 Good morning. You are with the House Government Operations Committee. We are gathered in committee this morning to take our first round of sort of reactions from folks around the governance change proposal that we put on the table yesterday. Just to remind folks about the process that we're going to undertake, we're going to hear from a variety of folks about the governance proposals during committee today this morning. Then tomorrow we will have an opportunity to get into committee and hear some first reactions and responses to the plan design changes that were put on the table. Tomorrow night we have our first of two public hearings, which I understand are very well subscribed in fact they may be full so thank you to the unions for getting the message out there to folks to come and join those meetings. We are in the process of trying to figure out how to fit more voices into those public hearings since we're oversubscribed at this point. So we may try to extend the time of the public hearings and or ask people to stick to two minutes instead of three in the hopes that we can hear from more people. So committee that is a decision point that we need to make and would welcome you to weigh in on it. Hopefully we'll have a few minutes of committee discussion before we go to judicial retention later this morning. We have one participant who is on a cell phone and we would love to rename you so if you can tell us who you are we'll get you renamed. So this is Patricia Gable on the phone court administrator that thank you so much that was my guess because you were the one person who, who we had invited to be here this morning whose name didn't yet appear so we have you renamed and now, now everyone can see your name on your zoom box so thank you for being with us this morning. Thank you. Folks, you know, I think it's helpful to just reorient ourselves to why we're having a conversation about governance to begin with. There has been a lot of conversation and I think universal recognition that that the financial health of our pension system is rocky. And we have to ask ourselves in the context of of putting our pensions on a better path, whether there are changes that we could make to the governance of the pension board and governance over the investment of our your pension dollars. And it makes sense to have this conversation now and I also recognize that there are many other people who have different, different ideas or different, different understandings of the dynamics within our pension governance and we are more than happy to hear a new set of ideas if anyone has a different governance model that they think would work better than the proposal that we've put on the table. So we do want to spend our time hearing from folks about this and hearing where where we have alignment and where we might differ. So thank you for being here this morning. I think I'm just going to run through the list relatively quickly ask folks to share their thoughts and leave some time for committee questions. So, Steve Howard, thank you for being with us this morning. Thank you madam chair good morning. I want to just do a quick disclaimer. Having a bit of construction work done at my house and it's my 400 pound dog is sitting here in my home office. And I hope she's going to not go nuts in the middle of my testimony. So if you do hear her go a little crazy I'll try to mute as fast as I can. She won't hurt me in the process. So I will, I'll just start with my testimony and hope and hope for the best. For the record I'm Steve Howard I'm the executive director of the Vermont State Employees Association. And I will start by saying that this is about the, the governance structure so I won't go into really any conversation about the benefits proposal I understand we'll be testifying on that tomorrow. And I just say that because I know there are a number of state employees listening and they may want want to want to know why I'm not talking about that since that is a very hot topic that they will of course expect their union staff to address. So I just want to start also just in light of the very quick conversations we've been able to have with our members since you the proposal was made yesterday. Our members, you know really believe that this process needs to be slowed down. And having a day to review this isn't really enough. And one concern that our members do have about the governance proposal is it really hasn't been a thoughtful study done by an independent entity that would provide some feedback about whether this is in fact the structure that we need and I understand that there has been some by the Treasurer's Office and by the boards to look into having a study done and our members would support having that study, rather than making a quick decision without thoughtful analysis from an expert for somebody who can be more independent from the process. I want to start where we can agree. We do believe it's important to maintain representation and participation of members in the system. And that's an important objective that we want to maintain. I think we can agree that there can should be and can be more frequent and more frequent experience studies that that would be helpful to the system and that the more disclosure of the fees that are associated with the with the system, more transparency is really important to our members and we can we can support that. Our members are not sure that New Hampshire is the model ever on anything. But particularly in in this case, you know their pension system is not one of the better funded pen and pension systems in the country. We're not sure that that really is the model we should be basing our decisions on here in Vermont. We also think that this is another reason why we've called for a summer study committee, because our members right now, quite frankly are very busy they're in the middle of managing a pandemic. And they haven't really had the chance to pay a lot of attention to this issue because they're trying to save Vermonters lives. And so, you know, we believe a summer study committee that would look at all the retirement systems across the country, particularly the states where they are meeting their investment returns and investigate what they're doing differently, but also investigate our investment strategy and looking at what's going on with our investment strategy and some of the decisions there and independent investigation of our investment strategy would be really helpful over the summer and into the fall in a process that our members can believe in and have confidence in. Right now I would say it's fair, it would be a fair assessment that our members do not have confidence in the system and the, in the, the process that we're following now here in Vermont. A couple of just quick observations. Let me note that in the proposal that was that was made yesterday. The treasurer is made the chair of the of the new commission, but not given a vote. And while we disagree strongly with the treasurer's recommendation. I think the fact that she she and folks who are elected statewide by Vermonters tend to be financial experts folks with a financial background and, and who have the backing of the people of Vermont and we, we aren't sure why that position wouldn't have a vote. That seems to be a certain concern that we should look at. Another observation that we made is in just a short time that we've had to look at it and this really to be honest with you, we haven't had a time to fully vet this. It's going to take a week or two before we can get our members attention, really talk with them about what the proposal is and give them enough time to think about it in a responsible way. And this is some initial feedback that was provided just really quickly. It does appear that the new, the new proposed board or commission is heavily weighted towards management. If you look at the current man, the current makeup of the picking you compare it to the board, we noticed that in your proposal, there would be six appointments by the governor. As state employees, the governor is the management for most from in most cases. And that those appointments. That would this this proposal would give him six appointments. The legislature would have two appointments. And with all due respect to the legislature, our members view the legislature as part of the management. The board would provide eight out of 15 people who are directly the managers of in state government. And that really dissipates the voice of the workers. And so we, we are concerned about that, particularly when you add that the three employer representatives are now going to be on here and not just goes in by the by the various boards of the systems of the of the pension systems, pension funds, but now three employer representatives are going to be added. And so then you have 11 out of 15 people who are likely to be managers or or come with a management perspective. And that raises some concerns we've had some very bad experiences recently with the Vermont Labor Relations Board, and choices that the governor has made with various slots that are supposed to be, you know, meant for a particular category but in this case, 11 out of 15 positions would likely be either directly managers of our members, or would have a philosophy that is similar to what a manager would have and that's not all bad, but it's just one that concerns us it's not as a balanced up an approach that we would prefer. I think that the proposal may go too far and disempowering the boards, particularly around taking the process that where VPIC and the relevant board make the decision about the rate of return to now relegating the board to an advisory role. And I think that that we don't we're not sure that that's the best approach to a collaborative, thoughtful investment strategy. And so we are concerned about that. That approach that that is outlined in the new proposal. And then finally I would just say that we currently elect our members to the retirement system we do it at our annual meeting. The treasurer doesn't play a role in that. We're not sure what role the treasurer or the treasurer's office would now play or if that's practical at all. From our perspective, we think we've elected some of the best and the brightest of the state employees with a great deal of financial and actuarial and a lot of professional experience as members fiduciary members of pension systems, whether it's the state pension system or a municipal pension system. We take the election process of who we send to represent us in on these boards very seriously and that's why our members have had such extensive backgrounds in either a legal background, or I've had extensive experience, you know, serving on on retirement boards in the past it's retirement is very is a subject that's that state employees pay a lot of attention to as you might have noticed. And we take this very seriously so we're not sure we need the the treasurer to oversee the election of our members we think we're doing just fine the way it is. And we're not sure it's really practical. So those are just our quick observations with less you know really less than 24 hours, trying to get the attention of folks who are managing a pandemic, and who don't have as much time as they might have if we weren't in the middle of a pandemic, which is partly why we find this process concerning and why we would urge this committee to invest as much as you can in the pension system, but put the questions the big questions about the governance structure and the benefits into a summer study committee, give our members a chance to take a breath from this pandemic from this emergency, and be able to to focus on the discussion around pensions more fully. When they're not distracted by trying to save Vermonters lives. Thank you madam chair. Thank you, Steve and and a big thanks and appreciation to all of our hardworking state employees. I know that this has been a challenging year. And we certainly appreciate the the over and above the call of duty that we've seen from so many people committee members questions for Steve, Mike McCarthy. Hey Steve thanks for being with us and, and I do also want to echo the chairs comments that you know I know that these conversations are really challenging and that there's a lot of anxiety around some of the work that we're trying to do here, in the long state employees and, and, and teachers and so we take that really seriously and I, I also, you know, in light of trying to be really fair and dig in and do some work. I want to unpack some of the things that we have been hearing and ask how your members, you know, over time have responded to, you know the fact that we have missed the assumptions again and again around both rate of return, and the experience assumptions. And, you know, if you have thoughts about how, you know we can balance the political decision making. And the, the expertise that we're trying to bring in with this initial proposal. So, you know, I think one thing that really would be helpful is more frequent experience studies, and, and that we think would bring the legislature, bring the issue to the attention of the legislature and the governor. More regularly we're in this position now and we have a 30 year plan to pay off pensions and we are well into that plan. We are turning the corner on our mortgage to the point where we're now starting to pay more than just interest. And so we think that has been going well we're here today because of the the experience study and the fact that it was an experience study over a five year period. So perhaps one that, like the one the recommendation you make in the presentation in the proposal that was made yesterday, where it's more likely to be three years. We think that would be very helpful. And that, I don't think we are 100% convinced that we have to reinvent the whole mechanism that we have now and certainly weighed it down with more managers. We don't necessarily think more managers means better outcomes. So we do want to make sure that we maximize the folks whose retirement is dependent on the successful return of investment. And we're doing pretty you know we are people should know, you know, there is 62 cents on every dollar that we make in the pension system comes from our return on investment. And that's why the pensions are such a great economic development driver in Vermont. So we should be fair that it's not you know the world is not crashing down around us. We can take our time to be deliberative and thoughtful about how we make changes we're not saying we shouldn't make changes but we're saying we should the process really does matter. John Gannon. Thank you madam chair and thank you Steve for testifying this morning. We appreciate your comments. Following up on these questions about the missed assumptions about the investment assumptions, as well as the other demographic assumptions. Did anybody raised to you concerns about the investment performance of the state employees pension plan over time. Were there concerns raised. I think we have always been concerned about the unfunded liability and concerned that that it might grow and there's always been a sort of a discussion about how things might. How things might go off the rails but we are pretty confident in the plan that the treasurer put together in, I believe was in 2010. We are grateful and supportive of the fact that the legislature and the governor of two different parties have made the the amateurization payments the mortgage payments to resolve that and that we're well on our way to do that. So, you know, it's there have been, of course, conversations about the investment, the rate of return and whether that's the right return rate rate of return. For a long time. You would be hard to argue that that hasn't been in the, even just in the public sphere something everybody's been talking about. And so that's been addressed and the rate of return has been lowered from 75 to seven, which some people think may be more realistic. The actuary acts made a recommendation of a range of seven to 7.15. Many people believe 7.15 is more accurate. So, I think to answer your question there has been, you know, just general conversation about all of the factors surrounding whether we're going to make it to 2038. When we pay office unfunded liability. We realize that, you know, our missed assumptions have added over 600 million almost $700 million to our unfunded liability. Right, so I think that I think it's really important that we have realistic investment assumptions and so the change that was made and agreed to by the retirement boards. We think while the range may not be something we're 100% sold on. We thought, you know, the, maybe we could be something closer to 7.15. We think that was a realistic adjustment that would address the concern that you raise we certainly have a concern when we don't meet our investment returns, just as I think all of us agree on that. That has been addressed and certainly could be in the future prevented by having more frequent experience studies. So just one follow up question, did your VP representatives raised concerns over the past decade about the investment performance with the VSE a board I mean was this something that was highlighted. Because I mean, until very recently, the performance of the Vermont pensions has been horrendous. It's been in the bottom quartile of public pensions. You know, and as I said it's added a lot of unfunded liability to our pension system. You know, there's always been discussions. I don't recall if we had a specific discussion with members of the tech I think they have been part of the ongoing discussion about the health of the of the fund. I think what's, you know, what's really important is what's going what's happening now. And what we do now, and to address these concerns and, and so I think that's what I was trying to focus my comments on, both on the shift of power towards management in this proposal from our members perspective, but also just a concern about the process and, and I know people say well if you're talking about the processes because you're losing on the substance. I don't agree with that. I think it's really important that we think about whether or not our state employees believe that they have been consulted in our part of the collaborative decision making and in terms of improving the system we all agree that there's a problem. We all agree that we need to make changes. But I think how we go about making those decisions is vital so that people have confidence in both the process that made those decisions and the decisions that are made. Thank you Steve. Thank you. How Colston. Thank you madam chair, and thank you Steve for your testimony and your perspective from this issue. Equity is very important to this committee. So what does equity look like through the eyes of your members to address the challenges of our pension system. Very important question. To be honest with you. I don't know that we've had a had the opportunity or have had spent the time to have a serious conversation about that. I do think as we think about this proposal and and we focus on the governance of the, of the system. We believe that we have to magnify the voice of the folks who are the of our members of the state employees and the teachers who are on the front lines and who are doing the work and hoping in anticipation of a retirement with dignity. We don't want to overload these board this this board or these the process for making these decisions with folks who are handpicked by the governor and who are likely to have philosophies that may or may not align with ours. So we want to make sure that the system we set up isn't in fact increasing politics in, in injecting more politics into the, into the decision making about the rates of returns and the other governance issues around the pension. Thank you. All right, thank you Steve. I'm looking at some of the changes to this pension I wonder, Steve, what you anticipate and obviously I recognize your crystal ball is probably broken today but I wonder how this might impact workforce recruitment and retention. Oh boy. That is a million dollar question I think it's fair to say. We have some serious problems on our hands right now. We affect public safety. We hear from our lieutenants and the state police about how desperate they are with 30 vacancies. We hear about the massive overtime in our corrections facilities people working 16 hour shifts and sleeping in their cars. We have millions of dollars on traveling nurses, because we don't have enough nurses for our facilities we are down something close to 50 CDL drivers who plow the roads and do the maintenance. That's with the retirement system we have now. Our biggest concern representative is that most seasoned and experienced state employees are busily filling out their retirement paperwork right now, because they have no trust in this process. They don't believe the legislature will protect them, and they are just going to retire. That is a massive loss of institutional knowledge and history that will lead to poor service for your constituents. The pension system is a benefit to all Vermonters. It's not just for the state employees and the teachers. It attracts the best and the brightest it keeps them there longer. It's probably the state's most effective economic development program. Can I just ask a quick follow up? Sure. Where does this put us in terms of the state surrounding us? I know when we talk about a lot of policy changes, whether it's raising the minimum wage or all the other things that we talk about, we often look to, you know, will this drive people to New Hampshire or New York or our border states. And I wonder if you have any knowledge as to sort of where that would place us with the states around us. I haven't done a thorough analysis of that, and we are looking at that. I do understand anecdotally that, for instance, the retirement system in New York is more generous than the one we have in Vermont. But I am familiar with New Hampshire. As long as we're making comparisons to New Hampshire, I'll never agree that their maple syrup is better than ours, but we could have that fight. But I will say that if you're a correctional officer working in Vermont, you start $3 an hour less than you would if you worked in New Hampshire. And in New Hampshire, if you work 25 years and hit age 55, you are able to retire with full retirement in Vermont. That is not true. And under the proposal, and then we're not talking about benefits, but under the proposal I saw yesterday, you know, we could have correctional officers trying to do use of force at age 66. Which, you know, I'm about to turn 50 this year and I can barely function compared to what I was able to do when I was 18 or 20. I can imagine if I had to meet the physical demands of our correctional officers at age 66. And I think they'll always do their best. But that's a very physically demanding job. And if they were in New Hampshire, they would have not only better pay, but they would have more generous retirement benefits. Do you have any understanding of what their governance model looks like and how they're how they're and maybe you don't because I know you've only been sitting with this for a very short period of time. I don't. I understand the treasurer is testifying later and I know she's had some time more time than I have to look at how they structure their system. I understand just from the document was handed out yesterday that that this is the, the model that is being looked at and I know I heard representative Hooper. I can't remember which one he is Hooper number one Hooper number two, which number he is. He's Hooper number three. He also I think echoed one of our members concerns which is that you know their pension, the position of their pension and their unfunded liability is not great. So, why would we look at that model, I think it begs the question for a much more comprehensive look over the summer and fall at, you know, all of the models particularly the states that are doing the best in terms of funding their pension system. Mike McCarthy. So, to bring things back around to the comments we had about how important it is for there to be confidence in the pension being there, you know, we, and representative Husky had mentioned, you know, the, the, you know, some of the concern about you know what happens if there are changes made and I think we're all really concerned about what happens if there isn't confidence in the future performance of the funds and how those are managed and governed. I'm wondering Steve, you know, if you, in light of some of the comments we heard last week where when we asked questions about the rate of return assumptions being missed or the assumptions the demographic assumptions being missed from some of the members of the various boards, we got, we got answers to the effect of you know things are kind of it's very complicated and we take lots of things into account, but the history says that the current governance structure has missed over and over and over again. And I'm wondering, wondering if that missing the mark has and the fact that when it has a negative impact on that mortgage payment, you know the ADEC goes you know spiking on all Vermonters in sort of unexpectedly when we get bad news. If your members want to see better performance if they want to see the numbers be realistic. One of the comments that was made last week that really struck me was that the rate of return assumption should be decided in light of past decision making on policy. And I don't know what that has to do with the fund performance and what the expected rate of return in the future is. And that that really took me by surprise and told me that we needed to make some changes in governance and. I want to know if you know if there's a lack of confidence among VSEA members about the governance and how accurate or how clear eyed those votes that they're taking around rate of return and demographic assumptions are. So I think that's a very good question I'd say one thing I think we have to also calculate into this is regardless of the governance structure. We have 22% loss in our in the value of our fund, as a result of too big to fail, and the policies on the federal level that led to the crash of our economy. And I think that has meant that our fiduciaries have been extremely cautious in their investment strategies, maybe less, more so than other states that have had better returns. So we have had members question that are we being too cautious in terms of the amount of risk we're willing to assume. And that doesn't really, I think the governance structure doesn't have a whole lot of concern about that I think they have made a significant number of changes to the investment advisors for instance they have a new chair of the VPIC board. And we are you know I think I think he testified before your committee. You know our more recent numbers on on rate of return closer to 15% and they'll smooth out maybe at some point. But it is important that we meet our expectations and I think that's why our members want to take a long view of this and not try to jam something through in the middle of a pandemic at the tail end of a legislative session. Without having had the chance to really contemplate all of the factors that go into deciding or to determining what the rate of return is. And I know that you know the President can say something crazy and stock market goes up and down. You know, create a lot of factors that are out of control out of the control of any board and any structure have had an impact on our investment returns and and so we need to look at how, how we can insulate ourselves from that without being too, too cautious that we don't have the kind of investment returns that we need but I think it's fairly easy to say that our members would like us to meet our investment returns. We think this change in the assumption while maybe a little bit too harsh. From our perspective is a step in that direction. Yes, we've got, we've got four other perspectives that we need to hear from with respect to the governance proposal that we have put on the table here and so what I'd like to do now is ask Peter if you wouldn't mind holding that question and if we have time at the moment to come back to you. Jeff Fanon is here with the Teachers Association, and before you start Jeff, I just want to say through you and to your members if anyone's watching. How hard this year has been for our classroom teachers for our education professionals who, who had to stand everything on top of its head, a little over a year ago now, and continue to meet the needs of our kids who are increasingly in crisis because of the, the economic and social isolation challenges of this global pandemic and so I know that this entire conversation and the, and the premise of this conversation is really hard for your membership. And I know that it's hard for them to engage in the details of this because they are really just meeting the day to day needs of their students. There are many cases in very difficult working conditions for themselves so please thank them for me. And please, please do engage with us in this conversation about government governance, and in the future conversations so we'd love to hear your responses to the questions of whether we need to make governance changes to help our pensions get on a path to sustainability. Thank you chair and thank you committee and thank you madam chair for the comments teachers are in all educators are, as you pointed out, you know, turn, turn on their heads to keep school, keep schools operating back in the spring. They're open largely now, almost all of them, and kids are in school, maybe very various models and they're struggling at all remotely in person and we've heard rumors of, you know, possibly changing again in a month or less than a month. So they continue to respond to the needs of students and the communities and and they're at the ready. And this is a tough conversation, a particular tough moment for them and you know one of the questions and I'll just start there by saying they are you know asking us, why us why now. And that's a fundamental question that they, they don't have an answer for. So I think that's what we're, we're endeavoring to have that conversation so with that said, my name is Jeff fan on the executive director of Vermont in the a. And I'm here to speak with you today about the proposed pension governance changes documents that was released yesterday. The question I have left after reading the document is, what is it the problem that we were trying to solve with these proposed governance changes and what did the several boards play what part of the several boards play in the fiscal challenges. So, some may say that because of the draconian nature of the plan design proposal that we may discuss tomorrow. And that these governance proposals are small potatoes not worthy of addressing, we're arguing about. I do, however, believe that the board and board composition matters today, as well as tomorrow, and examining the instant proposals worthy of conversation, thorough conversation. The current retirement boards did not cause the current problems that have been identified to me at least since we started meeting with the treasure in November. The problems were fiscal in nature, specifically the a deck, the, the annual contribution if you will, and the unfunded liabilities increased significantly last year. The boards did not cause these problems and instead when you'd ask why did these numbers, these two numbers increased so much in one year. And I believe there are three reasons why these increase. And they are well known, I think we talked, you've talked about them with Steve hour just a few minutes ago. The teacher retirement system vistas. The state for many years on underfunded the plan. This is well documented in totals of hundreds of hundreds of millions of dollars. And indeed in the late 1990s, a teacher member of the vistas board, Jay Kaplan, went so far as to file a lawsuit against the state for this underfunding. The settlement of that lawsuit led to the passage of a law requiring the governor to identify when the administration's proposed budget does not include full funding of the plan. In other words, it was a teacher member of the board who raised the alarms and nobody else. Removing therefore the voice of members, most directly affected by the state's decision is alarming and not supported by this past practice. The actuarial assumptions were not accurate. That's the other one another reason. The board hired outside actuaries, so called experts to make recommendations and advise the board about the plans demographics, and therefore plan decisions that would be then based upon these recommendations. We learned last year that the actuaries assumptions and recommendations were not accurate. But the board did not make the recommendations I eat the board composition is not to blame. The accurate assumptions cause sizable financial increases. We're trying to react to now, but the board does not need correction is the actuaries who we should be examining. The rate of return the other big issue with representative Gannon pointed out was lowered in November last year and that added significantly to the fiscal issues. Again the board hired outside Wall Street experts and advisors who made the recommendations upon which the board rely. The board operated as it should have. And the law requires it did its due diligence, but it turns out the Wall Street experts were not so why not to expert in their rate of return recommendation. And now the board lower the rate of return to make up for the earlier prediction. Again the board did not cause the problem and fixing the board does not does nothing to examine and address the underlying problem. The composition of the board is perfectly in line with the recommendation of the Boston College Center for retirement research. That center examined board composition public pension board composition and suggested a board that is largely as we have it now. And we should not attempt to a fix a problem that frankly isn't a problem. The BC BC research group recommends a board of between six and 10 members, we have six. The proposal calls for 15 members, which far exceeds the academic research. Moreover, the proposal overly uses political appointees which the BC report specifically recommends against and the proposal does so by a limit or by limiting and reducing stakeholder voice and that again contradicts the research recommended recommending sufficient stakeholder representation on retirement boards. I think we have the right mix right now. Certainly the BC center recommends at least two board members with financial and actuarial experience, and that change is worthy of discussion, making wholesale changes however as the proposal does is not advisable and should be avoided, especially since the current board did not cause the problems before us. So we should examine Taff Hartley plans. These are plans that like our plans are jointly administered between employee and employers, and to turn we should look to see how they are doing overall. Like Steve, limiting the role of new board and like Steve mentioned I'm sorry, limiting the role of this new board as you've done with the proposal to strictly advisory as is complicated and may put too much power in the small group of people, which is again not advisable and recommended by the BC report. And I'll address some of the questions that were raised earlier, if you will Madam chair to speed up the process. And if I miss some, I apologize. I'm happy to answer questions. I agree with Steve and I think that the proposal that we'll discuss tomorrow I guess, for more frequent experience studies, simply put it makes sense. But this discussion today is about governance. When you spoke about investment rate of returns. Yes, I did raise the concern and just quickly stated, the member teacher members of the board, don't report to Vermont any a their fiduciaries to that board. But I did raise the issue of rate of return some years ago with the treasure. And it is concerning to me. And again, that, you know, we, we, we don't have it right. But I suggested then and suggested, you know, more recently is that we step it down and not do it is such a large measure as we did in November. They caused the financial issues that we're facing so if we had stepped it down over time. I think we could have managed this better. So I think that's that's one thought to respond to your question earlier. And the investment. Investment advice was just in hindsight, was not great. I mean that's simply put, and that's, that's unfortunate. Representative Colston you, you talked about what equity looks like. Yesterday had a news yesterday, it was Monday of the days are all merged together in this zoom world. I spoke with the treasure. And she mentioned to me that women boards, excuse me boards that are comprised of larger number of women on them, do better than than other boards. That would look like equity to me, for example, 77% of my teacher members are women. And perhaps they should have a larger voice and how this plan is operated and managed. Representative of Husky you mentioned recruitment and retention. I too am concerned about that. And I suggest perhaps speaking with some superintendents along the borders communities and school districts, for example Jim Calkean is a superintendent down in Bennington for years he said that he sources a training ground for New York. So new teachers arrive in Bennington and have done this for years. And, and then go to New York where they have better pay and better pension. You know, it, if we're going to exacerbate that problem, that's of concern to me, and it should be to concern to all of us. So I do have concerns there. Representative McCarthy talked about confidence in the system by doing nothing. I agree. There is concern about that and several years ago I raised the issue of investments with the treasure. And why does we're paying millions of dollars to Wall Street experts. And there's a really good example right staring us in the face at the time, Warren Buffett who we know is a pretty savvy investor himself has done quite well I think, far better than I could ever imagine. Had a bet with five hedge fund managers, who's known in the community is the bet. I would not perform them all of them by simply putting sizable amount of money I would say a million dollars but some amount of money that was not insignificant into an index fund. And it was a 10 year bet to see who could do better with that investment. It was a bet that I think I believe the proceeds from the bet would go to some charity of the choosing of the winner. But it clobbered the hedge fund managers absolutely crush them in the investment, simply by putting his money into an index fund. So the well managed well healed, well compensated hedge fund managers lost a sizable bet to Warren Buffett simply who put his money into an index fund. I think we can do better than simply just sending our money to Wall Street, and then when they get it wrong they ask us for more money. I mean that's essentially what's happening there. And I think we ought to look at that, that underlying assumptions that are that we're all looking at but Wall Street is the, the experts that we should follow it all all all turns and paths. They are not always right. There are other ways to do this and I think we have to explore those. And that would that would come up out with the composition of the board, and I don't think it's the board composition that caused this problem and I think we should go tenderly into that conversation about making wholesale changes as the proposal does without really understanding the ramifications of them. So that I'm happy to answer other questions and I try to answer everybody's questions I may have missed one or two and I apologize. I appreciate you doing that that's good efficiency here. So, there was a couple things that you said that I wanted to come back to, because you, you pointed to three, three dynamics three, three contributions to the position that we're in right now. And we can all agree that historic underfunding is a big part of why we're in this uncomfortable state. The legislature and the governor have since been making faithfully the ADEC payments. And I think the reason why we're, we're here. Another analysis of this is that the ADEC payments are not predictable nor are they sustainable, which, you know, the contribution to that is, is solely based on the performance of the retirement systems. And also to actuaries making bad predictions and to our rate of return and, and referencing, you know, experts who, who may not have, have advised with the, with the right combination of investments in order to, to help us get better returns in our pension system. And I wanted to push back just a little bit on the notion that we are taking away stakeholder voice in this proposed governance change, because I think that in order for folks who are sitting in the position of power in, in our retirement system to be able to provide actuaries who may have made mistaken assumptions or push back against the outside experts who, who may not be making the right investment recommendations. We need to have stakeholders who have that set of experience, who have that set of skills to be able to dissect what they're hearing from, from the financial advisors and dissect what they're hearing from the actuaries. And that's why the governance proposal that we've made has each of the system boards, recommending their own person with financial expertise. And, and that is really intended to say, you know, you as a, as a teacher's system board, have your expert sitting at the table looking at the recommendations looking at the analysis and able to make a perhaps a more educated assessment of, of whether the recommendations are, are correct. And so we, we certainly look at this as an opportunity to beef up the expertise as well as to, to give each of the retirement systems the ability to place their own expert at the table. Bob Hooper has his hand up and then we're going to switch gears to another part of the conversation. Thank you, Madam Chair. My hand has gone up and down as people have asked questions that I want to put it down now before I forget. Thank you, Mr. Marwicky. So, Jeff, I'm going to ask you a couple of questions and then I, I was holding off so that I could ask one question to all three employee representatives and have them answer, but your conversation just now with the chair brings a point to mind. Did the actuaries make recommendations that were in error, or did our experience with our actual employee groups deviate from what the actuarial tables and the actuarial groupings predicted would be happening. That's a fine point because a lot of this weight is being thrown on actuaries doing the wrong thing when, quite frankly, if we look at your teacher's group experience, it is heavily weighted because people retired more so more frequently earlier than was predicted. Question number two, we're hearing this a lot. It's beginning to sound a little bit like an echo chamber where if you're repeated enough, it'll become true. In your experience, Steve, Mike, have you any experience where you have evidence or even just heard a rumor that a political decision was made by VPIC that was not based upon a fiduciary responsibility. The last question is, you mentioned Jay and filing the lawsuit. Quite frankly, I was there when we threw Bill Sorrell out of his office as Secretary of Administration after arguing with him about this for an hour. I think that under proposed governance, Jay would not be allowed to be sitting in that position as an advisor. Do you consider him in your experience to have been an expert in this type of dealings? Well, first off, Jay is no longer with us. I miss Jay because I don't know what's defined as an expert, but I will tell you that Jay was a learned man, studied the pension systems for years and years, was very focused on it, was a great advisor to his younger colleagues, advising them on certain financial matters. So I think he was extremely learned, and I would call him an expert. I don't know that he would qualify under a court of law as an expert on this, but certainly Jay was on the board for a good long time, as an active and then as a retired teacher, and he brought a great deal of expertise and experience to the board and in his wisdom. And Jay thought outside of the box, he did not accept recommendations from other experts, if you will, without him doing his due diligence and really researching the issues. And so I think Jay was an extremely good board member who did his homework, attended some conferences a fair bit and researched and read and did what I would hope all board members do. He did his job extremely seriously and did, I think he did a great job at it. So I would, I would qualify Jay as an expert in my humble opinion, I'm just one. And I think we need more people like Jay on there who have the interest of the participants of the plan, truly at heart and making sure to represent Jay's point earlier about making sure the plan is here today. You know, I hope so I you know, the board members all of them, they're doing the best and, you know, that's why you want staggered terms. So you have expertise constantly on the board I think that's a good, good idea, and worthy of consideration. And I think that, you know, for that conversation and notion, but I also know that it's important to have stakeholders in the form of teachers on the board, making decisions about the teacher system I think it's born out in the past experience with Jay, for example, recollect anybody making a political decision, not in the bit. And in some way, I think what you're asking represent Cooper is that in some way that was not positioned the best interest of the board. I've never seen that or heard that. I've never seen that to Mike and Steve if they have the option to. So we have a lot more to get into so let's hold up hold that question and we can certainly come back to that. Sam Lafave. Thank you Madam chair and I think everyone for being here to testify today. I just have a, an overall statement, not particularly to anybody. As I said before, and I will say again, we have an opportunity that could put the responsibility ultimately to the stakeholder and that would be a divine contribution plan that gets rid of that gets rid of a lot. It puts it right into the hands of everyone, and that is something we have not had the opportunity to look at and how that would look no comparisons or even hybrid. So I would just appreciate that. And if someone didn't feel comfortable having control of their plan there are newbies available. But that would that would get rid of people having to own up and pay for mistakes that are made on our end, their money would be working for themselves. So, I would just appreciate just if there's any feedback upon that. But to me that would be putting the responsibility right with the stakeholder themselves. So we are continuing our conversation about the governance, proposed governance changes, and I'd like to move now to Pat Gable to share any perspectives from the judiciary on the proposed governance changes. Thank you. Thank you Madam chair, and I would just like to know I really appreciate being invited to comment because this is the first time that the judiciary has been invited to comment or participate in anything related to the pension plan proposal, even though everyone who is a permanent or permanent service employee in the judiciary is in some way or other impacted by these governance decisions. So as Steve Howard said, I will leave to our testimony on plan design comments related to that and I'll just have a couple of quick comments about governance. Unlike the other speakers this morning. We in the judiciary can't speak from experience regarding the governance of the plan because nobody from the judiciary to my knowledge has ever participated in any of the governing bodies. Now I might be mistaken about that in history but we don't have institutional knowledge about that. We have some knowledge about board governance generally, and the kinds of best practices that lead to good performance on boards. And so some of the themes that have already been mentioned today, I think are important ones. One is expertise. Plans already have employees who have skin in the game. In other words decisions made about the plans impact. Not only the state's contributions but their contributions as well. And some of the ideas you floated for new plan designs have that sharing concept to go even further. And it's even much more important than ever, that the right expertise is represented on the governing board, when you're looking at trying to make sure that you maximize investment returns, and you do it in a way that reflects to use a good word that was used earlier wisdom. And so it isn't just that you're a technical expert, but that you also have the wisdom of looking over a long period of time about how markets work. What diversity in the portfolio means for a big plan like this which is a different approach from what you might take as an individual investing. For on behalf of the beneficiaries who work in the judiciary. We want their pension benefits to be secure and to provide them the retirement that they expected when they accepted a position with us. Understanding with the benefits where that were offered that the second point I'd make is that it is very important to have the appropriate diversity on any governance board. As many people who've participated on different kinds of boards before now. One of the ways you do that is develop a matrix where you're not only looking for expertise expertise is sort of like a given you must have the expertise, but at the same time, how, how do you ensure that the diversity of the population the diversity of beneficiaries is represented and there's many different kinds of diversity. The diversity can be, you know, ethnic racial gender, age, there's all kinds of diversity. And what you would hope is with a good process, a recruitment process, a selection process, turning over the rocks process to make sure that you're not just going to the usual suspect or the people you know, but rather that you're really asking, where can we find this diversity and without giving up anything in terms of the expertise. And so I've heard some comments about looking at boards in terms of political or not political or looking at management and labor. And when I have read the materials that lead up to your pension proposal, in terms of all the different factors that played into bringing us where we are today. They are very complex. I think that no one thing that you do is is going to be the magic bullet. But I would hope that the governance that's ultimately adopted demonstrates best practices, both in terms of reliable investment returns, but also best practices that make sure that different ways of looking at things are brought to the table, and that there's not a lot of group think, and also that all those cognitive biases that all human beings have we all make cognitive we know that the some of the obvious ones you know lead to issues of racism and sexism but they also go to confirmation bias, which is we tend to believe things that already match what we, you know believed before that that that kind of diversity I think does help break that up so the Vermont judiciary. We're a, you know, a separate and independent equal branch of government with the legislature, and we make it a point of not taking policy decisions about things that are really well within the legislature's bellywick, but we do take positions. When the decisions are impacting judicial administration and judicial administration does include making sure that we have the best workforce, we can to deliver the rule of law to all of our monitors and people who come to our office, and to manage our branch in a way that's responsible to the taxpayers. And so in that regard, I would just support all the different kinds of breast best practices that that show effective boards, including getting good investment returns but really having a broader view. Thank you Madam Chair, and thank you for your testimony and for your service to Vermont. I am wondering as you speak of best practices and I know there's a lot of different ideas out there if there are specific places that you would point to that we should look for those best practices. And you mean going beyond just the investment. But also good traction of the board. Yeah, yes there there's there actually quite a lot of resources on that so they're not at the tip of my fingers but I'm happy to identify them and share them in materials for the committee. There's, there's been a lot of work done on board governance, and I'd be happy to provide those. Thank you very much. I really appreciate that. Peter Anthony. Thank you Madam Chair, I'm trying to draw on your unique experience from the judicial point of view on what wisdom could be translated over into the subject of the day namely governance. And let me may seem a little odd, ask about juries and their size. I think it's fair to say that the jump to 16 member governance board is different. Put it that way. Is there a reason juries generally are from five to nine rather than from 15 to 17 or 19. Thank you. Historically, our juries come from the common law which started in England, a number of centuries ago. So to some extent, it's the wisdom of the ages I think that brings that to but in Vermont. In criminal cases, we have 12 person juries, and it's an open question as to whether fewer juries than that in the civil docket without the consent of the parties can be permitted. And so, we could talk a lot more about that but I would say you did raise an issue that I believe in the context of this investment responsibility board I should mention a larger board is not going to bring you better investment returns. So one of the challenges I think will be that you need to keep the board in a manageable size, and yet find these diversities. And so, there's, you know, too small a board you don't have enough representation and challenge to group think in the context of you, too large a board becomes very difficult to make good decisions. And so I don't think I wouldn't presume to know, given public pensions that's not expertise. I wouldn't presume to know what the best board side is, but I would guess that it's probably smaller than what you presently got on the table. Can I mention one more thing I did mean to mention fiduciary is really, really important word, and I've served in innumerable nonprofit boards over decades. And one of the things I noticed on boards, even when they otherwise have quite a bit of good representation, particularly in smaller communities or in the context of a community of practice where people know each other well, is that it's easy to forget our fiduciary responsibilities. The fiduciary really needs to know what the mission and goal is of the board. The board has a responsibility to put the goal and the people who they represent above their own. And often what can happen when you have people on the boards who are also representative of constituencies is what very well meaning totally well intentioned, but forgetting that forgetting that even as you do come from a particular constituency that you have to find a way to put those aside and make decisions that are going to be best for the security longevity and return on investment for the boards and I think that comes with accountability, transparency, and continuous education and training, even board members have served on a million boards would really benefit from group training on a regular basis. It's a way to revisit principles, you know you sort of get lost in the problem solving and you have to step back and take a look at principles and often the healthiest boards engage in training on a regular basis, often bringing somebody in from the outside not to tell you what to do about the plan in this case, but to remind them of you know what their goals are. How is performance measure, you know what what are the factors, you know the fact that you had a good investment year. Well that's great but what's your historic track record. So I would really encourage that whatever outcome takes place in terms of governance that again that healthy. So my respect for the fiduciary responsibility of a board member is front and center at all times. Thank you so much that's that's good wisdom to share. And I thank you for that. So we have two more perspectives that I would like to hear from this morning. Thank you so much for your background on the governance question and so I'd like to go to Mike O'Neill of the Vermont troopers association. Mike thanks for being here, please share your thoughts with us. Madam chair, thank you for having me here. Committee members I appreciate the opportunity to testify on these issues. We haven't had the opportunity to. I'll start I'm sorry my name is Mike only on the director of the association for the record. These proposals as everyone has commented on have come out very quickly and we haven't had the opportunity to get feedback from my membership yes so the feedback I've gotten especially on the governance piece of this has been very limited. And as everybody would expect the focus of our members when these proposals came out was on benefit structure and changes to benefit structure. And has caused extreme anxiety and concern among our members but I know today we're talking about governance. I have a lot of feedback from them the comments I've heard this morning from Patricia Jeff and Steve are some very good ones, and some suggestions. They're very important to consider. Yeah when looking at the objectives laid out on these proposals. The objectives are easy to agree with we all want a fund that is going to perform at a level better than we've seen. I don't think in any of the testimony taken leading up to these proposals, we've got answers to what happens with the performance and why the fund underperformed. Yeah, it's easy for people to point at the members of the pick and put the blame on them but I'm not sure that's fair not knowing what the, you know the cause of this was were actually real assumptions incorrect was investment advice we're receiving poor advice should we have been going in different directions and making decisions. And if we're talking about governance I'm not sure why we need to rush through this. We need to change the makeup of a board. Now back to Steve's point, we have time to study this why couldn't we study over the summer the best practices of the boards around the country that have performed well, and are a level above where we've been, you know why would we rush over the summer the best practices of governance changes. There should be a lot more time to discuss this study this, and somebody else said to investigate what took place, you know why were we missing targets, and in missing those targets, I'd like to point out that the unfunded liability that we are facing. Everyone agrees is a real issue. Yeah, our members are as concerned about this as the legislature is of the Treasurer's Office, or anybody else but that unfunded liability is also an assumption based on actuarial work done by the same you know other numbers we're talking about accurate how do we have confidence in these numbers as well. Everything we've seen from the actuaries, we've missed the assumptions on. And, you know, if we're going to really look at how we turn this from the rounds, whether it's with governance of benefit structure, you know, we need to have confidence in the numbers we're talking about. I don't, I think have any real suggestions yet on what we think should happen with the governance of the plan. One thing I would like to point out is the Troopers Association does not have representation on a retirement board. We were members of the VSEA until 2009 and made a decision to leave and form our own union. Since that time we've operated without representation when we left VSEA. We left behind the ability to run for representing and run for a seat on the state employees board. And we would make the suggestion that if we're going to look at governance. One of the things we look at is the VTA having representation on the state employees retirement board. Yeah, I think that's a fairly simple request. We have or at least I have as you know the past president of the Troopers Association and now the director always follow what goes on with retirement we talked to the people on the boards. I was always talking to the treasurer's office. Yeah, there was a question of have you had concerns over the missed investment targets. And the answer is, of course, yes, and we've had conversations with the treasurer about this over the years. But again, I don't have a good enough understanding of how the pick has functioned to know why this has occurred. The question I heard earlier is how will the benefit issues or the governance of the plan impact recruitment recruitment is already an enormous problem for the Vermont State Police for various reasons. And in the last two years as we all know, has really drawn enormous public attention, and we expect much more from police officers now. The public accountability, which we support is much higher than it's ever been, it's become a much more difficult job. The reason most police officers get into the job is the benefit structure that's involved. Yeah, I heard testimony last week about the difference in the benefit structure for the VTA, and that of other state employees and that's a policy decision why there are no benefits, but it has a huge impact on our ability to recruit if benefit structures are going to be changed. It's one of the real issues that we will face when already in the middle of a recruitment crisis. So, right now I think our position is that this really should be slowed down when looking at governance. There should be a summer study and really look at best practices, and how we get to the best possible position of governing our funds. And with us, Mike, and I appreciate that that you've been asking a lot of tough questions about how we got where we are, and asking those questions of members of the retirement system boards as well as VPIC and and the Treasurer's Services, certainly a worthwhile endeavor, because all of the decisions that are made within the retirement system boards and the VPIC are what contribute to the, you know, the bill that gets handed over to the legislature and our role in this has to do with, you know, making any of the decisions that happen with the system boards and the VPIC, but we are left needing to figure out how to, how to pay the bill in the end, and, and continuing to pay the ADAC is an important goal of ours. But also, it's, I think incumbent upon us to, to ask some tough questions here about how we can make that ADAC payment more predictable and sustainable in the long run. So that's why we're here having this conversation. We have one more member of the retirement system to to hear from today and just for members of the committee. Our three retirement system boards are the teachers board the state employees board and our municipal employees retirement system board and we don't have. We have the level of concern with respect to the health and vitality of the municipal system, as we do with the obvious threats to our teachers and state employees system. But since they are a part of the same investment and governance structure, they, they are by default swept into this conversation about making changes to governance in order to do a better job at at at meeting our, our investment return goals. So we have with us Chris do be who is a member of the municipal system he's a firefighter from Hartford and and the incoming chair of the beavers board is that right. That's correct. Thank you. Welcome here's your first, your first chance at the job so thank you for being with us today. I'm a member of the government ops and I preach I spent a lot in Senate government ops of the years. So yeah, so I'll start out by saying that, you know from the beamer side of it we hear the concerns. But we do have our own concerns with this. I'm speaking specifically to the retirement commission. So first of all, the speed of this is concerning to us I mean things came together relatively quickly this week. I mean I started getting emails bounced to me. Oh, I think it was Tuesday. While I was on duty and getting bombarded with phone calls you know what's going on. So our concern is first of all is the speed of this proposal I agree with the other, the other individuals that have testified that to me this is this isn't. Okay, but it's not. Let me quit it to like a freight train you're sitting on the tracks you see this train coming. You know this train is coming and now we're not like the 11th hour and it seems like this is being pushed down our throats. I think that this is something that needs to have the brakes put on and looked at a little more thoroughly studied. As far as the VP, I've spoken my representative from beavers. Jason sits on the VP board and I got her perspective on it. As you know, our, the VMware side of it is is actually probably a little better where like in the upper 70s if not close to 80% funded. So there's a feeling that by by pushing this new model down our throat so we're being asked to step up to address issues that the state has neglected to address. I'm not settling well with the members I don't, I'm not saying that's your intention or your direction but that perception is there. So, we feel we're being forced to make a substantive change to to the way we've done business to address a shortcoming with the other two retirement funds. When I read through this I'm like I say I'm with with trooper O'Neill on this it, you know I'm still digesting this as I go through it every day and learning and learning more. But when you look at the proposal it says in the first line about the commissioners proposed to oversee the investments and management so what am I as I'm looking at tomorrow look at maybe I'm reading into it. I could almost be construed that as the management of how the beach board is run. Now that's a grave concern to us to because now it feels like you're taking more authority away from each individual board as to how they're ultimately going to run their respective systems. Again the individual boards authorities of concern to us we want to make sure that we don't lose what say we currently have with VP. I'm speaking with Tom Galanca with VP and again with with Kim Gleeson my representative. It seems to me like VP because it's made some drastic improvements over the years, they're getting back on track to where they should be. I do concur with the other individuals testified that to me is almost two separate issues one being the years of short funding. The account and trying to make up that shortcoming through rate of returns. You know I have a 457 plan and I, I would like to think that every year I'm going to make 1215% return. You may have that some years. You may not. But wait, reality is that over the long term you're not going to have 12% returns. So I think that the changes they've made at VP if, if improved their rate of assumptions. I'm not saying that there's not some work we could do to improve that I think that studying committee getting an outside source to look at and maybe making recommendations on how to tweak it will be a much better way to go than to add members. The other thing that that strike me as a concern was it. I wasn't aware that at one time the VP committee was actually made up of. I don't go to home with true the numbers but 121415 members and it was a committee that met that said that was too many that's to bring it back down to a more manageable number. I will agree that the larger committee you have larger commission you have more members. It is a lot tougher to get consensus with anything. I'm from my perspective on the board I'd be concerned that that could be detrimental to the success of VP investments, because you have so many different voices involved that you're never going to reach that. And without looking at it I mean those are my biggest concerns is it a that you're moving. This is moving way too fast. I just in a very short time. Again I'm still getting still getting feedback from my other board members and and so forth I'm my other concern is it so. Like I said that this I haven't even spoken with VLCT yet to get their perspective on it because they do have to. Two of my board members are from the employer side and VTC was a VLCT was one of them. And I'd be curious is what their perspective is with your town managers and so forth. Weighing in on this dramatic change to this policy so I mean I guess this I don't want to be redundant because there's been a lot of testimony and I don't want to repeat a lot of what has been said but like I say our concerns will be that our authority would be diminished. That you're trying to tweak a board that that had a lot of changes is making changes in the right direction. Maybe the best avenues to like I agree study take time to study this figure out what the root problems are and address those and make the changes as need be and move forward that way I just think that this this proposed decision is such a drastic change and puts a lot of you know and I look at it is a lot of political appointees on it and so forth that would be a concern to me that it's going to limit the. The employees say on it to a degree, and it's going to be more heavily weighted on on the political administrative side of it which obviously has a different path forward. I don't have any questions like I apologize for having too much prepared because this was kind of thrown last minute and I was then on duty for the last 36 hours so completely understandable and, and I know that I know that that the viewers board has been more peripheral to the issues that really bring us here to the table today. So committee, I would like to take a five minute break and then come back to hear from our next set of witnesses and and really want to thank the folks from the various system boards and Pat and Mike who who don't have a seat at the system boards for being here with us today and and continuing this conversation on how how we might restructure the governance of our pension system to. To really try to see better, better returns and and better accuracy of our predictions in the future so thank you so much committee go ahead and go off camera for five minutes and we'll be back at 1006.