 Excellent. We are pretty much on schedule and I guess I would invite Chris Roop to come and join us. Chris will be helping to finish the draft statement of the pension and OPEB problems and so if everyone has their document from last week, do you have another document as well? I do. I'm going to pass out a handout that might inform some of the conversation around numbers. These are charts just to show everybody what the drivers of the growth and unfunded liability have been every year from 2007 through the end of 2020. And I welcome any factual directions that the Treasurer's Office, these are from a slide deck that the Treasurer presented to one of the trustee boards several months back and the information comes in the valuation studies. But I just want to make sure we're counting things the right way because I sometimes in this draft using different time frame that looks in the charts but this way everybody can see the impacts of different things have had over over time. I just want to take one fast. Alright, so good morning everyone for the record Chris Roop Joint Fiscal Office. I, please correct me if I'm wrong but I think we ended the conversation at the top of page four under causes of unsustainable liabilities. Does that sound right to everybody? Or did I skip ahead? Sounds correct. So I'm happy to do this however you all would like. I can pause, you know, feel free to interrupt me or whatever. No, no pride in authorship here and I want to make sure we can get this done in as painless a way as possible. This page starts off with the section of sort of detailing at a high level with some of the causes of the liability growth has been in the course across the course of the current 30 year closed amortization period. The unsustainable annual increases since 2008 in the amount of the total unfunded liability, the ADEC and the state's total cost or retirement contributions including retiree health care benefits are rooted in a variety of experience, economic and demographic factors including pre 2008. The state underfunded the VSTRS that's the teacher employer retirement contribution in all but four years from 1979 that should be to 2000 through 2006 not to 2008 I apologize I did not catch that when I was doing my first review. Although this historic underfunding occurred prior to the close 30 year amortization period and is not responsible for the significant increases in liabilities subsequent to 2008. So I added cost to the ADEC and contributed to why the teacher pension as a lower funded ratio than VSTRS. Does that make sense to everybody. Is that a sir. Thank you Chris. I felt like the second part of that paragraph or change the impact a little bit. It didn't affect the liability here, but it certainly has a factor which influences the delta between two. So it didn't affect liability, but it did affect the amount of funds. Well that that shows up in the ADEC growth so the ADEC makes up for the lost assets, at least in theory. That's the point of the ADEC. Correct. The ADEC is because legislatures and governors back when I was in grade school and and beyond make poor decisions about fully funding the obligation and the point of getting on to an amortization schedule is to take care of the previous underfunding. I mean, I think it's important for us to recognize that that part of the reason we're sitting here today is because the liabilities have grown since then, and, and we need to figure out why. What, if I could offer maybe a clarifying suggestion on the language, maybe after the term ADEC, add the phrase to make up for lost investment opportunities in the past. I think one of the things we were talking about last time is adding in specifics and some different areas, recognizing that people that are really interested in this are going to want to read through it and want all the details, if we could add some more specific numbers to that paragraph, I think that'd be great. Andrew, to how it affects the data. Yeah. There may be something that we would put on the list for actual analysis, just to say, you know, for it had this had this underfunded underfunding not happened pre 2008. Well, you know, what would the impact be to the ADEC relative. It's not an easy thing to estimate because so many assumptions have changed over that time period, since we've been in the current amortization period so the interest rates have changed over time and things of that. Well, how does that help solve the problem that we're trying to face today. By adding a more specific details. Yes, to help inform our know but we're trying to solve a problem. I mean just, you know, asking the actuary to do work on something that doesn't help solve the problem doesn't allow the actuary to do work that will solve the problem. People aren't fully understanding the problem it's hard to explain to them then have these changes fix a problem that they don't understand what the causes. So by providing them with information to help them be informed. I think it can help them to see why these changes are being decided. Well, I think there's many causes to the problem if we were to do analysis of all those causes. I think are actually would not have time to look at the solutions to the problem. Because I can go through a laundry list of what causes problem. And you know you could we could spend a lot of time arguing over it. So let's take, select an ultimate, which is how soon returns were that depending on who you talk to cost us hundreds of millions of dollars. So I mean we can go through and do that. I just, I think we do have to make a decision as a task force about whether we want the actuary focused on solutions for going back and looking at how we ended up. If I could, I would offer that may inform the solutions in that. If we know what how that driver that that impact affected the a deck. We can match recommendations to that amount. For example, it strikes me. I know revenue is a tough, tough solution but underfunding came from not paying for services that should have been paid for or not raising revenue that should have been raised. So it, it seemed like an equitable match to take that amount and look for revenue to make up for that shortfall. Well, then should we take the $300 million that be picked lost because of the decision to go to select an ultimate. Where do we, where do we place that should that come from revenue. Should that be cut from benefits. I mean you can have these arguments forever and ever I just really don't see where that gets us. So the question regarding actuaries work and how long it takes for them to actually do what we are asking. I like the backwards plan. And if we send the actuary, I need you to determine this, I need you to determine that, and we send it to them on Thursday, Wednesday, what's the turnaround. So, so I looked to Michael to sort of color in the lines of my, my limited experience dealing with the actuaries is it's really important to prioritize what you want them to work on. And so there's not a whole lot of back and forth. What about what about this what about that it's good to give them a request all at once it's also easier to say, generally speaking, tell us what would happen if we did this, like in the future, rather than ask them to work back toward a number. So, you know, the work can be very complicated and very time consuming so you know just in the past when we, when we asked them to model some scenarios around changes to plan design I think the turnaround was about one and a half, and that to two weeks and that was on a aggressive timeline. To three weeks and all problems. Her question, and if we get them a substantial question to work or our options. It could be longer. The more we ask them to do and the more time it takes, you know, the more time it takes and the more expenses and so there is, you know, we're not the only client, they have and everybody, every pension system around the country is likely working on their actuarial valuations right now, because most people are on the same fiscal year cycle. So, yeah, I would know I would not want to create the expectation of immediate turnarounds on the work, or that we're going to be able to answer quite frankly the question that becomes anybody's mind like we are going to want as a group I think to really prioritize what we want them to look at and try to get them as much of that all together at once as possible so they're so that sort of minimizes the back and forth. And please jump in if I missed anything. And I'm sure as I say at the final time, given given your very time constraint and our work, what you just said, it's, I don't know if we're going to be able to get the type of information that you have asked for. And at the same time get the information that we need to make decisions. Nice to have versus must have. And then perhaps we don't have the actual numbers, but I know I've heard from multiple people concerns about underfunding and a very short brief paragraph about it probably doesn't answer all of their questions and I think we heard last spring, there's lots of people brought up the fact that what about the other funding what about the other funding, and by giving them more information to help them understand the impact of that. I think that will help to get them to the point of bag, I can understand that point that you're making now I think it helps get them on a similar level as we are. And ultimately, this is a document that we want to put out to people that are going to impact by this decision. So short changing them on information about something that they're really concerned about and numerous times, just seems wrong. So we're on our first of a long list of causes of the liabilities. And so I'm wondering if maybe we can flag this as something where you would like to have a little more detail, perhaps not. Perhaps we don't have agreement on whether we want to go as far as sending the actuary into investigate this and come back with with, you know, what we can determine to be really precise numbers but I guess I would like to suggest that we go back to the list and then we can question when we're through all of the, all of the liabilities and, and, and maybe have a conversation then about where we'd like to see more information and maybe Chris can help us understand what it would take from his perspective to, to put more specificity into the ones that we feel need more details. Peter, did you have anything else? Sorry. I'm going to find it. To do it where it indicated that in 2008, after, or it was six, seven, whatever, after X number of years of decisions that the unskilled actuary of liability was X. And then compare us to, we've now had a run in 2008 current year where the ADAC has been fully funded and that, that unfunded liability is now wide. And put those just to show, you know, where they are, because the, a lot of other actual assumptions that the unfunded liability will explode. And it's, you have to blame her. Right. And that's an excellent point representative thing and that information is in both the treasurer's January 15 report and I believe in her testimony here a couple weeks ago, and sort of the raw data that informs that the person is in the handout that I just distributed. That will make sure commissioner P check gets but that shows you if you sort of take a look at, you know, a point in time, you know, the end of fiscal eight or whatever and then work your way. You know, just add your way down the columns year to year and it will show you how all the different factors contributed to the growth and unfunded liability since then, at a time when we were fully funding the ADAC. The one thing I do the sort of asterisk I would go on that is, you'll see there's a line on the teacher chart this is contribution shortfall including retiree health care. That's not failure to pay the ADAC that is the impact of paying the open costs out of the the corpus of the teacher pension fund, which was a practice that ended back around 2015 or so. So that has that has the actuarial impact of sort of a contribution shortfall, but you can also see that, you know, in terms of the overall percentage of the growth and liabilities. It was a relatively small contributor in the big picture. $170 or $175 million is a trivial amount of money but the liabilities have grown much better than that. Yeah, Kate. I was sort of deciding whether or not I should say anything at all but I do want to respond to something that john was saying and in response to Andrews request for information, which is that if we talk about how is that going to solve the problem. I think the problem really comes back to the fact that we don't have a common understanding of the problem and that it's one was sort of written for us that we don't necessarily agree with and so when we talk about solving the problem. I don't think everybody's problem is the same. I also think it's difficult to have this conversation when there's so much what what's coming across frustration and some hostility as well. So let's see if we can finish the list that is in front of us and then let's plan to come back to talk about how we would like to fix this statement of the problem so that we're putting together a document that that we think speaks to our constituencies and and is a fair representation of the contributing factors. Does that make sense. Super. All right, we'll take these one chunk at a time and have a you know have a discussion. I think that when we get to the end, we'll have a better sense of sort of the sum total and we can reflect for a few minutes on how to how to change what we have in front of us. Thank you Chris. All right, next bullet point is great recession, the dramatic economic downturn in 2008 2009 created a hole in each fund that remains unfilled as of the end of FY 20 actuaries in 2009 estimated that it would take more than 20 years of the actual investment rate of return of 8.25%, which was the return in effect at the time to get back to the FY 2008 funding level from the beginning of FY 08 to the end of FY 20 investment performance falling short of assumptions increased the viscer is unfunded liability by 340.9 million and the teacher unfunded liability by 417.1 million and those numbers come from adding across the columns in the chart handed out. Are there any questions on that. I would just make us. Well, I guess I'll pose it as a question. It would take more than 20 years at the actuarial investment rate of 8.25% to get back to 2008. But most pension systems around the country did not in fact achieve anywhere near an 8.25% rate of return, which is what that supposition was based on, which I think will be reflected in in some of the points here but also, I think contributes to to the overall hole that we're in and the fact that the hole has gotten larger instead of smaller despite needing our ADEC payments. Yeah, I would agree with that statement and the, you know, nationwide most large pension plans including ours have actually reduced their their actuarial super it's a return over time so many plans are above 8% around the right the investment horizon has changed the market environment has changed since then. So not only have few consistently achieved a rate that high since then, but most plans including ours have actually lowered their assumptions so they assume that they would be receiving a lower investment rate going forward than 8.25% or now at 7%. This is the second way into the next section actuarial rate of return. The systems previously adopted actuarial rates of return that proved over time to be overly optimistic. When a higher rate of return is adopted the systems assume that assets will grow over time at a higher rate, leading to lower required employer contributions into the pension funds. In 2008, the then actuarial investment rate of return of 8.25% approved by the pension boards of trustees and the Vermont pension investment committee was higher than the rate of return experienced. As of the 2009 report, the approved rate of return was equal or lower than the rate used in all but one of the New England states and was higher than the rate used by 75% of plants in the US. As in most states, Vermont's approved rate of return has been on a downward trajectory in recent years, most recently lowered from 7.5 to 7%. While a lower assumed rate of return is more likely to be consistently achieved, it leads to higher employer ADEC costs to make up for the fact that less of the money required to pay benefits is expected to come from investment gains in the future. Yes, sir. Just a comment, if I may, this will go through the documents in the Yale as well. With respect to the investor rate of return of 8.25%, I just want to make sure and clarify the distinction between the assumptions and actual performance or experience. The assumptions are used to estimate a plan's future benefit payments and their present value do not determine outcomes. And as the actuary noted, Siegel noted, the investment return assumption does not affect the performance of the fund, nor should an actuarial assumption dictate asset allocation or investment policy just to clarify. So people understand the difference between an assumption and an actual experience. Those things get intertwined or confused. That's a really helpful suggestion. Any further questions, observations, Eric? It's just a small technical question. The third bullet point, it reads, as of the 2009 report, the approved rate of return was equal or lower than the rate. Is that true or should it be, people are higher? Because the second part of that sentence kind of says, we're using a higher rate than most plants in the US. So we'll double check that and confirm it. I need to go back to the 2009 report. Thank you, Chris. Just to make sure my understanding or the intersection between fully paying the ADEC over a period of time and having these assumption returns that weren't necessarily met or these higher assumption returns are not necessarily met. We were fully funding the ADEC, but in actuality because of where our investment assumption was, we were really underfunding it for that period of time. We should have been paying more in because the assumption was rosier than it turned out to be reality. Yeah, I think that's right. The ADEC, all of your assumptions inform the calculation of the ADECs. But every year when they do the valuations, they'll take a look back and see, all right, how did our assumptions pan out over the last year? And if there's deviations in the assumptions and most of the deviations we've seen have added cost to have increased the size of the unfunded liability. That means your future ADECs are going to go up. If you had a blockbuster year and you exceeded all of your actuarial assumptions, when all else is equal, your unfunded liability will decrease beyond what you thought it would be and then your future ADECs would be lower. So that's sort of the interplay is the ADEC is like the payment, if you will, and the payment depends on how big the balance is from year to year and how many years you have left to pay it off. The future health benefits paid from pension fund. This is what I was mentioning earlier on the chart the state paid the teacher retiree health benefits OPEB from pension assets at an actuarial loss until 2015. This practice added approximately 155 million to the VSTRS unfunded liability since the beginning of 08. Any questions on it? Yeah, can you just clarify what years did that start? It predated the parent amortization period. I do not, the treasurer's office may now, but I do not know. I also kind of, I also wanted to ask, I had noticed that that wasn't in the background information. And it's here in the causes, and I'm sort of curious about the interplay of background information versus causes. I don't necessarily have an idea of the solution. It's just something I'm noticing. So, because when you, when you read the background information, if you know a couple of things that aren't there, then you ask me, where are those things like where is the decision of the parent amortization in the background information. So it's not there. Is it going to show up somewhere else? It's just something I think. Yeah, and I think that the discussion last week was to put sort of a timeline of the various changes in the background section. And this is listed where it is because this was a cause of why the unfunded liability grew from 2008 to the present. And I think that the information is possible too. Yeah, I think, I think we ought to consider whether we should create another chapter in our, in our report that goes into a little bit more detail about changes that have been made, because the rule of 90 is one of those, the taking out of the teacher pension system is one of them. They're the impact of early retirement incentives that may be sort of a patchwork of different incentives across the state because of different school districts is something that's worth recognizing and expressing. And, you know, we could do a similar, a similar discussion or statement of that of retirement incentives on the state system but they tend to be more consistent because it's either going to be your, your troopers or your state employees, retirement incentives and a little bit less variable I would imagine. So, you know, I guess we should flag things that we want to go into more detail on in subsequent chapters of this. Other questions, observations suggestions Peter. Yeah, we're working with that, and this does not help me understand exactly what that means. My recommendation is put your statement about the present time, probably fall $500. And then I will also add in 2015. Yep. That makes sense. Okay, I'll go back to your observations questions statements. All right, back to you. Page five demographic and experience factors differences between the states actual experience compared to assumptions has should be have significantly contributed to the increase in the unfunded liability and a deck, including changes in actual assumptions, changes in system provisions, salary experience, net turnover, actuarial investment loss, mortality experience, retirement experience and disability experience and again these tie back to the chart I passed out earlier where you can see the numbers from year to year. What those numbers show is the math that the dollar term impact of deviations between experience and assumptions. Are there any questions on this section. So, again, just thinking about I would love to add in there more clarity about what each of these me thinking that people are going to be reading through this. You know somebody reads net turnover I'm sure they're wondering what does that mean it's our experience with that actually. A short definition of each of those. We could do that. Yeah. And there, there are some graphics from the experience studies that if anybody has some time in the free time. It's very interesting to look at the experience studies because it actually kind of visualizes what what the assumption was what actually happened and what the proposed change in assumption was so you know that helped me understand what the concept of net turnover is which I sort of explain it and you know did people leave when we thought they would leave at the ages that they left for reasons other than retirement so like net turnover has been the biggest demographic factor on the teacher side and what that basically means is we thought we would be losing more teachers before retirement, and in fact we've had more people stay until retirement. And of course behaving the way you thought it would or or not drives these numbers it all comes down to what did you predict and how accurate or your predictions. I just wondered if we talked a little bit about demographics in terms of student numbers and how that affects the number of teachers needed and I'm wondering about that on here, if that's another bullet point. I'm curious about that because I'm curious about the future. I think for Mark, it's on and off tick with population and I'm wondering how that's going to affect, you know, in our discussions and our plans. So I wonder if it should be on there. Right, certain of the demographic factors were worth, perhaps not able to be foreseen. You know, or at least not, maybe not recognized as the extent of their impact but a shrinking population of school age kids is going to result in a shrinking number of teachers in the workforce, who are paying into the system. I don't know whether that fits but I do recognize it as an observation that we should should express because while the state workforces remain left relatively level, relatively slight increases with a few bluffs along the way. The teacher workforce has definitely. Eric. One small technical question again, comment. Actuarial investment loss is included in demographic and experience factors also fell into above. So I didn't know if we really should include that there or that's separate. I would, I would say that's a good point actuarial investment loss though is how did you, how did you perform relative to your assumption so I think earlier, you know we specifically highlight the great recession and the changes to assumptions, but that that's the changes to the assumption is only one half of the, the sort of equation the other half is how did you do relative to those assumptions so I think this piece speaks to how well did we do relative to assumptions and and just again for clarity you know when when we talk about investment loss, you know we're we're talking about a loss relative to assumptions, we're not talking about, you know, going and making a bad, usually not talking about going and making a bad bet and actually like ending up in the negative you know, putting 100 in and leaving with, you know, zero, it's just you know if you thought you were going to do seven and you did for that 3% is an actuarial loss so it's all it's all really relative to your assumptions. Very rarely have we had years where we where we've had negative investments and one other thing to point out on this subject is, you know V picks numbers and the actuarial numbers are slightly different just in methodology so when the pick measures are their, their investment performance they take a look at how their portfolio do, you know, over the course of the fiscal year. Whenever the actuaries do the number, they take an average of the balance of the previous year, and then see what your growth was, and then, you know, they'll, they'll calculate the percentage that way so the fact that they're taking an average of the balance and not sort of strict start and end point is why you sometimes see some deviations and the percentages between what the picks investment reports say, and what the actual aerial valuations say. Thank you. That's, that's a good explanation as to why that is a little bit why that's different from above. And my comment on this question I had in the document really dovetails. So your suggestions Sarah. Not in this section, but further in the report we may want to tell me to some of these drivers in more detail because they do influence what what options are there. There's observations questions. Suggestions. Okay, and then from the beginning of fly away through the end of fly 20 demographic experience deviating from assumptions increase to these serves unfunded liability by 290.4 million, and the teacher unfunded liability by 260.3 million. That was adding across the columns and sheets that I distributed to you earlier today. Similarly, investment performance deviating from assumptions increased the visa is unfunded liability by 340.9 million, and the teacher unfunded liability by 417.1 million and that includes the impacts of the great recession. I feel like two paragraphs to go so I'll just wrap them up. Actuarial assumptions have also been revised over time to more realistically mirror anticipated demographic and investment experience. These assumption changes, however, have also added to the unfunded liabilities from the beginning of FY oh eight to the end of that should be FY 20 changes in actuarial assumptions increase the visa is unfunded liability by 496.6 million, the teacher unfunded liability by 128.5 million. So the numbers are on the chart that I handed out earlier today. So these three numbers are added. Yes. The 496 is not the addition of the two bullet points. That's correct. I would add all three of us together. I would add at the bottom. Yes. In this area. Yeah, increased. Yeah, just so you don't have somebody sitting there. We could perhaps insert some variation of the table I distributed earlier today in the final document just to provide everybody with those details. Just one, just one comment maybe on Eric's earlier point but like each of these sections that sort of quantitative like impact, except for that actuarial rate of return section. But I think it is, I think it's described in that paragraph there, you know, the investment but other demographic losses as well I wonder if you can split out the investment verse the demographic and put that investment lost piece just in that discussion about the actual rate of return to get a sense of what that means. Sorry so that so like, you know, the actual rate of return section right we discussed how we go from a, you know, 8.25 to 7.5 to seven and we're saying that that's having an impact on the unfunded liabilities but we don't say what that we don't know what that means, but there, but there is a dollar figure to it in that sort of unbulleted paragraph where we're saying that actual real assumptions that were changed demographic and investment experience resulted in those, those big dollar figures at the end of the paragraph there, but, but some of those tie back to that. So just to break this out. On the page, as a result of these factors pension costs have grown significantly faster than pension assets and consequently the gap between assets and liabilities, which is the unfunded liability continues to wipe. Are there any. So, before we move on to a completely different topic, which is open, you know, are there any things that jump out as needing to be added to this we've, we've, we've talked about some places where we want to flesh things up and add a little more context. Are there any things that are missing from this list in terms of what what might fall under the category of causes of unsustainable liabilities. I do have something that I think would be helpful to include and that's what's the consequence of the amortization schedule itself. You know the beginning payments are the, the ADEX aren't adequate to cover the, you know, essentially interest. So I think that's important because we really need to focus on, in my opinion, the adverse experience that wasn't planned, and to some degree, some of it was expected with not the major for sure, but there's some elements of the funding ratio to look down before you reach that crossover point and it starts. If we could quantify that I think that, I think that's. Yeah, we, that, and that's a good point and we may need to ask the actuaries to give us an estimate on this because what you're referring to is what what people call negative amortization where, you know, our payment schedule in the years was not sufficient to pay off the accumulating interest on the balance of the unfunded liability. So, so therefore the balance grows a little bit. If you take a look back at the 2009 valuation, they project out what, you know, which is year one of the amortization period, they project out what that schedule would look like. And it would peak out at, you know, it would grow to about the low 400 millions before dropping back down since then, though, the liability is grown massively due to other reasons so while there was some predicted growth from this growing that had that was dwarfed by so many other factors that went into the mix so that's why it's hard to say, you know, this in isolation, you know contributed this much because so many other factors went in, and so many assumptions were changed over time to I can tell you and I'll bring this in time for the next meeting it's mostly done but it wasn't ready yet today but I have a graph that shows you what people thought the amortization schedule would look like in 2009. And I have another graph that shows what the payments have actually ended up being since then, and I don't think there's going to be any surprises when you see the chart, but one of the things that also happened was, you know, after the first 10 years of assuming that the payments will go up by 5% a year the legislature change that to be to grow every 3% a year. So, generally speaking, the lower the annual growth rate in the payments, the less negative amortization you have. We are also at the point in the amortization schedule that like with the 3% scenario, things are pretty much leveled off, and the payments are now should be catching up with the interest so that's why you see generally when you draw sort of a graph of what this looks like for for the first you know half plus of the amortization period most of your payments are going toward interest. And then you really pay off the principal toward the end. It's kind of like, you know, graduate from college and you start making those first student loan payments and you see how little your balance goes down at the outset because you're paying interest until until the interest goes down and your payments catch up with it. But it was, you know, I don't think by any means that the amortization method contributed to the vast majority of the growth in the unfunded liability it's grown by if we if we were operating in the 2009 amortization schedule right now I think we would be in a much much better place than we are the problem though is just growing much more over time. You know I can, I can clearly agree with that. It just, it's helpful to know, okay, this job, we did not expect and that is really best. So, hearing you say that, and in answer to Eric's question reminds me that we want to put Chris on the agenda for next meeting because he does have some more detailed graphs that he's putting together for us to help answer. So, Chris, while we're agenda planning for next time, maybe you can just let us know how much time you think you'll need, and then we'll add 20% to that. We always have questions. Okay, so let's plan for an hour. That's not 20% I understand. But I suspect that we will have other questions that we will want more information on and I feel like it helps to have plenty of time to slow down and ask questions and really understand how it works. So, I'm going to raise an excellent point. There's a great paper put out by Boston College Center for Retirement Research, which is looking specifically at the Hampshire pensions but it also compares it to the Vermont teachers pensions about amortization about the issue you just raised. It's worth taking a look at I actually raised it with Chris earlier. The same response to me is easy to you Eric that amortization may have had some impact on our own fun liabilities, there's other things that a much more heavy impact center for retirement I'll send the link to Gail, and everybody can read it it's it's actually for research paper it's actually fairly easy to read. All right, anything else on the factors that we have been going through. We are feeling good we will cruise through OPEB before we before we finish our morning work. OPEB refers to other post employment benefits, primarily healthcare offered through the visas and Easter's health plans, which also contribute to the rising cost of Vermont's long term retirement liabilities. Unlike pre funded pensions, which are funded in part from investment gains, OPEB payments are almost are almost entirely funded on a pay go basis pay as you go basis. The state appropriates funds annually from current revenues to pay for benefits and premiums for today's retirees as they become due for payment. The annual general fund liability has remained relatively consistent since FY 19 for state employees at approximately 14.9 million, but is increased for teachers from 31.6 million and FY 1935.1 million and FY 22. The contributions and subsidy rates are codified in statute potential recipients are not vested in the same way as pension benefits and these benefits are not a secure for future retirees. There's general recognition that pre funding OPEB benefits would yield long term savings for the state and more stability and predictability for retirees in the future. The lack of a formal and codified system of pre funding OPEB liabilities is responsible for $1.68 billion of Vermont's unfunded OPEB liabilities. With pre funding Vermont can calculate its unfunded liabilities by applying the assumed rate of return based on anticipated investment performance of the plan assets over time. The pension systems currently use a 7% rate of return. Without pre funding from office use a standardized discount rate, the 20 year double a municipal bond rate. Currently, this rate is approximately 2.2%. However, pre funding OPEB benefits would require a long term commitment of additional appropriations above the pay go amount to build up a pool of assets that can be invested long term. Further, OPEB costs can be heavily influenced by both federal health care policy and pensions policies that influence the age at which employees retire, as it is significantly more expensive to provide health benefits to retirees who are not yet eligible for Medicare. Pre funding OPEB and FY 22 would require an additional 41.6 million. And this amount would increase every fiscal year. My comment in the second paragraph sentence, where it states the annual general fund liability. This is a differentiated from, you know, long term liabilities annual expenses, just might want to use a different term there. Impact instead of liability. Yeah. Just to just to not a confused people long term liabilities versus. Not about the writing everything but why, why is it so different from teachers in the city. What the cost rather so 14.9 is not the entire cost. That's just the general fund impact. So that's about 40% of the cost. OPEB is funded the same way that the V, the visors OPEB is funded the same way the visors pension is where there's a percentage of payroll deduction, assess to the active payroll. So the cost fall based on the fund that pays the salaries of the active workforce. So about 40% roughly of the state's active workforce is paid from the general fund. Therefore that 14.9 million dollars is is roughly 40% of the total cost. That is a great question that I think the V high and central HR may want to weigh in on because some of this likely has to do with differences in how the plans are structured and how they're subsidized and claims history. So I just I don't have an answer for you today, but that is a great question. So, state employees pre Medicare are would remain in the same state employees health care system, which is a self funded insurance system, correct. And teachers are in the high which is a product offered by. It's not it's not employee sponsored insurance right it is a Blue Cross product. The state is so mature, you said, but I also want to comment on the part of this that says more expensive provide health benefits to retirees, we're not yet eligible for Medicare. The under 60, the under age 65 members of the retiree population who elected health care benefits. They are not a significant driver. In fact, in the teacher system, the number of retirees under the 65 has been decreasing for a number of years. Additionally, we plan to announce later this month some changes to how we contract for retiring health care for the teacher system, which will have some fairly significant savings, which will help decrease the pressures on that fund, as well as depending upon what the current administration doesn't watch until a perspective potentially lowering the age of Medicare eligibility that could have a further positive benefit on our current cost and our liability. To some point in time in the next couple months. Maybe different numbers. Yeah, some of these costs, particularly around. Well, I know for sure the teachers health care, especially for the state costs as well. And one final comment on the, on the last sentence of prefunding up by 22 it required a $41.6 million an hour increase over just a year. I think everyone knows the visas hope have received a fraction of $52 million in additional funds as a result of the reform, the revenues for the past fiscal year. And that's a significant influx of dollars into that fund, almost doubling the current net assets of that fund, and may also lower the research funding requirements to initiate prefund. So we should look at that in that context. So it sounds like we have a little more research to do to understand kind of. I think what I heard you say was that folks who are teachers who are retirees under age 65 are not. Because of the numbers. So what are the values. Cost of insurance cost of insurance I think the the numbers of people are increasing numbers of people. We have increasing number of retirees every year. This past year, I think we had 300 plus teachers retired July 1. Depending upon how many people died a preceding year. I think just generally speaking the numbers are going up here. I think it's the cost trends in general, typically outpace overall inflation, but by quite a bit I think the assumptions that the actuaries use it and the most recent gas be report on our OPEP was, I think it's the near term healthcare cost rate is over 6% cost right. So, you know, you compare that to our long term payroll growth projections, you know the CPI, which measures inflation, and just the overall cost of projected increases and our ability to pay for the health care costs, typically outpace those. I'm wondering if you could also research for us the rate of growth in the state employees. Healthcare system relative to the teacher system just so that we can have a better understanding going forward what we might be looking at. I mean understanding that the notion of that on the state employee side that that hits the general fund is relatively small, but I think we should go in with eyes wide open about what we've seen for increases in the cost of teacher retiree health care relative to state employee health care. So, for the additional 41.6 came from a memo that the treasurer prepared for the legislature in early May and that includes both plans, and that the increment that 41.6 is $21 million above what was budgeted for the teacher OPEP, and that funding my understanding would essentially seed the path to pre funding so you know going back to the advantages of starting with investing money early as if you can start with a little bit of money as sort of the seed whenever you start and put a little bit of cushion in as that grows over time through investment gains that gives you a little bit of a protection against volatility in the short term. Correct that was the proposal yeah on the on the teacher. It always helps to start with a with a slug of money to get you going just to make sure that when you start down this path, your first few years when you don't have a whole lot of asset growth from from investments because you haven't had a lot of time. Make sure you have enough money that you can that you can start building a balance with some conservatives, some conservative assumptions on it. Eric, I think I had a question to do. Oh, yeah, so sounds good. Just trying to think about how these costs will play out in the long term, and that only a portion of state employee will fall on the general fund. If the state will make the decision to pre fund would still a significant portion of those of that cost still not fall on the general fund. So I mean, yeah, that's a good question I mean it in a status quo situation when all else is equal. You know right now everything is assessed based on where the active payroll is if a decision is made moving forward to continue under pre funding with that funding situation then yeah that would continue but obviously the legislature can can decide how to pay this bill however they want but I do just want to point out that you know while the general fund only picks up roughly 40% of those costs. You know we talk a lot about the general fund because that's sort of the most flexible pot of money we use. But you know I don't want to dismiss the fact that there's impact to other funds that is adverse to the state as well you know my my world tends to focus a little on transportation fund, for example which then on then on this stuff and you know every additional dollar you have to pay into the four big long term liability buckets that the two opens and the two health care, or the two pensions rather. You know it's a dollar that you can't use for direct service delivery or for other things so we talk a lot about the general fund because that's usually where we spend a lot of time trying to figure out how to fund priorities for the government. But it does have an impact throughout the government because all these other funds, you know, none of these funds are unlimited, and there's always large demands on them. So, I'm looking at your when you did our overview, and just looking at you had the path to keep funding and all of that. So my biggest concern is we're already in a point of we're here because the ADAC is growing, you know, consistently. And we're saying, Okay, we have a mortification schedule but it's because of things in the past what's been going on in brackets, blah, blah, blah. We are here to deal with that the language of this just sort of when it says and this amount would increase every fiscal year when I see things like that it just makes you think that is very. So we're saying 41.6 million dollars right, and then it's saying incrementally increasing its appropriation above the pay goal now. D, and I know you said the seed money, right, but what is that incremental. What is that increase every fiscal year is there any way to say, what will be the amount that would be required to have this pre funded going on in the, in the future. We can put 42 million dollars in there but how much and then will we be here. Not with that. But, you know, so be here two or three years down the road talking about, well, we thought it would work with this but now it's going out of control. That is a great question and you know the completely unsatisfying answer is nobody knows what's going to happen in the next 30 years. You know I think what what the incremental cost should be depends in large part on how you want to go about paying for this and what your amortization method would be. You know the treasurer proposed a scenario with on the teacher side, where you can, you know, as representative faken was describing, you know there's a series of sort of 10% annual increases and then 3% after that. You know that's one path forward, you can also do an ADAC schedule the way the pensions do where you know you basically take the normal cost of the unfunded liability and you calculate every year, what you need to set aside. It's going to depend on how how many years you want to to amortize the liability over, and what's your method you know level dollar versus level percent of payroll what do you want your annual increases to be. And you know your claims history and what's going to happen with healthcare costs are huge unknowns in the future so you know as difficult as it is to predict the future with pensions. The benefit formula is much more straightforward than with the OPEP situation because you don't necessarily know what healthcare costs are going to be or what utilization trends are going to be 10 2030 years in the future so it's definitely a risk from all the I mean, bandied about though you know with with with those caveats is that in most pre funding situations, you're looking at a ballpark $20 million or so above the pay go amount for both funds over the course of time so you know I think in order to to conservatively be on the path to pre funding you need to assume that you're going to budget probably at least 20 million above the pay go amount, you know, over in average over in a reasonable foreseeable future. Those numbers could change, they will change, but that would be the numbers that I that I keep in my head as sort of ballpark estimates of where of where sort of a good guide post could be. So that's pretty consistent with the organization schedule for the teachers. Now, questions, observations statements. I would like to throw out an issue that I'd like us to just sort of flag and recognize that we might want to come back to and that is the question about state employee healthcare premium holidays. So, because the state employee healthcare system is is a self funded system. They make an, they make an assumption about what they're going to need to collect for premiums from the employer and employee and put that into a pot and then periodically. They look at what they've actually used out of that pot of money, and to the extent that that pot has grown more because utilization was lower than they expected it to be. They have an excess amount of money that that legally they need to do something with they can't just continue to sit on an ever larger and larger pot right. And that would be for me if, if I'm using incorrect terms, the concept here is is what I believe I understand, and that is that when the pot of money grows, then we have to decide what to do with it. And I wanted to suggest to this group that we consider making a recommendation that instead of a premium holiday, which goes, which basically says state employees you don't have to pay your December premium because, because we've got enough money now that that would go into the OPEP system instead. And because you're going to be the beneficiary you as state employees are going to be the beneficiary of those dollars anyway. And since we are trying to, to do a better job of putting us on a fiscally responsible path with pre funding that those premium holidays might be better invested in in OPEP. So I just flag that for our consideration at some point in the future. I have an idea of how much, just like you're asked to work, like, you know, I believe we just got one. Yes, coming up right so how much money is that you know, roughly. I don't know offhand but I would imagine that Chris could ask around joint fiscal and they have that because it was a consideration during this year's budgeting process. And, you know, to the extent that that the fund has more money in the future we might want to make a recommendation. I can just add a comment to there by David also because the premium holiday also is extended to retirees as well, not just accuracy. Yeah, that's, it's a fair chunk of money. That's a worthy consideration. Money that was allocated for healthcare. It seems like that's, if it ultimately found its way there, that would be sensible. Any other observations, questions, suggestions on the OPEP section. And Chris anything else that you folks to review with us on in this document. I don't think so. I think my understanding is we're going to put a pen and pages seven and eight until this afternoon. It's correct me if I'm wrong on that. I'm looking at a different draft. Seven seven and eight of David. Okay. I have a different document can considering changes. I have a different draft because I have to have everything in one place. As you can see, I'm not very organized. Yeah. All right, so I believe that that finishes what we had for this morning's agenda. So I think that's an issue that we'll add to the agenda for next meeting, which is to come back to Chris for answers to some of these questions. And any other questions, comments, suggestions. From this morning's work. Thank you. Thank you, Chris. So we are at the point where we were going to take a 15 minute break, but we don't have another presentation planned before noon. So we could either start out. Yes. We can start our lunch break early and give us time to go out for a long walk. And then when we come back, we've got Steve Klein, Steven Klein coming in for just to, to brief us on the revenue update that, that the emergency board heard this week, and then we'll get into some of these other documents that Chris has prepared for us. All right, Senator parent, please join us at 115 and we will be on a extended lunch break and we'll see you all back here after lunch.