 So, what some of you probably know, most of you probably know that I have spent more time with Chris Roup this summer and fall than I have with my family. And it has, while it has been very enjoyable. It is time that we go our separate ways for a while that we Chris has been the person from JFO, who has been dogging our pension reform I think it's act 75 from last year is what it was. And I will say, we are, I believe, very lucky that Chris left to the state of Pennsylvania Pittsburgh in particular right. One of those piece to come to Vermont and he has been a valuable addition to this conversation. And then, oh, the most many of you out there in the that either world out there probably don't know what the conversation is. It's around the pensions and our pension system for state employees and retired and teachers, public school teachers so that's the conversation we have and Beth Pierce has also the Beth our treasure has worked really hard on this issue. Not just this year, but for many years in the past and we're very grateful for her wise input and her recommendations to us so I just wanted to acknowledge them and how grateful we are and what we're going to do today is look at the 2101. Because even though last year I think Chris did a introduction for us in the Senate. That was a long time ago. And I think that it's really important that we as all as a committee understand what our pension systems are, but they're not the healthcare systems that go along with that the where we are right now how we got there and some of the things that we need to do and think about to go forward. We will have a bill. I can't tell you exactly when we will have that bill, but we will have a bill and. But I think before that it's really important that we all have the basic understanding of our systems and what why why we're even here why we passed act 75 last year and why we're here now. Before I turn it over to Chris and Beth, I want to also acknowledge the valuable input and work done by NEA and the VSEA, they are part of the task force and have been working all along, trying to help solve this issue to save the system for their members. So I want to acknowledge their their input also. So with that do we have any questions technically or anything before we get started and then I'll just turn it over to Chris. And I thought that today we would just have the kind of 101 and not necessarily take any testimony or anything because we don't actually have the bill yet. So we'll just learn about where we are and what we need to do does that make sense to everybody. Yes. Okay, great. Okay, so with that Chris. Madam chair for the record Chris group joint fiscal office. It's a pleasure to see you all though I'm unfortunately we're not in person, we are remote. It has been a pleasure to spend a lot of time with Senator white throughout the task force process, even though we're dealing with such a sticky issue and it's also if I could just take a minute of personal privilege it's been. It's really a treat to work closely with Treasurer Pierce and her team. You know, she she's brought so much expertise to this conversation. Her partnerships been invaluable and as a member of the retirement system, I'm very grateful for her stewardship so thank you for what you and your team have done on these issues. So, with that, I am going to share my screen and my goal is to just run through a couple high level slides, and then we can open it up for some questions but then Treasurer Pierce can get a little bit more into the details and the specifics. So, how do you want to do this do you want to run through them first and because you'll probably answer many of our questions as you go through them, and then ask questions later. Yeah, I don't have a problem if you want to shout out a question as we go. Feel free to interrupt but can everybody see my screens or my slides okay on their screen. Yep. Excellent. Okay, so before we start let's just have a little refresher on some key terms that you're going to hear us talk about today, and throughout the session as the recommendations materializing so you'll hear this term a deck thrown around a lot. It's an actuarially determined employer contribution. That's the amount of money that the actuaries recommend that the employer the state pays into the system every year to fully fund the normal cost, plus make a payment toward the unfunded liability. How we pay that unfunded liability off is through a process called amortization which is a fancy word for saying that this is a way that you pay off a balance of a debt with interest through regular payments. And the payments that we make on our system's amortize their unfunded liabilities on a closed 30 year period that ran from the beginning of 2009 to the end of fiscal 38. And the payments that we make on our amortization are structured to grow in 3% increments in future years to roughly track the growth in the budget over time. Those payments are structured to get you to 100% funded by the end of the amortization period. When you hear this term normal costs thrown around normal cost is the amount of the present value of future retirement benefits that were earned by the active workforce each year. So every year as the system operates the system shed some liabilities as it pays out benefits to people who are already retired and also accumulate some new liabilities that are earned by the workers of today who are earning a pension benefit that they'll get in the future. So that normal costs sort of represents that amount of the liability that grows every year just through the natural course of the workforce continuing to earn benefits. You want to make sure that normal cost is funded to make sure you don't have an unfunded liability. You'll hear that term OPEB OPEB is a fancy word for other post employment benefits benefits other than pensions in Vermont and in most other places OPEB refers to subsidized retiree health benefits. The unfunded liability is really the difference between the cost of the retirement benefits that have been earned by the active and retired workforce and the assets that are available to pay for those benefits. And when you see the acronyms vSERS and vSTERS we're just talking about the state or the teachers retirement systems that the T for teacher is the key way to distinguish the plans. So let's start with a quick overview of some history. Prior to the great recession both pension systems were in a much stronger financial position than they are today. This is not unique to Vermont. This has happened in state pension systems across the country. But since the great recession right around 2008 2009, you see that those liabilities have grown faster than the assets have grown, and that gap between those lines represents the unfunded liability. That's the shortfall between the liabilities and the assets you have and over time that gap has grown. The ADAC has also grown to keep up with the fact that the unfunded liability has grown, and that basically means that the pension costs being paid by the state the employer pension costs have grown pretty significantly. So you could see that, you know, back in 2009, you know, the state employee ADAC was 25.9 million and the teacher was 37.1. Those numbers, you know, have now grown to 125.9 for the state and 205.2 for the teacher system next year. So that's a compound annual growth rate of 12.1 and 13%, respectively, obviously growing at a higher rate than overall revenues or the size of the budget has grown. The employer has excessively funded the ADAC in the current amortization period. So cumulatively from FY09 at the start of the amortization period through last year, the ADACs have been overfunded by 87 million for the state and $60 million for the teachers. But despite that, the funded ratios have continued to decline. And as a quick refresher, the VCERS ADAC is funded through a payroll charge on the funds of state government that employ the active members. So in the current fiscal year, that payroll charge is 19.5%. There's a total 25.5% rate assessed on the payrolls and six of that goes to the OPEB, 19.5 goes to the pension. The cost doesn't show up in a discrete line item in the big bill. Instead, this cost is embedded in the appropriations to all the fund, to all the departments that employ the active workforce. So about 40% of the cost falls on the general fund. The rest of it falls on special funds, federal funds, the T fund, all in proportion to how much they support the active payroll. The teacher system operates a little differently. Here you do make a direct appropriation in the big bill. The small cost piece of the ADAC is funded by the education fund and the unfunded liability payment is funded by the general fund. And a small portion of both of those costs are paid by the local education agencies on federally funded staff. From FY21 to FY22, as you recall from last session, what really prompted all this conversation, the ADACs increased pretty significantly for both systems. By $36 million for visas and about 64 for the teachers. And this is really due to changes in plan assumptions. The demographic assumptions were revised for both systems and a lower assumed rate of return was adopted. So, like many pension plans nationwide, from lowered it to assumed rate of return from 7.5 to 7%. And 7% were in line with most of the major pension systems out there nationwide that were surveyed by NASRA. But in a status quo situation, when all these actuarial assumptions are moving forward, you can expect the ADACs will increase at approximately 3% a year until FY2038 when combined they would be over $500 million. And then drop down pretty significantly upon the systems reaching fully funded. Once there's no unfunded liability to amortize, the employer would just have to pay the employer share of the normal cost every year, the amount of the normal cost that's not fully funded by the employee contributions. But it's important to remember that unfunded liabilities commonly occur, even when the ADACs are fully funded and everybody does the right thing. You just always will have some variation between your experience and your assumptions from year to year. So it's not realistic to expect to never have another unfunded liability after FY38. So that's just something to keep in mind that unfunded liabilities happen. They're inherent in defined benefit systems. They're not necessarily a cause for alarm, as long as you can afford to amortize those unfunded liabilities, and that they're trending in the right direction. At the start of the amortization period, let's just take a second here and understand why these unfunded liabilities grew so much. Back at the start of the amortization period, the visa system had an unfunded liability of $87 million, but at the end of last fiscal year, that shortfall had grown to $1.06 billion. Why did it grow? It wasn't due to one situation or one factor. It's due to a variety of things. The actuarial assumptions changed. So the assumed rate of return is lower in recognition of the fact that we're in a lower interest rate environment and the future outlooks for the investment markets are a little less optimistic than they were in the past. Demographics were also revised, no revised mortality tables and things of that nature. We've had salary experience deviating from assumptions. Investment performance has deviated from assumptions and that I'll get into that in another slide, but that's mostly due to the fact that the Great Recession happened during the current amortization period. And we've had mortality and retirement experience that have just deviated from what we thought would happen. So the payments into the system, you know, even though we've made more and more, you know, greater increasing payments every year, and members have been making their contributions. Those payments into the system have largely treaded water with the accumulation of the normal cost and the interest on the balance of the normal cost and unfunded liability. Only about $45.6 million of the unfunded liability has actually been paid down through contributions into the system, but more of the principal will be paid down in future years. It's kind of like thinking about your mortgage or your student loan where your early payments almost entirely go to interest, and over time more and more of your payment goes to the principal. Similar issue is at play here in the pension amortization. It's really important to remember that the underfunding by the employer did not cause this growth and unfunded liabilities, because remember the ADAC was actually overfunded by the employer cumulatively, and the visa system was fully funded as recently as the end of FY07. So what we've seen here is really a combination of our assumptions have changed, and we've had deviations in our experience where, you know, what we thought would happen just hasn't quite matched up with the reality. So you need to make those adjustments. Again, this is not unique to Vermont systems. Adjusting your assumptions is the small C conservative the prudent thing to do. You want to make sure you have realistic assumptions, but whenever you have more conservative assumptions, it can often result in higher pension costs. This chart here just shows you how the how the unfunded liability grew over time. You can see that it didn't all accumulate all at once. It's just every year you've seen a little bit more losses build up over time. Again that FY20 block that 225 million, that big jump was due to those changes in in assumptions that we discussed earlier in the session that's there, your new demographic assumptions and your lower assumed rate of return. Now let's take a look at the teachers real quick. One of the information period, the teacher pension system had an unfunded liability a little higher than the state 379.5 million. At the end of FY21, this had grown to just shy of $2 billion. So that's significantly larger than the unfunded liability for the state employees. What happened here was a similar story you've had changes to your actual aerial assumptions. Investment performance deviating from your from your assumptions particularly due to the great recession with the teachers net turnover and retirement experience were a really really big contributing factor to your experience losses and what this means is, we had fewer people leaving earlier in their career for reasons other than retirement than we assumed. And more people staying later in their career until retirement than we had assumed. So, how the workforce behaves relative to your assumptions can add costs to the pension system. And there's also legacy OPEB funding practices on the state side before 2015, the state paid the OPEB costs the subsidized healthcare out of the corpus of the pension fund that practice stopped in 2015. They paid $138 million to the unfunded liability during the current amortization period, which even though the ADAC was fully funded in the current amortization period. This had a similar effect of a contribution shortfall. One other important thing that distinguishes the teacher system from the state system is there was a greater deal of legacy employer underfunding of the ADAC pre 2007. From 2009 to 2006, the ADAC was underfunded all but four years by the state. Much of that cost has been made up subsequently because when you underfund the ADAC in one year, you know, future ADACs will go up. So that captures some of that lost revenue that was made earlier. But still, that legacy underfunding is a contributing factor to why you started this amortization period with a $379 million sort of opening balance to address. And the treasurer can get into this a little more when she speaks, but she did some estimates for the task force that quantified that the impact, the combined impact of that legacy underfunding and the prior OPEB funding practices are responsible for about $28 million that the ADAC costs were paying and about $353 million of that unfunded liability. So, you know, the impact was significant. It was still less than a fifth of sort of the problem we're looking at now. But it is important to note that the reason we saw those really big increases last year from year to year wasn't due to employer underfunding it was really due to the fact that we changed our assumptions. I'll start here for the teachers that I showed for the state employees just showing how over time that balance of unfunded liability has accumulated a little bit more and more. And that really big 378.8 million block you see at FY 20 is the result of those changes to assumptions that happened a year ago. I want to have more details about how to unpack these numbers from year to year and what specifically contributed what amount every year. I have two slides at the end of my slide deck that I'm not going to dwell on today, but you can go through on your own time and see just like, alright in 2012 what impact did net turnover have on the unfunded liability and you can see that number right there. But these are just the totals that roll up for everything. Let's talk a minute about investment performance virtually all of the investment experience losses that the systems have have experienced are due to the impacts of the Great Recession. There have been some smaller actual gains and losses in the most recent decade, but those were mostly offset by unusually strong gains in FY 2021. The systems did have a very, very strong return last year 24.62 was the preliminary return across the VPIC portfolio, but we still have not fully dug out of the hole, caused by that Great Recession. And when you hear me talk about experience losses or you see a you see a number here that's above the line here. That doesn't mean that we went to market and lost you know $20 million in any given year. This is all relative to the assumption. So if the assumption was we would get 7% return and we got a little less than 7% that shows up as an actuarial loss it doesn't necessarily mean you went and actually lost assets it means you did a little worse or a little better than you assumed you would. This chart here just shows you a sense of what the market value investment return has been over time. So you have a sense of how volatile those returns have been from year to year and compares the market value to the actuarial value. When we figure out how much money we need to pay into the pension systems, the pension systems do something called smoothing of their and of their investment performance. So it would be almost impossible for you all to accurately budget for ADAC expenses. If those costs could vary from year to year, as drastically as your investment performance can vary from year to year. So the way we get around that is we take those market gains and losses and recognize that over a period of time roughly a five year period. So you saw a really, really, really strong investment performance in 2021, but we're only recognized a small piece of that in the math this year. The lion's share of those gains are going to be recognized in the math in future years that if you see those, those black lines and those black bars you can see how much smoother they look from year to year and less volatile that reflects the impact of the smoothing. I just wanted to save page space so I didn't add a similar chart for the teacher system, but you would see a very similar trend with minor fluctuations for them. Let's talk a minute about demographics. Both pension systems have seen a very significant increase in the number of people receiving benefit payments out of the system versus the number of active members who are currently employed and making contributions into the system. Both systems now have more non active members than active members and the size of the active workforce is not increased we call this dynamic a maturing of the pension system. This is not unique to Vermont large cohorts of baby boomers have retired since the Great Recession, and our investment performance or investment portfolio was kind of battered at the same time so there's been sort of this double whammy where we have this big hole that we needed to find a way to dig out of. But we also have more and more members drawing benefits out of the system. Now, you know the pension systems are designed to pay out benefits you know that the normal cost calculation. The actuaries model what they think retirement behavior will be so there's enough money there to pay those benefits. But whenever you have more and more cash being paid out of the system for benefits, it makes it harder to increase your assets through investment growth alone. It makes it harder to dig out of that hole, because you have less ability to have compound investment gains. When more of your money is going out the gate and can't just keep growing through investments. This can lead to some higher risk of higher employer pension costs, and some greater concern for liquidity, which can then lead to less tolerance for investment risk, which obviously you know if you have a system that's very very mature and their funding ratio gets too low, you know you might you might end up in a position where you, you have to, you know, prioritize liquidity which means maybe you don't get as strong of a return on things that that have a liquidity, an illiquidity premium attached to them. Let's talk real quick about OPEB. OPEB is subsidized retiree health care and that's another very significant source of the state's retirement liabilities. Now unlike the pensions we don't, we have very minimal pre funding of our OPEB benefits we pay them on a pay as you go basis. So as the bill comes due to pay for the health premiums of today's retirees, they're paid for out of general appropriations for the most you know if we were to pre fund OPEB like we do with the pensions that would save tax dollars long term because you're using investment gains over time to fund those future benefit costs. However, pre funding does require, you know a commitment for several decades of increased expenditures above that pay go level in order to build up a head of you know ahead of steam and enough assets to invest over time. Pre funding alone though if the legislature were to adopt a pre funding strategy into statute and adhere to that strategy through regular increased payments at the recommended levels that in and of itself would cut the states unfunded long term liabilities by more than $1.6 billion. It's due to the ability to use a 7% discount rate on our liabilities instead of the 2.2% rate that the accounting rules require us to use in the absence of pre funding. So if the legislature can get to a position where it can commit it can afford to commit to a pre funding of OPEB, it will see a very very significant drop in the in the state's long term liabilities on its balance sheet. Let's talk real quick about the latest on actuarial valuations you know when we are having these conversations last spring, all of our numbers were on FY 20 numbers. Since then we have FY 21 numbers they come out in the fall when they do the annual actuarial valuations so it might it might be a good refresher just to give you a sense of what's changed in the last year. And as I mentioned, you know, thanks to the efforts of the pick and the treasurer's office, the pension funds at a very very strong investment year last year, but most of that benefit is not going to be recognized in the math until future years because of the smoothing. We did see the asset to grow faster than the liabilities which is a good thing, but the unfunded liabilities grew slightly in dollar terms, but the funded ratios also improved slightly. And we did see some actuarial losses, you know, anybody paying attention to the news has seen what the consumer price index has been doing lately. That has led to higher than expected cost of living adjustments and higher than expected retirement volumes have also happened. We've also seen a little bit of what we call negative amortization occurring last year due to timing reasons that negative amortization happens when the payments you're making into the system. And this is really offset the growth in the liabilities from the normal cost and the interest accruing. And this is due to a timing issue because there's a two year lag between when the valuations are done, and when the ADAC payment is made. So we saw the unfunded liability and the normal cost grow during FY 21, but our payment made an FY 21 was based on the FY 19 pre assumption change valuations. So this is going to resolve itself in future years when the payments catch up with with the higher but it was a factor in growing the unfunded liability just a little bit this year. Overall, the future pension costs are expected to be relatively close to what we thought they would be a year ago, slightly higher but relatively close. So for both systems, we saw the liability accrued liabilities continue to grow but as I mentioned, the assets grew faster than the liabilities. So the very strong investment year erased deferred market losses that we had from prior years and created deferred market gains that will be recognized in the actuarial math in future years due to the smoothing. So most of the benefit of that strong investment year is going to be realized in the next few years. So when you see these numbers here the market value of assets, that shows what the value of the assets are at a point in time the exchange value of it. But the actuarial value of assets reflects what that the impact of that smoothing and that's what we use for the funding calculations. When the actuarial value is larger than the market value, that means you have deferred losses that will be recognized in future years. A year ago, we had deferred losses. Now the actuarial value is less than the market value which means we have deferred gains. So we went from having a bit of a headwind to now a little bit of a tailwind. I mentioned the investment rate of return both funds at very strong market returns in FY 21. And, you know, a year ago we had $180 million combined of deferred losses that hadn't been recognized. Now we have combined deferred gains of $440 million to be recognized. If all else is equal and if all of your actuarial assumptions are moving forward, the funded ratio will expect to continue growing as more and more of those market gains are recognized in the actuarial math. But you know, all else is rarely ever equal. The market will always have some gains and some losses and, you know, I think it's very unrealistic to expect that FY 22's investment performance is going to be the same as it was in FY 21, just based on how the market has been performing for the first six months. So, we saw the unfunded liabilities increased slightly for both systems in dollar terms but not in relative terms. Again, that's because the liability, both the assets and the liabilities grew but the assets grew a little bit faster. So that led to the funded ratios showing some modest improvement. But again, that year over year change in the funded ratio is relatively small just due to the smoothing of the investment gains. Most of that benefit has not been recognized yet in the math. Both systems saw significant actuarial gains from the investment performance, but those gains were offset by some other actuarial losses. So on this chart, if you show a positive number, a positive number is something that added to the unfunded liability and a negative number is something that took away or reduced the unfunded liability. So the expected increases or reductions, you know, those gains there of 12 million and 29 million dollars that reflects your negative amortization. But if you take a look down at the COLA experience, up to this point, COLA experience had been a little bit lower than assumptions and had been a source of actuarial gains. This past year, the COLA being higher than assumptions led to some losses. We also had retirement experience being leading to higher losses than assumed. So overall, the visa system saw net experience losses of 11.2 million, and the teacher system saw some net experience gain of 12.1 million when you add all of these factors together. So the ADAC has projected from last year to the present year, the ADAC is projected to grow slightly more than the previously assumed 3% rate, but nowhere near the magnitude of the year over year increase we saw a year ago. Combined, the FY23 ADACs will be $5.3 million higher than what was expected in the prior valuation. And that's due mostly to the slightly larger unfunded liability balance to amortize, plus a slightly higher normal cost that reflects the addition of a 40 basis point administrative expense assumption. But you're seeing here that, you know, these costs increased by 4.98%, 4.56%, a far cry from what we saw last year, and not a huge departure from what we would typically expect if all of our assumptions are meant moving forward. So generally, we're not real far off track from where we thought we'd be a year ago. This chart just shows you what the different, what the different valuations mean to the amortization schedule. So those darker bars showed you a year previously what we thought our future amortization payments would be. You can see the lighter bars reflect the latest valuation, just a little bit higher every future year. Cumulatively though, and not adjusting for present value, the amortization payment expenses are projected to increase by a little less than $35 million over the next 15 years or so, compared to the prior valuation. But obviously you divide that by that many years and it doesn't lead to a very large year over year difference. Similar story with the teacher system, only a slightly smaller impact on the future amortization payment schedule, about $20 million of extra cost. And here's just a little chart showing some demographic changes from year over year. You could see that in both systems, the number of active members has declined a little bit. It declined a little bit more on the state side by about 250 members due to some significant vacancies on the state payroll. You can also see that the number of nonactive members. So that would be the total of the retired members and beneficiaries and your deferred vested members who are entitled to a benefit but not yet getting one and not in active service anymore, increased by about 300 members or so on either in both systems. But that ratio of nonactive to actives is now more than one in each system. You know, otherwise we haven't seen some some major changes from year to year, but I just wanted to show you those numbers to give you a sense of that comparison. Can we pause. Oh, that's it. Senator wrong. Well, first question first that last slide. I may have missed this but were you saying that there were more retirements in the past year than a normal year. There weren't necessarily significantly more than than in a normal year on the latest data and the treasure can can speak to this as well because her office tracks the data but the data that I saw as of early October did not show a significant spike in retirement activity in either system. When you take a look at what sort of the recent three year average has been, and you compare what things have been in the last year or so. There hasn't been a large departure what you're seeing here is my graphic trends showing up the workforce, a lot of more senior employees are retiring and leaving the workforce, just due to the broader demographics of the country. I'm seeing that the percentage of active workers you are of the baby boomer generation is dropping pretty substantially, and the percentage of people who are millennials and whatever generation comes after millennials is growing so you're seeing the demographic changes play out here. Okay, okay. Can I ask it a couple other. So, one question would be, I want to make sure I understand at the state level. Is it imprudent or impossible to use other financial instruments to pay down unfunded liability so aside from increasing actual revenue that you direct to unfunded liability. At the municipal level you might use a bond to, you know, stabilize your, your unfunded liability and pay that down and end up costing the taxpayer less is that are those kinds of options closed off to us at the state level are they imprudent. Yeah, that's a great question and I think that I would invite the treasure to respond to this too but you know I pension obligation bonds which I think the example you referred to are extremely risky. The other two propositions they are, if you go on the government and that's not Chris telling you that if you go on the government finance officers association the GFO a website. They have a banner last time I checked it highlighted in yellow and red text saying that they do not recommend pension obligation bonds on what you're doing is basically making an arbitrage bet. Assuming a great deal of timing risk, where if you went to the market and what you're essentially doing is going to the market, borrowing money on a taxable basis, investing that money, and, and basically thinking on the assumption that you're going to do better on your investment performance on that money then you'll pay an interest costs. There are many, many, many examples of this bet not paying out. I don't want to single out my former employer down in Pennsylvania, but let's just say that they did a pension obligation bond in 1999 for over a billion dollars. I think we all know what happened in the market several years after that. And I do not believe that bond has fully been refunded yet. So, this can add a whole other layer of risk to the equation. And I'm sure treasure pierce has some thoughts on that as well if she'd like to weigh in. Okay. So, I don't know if we want Beth to weigh in now or kitchen. Senator Ram Hinsale did you have another question and then I saw Senator column or also unmuted himself. Okay. I'm going to weigh in on that question just a little bit. Sure. So I think that a couple of things. When you look at investments. What they, we have a level of of assume rate of return, but that's not what the investment folks actually, you know, try to try to obtain they don't gear toward that they independently take a look at what type of risk. You know, we have in terms of those investments, and it's, it's, it's kind of a risk return type of equation. What is your appetite for risk. Some systems if you're in a, in a great situation you might be able to have more risk associated with it if you're really in a position, I would say the teachers fund for instance coming out of the great recession. I think it would be in a position where it would take less risk. Why all of them had the same asset allocation right now. You know, there's been some suggestion of tinkering and taking a look at that the muni cash flows are very different than the state and the teachers, where more money is needed to be liquidated to want to pay expenses and both the teacher and the state system, and that's expected, because the idea of doing pre funding is you're going to use investment money down the road to to pay for services and not continue to do the pay go. Otherwise what you would be seeing is the assets grow, and they grow and grow but they're not being used for pensions. So I think that they've had a careful, great approach. The return this year has been very good but it's very volatile either not get to that in a minute pension obligation bonds I would agree with with Chris that it's a really bad idea, particularly if you're underfunded, because you have more risk associated with that. Ironically, if you're a better funded you could take more risk on this in terms of arbitrage in terms of taking a look at it but I wouldn't suggest it for well funded plans either. But I looked at this a few years back and not Pennsylvania Chris but New Jersey did the same thing and they got Robert in 2001 Connecticut, Robert into they did it in 2007 I believe and then 2008 we don't know what happened there and they had a problem. In California, Illinois, have done pension obligation bonds Pennsylvania, and without due respect, those are the folks that we want to follow in terms of what we're doing. I know just why I guess there is a little bit of in terms of the management of this pension obligation bonds are an arbitrage bet. It's not something that we should get into. It's too risky. The other part of that when you mentioned bonds, there's one theory that you should just not have any risk at all. In equities don't put it in private equity as well private debt. You need a diversified portfolio so that when one item that say equities is having a rough time. The, that you your bonds or your private debt might do better. And in the great recession, they all correlated to one they were all together they moved in the same direction, which was a problem. But we stand folks and say just by bond you know where you are bonds are low level of return compared to the equities and private equity. And my comment to that has been, what you're doing is baking in more insurance policy by the taxpayer, because if you're going to get less in terms of overall portfolio, the taxpayers making it up so you have less risk in it, but, but your insurance program is coming from the taxpayers pocketbook. I don't know if that helps with the, the, your answer to this. So, so I think that given the conversation that we just had I think that I'm going to go to Senator column or but I think that we will have. We'll have Tom galanka come in and talk to us about the investment strategy for the state he's the chair of the newly constituted the pick the commission. So we'll have him come in also. I would recommend that you bring in Eric Henry to the CIO. Oh, I'm sure he'll bring him along. Okay. Well, I didn't know if, if we're having multiple able to answer our questions, can I ask or should I, I didn't know if this is the time to ask questions of everyone. Well, we want to make sure that we get through Beth's presentation because her presentation might answer a lot of questions that we have. So, if anybody has a question center column or did you have a question about Chris's presentation. Yes. So knowing full well there's only so much we can probably do to affect the ratio of non member or non active versus active. Is there such a thing as a perfect ratio I'm assuming it would be 1.0. I mean, maybe in a perfect world but are we headed in the right direction or what exactly can we do to affect that ratio. Yeah, that's a really good question. I'm not in the treasure might have an opinion on this to I'm not sure there's a perfect ratio I think that the takeaway here is that pension systems just behave a little differently based on their maturity If you have a brand new pension system, and you don't have a whole lot of a new adence getting benefits out of it. It's easier to have a have and maintain a well, a well funded system. You can to what the treasure was talking about your tolerance for risk. If you have a high like a well funded system with a high funded ratio and not a lot of a new adence drawing benefits out. You probably have a higher tolerance for investment risk than a system that is less well funded that has a greater and greater need to pay out more benefits. I don't think I'm constantly growing the active payroll isn't necessarily the solution because every extra body you add is also adding liability to the system. And, you know, shutting down a system to new hires creates its own challenges as well because you don't have new people paying in to help offset the cost of the benefits that you've already that you're already I'm not sure there's a there's a right or wrong. I think it's something that you need to pay attention to and understand that that how mature your system is and what your ratio of actives to non actives is can influence your risk calculation, the risk of future spikes and employer pension costs, and you know what your tolerance for investment risk is and how likely is it to grow your way out of a whole through investment performance. Thank you Chris. I'm going to suggest, Senator Ram Hinsdale did your question have to do with Chris's presentation, or is it a general kind of question because I'm going to suggest that perhaps treasure pierces presentation will make will go into the weeds and answer some of the questions that we might have and then and then we can open it up and remember this isn't the only day we'll be doing this. We've been doing this for many, many, many, many days and I know that some of this is really in the weeds, but that's where we've got to get, because we've got to make decisions. So, does that make sense. Yeah, I wrote my questions down so. Okay. Okay. Senator Pierce, would you like to thank you very much Chris. So, thank you Chris as well and I wrote down some notes as we're going and hope and I think that will assist in my presentation and appreciate all the work that you have done with our office as well so it's been been a partnership and I appreciate that. So, for the record best pierces state treasure, and I just want to say it's good to see you and looking forward to the day we can meet in person. In the meantime, stay safe that's very important. And I also want to thank you for the opportunity to present on our retirement systems. We've been sending reports to you over the years. And one of my reports I did a collage I think you remember that the various types of reports we've sent to various committees. But I think that trying to focus on it as we are now, this is the learning experience for all of us it says, you need to take action, you need to take a look at this every year, and you need to look at those trends, and make sure you're on the right path. So, leave it with that. I'm going to try to move quickly through the presentation. I've never been known to have small number of slides, but I'm going to try to breeze through some of them, but they're there for your, for your review later on. And Chris has answered some of the questions as we go we tend to have some of the similar types of information because we both think it's important. I'm going to move to page two. I'm hoping someone is actually going to be putting this on the. Do you have the ability to share your screen or Dale can you do it from what's posted. Yeah, my understanding with Gail was going to do that. If not, ask them if you're listening on on YouTube, you just volunteered to get on, but, but it's on our website. It's on the web page and can follow it if they have a separate device so I'm able to follow it here. Next, it might be helpful for folks that are looking joining us and that may not to have it. So, I'm hoping that Gail, are you able to do this. Well, the concern committee is that if I do that, I can't do anything else in my computer. Okay. I can do it in certain instances and if this is one of them. We can go forward with that. Oh, let's ask on or Ashlyn. Yeah, I just don't mean I can do it if you want. Yeah. Okay. Thank you. Thank you. Thank you. And I want to do so and I'm not sure all of you had an opportunity to meet him either remotely. Ashlyn was promoted in our office. He's now the director of financial literacy policy and special projects, taking over some of the work that Dylan was doing Dylan Jean Batista. And also retaining some of the policy work that that she did as well working on the housing report for instance, and other reports so she gets double duty time, but we'll take advantage of that. Oh, and was hired recently are you in this two months now, is that about right. Yeah, I guess about two months. There you go. And he's done a great job and we're lucky to have him. And I always say that I have the best staff in the state. Some of my fellow constitutional offices look at me as I say that, but, but I'm right. What can I say. So if we can move to page two. And sometimes I forget to put page numbers on these things, but this time we remember. So hey, so we have defined benefit plans. I'm going to refer to this DB. We have three plans the municipal system, the state and the vistas program the state teachers, we're going to concentrate on vistas and research today, they're funded by the state. The municipal system is funded. They're all funded by employee contributions but for the purposes of funding, the ADEF, the employer ADEF, the state is responsible for that for vistas and vistas in the municipal system is funded through the, the participating municipal entities. And that includes, by the way, a great number, I think more than half of the of the entities in the municipal system are schools. The non certified teachers the AIDS bus drivers or whoever it might be that participate in that system so that's a very important system to those folks as well. So moving to the second page. We also have two defined contribution plans. One is the state defined contribution plan, which is only available for exempt employees. They have an option of being in the DB or the DC. I'm an exempt employee by definition. I participate in the DB plan because I think it's a better value. At the numbers are pretty small in both cases. And we've seen a decline in the number of new participants picking up the state DC and a real decline in the municipal system to the extent that we need to reassess whether we can continue to afford that because in order to fund with that small economies with the economies of scale not being in balance. We may need to take a look at this something that we've done in municipal presentations. And we're going to find solutions but there are stresses when you have less and less people in a DC plan and have fixed costs. In addition to that. And we have supplemental retirement plans a deferred comp and I know that at least one member of this committee says but I can't invest in it. And there you go. I got a little smile on that a 403 B program which is essentially deferred program for for education public education entities teachers, and it's very similar to deferred comp plan, a slightly investment line up the single deposit investment account SDIA is closed to new entrants it's a program that was done in the 80s when we went down, switching from a trip was a contributory system to a non contributory I'd have to go back and look at the history. And at that time, folks are given an option to put their cash in this system. And many of them did. And it, it's continuing because it's a older folks that are have retired, it's continuing to have some reductions over the years and at some point time we're going to have to look and say, what do we do with that to be buy annuities or what we're going to do. And then we have a municipal retiree health plan. It's, it's not a section. Trying to remember the number 133 plan but it operates very similar to that that you can, that money was put in there by the employer, and that you can draw down on that retirement for eyeglasses or different types of medical expense. They do not have a health care plan in the municipal retirement system. This is one way to try to address it. Now the reason I put this in, in addition to that the Treasurer's Office does invest in other trust funds a higher education trust fund wildlife funds as well as our daily cash position. I can imagine with all the dollars coming to the state. It's pretty pretty hefty at this point. And the reason I'm mentioning this with the division of our office from the pick. We still need to fund these things we still need to administer this, and we still need to evaluate the fun lineup. So when you come to appropriations and you see that I'm asking for an additional staff person to work on these issues. And the reason that it doesn't come cheap to do this, the split as we've, we've done. That was one of the reasons that there was a little bit of weight to see when we get to those economies of scale when we had a larger amount of investments that it's under management that could support it, but we will be making a request to to continue to have the ability to manage these programs. We do have a contract with credential, who's now moving these services to to empower which used to be named Great West which we had is a previous contractor so gets a little crazy in this world but these are great programs when we switch to credential, we lowered our liability, I mean our expenses by 51%, which is a good deal for the members of the systems. I'm going to go back to visas. And I'm just going to probably just the next page please page four. I'm going to go past this rather quickly. I'm just a little history back in 1944 this was created, and some of the numbers in terms of retired members and in active members. I will say that there is no perfect number as Chris said, but our actuaries are. I think about this are saying it. It's a reason to take a look at the system that said it's not in a, in a crisis mode at this point in time. And all and as Chris said, the actuaries build, build into their assessments of in the valuation, the retirement process and what they expect to see there. This is not like so security that does not have that that methodology associated with it. So there is some expectation that this is built into the valuation process in our cash systems while this is an issue, moving in terms of the maturities might might have to be shorter our cash position we've looked at whether or not we would be able to withstand a crisis in terms of not having to liquidate all your assets. This session, you know, was a different type of thing but we can handle that volatility and we, we do an analysis of that every year when I say we, I'm a member of the, the VPET Commission, obviously not the chair. Under VPET I was the committee I was the vice chair. I thought it would be good to help with that division to relinquish that but I'm still, I'm chair of my favorite committee which is ESG environment and social and governance and there's an opportunity to use our funds in our position of constructive engagement to make a difference in things like climate change and worker safety and the like. I'm going to move right past these are the groups. I've seen that before. These are the different groups. Group F is the largest right now if you were looking at this, the big ones are F, over 90% of the workforce. There's a division between those that were hired before and after July 1, 2008. Group C is law enforcement and group D are the judges. Group A and C are systems that were in place some time ago and again now they, the number of folks in that are small and it's reducing over time. Vesters was created in 1947 and I will leave that alone in terms of so we're on page six. Thank you. She's keeping up with me. Thank you. Thank you. And you can take a look at those numbers, the same issue in terms of retired and active and almost everybody is in group C at this point. They changed the system back in the 80s. I'm going to have to check that date. And you had the option to remain there. They created a new system B when they were going back and forth with contributory, non-contributory systems. Those folks moved directly into group C so the vast majority of folks are in group C. I'm going to go over the Vermont model which is the next page. Briefly, this is the model between VPIC and the Treasurer's Office and the retirement. And you see that VPIC is a separate entity created by statute, but they do share in the actuarial services across the board. The board of trustees use the actuary. The pension consultant does as well as the investment commission. The boards of trustees are the ones that approve the actuary and work with them. The bulk of the work is with them with the board in creating the annual valuation and using the census data and moving through that. We do provide, at this point, currently provide some of the services to the investment commission, banking, wire services, financial reporting. So when you look at the states act, they change the name of the annual report. So it's the annual comprehensive financial report. All of the statements, the financial statements for pensions and most of the investments are done by my office. As the VPIC grows and they have more assets under management, it may make sense to have more, and they have economies of scale. They may do more, but right now they're continuing to purchase some services and then we're charging them for those services. They all end up in the retirement buckets of state, the teacher and the municipal system, but it creates more transparency on how much they're actually paying, have in terms of investments under management and their expenses. So we think it's appropriate to have those banking services that they need reflected in the VPIC investment side of the equation. This is the balancing at page nine. This is a normal, if you go to a text on pensions, this is probably right in the first, first couple of pages. And it's basically how pensions work in contributions, both the employer and the employee, plus investment income pay for benefits. And they pay for expenses of the system. And you're doing your just a little bit of algebra there. Contributions equal benefits plus expenses minus investment return. If you do not have sufficient contributions in the system, or you're paying out more benefits than you anticipated over the long term. And again, this is not something that would happen in a year. You have to pay attention to that and make sure that you continue to pay the aid debt, or you could get in a situation where they're no longer sufficient to to pay for expected future benefits. The critical shipping point is when you're not when assets decline, you're out of money, but when governors and legislators are no longer believe that they that the contributions are realistic and give up trying to pay for them. And that's happened in a number of states. I remember one state that that was pleased that they paid one third of the a deck and thought that that was an improvement. That's not a good sign. The next page is kind of fun. When I tried to do here and I took material from Segal. And GRS, which gave a road to Smith, and some of the work they did in Texas and kind of put this together. And we're going to take an example of someone, and this is how it works. Someone just was hired. I'll say she at age 30. And the questions that the actuary would try to assess based on trends that they see and other members of the system other members of that. That group, whether it's a B, excuse me, F or a C or D. What are the members probability of reaching retirement that gets into the termination assumption that's in the list of assumptions where you have gains and losses. When will the person retire that retirement assumption and how much would they the benefits be and that's based on salaries as well plus the formulas and how long would that benefit be paid that's the mortality assumption. So when you look at this, they're making an assessment on each and every person. This is done person by person in each system and then aggregated up to create with that asset. The liability is of the system. And it gets even more complicated because, for instance, that individual at age 30, and they're looking at when they expect that she might retire. There's a, it's broken up. It's not all. So there's a 7% probability she's going to retire at this age of 30% at this point and so on. And every one of those is broken up into a series of probabilities, and then aggregated up. And what you do with that information. You take a look at what the investment earnings will be to pay for those. And you take a look at that projected value of what you're going to need for future benefits. And, and what's the overall payroll that's going to provide contributions what would that a deck look like. And so with the value of assets, the normal cost which Chris talked about earlier, the accrued liabilities, and you go through that process of what, what it's going to look like in terms of your funding percentage. I had here some accurate, accurate real terms. They're very close to, to what Chris said with a little difference in just terminology. The way I try to explain normal cost is if I started today, there's no past service is no that we didn't fund it or the assumptions change. If I started today, how much money would you have to put aside to pay my benefits, when I do retire for the record not not not the immediate future my friends. And, and how much of that you annually have to put in so by the time I reach that probability of retirement, there are sufficient dollars. And that's that's very important that you're looking at this, the actuarial method and we'll talk a little bit more about that when you get to looking at the trends from year to year. The state uses something called entry age normal. When, when pensions were really the retirement pension of disclosures or statements that were promulgated by gas with the government accounting standards board in the 90s, they couldn't make up their mind. What pension method, they would put in there. So they put in six. So you could use one or the other. And in the case of the muni system, they used a hybrid of two, as did believe the MBTA in Boston, those are the only two I've seen with that. And as a consequence, you know, there was apples to oranges in terms of comparing from one state to the next, gas me when they change the rules you hear gas be 67 and 68, and I've done presentations on that. Try to standardize to one method the entry age normal, there are still variations. So I say it's apples to apples, but it might be honey crisps for grannies or empire or my favorite Max Macintosh so you still have that variation, but it's closer. Getting to the point that Chris made as well in 2007 visas had a surplus of approximately $11 million. When you look at the chart, you're going to see a negative brackets around that when we get to that chart. That's called a funding surplus. And that was eaten up rather quickly with the great recession. I'm going to skip over the next chart is pretty much what we've talked about. I'm going to skip over that if you have any questions. Let me know. Page 13. This is, I guess the question for me is, how are we doing. What does it look like and what is the future probabilities because again it's volatile assumptions change gains and losses change, but I want to take a look at it in three pieces one, the next status, which is primarily the valuation process. Is the employer contributing to the plan at the recommended rates. We'll talk a little bit about the teachers there. And is there a plan to retire the unfunded liability. And is it doable. One of the questions that was asked in terms of the current process and what is that the current status of the funds. There are doable amounts going forward as it grows. And that's an important question in terms of the retirement system going forward. I'm going to try to take these each in each segment. And the first one is going to be the longest time. I apologize I will try to stay out of the weeds as much as possible. So if you can go to page 14. The next step of evaluation is to calculate the approved like abilities, the value of those assets, and the calculate the funding status so we talked about all that just a little while ago. And to identify the gains and losses and to review those over time. And I think the review consists of two things one, we talked about is changing the assumptions, and you do that with an experiment study. Did I did I run close to those assumptions or those assumptions are mortality folks are living longer and when you look at the mortality tables created by the Society of Actuaries, they're usually a little bit behind it, then they then they created new tables and now people are not living quite as long as the health tables. So security also has mortality on tables. So you take a look at it, but that's not the only thing that you do with those gains and losses. You take a look at what is in your control to do something about it. You're not going to control the world economy. Vermont is a great place to live but we're not going to change the overall inflation rates across the country. We're not going to change the shortage of labor shortages and the supply chain shortage that we're seeing now, but we do have control over some of the retirement and turnover that's out there. And I'll talk about that in a minute, particularly in the teacher system that's a big piece of it, and looking at what we can do to analyze that and why is that happening. And what can we do around that. So there are things in your control, and there are things that not in your control. You take a look at the assumptions but you take an effort to to say, what can I do about those variations and gains and losses. So, it's a closed system by the way when you do evaluation, you don't look and say how many people I'm going to have next month, a year in the year after that. It's a point in time and a snapshot. We've talked a little bit about this already. The, this is a chart with the last three years of funding percentages based on that formula we talked about, what are your liability, what are your assets, and what is the unfunded liability or that surplus. When you have it. The better liability this year, not because again liabilities grew, as Chris mentioned, but assets grew faster and you had a slight increase in the, to the better, in terms of the unfunded liability, I should say, not an increase in the liability, but an improvement in the liability. And you see that in both systems, as well as a municipal system which is, as you can tell in much better shape than the system. The page 16 just does that year to year. History all the way back to 1997. I'm not going to go through it all, but if you go to 2007, and you see that 123 fourth column over unfunded actuarial liability, the 2007 you see that $11 million right there. The great recession hit this in pieces because you take a look at when the, the, the, the larger amount of actions the women issue the bankruptcy the, the, the other issues that hit this AIG and the like. Most of those occurred in September and then on and those are in fiscal year. Oh, nine. So if you take a look at this, you have some impact in 2008, but the big impacts happened in 2009. And because we smooth assets. A lot of that losses that we had were, were shared over a five year period. Some pension plans that, well, we don't want to incur all those losses. I know one very large one in particular said we're going to change this moving process, and we're going to say 10 years, instead of, instead of five, but that did is that lower the amount of losses you had. It kind of artificially kept the funding percentage higher. But when the game started to come. You didn't get to recognize those faster you know that that the snapback that you started to see in 10 and 11. And some of those pensions actually said well we should go back to the five, five year, you shouldn't be playing with those, those fundamentals to, to make your, your, your picture look better than it is. Chris had this chart ours is a little different and looking at it. And you see the graph. It's moderated a little. You go back to 2000 and in 2008, you see some, some impact there. And this is, I won't do any more on that but this is the growth in asset, I mean, excuse me unfunded liability from year to year. Same chart with the teacher system. And I'm going to stop there I'm not going to go through the next two charts. But we had a big problem here, both systems used a different actuarial method than the entry age normal, which was pretty much 80 similar percent of folks probably Batman used entry age normal. We is something called entry age normal frozen initial liability didn't affect the state plan, because it was well funded again in 2007 had a surplus. But when you were underfunded, and you weren't putting in the dollars or it was a dollars that you needed. This was a big problem. And that artificially kept the, the, the initial liability so back in 1988 they created a liability. And no matter what happened, the liability stayed roughly the same a little alterations from year to year, and everything got thrown to normal costs. And I remember when it was underfunded in 2003 when I first started working for the Treasurer's Office, and I said to my, my predecessor, where do you see what happens next year, and nothing changed. And I went back and took a look at the statute then called our actuary said, Are we actually doing this, the answer was yes. So we worked with the administration and the legislature to change that method. So I tend to use 2007 going forward when I'm looking at things, because some of that 2006 data with that system was not not as accurate, compared to, you know, in terms of what we're doing today. I liked with my predecessor said, if you, if you went to the doctor in the blood pressure machine wasn't working real well. And so you got a good blood pressure, you're, I don't know we're talking about BMI before that everything's off in the calculation. You go home and maybe not everybody in here because you have the discipline, but I might go go home and eat a lemon marine pie or something. And because my numbers were good. One of the problems with the teacher system is because of the underfunding because of the way we paid, didn't pay the ADA. This fill frozen initial liability had a bigger impact. And we're going to skip all the way to 21 page. See I'm making progress here. And if you take a look at the at the chart in the bottom will leave the other one alone for a minute shows that gap. The green is the entry age normal, and you see that the pink or red is the fill method, and it was relatively static. But the reality is that the EAN method is had a dramatic increase in the unfunded liability. So we corrected that Batman. So I tried to use 2007 going forward when I'm looking at this. We talked a little bit about gains and losses already. So I'm going to go to the, the page 23. You have economic ones and again we have very little control over what, what the cost of living in inflation across the country is. So in terms of investment returns, we definitely have some control over that but also the market and the volatility in the market and the trends are part of it, some of it based on inflation. We do have changes in the gains and losses related to demographics. There's some things we can do in terms of that. I don't think because when, when folks were talking about investments and investments is why there was a problem. Take a look at what Segal said assumptions are used to estimate a plan's future benefits and their present value but they do not determine outcomes. And I think that that's very important. It's used to to set your liabilities going forward, but it's not so much what you were set you use for an assumed return that does increase the, the liabilities going forward. And, but what happens is what you actually gain is the thing that makes a or lost is the thing that makes up the difference in this we took big losses in 2008 to 2000 and because of smoothing. I use 2011 because we pretty much got out of the impacts of the great recession on the unfunded. piece of smoothing, and I use that to take a look at the gains and losses as we go forward, and you'll see that in the report. Big one is inflation. This past year, and we predicted that when I talked in front of the task force and inflation affects your interest rate because it's part of the investments that you get in impacts and salary increases. Now it impacts the payroll growth off the GDP, and it impacts the impacts the cola that retirees receive going forward. That was a big change this year you probably saw all the news articles about Social Security and Social Security is paying something in the area 5.9% for cost of living adjustments this year so folks are going to be very happy this month as they get those. We use something called the CPI you northeast actually and it's a urban northeast, and you see that was very, very low, very, very low and this year jumped up to 4.6 a lot of the reasons are the, the labor shortages and again supply chain. Some folks economists will tell you that they think that this is short live. Others are now beginning to see it as a possibility of being longer. I usually throw a joke in here that if you put three economists in the room, you have six opinions. But the, I think that this is a little, it's going to be staying a little bit more and I'm not an economist so it's, we're waiting to see what happens there. But it's a big factor in terms of the gains and losses. Chris went over this. And so I won't take a lot of time on this but I highlighted the cumulative through again 2011 to 2020. I wanted to look at investments without the impact of the great recession how are we doing. And then the valuation of 2021. You see that investments that wiped out the, the good experience wiped out the, the, the, the negative situation in terms of losses that we had in terms of gains and losses. We, we see that that cola was a real, a real good piece of gains in the system. But we saw some of that go the other way in the 2021 valuation again going back to that 4.9% investment. The cola rate and the, the, what was assumed, which is mostly in the area of 2.43 to go to the teachers there's some significant ones here that cola is, is, is a piece that had some change. But if you take a look, investment gains and losses by the way, they're now a game ever so slightly in the teacher system it's ever so slightly gained from 2011 to 2021. There was a chart on page 27 that you'd say 2011 to 2021 on that chart in that last column my apologies there. And it was a slight loss in the state system, you combine them ever so slightly we have a game for that period, beginning in 2011 to the current period. And it was a, is a showstopper for me is page 28. And if you take a look at what drove these, these gains and losses in the state system was salaries, the assumption about salaries and if you go back and look at that. And so this is associated with that salary went up faster than the, the, the, the, the assumption that was in the, in the valuations at that point and again that's been tweaked as part of the experience study. Big issue was workforce turnover and retirement experience. And I think that that that is an even larger issue in the teacher system. I always point this out the retirement incentive program. It was very popular back in 2010. As you're looking at the budget and lowering the operating costs of the budget, but it was predicated on keeping some positions open. I don't have that number in front of me. I think it was 100 150 or about 100 of the 300 or so folks that took advantage of that retirement incentive. And the idea was you're going to keep those open to pay for the change and increase in the, in the retirement system because of those retirements and and lump sum that you're operating. Reductions and your retirement increases would actually be a savings over time didn't work that way. And by the way, Pennsylvania had a real problem with that Chris they really, really messed that one up. Anybody from Pennsylvania besides you Chris, I'd be happy to go over the numbers and there's a great report on how that happened between 2010 and 2014 keep in mind that the idea was to leave positions open to make that work 543 positions were added. Now, I'm not a workforce expert. I can't tell you, my guess is it's a lot of those positions were needed. We had a lot of pressures in terms of the initiatives we were doing, including the health care initiatives. I'm not a person that can answer those questions, I do believe that we need to have a more robust. Look at our workforce and how it's distributed and have a have a conversation about that. We have a lot of data, you know how many people have a degree how many don't how many have been working for X number of years. I think we really need to have a more robust workforce analysis to really get our handle on that in vistas. If you take a look at this. I think retirement and turnover combined. The total of the increase in the in the unfunded liability that total 509 million dollars or 41% of the increase in gains over that over from 2011 to 2021. The higher funding of the health care at that point was about 101 million. Actually, if you go back to 2007 or even back to 2001, it's a larger number combined that's 49.4% of the increase in unfunded liability. And what I would say to you is that health care, the issue of not funding was in our control. That was something we could control. But I look at the teacher retirement and turnover I see a pattern of the beginning around 2010, when we started talking about teacher student ratios and a much more heightened way. And we started to look at reorganization of the schools and the like, and you saw some changes in retirement patterns. A lot of folks thought that the retirement changes that we made or benefit changes we made in 2011 had some impact it did, but nowhere near the levels that folks thought that that would, that would have that impact it was over time to be very frank. So some things are in our control. Some things are not. I really believe that this is where the legislature be folks should be focusing their efforts. What is causing the turnover. What is causing the, the retirements with teachers. COVID is obviously had an impact. What are the other issues that are impacting that talk to the NEA talk to the schools talk to the business administrators and and really get under the hood to see what's driving that because, again, and even not even this year increased from 41 from 39% to 41%. That's a big number when you're looking at this. And same thing in aggregate went up from 47.8 to 49.4. That's something in our control. We need to have a conversation about why that's happening is, and is it a good thing in terms of workforce. Believe me, I doubt that. But what's happening why and what can we do about it. I'm going to go past the page on 29 in the interest of time, but this is very helpful in understanding some of the pressures and turnover. I guess I'm going to say a little bit about the schools have retirement incentives, in some cases, built into their into their contracts, and some of that is driving the, the increase in in unemployment rates. Again, that's something that can be discussed. I think some of those are very good some of those we might need to take a look at. But that's something that getting under the hood as as a legislator and working with your employee groups to find out what's going on with causing these things and have a serious I think you have, but I think that it has to have a little bit different perspective. As, as, as I said, as you try to take that the component pieces of art. I'm going to move to the second thing and how you we are doing and again, the first one was on the long, the long piece. So bear with me on this employer contributions are we contributing at the recommended rate with the ADAC and ADC gas because ADC, I can't say that in a quick pay the ADAC pay the ADAC, I used to say pay the ARC pay the ARC and I know some of you have heard me say that over the years, and that's so important, but it's hard to. So we use the term ADAC as to some of the others. We did something in 2008 that was helpful in terms of the budget. I'm not sure it was the right thing to do Chris talked about in 2009. We were prioritized and did a 30 years out to 2038. The reality is we were closer to the end of the amortization period. We were looking at the, the issues of the great recession and the impact it had on the ADAP. So the idea was to move it out and not take that shorter period and move it out to take some of the pressure off the ADAC. Some of that was probably needed. I think that those types of approaches all they do is kick the thing down the road. And I would caution you, as you're looking at retirement changes that are needed this year, that and I have not, I'm not privy to where you are on all these things, although I'm hearing pieces of it. This is not an answer, it kicks the thing down the road and it's not the answer. The good news is in 2016, we changed that. And we said, and this gets to a point where Chris was talking about how it increased over the years on the ADAP, excuse me, the unfunded liability in the ADAP associated with it. That's because we have it back loaded, and it was back loaded at 5% increments. So you're pushing some of that off down to the, down to the future. Didn't think that that was a very good idea we made a proposal to you folks to move that from 5% to 3% which is closer to the rate of inflation, really work that through with the legislators. And by doing that, and moving that up, we saved the taxpayers $167 million. So taking a look at how you do that amortization that funding, which is under the purview of the legislators, but obviously gets advice from the treasurer's office, the boards. And this was an opportunity, and JFO, this is an opportunity to save some dollars in the process. And, and again, link it closer to the rate of inflation. We talked about this before what's in the ADAP in terms of the normal cost. There's my equation again I had to put it up there. And what's, what's the normal cost? What's the amortization and the unfunded liability? So I'm not going to go through this, this chart. I have a little bit more detail on it, but you'll get that you got the idea already. And so we'll move on. Page 32 comes from the effort, which is the annual financial report. And I took it right out of there because I thought it was neat to see the types of level of detail that are put into that report. And over the last, last eight years in this report, and the reason they only have eight is the changes in GASB that were created in 2014. So that's, that's what they're asking you to put into the financial statements. You see that we actually did pretty well. We're contributing more the excess than what was in the ADAP. And that's darn good. And so happy with that we're in the right direction, but go to the next page, which is the one that we've talked about a lot of times I've brought this up in every presentation I've ever brought to the legislature that our contribution history was not good. It was characterized by significant underfunding, which pushed the unfunded liability up. Chris is right that it did not have anything to do with the 19 to 21 increase. But what it did do, if you go to the next page on page 34, what it did is put that system in a relatively poor shape to withstand the great recession, because it came into that's that recession with lower funding levels. And the pension underfunding was resolved in 2007. I remember, and this is just a personal side of this, when we work with Jim Reardon in the administration, and we had very serious conversations about this, and he worked with the governor to change this in 2007. And I think that I'm very proud of the fact that we were able to work with them collaboratively and work with the General Assembly to get to a point that we were paying the full ADAP. But also the health care was not paid, as Chris pointed out, and frankly, up to, I think, up to 2014 we were not we were paying the health care out of the teacher system, it was called a sub fund, but not appropriating enough dollars. I remember in 2011 there about the health care pay go the premiums were about $24 million, and we paid in that we appropriated $4 million. So that $20 million that came out of this system, which was what was not funded. Again, it's kind of an artificial construct on the ADAP that cost the taxpayer $60 million. And you do that year after year after year. It's a problem. Those two were the biggest issue with the underfunding of the system. I did this analysis, which I presented to the task force, and the, the, the, the, the pay, the spreadsheet was so, so large I was getting busy. So I just kind of put a sample of that in and the methodology, and some folks said well it's a billion dollars and they're probably right adding it. So each year when you do the ADAP, you have a loss because of it. It gets back into the unfunded liability, which is amortized over that period remains in 2038. So you're paying some of them back. Our estimate was that that 353 million dollars as of 2020 of that underfunding exists today. So the underfunding is at least 353 million. And as I pointed out to the task force, I was only able to go back to 2001 for the health care and that health care number in 1990 1991 and so on was still there. We weren't able to capture those dollars out of the old financial system. And we moved to something called vision in 2000 and in two, I believe, and that was quite a curriculum effort but it's, it's now in great shape, but we weren't able to stop my guess is that those numbers would put this thing closer to 400 million and maybe a tad above that. So that's a significant, it's not the billion dollars folks were talking about, but it is 400 million, which is a big piece of the unfunded liability, not all of it, but certainly a piece of it. How are we doing will go to the next piece which is what is the plan to retire the unfunded liability and bottom line, is it doable. And this is a lot in your, your, your neck of the woods. The next three charts page 37 and Gail I love it because you're I'm not always telling you when to change the thing. And in fact, most of the time and you're keeping up with me so that that's an incredible effort, thank you. But you take a look at where we were in the 2000 and 22 budget with the 20 valuation and the fact that we were talking about 604 million dollars between the two systems of increase and unfunded liability. You still have additional dollars that that were associated with the increase in the, in the, in the numbers, and you see that that change is still there. And that's the growth, moderate growth because we change the assumptions, but things like inflation, things like terminations and turnover and retirements had a lot to do with some negative, negative trends going forward and that concerns me and as you're looking at the retirement plans and whatever changes you're making, you need to take a look and say what's in my control mitigate those risks. You have the visas in the restores and you see the, the increase in the ADEC and the increase in the unfunded liability to go out to 2036 2037. The amount of money that you're going to be paying for those unfunded lot of the ADEC is going to be around 500 million, half billion dollars. And that's granted there's inflation in there, but it's still a big hunk of change, because as you know, the, the, the need for services and the state are going to increase as well. And do you get to a point where it's not doable, which is why you're making the changes that you have now. The next steps we wrote a report on the retirement boards, the boards of trustees directed the treasurer's office to take a look at this and write a report and we put some recommendations in. We knew that that was just the start, just like the retirement commission or committee back in 2010 in 2011 that created some recommendations that was a start, you saw some different approaches to those recommendations you saw some different ways to address the unfunded liability, but it started the discussion. And, and we have now started this discussion. At this point, you are the creator and the owner of the solution, you set the amortization period, you pay the ADEC, and you also establish the benefits, obviously with recommendations on the retirement boards, but you folks are the creator of the solution. We're looking forward to where we can, we can work with you. I am really ecstatic that you've been working with the NEA, and the, and the troopers and the law enforcement folks, and the, and the VSEA because then you get buy in, and that's so important. So, we're looking for what you folks are going to be doing with this. It's extraordinarily important to our future. And I, I recognize how difficult this is. The most painful thing I've done is treasure is to write that report. I love writing the clean water report it had a real impact on our, on our natural resources. I loved writing the housing report where we talked about some of the issues of special needs and homelessness. I'm not too happy. Let me rephrase that. I'm devastated by the fact that we had to do that and put that out there, but it did start the conversation. It did bring in and we had four meetings a week with generally two with the NEA to with the VSEA and the troopers, as we were working through this, this issue. We had those conversations, and I'm pleased that the task force and continues those conversations because they're very important. We'll spend a lot of time we're going to page 40. I have to say this, pre-fund the darn OPEP. We're costing ourselves a whole bunch of money. I'm not going to go through the advantages of doing that. And the interest, the bottom line is you're taking compound interest on the monies that you're putting in there for pre-funding, and it makes a heck of a lot of difference. To go to page 42, you see where we are now with the unfunded liabilities, the net OPEP liabilities, what it's called in the official literature, and it is very, very large. If you go to page 43, you see if we pre-funded, what would happen? And by pre-funding, taking advantage of that interest, power of compound interest, the unfunded liability for the state system will go down by 891 million. Now, last year we set a combination of 1.68 billion, but as you saw in the previous chart, we've actually had continued increase in those unfunded liabilities, and you will until such time as we do something about it and go away from pay go into pre-funding. So take a look at the teacher system, and I did it again. The teachers, I have to correct that. You know, you can look at this a dozen times or more and you don't see it. So that should say beasters. And if you take a look at that, by doing this, we would have a big impact. This on the beasters is if the state were to adopt it based on our current policies, and you would get a lift in terms of the impacts. About 40% of that goes to the general fund. So when you're looking at this, about 40% in our calculation is in the other funds, transportation, human services funds. About 23% of what we put in there is reimbursed by the federal government. So when you're looking at the cost of this, keep those things in mind. If you go to the next page, let me do one more thing there. On our current policy, if we didn't fund this thing, you would need a funding need of 122 million this year. Incluses with 42 million that we had in pay go. If you were to do this on a pre-funding, it would be 64.6 million. And again, 40% of that would approve to the general fund. And we also have the proposal to want to put the normal cost of that into the, into the ad fund for beasters as well. And as you see, it would have an 837 million dollar impact in terms of pre-funding. One thing I do want to make clear, we use 2.2 for the interest with not pre-funding last year. It's required to use the 20-year double-a bond as published by the bond buyer in other organizations. So a double-a, 20-year tax exempt bond, essentially a municipal bond. That will change from year to year. So if our interest rates and inflation continue, you're probably going to have a little less gap between them because that, that contract that adds to the, to the issue. So a few years back in 2016, something happened in November of 16. And that had an impact on the inflation rates. And then the next year and with the other directions. So it's very volatile. If you continue to do it on a pay go basis. And again, it grew from the 1.68. We have two methods for the beasters pre-funding. I've sent, I can't even tell you how many proposals based on these to the legislature since 2019. We've been working on this issue since 2014. But starting in 2019, we sent a graduated funding scale, which is option number one on this page to the General Assembly multiple times in the years. It needs to happen either that or the second one, which is a very, I want to compliment the Appropriations Committee and its chair, Representative, Senator Kitchell, that coming up with this model where you pay the normal cost for pre-funding in the fund and pay the premiums in the, in the, the general fund. And this would all go to the general fund on like these are worried. Again, you'll have those cost allocation around other funds. So bottom line for us, pay these get to pre-funding. It's the benefit for the taxpayers and we do not want to be out there in 10 years saying, how did this happen. Now we have to cut benefits from boys. Let's fix this now. Unlike what we did in pensions, particularly in the teachers system. I'm going to move through investments at the, at the speed of light, I think. Generally speaking, and this is investments why it's important, 60 to 62% of every dollar that we pay retirees comes from investment income. So it's a big part of it, but investments alone cannot solve the problem. Last year we had a great rate, 24.62. I believe that was the highest since the 80s. I was looking at the chart 83, I believe. And that's, that's, that's a great performance. I'm going to go to a chart, not just in a minute, but we do smooth those over time to avoid those peaks and valleys in your budgeting process, the ADEC to smooth that out. And again, we use a five year, which looks to be the normal across the country. This is a system where, you know, we've said we've banked that we've got that extra money for the next four years by, by smoothing it. That would be the best picture. We want that to happen. But what if investments don't meet the 7% in some of those years. Now you're digging into that instead of adding to it. You may have it in the, in the calculation, but it isn't entirely money in the bank with respect to valuations money in the bank with our assets. We invest all those dollars, but it, it's, it's not a good thing to say, well, we've got all that extra money everything's going to be okay. It doesn't work that way. As you saw with the Great Recession, as you saw in 2001, as you saw in back years in the 80s, it doesn't work that way. And we need to be careful that we don't rely on that investment performance, because again investment alone cannot solve the unfunded liability to go to the next chart on page 48. Look at that volatility now the orange by the way is the is the assume greater return over time beginning I believe on 1983 on this report, and you see that we had a very good year I think it's actually 82. And we're we've exceeded the 83 that is the 26.4 I think is what I said the other page I just wrote over at my comments. As you see where it beats the 25.2 and it's right up there with that, that 1983 mark, but it's volatile, you look at and it's more volatile. Now, that was in the past, I got a little box in the corner, and significant market events, the 1980s historically high interest rates, you invested in the CD for long term the next month you probably regretted it because the interest rates went up. The stock market stock market crash in 1987. The 90s and 91 with the recession, the dot com crash. The great recession obviously you know European sovereign debt crisis as well. The China driven international equity drawdown in 2015 brexit. You know, none of us thought that would actually happen, but it did. And a lot of regret from that. A lot of these happened in the month of June. So you're feeling pretty good in 2014 we're at 14 some odd percent. And when we got to May, and the and the fed created this thing called tapering. Okay, and it's called the taper tantrum tapering is a fed's policy. Tatum was a tatum tape. I'm going to get stuck in that word for the rest of the day. But the tantrum was the market reaction to that and if you look at the chart. We did pretty. We still we met our rate of return. But you didn't have that same belt that you could have had it without that tantrum that happened in May and continued into June. A lot of the events happened for a lot of reasons and that that time period. So we're feeling great and then we say what happened. You need to be careful investments of volatile and as time has gone on they've become even more volatile. Again, you should be talking to Tom about some of this and vitamin. I've got two more pages here. Folks talk about our assumption and it is in line with the national average. This came from Nazra in May of 2021. I haven't updated it since, but the average was 7.13 and the medium was seven and we're at seven. And you can see the count by the, the number of systems that they, they get data for reporting purposes. And the smoothing period is about five years and I think I might have left that out of the presentation. But it's about five years, the average across the country. Some systems go up as high as 5.3 and the average depending on the type. You have some folks that are outliers, but we think that we're right on target with that smoothing period and extending it as folks did in 2008 to to be very candid masked the crisis. It's not not the kind of thing that we do in Vermont and I'm proud of that the fiscal discipline that we have this last page is about banking that or as I said that you can't you shouldn't think it as banking and I just said the word, but it's about the money that you have that we receive through good investments in this year, but is is deferred into into the remainder of this smoothing period, but be careful. Go back to that chart on page 48, if you would mind. Look at that. You can have really good returns take a look what happened you know in the 97 98, you know, 22% and then you're down. Okay. This happens, and you need to be very careful to say that this is going to solve our problem. It is not because there's a reversion to the means that happens in investments. So that is my presentation. Ah, and I thought I found that screening page. I'll put it in the final report, and I'll be happy to take any questions up to the chair. I'll have some time on this and it's Friday and people probably want to go home pretty soon. Well I think that I would like if people have questions of clarification on the on the both of the reports that were given to us. Remember, we, we don't have any kind of a report from the task force yet so in terms of talking about solutions we're not at that point. So if there are questions of somebody start to say something. Okay, if there are questions of clarification for either Beth or Chris I think that's very appropriate because we really do need to understand what we're dealing with here. So, I know, Senator, Ron Hincell you had a couple questions before I don't know if they got answered in this, or if they produced more questions. Well, I mean now now you'll you'll know what I was like in grad school because I feel like I just took more than a 101 level class on on pensions ending with reversion to the means so I feel like I have a lot of questions I can I can stop at any point or someone can say, you know this is this can be answered later or it's just more of a question. It's more of a what I didn't get that of a policy question then a clarifying question or for another day. If you'd like. Yeah, I wouldn't ask policy questions at this point because until we have something to address here we really don't aren't talking about policy but clarification questions. Absolutely. Okay. So, so number one I was just trying to understand what, what the term is for when you make the policy decision to fund above the ADEC you don't have unfunded liability so if you have unfunded liability you're paying the unfunded liability but does the state ever is that pre funding, when you say, you know, let's go above the ADEC because, you know, we think that would help us pre fund or sort of prepare for any whenever depart above the ADEC. So pre funding is the term for what we're doing now you're putting the ADEC and you're putting more than the money that theoretically is going out for for retirement. Now, if you get closer to the, to the 2008, you're expecting, with someone setting committee I can't believe it we're eating up the investment money the principal, you're supposed to use that, otherwise you just do the premiums. Pre funding is, is the term used for that. I do want to go back and say when you're underfunded, as we are that eating into the investments is not a good thing. But mature plans you will see that. And I saw something about the S&P 500 and the number of folks that had similar situations. This is when you're at pre funding that's a problem. Putting more money in when you're, when you're reached your 100 is a good thing. There's also ways of you might want to take a look at walking in some of that money, so that you don't have the volatility when you get to that 100. I worked for a town that was someplace in the, my memory on this is this was 1997 when I left the town that was someplace around 120 some odd to 130% funded. Then they stopped putting money into the pension system. It's in really good shape. We're going to put that in health care. And they actually pre funded health care before it was a requirement. We were at something in the area of 42 40% pre pre funding when we look at these things that we're talking about now. That's that was incredible and I know of only one other entity, besides that town, they did that. But what happened is they stopped putting money in. Okay, they said, well, you know, and they said budgets are tight. We're going to not put in all that money this time. Okay. And as a consequence, their, their funded position is very similar to ours in both systems, and they're looking at a pension obligation bond. So that from my, my, my look at it is you need to put in at least and putting a little over is not a bad thing. It means that you're going to have some gains. And it means that, you know, you will be having some reductions to the, to the amortization table going forward. But I think that that's a good policy, building that up for rough times, because again, the teacher system was state system was at a minor surplus one one. I believe it was 1.8 I have to go back to the table, but it wasn't a big one, but immediately with the great recession so it doesn't hurt to be really overfunded. Now, on the other hand, you don't want to be so far overfunded that you're eating into taxpayer dollars that you could use someplace else, but you want to be healthy and you want to have a plan moving forward that protects the pension plan. As I said, take same one great shape we're going to put less in is not not a way to do that. And a healthy plan by the, this is the, the government accountability, the GAO said a healthy plan is 80% and in the society of actuaries that I'm not quite they push back on that what they said is 80% is a good place to be. But you want to be at 100, and you don't want to plan that did what this town did with said, I'm going to go down, I mean I'm not going to put some money in because I can, I can take a little risk there. And they got corroborate and not in the great recession is as did everyone else. So, what they're saying is you should 80% is a good place to be. You've got decent cash flow from that, but you also have a plan to improve on it to continue to move forward to have fiscal discipline and not well 80% is great and now I'm going to decline the 79, 78, 75 and sometime you're at 65. And if you look at some of our dollars, based on those gains and losses we've had some of that decline, not just the great recession, but decline since then in terms of our own funded liability. You know, you asked the question, and sort of like you asked, you know where's the light switch and I gave you the principles of electricity but you know it, if you have, I hope that helped. I think Chris has a response. I agree with everything the treasure just said I think what what I would going back to your question Senator I think you would refer to that as sort of like an alternative funding policy, where if there's a if there's a commitment to do sort of something in addition to the city of Philadelphia had an alternative funding policy in place for example because if you've got an open amortization system like we had down there and a bad funding ratio, it's real hard to make progress if you're only paying the ADAC. But the only other thing I would add is, you know, the the Gatsby rules in the math typically point you to getting to 100% funded, but systems typically don't stay at 100% funded for long when they reach there. You know, there are always going to be economic cycles that influence things, and decisions often get made that end up leading to higher pension costs in the future, because people think they can afford it. So going back 20 years ago in Pennsylvania, when the the economy was booming, you know, assumed rates of return were much higher, people are getting double digit returns consistently for 20 years. The legislature passed a retroactive benefit increase that was very substantial and then stopped paying the ADAC, and then the systems went from 100% funded to 60% funded. And at times you might think you can afford to make a decision at that point in time, only to see that the sort of the actual cost of the benefit turns out to be a lot more than you thought it was at the time you made those decisions. So that is a cautionary note I would flag that that can happen with with systems that have significantly more than 100% funding. That's called past service costs. When you when you turn, you go back and you say we're going to give you a benefit that you haven't funded over time. And that that does wreak havoc with systems. A lot of folks did that during that period. And a lot of folks did what this town did which is stop putting money in. They are things that good the economy is great. And they're in that same range of 60 some odd percent, but we actually exercise a fair amount of discipline on that when things were good. We didn't look out and say we're going to give big benefit increases because of that and I think that that's one of the pluses in terms of a fiscal discipline that we've seen here. I know about Philadelphia is not situation. I do know that the state had had didn't have a good record of of paying the ADEC. Yeah, that's what that's what the state did and Philadelphia did the pension obligation bond so I think there's cautionary tales in both the city and the state. So I would like actually to see if any of the other committee members have some questions, because I know you have a lot of them, Senator on instill but I would like if any of the other committee have clarification questions on on any of this. I guess everybody understands it very well. Ready, we're ready for the test on Monday. Actually, there, there probably will be when we actually get to the task force recommendations there will be a test that will be the test. I just, I, if I may, Madam Chair, I just want to say how much I appreciate the honing of Chris's. I mean having listened to the best reports now for years on this and and Chris is there, they just have gotten better and better and I think you know by the time this has been repeated this often we're all it's all beginning to filter in and we're all beginning to to get it some, you know, have lived with it all summer but it's you've just done a great job these reports are just better and clearer and more distilled into lay language is great. Thank you. Thanks. So, if nobody else has a questions and around hence you'll give another one. So you started to mention, you know, other communities and their decisions and it, it just gave me the impression that sort of the shorter term someone's thinking is or the less experienced they have with the ups and downs of the cycles. Maybe the less equipped they are to make these decisions over time and are there states that have done more than have a body that recommends to the legislature have they divested the legislature of the kind of decision making power around this in favor of something that keeps a more long term vision and approach to the decision. We're talking about the decisions of investments. Yeah, we don't, we don't have anything to do with investments. That's VP, we VP, we do nothing with investments. Maybe I'm using investment in the wrong way but how much we decide and decide to fund the ADAC right those are policy decisions we've made. That comes from the actuary. And then, yes, but it has to go into the budget so it is a, it is a policy decision because we, we fund it. So, somebody tells us how much we need to fund. And then we have to determine if that's the amount we fund, or if we fund less, or if we fund more. But somebody couldn't put it in our budget. Senator, if I may respond to that, a couple of things. If you take a look at the chart again on underfunding of the teacher system historically that will moves that were in our control. There are there are three things in particular that you folks have the decision making which is why I say you are the owner and creator of the creator and the owner of the solution. And that is that you are responsible for the funding policy, which is the amortization period. And so that's within the, the, the purview of the legislature. The second is the, the funding of the ADAC. And that's something that's part of your job. And sometimes we do it very well, and we have done it very, very well over the last several years. Not so much back in the, the 90s, for instance, and which was very unfortunate. The second one is the benefits. You set the benefits for now you get recommendations from our office you get recommendations from the, from the retirement boards and you hear a testimony from us. But ultimately, you set the benefits. So when you look at that you set the benefits you set the funding policy, and you set the amount of contribution that's going to be appropriated for it. So you have a great deal of responsibility that goes with that and a great deal of influence on the on the process. And again, that's why I say you're the creator and the owner of the solution going forward right now. So I'm going to go to Senator Clarkson and then Chris. I'd like to know how many states. I mean, your last thing is, you know, get to work pre funding. How many states do pre fund. And any, and I guess the second part of that question is as we look at other states and I know everybody's different but I know everybody has the same challenge. What state do you think is doing the best job planning and moving and take and and solving their this huge problem so I guess the first question is who pre funds and actually is able has done that. And then who's who's what's the best model so far for solving this huge challenge that every state is facing. Can I throw something in here before we get Beth and Chris to answer. So when we talk about, and I may be wrong here but we when we talk about just pre funding, what we need to remember is that there are really four buckets that we're looking at We're looking at the teachers pension system looking at the teachers OPEB. We're looking at the state employees pension and the state employees OPEB. They really are for four different buckets. And so if we're talking about pre funding we need to be clear about what it is we're pre funding. Not just pre funding. Yeah. So if I may, you're, you're pre funding the retirement systems that you're putting money in there over and above what would have been required just to pay the bill so to speak at least at the front end. And again, over time as a system which is, you use that interest. So both systems are pre funded, despite the fact that they're not so pre funded isn't when you get to 100. That's that's your, that's your percentage of pre funding, but you have a policy in place to pay that down in that amortization policy. And by the way, again, when we work with the legislature and recommended sort of back loading this thing back to 5% and move it to 3% and $67 million is is not chump change that was very important, something that you did the systems that are not pre funded or the teacher system I mean the teacher OPEB and the state OPEB. And when we change it, and we go to, and I'm hoping you do. This is something that's near and dear to to both the retirement boards and the treasurer's office in the retirement division, and all the employees, all of the employees that have health care. We talk all the time about health care being a right and I absolutely agree. If we end up with the solution because we don't refund that, you know that we have to stop giving health care to new employees or some horrible thing like that. You know, it's exactly opposite of the perspective that each almost each one of you have in terms of our future and the need for health care. And when you do that when you start pre funding, you're not going to be at 100% that day, you're going to be at a lower percent and grow that as you as you continue to pre fund the system. And, as I said, you know, you have to have discipline that town was in the 40s in terms of pre funding. And now it's not well because they use that money that they put aside for for pay go instead of investing it. You can look if you take those steps this year, we will be pre funding that doesn't mean we're at 100%. Right, it'll take us X number of years to get to 100% or maybe never, or maybe, maybe never you know getting to Chris's point that we have ups and downs in terms of our gains and losses, and the plan right now. We used option one for the teachers system and the amortization period is you're going to get to pre funding someplace in, I mean 100%. If everything went as you expected, and nothing happens as you expected, but you try to control again things are in our control, taking a look at health care experience, taking a look at health care experience. We reduce the cost of teacher health care this year by someplace between depending on what plan you're in 30 to 40%. That helps that that lower the under unfunded liability by 775 80% and that will improve as we change some have some less transition costs as we move to that. That was in our control, and that helped us keep the liability is manageable. There are things that you can do. But the bottom line for me is that if we don't move to this, we will be in the same position several years ago, several years in the future and say, how did we get to this. It's 2042 or something like that 49 I don't have it in front of me, but it's a long way away, but discipline now makes that happen and discipline now. When we talk to the rating agencies, the points we get in our rating agency, you know, we have trouble with, you know, the workforce and things along that line. But when we do something about pension liabilities, we do something about OPEB, that showed the fiscal discipline we get that now we have a lot of good sense of how we budget, you may say, Oh, no, we didn't do this we did this. That was, that was a idea that I don't agree with. But overall when you look at what we do as a state forward thinking in our fiscal discipline. We get through this year. It's what's that going to do the questions that you're asking today. Those are those are great questions, and it shows that you care about the future. And that's so important. And this is next step with that. And I will tell you that this will have an impact with the rating agencies, getting back to the point like more and more states are doing this. And some of those are an incremental moves. So are towns when I looked at the policy that we created for the for the ratcheting up to that policy number one for the teachers. I got that from a town I do. My memory is fading at the moment but I think it was new Britain, Connecticut, and I took a look at theirs and called the actuarial and said does this work. And after a couple of back and forth discussions, they said yes. So there are ways to get to it there are towns. I don't know and Chris you might know this I believe in the, in the. I would say recent past when we were doing these things in in the town I work for I'm trying not to say the names of things I believe Ohio at that point was one of the early ones that were doing some type of free funding. And I believe some folks in Alaska war, but there are clearly. And I will tell you that Alaska's made some mistakes in my mind about how they're handling the retirement systems. But there are growing number of states and municipalities that are doing this. I don't have it handy, but I can provide you that. Another thing I would add to what the treasurer said is that the gas be accounting rules changed a few years back that added a lot more transparency requirements around the disclosure of opab liabilities. And that put a lot more focus on opab than it typically had in the past. So, these benefits had not historically been pre funded to the extent that pension benefits had been, but more and more states are moving in that direction, since, you know, the rules require you to discount your accrued liabilities, using a blended rate tied to the 20 year double a municipal bond market if you're not pre funding, and with rates being as low as they have been. There are really increased liabilities on people's balance sheets. So that is drawn a lot more attention to the need to refund opab. But yeah, the treasurer is exactly right one of the, one of the things we really get dinged on as a state is, we have really really high long term liabilities relative to the size of our economy. So if you want to look at states that are that have really, really well funded systems and are doing things right. You know, I would suggest looking at some of the triple a rated states out there, particularly states that have, you know, a grown a lot in the last few decades. It's obviously really hard to do an apples to apples comparison that way. But when somebody always asked me how do we compare to other states, I typically look through two lenses I look at our New England peers, and I look at the triple a rated states, you know, you want to look at how our neighbors are doing because we have a lot of similar traits and characteristics, but you also want to look at how does the group of people that we aspire to be, what are they doing. And the only other thing I want to add back to the senator Ron Hinsdale's question, what around the sort of governance and decision making is, I just wanted to mention that you all set up a system here in Vermont that makes a lot of sense about how the plans are governed, where you know you've got labor and management, making the decisions about with the fiduciary responsibility over the pension systems, and you don't have a lot of people at that table who have a two year plot horizon. There are states out there and systems out there that have very politician heavy trustee boards, and that may or may not always lend to decision making that is in the best fiduciary interest of the plan participants, sometimes other considerations can seep into the decision making process so I think you all actually have set up a system that makes a lot of sense, and has has the right the right decision makers at the right tables. Thanks. If I can follow up one more time on that gas be 6768 or the pension ones, promulgated by by the government accounting stand book and 74 and 75 to the open. They make it clear in their in their process that these are accounting rules, they are not funding rules, but Chris is right because that's there, the rating agencies and we got away from, you know, the, the apples to oranges and again we have apples to grannies and Macintosh and some of that. But there's clearer direction or clearer comparative data. We actually in CDAC the capital debt affordability committee, look at our peers, and we aspire to be AAA. And so, and I will tell you that pensions as a function of the economics of the state in the lower workforce was a was a big part of where we lost the ratings, but we, we do aspire to that in a few years ago we put some pension sections in there. Now there's one state that has great economy that has a lot of federal dollars coming into it. And their pension numbers aren't that great, but they're still AAA, because they have all the other factors that make make you a feel good investors that that rating is about what investors want to feel in terms of security about making an investment with a with a municipality whether it's a state or or or a minute for town or city, and it's does get impacted several. I'll do it. I think it was two years ago, April. Senator McConnell said, you know, it's okay if municipalities default. Okay, you know, that's not what we're here to take care of it they're on their own. The next day, the rates for municipal bonds went sky high, because investors got scared and said, you know, I need to have more rate or interest to compensate me for the risk that I'm taking the market stabilized after that. But some of the things at the Fed level, whether it's the Fed, the Federal Reserve or whether it's the administration, or whether it's Congress do have an impact on those rates, and that's unfortunate. When I talked about things that aren't in your control, ours is the economy, not so much with those folks they actually have some impact on that. But because it has more transparency with the new standards and because we're now talking about comparative numbers apples to apples. You're seeing folks react to that and making the changes and I can think of a number of towns that are doing the funding of OPEB as well as a few states that come to mind I know there are more, and we'll get that information for you. I'm going to make a suggestion here I think that the, we, the conversation. We need to have clearly have more conversation on this and we might hear from Tom Galanca about their investment strategy we we have nothing to do with investment, but we can hear from them what their investment strategy is and how they approach it and then. Senator Clarkson. No, but I just, you know, we did good work I think on the governance piece I mean we made, we have impact in terms of helping decide who's part of the governance team and I think I really feel good about that work that we did with the VP. You know, yeah, that was good. And thank you Chris and Beth for thinking that was good work. And what I'm going to suggest is that we take this topic up again next Friday. As Senator Polina will remember a few years ago every Friday we seemed like maybe six or seven years ago every Friday we did cannabis. We didn't talk, right, and we didn't do cannabis we talked about cannabis. And that was every Friday and so I'm going to suggest that next Friday we all we look at pensions again the whole system. If there are. We have potentially Chris and Beth come back I know that Chris is torn between many committees and will try to make good use of his time if he can join us on Friday. And, and at that point, if there is a report from the task force will hear will also hear the report from the task force. Does that continue this conversation next Friday does that make sense committee. Yes, and then don't forget the the days we had committed to law enforcement that every Thursday was law enforcement you've had that you have a pattern of dedicating agenda days to specific topics which I'm kind of and I are very clear. I just, because I think that we will have more questions and some of those questions that might be answered by going back and looking at the slides that were given to us today. Some of them will, looking at the slides might provoke more questions. So we might have more questions but so Senator plan I saw you unmuted yourself. No, I was just going to say yes to the Friday afternoons. And, and hopefully we won't need a ton of Friday afternoons. But I'm suggesting that we schedule next Friday afternoon. Well, do we have any idea when the report might come out. And ballpark. We have a, we have there's a task force meeting on Monday. And we are hopeful that it will not be too much longer after Monday. I know that we are very far behind here, but because I think the report was due on December 2 or something. And the issues going back and forth and back and forth and I have to say that the task force has been working really hard and working together. So, I don't know if you know who's on the task force but the task force consists of Mike paycheck representing the administration, Michael class and who's the deputy treasure as a non voting member but participating a lot with information. And two members from the VSE a Eric Davis and Leona what, and one member from the troopers association Dan trottier, and three members from the NEA cake McCam, Andrew Eric, and Molly Stoner, and then three house members. John, John, and Peter Fagan and two Senate members myself and Corey parent. So that group has been working meeting every week until mid December and continues to meet so we're hoping. I wasn't rushing I was just curious. Yeah, it's a tough issue, but there's a lot to understand. And we need to make sure we get it right. So, does that make sense can. Yeah, we gather next Friday at one o'clock and continue this discussion. Yes. Great. Okay. Madam chair before you you call it a day. The, we're not calling it a day we have another bill to do. There you go. But the, the V pick commission has a consultant report that's due and I believe that they're they're expecting to. I just did my review but I'm a member of the commission, as have others. I believe they're looking to get that out on Monday or Tuesday. So my good, really helpful to get those folks in and tell you where they're at and what's going on. It's a very good report. And it wasn't we'll wait to July 1 and see what's happening. We're making changes as we can moving forward. And already you see some of the changes and it's a great report. And so I would recommend getting those folks in earlier. We, I will ask Tom about that. And then also I, and I don't know if you paid attention the other day when, because act 75 also set up a pension oversight committee, so that this doesn't happen again, so that there will be a committee and oversight that is really focused laser focused on the whole pension system so that we don't get ourselves in this mess over and over they will be looking at it on the off session and the members of that are Corey parent. Jane Kitchell. And, oh my God. I don't know if the house is appointed there's yet. No, the third senator. I didn't write them down unfortunately. I believe it's Cheryl Hooker. That's what I thought it was Cheryl Hooker but I wasn't sure I think it is yeah. So. Okay, so. Again, Madam Chair, when we, we had a report due and to the, to the, the, the group there the oversight. And at that point it had not been constituted in any way. Right. So we sent a report to the, to the Senate pro tem and to the, to the, to the speaker. So we met our deadline. Good. Okay. All right. So, thank you. Thank you. Yes, I'm going to give this to you. I'm so glad to see this. Thank you. I'm so glad to see this, but I'm too excited to talk to you. I just want to thank you. Yeah. Thank you, trustee. And I'm just glad to see this. The I saw you have the, the. You know, And I'm so glad to see this, because I'm. That's great. And I would like to, I want to thank you for this. Oh, thank you. Thank you. Yeah, thank you. Thank you. He has a three 30 commitment, I think. Okay. But Chris, can Chris join us? Chris can join us. And I'll see if will can join us because he was here as well. Oh, I didn't see that will was here. Okay. Great. So. Thank you, Beth. Have a good weekend, Beth. So I'm sure do you want to take a short break while I bring everybody back together.