Special Board of Aldermen 09-21-2021 Page 4
So, you know, this is one where you could say how could this happen. | think people trying to make, you know,
reasonable decisions based on the information they had.
You can point fingers in every direction to say who should have spoken up, including our Board, membership,
employers, you know, but you know, it happened. It was not a temporary solution. The mandate on the assumed rate of
return was repealed the following year, but that Open Group Aggregate stayed as the method for calculating rates
through the 2009 rates. So that was essentially like drilling a hole in the bottom of your boat and forgetting about it for 18
years and then when your ankles get wet, you wonder what happened. So you know and those changes were in the
early years, sort of papered over by the fact that we did have a very strong 1990s like anyone in the markets. We had |
think eight years out of nine where it was 10 to 20% return. So the special account was getting filled. We were still
hitting our return assumptions and we had this technical term would be “funky math for calculating our rates” and things
were swimming along until the early 2000s, when we had the .com bubble in the recession after 9/11. That got the
legislature thinking that maybe this wasn't the right way to do it and, you know, constituent groups and ultimately in 2007,
some legislation was adopted, replaced the Open Group Aggregate with Entry Age Normal, which is right now the only
standard way to calculate rates allowed under GASB and actuarial standards and created the 30 year amortization of the
unfunded liability, which at the time was 2.4 billion. The liability was hidden. The number looked much lower when you
were using the Open Group Aggregate Method. So it was a bit of a, you know, a shock. The special account funding to
that was cut off until certain triggers were matched. So no more money was flowing from investment income into the
special account and they also created a commission in HB 876 to make additional recommendations of reform of the
retirement system was essentially what we're referring to was the first “Decennial Commission’.
President Wilshire
Alderman Jette do you have a question?
Alderman Jette
Yes. You mentioned “GASB”. What is GASB?”
Marty Karlon, Director of Communications and Legislative Affairs
Oh Governmental Accounting Standards Board. It's not a mandate, but to get a clean audit opinion, it needs to adhere
to the GASB standards for different things.
Alderman Jette
Thank you.
Marty Karlon, Director of Communications and Legislative Affairs
You're welcome. So in 2008, additional legislation followed the 2007 changing the methodology and closing the loop —
vetting a closed period on the debt was sort of foundational issues that shored up you know, patch those holes in the
floor and you're still up to your ankles in water but, you Know, there's no more water coming in.
In 2008, the legislature made additional changes. They created an Independent Investment Committee to manage the
plan’s investments, transferred money from the special account into the body of the trust fund to mitigate some of the
employer costs of the time, froze the medical subsidy benefit, which is essentially very close now but the increases in it
were frozen, and revise the definition of earnable compensation. So what employees and other members earn not all
the pay types are allowed. They previously had been. There was a lawsuit challenging some of these decisions. It went
on for several years and will kind of close the book on the lawsuits on us on a future slide. So, you know, that was more
cleanup. 2007 - 2008 combined, you know, we're sort of dealing with some structural issues.
In 2009, obviously, 2008 - 2009 Great Recession. You know, dire days for all and the State was looking to manage its
funding as well. So it that employer subsidy | talked about earlier that had been around since the late ‘70s was lowered
by legislation to 30% in fiscal 10 and 25% in fiscal ‘11. It was slated to bounce back to 35% in fiscal 12 but in 2011, that
was repealed entirely instead. So you know, that also drew a lawsuit from school districts, and counties and employers.
That was decided, | think in 2014.
Then 2011. So we talked about structural things. We talked about State funding for employers. In 2011 - 2012, the
legislature came in and sort of looked toward the benefit side towards the member side is to what to cut and how to
manage that. So through what it ultimately became part of House Bill 2, which is the Budget Trailer Bill but there was by
