The 3% cost of living allowance, a hot topic for state retirees


Linda Montalvo of Benton asked state lawmakers on Tuesday night whether they would consider recommending changes to the annual cost-of-living adjustment to benefits paid to the more than 30,000 retired members of the public employee pension system of Arkansas.

This adjustment is 3%, compound.

“What are you thinking about?” she asked 10 state lawmakers attending the last of 11 meetings held across state in the past two months by the Joint Committee on Public Pension and Social Security Programs. The last meeting was in Benton.

“That’s really what we’re here for, to get your feedback on various provisions, including potential changes to the [cost-of-living adjustment]”said the executive director of the pension system, Duncan Baird.

Montalvo said she worked in the Saline County Clerk’s Office for 32 years and retired in 2013.

“It sounds like you were saying that when you retired you retired assuming there would be a 3% COLA, and that was an important consideration for you,” Baird said.

Montalvo stressed that this is an important consideration for all retired members of the system, not just her.

“Our meds are increasing every month,” she said to the applause of most of the 175 or so people present at the meeting, “and every time you go to the grocery store everything goes up, so I beg you. all of you, please don’t take my 3% off me. “

Montalvo suggested that if lawmakers sought a cost-saving measure, they could amend state law to increase the period during which members of the system vest for retirement benefits from five years to 10.

Committee co-chair Senator Bill Sample of R-Hot Springs told Montalvo that “the reason the committee is here is that you can let us know and communicate with us about your ideas on what we need to do. do with all [retirement] systems. “

The meeting ended without any lawmakers indicating whether they were considering changing the compound 3% cost-of-living adjustment.

This cost-of-living adjustment is a sensitive issue for retirees in the state government’s second pension system, which has more than $ 8 billion in investment.

In April, during the ordinary legislative session, a bill did not authorize the pension committee which would have changed the annual adjustment. This would have allowed system administrators to determine the size of the adjustment, up to a simple increase of 3% – not compounded – per year.


After the committee meeting on Tuesday, the other co-chair, Rep. Les Warren, a Republican from Hot Springs, said, “One of the things we’ve heard time and time again is retirees, those who are already in. retirement and live on those paychecks say, “Don’t play with our COLAs,” so that’s something we’re going to look at.

“Can we leave their COLA alone and what else can we do to adjust the amount of money we’ve spent?” He asked in an interview. “Can we change anything with the current new members? We’re going to go through everything and find out what we think makes this the most creditworthy now and in the future and get a plan and present it to them.

“Some of the things people have said are, ‘We are okay with increasing our contribution as long as the employer increases theirs,'” he said.

After Tuesday’s meeting, Sample said in an interview, “Based on all the meetings and everything we’ve had, I don’t think the 3% COLA is going to change.

“We’re going to have to look at some increase in premium levels for employees as well as for the state, and I know the governor is not going to like” to increase the rate charged to the state government, he said. .

System administrators set the rate for employers, which are state and local governments. The system charges these governments 15.32% of the payroll of their employees, and most of its members – the employees – pay 5% of their wages into the system.

State and local governments poured $ 293.5 million into the system and members contributed $ 68.2 million in fiscal 2019, according to a report to the board in August.

The 36,914 system retirees were paid $ 554.8 million (or an average of 14,758 per year) as of June 30, according to a preliminary report in August from the system actuary Gabriel, Roeder, Smith & Co. The system also included 45,965 active members with an average annual salary of $ 39,213 as of June 30, the actuary reported.

“With retirement [benefits], that’s the only way we have to compete with the employment rate in the market there, ”Sample said. “If you go into the private sector you will be on a 401 (k) [retirement plan]. Here, we are retired, so we ask them to work a little less [in salary] because you had the retirement in their favor. “


In addition to the public employee system, pension agencies include the teachers’ system, the highway employee system, the state police system, the judicial pension system, and the local police and fire department pension system. .

On Tuesday, Warren explained to the audience what would happen as a result of the committee meetings.

“Senator Sample and I will come to an agreement with the [retirement systems] directors and we will do a debriefing of everything that has been reported to us during the 11 meetings, ”he said. “After we have compiled all the different notes, we are going to bring everyone together and we are going to come up with a legislative agenda for 2021.

“We want to go back to the same 11 cities we have been to … talk about the legislative program that we are proposing for 2021 so that everyone knows what we are going to try to do for 2021 and I hope that we will have the support of all. world because you know what we’re trying to do, why we’re trying to do it, and what we’re trying to do is strengthen the plans, “Warren said.

The Co-Chairs decided to hold these meetings to brief members of the pension system on the financial status of the systems and to seek feedback, following the committee’s refusal to approve most of the bills proposed by the trustees of the system. retirement pension for public employees. The bills were aimed at reducing the unfunded liabilities of the system.

During the regular session, the committee meetings were filled with employees who feared what might be approved.

“There have been people who have said, ‘We heard that you are going to combine all the pension plans into one,'” Warren said Tuesday.

“It won’t happen,” he said. “There’s no discussion about it, so if you hear that say somewhere, you can say, ‘We went to a meeting with the pension committee and it’s not in progress. “”

Warren said Arkansas retirement systems are among the 12 states with 70-79% of their liabilities funded by assets, and Arkansas is ranked 21st among 50 states with 76.9% funding. of its liabilities, according to information from the Pew Foundation.

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

“It’s a good sign because we’re in the top half,” Warren said of the state’s ranking. “But the other thing it tells us is that there is room for improvement, so while we are able to be healthy enough, we want to strengthen our programs as long as we can. .

“Our goal as legislators is to make sure this program is strong, not just for those of you who are already retired, but for those who are going to retire in five years, for those who are just starting out. to teach or government work. We want these retirement plans to be strong indefinitely. We want to be one of those states … 90[%] 100% funded, ”he said.

Options for pension systems to reduce their unfunded liabilities include increasing the rate charged to employers, the rate charged to active members, reducing the cost of benefits and / or establishing strong returns on investment. The expected rate of return on the investments of the Public Employees Retirement System is 7.15% per annum.

The system’s liabilities were 79% funded, with $ 8.4 billion in assets and $ 10.6 billion in liabilities at the end of fiscal 2018, Baird said Tuesday.

That’s above the national median of 72% funding, he said. The system’s unfunded liabilities are expected to be repaid within 26 years.

In an interview, Montalvo had other savings suggestions for lawmakers in addition to increasing the vesting period for members.

She said lawmakers might consider changing the compound cost-of-living adjustment of 3% for future retirees; and basing the final average salary used in the calculation of benefits on the five best paid years of an employee rather than the three best paid years.

In January, system administrators proposed a legislative package that included the ill-fated proposal on changing the cost-of-living adjustment. Another failed proposal would have gradually increased the share of salary that active members pay into the system from 5% to 6%.

Other failed proposals would have affected newly hired members, increasing the period for calculating final average pay and reducing the multiplier, both used in calculating benefits.


Kevin Simpson, chairman of the Arkansas State Fraternal Order of Police, on Tuesday urged lawmakers to change the law to allow members of the public employee system to elect certain board members.

Members of the Arkansas Teacher Retirement System and the Arkansas State Highway Employee Retirement System can elect board members, Simpson noted.

“I can tell you as a legislator that this is something that is on our radar,” Warren said.

Under state law, the governor appoints three state employees and three non-state employees to the board of directors of the public employee pension system. In addition, three other directors are the Chief Financial Officer, the Treasurer and the State Auditor.

These agencies have members chosen for their boards of directors:

• Eleven of the 15 administrators of the teachers’ pension system.

• Three of the seven administrators of the road workers network.

• Two for the seven-member board of the state police system.

• Five members of the Judicial Pension System Board of Directors are appointed by the Arkansas Judicial Council.

When asked about the public employee retirement system, Sample said in an interview: “I think we’ll probably be a board of 11 with several of them elected by the membership.

“Now that’s just my idea. I’m just a member and it has to go through the Legislature,” he said. “The governor isn’t going to like this either.”

Last month, Republican Gov. Asa Hutchinson said: “The current appointment process has worked well for decades and I am convinced that changes are not necessary.”

Photo by the Arkansas Secretary of State
Sample invoice

Photo by Cary Jenkins
Representative Les Warren and Charles Hiett

SundayMonday 10/11/2019


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