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House | May 12, 2015 | Committee Room | Pensions and Retirement

Full MP3 Audio File

Everyone can call the meeting of Pensions and Retirement to order. First order business this morning I would like to recognize our pages and if you would, when I call your name, I was going to say stand up, now have you raised your hands. We have Elisa Baker from Hulfex[sp?] we have Madelline  Corgens[sp?] from Land off and Tanika Lucas Wake County, welcome. Sergeant at arms this morning, Berry Moore, D H Power, and Davis Lenticome. We have one bill this morning and we'll go ahead and get started with House Bill 759 retirement system calls representative Bill, this is the PCS drive the motion of the PCS, motion representative Mitchel Alright, all those in favor to settle the PCS say aye, aye representative Bill. Thank you Mr. Chairman and the members I know everybody would like to stand off, today positive mode if you that I'll give the bill in favourable report the PCS for House Bill 759 provide a 1% cost of living increased, the benefit of the teachers and the state employees retirement system, the legislative retirement system and the consolidated judicial retirement system. The PCS change the increase to from 2% to 1% for each system and removes the language Related to the increase for local government employees. That's how it has been pressed in here in the Senate right now to talk with someone over right there. I don't know of any opposition to this bill, and I really think it'll be good for all of us to pass it, and we do have some people here to speak and support, if anyone needs some more information about this, we've someone from the Treasurer Department, and also from the retired school personnel and also from our local government. Right, we'll start first with questions come answer from committee members, Representative Michele. The original bill called for a 2% increase I notice the PCS now are calling for 1% which now I'll be wondering why. maybe someone from the Trade Department can answer that, but I think they're here to speak. Alright, Representative Michaux. Hold on a second, [xx] from the Department of State Treasurer, the Retirement System Board trustees and the treasurer recommended a 1% coaler this year because you can take the current employer contribution rate for retirement system of 9.15%, and you could still drop it to 9.08% contribution rate and pay for the 1% coaler without increasing the amount that you're asking state agencies to pay. Follow up? Yes, so this would be, OK you placed in all the states contribution, not only employees contribute. In other words we can say in order to build 2% you've got to raise states contribution Yes Sir, if you want the 2% you. How much more would that cost? How much would that cost the state? I differ to over, what's sort of stuff, I think it's 15 bases points that. Yeah, the total cost of two of a 2% was. 78% and so there is so an extra 32 basis points

not to leave for a two basis point caller on top of the existing contribution to the teachers and retirement system so that the neighbourhood of $32 million, per year, several hundred million in additional unfunded by ability. It's costing us power, at 1% it's costing us 32 million. It would be with the contribution will need to increase by roughly 32 million, 42% contribution, rate 2% caller  2% caller it will be 16 caller and 16 million. What's the difference between 1% and 2%? That's what I'm trying to get to. Okay, 32 million for 2%, what is it at 1%?  So, there's no required increase in the contribution relative to the current for a 1% caller because the contribution based on most recent valuation indeed decrease from 9.15% to 8.69% without any call out, and it can decrease from 9.15% to 9.08% with a 1% call rate. The call rate itself it's a 1% call rate cost an extra $39 million. So 10% another 39 million. Additional questions? Yeah. All right. Further question? Representative Harry. Thank you Mr. Chair. I there maybe 7000 retired members and maybe more 48 including 11, 500 from this year. Could you repeat the question?  A vote here says 187, 448 retired members, and then at the bottom it says new retirees during 2014, 11500 does that grand totally include those in 2011. Leave it there am not sure about research, so she is referring to page two, on page two there are some of summary tables, some summary table of members statics specific the first columns who are employed retired members account of 187, 448 and 11, 500 new retirees in 2014. All of the December 31, 2013 so they did not include any additional retiree during 2014, some of those retirees would become the 2014 so the total count at the end of 2014 would now be 187448 plus 11500 it would be somewhere in the middle one more thing Follow up. The active members are 310, 000, 370 besides that, is that correct? That's right, in addition to the retirees in the active employees are two separate groups Thank you there's no questions, Representative Neil I know we now set the adjournment by a board and board director by the recognition of the [xx] It is my understanding that it has the recommended 1%. Senator Walker can confirm that the board of trustees voted in January the recommended 1% column for the teachers retirement system to you, thank you, there's no questions Representative Mitchell Yeah, I'm still trying to get anyway[sp?] okay, can I try again try again try, try so the contribution to the teachers and state employees retire system, in the current fiscal year is 9.15% of pay, okay. Based on the most recent valuation, the contribution could be decreased to 8.69% of pay, while still contributing, still following our traditional funding policy each additional

1% collar[sp?] costs 39 basic points or 0.39% of pay, so a 1% collar would increase the contribution from 8.69 by 39 versus on top of 8.69 Follow. At that point, right now you're talking about 9.15%? That is the current contribution rate. Current contribution rate? Yes, if you had the 1%, you drop it that's what am hearing drop it to 8.76. If there's not collar the contribution could drop to 8.69%, no collateral. Okay. I guess Mr. Chair, what I'm getting at is, if you are at 9. 15% right now, how much, at what rate would you be at 2%? Right, so 9.47% So you would go up, you would go up. 0.32% which is roughly $32 million. general funds per year. That's per 2 may that's per 2%. That's correct. follow. Yeah. I will project the [xx] report that may take up to 32 million dollars then state employees a 2% increase that all. Representative Wadel. Question general question maybe just start but explain 32 million. 32 million will either have to, based on your analysis, will have to be either come from general fund appropriation, but can to return assist for $32 million or the retirees will have to, current active members will have increase their, take off the, into the retirement system about 32 million what I'm understanding or not. Understanding. You couldn't theory possibly increase the employee contribution and that has not been done since the1970. But that will be the [xx] in order to make a revenue mutual with the retiree system? Correct. Follow up? [xx] Representative Mitchell.   What we're talking about is the current increase, this increase is not permanent. Stern? Is an an increase on July 1, 2015 for the retirees who were there at that point and time, they would not affect anyone who retired after that but it would increase the benefits for those retired by July 1, 2015 for the rest of their lives. Alright, other questions Representative Blast[sp?] experience of say, the last three or four years. Have we ever gone without a collar? Because the collar is just to keep up with that she understand the real game to the retiree from the collar. Do we have a history? Yes, we've not received a collar and right now I don't think When was the last time? I think 1% or less was the last time. 2013 2013 Representative Hall. They got one in 2014, they got one in 2012 1% and before then 2.5%. That's just the total they've gotten in the last, since 2010. Alright thank you. Other questions? Representative Holloway. [xx] in order to give this to [xx] there's [xx] How are you have to take 920 [xx] how much is that 30 cents $32000 or what. Representative Stam. That would be the additional contribution from the State and from other state and for State

related employer as the percentage of pay general fund that's the $32 million we are talking about earlier, from the general fund. Other questions? Representative Michaux. I like to move again the PCS 2% [xx] [xx] for of an amendment? Yes sir. [xx] phrases the passage of this home bill at a local place out of the you want to amend here and appropriations he doing that can just change it. Alright, are all the members okay with the that change would have actually have on the amendment in front of you All the amendment does is changes from 1% to 72% that's 32 million yes sir 400 million pounds, representative Blust, question has this bill been vetted, I know propriation when this sold them, send of the appropriation people, to do this I just want what they are react on and how the reaction is if we are in this committee and spend their money. Is being referred I was rather be referred Operation has been progressing this time. Representative Demo. From what you're saying the stress on the general fund, this is not a one time shoot of 32 million. This is continuous and then when the increase of the retiree is continued to happen, that  32 million strain on the general fund is from here on up and that would be the bottom number, meaning that will grow over time and from my understanding the surplus that we're talking about is none recurring money. So you're doing unfunded liability here if you increase it by a percentage is that accurate? The 32 million would be a recurring annual cost. It would be constant it will not increase and I can only speak to where the 400 million is recurrent. Representative Michel. how can a 1% is in the same position as 2%. In other words whatever continuing you've got on 2% you've got whatever that figure is on 1% figure that's the same, you're in the same position with it. But they're putting the employee contribution back at, it would lower the cost of the liability of the retirees and from my understanding with percentages you're keeping it basically stable with the employee contribution to make up that difference.   Stam? The employee contribution has been 6% of pay since 70's and we're. That's right. The employer contribution is 9.15% of pay right now and that would decrease to 9.08 which is roughly the same number. That's correct. Alright, further question, or comments on the amendment? Representative Blust? Question, all the course what we've done in the first year is that been stuff from run on a separate bill, or is that just been a budget provision? as long as I can remember I think I spend a run through this committee before going to a appropriations It has to be done. Representative Harley? I got a question, OK [xx] 9.8 to 9.15 how many Okay, that little bit, that little bit [xx], how much will that be? we may attempt to give what you think you're saying. So the 32 million dollars

cost of a 1% active employee pay increase is roughly $135 million, so 32 million would be roughly 0.24% pay increase and so it depends on what your pay is obviously, and the average employee makes roughly $45, 000 so I made $107 per year. Follow up? Follow up, I'd [xx] that, okay I thought the 9.15 specifically what the state puts into those accounts like it's coming out, if we do one question, if we do sit down to 8.6 [xx] then 8. that's if there's no call rate. There's 1% caller it reduces to a 9.08% of pay [xx]. Okay, so between the 9.08 and the total is 1.1, 1.2, or you make up that difference to go up to 9.639 when using all the money that we have to use and supposed sending on a few pennies. Would that be a 1.2%? 1.1 to be safe, but you can add on additional fractions but Representative Neil. Yes, I just want to make these comments the truth with representative [xx] the far of the progress I'll just for obvious reasons. Progression means to deal with incentives which are appropriate. Alright other, Representative Boyce. I have to because I know we've heard about a surplus last week and I've actually told it was the weekend that's still just a projection, don't get too excited but I don't know what our projection is next year another appropriation people been meeting furiously it was a meeting last night, I have no idea what our pictures, sitting here myself, I have no idea what our pictures looking like for the coming obviously uncomfortable towards what's recommended, I'm prepared to support what's been recommended Representative Michelle, Not that have signed out two things, one whole lot of folks are acting like billions. But I've been trying to tell folks $400 million surplus, only $21 million budget that amount too much anyway and when you broke a deal on the matters involved they are like, in roman increase, public school in roman increase will eat up 400 million but instead of cloaking[sp?] about it, the only thing I'm saying is that, we ought to be trying to be a little bit dispropriate[sp?] talking about is if we can and all the people who tell you you are not going to hold it in procreations. if we send a 2% increase tax and they look at it and they say well we can do it you put in we just have to go 1% at least 1% is recommended do that but there is hope somewhere we won't know any final figures till the 30th of June anyway, so let them cut it back it's necessary, they got to do for salary, they got to do it for at least two is great, so to me, to seem any harm, and send in a [xx], you know you've got 1% pretty much locked in try to get two particular to people who work for us for so long and they are hard working in terms of labor Other questions or comments on the amendment representative Radel. I make my work representative Michel [xx] progressions and [xx] but $400 million I would assume based on the information I've gotten couple of

years ago there was no being once this tax ram was implemented totally there was no bit term increase in remedy, but it is just going to be as we move through this process of trying to spread out the base, it's going to be a slow process. So, I really see no harm in it and I'm playing. Representative Elmore. As a current employee, it scares me when there is discussion in this committee about increasing the employee contribution hasn't been changed since the 1970 to make up the difference for increasing the collar and I appreciate the retirees, but as a current state employee, it concerns me more as more retirees are going in the system and we have less state workers. If the recommendation has been 1% from the Board of Directors, the treasury office, we need to keep it there without sending unrealistic expectations to appropriations to put in on their back. Otherwise I do not support the amendment. Thank you. Staff, I'm going to have staff read the amendment and then we're going to take a vote on the amendment. There are actually two places in each of the sections that would need to be amended so first of all, all of them are on page 1 on lines 9 and 10 it would change 1% to 2%, on line 13 1% to 2% for the teachers in Salem place retirement systems and this amendment and PCS, then in section 2 on line 19 and line 22 it changes 1% to 2% and this is for the Legislative Retirement System, and in section 3 on on line 27 and 28 and again on lines 30 and 31 it changes 1% to 2% and this is for the consolidated judicial return what's the number on that amendment? Amendment 1. Amendment 1. It's a PBS Alright, you've heard the amendment, all those in favor signify by saying Aye Aye. All those opposed say No. No. Alright, in the opinion of the Chair the motion fails, we're back on the bill Representative Holley. PBS OK so my question is with that 1/10th of a percent that what would happen to that money? Wqould we save that in an account for future use for Cola[sp?] or does that money the funeral part or are we paying out of our hands? So what happens to that I believe you are asking what happens if the contribution rate from the employer is decreased from 9.15 to 9.0 8% where this abrupt seven million dollars go, so if the budget that is oftenly passed reduces the contribution easy by that much that would go to general other pan users whatever those are the term to be in the budget the. the contributioin could also be left 9.15% in which case go into retirement system to show up the funding of our system. Do we don't have a choice with that money. Alight representative Mneill This question has been portrayed but I would like to admit that part of that closure is the system is turned not only by only contribution about state contribution and also apply the bargain I would like to stress [xx] I just know I'm here to, mostly everybody in the room 10.1% is appropriate to where we should be, I have no idea that's what we need to do, and we need [xx] and if they want to up it to 2%, if they want to spend part of the 400 million, start with us representative Michelle[sp?] it's been a county then [xx] Alright, okay, representative Brewer[sp?] Thank you Mr. Chair. And I was talking about, you've always into it, and I would think we need

this basically refer because at some point it may have to be raised for this coming and I think, we just need to be physically strong. Right, so you got what representative soker[sp?] head Right, thank you Alright, any further questions, comments, I heard motion earlier Representative Warder[sp?] It is all in favor of the original bill. All right you've heard the motion, all those in favor, aye. Any opposition? All right, passes adjourned thank you.