Government Retirement Systems - North Carolina League of

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Transcript Government Retirement Systems - North Carolina League of

Local Governmental Employees’ Retirement System (LGERS) North Carolina League of Municipalities Conference Raleigh, NC October 25, 2011

North Carolina Department of State Treasurer

3 Topics for Discussion

• LGERS 101 – The Basics • Comparison to other Pension Plans • Operational Highlights

LGERS 101 – The Basics

Local Governmental Employees’ Retirement System

(

LGERS

) began in 1945 with 18 participating local governments and 2,102 members •

NOW

: 888 participating governmental entities: (cities, counties, towns, local commissions, etc.) • • • •

212,866 Total Participants*

49,204 Retirees and beneficiaries receiving benefit payments 41,077 122,585 Terminated participants and beneficiaries entitled to benefits but not yet receiving benefits Active Participants •

$18.5 Billion in Assets* *

data from actuarial valuation as of 12/31/10

LGERS Plan Provisions

Eligibility

Employed by a participating unit and works at least 1,000 hours per year •

Employee Contributions

6% of salary • •

Employer Contributions

Approximately 6.88% of salary Unfunded accrued liability •

Tax sheltering

Upon employer resolution •

Vesting requirements

5 years of creditable service

LGERS Plan Provisions ( con’t).

• • •

Service Required for Full (Unreduced) Retirement

30 years of creditable service age 60 with 25 years of creditable service age 65 with 5 years of creditable service (age 55 with 5 years for law enforcement officers) •

Formula for Full Retirement Benefit

1.85% of AFC (Average Final Compensation of the 4 consecutive years of salary that produce the highest average) times the years of creditable service.

1.85% x AFC x years of service = annual retirement benefit

Early Retirement & Disability Retirement

Applicable

3 Funding Sources

The Retirement Systems assets come from 3 sources: • Full-time employees contribute 6% of each paycheck • Employers contribute annually based on recommendations from the System’s actuary and Board approval • Earnings from investments made by State Treasurer’s office

LGERS Funding Sources Illustrated

FUNDING

Employee Contributions 13.3% Employer Contributions 12.9% Return on investments 73.8% For calendar year 2010, these amounts equate to the above percentages of total system funding.

NC Retirement Systems

• Continues to be one of the most secure pension systems in the country • Program Evaluation Division (PED) of the NC General Assembly ranked TSERS 6 th out of 84 public plans – Sept 2011 report • National Institute on Retirement Security (NIRS) highlighted NC (TSERS plan) as one of 6 states which has weathered the financial storms of recent years – June 2011 • 2009 NASRA (National Association of State Retirement Administrators) Public Pension Fund Survey lists TSERS as having the 4 th highest funding ratio among the 50 states

Current Public Sector Retirement Plan Types by US States

Defined benefit

(DB) plan – provides lifetime income based on a formula that includes years of service and salary. The majority of states (38) have this type of plan & investment risk is borne by the state/employer (i.e. LGERS) •

Defined contribution

(DC) plan – provides income based on the value of the employee’s account balance. Michigan and Alaska require all new hires to participate solely in DC plan & investment risk is on the employee •

Hybrid

plans – Employees are required to participate in both a DB & a DC plan. States include: Georgia, Indiana, Oregon, and Utah •

Choice

plans – Employees choose between DB or DC plan. States include: Colorado, Florida, Montana, Ohio, South Carolina, and Washington • Source: NC General Assembly Program Evaluation Division based on analysis of Center for Retirement Research’s 2011 report

LGERS Funding Status

Actuarial Valuation Date Funded Ratio* • 12/31/04 99.3% • 12/31/05 99.4% • 12/31/06 99.5% • 12/31/07 99.5% • 12/31/08 99.6% • 12/31/09 99.5% • 12/31/10 99.6% * Funded ratio = Assets/Liabilities

Contribution History

LGERS Contribution History

8 7 6 5 4 3 2 1 0 1975 1980 1985 1990 1995

Year Beginning July 1,

2000 Ряд1 Ряд2 2005 2010 2015

LGERS Multiplier

LGERS Multiplier

2.00% 1.80% 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97

Year

19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09

October 20, 2011 Board of Trustees Meeting

• Annual Required Contributions • Unfunded Accrued Liability • New Local • 18 basis points gain ($10 million)

$400 000 000

Projected Employer Contributions

North Carolina Local Governmental Employees' Retirement System

Based on December 31, 2010 results with an assumed annual increase in active membership and CPI for each calendar year after 2010 of 0% and 3%, annual market returns of 7.25% for calendar years after 2010 and a valuation interest rate of 7.25%.

20,00% $300 000 000 15,00% $200 000 000 $100 000 000 4,80% 6,35% 6,88% 6,74% 7,17% 7,39% 7,55% 7,63% 7,65% 7,63% 7,57% 7,49% 10,00% 5,00% $0 0,10% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 2009 2010 2011 2012 December 31st Undistributed Gains 2013 2014 2015 COLA Payable July 1st 2016 2017 2018 2019 2020 July 1 Required Base Contribution Rates 0,00% A2010

Contribution Benchmarks

• Average public fund: 8.7% of pay •

Neighboring States

: South Carolina: 8.05% Tennessee: Georgia: Virginia: 9.36% 10.39% varies up to 22% Source: Public Fund Survey

LGERS & TSERS Plan Features Are Either Less Generous or Typical Than Other State’s Plans Less Generous

• Final average salary • Benefit formula multiplier

Typical

• Employee contribution rate • Years of service and age for normal retirement • Vesting (less generous in TSERS) 5 yrs. vs. 10 Source: Wisconsin Legislative Council, 2008 as referenced in General Assembly PED report – Sept. 2011

Cost of Living Adjustments (COLA’s)

• TSERS and LGERS grant COLA’s on an

ad hoc

basis (not automatic) • Over 50 of the 84 plans examined by the General Assembly PED report grant COLA’s on an automatic basis

Many States Have Recently Changed Plan Features Cost-Saving Measure

Increase employee contributions Increase normal retirement age and/or service requirement Decrease final average salary Decrease automatic COLA’s Increase vesting years Decrease formula multiplier *Includes North Carolina

Number of States

29 27* 25 17 14* 13 Source: National Conference of State Legislatures, 2005 – June 2011 as referenced in General Assembly PED Report - Sept 2011

Operational Highlights

• Call Volume • Payroll • Retirements • Death Notifications

Questions?