of the State and Public School Life and Health Insurance Program Legislative Task Force, I am writing to advise you that one of the topics to be covered at the Task Force’s August 26, 2014, meeting, which is scheduled for 10:00 a.m. in Room 171 of the State Capitol, will be the potential impact of combining the Arkansas Public Employees Retirement System (APERS) and the Arkansas Teacher Retirement System (ATRS). Senator Hendren wanted to ensure that you were aware that this topic would be discussed and that you had time to prepare.

My correspondent said she'd be alerting teachers to the "attack."

I asked George Hopkins, director of the Teacher Retirement System, about the meeting. He said: "ATRS was notified yesterday. ATRS has been asked to appear next Tuesday to discuss the impacts and obstacles to a merger of the two systems. "

I sent a question to Hendren. His response:

Next week's task force meeting is devoted to comparing funding and benefits between ASE [state employees] and PSE [school employees] insurance plans. It will look for ways to bring more parity between the plans. Many legislators believe when looking at Employee compensation and benefits it is necessary to look at all benefits. Some believe merging of the Ins plans is the quickest and best path to parity. However, many suggest that if we merge one benefit we should consider merging both. We have looked at many ideas that had little support but we had to at least investigate. I think this will be the case here as well.

I expect a crowd will turn out for this one.The meeting is at 10 a.m. Tuesday in Room 172 at the Capitol.

The teacher system has about $14.5 billion in assets for some 100,000 covered employees. The state contributes 14 percent of pay for working employees and the employees must contribute 6 percent.

In 2013, the most recent figures I could find, APERS had about $6.5 billion in assets for 45,000 active state and local government employees, plus non-teaching school employees. In 2010, the state was contributing 13.4 percent of pay to employees in the system. The plan was once non-contributory, but there's now a provision for 5 percent employee contributions. Separate smaller funds exist as divisions of APERS for judges, State Police, highway employees and local police and fire employees.

I asked Hopkins how serious he believed the legislature might be about potential merger. He said that was a question better addressed by legislators and added that a merger would be "extremely complex." His fuller answer follows, plus an excerpt of an e-mail he'd sent to others about the "structure" of any merger and whether it was intended to save money or change benefits:

From George Hopkins:

The question about how serious is the legislature about a merger is a question that ATRS is hesitant to address. That is best addressed by the General Assembly members.

ATRS will respond that merger would be extremely complex from a benefit and tax compliance standpoint. The benefit structure of the two systems are very different due to a benefit structures designed to address different memberships and goals. ATRS is fine tuned to recruit, retain and encourage a teaching career of 30 to 40 years. A change could shorten the average career significantly. ATRS has an average benefit over over $1,800 dollars per month due to the benefit structure that encourages longer service. At the same time often teachers need to retire before age 65 due to the stress of teaching. ATRS recognizes that and allows retirement at age 60 although APERS uses age 65. ATRS has a lot of STEM educators and the 10 year T-DROP has been beneficial to keep teacher shortage areas filled. ATRS has a fast disability process (often it takes less than 30 days) to help educators with health issues exit faster to ensure schools have teachers delivering the educational curriculum effectively. APERS uses the Social Security Disability as a qualifier that may not provide the best result for learning in the classroom due to the time required for approval.

Many retirees from one system have gone to work at the other and a merger may cause an IRS prohibited "in service distribution" since the member would be earning service in and at the same time be receiving a retirement benefit from the same system. A big issue is that ATRS has over 13,000 members who can submit a retirement application tomorrow and be an October 1st, 2014 retiree. A large number of extra retirements could cost ATRS hundreds of millions of dollars in added unfunded liabilities so a new structure can add costs due to the additional retirements caused by confusion, fear, frustration, or anger. That number of retirements could also cause a problem with having classrooms filled with qualified teachers in hard to fill positions. ATRS had a net $47 million dollar gain last year to to fewer retirements than assumed by the actuaries. That result could be reversed by several hundred million dollars or more by a merger that is not positively accepted by so many currently eligible to retire. Both systems are operating effectively now and a merger would be a divisive and complex with the likelihood of unintended costs and outcomes.

Here's the further excerpt:

 If the purpose is to study the benefits of a combined system that has uniform benefits for all public employees, then a response that is meaningful needs to have some structure as to those uniform benefits to discuss the impact.

For instance, I would assume the intent of the General Assembly would be for the combined plan to either save money or to cost no more than the costs of the two current plans. So a combined system has to have a structure that achieves the intended goal. Applying the highest common denominator in the benefit formulas from both systems would not have a reasonable cost. The impact discussion is driven by the structure adopted in a combined system. Plus, depending on structure chosen and the members impacted, a "rush to retirement" to avoid the new structure can cost more than the intended savings or intended cost neutrality. ATRS currently has over 13,000 members who can submit retirement applications and be retirees in 50 days. That is why I was seeking details on the structure so I would be able to tell if it might impact this and other issues. If no proposals are available, I am not certain that impacts can be discussed with any reliability.

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