 Good afternoon. You are with the Vermont House government operations committee. We are gathering here on Tuesday to finish the second half of what had been on our agenda for Friday, but we had not had the chance to get to because of an extended floor session. And so what just a little recap for where we are so that we can sort of bracket this conversation. We had an opportunity to hear responses and reactions to the, the governance proposal that we put on the table last week and we also started our testimony on hearing responses to the plan design proposals and so this is part two of of individuals giving testimony to respond to the plan design changes that were put on the table last week. And just to remind folks who are following along at home these this was just a first, a first effort at opening up a conversation about whether the benefit structure should be looked at as part of the solution for why we are seeing such an increase in our unfunded liability in our pension system. We've got some folks who are with us today who were very patient on Friday and didn't get a chance to talk with us. And so I think I'll go first to Beth Pierce. There she is. Hi Beth. I thought I was someone else was in front of me on the on the schedule my apologies so well first I want to say thank you very much for the opportunity to speak with you about it and this was a serious effort, and I want to say thank you for all the good work. It obviously is something that when we did our recommendations we did so with a great deal of reluctance and I know that you share in that recognizing that these are painful. But there is a real need to move forward and to move forward this year. I saw the, the recommendations at the same time others did last week, and we are looking at how it looks in relationship to our plan. But ultimately, it's now in the General Assembly's court and we're trying to look at those recommendations as you move forward and and appreciate the opportunity to listen to the to the public hearings thus far. I have a couple of points as I said we're still trying to digest some of the material but the first is that in the presentation it stated with respect to prefunding OPEB, and I, and the quote was to the greatest extent possible. And my comment there would be that we need to commit to this now, especially since the next bullet in the presentation makes the case for prefunding. So it said before 10 years from now we do not want to have another how did we get here a conversation. So we believe that they're prioritizing the funding of both OPEB's other post employment benefits primarily healthcare is very, very important as we move forward. And it's, it's fairly straightforward and we would recommend that immediate steps can be taken to to get that done. And that is with respect to the implementation data or the effective data the changes and that's not in the presentation but I did want to make a statement on that. Our office has stated to employees that they should have time to review their options. You know we've gotten no questions and and on these changes and what we said is, frankly, there is no proposal that has been finalized it's still in discussion. And we would expect and we would advocate for sufficient time for folks to review their options. And I know that that there's anxiety already with the proposals and the, and the recommendations either from your from my office and, and those in your your package, but into it's obviously it's there's anxiety and that's, you know, to state the obvious there, but we don't need to add to it by leaving out leaving questions about when the changes will take place. And I assume that the, and I assume that the General Assembly has the same position that employees need to have sufficient lead time to assess their to assess their personal needs and impacts and make the make informed decisions. And I would urge you to to get that statement out there as as quickly as possible. The third point I would make is on revenues I was pleased to see that the new revenues were included. And from what I can see from the presentation. It seems like it could be applied to any of the two retirement systems or the two remaining buckets the so called buckets the to have funds and looking for how that all sugar is off at the end. The presentation it said that that $50 million invested today would grow to 153 million by 2038 based on the current amortization table, and if it grows at at 7% are are assumed at your real rate of return. And I took a look back. And in 2018, we made a similar recommendation. We, we worked with the General Assembly and they, they created a proposal and actually backed it with appropriations I believe it might have been in a budget adjustment but effective effective for 2020 that essentially put $26.2 million of additional funds in the concept was the same that you would calculate the ADEC is if those funds were not included so essentially you're earning interest on those dollars. And our calculation at the time was that doing this would would generate another $78 million. It seems to be very close in terms of, you know, on a one to one ratio with what you would jfo has in its presentation. And that was in fact done. The jet for the first year the ADEC recommendation included that, and that was included in the 2020 budget, however, in 2021 that that approach which was continued to be read was recommended by the trustee board was not included in the 2017 budget request nor was it restored by the General Assembly. So we had one year of a plan and and move back to I guess status quo subsequent to that so I don't think we want to go down that path again so if there is a clear earmarking of those and if that is in fact the intent to to generate additional revenues and instead of further bringing down the ADEC pass with your other recommendations have. And I want to clarify that with you folks I think that you should have language in there to essentially walk that in. My fourth point would be with respect to the other fact that on page 17 of the package it says preliminary estimates do not factor in the impact of additional employee contributions and I see that, and then later on increases to the maximum benefit cap of 1% for each year of the year is work beyond the current maximums. And it is correct and it said it would generate slightly lower savings for both systems. And I would, it's hard to gauge that. But I think there is enough data and I would recommend taking steps to to get a handle on that cost impact. It may be more significant than than the word slightly so I think that's something we should take a look at, or you should take a look at in terms of our actuaries we would be happy to do that. That those are the areas that that we've seen in terms of our initial look through this as you further fine tune the proposal or make revisions we would be pleased to continue to work with you on that. Again, I want to say thank you I know this is difficult. None of us want to be in this position, but fiduciaries and fiduciaries to the members of the system. And we have an obligation to want to continue this work as hard as it is it will create retirement security again not for this generation only, but for the next generation the next generation after that. And we owe it to future generations of retirees to have a system in place that does provide for retirement security and as hard as these decisions are. It is an effort to make sure that we continue to to have security going forward and I appreciate the efforts that you folks have made. It's a serious effort. It's a significant effort. It's a difficult process. It's a difficult decisions that you have going forward, but I commend you for doing it. Thank you, Treasurer Pierce. Tonya V. Hovsky. Thank you madam chair and thank you Treasurer Pierce I am wondering what assets are on hand in the pension fund right now. Little over $5 billion. Depending on what the market does in any given day. Yes, I recognize it's a moving target and what is the payout each year that we need to account for and so what I'm kind of getting at is, is this fund in danger of being insolvent in the next year. I do not have the payouts in front of me but the answer is no, it is not in danger of being insolvent in the next year. Great thank you. Rob LeClaire. Thank you madam chair. Good afternoon there madam treasurer I have a couple of questions one can you tell me how much a month we're adding to this unfunded liability number. Do you would you have a ballpark number. That status quo. You only we only do evaluations on an annual basis so on an annual basis you can see the gains and losses in terms of its impact on the unfunded liability. But you would not have an interim measurement for instance on how mortality was was going from months to months. And we do, as a result of the annual valuation have an impact year to year and that's included in in my reports on a year to year basis, as well as in the aggregate. And I don't see a way that we can tell you in the middle of a, you know, in one month with the mortality gains and losses would be for instance or the demographic. And so I guess along with that logic that I, forgive me if I get but did this this unfunded liability increased by almost like 100, 100 million are ADAC payments gone up 100 million year to year over year correct. This year is a $96 million increase over the, the, the 2020. 2020 is a an increase of 96 million over the previous year. Okay, and then so what did the unfunded liability part go up. Well, let me get to one of my charts if you can bear with me for just a minute. So I have the vistas in front of me. In 2019, the unfunded liability was 55.7. The unfunded liability in in 2020 is 51.3 spent on a steady decline. And so if you took a look back pre recession it was 80.9 dropped rather precipitously with the recession down into the into the 60s and low 60s and that's that's forgive me but that's percentage funded correct. What does that translate into real dollars. So the unfunded liability in 2011 for instance was 845 million dollars and it is now 1.9 billion dollars $1,933 million. Okay, so I'm just some big numbers there so we're are we like 300 million or more increase in that number from year to year. Well, the increase will differ from year to year depending on what particular year friend that you're using here madam treasure. So let me again we're using the teachers so let me so in 2000 and let me just do some numbers here so in 2013. The unfunded liability was roughly $1 billion $1 billion 013. The next year went up $1 billion 076 so you see the difference there. So what are we talking 60 some odd million dollars $63 million the next year went up to $1 billion 175 then $1 billion to then it pick up a pretty big jump from 16 to 17 from 1.2 to 1.5 billion to 18 in that range 1.5 the next year 1.1 billion 513 the year after that $1 billion 554 and now it's a jump of of from 1.5 to 1.933. Okay, so I mean it sounds like we're conservatively we're looking at at least 100 million plus a year that just continues to increase correct and just what I'm trying to get at here is for every month that we wait where we're talking. What eight to $10 million that hypothetically we could be adding to this number. Well, sure it will vary by year for instance when you take a look at 13 to 14. The difference is roughly 63 million that year. The next year you you see 175 versus 225 so you know you've you've got a 50 million other years it's more significant other years it's less so it will vary by year to year, but you are correct. So the longer you delay action, you increase those unfunded liabilities, if they do not have a benefit plan in in place, you, you would be increasing those on those liabilities on a present basis and then in terms of your future benefits as well, or your future liabilities. Very good. Thank you madam treasure. Thank you madam chair and thank you best for testifying this afternoon. You probably heard, I think you listened to some of our public testimony on Friday evening and yesterday evening. A lot of people calling for us to study this for for a year. What are your comments with respect to us, not doing anything in the session, and just studying it and do you think a study, a study would accomplish anything. Well, let me go back a few years in 2019. We produced the first risk assessment of the of the plan. That was based on going to get in the weeds for a minute I can't help myself it was based on actuals actuarial standard of practice. 51 ASAP 51, which recommended to retirement boards and plans and mandated that the actuaries take a look at risk. We did not just a preliminary look we took an extensive look we we put together a package which members of this committee, as well as members of the communications committee were attended represent again and you are a frequent and very committed member in attendance of that and I want to say thank you. And we started looking at the issues and I believe in November of of that year we put together a throw that throw out ideas and how we're going to to reduce the liabilities and and went around the room in that room. The second had members of the administration, trustee board members. So I'm looking and I'm seeing that members that the people are testifying today were part of that process. We had my office, we had the actuaries, we had a pretty big group, and we went around the room and what ideas we could have to to be out there to lower the light, the liabilities and put it on a better track. And the result of that was that well we need to take more time. Now I will point out that COVID also was there and but we, we didn't get there and and delayed from that were now in a more precarious situation, and I would suggest the time for delay is over, and that we need to get this done. I remember having frequent conversations with then speaker Johnson and and the members of the of the employee groups as well as members of the various committees about the need to get this done and trying to move that before that session ended, and we were not successful. I think that the longer you put this off the the more critical the situation gets number one and and you you don't have the will to do it back in 19. You don't have the will to do it in in 21. I don't know where you think you're going to get the will to do it in 22 and 23. And sort of a follow up question to that, you know, our funded ratio stand at 66.4% for these are the service and 51.3% for these terms. Is there a point where those funding ratios that they continue to decline becomes very problematic. Yeah, and I think we're pretty close to that. You know, clans that get very low in terms of their of their funding percentage have more pressures in terms of the ADEC and the ability to pay that off off over a period of time. I think Chris might have done a similar analysis that I did I took the normal cost and assume that would increase by three and a half percent for one system and 3% for the other and and just took the existing amortization schedule and put that together. So that means if there are no other losses or gains outside of what we've already had mostly losses in that payroll stays at the same rate that it that it was scheduled to do. And you probably have more more risk to that than than that, you know, being a higher number as opposed to lowering the liabilities and I and I tracked it out for both systems out to 2037. The ADEC, the combined ADEC for both systems will be a half billion dollars. And it could be worse. A half billion dollars is a lot of money. And you know I'm taking a look at other needs that the state has as well. And beyond just the other needs because I think that that's that argument has been used not to fund the ADEC in the past. It's not a path that is sustainable for our members and it puts them in a more precarious state going forward, whether we come up with more draconian donations or and frankly moving to a different system like a DC system defined contribution, which I think would be extremely, extraordinarily injurious to the members, and it would not save the state any money. But I see that as folks taking a look at other types of models that would actually cause more harm to the, to the, to the members of the system and more harm to the state and the taxpayers. And you look at this, it's time to act. It's time to put together a plan that essentially is protecting people in the long run. Thank you. Thank you for all your hard work on this and I mean, these are very difficult decisions to make and your leadership has been incredible. And if I could just follow up on that represent again and all of you are in that same spot right now you're working through some very difficult decisions. It's painful, you know, it's kept me up at night I'm sure it's kept all of you up at night and wish we could be doing something else at this point in time. I commend you for staying with it. This is, this is difficult, and certainly, we've all rather be doing something else but we're doing our jobs by, by, by continuing the course here. Tonya B. Hobsky. Thank you Madam Chair and thank you Treasurer Pierce. I hear, and certainly help me to just understand this but I hear sort of conflicting we're not in danger of becoming insolvent but it is a crisis. And then I question how we got here and if it's not an immediate crisis meaning that we won't be insolvent in the next year, isn't it our job to do our due diligence to build a plan going forward that is truly sustainable and that we truly understand all of the ways that we got here. So for me, and again correct me if I'm missing something it feels really important to take the time to make sure we do this right. Well I would say that we have taken the time and let me go back 2019 we started this process of taking a look to a risk assessment. We've issued a report you folks have respond to that you've created some recommendations. And again I do not see if, if, if we lack the will to get it done now, we lack the will to get it done earlier than then why we would expect that we could change that course down the road. I think that the information is there the actuaries have vetted it. I think that you are in a position to act and I would urge you to act. You know, having money today. This is a little like go and take a look at your home finances. I've got, I've got $10,000 extra in the bank so I'm going to, I'm going to not worry about the fact that I've got all these other bills down the road that I have to pay. And I might use it for something else. Okay, and you might use it for other types of appropriations. You might, your balance sheet's going to look okay. Well actually not your balance sheet if you if you accrue those liabilities, which you should, but you might be looking and saying I can I can I can wait and put this off. And you put yourself in your home budget into into much more precarious situation. So assuming that here we should be dealing with the fact that we have a problem. We need to address it. We've got the inputs you see, we did 40 some odd different scenarios for each system with the actuaries testing out different variables and different types of impacts and increases the results. Your efforts have done similar things you've done a number of of scenario building with the actuaries. Comprehensive risk assessment starting in 2019. I would suggest that the path to do this is there. And again, just because you can pay your bill this month doesn't mean that you should ignore the warning signs and not take care of business now. Mike McCarthy. Thanks, Madam Treasurer for being with us and I, I share some of the sentiments that Representative Gannon expressed. I know how hard it is to bring up some of these really painful ideas about how to solve this problem when I've seen you really care and stick up for workers the entire time you've been involved in Vermont politics and I really thank you and appreciate your expertise and service. The questions I have are about governance in relation to some of the things that we heard during the public hearing we heard again and again, comments to the effect that you know the state has mismanaged pension funds, you know that that we've spent money irresponsibly it hasn't earned enough etc. And I'm just wondering if you can talk a little bit about who is ultimately responsible for making the decisions about how pension fund assets are invested under the current governance model. So we're going to get into governance more tomorrow. I look to the to the chair to let me know if I'm going off subject here. So, there is a Vermont pension investment committee. It has a member from each of the that's appointed by each of the group towards the trustees, and then it has myself and it has a two members appointed by the governor, and then they elected chair, and that chair is a investment expert. And so it's a group of six plus a seventh that's elected by the group. He or she this case he obviously Tom has a small salary compared to what the time that he puts into it's equivalent of one third of what the treasurer receives. The committee makes the decisions it has an it has a investment fiduciary, a investment consultant an independent consultant, not a manager, an individual independent consultant that works as a fiduciary to the, to the committee to assistant, looking at issues of asset allocation which is where you really, it's strategic issues, all the way through to to manager selection. So this is a group of seven. I am a member of it I have one vote. My staff does surprise, provide support to it, including the chief investment officer. And we've been very, very fortunate with our last two to have some very good people in that position. And so that's the governance model that we have. I would say that coming out of the great recession. We, we did pretty well those first few years out of that we are positioned in our portfolio for the most for many of the years, I think that that's a misconception, however, when it missed 15 and 16 in particular, they were pretty significant misses 15 was the, the China meltdown, the, the impact in the, in the month of June on the Shanghai stock exchange. And that really had an impact across all markets, not just obviously Vermont and then 16 was the Brexit, which happened I think the last week of June, which again had had an impact on our end of, end of year numbers. 13, while we were over the, the assumed rate of return. The month of May we were looking, I mean, April we're looking very, very good. We ended up I think someplace around eight I'm doing this off the top of my head so if will has will will crew out from my staff is on if you've got a I guess what I would say, Treasurer Pierce is that I'm less concerned with the specifics and more about how it how it works so that we can, we can, it can help guide our decision making it and so I think there was an impression among many of the people we've heard from that they don't have representation that they don't have a say. And I guess my question would be, you know, how could employees whether they're in the state system or educators in the teacher system. How can they make an impact on how investment decisions are made under the current model a who speaks for them. The trustee boards have you employee representation, and they are, they appoint members to the VP so all three boards have a member on the VP. The, the governor has to them myself and then we pick a chair so they do have representation, the meetings are public. Certainly, we'd be happy to to receive any information that folks want to provide us. And they're encouraged to come to, to our, to our meetings, we, but ultimately the the VP makes those decisions with the, the idea of maximizing risk. I mean, excuse me, my apologies, maximizing return with acceptable levels of risk, and that's done through an asset allocation process, and what's an asset liability process so I think that it's professionally managed, but it has input from the, from the trustee boards, the other representatives. So, Trevor appears my last question is, when each year, whether, whether or not the rate of return or the experience is what the pick and the boards agreed it would be the contributions of employees into the system aren't changed through that process. You know, the, the VP doesn't control that. And that the only input the legislature really has at that point is to approve the ADEC amount that that bill that we get for covering the costs plus what we need in order to cover future liabilities right we, we don't really have input into that process or the management of the funds, or the management of the plans here in the legislature, other than approving the funding for the check the bill that we get. I don't think that's entirely. All of all of what the legislature has and in terms of its decision making number one you make the decisions on the on the contributions and benefit, the benefits and the amount of contributions for state employees. So, you, you have the option at any point in time to, to change those, you could change the benefits as you're taking a look now, and you're taking a look at the, at the contribution rates those are within the preview of the general assembly and not not the treasurer's office that said we make recommendations, but again you have that that that ability every year for instance in the municipal system. We've gone through a process of looking at employer and employer contribution rates the employers are set by the by by the board because they, the board represents the various municipal employers that that aren't funded by the state, but they also have a process where they look at that in relationship to the employee rates. And it's kind of a, so a little bit of a risk model risk sharing model to be very frank, and we come back to you and, and give you some recommendations so we a few years back we did a four year it's going to increase by an eighth and a fourth and a fourth you know the percentage for both the employer and the employee. And you have the option of acting on that and you have. So I think that that's within the preview of the, the general assembly. In addition to that, the various actions that take place that have an impact on the unfunded liability. And in previous testimony, decisions around personnel and, and levels of personnel, the state salary levels and the number of positions, we, the retirement incentives that have happened in past changes, for instance in the demographics of the teacher system and as they relate to reorganization or efforts and we've seen a rise in teacher turnover. We've seen a rise in teacher retirements and you know what are the underlying pieces and are they related to policy that that the general assembly can take a look at so I don't think it's just we hand you a bill and that's the end of it. It's clearly a dialogue on a number of issues a number of policy issues. And those are within the preview of the, the general assembly. Thanks very much. I guess the last thing I would say is short of cutting staff or making painful asks of them to contribute more or change their benefit structure. The, the legislature really just has to put in additional funds and this year in that scenario, if we don't make any of those changes that you talked about being in our purview. If I understand the numbers right, you know, in the teacher system, for instance, they're putting in somewhere in the ballpark of just under $40 million. So what the state employer contributions add up to is just under $200 million. Is that about right. I'd have to look at the financials to do that. Clearly the, the larger is the employer share by the state for both the systems I think that you might be picking up just one of the systems in terms of the total employee have to pull that up and take a look at the financial statement to do that and I don't have it right in front of me. I do have a couple of staff folks on the call if they want to take a look at that and chime in later I guess we can get that information for you. Okay, thanks very much. So that I have it it's $41 million of employee contributions last year for the teacher system alone. Okay, in a state system. Okay, so getting to your point representative McCarthy the 40 was just one system, but, but yes. Thank you. Mark Higley. Thank you, Madam Treasurer. So I'm one of the ones that's kind of been pushing for at least looking at or considering a, a hybrid plan whether it's a DC plan or I've heard about a cash balance plan. I know in talking with some of the folks out there there are other states that are going down this road. So when you said that that this DC plan or ADC plan could be injurious to the members of the system. My understanding from the folks that I talked to is initially that defined benefit system would not be touched. So those, those folks those employees would, would not have any injury to to that system. And then, you know the three initial concerns or, or there should be addressed is number one pay down the debt as fast as you can. And number two, build your assumptions right. And number three, build a plan for the future. And that means something that's sustainable for the state, and for the employees. And I guess again I just have to ask it's happening in other states. So, why, why can't we look at that here I don't understand the injurious going forward, the current pension holders. What's happened in other states has not necessarily been the right action in a number of those states when I've taken a look for instance at one of the more recent states and try I try not to go out there and throw names out there states and and and throw throw darts at them but it actually had a significant decline in the doing the hybrid plan had a significant decline in benefits. It just wasn't as straightforward. So let me go back to the premise that that I had on a DC plan and start from there. The DC plan a defined contribution plan is that that you and you put in your money, the employer, the state puts in this money, and then you get to invest those dollars and you get to invest those in a menu of different options that are provided through in this case in the state plan. I'm the trustee of the DC plan and the teachers in the municipal system the the board is the board of trustees and the teacher system does not have a DC plan and the DC plan and the state system is only for exempt employees. It is a small, small DC plan. So a couple of considerations on that number one, when you do that, you, there's a good chance that when you do that you can run out of dollars down the road because you're making investment decisions for yourself you're putting that money in the rates are higher, the fees are higher because you don't have the economies of scale that you would if you were pulling those investments. So you probably have a higher cost in terms of the to invest the expenses. In addition to that, most folks that are in a DC plan are not not CIOs, their engineers or they might be social workers whatever it might be really important jobs I might add. And they're not going to be the the best in terms of optimizing their investments. So you're going to have higher fees and likely lower returns. So that's that's not a good equation to begin with. There's also so we've done some looking at depletion that people that are in the DC plan and how long is it before they're going to run out of dollars. And, and frankly, a lot of folks are going to run out way before they're retired, they're likely. No one knows when when that passing event is going to happen but in terms of longevity and mortality. A lot of folks are going to run out of money and not have adequate savings and retirement. So when they do not have adequate savings and retirement what happens they have to rely on on other sources of assistance, food assistance, heating assistance, and those dollars cost the state and the federal government dollars now in a pension system and defined benefit plan and we'll go back in a bit. It's roughly 60 62% of every dollar that's paid to an individual is out of investment income. Okay, every dollar that you pay to somebody 62 cents is coming from the investment earnings. If someone runs out of money, and you know, and does not have adequate money and retirement, and they have to rely on different assistance payments, those are one for $1. What's happening there is that instead of paying for something with 62 cents on the dollar to investment income, you're paying it with straight appropriation dollars. So it's more cost costly for a state government to to to provide those services and if retirement security is not there. In addition to that, when you're looking at it. Now, I'm looking around at one of the members here so Mike, Mike McCarthy represented McCarthy he's a little younger than me. A lot younger than me actually. Okay, and if he was in the retirement system. He might be able to take a little more risk because he's got more years to to to make up for any any potential losses we might take a little more risk than I am at 67. Also to retirement and as I always say but not going there yet folks, and that I might take less risk. Okay, because I don't have as many years to make up if you have a market disruption. In a pool defined benefit plan, you put those together so you have risk pooling so that you can put a little further out in the curve and benefit everybody in the process. So those are the basics of why retirement security is is it's a better option with a db plan db plan you've got a guaranteed payment through the through through the through through the end of your life. And it provides more retirement security, it's at lower fees, it's a greater efficiency so better bang for your buck. And here's the piece on appropriations. If you were to do a DC plan. The DC plan would replace what's called the normal cost, not the unfunded liability. So the normal cost is the amount of money that you put aside every year so that when, when I retire Mike I keep putting you back in the system excuse me representative. And what it would, when, when he the probability is that when he retire with his salary might be and then you calculate how much you need to put aside as a percentage of payroll each year so that when you get to, to his or my retirement you have enough money set aside that normal retirement number is a percentage of payroll. Now, right now in the state system, the normal, the normal, the DC plan has 7% of payroll so the employee the employee puts in money, the employer puts in 7% of payroll. The normal cost for both systems the state system in the teacher systems, the south of 7%. You're going to replace something that only impacts the normal cost and not the unfunded liability. Let's say this. One of these are around four and ones at five I believe I will jump out with the with the normal cost percentages are later if you want that, but they're south of 7%. So my question to you is, what's one's going to cost more the one where you pay less than seven, or the one that you pay more than you pay seven. The answer is obviously the one you pay less in terms of your normal cost. So it is going to cost you more money to have a DC plan. Now the next step in this process is that that's short term. Okay, the next step is that you, you take a look at you say the long term, the unfunded liability is not replaced by DC plan. The unfunded liability for for instance in Pennsylvania is going to not mention states. The unfunded liability does not go away. The unfunded liability would still be $1.9 billion for the for the teacher system and a billion for the state system here. And then cost on the on the on the budgetary pressures by doing a DC plan, and that doesn't meant it, but you're not, you're not impacting the, the unfunded liability still exist. And what we've seen in states such as West Virginia, which had a deep DB plan defined benefit plan switch to a DC plan, then said it's costing us too much, and we can't get the recruitment of people we need so we're going to go back to a DB plan. And that diminished the unfunded liability. In fact it increased and the reason it increased is that because it was closed. If you close the system to new members so what if you were to close it and say we're going to keep the old system where we are but we're not going to put in new members. For instance, you're going to have the people in that system age over time. You're not going to have new members younger members and as that happens and more people reach retirement age. You're going to have to have more liquid assets and we have more liquid assets, you have you end up usually with a situation where you make less money on those, those assets so I would contend and see evidence to, to the, to that point that the cost, the unfunded liability doesn't go away and that has significant potential to increase. So, less retirement security cost you more in the short term unfunded liability doesn't go away and it will likely cost you more in the long term. I don't think that's a very good equation. Thank you, Beth. Peter Anthony. Thank you Madam Chair. There are several things I pretty sure I know. But one of them is not whether we have to do everything. By the way, when I say everything I mean, tend to every change that's on the table today. I agree with my colleague about John Gannon about transparency, want to know where all the fees are. There can't be any proprietary charges that are not known. I think that's a no brainer. To add to which, in the investment category, I completely agree with Mr. Glanka, if you can't explain what the asset is and how it performs, what it does, and who's backing it, don't buy it. Yeah, where I get hazy. Another thing that I am not willing to say it's all or nothing is when I try to explain or answer questions about the effect of, for instance, a standard age retirement across different groups. And I'm asked, well, what will have to do. How will that affect either retention, or the ability to hire new candidates. When I don't have an answer to that I say, well, okay, there's a question that I'm unwilling to go with a conclusion, which does not address the possibility that we may be making it more difficult to govern and to serve for models. That would ought to be stated aside. I completely agree with Treasurer Pierce about prefunding. I know this is an opportunity to use federal dollars, which if we don't, we will be in future using general fund dollars so my answer is, yes, let's do a deck, plus as much as the appropriations committee is willing to advance us, and as much as money management and budget is able to substitute general fund for federal. Let's, as Treasurer Pierce has suggested, make some early ballooned payments on the prefunding of the healthcare benefits, so that we get on a glide path earlier. Let's in fact, write whatever we do a sunset provision so that at least in 2038. We literally take a step back and refigure this but my point is, there's these are big buckets, whether you divide them by governance benefits and how you slice and dice benefits. There are certain obvious things that commit dollars we can do now. I have no problem with that. But there's some things that I call surgical actions for which I have no answer, and I'm very, very reluctant to put my name next to something where I do not have faith in my own understanding of the effects of that. Thank you. Hal Colston. Thank you madam chair, and thank you. And Treasurer. What have you and your team learned in the past recent years to improve our pension system so it's sustainable and predictable. Well I think that one of the things that we have talked about is increasing the frequency in which we do experience studies and I think that that's helpful. I think that we've done a very good job of taking apart the inputs in terms of gains and losses and back several years ago we asked the prior actuary to kind of format that a little differently so that we could see that. And so I think we've got a better good handle on what what the levers are in terms of what's impacting the unfunded liability and you see some numbers in my report and you see some that Chris has done as well for JFO. So I think we have a better understanding of that over time and I think that that needs to translate into actions. And again, going back to 2009 and 10 when the retirement incentive was done. We planted out the downsides of that in terms of its impact on gains and losses. And unfortunately the those did happen. And we, we ended up having more losses than we anticipated by not keeping to the plan. But we were able to able to point that out. I think that we're, we have some, some enhanced ability there we've got a great, we've got a great actuary and they do good work and when I keep hearing that the actuary was wrong. The actuary takes the best data that's available to take a look at something in projects, you know, the any actuary in 2007 would have or 2006 would probably not have predicted the great, great recession, you know, we have what's called unpredictable events, unpredictable events and it's a great deal of publication on that in the investment world. I think John just smiled as I said that but the you're not going to, you're not going to be able to say an actuary is going to be 100% right. And I think that we need to understand the reasons why but there are unforeseen events that impact this. But I think that we've done a much better job of disaggregating within that unfunded liability disaggregating what what the gains and losses are and making a case for full funding. You know, we were pushing this the issue of full funding the pension system particularly the teacher system that was severely underfunded from 1990 to 2007. And by making that case, we were able to to see some change and that was my predecessor I was a deputy at the time, Treasurer Spaulding, and in 2014. I think you made those effective in 15 the underfunding of the of the health care as a sub fund of the teachers pension and we made those changes. So by diving into this we're able to do more analytics and being able to assist you and I think we've got in this case if you go to the appendices of our report. And you take a look there's an awful lot of different scenarios what if this is done what if you change this contribution what if you change the if you change the, the age of retirement what if you change the formula for AFC. And there are scenario after scenario after scenario and since we've done the report there are more scenarios. And you've done some of the same work as as as a legislative body so I think we're able to dive in and take a look at those and to make good estimates with the data we have. You're never going to have a perfect world on this. I mean if, if everybody could predict the future we'd all be billionaires going to skip past millionaire and go to billionaire. None of us are going to be able to predict the future you are going to have unpredictable events. But I think that we've been able to disaggregate and get a better feeling for the analytics, the risk assessment process we did in 2019 helped us with that we're going to continue to do that and continue to look at the risk assessment process. I don't know if I'm answered the question or if I've gone around it and I apologize. Thank you very much. Thank you Madam Chair. I have a couple of questions and thank you, Beth for being here. So I asked earlier when this all came about how much does it cost administratively to run our DB plan and I don't expect that answer off the top of anyone's head but if that could be sent to an email, I'd greatly appreciate it because I keep hearing how costly it is to run a DC plan. And my best knowledge of that is whatever company that we would decide to use. They do that work, you know, so administrative cost on our side is cut away. You know, I do understand that it's okay to look at the different things and if we are going to be transparent and working through this. Because right now, my understanding is people that enjoy defined benefit plans. They like the low to no risk in the defined income. That's not happening right now. And definitely with the proposal would not be happening because the people in the plan are taking on a lot of risk. Every time there's a mess up on our end we're asking for more money and that's what's going to continue to happen. And it's, it's not okay to be saying that we're in a defined benefit because we're people are going to be continually asked to put it more. And that's the ultimate stakeholder in their own and it's, you know, there are options inside of buying contribution plan and I'm more than happy to talk about this at another time, where people if they, you know, yeah, the social workers, the police officers, the IT people if they don't feel comfortable, there are other safe harbor options they can use or they just go on cruise control, and their money is working for them and there are no other committees that are mismanaging the funds that are not working with the correct data, because I do understand that actuaries do a very good job working with the data they have and sometimes that data is not correct. So I feel it's time that we truly look at this and maybe some over clouding the removed a little bit over DC plans or a hybrid, because I do feel that could be a benefit going forward and I know I'm not the only one. So I'm going to take exception with two, two statements mismanage the funds is completely inaccurate and be happy to have that conversation. You know, we've, I think that the pick has moved in a very good direction. I appreciate the work that folks have done. You know, are you going to hit, you know, the top peer group at any point in time, you got a market cycle and an asset allocation. And to suggest that it's mismanage I think is is is not accurate. Actuaries, you know, did not get it wrong the actuaries did what they had at the time and we've made changes. We've made decisions in that have impacted that and then as I said we have those unpredictable events, the, for instance, the investment side as I said Brexit I don't think that I didn't have a vote in England on what was going to happen there. But so I would say that as we're looking to save, you know what happened, let's not spend time blaming let's find a way to move forward and say work together now getting back to the DC plan and the expenses. The expenses are embedded in the rate in the in the in the the fees that are paid by individuals whether it's the overall management fee, or whether it's the the fees for the various investment vehicles. Evidence that I've seen and I know folks are going to disagree with this are that those fees are more expensive. I would send you to take a look at a report that was done. It's on the National Institute of Retirement Security called a better bang for the buck. And it was done by a actuary firm originally and it's been updated, and it shows the various factors and why a DC plan versus a DB plan is that you get a better bang for your buck with with a DB plan. So tearing into the private sector by the way is is is in just in case we're going down that route it's a very different environment and I'd be happy to have a longer conversation about that down the road. But I do think that when you talk about retirement security, we're making benefits, suggesting, recommending benefit changes right now, but a person will have a retirement, as opposed to a situation in a DC plan, where they may run out of money before retirement has has has ended and put people in poverty at the end of their life. And I think that that to me is the worst thing that we can do as a state. In terms of the folks in our in our state there and our responsibility to them. So folks we've got two hands raised at the moment and we've got a few more people in our meeting here who I would like to give time to react to the plan design proposals that we put on the table last week. And you know I know that we've meandered a bit around through some different issues here, but I think this has all been a really valuable conversation and so going to go ahead and let us, let us meander just want to rain us in after questions so that we can hear from the folks from the retirement system boards, and anyone else who might want to weigh in on reactions to the benefit design changes that we proposed. So Bob Hooper. Thank you madam chair madam treasure I think we just got the edict that we're on the lightning round with Alex direct now. We did an early retirement initiative. I don't think we did enough digging into what it was going to have as an impact on the workforce and the basically the entire AOT engineering division took a walk out the door. Have we done any kind of look into what impact this particular plan will have on the workforce as well. I'll say a couple of things on that the actuaries cannot make a determination that we can't determine what people's behaviors are going to be in terms of this and the actuaries can't make that that estimate and neither can we in many cases let me go back to the retirement incentive that you just mentioned representative Hooper. I tried to do it fast so when we did the first retirement incentive. We sent out a notice to about 1100 people that were potentially eligible for the retirement incentive said we were going to do 300, you know, in total but 1100 people. A lot of them called our office a lot of them got estimates a lot of them checked out you know if they did a purchase service you know things what it would look like they did all that work. Ultimately, we had over 300 because we had 300 positions that are slots for this. We had over 300 that that applied. So we ended up having to do with a lottery we literally put everybody's you know just like name number on on a ping pong ball put them in the thing wrote them out and came up with, you know, the for the 300 that would be in the lottery if we exceeded that number. In fact, a lot of people pulled their paperwork. So even though they expressed that they wanted to leave, and they were going to take this, they turned around and then they pulled their paperwork. So then we got under 300. And then as we were doing this and people were retiring, or about to make the decision they pulled the paperwork again so we ended up with someplace in the little north of 200. So we started with 1000, you know, and what the estimate could be, we ended up with something north of something in the 400 range, then 300, and then we ended up with 200 something. So it's very difficult to predict what people's actions are going to be that was one example. So today, we've had 81. I'm just taking a look over at my notes here, 81. Retirements that that have been put into the system. You know, in a given year, you know, we do a sizable amount in June, something north of something in the area of 500. I'm just trying to see if I can find my note on that. And we have had an increase, significant increase in the number of folks that have put an inquiry into purchase of service. That doesn't mean the purchase of time. That doesn't mean they're going to do it, but we have had a significant increase in that. So every time an incentive people check out their options. And then they make decisions. And what we're being very careful to say is, don't make a decision to you know all the facts don't make a decision until we know what the with the options that are going to be presented by the General Assembly and what will ultimately be adopted. And I think we've all been saying that that was clearly a bad question for the lightning round. I'll try this one. This is for 2038 removal of the unfunded liability beyond the idea that our assumption changes this year, increase that. Should we throwing the 2038 plan away or can we add to the amount that this new adjustment in assumptions created and still meet our goal or should we add five years to it. The question is extend out the unfunded the amortization schedule past 2038 or hit it or hit it with cash like we're considering doing. I think that cash is always a good thing for the system having paying down the principal, essentially, or putting those cash in and let it invest. But again, you have to have a plan that keeps the discipline we did the $26.2 million in 2018 for the for the 2028 act and then the next year that that went away so I think there has to be some discipline to that putting we pushing up the amortization will not change the unfunded liability it will add additional interest payments for the for the for the system and I think that certainly costs more when we moved up the the schedule so you had to pay more upfront instead of a back loaded amortization schedule in 2016. We saved the taxpayers about $165 million. So I would suggest that doing that. It just kind of kicks the can down the road, and it costs money to do it. I think that's a good question. There seems to be a conflation of the unfunded liability and the normal cost and a lot of discussion and a lot of people's mind. I think education on that probably is in order because it's confusing as hell. Okay, so that's a suggestion. Oh, okay. I thought you wanted me to do education now I won't. I'm looking at the chair and she said no no no don't don't go there. Thank you Madam chair. Yeah, not not lightning round territory but I would direct folks who are following along on the on YouTube that there are a lot of resources on our committee page, some of them have been moved to the front of the committee page on the left side underneath the list of members names and so if anyone's looking to avail themselves of some of that sort of pensions one oh one, you should be able to find some more resources there. So I'm going to go to Tonya Vihovsky and then we need to get to a few other witnesses so go ahead Tonya. Thank you Madam chair. So I have two questions one's actually a question that I was asked by a constituent did health care costs ever come out of the investment earnings for the pension plan. Health care costs came out of the teachers plan, not the state. So in the teachers plan up to 2015. I think we passed the legislation I might be a year off I think we passed the legislation you passed the legislation and 14 effective for 15. So what was happening prior to that is that health care benefits were paid as a sub trust of the of the pension fund. And, and which was okay, but what was happening is that's for instance in 2012 when we when I did a presentation on this. The health care costs were roughly $24 million in premium payments and 4 million was appropriated by the by the General Assembly so the remaining 20 million was essentially a an actuarial loss to the system. And then the next year you had another actuarial loss then the next year after that you had another actuarial loss that $20 million in 2012, going up to 2038 was going to cost the taxpayers $60 million was $58 million actually. Then you do it again, then you do it again so that's why we had to make that change but yes, and it did have an impact. Yes, it was an actuarial loss to the system. And then we to 2009 commissions recommended changing that it. We recommended it and then finally did occur in 2014. Great. Thank you. So my other question, and you may not have the answer but you did talk a lot about how much more expensive it is for people to access state benefits that don't have this and you know I think you mentioned 62 cents on the dollar investment return. So understanding of how many this people this plan could push into poverty thus forcing them to access state benefits or if there are people that it would push into that position have we done any exploration there about what impact this would have in that area. We've done some sample impacts which we're going to to to present to the retirement board we've taken different, different types of employees real employees in most cases so you know some of these been there 40 years they have their age X. You know what is it going to do in terms of their benefit. What is it going to do into our proposals. What is it going to do in terms of the retirement benefit that you're going to have now. The impact in terms of what it would do in terms of the cost of living changes and what it would do in terms of contributions and finally, how do those contributions turn into in terms of actual take out of your pay because pensions are on pre tax basis. Let's say it's $1,200 of increased in a given year of increased contribution, how much of it is actually going to be in your paycheck since, since you're not paying a pre tax and it's not a subject to fight and and federal tax. I don't think we're putting the state tax in because it's not as significant but we have we are in the process of finishing that and we'll be presenting that to the trustee boards. When is that presentation. I think the first one will be. I think the boards, the teachers board, Erica is on, can you, I know the teachers board was still on schedule the state one. The state board will having to reschedule because it's the same day that we're doing and this is significant for you folks. The same day we're doing the bond rating presentations to the to a couple of the Wall Street firms so something again that you should consider as we're looking at this but Eric I believe that the teachers is around the eighth or something of April. That's correct. Okay, and we expect to have the state one done, sent out shortly thereafter, and we will provide copies of this to to your office. And those were on your proposals, not the current proposal that we're discussing. That's correct. So that evaluation hasn't been done for this, this proposal. Well, you can, they certainly can be done and some of them are very similar, you know, and, you know, you can employ the actuary to do that if you if you like, but ours will give you a pretty significant idea of the range of what you're talking about. Thank you. Great. Thank you so much for that lightning round. This has been a really good discussion and full of lots of really helpful information so thank you treasure appears for being here with us and you please stick around we've got a few more folks to hear from. So we have the chairs of the teachers board and state employees board and so john and Roger, I'm going to call on you all next, but just so that we all understand the timing. So we've got two other folks who are here in the meeting who I will ask to share their responses to the proposed plan design changes after we hear from the, the two employee board chairs. So john Harris you are first up and please let us know if you would like us to interrupt with questions or ask you questions at the end. I'm a school teacher so I'm being interrupted all the time so if people would like to interrupt that'll be fine. So I'm still fresh from my classroom experience. So sure interruptions would be great. I want to thank you madam chair and committee members for asking me to speak here today. I want to start by just saying that the comments that I'm making today, I'm making representing myself and that I have not had the opportunity to speak with our board members to get any kind of decision or any message from the board. Our next meeting as you heard is going to be April 8 where we'll be discussing the proposal and possible response. I'm going to start with saying that I do support the influx of $150 million the one time payment I think that is great. If that number could get larger I'd even be happier. I also support the position of this proposal of keeping teachers that are within five years of retirement held harmless. I think that is also another factor that I think is important. There are a few things that concern me about the proposal. The afc going from three to seven is a rather drastic jump, and I worry that a move like that will doesn't allow it. If a teacher could and had the wherewithal to do investments to offset that loss of benefit. Then I think that maybe that would be tolerable but the fact is, you know, if you've got 15 years in and you're looking at 15 more, whether or not you could offset that benefit by investing in a 403 be I'm not sure that's attainable. That's a concern so I would like to recommend dropping that number below seven that that's awfully radical. I, I, I know you heard from the two public hearings on the changing the normal retirement eligibility 67 is very large and many, many, many people address that. I want to say that you remember that in 2010, the legislature, along with the parties involved negotiated changes to healthcare which included on changing to the rule of 90. So in 2010 already there had been a move for eligibility teachers are asked to work longer. I don't know if you remember, but the fact that the teacher plan actually has gone through three phases we were plan A, then we went to a plan B in the 80s and the plan B was a non contributory that had a retirement age of 40. And I still remember this like yesterday it's in it's etched in my memory, there was a hearing public hearing and well of the house. I had about 10 years of teaching experience that time and I was sitting in the gallery listening to public testimony. And a teacher came down to testify sat in the desk in the middle of the house chambers, sat down and said, because this was the transition, there was a bill to change from the plan B to plan C, which would bring back the eligibility to 30 years. And this teacher sat down and looked at the members of the committee and said, I, this is my 38th year teaching. I'm a science teacher, I'm a chemistry teacher. He paused, and then his voice broke, and then he broke into tears and said, I can't do two more years. And that just it and the plan then changed to the plan C contributory again and 30 years of service. So the state tried it, it didn't work. And so I urged the committee to look at that. The other thing, and I think you also heard this in public testimony, a current teacher that has talked for 15 years is looking to say I've got 15 more. Well, I'll speak for myself, if I was still teaching and this was there, I would need to teach 45 years before I've reached the age of 67. And so I chose to teach 42 years. And I did that personal choice to teach the 42 years 12 years beyond what I needed to, but it was a choice. I loved my job. I think the attitude of my attitude would be a lot different in the classroom. If it was mandatory that I teach 45 years. So I really urge the committee to look at that and really see whether or not that's viable and whether or not that's good for kids. And I think the health of teachers and the welfare of kids in the classroom, I think that's pretty tough. So the rule of 90 in my opinion should stick and and then there's one thing that that isn't in the proposal and that's a funding source and finding a specific funding source for the pension programs. You have the one time spending which again I totally endorse and say that's fantastic, but finding another source into instead of general funds to be earmarked specifically for the pension program so that all these changes are not put on the shoulders of just state employees and teachers. So, at that point that concludes my comments and if you have any questions I'd be more than happy to answer them. Thank you, John Harris, Mike McCarthy. John thanks for being with us and bringing the teachers for perspective. You talked a little bit about the changes that were made, I think a little over a decade ago. And I'm wondering if you could remind us a little bit about what the contribution rate changes have been for for teachers paying into the system over that time. Boy, I don't remember the specifics I do remember as a young teacher, not understanding pensions and and being very wet behind the ears when I saw my first paycheck saying what's this whole thing about a pension, and why are they taking money from me. And then when I about, I don't know, probably three years into teaching, I heard news that they were going to a non contributory system and I'm like, I'm in, and not paying to attention of the 40 years, nor at that point did I think I was going to be a teacher for 40 years. And so I wasn't keeping an eye on the ball, but Representative McCarthy I don't have those specifics I'm sure the Treasurer's office can provide those. Yeah, I guess I heard a lot yesterday that was that had to do with, you know, the sort of changes that have happened over over time and if I'm remembering right, the vast majority of teachers right now paying about 5%, and that, you know, 78 years ago, some of the newer teachers went up to six is that That's correct. Right. Right. And then back in, I do remember we had a number back at, you know, 3.56% or something something around there, something in the threes. So it has fluctuated and it has fluctuated up. Beth, you chimed back in this. Do you have the data on just what the recent history is in employee contribution and the teacher system. Well, John's pretty pretty darn close with his numbers it was 3.54% back in 2008. It went up to 5% for all folks in 2010 or 11 I don't have the implementation date in front of me, but and then in 2015 14 and 15 as we were doing the health care piece. We, we said any new teacher that was hired after 7114 or not vested or hired after 7114 would pay 6%. Okay, that's helpful context. Thank you. Tonya V. Hovsky. Thank you, John, for being here. It's my understanding that teacher salaries haven't really kept up with the other salaries around them, which would be a net savings to the system and that we're not paying out as much of a percentage, but sort of a double hit to teachers. Is that and is that accurate. That sorry increases haven't been really kept up for our teachers system which obviously is a net savings to our system because the pension would be lower if their salaries are lower, but if we're raising how much we're taking and lowering how much we're giving it's kind of a double hit to our teachers who are already not really keeping up I'm just trying to make sure that that's accurate. It's definitely accurate. And the reason for that is two fold one. Some of us are I can speak to Chittenden County, because that's where I taught and I was also involved with teacher contract negotiations when I was an active teacher. You know, settlements are where anywhere from the great recession at one or 2% they've been averaging over the last five or six years around 3% and that's average new money. So, you know, some people are not even making a full percent increase per year. And then the other thing is the increase in health care. And so, one of the major huge change was the statewide health insurance bargaining, and they went to high deductible plans. You're looking first dollar out of pocket. So salary increases were not there and then increases both in premium and then out of pocket costs for insurance. So there is a net result in terms of salaries. Thank you. All right, thank you so much. John, please do stick around in case anyone else has a question they'd like to throw your way. Absolutely. Thank you for having me. And Roger do mass. We need you to unmute. There we go. There we go. Can you hear me? Yes, we can. Thank you, Madam Chair for having me back again. I guess I might need to limit my comments pretty much to the situation of the state employees retirement board at this point in time. Being a retiree since 2006. I don't have a lot of input as from a stadium active state employee side in response to your proposal. However, what I would like to say before I get going here is my situation with my laptop still exists and what it was last week and hopefully it's not going to act up on me with the internet system. I apologize if it does it. Okay, I'll keep my comments kind of brief and to the point as to the state retirement board and start off by saying that I'd like to emphasize the fact that the state employees retirement board also recognizes that there is a pension issue and a discussion of their concern. When the state retirement board received the treasurer's report on January 15 as you all did as well. After much review and discussion of the potential recommendations of her report. I have not approved a motion by a vote of six to one that stated that it had received the treasurer's report and recognizes that the adept for fiscal year 22 and beyond may not be sustainable. As a results recognizes that changes in the benefit level to reduce the unfunded liability may be required. That was the initial reaction as to the board's involvement relative to the proposals that were discussing today and were addressed in the treasurer's report. Since then, I can tell you that there has been no further action by the retirement board. At this time, it. However, relative to the current situation as to what's been submitted by the by yourself and the vice chairman as to the proposals dealing with pension issues and calculation to pension benefits. I must reiterate what I said last week relative to the status of the retirement board that as chairman of the state board. It is definitely pre premature for me to comment further on the proposals before us until the state board has an opportunity to convene and review and discuss the proposals that have been discussed today. As you know and I mentioned last week. We anticipate the board's going to be meeting next week and this is definitely going to be a priority issue of discussion. I also would like to reiterate my comment from last week is that I do appreciate that this committee has taken this matter very seriously. And I look forward to working with this committee after the retirement board gets the opportunity to review and discuss the recommendations that are being talked about today. And on a personal note, if I may add given that I'm a state retiree myself. I'm pleased that no changes were recommended to existing retirees benefits. This is consistent with the treasurer's recommendation as well. And I want to thank this committee for that support. And that pretty much concludes my limited testimony today. Hopefully we'll have more to offer once the board gets to me and discuss all the proposals before. Thank you. Questions from committee members. Right. Mike McCarthy. Yeah, Roger I guess I just wanted to before we move on from your testimony knowledge that it must have been very difficult for the state employees, border trustees on your retirement board to acknowledge that it may be impossible in future years for the state to meet ballooning ADAC payments. I mean, I think the reason we're all engaged in a very difficult conversation about this plan is our acknowledgement that the trajectory is unsustainable. I just wanted to say that, you know, because I think there's a large misunderstanding of sort of who represents and manages the pension systems that your boards primarily made up of folks like you who have connections to state employees or our state employee representatives and and that must have been a very difficult vote to make. I can only respond that you're absolutely correct. It's very challenging for the board. And we recognize our role and our fiduciary responsibility. And I can just tell you that the board is very seriously involved in this matter and they recognize the challenges before us, and hopefully we'll come out with some solutions and recommendations that will be helpful in addressing this entire situation. Thank you, Roger. And anyone else have questions for Roger on the perspective of the state employees retirement system board. All right, great. So, John Pelletier. Thank you for hanging in there and we've invited you to share any thoughts that you have regarding the proposed plan design changes. Thank you, Madam Chair, and thank I want to thank this committee for all the hard work they're doing this is not an easy topic. My name is John Pelletier. I'm the director of the Center for Financial Literacy at Champlain College, but I'm here today and my capacity as a member of the block business roundtables pension reform task forces and one of the co authors of that committee report that identified some potential pension options, reform options that could be available. Before I go into any discussion on the reform proposal, I do want to talk to you a little bit about why I care about this issue. I'm not against pensions and I want to make sure people know this particularly some of the union members that are there on in their membership. I'm involved in this because I have been working with educators across the state. We provide at our center since 2011 free professional development opportunities for educators on how to teach personal finance in the classroom. In fact right now we're running an online on demand free program that 500 educators across Vermont are registered for and taking we couldn't be happier. I've been concerned since 2016 that these plans were going to have problems and it was pretty clear to me perhaps given my institutional background and money management that the funding ratios of these plans were too low. The assumed rate of return was too high, and that it was inevitable that we were going to have a recession and a bear market which would negatively impact these plans. That doesn't make me Nostradamus, you know we have recessions and we have bear markets every decade. They happen, and we weren't improving enough since the previous great recession. And we're needed to be done a funded ratio of 51% for the teachers is your frankly unacceptable. Once you start getting into the 40s it's almost unsustainable. It's terrible for the state, it's terrible for the taxpayer, but ultimately it's terrible for the teachers. Well that's why I'm involved I'm involved because I want to make sure that educators, whether they're 10 years away 20 years, five years 30 years from retirement I want them just like that secretary treasure bridge to have predictable pension benefits and their old age. I wish I had a pension. I think they're they're they're good things that I'm not trying to take these away for everyone. So I'm couldn't be happier that my sense of urgency seems to be shared by many members of this committee. I don't think you have time to wait. This, this problem isn't going to get better with age. I think something needs to be done and done now. As I've testified before, I 100% support treasure repairs is recommendations. I support this, I just support you doing something. Something needs to be done. These these liabilities cannot continue to grow the ADAC upside surprises cannot continue. When I talked to you in my last testimony I suggested that when you look at pension reform, you focus on sustainability predictability and affordability. I'd add to that fairness, whatever you do needs to be fair. I would also add that for these changes to be successful pension reforms must align economic incentives of the employer of the employees and the taxpayers, all of us have to want the same outcomes. And that outcome has to be a fully funded pension system, because it's an everyone's long term interest, whether it's personal, economic or political. And so I want to talk first about sustainability. The pension proposal from the chair and vice chair will put these plans on a path of sustainability. Currently, as we all know these plans have nearly 3 billion and unfunded pension liabilities as of the end of fiscal year 2020. A one time investment into these plans of 150 million should reduce based on the state's numbers that they presented the JFOs off numbers should reduce the unfunded liabilities by 459 million. The cumulative impact of all of the other proposed benefit changes to the employees of the two, the state employees and the teachers is about 519 million. I want people to remember, even if you do what is on the table today, your unfunded liability is still a daunting $2 billion. I mean, people are saying this isn't this is too much. I would argue it's maybe too little. This reduces that big unfunded overhang by a third predictability. The pension proposal will make the annual ADEC contributions much more predictable from a budgetary standpoint. Let's remember these ADEC costs are going to continue to go up between now and 2038, even if you do this, they're not staying flat. But they're going to do that rate of increase is going to be more manageable. And it's much less likely if you do this plan that the General Assembly is going to be forced to make drastic cuts to other necessary services provided by the state. So, in terms of affordability, the proposed changes makes the pension plan more affordable by eliminating most not all of that large unplanned ADEC of, I think it's 96.4 million for fiscal year 22 and in future fiscal years. If my math's correct, these proposals would reduce the unplanned ADEC cost increase by about 83% in fiscal year 2022. Now I'd like to talk to you about fairness. I think that having cost sharing mechanisms in place on these plans is fair to the taxpayer. I don't think putting 100% of all investment, actuarial, economic and market risk exclusively on Vermont taxpayers is fair. I'm not sure that the only insurance company backing this plan should be the taxpayer. I think both sides need to have some skin in the game. I think fairness is impacted. I think fairness needs to look at this proposal very carefully in a couple of ways. The first is the employees of the state of Vermont I think should be asked to contribute equally, not more, to the decrease in the unfunded liabilities. That isn't what you propose. Currently the employees are being asked to bear 53% of the unfunded liability reduction while the state government is bearing only 49%. The total unfunded liability reduction proposed is 938 million, 519 million, or 53% from the employees, and 459 million would be funded by the employer, right, the state through its one time payment of 150 million. If you increase that one time payment to 170 million, if my math's correct, the unfunded liability would be decreased by the state's contribution by an equal amount of 520 million. So I would suggest that you should ask both sides to pay the same and the burden of the reduction of that unfunded liability. The second fairness issue I'd like you to think about is I think it's not fair to equally distribute these one time payments to the state plan and to the teacher's plan. So over the period of 1991 to today, pretty much regularly somehow the state plan was basically fully funded each and every year, but the teacher's plan was not for 1991 to 2006. They missed payments of $172 million, which is by the way 2 million less than the 170 I'm suggesting should be in there. So I think the teacher's plan, unlike the state plan, they had until as best I think it was fiscal year 2014 medical appropriations came out of their plan medical appropriations didn't come out of the state employees plans. And so I think you should take that into account. I think, you know, at a minimum, I think that, you know, you've got to allocate this based on the unfunded liability. And remember the primary reasons the state employees funded ratio is 66% while the teachers is 51% is due to that funding of 172 million from 1991 to 2006, plus the cash that came out for the health care costs, which didn't happen. And that's 100 that happens to be, I believe 175 million as well. The 350 total between the two. You could argue that 100% of whatever the state's being going to put in should go into into the teachers plan. I'm sure that wouldn't be acceptable to many people. But but at a minimum, you should allocate it based on the outstanding liabilities. Right now there's only 1 billion and unfunded liabilities for the state plan and 1.9 billion and unfunded liabilities for the teachers plan. If you use that as a formula, that would suggest 35% of the one time payment should go to the state plan and 65% should go to the teachers plan. So lastly, I want to just go through the alignment of economic interest. But look, we the general assembly and the governor will not want to have any more unplanned increases of materiality right and the ADAC that's going to result in cuts to future essential programs. So their, their alignment is let's fully fund the employees and these plans won't want to have the cost sharing mechanisms be triggered. The employees in these plans have every incentive to get the full color on all their pensions by getting that funded ratio in excess of 85% as soon as practicable. How do you get there? Make these these plans much more fully funded. Taxpayers are not going to support major increases in their tax taxes or decreases in essential services for the state to provide retirement and healthcare benefits that less than 15% of private sector workers nationally even have access to. And I've attached to my testimony on December 2020 congressional research report that shows that only 15% of private sector workers nationally have access, but many of those were accesses available. It's in places where the pension shut down to new employees. Only 11% of employees who are currently working are actually taking advantage of it. I'd love to have a pension. I'd love to have these these benefits are they're expensive. There's a reason corporations don't offer them. It's not because they're cheaper to offer than a 401k. And again, I'm not trying to get rid of them, but let's just be realistic. There's, they're expensive. I think we want to get to a point with whatever you do that all stakeholders are going to demand conservative and realistic assumed rates of return actuarial assumptions. And more importantly, all will demand above median performance from the managers of these pension plans. And so that's what we need. And I think your plan goes a long way with it, particularly if we enact some level of governance reform on this, whether it's governance review pick and frankly, I think the question should be what governance reform does the general assembly need to make to make sure that they're much more aware what's going on than they have been in the past. I think just getting a bill to the Appropriations Committee once a year is appropriate. So when you look at governance, don't just look at VPIC. I ask you, look at what can the general assembly be doing to make sure that these issues are addressed. We need a watchdog on the watchdog. And if he picks the watchdog, you're the watchdog on the watchdog as the general assembly. So anyway, that's that's those are my remarks I'll stop there. Thank you, John. I really appreciate and it resonates with me the way you have sort of outlined, you know, markers of fairness and and and where to allocate shared sacrifices or shared input into the fix here so thank you for your thoughts on that Tonya has a question. Thank you madam chair and thank you john I actually have two questions. One is if I'm curious if you would say that there's a fundamental difference between a public state pension system and a private retirement system. Not not in terms of the promise, right, not not in terms of the fact that they're they're both trying to get people kind of an income stream. It's almost like an annuity right you got to think about it's like an annuity a lifetime and annuity, and both of them are trying to do that. So that's, I'm going to ignore for now, the, the, the, the health care benefits, you know, which is, which is, which is a different thing. Yeah, so I guess we're talking a lot about you know prefunding and getting out ahead of things but a business is far more likely to go bankrupt than a state correct. Well, yeah I mean historically that would be true in terms of the number of public companies that go bankrupt versus states I mean, you know, although frankly a lot of states with bankrupt and the Great Depression and people forget that. In fact quite a few. So it depends on you know what economic scenario you're, you're, you're, you're pointing to. That's that's helpful it just as I'm thinking about it you know a lot of the prefunding is really to protect employees in my understanding so that if a business goes bankrupt they still get what they were promised. And so I'm just trying to understand how these systems fundamentally function differently. No they don't necessarily get 100%. There's a passion benefit guarantee corp that that bills people out up to certain percentage but they don't get 100% if they go bankrupt. The other thing I'd point out is, you know, frankly, FASB and GASB, which are the accounting standards FASB applies to corporations GASB applies to governments. They don't use identical requirements with regard to how you determine liabilities and what you're supposed to do from the accounting treatment of pension plans, we hold in this country. There are companies to a much higher standard than than governments and there are things that occur in pension plans for example we did select an ultimate for four years from, I think 2011 to 2015. That would be illegal under FASB. It is legal under GASB. So there are lots of differences between the two and states. The rules in place where you've got to get these things pretty fully funded they got to be reflected on your, your, your PNL as a company. There's much more incentive for companies to have fully funded pension systems in states in all honesty. Thank you. And given the fluctuation and just how things move and change and how much is unpredictable. It's reasonable to assume that all pensions have at least some level of unfunded liability correct. No, that's not true at all. There are states like South Dakota that I think in 22 of the last 28 years has been more than 100% funded so that's not true at the state level, although most of them are, I'll give you that but it's not a guaranteed and that's on the corporate level. Some are some are not many of them want to be as close to fully funded as possible because it negatively if it can actually negatively impact the quarterly earnings. There's reasons that they have that they want to do it that if anything that's the reason why many companies have gone out of it. Another question is actually probably not for you and probably a larger question that I may need to find from elsewhere. You talked about the taxpayers and I'm curious what the property tax impact might be to taxpayers. If we implement this plan and force higher paid teachers to stay teaching for longer, thus creating a higher cost to our school districts, like I said probably not a question for you but I do want the answer. Other questions from committee members. Thank you, John please stick around we may have other questions that pop up after we after we've heard from other witnesses so last we have Tom galanca with us and Tom I know that the pension investment committee is not. That doesn't have a direct role in the setting of plan designs or or benefit structures but I did want to invite you to share your thoughts and perspective on this. Thanks man. I'm chair I really appreciate it I think it is important to get the investment perspective and kind of think about that in regards to funding and urgency particular you know what is urgency on this this issue. The question came up before you have over $5 billion you know what is the issue and I think I can help answer that a little bit. You know I will start off by saying I'm not here to talk about plan design. I really just want to talk about the impact on the investment process and in particular, particularly I do want to say I am a strong advocate of funding. You know to reduce the unfunded liability and have a glide path to fully funded because I think it expands on the urgency that that really investment process is made much more difficult as the unfunded liability become greater. And there's really two points I really want to emphasize with the committee that I think you should know about, you know, an unfunded liability really is an inherent, it has an inherent nature of leverage that gets worse as the unfunded liability increases. The difficulty investment management with leverage is that small changes in any of our levers that you're looking to pull will will become more volatile. And so the actual assumptions become more volatile the, not meeting the expected rate of return becomes more pronounced, and that will continue to get worse if you really change the unfunded liability of these two plans. And the second thing that I think is important as well is that there are limits on investment as it becomes more unfunded. We have greater need or we will have greater need for outflow of cash for participants that are retiring. Currently, even with fully funding the arc we are funding about $150 million outflow out of the pension trust. And so that's even with you putting in the current arc. We need to get over that and we need to be able to invest the plan in a way that doesn't have these very strong outflows. If you weren't funding the arc, you'd have an outflow of over seven or 8% which would become significantly unsustainable. We need to accelerate that downward spiral. And so I think, you know, in terms of investment process, you know, we need to be very cognizant of the fact that there are liquidity needs, and it limits our ability it forces us really to invest in lower yielding investment choices, and to avoid potentially some higher yielding more illiquid investments that could benefit the state for the long run. You know, I just want to repeat that I think I'm not going to comment on which levers you're pulling but I think pulling any levers is I do it. I do fully support and I think advocating for the urgency of this need is only going to get worse if we don't and so with that I'll stop my conversation investment process and I'll open up to any questions. Peter Anthony. Both Mr. Peltier and Tom Galanca. I, and thank you Madam Chair. You, Mr. Galanca you sort of hit on a piece that I was not quite convinced in Mr. Peltier's testimony. And it has to do with the equity between the funding ratio and the teacher side and the funding ratio and the state employees side. You've reflected on that difference in terms of your asset choice and level of risk. It obviously being the teachers sort of foreclosing some opportunities as I think you delicately put it. What I'm trying to square is a comment by Mr. Peltier that since at least two thirds of the unfunded liability can be laying to the behavior attitude treatment of the teacher side of the accumulating funds and the payouts. And then the but I think I understood Mr. Peltier say so. In fairness. Some of the levers that you choose to pull. I think a bigger bite on the teacher side than the state employees side, unless I'm misunderstanding, because the teachers history of that period from say 1990 or so for the next 1215 years contributed so much to the to the problem, so to say. And what I'm troubled by is the translation of the accumulated under unfunded liability, which is two thirds on the teacher side translated from my point of view on to a benefit from state activities on the taxpayer side. So well it may be true that the in in and out flow on the teacher side contributed to two thirds of the unfunded liability. The taxpayers in one sense got a benefit from that, because they were not funding the pension, they were either not paying enough taxes, or consuming resources that otherwise would have gone to the teachers. So I want some clarification, I am not, I'm not convinced that somehow or another. The teachers should pick up a two thirds if you will, of the hurt from the levers on that argument that two thirds of the unfunded liability came on on the teacher side of the merged funds. Could you help me out with that. I would, I would agree with john that there, there is some equity there in putting money more into the teachers fund because there have been mispayments, whether or not you pull how you pull those levers I'll leave that up to you. I will tell you that the teachers plan is the one that has the biggest outflow and cash and at the pic we're currently looking at, potentially separating the investment policies for the three different plants because of these radically different investment funded ratios and that's kind of our next discussion level and it will be that will be more important in regards to the teachers because the question then is do you how much risk capital can we put to work in the teachers plan and if it continues on this downward trend will have to be very careful to meet that need so I think the urgency is more in teachers at this point. Yeah, I agree with john it's, it's, it is an equity issue, but they are the ones that got the benefits from it in the past, particularly the healthcare benefit or the unfunded period in the 90s. So, I hope that answers your question. This is for the most part, but if you think about the return, essentially to the state treasury from a choice between where do you put the infusion of federal funds to keep away from the very threshold that you just articulated on the teacher side, so that you can be more aggressive on the rate of return side actually has future benefits to the fund and therefore does the taxpayers, am I reading that right. Yes, yeah he would. Thanks. That may advocate for war and the change in the expected rate of return assumption and different plans and that's a whole different issue that I don't want to go to yet but then, you know, it may advocate that will have to split that up where teachers would have one assume greater return and munis may have a different one. Well, needless to say for administrative, cleanliness economies of scale and and room to maneuver it would be better if the funding ratios were more, more alike. Correct. That is the objective. All right. Other questions from committee members. Mike McCarthy. One thing that it occurred to me to point out and I'm wondering how it's related to this conversation we're having about the equity of how we put money, you know allocate funds that we might put into the systems to shore them up this year. I think is the equity on the contribution side and I know that it's a little bit apples and oranges between the systems but I'm wondering if, you know, whether this is Tom or whether it's a question for Erica, I'm not sure but could you just talk with us about the difference between the contribution rates for in the different plans like we talked a little bit about teachers earlier and the changes of that historically but I mean I think the folks pay like 11% of their paychecks right. I can give you experience my experience as a viewers board member because the viewers in regards to contributions are not really talking about viewers right now but you know contribution rates are not really considered a VP. You know we take what we get based on what the underlying pension boards decide are the contributions rates set and with legislation legislative approval. I don't know if I'm really an expert there I think Erica probably be better at it I can. I understand the process that the viewers board went through in terms of setting those rates and the importance of manually reviewing and annually looking at whether or not it's being the normal cost but other than that I think the pick really wouldn't be a good place to look for that answer. So Tom, from your experience on the viewers board. I think it would just be helpful for folks to understand how frequently does the rate of employee contribution change on them in the municipal system. Well in the municipal system our history and I credit this to Steve Jeffrey used to be the chair of viewers back back number of years ago. They would annually incrementally increase the contribution rates and try to make sure the different classes were covered with a little bit of margin to make sure that it had the normal cost and then it made up some of the difference in the unfunded liability. The experience I had was it was an annual discussion and there was always some pressure to work in concert with the unions in regards to getting it right so there's acceptance of both ends and I credit Beth tremendously with that that she would really push with Steve Jeffrey and Peter Amons who is the chair after to to annually have a regular incremental increase so it's maybe a quarter one percent or less, you know, based on the different classes but always a look at it like that. And I that discipline help municipal plans stay in a better funding ratio, in my opinion. Erica Wolfing at the Treasurer's Office do you have at your fingertips, some of the some of the historical data that we're trying to dig into here. Sure, for the record this is Erica Wolfing director of retirement. I do have pulled up right now the historical chart for the viewers plan rates for both the employees and the employers. Thank you everyone, and Tom Glanko explain this I think pretty well but the employer rate is set by the viewers board, the employee rate is set by the legislature. The last time we looked at this and set incremental rate increases we actually get a four year plan. And I believe that was back in 2017 and the viewers board voted to set the rates to increase incrementally. I think it was by an eighth and eighth and a quarter and a quarter over a four year period. So we're in the third year that I believe so for FY 21. And I'll talk about the employee rates first. We have four groups in the municipal plan, the group a which is sort of our lower benefit group right now is contributing 3% and our highest group, which is group D which is law enforcement firefighters. They are contributing 11.85%. So we have one more year on that four year plan. And then we'll reevaluate obviously again. In terms of the historical numbers for the state plan. I'm sorry that treasure Pierce dropped off she would know this way better than I do. We do have a chart in the office that I was frantically trying to find I wasn't able to but my predecessor Cynthia Webster did keep a pretty good record of these rates and I'm doing this from memory of that chart so forgive me if I mistake something but my memory is when we made the changes in the state system in 2008. At that point in time group F which you all remember was our majority is our majority group that's that's where most of our state employees fall, we're contributing somewhere in the 3.35% range. When we did the changes in 2008 it did increase I think it went up to around 5% and then there was another period of increase. I think sometime in the teens I want to say 2014 15. Exactly remember remembering how how much it went up to but today it's up to 665%. And then for the group C I think they were somewhere around 7% back in 2008 and they also increased at that at that point and are now up to 8.53%. But I will find that chart for all of you and share I apologize I couldn't put my hands on it today. Thank you. No, no worries, acknowledging that we're all still trying to figure out how to do our jobs remotely from home. And I, I'm sure that you know exactly where it is in the office and so if you do put your hands on that if you could send it to our committee assistant and she can get it up under today's date. Absolutely. Thank you. Thanks, Erica. So committee any other questions for Tom, or, or along the lines of what we were asking from Erica at the Treasurer's office. All right. Thank you, john and Tom for being with us thank you. Also, john Harrison and Roger do must. Madam chair, can I just say one thing. Before you go, I forgot to say my testimony is, if you, if you take the states in the report that we did the rock table round table, the bottom round table and look at what states have done, either cost sharing, or another system design it could be DC DB hybrid type things. 36 states have done one of those 72%, we're not one of those. If you throw stress testing into the mix and look at those three categories, all but 12 states have done something. And so the, I do want to make clear that the view that doing what we what we're what you're what your proposal is doing isn't an outlier. I would say many states are ahead of you 72% 72% of states have already implemented cost sharing or some other alternative type of plan for new employees. And, and so it isn't as though you know we're digging and everyone else is acting. So that's all I wanted to say. Thank you I appreciate it. Any final questions committee members for any of the folks who are with us. And so we have invited Patricia Gable from the judiciary branch to, to come back because Pat when you were with us on Friday, I think at the outset you said you had about 45 minutes of testimony and, and we, we really only gave you probably 30 or 35 minutes to make sure that we gave you an opportunity to share any other thoughts that you had, or that you have relative to the response of the judiciary on the plan design that we proposed last week. Thank you. And hello everybody. I did provide you a memo that I think only just was posted on your website that supports my testimony but I realized nobody's probably had a chance to look at it. So I'll quickly go through that. And this memo talks about the impact of the proposed changes in group D on existing judges in the judiciary. And we did hear from the committee that group D was added to the proposal not because it achieved savings toward the underfunded liability but rather for purposes of equity. And so we wanted to address the equity outcomes of the proposal. So as you'll see when you have a chance to look at the memo. One of the unfortunate aspects of the proposal is that it has a disproportionate impact on the sitting female judges. And so what it does is it creates a group of haves and a group of have nots if you will in the judiciary that are not based on years of service, but rather simply their age. And so given the fact that the there's no financial savings. We're seeking to understand better what the idea was behind the proposals. The current proposal affects seven of the 10 people who are women. So we have 10 affected trial judges seven of them are women. And to give you an example of the ways that this the proposal works right now to current judges appointed at the same time are treated very differently simply as a matter of their age. Judge number one, but serve another seven years and receive a pension benefit of 0.0333 times 12 times last year salary. And judge number two needs to serve another 15 years to age 67, at which time she will receive a benefit that's calculated in a very different way. And to her detriment, there are at least four instances of this kind of inequity that result from the proposal. One of the affected judges gave me a note explaining what her situations like. And she said she's a 53 year old female judge. She has 10 years on the bench. She has more experience on the bench than 20 other judges, all of them appointed after her. She's not eligible for the current retirement benefits under your proposal, but six of her male colleagues, all appointed after her will be eligible for their current benefits. There are seven judges who will be penalized as ineligible for current benefits as we said seven of them are women. And she notes that she's not at the point where she can earn extra income because judges are not permitted to have other sources of income while they're working. And the proposal delays hers but not her male colleagues retirement to age 67. So that's one example. The proposal also has a discouraging impact on recruiting from the length the ranks of lawyers in public service, some of whom were required to cash in their 401k balances in order to have the judge D pension plan. So she, this judge sent me information on that. And she said she started working in the state's attorney's office in August of 1994. She was almost 25 years old. She was sworn in as a judge in February of 2016. When she was 47 years old. She turned as a part of that transition that she would have to trade in her existing retirement benefits and invest in the group D pension plan. Under the present pension proposal, she'll need to work another 15 years as a judge in order to retire without incurring a penalty. And finally now just turned 52 in contrast, another colleague who was sworn in after she was only have to work 12 more years to retire without a penalty. And she did share with me the correspondence she had with the treasurer's office about the impact of the letter from the treasure about the impact of this trans transaction. The treasurer's letter does tell her what her pension will be as a result of this trade off that she's made. And so again, judges in that position, who've made that change, because of their change in status are being penalized by the proposed plan. We've learned that the proposed plan not only works in equities among the existing judges, but it's a discouraging element. When we're trying to recruit more women judges. We've been recently more successful, which is a great thing and we're also trying to recruit more judges who have diversity show diversity in terms of the kind of law they practice. So that we have that diversity which reflects the diversity of cases, they're actually tried in the judiciary. I think I mentioned to the committee last time, because we don't have subject matter expertise in the judiciary regarding pension plans that we're in the process of engaging a pension expert, so that we can work with you and others to look at pension design related to judges, so that we could develop an analysis that makes sense, and make sure that the pensions for judges, not only continue to help us recruit the best and most well qualified lawyers to be judges. So that we'll be able to retain our existing judges, the years of service that they have are really important resources. Thank you for coming back and sharing your additional thoughts and and we'll encourage the committee to take a look at the memo that has been posted. Thank you madam chair and thank you, Patricia for testifying today. How much judicial turnover is there, I mean how many judges leave for other jobs, other than other judicial appointments. Thanks to the pension plan that's in place. And I think also because of in general a successful recruiting in terms of the commitment of people who apply. There has been up to this point, relatively little turnover, where judges leave to go to other jobs, because the pension plan enables them to enjoy the independence and the security, so that they don't have to seek other employment or keep their eyes out for the future. And one of our concerns is that, depending on how the pension plan may be changed, that could really change that factor. And how many vacancies are there currently for judicial positions. The vacancies for judicial positions are a factor of our budget. And so when, when we need to realize vacancy savings in order to meet budget objectives and this happens in particular when the governor doesn't fully fund our current needs. We will manage vacancies that way right now there is one position that's vacant in the judiciary and it's in the process of going through the judicial nominating board and the appointment process. And how many you get for that position. Well so they don't come to us. And so what happens is, we actually have no role directly in the recruitment of judges. There's a judicial nominating board process, and I think I might have mentioned it a little bit the last time. Some members of the board are by the legislature somebody executive branch and somebody bar association I might not have that exactly right. And there's a statute that defines what well qualified means. And then the judicial nominating board in on a confidential basis accepts applications when a vacancy is posted to be filled. And they send up to the governor, those names that they find are well qualified. And I also think I mentioned the last time. A couple of years ago, the three branches of government got together to express concern about the lack of diversity on the candidates put being put forward. And as a result of that, recently, we've seen more diversity, both in terms of gender but also in terms of practice area group so we've considered that up to this point of success, a recent success. I believe you said one judge had to give up their 401k to get their pension. Can you explain that a little more. Yes, I can understand they have to stop contributing to their 401k, because they're changing jobs, but I don't exactly understand why they had to give it up. Yeah, for and again remember I'm not a pension subject matter expert, but I do have the letter in front of me that told her she had. And essentially what it said is for her to transition into the group D pension plan. It required her to convert her existing retirement contributions. So she first had to go into group F, and then by time into group D. And so she was definitely in that case, making an exchange for the pension benefits she had. I see you shaking your head so you are the subject matter expert so I won't. I'm not following I'm sorry. Go ahead. I mean, you're not you don't understand why. Well I think I partially do but she she was in a group after she was in a pension. No what she had was a 401k. And let me just review the letter that she was sent by the Treasurer's Office. Yes, yes, so well it's like she had to do a couple of different things she was in a 401k first she had to transfer into group F, and then I imagine she's buying time now to go into group D. And at the time, they told her what the calculations would be and what she would get at the end of that transition. And she's not the only judge, because we have a number of judges who come from public service. And so when they make those changes and those exchanges, they do receive an estimate for what that will mean in terms of their group D service. And I'm just shaking their head, I got the letter. Just write a check. Well that's, I guess there are people in the state who can do that but lawyers who work in public service normally don't have that luxury. So Peter Anthony has a question. Thank you. Pardon me a couple. Since we actually just the committee just was inquiring about the variation in the contribution rates funding, what are called the normal cost. What is the contribution rate in for let's say a sitting trial judge. So looking at the chart that was I think may have been in either one of your exhibits before your committee or in the pension report and so under group D, it says employee contributions 6.65% of gross salary. Thank you so that's that's sort of in the ballpark. Because as you mentioned, part of the proposal. You typified as being not to save money in the case of the judiciary but for equitable purposes. And I want to dig a little deeper into that. Conclusion. If the plan that is on the table from the committee. Doesn't happen. Could you point out whether there are aren't any internal inequities as the situation is and I let me say what peaked my ears. I think it's a question of a female who started in the judiciary at age 25, ascended to the bench in the 40s in her 40s. And then, if the changes happened would be required to work way longer than a male counterpart. And I guess I'm our plan aside. I just wonder what the, if you like deviation between years on the bench, obtaining full benefits, and the years essentially that one has participated and contributed a sort of a benefit value, given the projected mortality rates also between male and female, as opposed to the kind of years of service that someone has put in. And I'm wondering, would you say that there aren't any inequities in the judicial branch, and you could divide it by men and women or not could be people who joined early as opposed to people who come to the bench later in life. Without the plan. If the argument is, you're trying to create you, you the committee, don't understand the judiciary and so your attempt to bring equity to it is misplaced. My question back is, is there any inequity that you could help me out with under the current situation without any changes that the committee has on the table. So with, I just wanted to correct one thing you said that example of that judge, she didn't join the judiciary at that young age, she was in public service, she was a state's attorney at that age. And so she that's how she was entitled to the state, you know, the 401k. And so, right now, the, what happens in the judiciary is people join, they're appointed to the bench. They vest in five years. But when they vest in five years, it's really a, you know, at a lower rate. And so they have to serve 12 years to get the specially designed judge pension plan. So technically they vested in group D year five it's based on the years from the appointment to the bench. Your proposal combines a very serious diminution of benefits when you collectively put them together with an age cut off. And it's the age cut off that in combination with this very serious change in benefits that that causes the inequities because what a person's ages is kind of arbitrary in terms in terms of when they joined the judiciary so that means someone who's older, but had fewer years of service could do better than someone who's younger and has more years of service. Thank you. Yeah, I was just saying, you know, so in terms of equities, I think the pension plan, if I understand it as neutral in that regard, the current one. Thank you. Is it do I have it right that the benefit level relative to the last year or two years of service is at what 100% or 80%. Yeah, yeah, I'm sorry to interrupt you there's no delay so I'm not jumping in. The, the theoretical level is 100%. And it is true that if someone is in public service long enough whether they're in the judiciary or you're in one of those plans that tax on. And it's theoretical, theoretically possible for someone to reach that and in fact, over the years there have been a few judges who have reached that. However, I mentioned to you our most recent history is that the average age of people joining the bench is in the mid 50s now. Unless that average age age drops back again, the chances that someone actually does reach that will. It's not impossible but it's less likely. The other thing I wanted to mention is we, as you know from my testimony last week, we are anxious to see data and to understand. And we don't because we don't manage pensions in the judiciary, in order for us to see and analyze the data, we do need the access to the information that the actuaries have so that we could engage and we're, as I said we're you know really trying to engage in a problem solving approach to meet the objectives of having good pension plans for all state employees including the judges, but we will need access to that data and I trust that once our pension expert is on board will be able to do that and I think we will need better partners with you once we, we do have that. Hi. Thank you. I just want to say we're trying to be good partners. Yeah. Oh no I, I very much appreciate that and you know I was, I was surprised when, when you first came to join this discussion that you noted that you had never been invited to have part in these dialogues in the past because. That doesn't make a whole lot of sense when, when you are an equal branch of government. Yeah so after the treasurer's proposal came out I did contact the treasurer so that I could understand better what was in the proposal regarding group group D in particular obviously we have many group F members. And so it's easier for us because we have the benefit of the, of the report to, you know, better understand the impact. Yeah. Bob Hooper has his hand up. Thank you Madam Chair, I'm spinning around not really knowing what question I'm going to ask but as to the last point that you made and I'm glad you brought it up because it reminded me of something. The last time there was a payment, or a contribution increase for the judicial branch. The judicial branch was brought in and consulted. The administrative judge was approached who went to the Chief Judges Supreme Court, I understand, and got the approval to move forward with it. I know that because I'm the person that went to him. I think representative Gannon's conversation that eventually came out we were talking about a state's attorney I think it's a weird flummox in the process but to go from a defined contribution sort of 401 to a plan F to a plan D would be elective and not forced to. So the last question I'm left with Pat, if I may, any idea what the unfunded liability attributed to the plan D people is in the grand scheme of the state's obligation. No, that was my first question for the, when I first met with the treasurer and we continue to try and find that out. And I'm not, I'm not, you know, saying there's anything wrong with the fact that she didn't have that information for me, but obviously, you know, again, to understand and to get engaged in some good problem solving. We would need to understand that, you know, is there a shortfall and if it is, what is it and what does that mean for pension design. I am tremendously happy that we agree on something at the end of our period here thank you madam chair. Other questions from committee members. All right, well, thank you so much for coming back and I look forward to continuing this dialogue. It's helpful for us to, you know, to include all parties in being part of this conversation so thank you. I appreciate the opportunity to meet with you at a time that wasn't as challenging as the end of the day on Friday. Thank you very much for believe me I know what you mean. All right, thank you very much. Thank you. Committee that I think I'm going to call that a wrap for the day I do want to have some time for us to have a committee discussion, just to sort of reflect on what we've heard in the different public hearings that we've held and, and what we've heard in our community meetings with constituents I know that I have met with a couple of dozen teachers and state employees in my communities over this past weekend and. But I think before we do that. Hold on let me let Sam back in. And before we do that I think it would be helpful to give folks enough time to read through the, all of the written testimony that was submitted by by the folks who testified as well as by the other folks who were not able to testify because there was a schedule conflict or, or because our, we had hit capacity so our committee assistant has now forwarded all of those emails in I think three batches so far and will continue to compile and send along as more come in. I would just ask you all to take some time to look through the, the, the documents that were emailed and are now on our committee page, and, and we will schedule some time, either tomorrow or Thursday to just explore some of the observations in the common ground maybe that we can all agree upon in terms of what the landscape looks like. And I think that will be a very helpful committee discussion as well to think about the lingering questions that each of us has that we'd like to get answered in order to feel like we fully understand what's going on. Peter Anthony. I appreciate it Madam chair and you could see from this. Most recent given take. I like Ms Gable. I'm not having any luck with group based equity kinds of questions and that that simply goes to the my worry that pulling a lever not understanding how it affects different groups really, really undercuts my confidence in in in quotes my doing the right thing and where to go with that I've, I've already said I'd love to move on things that I'm fairly sure are fair, partly address the problem, and are relatively simple to understand but the intra group, intergroup excuse me but intrastate kinds of issues that I keep running into when I asked probing questions, give me less and less confidence of pulling a big lever that affects four or five groups in ways that I don't even understand. And indeed, Ms Gable may not understand because she doesn't have the data. Neither do I have the data. So, I'm kind of non plus by that Madam chair, but thank you for indulging me. Any other questions or urgent comments from committee members. Mike for wiki. Thank you madam speaker, and I see that tomorrow. We have some other things and I'm just going to ask if I could have a couple of minutes to talk about some of my ideas tomorrow. We are putting ideas on the table on Thursday morning tomorrow we're going to come back to some governance focus unless what you are asking is could you put a governance proposal on the table. It's in that realm. Okay, let's let's connect on that and we'll make sure we find the right time for you to do that. Thank you. Any other questions from committee members. Thank you madam chair as we are discussing governance proposals, can I ask that we reach out is. To some of the best practice. She said she had people that could speak to governance best practices and I'd love to have them be part of that conversation. Yes, we have been trying to to find those experts and we have indeed had contact with some of them. And I think you'll find that one of the folks who's testifying tomorrow is someone who has an understanding of different governance systems around the country in different public pension programs and can speak a bit to the issues around best practice. Okay, thank you. Any other thoughts, questions, comments before I spring you so that you can go do your homework maybe outside on a sunny afternoon. Representative LeClaire are you shaking your head about doing your homework outside or about doing your homework at all. No I totally agree with doing homework outside madam chair. Good I just wanted to make sure we were, we were all on the same page. But you know I'll just echo the thanks and gratitude that that you guys are hanging in here on a really deep and really complex discussion topic and it would be. It would be easy to say that if the answers were simple we would have done it by now. But that that reality is really striking home for me as, as we peel back the layers of this problem and and try to understand how the equitable solutions might come together. Thank you all, and have a good afternoon reading through all of the documents.