Please stay with me this post may be a little long. There are some concerns that we will be merging retirement systems of the state. But that is simply not what these meetings are about. I hate it when people tell half truths and faslehoods about what is being done. I prefer for all the facts to be told.
Our goal is to ensure that every retirement system member, (APERS, State Police, Judges, etc) every retiree and every beneficiary of a deceased retiree receives every dollar they have been promised for their work. There are NO PLANS and I know of no plans for bills to be introduced by any person to merge the retirement systems. I would oppose such a move if it is tried. If anybody says different, it is a lie and there is no other name to call it. What we do not know is what happens to your retirement benefits when the stock market crashes. Using all seven of the June 30 2017 retirement systems’ reports, (the 2018 reports are not out) We added up all of our actuarially determined liabilities. That comes to $71 Billion. We added up all of the fair market assets of all of the systems. That came to right at $50 Billion. then added up how much of our assets were in equities, that is, the stock market, and it came to about 50%.
A heartbeat, a breath, a profit-taking, a storm, anything can cause a market crash. Then what? I don’t know, but there is a way to find out.
Right now, all of the retirement systems are doing well with their investments, 8-14% returns for year ending June 30 2018. That’s great. And our trustees of each of the systems are making good decisions. I have no criticism of their investment strategy. All of our systems were doing well prior to 2008-2009 and the market crashed. It affected all of our retirement systems. Ten years or so later, none of them have fully recovered. The market will crash again. Today, next year, whenever. Then what happens? We need to know. And this is what next week’s meeting is all about. Opening our eyes to the inevitability that will happen, sooner or later. There are seven state-sponsored retirement systems. If the smaller five crashed, the taxpayers could probably come up with enough money to keep them solvent in the short term. The two largest, we are not so sure. This is why we are looking first at the two largest.
Unfunded pension liabilities are a problem for about 45 of the 50 states. There are dozens of universities, companies, and non-profit organizations, (e.g.Boston College, U of Michigan, Pew, Reason, Brookings, Moody’s, Fitch, Standard and Poor’s, U of Ark (F), Bellweather, National Conference of State Legislators, Harvard, Heritage, George Mason U., etc.) that rank Arkansas’s systems collectively in the middle, 23-27th place. We’ve been reading their reports for 2 1/2 years, from the left, right, center, libertarian, pro-employee, pro-taxpayer, pro-employer. I am not in the habit of believing everything I read or am told, but all of the analysts are saying the same thing, “Stress Test your systems.” It is a requirement, by law, for banks now. The Governmental Accounting Standards Board (GASB) a non-governmental organization that enacts rules that governs accounting and actuarial practices by our professional advisors, is crafting a requirement for stress-testing starting next year or the year after. This is the “what happens if” tests to be employed. This is what we are doing: looking deep into where we were, where we are, and where we are going based on current numbers, current assumptions (like, how long you and your spouse will live and draw a check, what will the inflation rate be, what will the stock market do tomorrow, etc.)
The Legislature is not going to run the systems, but we will exercise oversight, we will ask questions, and we may get answers that are not comfortable to hear. That’s what I was elected to do. Again, our goal is to ensure that every member, retiree, and beneficiary receives every dollar promised.