 This is Senator Appropriations. And this afternoon, we're taking testimony from Chris Rook Joint Fiscal Office regarding the pension agreement that has been reached. Obviously that area of underfunding has been a topic of great concern. We had a task force created and in the last couple of weeks have come to an agreement with the two unions, VSEA and the NEA. And so I thought it would be helpful if Chris gave us a run through of that agreement because it does have fiscal implications. And I just wanna start by saying at in December, Senator White came to me and said, you know, in order to make anything work, we need to understand the money side of it so that we understand the budgetary possibilities and limitations. And so starting in the beginning of December, I was participating with the union members and working with joint fiscal staff in terms of how we could address the request that the unions had of the state because the state was asking the unions to underwrite a bit more of the cost of the benefit and they obviously were very concerned about what the state would do in return. So there are a couple of things that came down and I'll just reference them because they tie back into money and then Chris can get into the details. One was they wanted the ADEC, which is the annual contribution which has two parts. One is the normal cost of retirement and the other was the payment made on the amortized unfunded liability. And they wanted to have assurances that the ADEC would be paid and that there would be what they called a plus. In other words, an additional payment that would be used on a predictable annual basis, buy down or reduce the underfunded liability. So in the end, we were able to come up with money that was freed up because of higher contributions and having to add a bit more money to deal with two things. One of which was the pension system and the other was on the healthcare benefit. And I just wanna refresh people's memory that we have, and maybe you don't need to have your memory refreshed, but last year, remember we voted and the Senate voted unanimously to start paying pre-funding our teachers healthcare benefit. And in the end, we couldn't come to agreement because of time with the house. And so we ended up compromising and putting that 13.8 or 9 million in reserve in the ED fund. And then we also had in the language so that at the end of the year, half of any surplus would go to state employees a pre-paying healthcare. And in addition, we had 150 million in reserve pending release upon agreement of this pension package. So sometimes it's hard to reconstruct where we put money and the purpose. But so we had 52.4 million was the 50% of the surplus last year that was identified to go for state employees pre-pay. We had the 13.8 or nine in the ED fund that was reserved to deal with teachers, normal healthcare benefit or pre-pay. And then we had the 150 one-time money to go toward pension underfunding. So, and then the unions and the membership were very concerned about how to get this underfunding down. And the other thing that I think took many people by surprise or really we had not put it all in one place and that was the fact that for state employees, the underfunding of their healthcare benefit was greater than the underfunding of their pension benefit. So this gave us a wonderful opportunity to put together a package where we dealt with the two components of economic security for our retired teachers and our retired state employees. And that was deal with the underfunding of healthcare by getting into that pre-funded arrangement where we had an identifiable predictable commitment to make a contribution every year. Right now we've got pay go and that's most expensive because it's all dollar for dollar. There's no investment, there's no compounding, there's no capital gains, there's just nothing. And so I think from my perspective, we ended up in a very good place in terms of getting both of those benefits taken care of for currently employed teachers and currently employed state employees. The general fund is still on the hook for the past underfunding. That's, I want to be clear, none of that is being shifted to the education fund. That was obviously a concern. But by this package in total means that we're reducing our underfunded liabilities on the state ledger by over $2 billion. So it is a very, very significant reduction in those liabilities that the state has to reflect for transparency and accounting purposes. So the governor along the same lines has in his budget is proposing buying down some of the general obligation bonds and freeing up money to be used in other places. Very same kind of concept because by doing a one-time benefit, and Chris will correct me if I'm wrong, if we did a $200 million one-time payment toward underfunding, two years out, the amortized liability payment would be reduced by $19 million. So there's a very good benefit from flowing from those one-time payments. And once you free up that $19 million, then it gives you the savings then can be applied and be used to fund the plus on the ADEC, which is what they ask. So it's when the conversation is it's all interwoven, it's all interwoven. And that's why it has to be, I want to just restate, it's really looking at everything as a package. So with that, refreshing people's memories of what we had parked in various places in anticipation or to give us some resources to work within, coming up with an agreement. We had those three, and it does mean that we're gonna have to put a bit more money because it's been an unaddressed cost and that's pre-funding healthcare for state employees. And that will take a bit more general fund net and just the same as true on the ADD fund, it will take money on an ongoing basis to pre-fund the healthcare benefit for currently employed teachers. And we also recognizing the higher, significantly higher level of underfunding of teachers made, we're proposing in the agreement to take the 150, split it equally, but then apply another one-time payment of $50 million toward the teachers underfunding. And so we're gonna have to find that, that we'll have to find that additional money for that $50 million underfunding. So I'm just kind of laying that out in terms of what this committee is gonna have to be thinking about as it relates to the money and how we're funding this package. So Chris, I'm gonna let you take it from there. Chris has had the benefit of working with the task force all summer. And so he's got many, many hours of work and looking at what different options and what would be the financial impact. And I think we ended up in a good place to have agreement. And I think to be able to address and put our fiscal house in order is some, we're leaving whoever takes our place a few years from now in a better place than we've been in the last few years. So I wanna just thank Chris for all his work. And Stephanie, in terms of taking my thoughts about how you move money. And if you do this and if you gain it here, it's sort of like what I lose here, I can move over here and to put together a fiscal summary for both groups of employees. And then Graham Campbell also helped with, particularly with the ed fund on the education side. So the amount of time and the talent joint fiscal provided to getting us to this point was really substantial. So with that, Chris, why don't you take it from there? Thank you, Madam Chair. For the record, Chris for joint fiscal. I have a few slides that if it's okay with you, I'd like to share and just walk through and put some numbers to some bullet points to give you a high level overview of what's in the recommendation. So hopefully everybody can see my slide here. Let's just as a quick refresher, when you all passed Act 75 last year, you created a 13 member task force to look at pensions and OPEB and one of the many charges given to this task force was to find ways or make recommendations to lower the amount of the ADEC payment and the unfunded liability growth from between 25 and 100% of that giant year over year increase we saw from FY21 to FY22. So translating those words into numbers gives you those summaries on the right there of what that 25 and 100 translates to. Both recommendations for the systems do get you into that territory of reducing the liabilities by that amount. One thing that's really important to note here that Senator Kitchell touched on was this report and the recommendations were the product of negotiations that went through the holiday season and really right up through last Monday's task force meeting when we adopted the word smithing of the final report. So immediately once that report was agreed to we then pivoted to putting some preliminary fiscal analysis together. So that's why you see the numbers in a companion document rather than in the report itself was because of the unfortunate time constraints in the process. But the recommendations for both the state and the teacher pension systems really do mirror each other in a lot of ways and hit on a few key themes. They all involve recommended employee contribution increases on active members that are phased in over a period of time. Some relatively modest changes to the benefit structure, commitments of additional state funding to pay down the liabilities, which is what Senator Kitchell was referring to earlier and pre-funding the OPEB. The OPEB is that subsidized retiree healthcare benefit. So most of the savings that would come from the pension recommendations are effectively being reinvested into accelerating the state's payment toward paying down its unfunded pension liabilities and pre-funding the OPEB. And combined, these recommendations would reduce the state's long-term liabilities on the balance sheet by roughly $2 billion for a state the size of Vermont that is tremendous. And one thing I want to point out before moving on here is that the employee groups themselves put forth the recommendations that were included in this report. And the recommendations were all agreed to unanimously by everybody on the task force. So I think that was a pretty notable thing to mention that this was not something that legislators were telling people what to do. These recommendations really were put forth by the employee groups representatives on that task force, and they're based on things that those members wanted to study during the process. So real quick, I'll run through a few slides for the state employees and then the teachers and then leave a little bit of time for questions. But a few key themes here that are worth mentioning is that the state employees, none of these recommendations involve making any changes to people who are currently retired or terminated vested members. The recommendations really focus on phasing in some higher employee contribution rates on active members over a period of time. So the theory would go that as your contractual wage increase goes up by some percentage a year, your pre-tax pension contribution would also go up by a smaller amount. So a member would still be taking home more in their paycheck, even though their employee contribution went up over a phased period of time. There's some relatively modest changes to the COLA, the Cost of Living Adjustment. That $150 million that you all put in reserve in the end of FY21, the recommendation calls for taking $75 million of that $150 million and putting it into the state system. We'll go into this further in another slide, but the other $75 million, the other half of that $150 million would go into the teacher pension system. Plus an additional $50 million that would be reserved in FY22. So that's how you get a total of $200 million. There's that $150 reserved in FY21 plus a new $50 to be reserved in FY22. The recommendation is called for the state committing to a plus payment on the ADAC toward the unfunded liability in both systems. So that would begin in FY24, ramp up to a maximum of $15 million in FY26. And that would stay in place until the pension systems reached 90% funded. Pre-funding the OPEB benefits is a huge part of the recommendations in both systems. And one piece that's a little unique to the state employees is there is a language put forth that you will see in the Budget Adjustment Act when it comes over from the other body. Directing the treasurer and the retirement board of trustees to develop some recommendations to create what we call a Group G benefit, which would be a new employee group for the Department of Correction staff that would look a little more like the current Group C benefit for law enforcement, where this was an issue that first came up several years ago in the law enforcement retirement study group. There's a lot of interest in creating a benefit that's specific to DOC staff. Provided that it's done on an actuarially neutral basis to the pension fund and doesn't result in extra cost to the employer. The task force ran some preliminary analysis around, what would it take to give everybody the benefit that looks like the existing Group C? And they came back with a number that would be unaffordable to most members. It would be a required contribution rate in excess of 30% of pay. So where the group landed was creating some language into statute, it would be in the BAA because that is going to move quicker. That gives folks a little bit more time to sharpen their pencil and cost out a couple different options and see if they can come up with a acceptable recommendation on creating this benefit. And if they can do so by April 15, that allows time to drop that recommendation into the pension bill. Similar language directs the Treasurer and the Board of Trustees to work around this idea of, are there longevity incentives that can be provided that would encourage a Group F member who's eligible to retire to keep working past the point at which they're eligible to retire? So again, this is something that very worthy idea, but it needs some further study and some more time than the task force process allowed. So the language was we would give everybody to April 15 to provide some recommendations. That way you all still have a little bit of time to review that and act on it should you so desire. Slide four starts getting into, you'll see a few slides to show the preliminary fiscal impacts and preliminary is the word on all of these around some of these changes. So the state employee pension system recommended beginning in FY23 phasing in higher contribution rates on all active members. This looks a little different for each group. Group C is the law enforcement group. That's about 450 active members. They had a representative on the task force from the Vermont Troopers Association and they put forth a recommendation to phase in over a three year period, half a percent contribution increases. That would yield beginning in the first year roughly 200,000 of additional revenue ramping up to 600,000 by sort of full phase in by FY25. Group D is the judges. That's around 50 active members and group F is by far the largest share. That's well over 7,000 members and that's pretty much all the active employees that aren't in either the law enforcement group or the judges. They put forth a proposal of sort of tiered increases based on salary percentiles where the higher one earns the more years of a phased in contribution rate would take effect. So folks who are at the lower end of the pay scale would not see an impact but folks at the higher end of the pay scale would see a higher impact. There's some details that need to be worked out around, okay, how do we implement this framework? But the rough estimates that we received from this type of modeling that we asked the actuaries to do was that in year one, this would yield about two and a half million of extra revenue and by full phase in by year five, which would be FY27, that'd be about 13.3 million. Something really important with all this conversation when we talk about higher employee contributions is that this money that would be generated offsets the normal cost. So the state would effectively save the amount of money that would be generated from the higher rates because the employees would effectively be paying a greater share of the normal cost that would otherwise fall to the state to pay through the ADAC. Slide five just shows you a little bit about the COLA changes. You'll see these similarly modeled for the teachers as well. The recommendation is for Group C and Group F, change the current minimum and maximums in the COLA formula, which currently has a 1% minimum and a 5% maximum to a 0% minimum and a 4% maximum. The other key recommendation would be for Group C and Group F, currently in order to receive your first COLA, you need to have received a retirement benefit for at least 12 months. So you need to be retired for at least 12 months. The recommendation is to increase that requirement to 24 months. So basically just delay the receipt of the first COLA for an additional year. An important thing to note is that the recommendation proposes to exempt active employees who are eligible for normal, unreduced retirement as of July 1st from these COLA changes in an effort to not encourage somebody who can retire to retire. You typically see actuarial gains if somebody continues to work to a later age than they otherwise can leave at full pension. Group C, the law enforcement had a few other recommendations that were specific to that group. And both of these are related. One was to increase the mandatory retirement age from 55 to 57, which dovetails with the recommendation from the law enforcement study group from a few years ago. This, I wanna be very clear, would not require anybody to work to age 55 or to age 57. Currently a Group C member is eligible for unreduced early retirement at age 50 as long as they have at least 20 years of service. And almost everybody retires at age 50 under that provision. So one of these, so this would not require anybody to work later than age 50, but in combination with the second bullet point here where it would allow the maximum benefit cap to go up by one and a half percent for each year you work beyond those benchmarks would allow a member to voluntarily work into their 50s and still see their retirement benefit increase a little bit as a result of that extra year of service and not just from the salary growth they would have received from that extra year. How much this will save money depends on how behavior changes, but the actuaries did do some costing out for us. And they do expect this will result in some savings because they really don't expect anybody to retire to continue working past age 50 in 20 years of service as it is. So the more you can get behavior to voluntarily do that the more likely you are to see gains. Group D is the judge. Yes, sir. Chris, I'm wondering the 1.5% how much is the cola on an average year for that particular Group C? So that's an excellent question. Group C has a long-term cola assumption of 2.4% but the cola varies based on that assumption and it has varied right now. So up until the last year or so inflation has been lower than we've assumed and this has been an area where we've actually seen some modest savings and that stopped this year. The CPI has been so high that even though that long-term cola assumption is 2.4% a year people in their calendar year 22 colas are now getting 4.6. So a combination of reducing that maximum from five to four will save a little bit of money on the cola moving forward and reduce some risk from high inflation. But the reason why 1.5 was picked for the max benefit increase is it's less than the status quo. So right now if you're a Group C member every year you work is worth 2.5% of your average final compensation up to a maximum of 50% of your average final compensation. So if you've got 20 years of service and each year is worth 2.5% you hit your 50% of max benefit cap at 20 years of service. So anything you work after that your pension benefit doesn't go up as a result of the extra year you worked it only goes up as a result of however much your salary may have increased in those extra years. So this is a way of allowing that benefit to increase but at a lower rate in recognition and sort of in exchange if you will for somebody work voluntarily working a little bit longer. Yup, thanks. Sure, last thing on this slide is I wanna mention with Group D the judges I really wanna recognize and thank Judge Grierson because the judiciary did come to the table and participate in this process even though they have a very small group and they had their own internal stakeholder engagement process and came up with some recommendations that are not gonna result in massive savings because the group is so small but make some very important changes for equity reasons that bring that Group D benefit a little bit more in line with the benefits that other employee groups are receiving. So Group D is different in a lot of ways. People tend to enter the workforce at a lot later of an age leave at a later age, the normal cost is much higher and the terms of the benefit are just different but what they've put forth as a recommendation is with the sort of carve outs you see here on this slide to amend their final salary calculation where right now their benefit is based on their year of final salary before they retire and the recommendation is to move to an average of your two final years. So that would look more like the Group C law enforcement benefit. Also reducing the maximum benefit from the current 100% of final salary to 80% of the AFC. Hardly anybody gets 100% of final salary because you would need 30 years of service in order to get that in Group D and as I mentioned people tend to enter Group D at a much later age so they tend not to accrue 30 years of service the way we would think of a rank and file state employee accruing 30 years but again this is an important motion toward equity and bringing that benefit more in line with some of the other groups. For new judges entering the system after July they've recommended raising the retirement age from 62 to 65, putting some further caps on the COLA where it would only apply at the current 100% of CPI rate on the first $75,000 of retirement benefit which is pretty much the average of the Group D retirement benefits and then a reduced COLA that's calculated at 50% of the CPI on benefit amounts above 75,000. And again they recommended mirroring the recommendation of the other groups where you would require somebody to be retired for at least 24 months before they get their first COLA. Slide six just shows you what all the preliminary fiscal estimates of what these COLA changes are likely to yield. So when you add up down the ADAC column that shows you the preliminary estimate of how much these changes would save the employer's pension costs. So you could view these in a way as additive to what we saw about the employee contribution increases on an earlier slide. So those Group C COLA changes if you read down in combination would save approximately 3.3 million. The Group F changes would save approximately 5.4 million. You know, add them all up you're looking at roughly 8.8 million of ADAC savings just from the changes to the COLA. That would include on top of that $58 million reduction of the state's pension unfunded liabilities. Slide seven pivots over in the recommendations for increased employer commitments to the pension system. So as Senator Kitchell mentioned earlier 50% of that 150 million you all reserved in FY 21 would go in and that would obviously reduce the unfunded liability by $75 million but it would also on a two-year lag assuming the money is paid in FY 22 would lower your amortization payments in the future beginning in FY 24. So it's about a 9.4, 9.5% of the amount of your one-time money will be the savings you see on a two-year lag. So you put that seven, yes. Chris, knowing that getting that payment made as soon as possible in order to experience a benefit two years out it seems like that would have to be made when. Is that something that has to be done as long as it's made before the end of this fiscal year or it doesn't have to be earlier than that? That's a great question. I would say as long as it hits in this fiscal year you will see the savings in FY 24. There's obviously a lag between when you all decide to make an appropriation and when the funds are actually invested in VPIC. But the important thing is to take that money and make sure it's reflected in the valuation for FY 22 because they'll take the impact of that money. They'll also look at all the other gains and losses the system experienced in FY 22 and then recalculate what your FY 24 payment will be. Well, the reason I asked is because we're gonna have to add to the one-time $250 million and I was just wondering, well, obviously we've got a bill that's coming out of Seneca box. We've got the budget adjustment and then we've got the budget. So I'm just trying to think through what would be and I'm sure we'll talk to Stephanie. Is that something that we really should move forward on and release the money as part of the budget adjustment? But that's a timing issue. So we'll have to have further discussion because we do really wanna get that payment made so that we experience those savings in that two years hence. Absolutely. And I think as long as the systems recognize that money by June 30th, you'll have that savings show up in FY 24. Well, if we did in the big bill and we've got time, we can make that effective upon passage so that it gets... Or we can, well, we'll have to think that through in terms of the mechanics of making that work within the timeframe that this requires. Okay, I just wanna put that out there and Stephanie and you can let us know what's the most desirable approach. Absolutely. Two other points I wanna just highlight before I move on is Senator Kitchell mentioned the ADEC plus payment. So that's sort of the commitment that once we start seeing the savings of that one-time money and the changes really materialize in the budget that a portion of that is reinvested in further paying down our liabilities. So we have not had an opportunity to actuarially cost this out yet, but just like with the one-time money, the more you put in above the actuarially recommended amount, you will see savings in future actuarially recommended amounts and you will save interest costs long-term and accelerate the pay down of those long-term liabilities. And one other key element of the recommendations you see in both the state system and the teacher system is reconfiguring the existing general fund ERN construct. So right now the statute stipulates that 50% of the unallocated unreserved general fund surplus goes into the state OPEB trust. That construct resulted in $52.4 million going into the state OPEB trust at the end of last fiscal year, which is more than enough to begin pre-funding that system. But the recommendation going forward is that you take that 50% construct and instead split it equally. So 25% goes into each of the different pension systems. So again, it continues to accelerate the progress at paying down those long-term retirement liabilities, which will save money in the future. Slide eight walks through the OPEB proposal a little bit and you already heard me mention about the 52.4 but a key element to begin pre-funding is that the state will have to enact a pre-funding commitment into statute. You already have something like this with the pensions where you basically say the unfunded liability and the normal cost are calculated using this actuarial method, the payments are structured to grow in this way and your unfunded liability needs to be retired by a certain time period. And you also need to commit to making a payment above the current pay go amount as part of that. So in the near term, pre-funding requires a higher expenditure level than pay go does. But in the long-term, it is tremendously more efficient for taxpayers because you can use investment returns over time to pay these future benefits instead of just paying it out of tax dollars on an ongoing basis. But you don't need to get to 100% funding in order to see the big benefits from pre-funding OPEB. You really need to just do those few things. You need to enact that commitment, that statutory policy, that pre-funding policy and you need to make that commitment of and stick with it of making those required payments. And then you get a tremendous savings on your bottom line which I'll get into on another slide but it all goes down to how the math works. You can use a 7% discount rate to discount your liabilities if you're pre-funding as opposed to using a 2.2% discount rate under pay go. Is he Senator Sears as his hand raised? Yeah, I just, there's obviously nothing here that would require a future legislature to not make the same mistakes that were made in the past and in tough budget times, et cetera. But if there's no surplus, then there's nothing going in. Is that, I'm trying to understand that. No, that's true. That would be true. That would be true. So if there's no surplus, then we could find ourselves back in the same boat. Well, the division of the surplus is on top of the ongoing commitment for the ADEC Plus. So it's in addition to the Plus payment. So that's really important, Senator Sears, to make it clear. The Plus is an ongoing obligation to pay the full ADEC Plus 15 million once we ratchet it up and keep it there until the fund is 90%. Then if we have surpluses right now, we do 50% to the rainy day fund and 50% for state employees, OPEB. Because we're pre-funding OPEB now, that construct is not relevant. So instead, what we're saying is the 50% that we had allocated for OPEB would then be replaced with the same 50%, but it would be split half and half between the two pension funds. And the other half is rainy day, which right now is fully funded. And so you're absolutely right. A lot of that is contingent on what is left at the end of the fiscal year, but that would be on top of the Plus. So that's really important. In other words, the Plus is ongoing. And the other part is language that would go in the green book, stating the legislative intent around fully funding, the benefit and pre-funding healthcare. So I realized that what people do in the future, but if anybody's around who's been through what we've been through and trying to figure this out, I would hope that they wouldn't go down that path again because the obligation does not go away. And it comes back. I understood. But a part of the reason for the sins of the past, if you were, were overly positive expectations of income from the investors. And I don't think we changed that. We actually did lower it and it's seven. No, no, I mean, but in terms of if a new, if the current group or a new group forecast certain returns and those returns don't happen, that's still a loss. You're expecting certain increases and during inflation, you should be getting a larger amount, but if we go into a deflationary period, we'd get less income, but that depends on the projection of the action. And they're not always right. No, Senator Sears had an opinion about how far off we were, particularly for teachers. And that was hard to understand because I think was over 40% of that underfunding was driven by the demographics of teachers, which seems like that wouldn't have changed that dramatically. But you're absolutely right. The advantage, of course, is the investment return is 7%. Some years it'll be much higher and some years it could be lower. It's just over a period of time, how it smooths out. But Chris, I think at one point where we're talking about, or it's Stephanie, where we up around 9%, estimated it was very high, it was artificially high. And of course, what that does is lower the ADAC, but it's only, I mean, all you're doing is deliberately building a future obligation or underfunding. So according to Chris and with my conversation with him, the 7% seems to be pretty much the norm with across the country for investment returns for pensions. But maybe you can speak to that, Chris. That's absolutely right. 7% is our current assumed rate of return and that is in line with the median of most major American pension systems surveyed by NASRA. We were much higher earlier in the amortization period, like up back near the Great Recession. The rate was, I think, eight and a quarter. And a lot of systems were up around nine in the 80s and 90s. But think about what you are getting on your savings account back in the 80s and 90s. Interest rates were so much higher back then. And it was a lot easier to get double digit returns consistently in that monetary environment. So that rate of return really has gone down over time due to changing expectations about how markets are gonna perform in the future. And things like knowing what interest rates are and inflation are factors that the actuaries and the investment consultants look at when they're trying to figure out what the amount of money should be. But investment experience is one factor. Longevity is another factor. Salary growth, your retirement behavior. All of these are factors of the plan, experience factors that can deviate from your assumptions. So there's always inherent risk here, but having really good realistic, small C conservative assumptions helps mitigate that risk in the longterm. I'm not gonna spend a lot of time on slide nine because I already went through it on a previous slide. This just gives you a sense of that language around by April 15th, there's going to be some ideas put forth to you all to consider on longevity incentives and a new group G benefit that hopefully can be considered in time to potentially be included in the broader pension bill. Here's some slide 10 as some very, very preliminary cost estimates. And I wanna focus on the box on the right that shows you what the impact of to the unfunded liability is from all of this. So the pension benefit recommendations, that's the changes to the COLA and things like that. You're looking at roughly a $58 million reduction in the unfunded liabilities on that piece. The one-time pension contribution from the state, another $75 million, pre-funding OPEB. You can see what a tremendous bang for the buck that has, $891 million reduction in our long-term liabilities because we can discount our liabilities using a 7% rate if for pre-funding. And under PAYGO, the accounting rules force us to use a 2.2%. But these numbers are very preliminary and we're working with the treasurer and the actuaries to see how these numbers shake out because some of the things that were included in the final proposal were not exactly costed out before in the way that they were ultimately recommended finally. And there's gonna be timing issues and things like that that can vary the amounts and the year at which certain things are recognized. But these are just some very, very preliminary estimates that are going to be refined in the weeks ahead. So it'd be a good time to pivot over to a few slides on the teachers. These changes are much more straightforward and less complicated because all the actives in the teacher pensions are in the same employee group. So it's not a situation where we have to create different recommendations for three different employee groups. Just like with the state, no recommended changes to currently retired or terminated vested members. Similar themes around higher phased-in employee contribution rates on actives, on sort of a progressive structure, some modest changes to the cost of living adjustments. The state making a $125 million one-time payment. The same ADEC plus type of commitment and pre-funding OPEB, but in a similar way, but with some extra sort of nuance around this where the recommendation is to pre-fund the OPEB the way we currently fund the pensions where the normal cost, which is a cost of providing a future benefit to today's workforce is paid out of the ED fund and the amortization and sort of pay-go cost for today's retirees would live in the general fund. So the teacher proposed contribution rates would be on a marginal basis that kind of looks like an income tax where right now most teachers are paying about five or 6% depending on what date of hire that they had. And the proposal is to beginning an FY23 over a three-year period, phase in a marginal structure the way we do with our income taxes. So these would be the marginal rates, these would not be the effective rates, but every year it would be envisioned that you go through a calculation process and you figure out what everybody's base salary is for the upcoming fiscal year. What your base salary is, you would then calculate the effective rate to charge and then charge that effective rate on every dollar that person earns that year. So just like with the state system, higher employee contributions, offset employer pension costs through the ADAC only hear that savings mostly shows up in the ED fund because that's where we pay most of the normal cost out of. So beginning in FY23, this would likely yield about 6.2 million of additional revenue by FY25 when things are fully phased in working at just over $10 million of additional revenue from these higher employee contributions. Again, this would offset pension expenses that would otherwise fall to the ED fund. COLA changes very similar themes here where reducing the current 1% minimum, 5% maximum to a 0% minimum and 4% maximum. Delaying the COLA from a minimum of 12 months of retirement to 24 months and exempting actives who are eligible for normal, unreduced retirement as of July 1st from those changes. Something really important to know about the teacher system is that the COLA is calculated differently than it is for the state system. The state system has what we call a full COLA where your COLA is calculated at 100% of the CPI within those minimums and maximums. The teachers have a COLA that is calculated at 50% of the CPI. So this means that you don't get as much savings on the state side from changing the COLA or on the teacher side as you do on the state side. There's less juice in the fruit to squeeze out of it because it's an inherently less generous benefit under status quo, but making these changes will still yield $4.8 million of 8x savings total which includes $1.6 million of additional ED fund savings through the normal cost and some additional roughly 35 million reduction on the unfunded liability. Something that is very key in this proposal is that once the system is in a better shape, 80% funded, there is a provision here that would revisit that 50% of CPI calculation and allow it to be escalated by 7.5% a year. So long as doing so does not cause the pension system to drop back below 80% funded. So what this essentially does is create a path where once the pension system is in a much better state and 80% is a benchmark of having a system that's in pretty good shape, that the COLA benefit would incrementally increase over time to be more on par with the benefit provided to state employees. So slide 14 sums up the employer commitments where you take the other half of that 150 million that's currently in reserve, add another $50 million from FY22 to get you up to $125 million total. That results in just approximately 12.2 million of ADAC savings that begin in FY24 and those savings recur in the future. Same type of plus payment construct is envisioned where up to $15 million payment would take effect until the system gets to 90% funded and that general fund construct is revisited. So that 50% is split equally between the two pension systems. Slide 15 just shows the OPEB. It looks a little different here than for the state system. The proposal here is to again enact that pre-funding schedule into statute using an ADAC like we do with the pensions where the normal cost and the unfunded liability are sort of separately calculated and funded every year. But inserting the normal cost payment into the ED fund to mirror the system you currently have in place with the pensions. And that would begin in FY23 at 15.1 million an increase with payroll from there. But to begin pre-funding, the proposal calls for taking 13.3 of the 14 million you all had reserved in the ED fund last year as part of the budget process, move that 13.3 over to start the pre-funding. You wanna start with a little slug of money to hedge against short-term volatility in the investment markets or in your claims experience. So the 52.4 that moved over from the surplus into the state OPEB last year more than satisfies this requirement. But you need a little bit more into the teacher OPEB to begin and 13.3 aligns with the number that the treasurer requested last year. And again, the part of this commitment it would also be to continue applying the current pay-go amount out of the general fund. So all in all, slide 16 wraps up the total impacts for the teacher system. Again, on the right you see the unfunded liability impact just shy of a billion here. Where again, the lion share the benefit comes from pre-funding that OPEB. And these preliminary numbers show you with some minor fluctuations that could happen due to further actuarial analysis that some of that higher ed fund cost from pre-funding the OPEB is offset from higher pension contributions from employees and those COLA changes. So things don't perfectly offset but you get to a point where you're looking at a net new impact to the ed fund of pretty low million dollar numbers. Slide 17 is just a summary slide that again shows very preliminary estimates that I'm not gonna spend a lot of time on today but just to show you the magnitude of how much all the levers move the different funds we put this chart together and there's gonna be some modest changes due to timing and things like that once the actuaries have a chance to cost things out. And again, you'll have a plan experience from year to year that will make these numbers fluctuate as well. But that's sort of the high level overview. So you have a sense of what the moving pieces are and how much each of those pieces is likely to sort of move the needle in all the different directions but as Senator Kitchell mentioned earlier this proposal really does hinge on making some changes that will reduce the savings on, reduce expenses and yield savings on the pension and then reinvest those savings and that fiscal capacity to further shoring up and paying down our other long-term retirement liabilities. So with that, I'm happy to answer any other questions you may have. It's pretty dense for the first go through. So it's hard for me because as I said at Christmas time instead of sugar plums in my head I had OPEB and ADAC dancing around but it seems like we have come up to a good agreement. I think that it is an agreement so it's more understanding what's in it and the different pieces of the money. Other questions in terms of, you know, what's in the proposal but I guess the main thing is increased cost sharing and dealing with our underfunding and for the first time ever get pre-funding the cost of that future healthcare benefit for currently employed teachers and state employees which has not been done. I was surprised it had not been done for state employees either. So that this seemed to be if there's ever a time to deal with this and put in one time money and come to some kind of agreement to shore this up and stabilize it it seemed like now is the time. The governor's budget did not include anything related to this it's fully funding the normal ADAC. So the parameters around, you know, in the future the plus and how that gets funded will all be put into a language that would go in the green book. So it's clear that it would those savings would be redirected to fund the plus. And the one thing that we have to find is the additional 50 million one-time payment to go toward the teachers underfunding. And I don't know Chris sent me a great article and I hope we can get it out because there's lots of concern about a defined benefit plan versus a defined contribution. And it really does talk about both the economic security as well as the fiscal advantage of a DP plan. And I just wanna remind committee that in fact we do have another plan, a retirement plan which is I believe 100% funded and that's the municipal employees. So you can have these plans that they can work, but it's really important that you are more on the conservative side relative to the various assumptions that go in in the calculation of the ADAC. But for example, and I'll restate it again for state employees, the pension liability is 1.06 billion but the healthcare benefit is 1.66 billion. So it is a huge, huge difference in terms of underfunding. On the other hand, the teachers pension underfunding is 1.9 billion versus the 1.06 for state employees. And part of that was the fact that we paid the healthcare, the pay go healthcare costs out of the corpus of the retirement fund. So we exacerbated the underfunding and you can see that and the differences. I mean, it's almost double what the teacher is underfunding. So some of that has had to do with the assumptions in terms of the calculation, but some of it was attributable to the fact that we used the retirement fund to pay, which we did not do for state employees. So that was also a contributor. So with that other questions, Stephanie, do you have anything you wanna add? A lot of the histories and the colors and whatever? No, but in addition to the 50 million, you may have to find a little bit of general fund in 23 because as I read the book, the governor's budget book, he did, it seems like he did scoop out that 5.5 on the teacher's pay go side. And there's also a little bit of pressure on the state employee side on the first year of pre-funding that maybe other funds can't pick up. So we might have to think about that a little bit. Okay, I can't believe how they did that. I asked if it could be, the, what were they? I think they didn't because of the way the federal grant piece works, but when you read the book, it's showing that they're dropping down to 29.6 on the general fund side, so. And committee, what's being referenced here is the treasure renegotiated the healthcare plan for retired teachers. And it's a Medicare Advantage plan and that reduced the pay go costs as well by 5 million. And we had hoped that that would have stayed within, this fence or corral of money currently being allocated to retirement benefits. But I guess the 5 million that I asked the administration if it could be retained, apparently got scooped. Okay, any other comments, Stephanie? I wonder if it'd be possible to have hard copies of these documents. I think once the bill comes forward, we're gonna start to hear from pensioners to either supporter or not supporter. I haven't heard much, so I guess that's a good sign. But it'd be helpful to have the documents. All right. Yeah, they'd be on our website, but do you want them put in the mail? Yeah, I'm using ink like this. Crazy right now. And these are all pretty dense documents so it'd be easier to get by mail. And some of the other documents that Chris and Stephanie were just talking about. Okay, we can, Chrissy, that might be something that Chrissy could put together and put in the mail for people. Even the governor's 23 budget would be helpful, by the way. Yeah, anything you guys would like me to send? I'm happy to, so if you just zip me a note where you're looking for, I'll pop them in the mail. Well, I'd be looking for the 23 budget as well as the pension. Okay. Booklets with that in it, with the budget, those regular... Yeah, I know, but we don't... I know, we should get them in. All right, so I think that's what's being asked for is that budget that we would normally get when we walk out of the chamber. And then the slide deck that Chris and the fiscal summary that Stephanie and Chris put together. And anything else? Senator Westman, you had your hand up. Other documents? I haven't been through everything, it may be in there, but what would be helpful for me is before we do these proposed changes, we roughly went through all of... Here's the deficit in the pension systems. After we do these changes, we take care of how much of it and what's left. I think that's probably, Stephanie, that would be the graph I asked you to put together because then it showed, because we were concerned, both groups would say, well, did you get more than I got, for example, and they both came in very close at about 150 million between the one-time payments and the ongoing benefits. That was that short side-by-side chart on the fiscal pieces of each system. Yeah, that would be very helpful because what I generally run in my mind is that the state employees had about a billion dollar whole, the state, the teachers had about a two billion dollar whole. And I'm not sure where that ties into the healthcare in the prepayment of that. So I need to have a way to say to people, it was this, if we do this, it's this. Yes, I think that side-by-side chart does exactly that and it shows what funding stream is being used because for teachers, obviously, there's some ed fund payments here and it will also show the reduced liability. I think that chart's just a couple of weeks old. I think we just need to add the estimated liability impact from the COLA pieces, which was, I don't think on that chart a couple of weeks ago. No, it wasn't. This was just a way of showing both groups that that response was pretty equitable across both systems, although obviously the pension liability for teachers was much greater as Senator Westman said, it was just about double. So are the teachers and state employees, have they been presented this information and are they aware of it? I mean, they have a hearing, there's a hearing, public hearing tonight at, what is it, 530 by Jeanette's committee? Yes, they are aware of it. And as Chris said, these agreements were actually proposed by the two unions. Right, but did the commission get out there to all the people? Yes, yes, the teachers actually had an advisory group while there were three on the task force, they had an advisory group of about 20. So, and they've been feeding information back out to their membership right along. And the same is true with the state employees. So they had the membership on the task force and then they had ongoing communications back out. Now, these are not the same as the contract. I mean, they aren't gonna vote on them, but they are what got negotiated here. And the one thing that I think was important was that the members of the task force testified before Gov Ops in the Senate talking about the process and how that I believe they viewed it as very positive. It was constructive, it was respectful and that what we had here was an agreement that they supported and would be very pleased if it can get implemented. So that was the feedback I got, Chris. You were in there, but I think that was your testimony. Now, I think that's right, Senator Kitchell. And I think you mentioned this, but both the employee groups that were on the task force and the leaders of the employee unions they have mentioned that they're doing a lot of member education and outreach. So these are very, very large systems with tens of thousands of members. I don't expect there will be a unanimous opinion on their recommendations, but there was a unanimous opinion at the task force level and these were recommendations that were put forth by the employee groups. So they are doing a lot of intensive member engagement. I know that. And like anything, there's not gonna be a hundred percent agreement as you know, there were some members who felt nothing should happen, no changes to contributions, the state should simply pay in more money. So obviously this is not, this doesn't say it's all on the state side. It was negotiated. So I think there have been some communications back of people that may not like this, for example, because they didn't want any changes other than the state to pay more money. And so I think actually maybe the head of VSEA might have testified to that effect as well that out of the large thousands and thousands so far the feedback has been well received. Any other questions of Chris or Stephanie? Very good, very logical and well done. You have an eye to understand it. All credit goes to the chair of this committee. I think Senator Kitchell got this agreement over the finish line and I can't give her enough credit and Order Treasurer Pierce. Working with her and her team that has been seamless, that they're a pleasure to work with and they really care about doing the right thing. So this process just ended in a good place, I think. That's great, good to hear, good to hear. So any other material will do the updated side by side, Stephanie, because I have the earlier version that I asked you to put together. And then- We can just do that little update and send it around. Maybe we should get an autographed copy by Jane and the Treasurer, right? Right, you know, for our walls and the store. Look. Given where we were a year ago in the House Government Operations Committee and given where you are today, I mean, it's like night, day, yeah. So kudos. Oh, and if we had to have that 200 million that would have probably still been kind of dark. It may have been, but I just, it is what it is, but it's like night and day, the response, so. Well, given using that money very, very wisely. Yes, Senator Resslin. I probably shouldn't say this, but given where the House's position was on pre-funding some of the OPEB in the budget last year, this is amazing. Well, you were there part of the, all the negotiations. We stated our case, didn't we? We stated our case and they were, and at that point they weren't willing to move at all. Well, you know, I'm getting credit. They didn't really understand. I don't think they did. And to differentiate between the normal and the past. And, you know, there's always that sensitivity of anything with the Ed fund, as you know. But I think in the end, understanding it, there was acknowledgement that this was an obligation that we had to address and that this was good policy. And I do think everybody was in a different place this time. And there was, people were at the table, there was agreement. We had, you know, the task force members from both the House and the Senate and then Representative Ansel was really a very key player as it related to anything to do with the Ed fund. So I think we came into it in a very different place and we recognized that we had to come into an agreement that both the House and the Senate could support and that we would not begin to replicate what happened last year with that whole effort that started in the House. So sometimes that was pretty painful. And I know some of the task force meetings were pretty painful. I didn't, I got spared those, but- I will just say, I give them a lot of credit for coming along. No, I absolutely, it was a key part of this whole package. There's no question about it. And I think the teachers appreciated it. And one of the things that came out was the value and the importance of the healthcare benefit as part of that retiree economic security. And so we tended to think about just the pension itself, but this really is recognizing that that security is really driven by healthcare coverage and healthcare benefits. So yes, we ended up, I think, working very closely together with the House and then at the end from December on, then I was not part of the task force, but I was obviously involved in all the discussions that went on as we were trying to figure out from a fiscal perspective, how we could take what was being requested. And it really was very positive in the sense, we wanna have an obligation that, there's a commitment to continue to make progress on underfunding. And we were able to make that work in a way that could be accommodated by the budget. In spite of that 5 million, we'll just have to re-scoop it, Stephanie. Count on you. You'll find it again to just make it the full pre-funding work, yeah. Yeah, mm-hmm. You also have to reconcile the 50 million that's coming in the budget adjustment with what the governor just put on the table as well, so. And I guess you can tell from this conversation that in fact this whole agreement and negotiation and so forth was done totally by the legislative branch. And so that's why there isn't an accommodation. It's not because a request was not made to consider it. It's just how the executive branches wanted to put their budget together. So our view is this is, and then if just to go back in the governor's budget to get some of this indebtedness paid down, how it's good fiscal policy and how it'll improve our bond rating in April. Well, I would submit that, I don't know remember how much was to pay down maybe 30 million or something, but if we, this 200 million will, if we can reduce the liability by 2 billion, my instincts are that Wall Street would pay some attention to that. So you've got 30 million, I'll raise it to 2 billion and let it go. How's that? Sounds good. And in the meantime, we've got to find a little money here. We've got to find the one time of 50 million, which the house I think representative Hooper was very well aware of what was in this proposal. And so I think, you know, she's anticipated it and then we'll configure out the other 5 million. As we go along. She has a few state employees in her district. Yeah, yeah. A few teachers. A few teachers. Yeah. Mainland state. So, yes, Rich. You mentioned timing before and when to do this and everything. And do they have a preference in the house? Because if it's on in the 23 budget and and there was language that says effective on passage, it still accomplishes by the end of this year. And it gives them a chance to weigh in. Well, there's going to be a separate bill. Jean Nett's committee is going to be voting it out and then I'll go over to the house. And as of now, both the House Appropriations Committee and Ways and Means, I believe that's my understanding, Chris, that you have actually briefed them on these agreements. So they're very well informed about the result here. But I thought it was important as well that this committee, because it's certainly an area of priority for us and could move us forward and get it to the finish line. If there's no further questions, I realize it's 325. It's been a long day. And I'm going to suggest then we adjourn for today on a high note here. And then we'll reconvene tomorrow. So I'm going to adjourn.