Transcript TEACHERS’ RETIREMENT SYSTEM OF OKLAHOMA Actuarial Valuation as of June 30, 2008 Presented by J.

TEACHERS’ RETIREMENT SYSTEM
OF OKLAHOMA
Actuarial Valuation
as of June 30, 2008
Presented by J. Christian Conradi and Mark Randall
on October 22, 2008
Actuarial Valuation
 Prepared as of June 30, 2008, using member
data, financial data, benefit and contribution
provisions, actuarial assumptions and methods
 Purposes:
► Measure the actuarial liabilities
► Determine adequacy of current statutory
contributions
► Provide other information for reporting
• GASB #25
• CAFR
• State Pension Commission
► Explain changes in the actuarial condition of TRS
1
Membership – Actives and Inactives
 The number of active members increased by 545,
from 88,133 to 88,678
► 0.6% increase, following a 1.1% increase last year
► Over last ten years, active membership has increased
an average of 1.0% per year
 Payroll for members active on June 30, 2008
increased from $3,599 million to $3,751 million, a
4.2% increase
► Payroll has increased by 48% in the last ten years, an
average increase of 4.0% per year
• We assume a 3.5% average annual increase
2
Membership – Actives and Inactives
 Average pay for active members increased
3.6%, from $40,835 to $42,304
 Average age of active members increased to
45.9, from 45.8 and from 44.3 ten years ago
 Average years of service remained at 11.5,
and increased compared to 11.2 ten years ago
 There are also 6,915 inactive vested members,
and 6,908 inactive nonvested members
3
Membership – Annuitants
 The number of annuitants increased by 1,732,
from 43,506 to 45,238, a 4.0% increase
► Number includes service retirees, disabled retirees, special
retirees, and beneficiaries receiving benefits
► Over the last ten years, the number of annuitants has
grown an average of 3.5% per year
 Average annual annuitant benefit is $17,532
 There are 2.0 active members for each annuitant
 Ratio is slowly decreasing, was 2.5 ten years ago
 Over last ten years, the number of actives has
increased 10%, while the number of annuitants
has increased 41%
4
Active Members vs. Annuitants
100,000
80,000
80,578
81,851
83,024
84,387
87,194
85,366
83,127
81,683
88,133
88,678
84,286
60,000
40,000
32,032
33,033
34,117
35,188
36,515
38,059
39,593
40,879
41,782
43,506
45,238
20,000
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Active Members
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1.0% average increase for active members over last ten years
3.5% average increase for annuitants over last ten years
2.0 active members per annuitant
Annuitants
Payroll
$4,000
$3,500
$3,599 $3,751
$3,000
$Millions
$2,500
$3,355
$2,991
$2,538
$2,648
$2,738
$3,047
$3,046
$3,031
$3,175
$2,000
$1,500
$1,000
$500
$1998
1999
2000
2001
4.0% average increase over last ten years
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2002
2003
2004
2005
2006
2007
2008
Average Salary and Average Benefit
$45,000
$40,000
$35,000
$30,000
$36,639
$31,493 $32,356
$32,982
$35,438
$40,835 $42,304
$37,104
$35,695
$37,671
$38,476
$25,000
$20,000
$15,000
$10,000
$13,819
$14,015
$14,425
$14,621
2000
2001
$15,344
$16,416
$16,795
$16,994 $17,532
$15,552
$15,706
2003
2004
2005
2006
2007
$5,000
$0
1998
1999
2002
Average Annual Salary
7
3.0% average increase in average salary over last ten years
2.4% average increase in average benefits over last ten years
Average Annual Benefit
2008
Assets
 Fair market value decreased from $ 9,293 million
to $8,634 million
► Assets shown exclude 403(b) accounts
► 64% in equities, 36% cash and fixed income
 Four sources of contributions
► Member contributions (7.00% of pay = $287 million)
• Includes service purchases, redeposits and EESIP payments
► Employer contributions = $309 million
• EESIP employers: 7.85% / 8.35%
• Non-EESIP employers: 7.05%/7.55%
• Rates scheduled to increase in future
► State contribution (5.0% of tax revenues = $267 million)
► Federal matching contributions (7.00%, $21 million)
8
Assets
 Total contributions of $884 million,
compared to $821 million in FY 2007
 The distributions (benefit payments,
refunds and administrative expenses)
totaled $847 million
 Therefore, there is a positive external cash
flow of $37 million
► 0.4% of market value at end of year
► Not significant
9
Assets
 Return on market of approximately -7.5%
in FY 2008
►Average return for last ten years was 6.6%
• 9.6% for last five years
• 9.2% for last fifteen years
10
Assets
 All actuarial calculations are based on
actuarial value of assets (AVA), not market
value
 AVA reflects 20% of the difference
between last year’s expected return on
market and the actual return
► 40% of FY 2007 difference, 60% of FY 2006 difference
and 80% of FY 2005 difference
► AVA now $9,257 million vs. $ 8,422 million last year
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Assets
 Actuarial return was 9.4% in FY 2008
 AVA is 107.2% of fair market value (was
90.6 % last year)
 $623 million in deferred losses, not yet
recognized
►Will be recognized over next four years
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Actuarial and Market Values of Assets
$10.0
$9.3
$9.0
$8.0
$7.9
$Billions
$7.0
$5.4
$6.0
$5.0
$4.0
$5.9
$6.0
$6.4
$6.3
$6.7
$7.2
$9.3
$8.6
$8.4
$7.5
$7.0
$6.7
$4.9
$4.7
$5.7
$5.4
$5.6
2001
2002
2003
$5.4
$4.1
$3.0
$2.0
$1.0
$.0
1998
1999
2000
Actuarial Value of Assets (AVA)
13
AVA is 107.2% of MVA
Deferred losses of $623 million
2004
2005
2006
2007
Market Value of Assets (MVA)
2008
Estimated Yield Based on Actuarial
and Market Values of Assets
30%
25%
21.4%
20.2%
18.0%
20%
17.1%
15.5%
15%
15.8%
11.9%
10%
11.4%
10.0%
5.8%
10.5%
12.4%
4.8%
5.7%
2.9%
0%
-5%
4.6%
-7.5%
-2.3%
-5.4%
-10%
1999
2000
2001
2002
2003
2004
Actuarial Value
6.6% average compound return on market value over the last ten years
9.2% average compound return on actuarial value over the last ten years
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9.4%
8.2%
5%
1998
9.4%
2005
2006
Market Value
2007
2008
Contributions vs. Benefits & Refunds
by Fiscal Year
$900
$ Millions
$884
$763
$800
$733
$806
$685
$700
$821
$847
$643
$545
$600
$500
$466
$400
$445
$507
$472
$572
$708
$592
$592
$608
$641
$583
$533
$435
$300
$200
$100
$0
1998
1999
2000
2001
2002
2003
Contributions*
15
* Includes member, state, employer and federal contributions
** Includes administrative expenses
2004
2005
2006
Benefits & Refunds**
2007
2008
External Cash Flow
As Percentage of Market Value
2.0%
1.0%
0.4%
0.2%
0.0%
0.0%
-0.4%
-0.7%
-0.5%
-1.0%
-1.0%
-1.1%
-1.3%
-1.1%
-1.3%
-2.0%
1998
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1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Benefit and Contribution Structure
Changes
 New legislation – HB 3112
► This bill implemented a 2% ad hoc COLA for TRS
retirees who retired prior to July 1, 2007.
• Note that we assumed an increase of 1.00% per year in the
last valuation, so we have a loss due to this ad hoc COLA
• Actuarial present value of 2.00% ad hoc COLA = $134.7
million
• This produced a loss (increase in UAAL) of $67.3 million,
net of expected increase
• We get a gain in years when there was no COLA granted
by the legislature
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Changes in Actuarial Assumptions and
Methods
 During the summer, the Board voted to increase
the assumed future ad hoc COLA assumption
from 1% to 2%. Otherwise, the actuarial
assumptions and methods used in this report are
unchanged from last year.
 Assumptions were set by the Board based on
experience study following June 30, 2004
actuarial valuation
► Retirement rates modified in 2006 for EESIP
 Next experience study scheduled to follow the
June 30, 2009 actuarial valuation
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Actuarial Results
 Unfunded actuarial accrued liability
(UAAL) increased from $ 7,603 million to
$9,090 million
 The increase in the UAAL is principally
due to the increase in our assumed rate of
future ad hoc cost of living adjustments
(COLA) from 1% to 2%.
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Change in UAAL for The Year
(In $ Millions)
1. UAAL, beginning of year
2. Expected increase (decrease)
3. Liability loss / (gain)
4. Asset loss / (gain)
5. Actual vs. expected contributions
6. 2% ad hoc COLA
7. Increase in future ad hoc COLA
assumption
8. UAAL, end of year
20
FY 2008
FY 2007
$7,602.5
$7,672.9
130.2
222.5
30.5
123.3
(117.7)
(332.7)
(28.8)
(83.4)
67.3
0.0
1,406.0
0.0
$9,090.1
$7,602.5
GASB #25 Funded Ratio
60%
50.5%
50%
53.7%
49.3%
51.4%
49.8%
40%
52.6%
54.0%
51.4%
45.9%
47.3%
49.5%
2004
2005
30%
20%
10%
0%
1998
21
1999
2000
2001
2002
2003
2006
2007
2008
UAAL as a Percentage of Covered
Payroll
242%
250%
211%
245%
224%
200%
189%
150%
188%
179%
229%
196%
180%
169%
100%
50%
0%
1998
22
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Actuarial Results
 Annual required contribution (GASB #25
ARC = normal cost plus 30-year funding of
UAAL, using level percent of pay) of $714
million vs. $590 million last year
► 18.19% vs. 15.68 %
23
Annual Required Contribution (ARC)
vs. Actual Contributions
$800
$722.1
$714.4
$700
$556.2
$ Millions
$600
$500
$585.2
$575.7
$534.8
$456.9
$455.3
$596.8
$535.2
$590.5
$451.5
$535.9
$459.5
$400
$405.8
$300
$200
$244.3
$275.8
$365.0
$362.0
$375.3
2002
2003
2004
$328.1
$100
$0
1999
2000
2001
Annual Required Contributions*
24
2005
2006
2007
2008
Actual Contributions**
* Normal cost, plus 30-year level percent of pay amortization of UAAL since FY
2006
Normal cost, plus 40-year level dollar amortization of UAAL before that
** Employer, state and federal matching contributions
2009
Actual Contributions as Percentage
Of Annual Required Contribution
125%
101.1%
100%
93.1%
85.8%
75%
72.7%
50%
59.1%
70.2%
65.6%
60.6%
61.9%
56.2%
53.5%
25%
0%
1998
25
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Actuarial Results
 Funding period increased from 21.6 years
to 54.4 years
►The increase in the funding period is
principally due to the increase in our assumed
rate of future COLAs from 1% to 2%.
 UAAL projected to be fully amortized by
end of FY 2063
►80% funded in FY 2052
26
Actuarial Results
 Funding period and UAAL projections based on
projection that:
► Reflects scheduled contribution rate increases
► Assumes net 8.00% market return each year
► Phases in deferred asset losses
► Assumes no benefit changes or other gains/losses
► Assumes no change in number of active members
► Projects state revenue starting from OSF estimate for
FY 2009--$268 million--increasing at 2.25% through
FY 2010, then increasing 3.50% per year
► Starting pay for each group of replacement hires
increases 3.50% each year
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Reporting for State Pension Commission
 Specified assumptions
► Investment return rate: 7.50% vs. 8.00% in regular
valuation
► Future COLAs: 2.00%/year (same as under regular
valuation)
► Mortality: RP-2000 with projections, vs. OTRS tables
► Funding: 30-year amortization
(level dollar vs. level %)
28
Reporting for State Pension Commission
 Actuarial results:
► Actuarial accrued liability: $19.6 billion vs. $18.3
billion in regular valuation
► Actuarial assets: $9.3 billion (no difference)
► UAAL: $10.3 billion vs. $9.1 billion in regular
valuation
► Funded ratio: 47.3% vs. 50.5% in regular valuation
29
Reporting for State Pension Commission
 Calculated contribution (in millions)
Total
$1,346
34.29%
Less members:
(275)
-7.00%
Less employers:
(336)
-8.55%
(25)
-0.64%
Less federal:
Net (State)
$711
18.10%
 Was net $719 million last year, or 19.09%
30