PERS Board Approves Concept of New Tier 5

The PERS Board of Trustees met earlier this week. Among its agenda items, the Board:

Approved the concept of a new Tier 5 for new hires: The Board considered a proposal from Cavanaugh Macdonald Consulting (aka, CavMac), its actuarial consultants, for a new Tier 5 for new PERS members. CavMac’s proposal included the same 9% employee contribution rate as Tier 4, but 4% of these contributions would go into a defined benefit plan and the remaining 5% would go into a defined contribution plan (i.e., benefits determined by investment earnings). While vesting would remain at eight years, an employee’s average salary benefit would be based on the employee’s eight highest consecutive years rather than Tier 4’s highest four years. CavMac’s proposal did not include a guaranteed cost-of-living adjustment (COLA); rather, any COLA would be at the discretion of the PERS Board and subject to the availability of funds.

The Board ultimately approved the concept of a new Tier 5 rather than CavMac’s proposal, with details of this new Tier 5 to be worked out in legislation. Dr. Randy McCoy voted against this agenda item and State Treasurer David McRae abstained. Several board members shared that reducing benefits for new hires would stabilize the system and help to ensure current members receive promised benefits. MPE is concerned that a new Tier 5 that provides reduced guaranteed benefits will negatively impact teacher recruitment and retention.

Tabled a proposed revision to the PERS Funding Policy that would have created an advisory committee comprised of political appointees: PERS staff proposed a revision to the PERS Funding Policy to create a 3-member Investments and Pension Advisory Committee for the purpose of providing recommendations to the Board relative to its investments. The Governor, Lt. Governor and Speaker of the House would each appoint one member of the committee with final approval by the PERS Board. While committee members would be required to have 10 years of experience in finance, investments or pension administration, they would not be members of PERS. Board members George Dale, Dr. Randy McCoy and State Treasurer David McRae expressed concern related to this new committee and the item was ultimately tabled for more review.