 Good afternoon. You are back with the Vermont House government operations committee. We are continuing our conversation around at this point pensions governance and I understand there have been some conversations going on with some folks trying to put a another proposal on the table for how we might strengthen the way we govern our public pension system. Just not to not to belabor a point but there have been some misperceptions as to who is involved in that process and and the only role the legislature really has is to pass the law directing the folks who are who are to be governing board members of this system and so we have a few of those folks here with us today and so we look forward to hearing from Tom Galanca and Beth Pierce with a proposal on governance changes. Well thank you and thank you madam chair I want to thank you for for hearing from us at this committee you know Beth and I are uniquely implicated in governance obviously we're directly involved with the governance of the pick as well as the underlying boards. We have interaction with a lot of interested groups whether it's the unions whether it's the board members whether it's committee members whether it's the legislature and I think you know Beth and I provide a unique perspective which I thought would be helpful here particularly at this process you know. I do want to stay from the start that I'm not represented the pick the pick has not had a meeting to discuss the proposal. I have reached out to all the pick members and I have discussed with them obviously the original government government ops proposal and I have reached out yesterday to discuss Beth and my concerns and questions and proposals. So I have a general feel for the VP committee but I don't want to speak for them in this this venue I think it's just not appropriate this point. I think I will say that the picks preference would be to utilize their governments study that they've commissioned. The RFP for that government study went out early this week and we do expect submissions for that by next Friday, so we will have more to share with you on that and Eric could could fill in more information on the RFP process but that that will be coming next week. So I want to start by saying thank you and thanks for her participation in this I know it's been a long couple weeks I know you're probably getting sick of hearing from me. Very brief I don't want to read the proposal directly but I'll highlight the you know the high points that I think it addresses. You know in my email I list sort of the four fundamental ideas that I think are important for this board and this body to consent can consider VP continuity representation equality, transparency and a pathway to independence for VP because I believe as we grow the assets. It's much it's much more important to address professionalism as well as to be able to attract staff that that will come to the Green Mountain State and help Eric and his team, you know manage these funds. Going into the proposed amendments that that I put forward. They're basically broken down into four buckets. And for simplicity sake I'll break them. I'll list what I view as where they where they lie. Number one through nine are really structure and equity that we think would help really combine and bridge the current VP with a potential change to the VP going forward. You know specific proposals in this are just that their proposals. Beth and I feel that they would work very well with with how we see the board's work right now. We're open for discussion in regards to specific alterations or changes to any of these that are listed items 1011 and 12 I would list as process items and those would be ones that we came up with. To our current recent interaction with the legislature, you know these would affect who's responsible for the radar turn assumption, who would have, we would require onboarding and training, and that the actuary will complete the experience studies within three years instead of five so there was more process oriented items 13 and 14 are more on transparency. And I think these are items that have come about through our discussion with Jim Voidco and in particular Jim wrote item 13 because we wanted best practice listed into the record that would show what we think a committee such as yours should ask an investment committee of this nature in in proper good governance. So that would be directly from Jim and we'll be happy to answer questions on that as well. And the last piece, which would be the final less to 15 and 16 would be more related to transition, and I think Beth and I are in agreement that a pathway to transition maintains continuity. It protects the trust. I think it also gives up credence to the hard work that the current members have given by offering current positions into the current new board until their term ends, and so the new transition process would be linked to their existing term positions. With that I'll throw it over to Beth if she has any other comments I don't want to go into specifics until we have questions answers but I'd be happy to answer any questions as well. Any questions for Tom before we invite Beth to share her observations and thoughts on this. All right. Beth, thank you for being with us again, but let's, let's get you unmuted. Yes, there we go. Okay, I think that's been in several commercials but we'll go from there. Thank you very much for the record best pierce the state treasure and I want to follow up on some of Tom's comments and I think that we're at a crossroads with VP. We've been looking at this issue for some time, and they've been comments representative Hooper remember you bringing this up several months ago in terms of the independence of VP. This created VP back in 2005, I believe, when the legislature let me rephrase when when you folks created VP. And it was a very large committee of 17 members it was a committee of the whole. There was some discussion about who should be on who shouldn't be on and it was a very tough process. So we ended up with a rather unwilling committee, as I said a committee of the whole, we then hired a consultant to take a look at this back and I believe 2007 that area. And one of the recommendations was to, to, to reduce the members to a manageable level to create a an independent chair which is Tom galanka. And he's elected by the six other members so we went from 17 to seven, six actual members and then one who was elected by the board, and for the VP, excuse me, and serves as the chair. And he, in this case, has responsibility for to report to the board so he is in fact, essentially an employee of the board even though he the cost centers in our office for appropriation purposes. The boards. Tom is not a, a voting member, except in the case of a tie. I am on the on the committee as well. I apologize I keep going back between board and committee the correct term is committee. So I'm one of the six members that that generally votes. We have three members who are representatives of their, their particular board, they're selected by the, the trustees so we have three employee members. And then we have two that are appointed by the governor. It's worked fairly well I would say that it's, it's, it's, I always use the term lean but not mean they work very closely together it's a group and folks that have been on there the employee members have had a lot of longevity. They've been there for years, and they've learned a great deal in the process they've taken educational training. I recently sent you folks a copy of our education policy which is part of our policies that are available on our website. It's time to take another look at it. At the time we set this up in 2007, 78 that period. We had about under $3 billion of assets probably closer to two, something in that 2.5 range. And I hope I said billion not million and that that didn't create a lot of room for for moving things over their economies of scale. And at the time, my predecessor and the General Assembly thought that that the expenses should stay with the Treasurer's Office so our office, while I have one vote is responsible for maintaining the staff so the CIO. And we've had, as I said, two very good ones over the last several years. Eric Henry and Matt Constantine. Eric has been a great value to us as we move forward. So they're in our office as well as two other staff that that report to Eric. That's kind of on a small side so we relied very heavily on our consultant in the past by bringing on Eric and prior to that Matt we've had an ability to play devil's advocate so to speak with the with the consultant that we've had an independent consultant. They're not managed money they act as a fiduciary with our plan, and they have more give and take so we've added that a position going forward. I usually say to the General Assembly when I'm in appropriations or in your, your, your department or your committee that I think that we should have at $5 billion per billion, and we're not there. And I think that this provides us an opportunity to, to look. Now that we were at that $5 billion range to, to have a have a different position have a different reporting structure, and it's time to do that. Now I will point out that that other states, this, this, this particular piece would be in the minority compared to other states this particular structure, but it's also one is demonstrated effectiveness and some very good plans, and I would point out swim, the acronym there the, the, the Wisconsin State, or the state of Wisconsin Investment Board I'll get that right, and prim the Massachusetts pension reserve and investment management board. And in those cases I worked very closely with prim when I was a deputy in Massachusetts and, and had the good sense to come to Vermont, and they, they operated as a separate legal entity. They hired their own staff. I worked with them as as a deputy in charge of cash management and investments on a monthly basis to take a look at their cash flows, what do they need and put that aside. But essentially, they were their own entity, there aren't, they are part of the state's financial statements because they are substantially part of their, their financial mix, but they they they are their own board and staff and I think that's the key to go. It's going to take a little time we want the consultant to work with us to, to, to make that happen. And I think it's the right move, and it's time to do that. We looked at that back as they said several years ago and didn't see the cost numbers working. I think they do now. And it's time to take that step. The other piece I would talk to is about transparency and if you take a look at number 14 I believe I'm going to go down to my email here, or my, my Word document. And if you take a look at that to develop or 13 to develop a report on one, three, five and seven year 10 year performance versus pure benchmark we already have that it is on our page. But I would agree that our one page is a little cumbersome. And it's all there with the exception of the fee report and recommendation by this committee and we are going to do that immediately input the fee reports up there. And it's out there it's cumbersome and the thought process was to provide that to each beneficiary. Now how you do that we have 50 to 60,000 members active and retired invested members of the system. And how we communicate that to them. I'd like to see some type of dashboard, and then links to to to more detailed report for those that are interested. We do send out an annual statement actually we do it electronically now we used to send out paper statements we do that electronically. Maybe there's a way to put a link to that in there maybe there's a separate notification we send, but we want to take a look and work with our consultant to find the best way to provide that information to all 60,000 folks that that have a stake in this system. So I think the transparency issue. Well, again, while we've had the information out there, this will be an opportunity to fine tune it, make it more streamlined make it more accessible and I commend the committee for for bringing up those issues as we work through it. And we did talk about trans transitional rules and I think we need to have some institutional knowledge as you move forward, just saying we're going to take changes today, and all current members would leave, you would not have the institutional knowledge that you need to move forward. And so I think that this, this is a very streamlined, efficient, effective and getting back to, to Tom's points in terms of transparency a path to independence, represents a equity in terms of membership. As I said, the the employee groups through the boards would have three appointees the governor would have to plus this the the statutory commission of a finance. And as we move forward. Last piece that I'll say that is that that we really want to rely on that consultant. We are in the process of doing that we had been talking about this and we actually put together a thought process on hiring a consultant before this, before our testimony. And I believe that we can get the information on budgetary authority personnel transfer hiring, how the compensation is done and I think that's something that the that the board should again the committee should have control over, they're going to be issues about establishing the fund itself, creating a separate IRS fund with the appropriate tax, tax identification numbers so there's a lot to do, we want to talk to the consultant about that those are more the operational side, but also the strategic. How does this committee work. How do we, how do we make it the efficient and best committee that we can. And again, I think the opportunity exists now and I appreciate the opportunity to present this and we're looking forward to legislation because this would require changes in the statute and working with you to get that done. And thank you very much. Okay, Rob LaClaire has a question. Thank you Madam chair and I apologize my computer since we had a little delayed reaction so I don't know what it's like on that end. Good afternoon there, Madam Treasurer I have a question about bullet point three. Okay, let me get there. It's the public members would be subject to financial expert and independence requirements. Yes. Can you speak to what those either are or would be. And it appears that that requirement would only apply to those three members. That actually three because those two plus the chair, the chair that would be elected by the committee would also be required to be a financial expert. And if he or she were incapacitated for any reason, we would look to to select an additional a financial expert to be that interim chair. So there's some definition. And I think it's very low, you know, material expertise and experience and institutional money management, significant pension or, or relevant expertise, taking a look at some certified certifications. We can fine tune this a bit but I think what we're trying to get at is that we want folks that have professional experience in the investment world and I think that that's important. And I think that the chair, I believe very strongly that the chair should have those experiences. That said, there's been a lot of testimony and a lot of data and articles and professional opinions that there should be employee representation on the board. And that there's a BC study that you saw I was looking very closely at a study done in Maryland. There were two studies one done by a professional consultant that similar to the type of consultant that we're looking to, to, to hire. And also a report by a legislative committee following that so they're pretty current. One is at 2018 and the legislative report I believe is in 2019. And they had some similar comments they, they said their board was 15 and they said it was too large and unwieldy. They represent looked at one in the nine to 10 range. And they pointed out that their board was a combination of benefits and investments, and with a sub investment committee a little like the New Hampshire model which we believe is a little too unwieldy and creates a two tiered process to to get things done, particularly if you need to move quickly to to transition assets from a manager that has some we have some concerns about, but I read the in the report it said trustees express numerous concerns about the size of the investment committee as being too big and too unwieldy. And there was also a recommendation, citing the BC report but citing others that you need to have between 20 and 70% of active and retired members on the on the committee. Our members are having educational policy associated with them that they need to to take educational training over the years. I know that Jeff testified yesterday and he is a certified fiduciary on folks taking robust educational training opportunities they take advantage of those opportunities. And we do report on that I know there was a comment where the only report on attendance. The reason we have that is for the boards and for the governor to know that he or she, the members are participating in participating in training. And I think that that's just to make sure that those members are committed the other investment reports that you've asked about with the exception of the fee, the performance numbers, the financial statements the policies they're all available on our website but as I said we are looking to make that a little more streamlined and created dashboard. So I think having that membership is important because they have skin in the game. And they and they need, and we need to have their, their, their perspective in it, and they need training. So what we have on there right now are very. They've been there for years, and as I said in previous testimony I'll pick on one of the committee members Joe Mackey. I don't know if Joe is listening to this. He's been on the committee for a very long period of time and if you asked him about various asset classes. If you asked him about style with managers, he would have the the institutional knowledge to be able to opine on that. And we see that the their voices important and we see an opportunity for the type of training and educational experience that would support that. So I would say that the board is with the two members from the governor the the experience that we currently have with with Tom and the knowledge of those those representatives of the system is extraordinary. And I commend them for their commitment to this. I know I went on representative Leclerc I think I answered your question, but I certainly would follow up and I apologize for getting in the weeds a little bit. You did answer my question and then some thank you, Madam Treasurer. I'm trying to scan through this and listen attentively to what you're saying I'm in this does there's or anywhere in this that the pick would have any either oversight or input into the benefit side of. Another to that is no, we think that the benefit side needs experts as well. And when you're taking a look at an investment expert is not likely to have the same experience in making determinations from the Medical Review Board on disability applications, but some of the the actuarial side that's related to to mortality related to to turnover related to salaries. I think that that well, the, the piece I'm going to go back down so I get the number correctly. I mean, gives the board some certainly or excuse me the committee some insight. I think the board has a has a stake in that as well, the trustee boards, and in administration we have appeals on benefits. We have, you know, I, I appeals when something wasn't timely submitted things along that line. That's not what I think the investment committee should focus on the investment committee should focus entirely on the issues of performance with an acceptable risk and getting to point 13 and I think that I was very impressed. We, you know, we recently went with RVK. And if you listen to Jim Voiko's testimony yesterday, you know why he does a great job. We do build those in, but we build those in with the guide toward how it impacts performance. And I think that there are two very distinct functions and I would prefer to see the investment committee and I think that members would that they concentrate on the job that they're supposed to do maximize return. One more question madam chair and then I promise to go away. Andrew, did I hear you right is there any component to the these pensions that there's a disability insurance or component to it. Yes, and they vary by plan. I, Erica Wolf and who's our director of retirement operations can give you more detail on that. But yes there's a disability provision and each of the plans. We're looking at disability. It goes to a medical review board first to to make a determination, and then the boards will vote. It might be a one year review, or it might be that the individual is permanently disabled. The board does make determinations or recommendations on that the medical review board does, and then the boards act on that. A few years ago, we added some, some language around that representative to tighten that up so that we would do income notifications for folks that are in the up to normal retirement up to the age that they meet normal retirement to do a verification on on outside income, and that is reported to to to our office and if we think there's a need to go ahead and look at at the disability. Current disability status we will and we would also adjust the pension. Accordingly, if there's outside income that that's outside of a formula and I'm going to have to have Erica come in and give you that but so we strengthen the disability. Five years ago, I'm doing that best estimate time kind of compresses as you know, in this cycle representative, and it does for all of us but there is there is a disability benefit for our members. Thank you, Madam Treasurer. Tom Galanca, did you have any thoughts on either of those issues. Well, the only kind of personal proposal in there that talks about the pick, assuming responsibility over setting the annual assumed rate of return, as well as inflation and the smoothing methodology so in regards to the actuaries those would be the three functions that we think could perform and could perform well but that's that was the only aspect of this proposal that included benefit side to some extent so I just comment on that. Thank you. Thank you, Madam Chair, and thank you, Beth and Tom for for presenting this governance recommendation to the committee. It's very detailed. I really appreciate the definition of financial expert. I just have a couple questions. They're minor questions. I note that you say all board members must be Vermont residents. Could you just explain that please. I think that occasionally we have folks that have retired and moved out of state and that's okay by the way, 78%. These numbers might be a couple years old 78% of state employees when they retire. They stay in Vermont, pay taxes in Vermont and participating in their communities and about 75% of teachers obviously Florida is the next one that people might go to and New Hampshire and some of some of those folks actually I have one person in my office that lives in New Hampshire, and I presume he's going to go to Vermont to retire. But I think that having a part of that community is important. And, and in my perspective, it's, it's great to have those folks but they're more in tune to what's happening in Vermont, and the economic issues that are happening in Vermont that if they're here, and that that's not a disrespect. We had a member from Florida that he was exceptional he gave his life he was a lifelong dedication to, to the benefit of teachers and investments, and I, I, I, he passed away several years ago, and I would just say I miss Jay terribly, but he added value to the to the but I think that from a from a administrative side, and a, and a sense of Vermont that it makes sense to have individuals reside in the state. And I'd represent again but I'd probably add to that in regards to, you know, there is a connection to the appointing body and the board and somewhat a feedback, particularly when you go to the beemer side or the teacher side or the employees or the employee the state employee side. It's good to have that connection maintained and it's good to have a feedback relationship if you're going to maintain this multiple board model. You know, I don't think it's a problem right away when people move out of state I think it becomes a problem as time goes on as that that distance between the board or the state sort of goes away. There also is an addition, additional concern we've struggled with over the years in regards to reimbursement of expenses for members to participate now obviously with the aim of age, age of zoom it's a lot easier, and we have no more flexibility, but that has been a question. How much, you know, should we have, should we pay people to, to, to come back to these meetings or what, what should we invest in that in regards to equipment if we have to equip a board member that's out of state so I don't think it's an immediate problem but it's something to consider and I threw it on the table as sort of an idea that you know I'm not wedded to it, you know obviously it's something that would be something to consider. I just have one other question which is in 11, you talk about what the picture do and you talk about smoothing method used for the calculation of actual real evaluation of assets. I think Tom I spoke with you privately about that, but it might be good for the committee to get an explanation of what that means and why it's important. Well, I come from the investment world so I don't, I don't live in the actual world of smoothing and so. And, and Beth will disagree with me that it makes it easier for reporting but from my perspective, smoothing can hide errors or hide things until it maybe is too late for you to make proper corrective actions and so from a from a management perspective or from a review perspective which I think this body needs to do. So why not you use a five year smoothing or a three year smoothing, maybe the smoothing should be three years instead of five years to correspond to the actuarial study but it hides some of the current performance now you can look at that in different ways it, it would prevent us from changing the rates of return too soon, but it also gets into a situation situation like we are here where some of these issues that you're bringing up in the committee. And investments two or three years ago and have since made changes to whereas if you could align timing wise from the investment decisions to your oversight responsibility would be very helpful so I think that's why I view it. You know I live in a market to market world and so looking at things on how they are currently to me is more important. So if I could comment on that and it's a great example of discourse and collaborative discussion because I'm looking at it more from a, an actuarial and a budgetary site. I, I know that you folks when you get a budget you know we do debt service for instance in one year we might have you know a debt service payment that falls into the next year so you say oh good. And then the next year you've got a little more because of that timing and you say what happened. Okay, and, and that creates issues with the base budget smoothing helps with that. And this is something that is helpful in terms of the budgetary process. And that's number one so that you're not having wild ups and downs in terms of, of, of your, the least the investment component now I will grant you we still have had wild ups and downs, and that's a lot to do with them. Again in particular the teacher system the demographics, but I think that that's that's one side of it. The other is, and taking a look at losses and how you react to that and great the great recession. So if you look at it and you had that. I don't know whether it was 30%, but a pretty precipitous drop. And that was smoothed over time. So that you, that was a one time event, at least we hope so I'm going to knock on wood as I say that. But, and you don't want to have major changes to to reflect that one time event you want to be able to smooth it over time and make decisions that. Take a look at the long term view. Now I will tell you during the great recession some folks trying to balance out and say we're going to, you know, that this is going to increase our, our, our ADEC or back then naturally, actually determined employer contribution. So I know some states it's a that's pushing out 10 years. Okay, and, and when the boom market came after that they said well maybe we shouldn't have done it for 10 years because now we're not reaping those benefits. We can't have a discussion of what's the correct way but I think it helps with ups and downs in, in, in very, very, the black swan swan type of events, or, and in terms of budgeting. I would also point that there's a 20% corridor on both sides so if you're outside of the of the corridor. It's presumed that that that that changes is permanent and so that portion would not be included in that smoothie piece. Peter Anthony. Thank you very much Madam Chair and thank you, Mr galanka and treasure appears. I have three areas that I'm curious to inquire about the cover several bullets, the three areas involved on annuity independence and balance. First on the continuity side do I understand that Mr. Dumas and Mr Davis and Mr galanka will transfer it out over else is on the boards to the new structure at least until your terms are up. And then just on the other underlying board he's not on the pick so this would only affect the VPIC members. So, only the VPIC members. Yeah, I didn't really go into structure or recommendations on that. I just wanted to be assured about the continuity feature. The continuity. Okay, cool. The next inquiry has to do with independence. As I'm sure you're aware conceptually independence and accountability can. How shall I say create attention as between them. What's your meaning what and I guess this is directed to a treasure pier socially. What do you independent from whom dependence for what. And how does that square with what we what we I think we've learned about the necessity of ongoing check ins and accountability. Thank you. Independence from politics is one of the big pieces to this in terms of its structure and membership I think that again there should be skin in the game for for employees and bringing that perspective but I think the structure as we have provides a much more a political approach to it. Now I'm a member of the committee and I should be a member of the committee I think that that's important because the Treasurer's office has a great deal of interaction with it. But you, and right now again I have one six of the votes or if there's a tie one seventh of the votes as we, we move forward but the staff do report in our office, although I will tell you that when we do the hiring, we bring Tom in. We don't do this in absence of the of the chair. So, I think that the board as a whole should have some more input in the hiring of the, excuse me the hiring of the CIO and that's part of it. Now, I think you've been fortunate for the last three Treasurers, then Treasurer Douglas, then Treasurer Spaulding and myself, that we have some financial background we have and, and we've taken a very measured approach, you know in terms of bringing this into the office. That may not be there in the future. You know I'm not going to comment on electoral politics and what could happen, but you want to be able to create some independence from our office in terms of its potential influence on the staff in the decision and recommendations that the staff have. So I think that that's a good way to go. I think that again, when I look back, I'm grateful for the work that both, as I said then Treasurer Douglas and Treasurer Spaulding provided to our office. So, I came into a situation where the basics were done. There were good ideas and we were able to build on those and we want Treasurers that continue to do that. But in an election process and that gets by the way back to appointment or election of Treasurers. I'm not going to go down that road. But I think that this provides some some separation from the staff being influenced by the officials potentially in our office or in other departments that work very closely with them. Thank you. My third subject area is balance. I think I'm hearing that you and I may differ in terms of the meaning of bets in this. I was thinking of the perspective between employer and employee. But if I'm counting correctly, there are at least one additional employer person on the board than employee. Am I off off the marker? Or is it just a nomenclature issue? I think it may be a nomenclature issue. So they have three retirement board members that are employees. And again, I think that's important. Then you have three employer representatives. One is the commissioner of finance representing the state system. And the second and third would be from the Vermont legal cities and towns and the school board association or another entity. I'm not the organizational structure out there is not something that is in my bailiwick. So there's certainly room for discussion. So you have three employer members. So I think you have balance there. And then you have three experts, two of which are appointed by the governor and the third one by the committee as a whole. Okay, I'm worried, I guess, about the two government or gubernatorial appointees. And you'll pardon me, but being a treasurer, I think you're more employee or sorry employer or employee. But it's a nomenclature issue. Again, I just know that the it came up even this morning that the appearance of imbalance is something that weighs very heavily on people who want to go at this. With goodwill and trust and good intentions. We took a rudimentary approach to it and obviously it's your prerogative to make changes to this. It was the idea of employee, employer, and then public members to some extent representing taxpayers and is that sort of balance of those three entities and so we're not We're not wedded exactly to this obviously but it was that idea that any proposal that you guys put together finally should have some element of balance and it shouldn't be much more than this in terms of size. I do want to answer one of your questions in regard to independence because how do I define independence and, and I define independence in a sense how we're kind of working with Beth's office right now, and just expand on that and maybe formalize that relationship because that has given us a lot of autonomy as a committee to time work ideas and build systems into place. I could see us having more budgetary authority but I always envision a key relationship with the Treasurer's office. If only through an MOU or some type of interrelationship and getting to your reporting relationship, all of these reporting relationships I would envision would maintain and would report to this committee, because it is a state entity and so I, we say independence but I think it's more defining what we do right now in my mind. Thank you very much. Other questions from committee members. Great, so I wanted to go back for a moment to Eric Henry with respect to the consultant and the process and timeline there. So share with us what what work you've done on that. Madam Chair, again Eric Henry for the record chief investment officer. In terms of the governance study we have released a request for proposals to four firms with expertise in this space. Responses are due two weeks from Monday so we should have a pretty good idea of what the scope of such a review might be within a week. But if I may just with regard to independence and autonomy, then a lot of discussion about what that means and how things would change. As I view it, this is really just a codification of what's already happening. The Treasurer has given us great autonomy to work closely with the committee and chairman and we're doing that regularly. There's a lot of constructive debate on myself, chairman and the Treasurer and committee members regularly. So it's not as if this isn't happening currently. Our concern as a treasurer express is really what might happen under a future treasurer. Appreciate that. Any other questions from committee members. Rob Leclerc. Thank you madam chair. Eric. Yesterday and I think it was you. I heard the comment that somebody said that the teachers pension fund is I forget what the term they use but is spending roughly 13 to 16 million a month more out in benefits than it's taking in. And was it you and if it wasn't you I apologize. That is correct. We redeem approximately 13 million a month from the teacher plan to pay benefits. As you think about public sector DB plans, you might say the teacher plan is a more mature plan than the muni plan which has more more active to retirees in the teacher plan. The incoming contributions do not cover the outgoing payroll so we do redeem from month to month. Now there is a big cash infusion that comes into that plan once a year that I'm sure the treasurer could talk more about it if there are specifics on it. I believe that number is around 100 million a year, but on a month to month basis it's important that we have sufficient liquid assets on hand to meet those, the retiree payment obligations. So, kind of in layman's terms does that mean that we're basically taking about 13 million of principal out, at least during the course of the year until you get that large, large cash infusion potentially. Correct. Tonya V. Hovsky. That answered my question representative Leclerc read my mind. Well on that note maybe we should just be done for the day then. Now you read my mind. All right. Any other questions from committee members on this, this joint proposal. Well, thank you madam chair I'd like to follow up with Eric just to make sure that there's a fine point on this 13 million we're talking about actually liquidating holdings not in the context of a rebalancing or anything else. This is a directed we need cash to pay benefits, or is there some other part of the process that's going on. We do actually use this process to rebalance throughout the year. When we are raising cash to pay these retirement benefits. We look to areas of the asset allocation that are over target so for example, if equities have about performed the fixed income component of our portfolio and are over their target will redeem that 13 million from the part of the portfolio that is overvalued that it disciplines us to sell high and buy low as most investors want to do. There is a more formal rebalancing process that happens twice a year to the extent those benefit redemptions do not cover it. But this is a essentially it's a term it's a form of rebalancing throughout the year on a monthly basis. So in the context of the example that was given. We're not so cash short that we have to be liquidating investments, specifically for this purpose we're basically liquidating investments because we have reached the peak of the recommended allocation for that particular sleeve of investment, and then redirecting that to another cash need. We're going to be redeeming assets specifically for this purpose so each month, the middle of the month we'll get an email from the cash manager indicating how much in cash he'll need to cover the annuity payroll. We then look to the asset allocation and look to parts of it where we're over and will specifically redeem that amount to cover those annuity payroll obligations. The process is making sure that we don't have to sell assets that have that are discounted based on some sort of economic dislocation. As an example, we have a downturn hedge that consists of high quality core bonds. During the drawdown last March, when equities had sold off deeply, we were able to redeem from this bond allocation without suffering recurring any short term losses along the way. To your point, Bob, they are we are actually redeeming to meet these payroll obligations and capital calls as equity funds are calling capital. On the teacher fund that is a consistent 11 months out of the year, we're raising approximately $13 million to cover these benefit payments. Again, the 12th month is a cash infusion that I believe is around 100 million that somewhat replenishes the fund and covers that month's annuity payroll. If I could, that infusion is in fact the ADEC, the actually determined employer contribution. Once it's appropriated, we put it right in there. There used to be a past practice to hold it and do it quarterly and frankly, if you're getting 8% or 7% in the pension fund and you're getting 2 or 3% in the place you're holding it, that's not a good idea. So we put it in right at the front. I would also point out that assets continue to grow. This isn't where you're taking the money out and and being in a position where your assets are declining. They will decline as they did during the Great Recession and getting to Eric's point about liquidity in a great deal of effort to make sure that we always have sufficient liquidity in a potential adverse environment. We do a very good job on that. We do an analysis to make sure that we, in terms of stress to those in scenarios that we have sufficient assets. Not everyone has done that in the Great Recession. I think Jim pointed that out yesterday. A number of very smart folks put too much money into private equity and other ill liquid assets, and we're in a real crunch in 2008 to be able to pay those benefits. I would say it's not unusual to have some amount of cash being used to pay benefits. That's kind of the idea that over time you're not putting in the full amount of payments on a pay go basis that you're using investments to do it. I think that the teacher system in particular with its funding status and the demographics of it have a much more severe cash flow, but are still growing assets and I think that's important to understand. Tom. I would just add that this highlights the importance of funding the ADAC because if we didn't have that $100 million, think of the outflow that would be occurring and it would just accelerate the problem that we already have. You know, you look at the payout ratio of what percentage of assets you can sell you can like an endowment, for example, I know this is different from endowment but once you get over four, four and a half percent of distribution out of a portfolio it gets really difficult to grow it long term and so if you were having 130 150 million in outflow each year on a trust that's worth a billion and a half to billion. You're looking at close to 10% and that's where it gets really problematic so the ADAC is helping but it's also. If it had been funded you would have had appreciation from so it's a it's a it's a problem and that this highlights the need for fully funding it and actually adding more because you get into this leverage issue of distributing money out of the trust so. I see the issue and we've been growing out of it but what happens in a year you don't grow out of it and how does it further exacerbate the problem. Sure, if I could follow up on that that's the issue that we're having in terms of sustainability, the ADAC is growing to meet this and does it grow to a point that you can no longer make those appropriations as I said in previous testimony when you get out to 2037. And then we're talking about a 50 a half billion dollar ADAC between the two systems and the ability to to sustain that level of contribution is clearly going to have an impact on the cash flows and clearly going to have an impact on the long term sustainability of the fund. So I think that that's an important consideration that's why you develop an ADAC that's why you fund it and folks that haven't funded in the past. I won't mention the states are in much more serious. Put condition that said, I'm concerned about the sustainability of the ADAC that we currently have, and that's one of the reasons we need to take a look at, frankly, the benefit structure. Peter Anthony. Thank you chair the reason I was being so picky and and I think my colleague from very town also wanted to be clear on was because the ADAC does not discriminate between the teachers and the state employees in terms of the the need for liquidity the need for new funds are and yet I think we sense I sense that if you're going to do some adjustments either on the benefit or the contribution side, you really want to know as between the two broadly groups where the cash flow squeeze is and you very rightly said it's usually or has been on the teacher side, but the ADAC of course is not divided between the two. And in consequence, any asset liquidation is not divided between the two. But for us who want to feel good about saying, we have to adjust one side or the other the income or the outcome. It's important to know which group we're talking about. That's why I was being picky thanks. Madam chair if I could respond and I think either Tom Eric would follow up on it. The ADAC for each system the state and the teachers system. And when we're looking at rebalancing. So when we're on a monthly basis in those twice a year. We're doing that by system so whether they are pulled assets, they have separate accounting and so they're not whether they're sharing for the purposes of risk pooling and get a better return lower cost. And the first year you switch to the pool environment back in 2005, the fees went down by a million dollars, which that's back in 2005, I would suggest it's more of an economy of scale now, but that rebalancing and the process of monthly of accounting, there's a separate integrity for each each of the funds. Absolutely correct. While we have a one pool of $5.4 billion. That pool is allocated to each of the three plans, when we're raising funds in the teacher plan that only impacts assets can devoted to the teacher plan. And I'll add that. Yeah, and I'll note that note that you'll, you will see minor deviations between the plan and investment return it's it's it's negligible but it's because of that very question and cash flow rebalancing. Bob Hooper. Thank you madam chair two things one, before we go off YouTube at the end of this testimony. I would like a moment for a comment. And two, at the beginning of the meeting. You both said you're here not as representatives of VP, but as individuals, quote unquote, should we expect a comment from the actual board at some point in time or maybe to call a VP meeting at any time once we have a proposal. I think VP could love to make a comment on whatever proposal of gov ops presents in regards to their future and how it impacts them I think that would be appropriate. The only proposal on the table right now is the one that came out that eliminates me pick and so I feel it's important for at least to make some comments of how that would affect the state and how that would impact you know what you should be thinking about if you're replacing VP. So goodbye party is appropriate then. Yes, Rob Leclerc. Thank you madam chair. I'm not sure if this is a question for Eric or the treasure but it's my understanding that the state has made all the a deck payments from 2007 2008 and in fact in many instances, it's exceeded the a deck payments. But if we don't have some sort of a systemic change on the benefit side. What would those a deck payments have to look like in today's trajectory. I think that I'd like to take the first shot at that. So the back we have been funding that since 2007 for the for the state system teacher system and funding it. A more robust funding history for the state system which is why going into the great recession, the state system was 100.8% not 108 but 100.8% funded it was fully funded. And the teachers was in the, in the low to mid 80s. And as a consequence going into the great recession when you take a look at that. The teacher system obviously took a bigger hit. So there was significant underfunding of the teacher system. And in 2017 I worked with the actuary to say how much is that costing in terms of the a deck now. Roughly $25 million on the amortization schedule. You know, while it wasn't part of the 604 million because that, you know, we've been funding the a deck. It is a contributing factor and how much of the of the a deck we're funding now. And then a piece of underfunding, which was the teacher system and I testified to this earlier we, we pay health care for the teacher system out of the out of the sub fund within the pension plan. It's fine if you fully funded, but they did not. So, with all due respect the general assembly did not and neither did the governor included in his budget up to 2014 we made the change I believe effective 2015. So for instance in 12, the, the dollars that were required to pay the pay go were $24 million, roughly, and the legislature appropriated 4 million so the 20 million ended up being added to a loss to the system and then essentially paid off over the remaining period. So that contributed to again a decline in the in the unfunded position or increase in the unfunded position for the teacher system. And I remember looking at this and I thought it was about a one in a quarter or one and a half percent impact on year to year on the on the on on the increasing unfunded liability. We've corrected that but we're still bearing that in terms of the mortgage because you put that when you didn't pay it then that you've added it's if you think of the pension as a mortgage this is a this is on top of it a home equity loan that you that you're not paying back and adding it from year to year and if you look at that 20 million in 2012 across the taxpayers just under 60 million you do it the next year you do it the next year. So fixing that in 2015 was important, but it added to the to the strain on the system and continues to do it with respect to its its cash position, or a portion of the of the a deck. It's not part of the 604 million dollars of unfunded liability increase, because those are related to other factors. Although if you take a look at one of the charts I had, it was from 2011 to 2020. It was some place in the area of about a hundred million dollars of the impact during that period, the continuation of the health care. I don't know again I tend to get in the weeds sir and I apologize if if I've done that again. Please help me out and ask another question. Very thorough as always, Madam Treasurer thank you. All right, any remaining questions from committee members. All right. Well, thank you to Tom Galanca Eric Henry and Treasurer Pierce we appreciate your time. This is a very hopeful sign I think a good next step in the discussion about pension governance in the state of Vermont so I appreciate the time that you put into bringing this to us. Thank you very much for having us and we're always welcome to provide any support you need. Thank you. We'll have you in on again on another day. We'll do floor into it. Yep. Take care. Okay. Bob Hooper. Thank you chair and members of the public viewing. It's been brought to my attention that during our festivities about the three amigos presentation that comment about the film being in black and white I then said something about brown and meaning that it was filmed in the desert and being a photographer that was important. And apparently it has been interpreted as looking at people of color, which I sincerely apologize to those people that have interpreted that way I meant no offense. And I hope that none is taken. Thank you. Thank you Bob. I think we will call it a day and come back into committee tomorrow morning after the floor for some committee discussion and some planning of next steps. Any questions. I wish that I had played an April Fool's joke today but I just didn't quite have the didn't quite have the energy to do that. I think the back of my head says that listening to that $13 million story over and over again tonight will be that. Could be all right. Have a good afternoon. I hope you don't have too much snow to shovel.