Legislature(2019 - 2020)SENATE FINANCE 532

04/02/2019 09:00 AM FINANCE

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09:00:41 AM Start
09:04:46 AM Presentation: Alaska Retirement Management Board Update
11:03:12 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Alaska Retirement Board Update TELECONFERENCED
+ Bills Previously Heard/Scheduled TELECONFERENCED
                 SENATE FINANCE COMMITTEE                                                                                       
                       April 2, 2019                                                                                            
                         9:00 a.m.                                                                                              
9:00:41 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair  Stedman   called  the  Senate   Finance  Committee                                                                    
meeting to order at 9:00 a.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Senator Natasha von Imhof, Co-Chair                                                                                             
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Lyman Hoffman                                                                                                           
Senator Peter Micciche                                                                                                          
Senator Donny Olson                                                                                                             
Senator Mike Shower                                                                                                             
Senator Bill Wielechowski                                                                                                       
Senator David Wilson                                                                                                            
MEMBERS ABSENT                                                                                                                
Senator Click Bishop                                                                                                            
ALSO PRESENT                                                                                                                  
Senator   Cathy  Giessel;   Bruce  Tangeman,   Commissioner,                                                                    
Department   of  Revenue;   Rob  Johnson,   Trustee,  Alaska                                                                    
Retirement   Management   Board;  Paul   Erlendson,   Callan                                                                    
Associates;  Steve Center,  Callan  Associates; Ajay  Desai,                                                                    
Director,  Division of  Retirement and  Benefits, Department                                                                    
of  Administration; Kevin  Worley, Chief  Financial Officer,                                                                    
Division of Retirement and Benefits.                                                                                            
PRESENT VIA TELECONFERENCE                                                                                                    
David Kershner, Buck Firm                                                                                                       
PRESENTATION: ALASKA RETIREMENT MANAGEMENT BOARD UPDATE                                                                         
Co-Chair  Stedman discussed  the order  of business  for the                                                                    
meeting.  He clarified  that the  state had  been struggling                                                                    
with unfunded  pension liability  since the early  2000s. He                                                                    
thought it would  take another decade to  address the issue.                                                                    
He stressed that there was  no imminent danger of health and                                                                    
retirement benefits not being paid.                                                                                             
Co-Chair  Stedman summarized  that  the state  was facing  a                                                                    
cashflow issue;  and reiterated that  there was no  need for                                                                    
fear of missed payments.                                                                                                        
^PRESENTATION: ALASKA RETIREMENT MANAGEMENT BOARD UPDATE                                                                      
9:04:46 AM                                                                                                                    
BRUCE   TANGEMAN,  COMMISSIONER,   DEPARTMENT  OF   REVENUE,                                                                    
informed that  the presentation was broken  into three parts                                                                    
with  testifiers from  the Alaska  Retirement Board,  Callan                                                                    
LLC,  the Department  of Retirement  and Benefits,  and Buck                                                                    
9:05:48 AM                                                                                                                    
ROB  JOHNSON, TRUSTEE,  ALASKA RETIREMENT  MANAGEMENT BOARD,                                                                    
discussed  the  presentation "Informal  Presentations  from:                                                                    
Alaska  Retirement Management  Board/Callan LLC/Buck"  (copy                                                                    
on file).                                                                                                                       
Mr. Johnson looked at Slide 2, "ARMB Overview."                                                                                 
Mr.  Johnson   turned  to  Slide  3,   "  Alaska  Retirement                                                                    
Management Board":                                                                                                              
     Primary Duties (AS 37.10.210(a))                                                                                           
          ? Serve as trustee for pension and retiree health                                                                     
          trusts, the State of Alaska Supplemental Annuity                                                                      
         Plan, and Deferred Compensation programs                                                                               
          ? Manage and invest assets in a manner that is                                                                        
          sufficient to meet the liabilities and pension                                                                        
          obligations of the systems                                                                                            
Mr. Johnson discussed overarching  obligations of the Alaska                                                                    
Retirement Management (ARM) Board.                                                                                              
9:07:03 AM                                                                                                                    
Mr. Johnson  showed Slide 4, "  Alaska Retirement Management                                                                    
      Summary of Activities                                                                                                     
          ? Establish Investment Policies                                                                                       
          ? Review Actuarial Earnings Assumptions                                                                               
          ? Establish Asset Allocation                                                                                          
          ? Set Contribution Rates of Employers                                                                                 
          ? Provide Investment Options                                                                                          
          ? Monitor Performance                                                                                                 
Mr. Johnson  asserted that the  task of  reviewing actuarial                                                                    
earnings assumptions  was a  critical feature  and specified                                                                    
that the  review of actuarial  assumptions took  place every                                                                    
five years. He  said that the review of  the assumption that                                                                    
had  concluded  in 2018  had  been  adopted and  would  take                                                                    
effect in FY 21. He shared  that the most critical change to                                                                    
the assumptions was the earnings  assumption, which had been                                                                    
reduced from 8 percent to  7.38 percent. He relayed that the                                                                    
assumption  consisted of  two  things;  the real  investment                                                                    
earnings of  4.88 percent,  which had  not changed,  and the                                                                    
inflation   assumption,  which   had   been  dropped.   This                                                                    
significant factor  change had  resulted in the  creation of                                                                    
an increasing unfunded liability.                                                                                               
Mr. Johnson  discussed the  importance of  asset allocation.                                                                    
He  said   when  setting   contribution  rates,   the  board                                                                    
considered  actuarial  assumptions, actuarial  returns,  and                                                                    
setting contribution rates.                                                                                                     
9:09:19 AM                                                                                                                    
Mr. Johnson continued  discussing Slide 4. He  said that the                                                                    
board provided  investment options for  defined contribution                                                                    
plans and  set the investment  options for SBS  and deferred                                                                    
compensation programs.                                                                                                          
9:10:27 AM                                                                                                                    
Mr.   Johnson   displayed   Slide  5,   "Alaska   Retirement                                                                    
Management Board":                                                                                                              
     Composition of the Board                                                                                                   
       Nine members                                                                                                             
          o Commissioners of administration and revenue                                                                         
         o Seven members appointed by the governor                                                                              
               ? Qualify for permanent fund dividend                                                                          
               ?   Recognized   competence   in   investment                                                                  
               management, finance, banking, economics,                                                                         
               accounting,    pension   administration    or                                                                    
               actuarial analysis                                                                                               
          o Two members of the general public                                                                                   
          o  One member  employed as  finance officer  for a                                                                    
          political subdivision                                                                                                 
          o  Two PERS  and  two TRS  members, each  selected                                                                    
          from a  list of four nominees  submitted from PERS                                                                    
          and TRS bargaining units                                                                                              
          o   Other   than  commissioners,   members   serve                                                                    
          staggered, four-year terms                                                                                            
Mr. Johnson  shared that  the composition  of the  board was                                                                    
defined in AS 37.10.210 and 220.                                                                                                
Mr. Johnson  discussed the PERS  and TRS members.  The seven                                                                    
governor  appointees served  on  staggering  terms and  were                                                                    
subject to reappointment.                                                                                                       
9:12:58 AM                                                                                                                    
Mr. Johnson  showed Slide  6, "Alaska  Retirement Management                                                                    
     Composition of the Board (cont.)                                                                                           
          ? Rob  Johnson, Chair, represents  PERS bargaining                                                                    
          ?   Gayle   Harbo,   Secretary,   represents   TRS                                                                    
          bargaining units                                                                                                      
          ? Lorne Bretz, finance officer                                                                                        
          ? Tom Brice, represents PERS bargaining units                                                                         
         ? Allen Hippler, member of general public                                                                              
          ?   Bruce   Tangeman,  Commissioner   of   Revenue                                                                    
          ? Kelly  Tshibaka, Commissioner  of Administration                                                                    
          ? Norman West, member of general public                                                                               
          ? Bob Williams, represents TRS bargaining units                                                                       
Mr.  Johnson thought  the board  was a  talented group  that                                                                    
worked well together. He thought  the statutory construct in                                                                    
the  state prevented  schisms and  cliques  and allowed  the                                                                    
board  to function  well. He  reiterated that  the statutory                                                                    
constructs provided workable solutions  and were a model for                                                                    
problem  solving.  He  encouraged  people  to  attend  board                                                                    
9:16:52 AM                                                                                                                    
Co-Chair  Stedman  commented  that on  the  defined  benefit                                                                    
side,  the responsibility  for paying  the benefit  lie with                                                                    
the state, rather than the  employee. He cautioned that if a                                                                    
mistake was  made that resulted  in unfunded  liability, the                                                                    
onus fell on the legislature  for funding. He noted that the                                                                    
previous  board had  not  included  a state  representative,                                                                    
which had led to a restructuring of the board.                                                                                  
9:18:21 AM                                                                                                                    
Senator   Hoffman   asked   Mr.  Johnson   to   review   the                                                                    
renumerations received by the board.                                                                                            
Mr. Johnson stated  that law entitled the board  to per diem                                                                    
when traveling  and an honorarium  of $400 per day  for days                                                                    
of meetings,  and one travel  day associated  with meetings.                                                                    
All travel was reimbursed.                                                                                                      
9:19:04 AM                                                                                                                    
PAUL ERLENDSON,  CALLAN ASSOCIATES, relayed that  Callan and                                                                    
Associates had been  in business since 1973,  and had worked                                                                    
with  several  state  pension  funds  and  sovereign  wealth                                                                    
funds. He relayed that the  group helped in four main areas:                                                                    
asset  allocation,   implementation  of   policy,  ascertain                                                                    
objectives, and ongoing education.                                                                                              
STEVE CENTER, CALLAN ASSOCIATES, introduced himself.                                                                            
9:21:35 AM                                                                                                                    
Co-Chair von  Imhof looked ahead  to Slide 10, "25  Years of                                                                    
Capital Market  Return History,"  which constrained  a table                                                                    
entitled 'Returns for Periods ended December 31, 2018."                                                                         
Co-Chair Stedman  interjected that  the testifiers  would be                                                                    
speaking  to  the current  performance  of  the board  after                                                                    
discussion the board's history.                                                                                                 
9:22:31 AM                                                                                                                    
Mr.  Erlendson looked  at  Slide 10,  which  was divided  by                                                                    
asset  classes.  He  continued later  slides  would  address                                                                    
policy setting and asset allocation.  He thought there might                                                                    
be  questions  about  the Permanent  Fund,  which  would  be                                                                    
addressed  later  in  the presentation.  He  said  that  any                                                                    
information that was  not presented today would  be given in                                                                    
a follow up presentation.                                                                                                       
9:23:37 AM                                                                                                                    
Co-Chair  Stedman   thought  there   may  be   requests  for                                                                    
additional information for the committee.                                                                                       
9:23:49 AM                                                                                                                    
Mr. Erlandson noted  that the figures on the  table on slide                                                                    
10  represented cumulative  rates of  return as  of December                                                                    
31, 2019.  He pointed to  the far-left column,  which listed                                                                    
groups of  asset classes. He  noted the "risky  assets": U.S                                                                    
Equity, Non-U.S.  Equity, Fixed Income, and  Real Estate. He                                                                    
said that  "Alternatives" was  a category  and not  an asset                                                                    
class, as they could not  be indexed or bought passively. He                                                                    
said that the  returns in the last three-month  of last year                                                                    
reflected that  equity markets had been  down significantly.                                                                    
He  stated  that  the   highest  returning  strategies  were                                                                    
equity-oriented  strategies; fixed  income  returns were  in                                                                    
the mixed  single digits, real  estate was the  most stable,                                                                    
and the  goal was to  select the right combination  in order                                                                    
to achieve long-term objectives.                                                                                                
9:25:31 AM                                                                                                                    
Mr.  Erlandson  showed  reviewed  Slide  11,  "Stock  Market                                                                    
Returns  by Calendar  Year," which  showed a  graph entitled                                                                    
'2018 Performance in Perspective:  History of the U.S. Stock                                                                    
Market  (230 Years  of Returns).'  He directed  attention to                                                                    
the  tallest  column  and noted  that  the  most  frequently                                                                    
occurring  annual  return  was  from 0  to  10  percent.  He                                                                    
pointed out  that the  graph depicted  a classic  bell curve                                                                    
distribution.  The  extreme  outcomes   were  rare,  but  he                                                                    
pointed to 2008 as an example.  He noted that the market had                                                                    
been relatively benign over the last few years.                                                                                 
9:27:05 AM                                                                                                                    
Co-Chair Stedman  thought the previous two  years had robust                                                                    
returns. He asked whether there  was an expectation that the                                                                    
market would stay robust.                                                                                                       
Mr. Erlandson stated that  historically, lower returns would                                                                    
be expected  in the future.  He relayed that  interest rates                                                                    
had dropped year after year,  and the challenge to investors                                                                    
was  to find  the  safest return  on  investment, which  was                                                                    
cash; with  equities on could  suffer a 30 percent  loss. He                                                                    
said  that the  hope for  an  investor was  that longer  the                                                                    
capital  could  work, the  more  risk  that was  taken,  the                                                                    
higher  the return  would  be achieved  over  a longer  time                                                                    
period.  He said  that if  the  time period  was short  then                                                                    
risks  could not  be taken,  which resulted  in a  portfolio                                                                    
with less  risky assets  and a  lower return  assumption. He                                                                    
stated that as  interest rates went up there was  no need to                                                                    
take  as much  risk  with higher  returning  assets and  the                                                                    
challenge  became  finding  the  right  investment  mix.  He                                                                    
asserted  that, based  on history,  returns  would be  lower                                                                    
than  historical  averages  but would  rise  to  equilibrium                                                                    
rates. He  referred to  Slide 10. He  said that  as interest                                                                    
rates  increased, stable  income could  be achieved  without                                                                    
taking riskier assets.                                                                                                          
9:30:50 AM                                                                                                                    
Co-Chair  Stedman  looked at  Slide  11.  He was  under  the                                                                    
impression that  active markets started  in the  mid 1920's.                                                                    
He wondered  how the  presenters had  found data  to include                                                                    
from a time  prior to the 1920's, when there  were no active                                                                    
Mr. Erlandson replied that the  slide measured the riskiness                                                                    
of opportunity  sets that  were available  at that  point in                                                                    
time.  He  said  that  the information  on  the  chart  that                                                                    
related to the last decade, and  not the last 100 years, was                                                                    
the relevant information.                                                                                                       
9:32:41 AM                                                                                                                    
Co-Chair Stedman thought information  from the 1800s did not                                                                    
have relevancy  and the ability to  measure that information                                                                    
was questionable.                                                                                                               
9:32:58 AM                                                                                                                    
Mr.  Erlandson spoke  to Slide  12, "Historical  Public Fund                                                                    
Asset  Allocation and  Returns," which  showed a  line graph                                                                    
showing rolling  10-year returns, as  well as a  grouping of                                                                    
pie charts and a data table.  He drew attention to the first                                                                    
pie chart,  which showed  that in  1985 the  average pension                                                                    
fund  was almost  equally invested  in  domestic equity  and                                                                    
domestic fixed income.  He said that the  10-year return for                                                                    
the average pension  fund in 1985 was over  10 percent. From                                                                    
left to right  the pie charts indicated  that public pension                                                                    
funds  have  become  progressively more  complex  investment                                                                    
structures. He said that from  the late 80s until the market                                                                    
crash in  the early  2000s, the  average public  pension had                                                                    
returns  in  the  low  double  digits.  He  said  that  once                                                                    
inflation was brought  under control in the  late 80s, money                                                                    
was  plentiful   for  institutional   investors,  increasing                                                                    
appetites  for risk.  He noted  that every  additional asset                                                                    
class that  was brought  in was typically  done at  a higher                                                                    
management fee;  the costs of  the programs went up  and the                                                                    
returns  were robust.  Over the  43-year history  charted on                                                                    
the slide  - the average  10-year return was over  9 percent                                                                    
per  year. He  noted the  vertical  line on  the graph  that                                                                    
charted  the market  and pointed  to 2009,  when the  global                                                                    
financial  crisis ebbed,  and the  market  began to  correct                                                                    
itself. He  said that before  that time the  average pension                                                                    
fund had  a return of  approximately 10 percent,  since that                                                                    
time the  average return had been  less than 6 percent.   He                                                                    
reiterated that the asset allocation  of the average pension                                                                    
fund had grown  progressively more complex in  order to find                                                                    
assets that will deliver higher expected returns.                                                                               
9:36:34 AM                                                                                                                    
Co-Chair Stedman looked at 2010  and 2015 and asked what the                                                                    
10-year trail was for the board's administrable assets.                                                                         
Mr. Erlandson offered to provide the information later.                                                                         
Co-Chair Stedman recalled at that  from 2007 to 2010, Callan                                                                    
had given several presentations  that had indicated that the                                                                    
target  rate  should  be  8.5  percent.  He  said  that  the                                                                    
committee had  repeatedly expressed concerns about  the rate                                                                    
of expected return  being too high and  was unachievable. He                                                                    
wanted  to  see  the  target  rates  for  the  time  periods                                                                    
relative to the returns on  the slide. He was concerned that                                                                    
year after year the aggregate  dollar value of the portfolio                                                                    
was  missing the  target. He  worried that  the state  could                                                                    
never catch up  and wanted to know if the  state was meeting                                                                    
the  projections.  He  thought  it   was  nice  to  see  the                                                                    
historical public trust asset  allocations but stressed that                                                                    
it  was more  important to  see the  returns on  the state's                                                                    
current portfolio.                                                                                                              
9:39:54 AM                                                                                                                    
Co-Chair  von Imhof  added to  Co-Chair Stedman's  comments.                                                                    
She thought the basic material  of the presentation was fine                                                                    
but  suggested  that  the  committee  had  expected  a  more                                                                    
sophisticated    presentation    that   revealed    specific                                                                    
information, rather than general  trends. She said that when                                                                    
the state dropped  form an 8 percent return  estimate to 7.3                                                                    
percent,  payments  increased.  She   thought  it  could  be                                                                    
helpful  to   look  at  10-year,  or   5-year,  return.  She                                                                    
suggested examining the past  25-years in 5-year increments.                                                                    
She  thought this  would provide  different perspectives  on                                                                    
volatility.  She felt  that charting  the volatility  of the                                                                    
market would  be helpful in  knowing how the  board payments                                                                    
would be affected. She requested  a ratio of what the actual                                                                    
returns were and what future proforma payments could be.                                                                        
9:41:32 AM                                                                                                                    
Mr.  Erlandson  advanced  to Slide  15,  "Historical  Return                                                                    
Projections:  Major  Asset  Classes," which  showed  a  line                                                                    
graph  depicting return  projections from  1989 to  2019. He                                                                    
noted  that  the first  observation  was  in 1989.  He  drew                                                                    
attention  to the  'Private Equity'  line and  observed that                                                                    
back  then it  had been  assumed that  private equity  would                                                                    
return 15  percent per year  over the decade.  He summarized                                                                    
that  return  assumptions  had  been  coming  down  and  had                                                                    
influenced work with the board  when deciding how to achieve                                                                    
long-term goals.                                                                                                                
9:43:16 AM                                                                                                                    
Mr.  Erlandson  turned  to  Slide   16,  "  Historical  Risk                                                                    
Projections:  Major  Asset  Classes," which  showed  a  line                                                                    
graph depicting risk projections from  1989 to 2019. He said                                                                    
that the  slide showed that  risk levels declined a  bit but                                                                    
not as  much as the returns.  He stated that this  meant the                                                                    
if  the targeted  rate of  return  was at  1989 levels  more                                                                    
money  would need  to  be deployed  into  risker assets.  He                                                                    
stressed that the  challenge of asset allocation  was how to                                                                    
balance the amount  of variability on returns  on the short-                                                                    
term  basis,  with  the  goal  of  achieving  the  long-term                                                                    
9:44:50 AM                                                                                                                    
Senator Shower was concerned with  inflation. He asked where                                                                    
the  presenter  expected  inflation   to  be  currently,  in                                                                    
relation to past levels.                                                                                                        
Mr. Erlandson  stated that the long-term  average going back                                                                    
to the 1950s  was about 4 percent per year,  but much of the                                                                    
inflation occurred  during the 70s  and 80s. He  thought the                                                                    
inflation average  was more misleading than  informative. He                                                                    
said that over the last 20  years inflation had been at less                                                                    
than  3  percent, closer  to  2  over  the past  decade.  He                                                                    
related that his assumption going forward was 2.25 percent.                                                                     
Co-Chair Stedman asked about what  the rate of inflation was                                                                    
over the previous century.                                                                                                      
Mr. Erlandson said he did not know.                                                                                             
9:46:16 AM                                                                                                                    
Co-Chair von  Imhof considered an overlay  of actual returns                                                                    
from 1989 to now.                                                                                                               
Mr. Center  returned to  Slide 15 and  noted that  the chart                                                                    
represented  Callan's capital  market  projections for  each                                                                    
calendar year. He relayed that  the only thing that could be                                                                    
promised  about  the  projections  was that  they  would  be                                                                    
wrong. He thought guessing what  the next 10-year return was                                                                    
an  art rather  than  a  science. He  stated  that the  only                                                                    
scientific  fact  that  could  be considered  would  be  the                                                                    
current  interest  rates  and  their  impact  on  historical                                                                    
returns.  He  offered  to  send  a  chart  that  showed  the                                                                    
Co-Chair von  Imhof thought it  would be interesting  to see                                                                    
some  volatility overlaid  on the  chart. She  spoke of  the                                                                    
permanent  fund and  mentioned the  percent of  market value                                                                    
(POMV) draw, which was a  five-year lookback. She noted that                                                                    
volatility  materially affected  the  draw.  She thought  it                                                                    
would  be helpful  to see  the variations  in the  potential                                                                    
market scenarios.                                                                                                               
9:48:59 AM                                                                                                                    
Mr. Center stated  that one reason a  five-year lookback was                                                                    
used was  to minimize  the impact  of volatility.  He stated                                                                    
that volatility  in the market  could result  in substantial                                                                    
variations in  the draw amount.  He stated that in  the most                                                                    
previous  study  he had  done,  there  was  less than  a  10                                                                    
percent  chance that  the ERA  would  be depleted  due to  a                                                                    
multiple  year  period of  negative  returns.  He said  that                                                                    
further finding would be presented by June 30, 2019.                                                                            
9:50:13 AM                                                                                                                    
Co-Chair  von  Imhof  thought  while  the  ERA  balance  was                                                                    
important,  it  was less  so  than  the what  the  potential                                                                    
budget number  could be with the  POMV draw. In a  true pure                                                                    
POMV, there  was no  distinction between  the corpus  of the                                                                    
fund  and the  ERA. She  considered that  the amount  of the                                                                    
POMV was more important that what was in the ERA.                                                                               
9:51:09 AM                                                                                                                    
Co-Chair Stedman asked about correlations  as shown on Slide                                                                    
16. He asked for further explanation of the correlations.                                                                       
Mr.  Erlandson  reminded  that  Slide  15  showed  projected                                                                    
returns and Slide  16 showed projected risk.  Because of the                                                                    
way models were built, a  single number was plugged into the                                                                    
equation,  which  was  rarely   accurate.  He  relayed  that                                                                    
correlation  calculations used  numbers rarely  used in  the                                                                    
modeling.  The model  was meant  to  demonstrate trends  and                                                                    
were only  tools used to  examine knowable facts  and ranges                                                                    
in outcomes. He thought that  the narrowing of the probables                                                                    
was the best that could be done.                                                                                                
9:53:46 AM                                                                                                                    
Mr.  Erlandson displayed  Slide  17, "Projected  Allocations                                                                    
required to Achieve 7.5%  Expected Return: Increasing Levels                                                                    
of  Risk  Required  to  Obtain the  Same  Expected  Rate  of                                                                    
Return,"  which  showed a  flow  chart  including three  pie                                                                    
charts. The  charts illustrated asset mixes  that would have                                                                    
been  suggested to  investors in  1989, 2004,  and 2019,  to                                                                    
achieve  a  7.5  percent  return. He  said  that  using  the                                                                    
assumptions   in  1989,   risky  assets   would  have   been                                                                    
unnecessary to reach  the 7.5 percent return.  He noted that                                                                    
in  2004,  achieving  7.5  percent  would  have  required  a                                                                    
movement to  riskier assets, tripling  the level of  risk to                                                                    
achieve   the  wanted   return.  The   slide  detailed   the                                                                    
     • In 1989, our expectations for cash and broad U.S.                                                                        
        fixed income were 6.80 percent and 9.35 percent,                                                                        
     • 15 years later, and investor would have needed half                                                                      
        of the portfolio in public equities to achieve 7.5                                                                      
        percent, nearly tripling the portfolio volatility of                                                                    
     • Today an investor is required to include 96 percent                                                                      
        in return-seeking assets to earn 7.5 percent at                                                                         
      almost 6 times the volatility compared to 1989.                                                                           
Mr. Erlandson  questioned whether  it was more  important to                                                                    
achieve the 7.5 percent return  or, was it more important to                                                                    
avoid and 18 percent risk level.                                                                                                
9:55:57 AM                                                                                                                    
Co-Chair Stedman suggested that  if Mr. Erlandson provided a                                                                    
bugle chart it could help  the committee to visualize future                                                                    
performance expectations.                                                                                                       
Mr. Center stated  that he was currently  working through an                                                                    
asset  allocation  study  and an  asset  liability  analysis                                                                    
which would inform future overall  asset allocation for PERS                                                                    
and TRS. He  agreed to provide the  requested information in                                                                    
a bugle chart format.                                                                                                           
Co-Chair  Stedman  recalled  that the  committee  had  great                                                                    
difficulty in the past getting  the similar charts produced.                                                                    
He believed that  the cart would be useful  in examining the                                                                    
magnitude of potential outcomes.                                                                                                
9:57:43 AM                                                                                                                    
Co-Chair von  Imhof thought Slide  17 was very  telling. She                                                                    
noted that  in 1989,  the portfolio  assumed less  risk, but                                                                    
inflation  was more  significant.  She thought  it would  be                                                                    
helpful for a national and  global analysis of what affected                                                                    
different asset choices, with recommendations.                                                                                  
Mr. Center stated that the process was ongoing.                                                                                 
9:58:57 AM                                                                                                                    
Senator   Micciche  asked   whether   1989  represented   an                                                                    
extremely unusual case. He asked  whether the state had ever                                                                    
been  in the  same situation  at another  point in  time. He                                                                    
wondered how  the 1989  numbers for  risk could  be compared                                                                    
with those of 2004 and forward.                                                                                                 
Mr. Erlandson stated that there  had been shorter times when                                                                    
the cash return  had been relatively high; he  noted that in                                                                    
2007, the  return on cash  investment was nearly  5 percent.                                                                    
He  thought it  was unusual  and inexplicable  that interest                                                                    
rates had been  down while there was so much  capital in the                                                                    
market.  He  said  that  inflation   was  not  viewed  as  a                                                                    
potential issue  and that interest  rates were  predicted to                                                                    
rise. He  discussed the investment  climate in 1989  and how                                                                    
it informed decisions at that point in time.                                                                                    
10:01:08 AM                                                                                                                   
Mr.  Erlandson referenced  Slide  19,  "2019 Callan  Capital                                                                    
Market Projections,"  which showed  a data table  entitled '                                                                    
Expected risk  and return (20192028).'   He pointed  out the                                                                    
Asset Class  column on the  left. He noted the  Index column                                                                    
and  explained the  column reflected  if one  were to  buy a                                                                    
passive exposure,  which index  would be purchased.  He said                                                                    
that the capital  market projections were net  of fee, index                                                                    
returns;    without    active   management,    except    for                                                                    
"alternatives"  that  could  not  be  passively  bought.  He                                                                    
continued to discuss the thought  process for an investor as                                                                    
they sought return  on their investment. He  stated that the                                                                    
policy assumed  passive implementation  and if a  return was                                                                    
hoped  for   that  exceeded   the  target,   active  manager                                                                    
opportunities needed to be explored.                                                                                            
10:02:53 AM                                                                                                                   
Co-Chair  Stedman   thought  it  was  possible   to  measure                                                                    
statistically the stock selection  and timing ability within                                                                    
the portfolio.                                                                                                                  
Mr.  Erlandson confirmed  that on  the Callan  website there                                                                    
was  a  quarterly  exhibit  that measured  the  net  of  fee                                                                    
effectiveness of managers.                                                                                                      
Co-Chair Stedman asked for an  explanation of the difference                                                                    
between  the   1-year  arithmetic  and   10-year  annualized                                                                    
projected return.                                                                                                               
10:03:33 AM                                                                                                                   
Mr.  Erlandson stated  that the  arithmetic return  was from                                                                    
the beginning, day  zero, to the end of  the 10-year period,                                                                    
without   variability.   The    geometric   return   assumed                                                                    
variability of return.                                                                                                          
Co-Chair  Stedman  thought  the  easy way  to  consider  the                                                                    
difference was that the arithmetic  was a 1-year return, the                                                                    
geometric was  a 10-year compounding  return that  took risk                                                                    
level into account.                                                                                                             
Co-Chair Stedman asked for an explanation of 'duration'.                                                                        
Mr.  Center   stated  that  for  fixed   income  investments                                                                    
"duration" had to  do with the length of time  that the bond                                                                    
had to maturity. Shorter duration  maturity could be 3 years                                                                    
or  less,  longer  duration   dated  securities,  or  market                                                                    
duration, could take 5 or 6 years to maturity.                                                                                  
Co-Chair Stedman  thought the  duration time  would indicate                                                                    
the timing of the cash flows.                                                                                                   
Mr. Center added that shorter  duration securities tended to                                                                    
have lower  risk because the  likelihood of the  default was                                                                    
lower than that of a longer duration bond.                                                                                      
10:06:16 AM                                                                                                                   
Mr. Erlandson discussed Slide 20,  " Expanding the Length of                                                                    
the Forecast Horizon":                                                                                                          
    10-Year vs. Equilibrium Capital Market Expectations                                                                         
     ?As  the  time  horizon  grows  beyond  10  years,  our                                                                  
     capital  market  expectations increasingly  incorporate                                                                    
     "equilibrium  returns".  Equilibrium returns  reference                                                                    
     long-term historical  mean results, with an  overlay of                                                                    
     informed judgment. Key elements to consider:                                                                               
            Nominal returns                                                                                                     
            Real returns                                                                                                        
            Risk premium  bonds over cash, stocks over                                                                          
          bonds, long duration over short                                                                                       
            Long-term underlying economic growth (real GDP)                                                                     
     ? 10-Year expectations:                                                                                                  
            Large Cap Stocks: 7.0% nominal, 4.75% real,                                                                         
          3.25% premium over bonds                                                                                              
            Bonds: 3.75% nominal, 1.50% real, 1.25% premium                                                                     
          over cash                                                                                                             
            Cash: 2.50% nominal, 0.25% real                                                                                     
            Inflation: 2.25%                                                                                                    
            Underlying economic growth (real GDP)  2 to                                                                         
          2.5% per year                                                                                                         
     ?Equilibrium expectations:                                                                                               
            Large Cap Stocks: 8.25% nominal, 6.0% real,                                                                         
          3.25% premium over bonds                                                                                              
            Bonds: 5% nominal, 2.75% real, 1.75% premium                                                                        
          over cash                                                                                                             
            Cash: 3.25% nominal, 1.0% real                                                                                      
            Inflation: 2.25%                                                                                                    
            Underlying economic growth (real GDP)  3% per                                                                       
Mr. Erlandson said that the  slide put into narrative format                                                                    
the  assumption that  lower returns  were being  assumed for                                                                    
the next  decade but,  15, 25, 30  years out,  returns would                                                                    
gradually increase.  He said that everything  was priced off                                                                    
the risk-free rate and anything  that was purchased would be                                                                    
scrutinized for cash return and  risk. He argued that longer                                                                    
time horizons should  assume higher rates of  return but, if                                                                    
the   return  horizon   was   shorter   then  lower   return                                                                    
expectations should be made for the same asset allocation.                                                                      
10:09:12 AM                                                                                                                   
Mr.  Erlandson turned  to Slide  21, "Comparison  of 10-year                                                                    
Returns  with  Equilibrium  Returns," which  showed  a  data                                                                    
table that compared the returns.                                                                                                
10:09:31 AM                                                                                                                   
Mr.  Erlandson referenced  Slide  22,  "2019 Capital  Market                                                                    
Projections versus  Other Firms," which showed  a data table                                                                    
listing the 11 organizations  that had made projections like                                                                    
Callan. He  noted that the  return projects did not  all use                                                                    
the same  asset classes and  the time horizons  differed. He                                                                    
gleaned  that the  longer the  time  horizon, generally  the                                                                    
higher return  the organization  listed were  predicting. He                                                                    
pointed out  the four columns  on the far right  that showed                                                                    
the high  and the low  returns, with the  Callan assumptions                                                                    
highlighted in yellow.                                                                                                          
10:10:49 AM                                                                                                                   
Mr.  Center  displayed  Slide  23, "PERS  and  TRS     Asset                                                                    
Allocation Over Time":                                                                                                          
     ? Table shows asset allocations for PERS (solid line)                                                                      
     and TRS (dashed line) over time. Dashes are only                                                                           
     visible when differences arise.                                                                                            
     ? Through much of the1990's, PERS and TRS had slightly                                                                     
     different asset allocations                                                                                                
     ? PERS had a moderately higher Fixed Income allocation                                                                     
     ? TRS had a slightly higher allocation to Domestic and                                                                     
     Non-US Equities                                                                                                            
     ? Asset Allocations have been effectively similar                                                                          
     since 2000                                                                                                                 
Mr.  Center stated  that  the  slide was  in  response to  a                                                                    
question from  the committee after  a presentation  that had                                                                    
showed  historical  returns  for  PERS  and  TRS;  a  return                                                                    
difference  had been  observed for  the two  plans over  the                                                                    
long term.  He noted that there  were two sets of  lines for                                                                    
each  asset class.  The slide  showed asset  allocations for                                                                    
PERS (solid  line) and TRS  (dashed line) over  time; dashed                                                                    
were only  visible when differenced  arose. Through  much of                                                                    
the  1990s,  PERS  and  TRS  had  slightly  different  asset                                                                    
allocations,  PERS  had  a moderately  higher  fixed  income                                                                    
allocation, while  TRS had a  slightly higher  allocation to                                                                    
domestic  and  non-US  equities. The  slide  concluded  that                                                                    
asset allocations had been effectively similar since 2000.                                                                      
10:13:04 AM                                                                                                                   
Co-Chair Stedman  thank the presenters and  invited the next                                                                    
set of speakers to the table.                                                                                                   
10:13:50 AM                                                                                                                   
AJAY DESAI,  DIRECTOR, DIVISION OF RETIREMENT  AND BENEFITS,                                                                    
DEPARTMENT OF ADMINISTRATION, introduced himself.                                                                               
KEVIN   WORLEY,  CHIEF   FINANCIAL   OFFICER,  DIVISION   OF                                                                    
RETIREMENT AND BENEFITS, introduced  Mr. Kershner and showed                                                                    
slide 24, "Buck Analysis."                                                                                                      
DAVID  KERSHNER,  BUCK  FIRM (via  teleconference),  relayed                                                                    
that  the primary  function of  Buck  had been  to help  the                                                                    
board assess the funded status  of the plans each year based                                                                    
on the annual evaluations. The  evaluations were used to set                                                                    
the  contribution rates  for the  various employers  and the                                                                    
10:15:24 AM                                                                                                                   
Mr.  Kershner  referenced  Slide 25,  "Impact  of  Actuarial                                                                    
Assumption  Changes,"   which  showed   a  data   table  the                                                                    
illustrated actuarial  accrued liability  for PERS  and TRS.                                                                    
He  explained  that contributions  for  the  plan came  from                                                                    
three    sources:    active   participants,    participating                                                                    
employers,  and   the  additional  state   contribution.  He                                                                    
discussed the  statutorily set  contribution rates  for each                                                                    
Mr.  Kershner continued  to address  Slide  25. He  informed                                                                    
that Buck was  in the process of the  2018 evaluation, which                                                                    
would  be presented  to  the  board in  May  2019. Over  the                                                                    
previous year,  the firm had  performed an  experience study                                                                    
to assess  the reasonableness  of the  actuarial assumptions                                                                    
and whether  changes were warranted.  He continued  that the                                                                    
firm  made  a series  of  assumptions  in order  to  project                                                                    
benefits   for  participants   decades   into  the   future.                                                                    
Demographic  assumptions  were  used  to  project  the  plan                                                                    
population each year into the future.                                                                                           
Mr. Kershner  discussed economic assumptions used  to devise                                                                    
an  investment  return  rate,  which   was  composed  of  an                                                                    
inflation  rate assumption  and a  real rate  of return.  He                                                                    
continued that the inflation assumption  was common to other                                                                    
economic assumptions, i.e.;  the assumption regarding future                                                                    
pay increases  for active  members because  pension benefits                                                                    
are  a function  of  average pay  of  retirement. Merit  and                                                                    
productivity were  also considered.  He spoke  to healthcare                                                                    
and  said  that  the  liabilities were  a  function  of  the                                                                    
medical and  prescription drug claims generated  by retirees                                                                    
and  their covered  dependents. He  stated that  assumptions                                                                    
were  made  as  to  how  those  expenses  were  expected  to                                                                    
increase  in  the  future  due   to  inflation,  changes  in                                                                    
utilization, changes  in technology,  and new  programs that                                                                    
were implemented to control healthcare costs.                                                                                   
10:19:40 AM                                                                                                                   
Mr. Kershner  shared that the  board had adopted a  study in                                                                    
January,  and   2018  valuations   would  be  used   to  set                                                                    
contribution rates for FY 21.                                                                                                   
Mr. Kershner noted  that Slide 25, as well  as the following                                                                    
slide would  address the overall  impact on PERS and  TRS of                                                                    
the newly  adopted assumption changes.  He relayed  that the                                                                    
top  half   of  slide  25,  showed   the  actuarial  accrued                                                                    
liability from  the most recent  valuation prior to  the new                                                                    
assumption being reflected in the 2018 evaluations.                                                                             
Mr. Kershner pointed to line  1, which showed PERS liability                                                                    
for pension and healthcare  at approximately $22 billion and                                                                    
$10.1 billion  for TRS. The actuarial  accrued liability was                                                                    
the present value of future  benefits, based on assumptions,                                                                    
attributable to service earned as  of the evaluation date of                                                                    
June 30, 2017. He said that  this was the denominator of the                                                                    
funded  status  of  the  plan   and  was  used  to  set  the                                                                    
contribution rate.                                                                                                              
10:22:47 AM                                                                                                                   
Mr.  Kershner  related  that   lowering  the  interest  rate                                                                    
assumption  from 8  percent  to 7.38  percent  had been  the                                                                    
primary  driver of  the increase  in  the actuarial  accrued                                                                    
liability.  He  said  that  the   reason  that  the  accrued                                                                    
liability  increased,  while  the interest  rate  assumption                                                                    
decreased rate, was  because more needed to be  set aside in                                                                    
the present in  order to provide the same  benefits into the                                                                    
Mr. Kershner emphasized  that the overall cost  of the plans                                                                    
over   time   would   be   whatever   the   benefits   were,                                                                    
administrative  expenses,   and  whatever   invested  assets                                                                    
earned  over time.  All the  actuarial  assumptions did  was                                                                    
help allocate the  assets over time and  determine a pattern                                                                    
of contributions. He  stressed that the goal  was to provide                                                                    
as much  stability over time as  possible, while recognizing                                                                    
that there  was no  control over  what happened  to invested                                                                    
assets, and little control over  liability due to changes in                                                                    
10:24:59 AM                                                                                                                   
Mr. Kershner  pointed out that  the second line on  Slide 25                                                                    
reflected the  increase in  the actuarial  accrued liability                                                                    
due to the new assumptions  in dollar amounts, the next line                                                                    
reflected  the   percentage  basis.   For  PERS   there  was                                                                    
approximately  a 6  percent increase  in the  actual accrued                                                                    
liability, under 1 percent for TRS.                                                                                             
10:25:28 AM                                                                                                                   
Mr.  Kershner noted  that line  3 introduced  another change                                                                    
that  would  be  reflected  in  the  2018  evaluations,  the                                                                    
adoption of  the Employer Group Waiver  Plus program (EGWP).                                                                    
This was  a program offered  by the federal  government that                                                                    
provided  incentives  to  employers  to  cover  prescription                                                                    
drugs  for  their  participants   that  were  covered  under                                                                    
Medicare. Until  EGWP was implemented,  there was  a Retiree                                                                    
Drug Subsidy  (RDS) program  that the  state had  decided to                                                                    
stop  because  EGWP provided  a  greater  subsidy. The  EGWP                                                                    
program reduced  the liability of  the plan. He  pointed out                                                                    
that the third  line on slide showed that  showed a decrease                                                                    
in healthcare  liabilities for PERS  and TRS.  He reiterated                                                                    
that the  slide reflected  estimations as  of July  30, 2017                                                                    
and  were  currently  being  refined   to  include  the  new                                                                    
10:27:56 AM                                                                                                                   
Mr.  Kershner continued  to discuss  Slide 25.  He discussed                                                                    
additional  state contributions  as shown  on the  slide. He                                                                    
noted  that there  were two  components to  the contribution                                                                    
rate: the  cost of  benefits occurring  in the  current year                                                                    
and  the funding  of the  unfunded  liability. Beginning  in                                                                    
2014, stature required that the  unfunded liability for PERS                                                                    
and TRS  be funded over  a closed, 25-year  period, starting                                                                    
in 2014, through  2039. He said that the state  had 21 years                                                                    
left to amortize  the unfunded liability. He  said that work                                                                    
was  being  done  with  the  board to  modify  the  way  the                                                                    
unfunded liability  would be amortized, with  an emphasis on                                                                    
minimizing  the  potential  volatility in  those  additional                                                                    
state  contributions. He  offered a  hypothetical using  the                                                                    
current method of funding the  unfunded liability that would                                                                    
result in  an increase in  state contribution. He  said that                                                                    
the  amortization modification  method  of 25-year  layering                                                                    
would help  to determine projected state  contributions into                                                                    
the future.                                                                                                                     
10:32:47 AM                                                                                                                   
Mr. Kershner  continued to address  slide 25 and  noted that                                                                    
the projections  assumed that all the  assumptions over time                                                                    
would  be   realized.  He  considered   current  assumptions                                                                    
projected for FY 21 - FY  39; $4.1 billion for PERS and $3.7                                                                    
billion  for TRS.  He discussed  the changes  under the  new                                                                    
assumptions   before  recognizing   EGWP  and   the  25-year                                                                    
10:36:33 AM                                                                                                                   
Co-Chair  Stedman  asked Mr.  Kershner  to  clarify why  the                                                                    
burden fell to the employer and not the state.                                                                                  
Mr.  Kershner  clarified  that  the  first  use  of  25-year                                                                    
layering  would start  in 2018,  and projected  contribution                                                                    
rates   would  be   less  than   the  22   percent  employer                                                                    
contribution  for PERS,  and 12.56  for TRS.  The additional                                                                    
state  contributions only  kicked in  when the  contribution                                                                    
rates exceeded the employer limits.                                                                                             
10:38:08 AM                                                                                                                   
Co-Chair von  Imhof thought EGWP  had a  tremendous positive                                                                    
effect  on  the  unfunded liability  balance.  She  wondered                                                                    
whether  Mr. Kershner  knew  of any  other  factors such  as                                                                    
pooling mechanisms that could aid in reducing liability.                                                                        
Mr. Kershner confirmed that he  was not a healthcare actuary                                                                    
and offered to follow up later.                                                                                                 
10:39:16 AM                                                                                                                   
Senator Hoffman also  saw the benefits of  the EGWP program.                                                                    
He asked  what authority  the board  had to  implement EGWP.                                                                    
He asked what other states had implemented the program.                                                                         
Mr. Desai  stated that  the process of  EGWP began  in 2017.                                                                    
Initially  the  study  with a  health  consulted  had  shown                                                                    
potential  savings. When  it was  realized that  the savings                                                                    
would be achieved through the program - it was implemented.                                                                     
Mr.  Desai offered  to provide  information later  regarding                                                                    
the question of authority to implement the program.                                                                             
10:41:24 AM                                                                                                                   
Senator Hoffman wanted a list  of other states participating                                                                    
in  the program.  He asked  what impact  the program  had on                                                                    
prescription drug prices for health trusts and end users.                                                                       
Co-Chair  Stedman  asked  the   testifiers  to  provide  the                                                                    
information later.                                                                                                              
10:41:56 AM                                                                                                                   
Senator  Micciche asked  why  excluding  and including  EGWP                                                                    
were stacked  in the assumptions  on the second half  of the                                                                    
Mr. Kershner stated that the  changes were listed separately                                                                    
to  provide more  information  on the  impact  of the  three                                                                    
significant  changes  being   implemented  for  the  current                                                                    
10:42:53 AM                                                                                                                   
Senator Micciche looked at the  net increase and decrease on                                                                    
unfunded  liability. He  thought  that  both influenced  the                                                                    
actuarial calculation.                                                                                                          
Mr. Kershner  stated that  the new  assumptions and  the 25-                                                                    
year  layering  of  the  unfunded  liability  were  separate                                                                    
decisions.   The  board   could   have   approved  the   new                                                                    
assumptions,   and   kept   the  current,   closed   25-year                                                                    
amortization,    without     introducing    layering.    The                                                                    
implementation of  EGWP was a  decision made by DOA  and was                                                                    
independent  of  the  assumptions  or  the  method  used  to                                                                    
amortize the unfunded liability.                                                                                                
10:44:28 AM                                                                                                                   
Senator Micciche  considered the  decisions that  were made,                                                                    
and understood  that the  actuarial accrued  liability, with                                                                    
new assumptions, was $22.585 billion.                                                                                           
Mr. Kershner answered in the affirmative.                                                                                       
Senator Micciche  asked whether  the unfunded  liability was                                                                    
$8.83 billion.                                                                                                                  
Mr. Kershner  stated that that  unfunded liability  would be                                                                    
the difference  between the actuarial accrued  liability and                                                                    
the asset values, which were not on the slide.                                                                                  
Co-Chair  Stedman remarked  that the  presentation had  been                                                                    
nearly two  hours long, and  he could  not say that  he felt                                                                    
better informed on  the matter. He expressed  the desire for                                                                    
a  frank conversation  on the  money available  and how  the                                                                    
problem was  going to  be resolved.  He was  concerned about                                                                    
the   increase  in   unfunded   liability   under  the   new                                                                    
Mr. Kershner  stated that the  2018 valuation  would reflect                                                                    
the  6/30/18 liability,  assets,  and  unfunded amounts.  He                                                                    
admitted  that  the  slide  did  not  reflect  the  unfunded                                                                    
10:46:51 AM                                                                                                                   
Co-Chair Stedman  queried the assets and  liability and what                                                                    
was expected in the report to the board.                                                                                        
Mr.  Worley  stated  that actuarial  valuation  process  was                                                                    
still underway, the results of  which still needed review by                                                                    
Co-Chair Stedman asked for market  value of the portfolio on                                                                    
June 30, 2018.                                                                                                                  
Mr. Worley agreed to provide to provide the information.                                                                        
Co-Chair Stedman expected  to see a $1  billion increase. He                                                                    
thought it was clear that  there was a potential increase of                                                                    
$1 billion in  liability to the state. He  stressed that the                                                                    
committee was  very concerned about  the impact on  the next                                                                    
budget cycle. He lamented that  the committee struggled with                                                                    
the delay of information.                                                                                                       
10:49:49 AM                                                                                                                   
Commissioner  Tangeman   recalled  a  presentation   at  the                                                                    
January  ARM  Board meeting,  at  which  time the  liability                                                                    
prior  to recent  action  was $6.9  billion,  or 78  percent                                                                    
funded.  The estimate  after the  experience study  (without                                                                    
EGWP)  was about  $2 billion.  With the  EGWP the  total was                                                                    
$7.2 billion.  The numbers would  be trued up in  the coming                                                                    
Co-Chair  Stedman understood  that  without  EGWP and  other                                                                    
modifications the numbers would be higher.                                                                                      
Commissioner Tangeman answered in the affirmative.                                                                              
Co-Chair  Stedman  summarized  that  the state  had  a  $7.2                                                                    
billion  liability. He  reiterated his  request for  a bugle                                                                    
chart of the analysis over the  last decade. He noted that a                                                                    
similar chart  had been done  in the past and  believed that                                                                    
it would  give the  committee a better  idea of  the state's                                                                    
exposure to  risk. He  felt that  the committee  needed more                                                                    
information  to  understand what  needed  to  be done  going                                                                    
10:53:50 AM                                                                                                                   
Senator  Micciche questioned  the  sources  for the  numbers                                                                    
being used by Commissioner Tangeman.                                                                                            
Co-Chair  Stedman said  that the  information would  be made                                                                    
available to the committee.                                                                                                     
10:54:40 AM                                                                                                                   
Mr. Kershner  discussed Slide 26, "Percentage  Impact of New                                                                    
Assumptions/Methods  on Actuarial  Accrued  Liability as  of                                                                    
June  30,  2017," which  showed  a  data table  showing  the                                                                    
impact  of new  assumptions on  the 6/30/17  liabilities. He                                                                    
noted  there was  four  categories  of changes:  demographic                                                                    
assumptions, salary  increase rates, inflation  rate (impact                                                                    
on COLA-related  benefits only),  and investment  return. He                                                                    
discussed the two types of  COLAs - the residency adjustment                                                                    
and benefits tied to inflation.  He highlighted the dropping                                                                    
of the investment return from  8 percent to 7.38 percent and                                                                    
the impact of PERS and TRS pension and healthcare.                                                                              
10:57:01 AM                                                                                                                   
Mr. Kershner turned to Slide  27, which showed a data table.                                                                    
He  emphasized  that  the   numbers  were  hypothetical  and                                                                    
illustrated how  the 25-year  layering would  affect numbers                                                                    
over time. Layer  one was the unfunded  liability that would                                                                    
continue to be  amortized over what was left  of the 25-year                                                                    
period,   or  through   FY  39.   The  columns   represented                                                                    
subsequent layering hypotheticals through 2046.                                                                                 
Co-Chair Stedman  thanked the presenters. He  noted that the                                                                    
subject matter  could be frustrating.  He believed  that the                                                                    
working  with presenters  to gather  information for  future                                                                    
discussions could be fruitful.  He highlighted the magnitude                                                                    
of the  issue and  the importance that  the state  meets its                                                                    
11:01:48 AM                                                                                                                   
Co-Chair Stedman stated the co-chairs would work with the                                                                       
presenters and the Commissioner of Revenue on the issue.                                                                        
11:03:12 AM                                                                                                                   
The meeting was adjourned at 11:03 a.m.                                                                                         

Document Name Date/Time Subjects
040219 Summary of Current and Proposed Assumptions and Methods from 2017 Experience Study_121218 AC meeting.pdf SFIN 4/2/2019 9:00:00 AM
Retirement and Benefits
040219 ARMB_Callan_Buck S FIN 4.02.19.pdf SFIN 4/2/2019 9:00:00 AM
Retirement and Benefits