Transcript Slide 1

The Advisory Group on Civil
Service & Employee Benefits
Cindy Rougeou
Executive Director
Louisiana State Employees’ Retirement System
August 2009
Louisiana Retirement Systems
13 State and Statewide Retirement Systems
Defined Benefit Plans
State Systems – benefits guaranteed under Article X § 29 of State
Constitution
1.
2.
3.
4.
Louisiana State Employees’ Retirement System (LASERS)
Louisiana State Police Retirement System (STPOL)
Louisiana School Employees Retirement System (LSERS)
Teachers Retirement System of Louisiana (TRSL)
Statewide Systems – benefits not guaranteed by the State
1.
2.
3.
4.
5.
6.
7.
8.
9.
Assessors’ Retirement System
Clerks’ of Court Retirement and Relief Fund
District Attorney’s Retirement System
Municipal Employees Retirement System
Municipal Police Employees Retirement System
Firefighters Retirement System
Parochial Employees Retirement System
Sheriff’s Pension & Relief Fund
Registrar of Voters Employees Retirement System
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Constitutionally Guaranteed Benefits
for State Systems
• Accrued benefits cannot be reduced
• Actuarial soundness must be attained and
maintained
• State systems are second in line behind
GO Bonds at the state treasury to ensure
payment of required amounts
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Defined Benefit Plan
• What is a DB plan?
• Guaranteed benefit based on years of employment, age
(for purposes of eligibility), salary, and accrual rate
• LASERS Benefit Formula
• Accrual Rate * Years of Service * Final Average Compensation
• Example:
2.5% accrual rate * 25 years = 62.5%
Salary = highest 36 month average*
$50,000 * 62.5% = $31,250 benefit
• Funding sources
• Employee contributions (fixed by statute)
• Employer contributions (variable)
• Investment earnings
• Investment risk is borne by employer
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*60 month average for employees hired on/after July 1, 2006
Vested Rights
What is vesting?
• Gregg Smith, et al v. Bd. of Trustees of La. State
Retirement System, 851 So.2d 1100, 2002-2161 (La.
6/27/03) – upon meeting the age and service requirements
an employee acquires a vested right. A vested right must
be absolute, complete and unconditional, independent of a
contingency and mere expectancy of future benefit.”
• McGrath v. Rhode Island Retirement Bd., 88 F.3d 12, 18
(1st Cir. 1996) – the state could make modifications and
even terminate a person’s retirement benefits…unless age
and service requirements were met.”
• “Accrued” has been defined to mean due and payable
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Three Main Sources of LASERS Funding
• Employee contributions
• Fixed rate set by statute, may vary for different
employee classifications
• $196 million for FYE 2008
• Employer contributions
• Changes each year based on actuarial valuation
• $465 million for FYE 2008 (20.4%)
• Includes normal cost of $183.7M + UAL pmt of $283.4M
• Earnings from investments
• Each retirement system is expected to achieve a certain
actuarial rate of return
• 8.49% actuarial return for FYE 2008
• -19.1% total market return for FYE 2009
• $7.221 billion total plan market value as of 7/31/09
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Funding Benefits
• LASERS is NOT a pay-as-you-go system
• Income from a given year does not (and is not intended
to) fund benefits for that year
• Contributions received by the system are intended to
fund benefits being accrued that year by active
members (members not yet receiving benefits)
• Contributions are also intended to fund the UAL
amortization payment
• The average normal cost portion of the employer
contribution for past 10 years is 6.94697%
• 2008 LASERS UAL was $4.473 billion
• Payment was 11.3% of payroll, or $283.4 million
 The largest percentage of benefits paid is funded
by investment earnings
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Benefit Statistics as of 6/30/2008
Class
Accrual
Rate (%)
Total # of
Retirees
Regular
2.5
37,575
Corrections Primary
2.5
Corrections
Secondary
Employee Contribution Rate
Average
Monthly Benefit
Amount
Average
Annual
Benefit
Amount
Employee
Funded*
8.00% hired on/after 7/1/06
7.50% hired before 7/1/06
$1,528
$18,336
51.8%
1,272
9.00%
$1,607
$19,284
44.5%
3.33
56
9.00%
$2,838
$34,056
56.0%
Peace Officers
3.33
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9.00%
$1,894
$22,728
52.3%
Judicial
3.5
281
11.50%
$5,185
$62,220
45.7%
Legislative
3.5
116
11.50%
$2,136
$25,632
42.7%
Wildlife Agents –
Pre 2003
3
225
9.50%
$1,716
$20,592
29.3%
Wildlife Agents –
Post 2003
3.33
41
9.50%
$4,194
$50,328
43.4%
Total Benefits Paid in 2008 = 750.4 Million
*As of 3/6/2009
Employer Contribution FY 09-10: 18.6% (7.3% normal cost, 11.3% UAL)
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Membership
• Mandatory for most state employees whose employing
agency is a LASERS participant, except those exempted by
state law
• LASERS Membership totals 151,650 (FYE 2008)
FY 2008
FY 2007
Retirees*
39,399
38,722
Actives
61,780
60,444
DROP
2,643
2,624
Inactive
47,828
43,797
*Includes Terminated Vested
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Optional Membership (RS 11:411)
• Age 60 or older at the time of employment
• Age 55 or older who have credit for at
least 40 quarters in the Social Security
system (does not apply to rehired
retirees)
• Any person who is receiving retirement
benefits from any Louisiana public
retirement system, other than LASERS, at
the time the person becomes an employee
in state service
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Act 75 of 2005 –
New Rank and File Plan
• Applies to those regular employees hired
on or after 7/1/2006
• Employee contribution rate – 8.0%
• 10 years at age 60 is only retirement option
• Final average compensation based on 60
months (5 years)
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Rank and File Eligibility
• Pre-Act 75 (hired before 7/1/06)
•
•
•
•
10
25
30
20
years
years
years
years
at
at
at
at
age
age
any
any
60
55
age
age (actuarially reduced)
• Act 75 (hired on/after 7/1/06)
• 10 years at age 60
 9,090 (16.46%) of 55,216 of current rank and
file members are eligible for 20 years at any age
actuarially reduced retirement.
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Retirement Eligibility
Category
Retirement Eligibility
Regular Employees
10 years at age 60 (hired on/after 7/1/06 – Act 75 of 2005)
Hired before 7/1/06:
30 years at any age
25 years at age 55
10 years at age 60
20 years at any age (actuarially reduced)
Judges and Court Officers
10 years as judge/court officer at age 65
18 years as judge/court officer at any age
20 years at age 50 (12 years must be as judge/court officer)
12 years at age 55 (12 years must be as judge/court officer)
Age 70 (no minimum service required)
Governor, Legislators, etc.
16 years as legislator, governor, etc. at any age
20 years at age 55 (12 years must be as legislator, governor,
etc)
12 years as legislator, governor, etc. at age 55
Corrections
Primary: 10 years at age 60;
Hired after 1986 - 20 years at age 50
25 yrs at any age; 20 yrs at any age (reduced)
Hired before 1986 - 20 years at any age
Secondary: 10 years at age 60
25 years at any age
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Retirement Eligibilities (continued)
Category
Retirement Eligibility
Peace Officers
30 years at any age
25 years at age 55
10 years at age 60
20 years at any age (actuarially reduced)
Wildlife Agents
10 years at age 60
Hired before 7/1/03:
20 years at any age
10 years at age 55
Hired after 7/1/03:
25 years at any age
Bridge Police
10 years at age 60
25 years at any age
20 years at any age (act. reduced)
Alcohol Tobacco Control / Dept.
of Revenue Enforcement
Personnel
25 years at any age
10 years at age 60
20 years at any age (act. reduced)
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Regular Retirement Options
• Regular retirement options
•
•
•
•
•
•
•
Maximum
Option 1
Option 2
Option 3
Option 4A
Option 4B
Act 270* established an option for a pre-funded
2.5% annual COLA
• Option selected determines actual benefit
received
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*2009 Regular Legislative Session
Retirement Options
Maximum Plan:
Retiree receives basic benefit
At retiree death, beneficiary receives
balance of contributions in lump sum
More than one beneficiary can be named
and changed at any time
Contribution reduced monthly by total
benefit amount received
Option 1:
Retiree receives reduced benefit based on
retiree life expectancy
At retiree death, beneficiary receives
balance of contributions in lump sum
More than one beneficiary can be named
and changed at any time
Contributions reduced monthly by actuarial
reduction
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Retirement Options
The following options allow only one beneficiary and are
based on age of retiree and age of beneficiary. However,
should the beneficiary precede the member in death, any
option that allows a beneficiary a monthly annuity
automatically pops up to the Maximum Plan.
Option 2A:
Retiree receives reduced benefit depending on
life expectancy of retiree and beneficiary
At retiree death, beneficiary receives same
amount as retiree
Option 2B:
Retiree receives reduced benefit depending on
life expectancy of retiree, beneficiary, and
mentally handicapped child/children
At retiree death, beneficiary receives same
amount as retiree
At beneficiary death, benefit continues to
guardian of mentally handicapped child/children
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Retirement Options
Option 3:
Retiree receives reduced benefit depending on
life expectancy of retiree and beneficiary
At retiree death, beneficiary receives 50% of
retiree benefit
Option 4A*:
Retiree receives 90% of maximum benefit
Spouse receives 55% of maximum benefit
Option 4B:
Retiree receives reduced benefit depending on
life expectancy of retiree and beneficiary
Beneficiary receives 55% of retiree benefit
*NOTE: Must name spouse as beneficiary and have been
married at least two years before retirement
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Disability Retirement – Rank and File
Minimum Requirements
• 10 years of LASERS service credit
• Totally incapable of performing current job
duties in accordance with LASERS law
• Disabling condition must have occurred
while active unless member has 20 years
of service credit
• Disability recertification is required every
year for the first 5 years and every 3
years thereafter
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Survivor Benefits – Rank and File
• Payable to surviving spouse and/or children,
dependent upon conditions
• If member had 5 yrs service, children may be eligible
• If member had 10 yrs service, surviving spouse may be
eligible
• If member had 20 yrs service and left state service,
survivor’s benefits may apply
• Cannot exceed more than 75% of member’s final
average compensation at time of death
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Air Time
• Air time is a type of service credit that can be
purchased
• Air Time “A” (before 6/30/05)
• Must have 1 year service credit to qualify
• May purchase up to 5 years service credit
• Air time may be used for eligibility and benefit
calculation
• Air Time “B” (on/after 6/30/05)
• Must have 5 years service credit to qualify
• May purchase up to 5 years service credit
• Air time may only be used for benefit calculation, not
eligibility
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Deferred Retirement Option Plan (DROP)
•
•
•
•
Retire and continue employment
Employee and employer contributions cease
Participant chooses a retirement option and beneficiary
DROP participation must be selected within 60 days of first
retirement eligibility to participate for the full 36 months
• DROP window opens when member is first eligible for
normal retirement
• Benefit that would be drawn if DROP participant left
employment is instead placed in individual tax sheltered
account
• At the end of 36 months (or specified DROP period):
• Terminate employment and begin receiving benefit
• Continue employment and accrue a supplemental benefit
• Employee and employer contributions resume
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Deferred Retirement Option Plan (DROP)
• Three ways to exit DROP early
• Voluntary termination of employment
• Involuntary termination of employment
• Death
• During DROP
• No employee or employer contributions are paid to
LASERS
• No additional service credit is earned
• Self-Directed DROP Plan
• Member’s first eligible to retire after Jan 1, 2004
• DROP account administered through third party provider
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Initial Benefit Option (IBO)
• Retire and receive a lump sum equivalent
of up to 36 months of maximum
retirement benefit
• Retirement benefit will be actuarially
reduced for your lifetime based on the
lump sum chosen
• Eligibility
• Any time once member is eligible for
retirement
• No defined participation period (unlike DROP)
• Ineligible for IBO if early retirement is chosen
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Social Security
• Louisiana is one of seven states that does not
participate in Social Security for governmental
employees
• Most LASERS members do not pay Social Security
tax
• LASERS members hired on/after 4/1/86 pay
Medicare tax
• Comparing the value of the LASERS benefit to
Social Security would involve many factors,
including, but not limited to, federal offsets,
average benefit comparisons, and Medicare
eligibility
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Summary
• LASERS is a defined benefit plan, funded by
employee contributions, employer contributions,
and investment earnings
• With membership of over 151,650, LASERS
serves 8 groups of members and administers 15
different plans
• LASERS does not participate in Social Security,
and members are affected by federal offsets
• LASERS Defined Benefit is both a positive
economic engine for LA and a vital means of
support for over 39,300 retirees, paying out over
$750 million in retirement benefits in 2008
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