effective benefit management and allocation of sdrs resources
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South Dakota Retirement System. Effective Benefit Management and Allocation of SDRS Resources. September 5-6, 2012. Minimum SDRS Sustainability Equation. Ideal SDRS Sustainability Equation. Unsustainable Equation. The SDRS Sustainability Equation . - PowerPoint PPT PresentationTRANSCRIPT
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Effective Benefit Management and Allocation of SDRS Resources
September 5-6, 2012
South Dakota Retirement System
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Minimum SDRS Sustainability Equation
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Ideal SDRS Sustainability Equation
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Unsustainable Equation
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The SDRS Sustainability Equation
Contributions + Investment Return = Benefits + Expenses
• Historically in balance except for 2009-2010; Board recommended corrective actions
• SDRS has frequently met ideal standard with healthy Cushion
• Currently, SDRS expected to be slightly out of balance due to:– Board adopted assumption changes
– Expected smaller future Investment Return and less Income
– Relatively small Cushion
– Fixed contributions and commitment to manage SDRS within current resources
• Review of Benefits one option to restore balance
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July 1, 2011 Funding Requirements
90%8%
2%
Amortization and Interest
0.98%
Expense .25%
Normal Cost
11.25%
Funding Policy Contribution Rate: 12.48% of PayTotal Anticipated Contribution Rate: 12.48% of Pay
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Relative Cost of SDRS BenefitsCurrent Benefit Design and Assumptions
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First Step in Benefit Review
Identify:
• Subsidies
• Inequities
• Inefficiencies
• Higher costs than anticipated
• Above/below competitive practices
• Conflicts with good public policy and/or HR objectives
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Board Review of the Following Potential Subsidies
•Special Early Retirement
•Early Retirement
•Benefits for:– Married members
– Large families
– Young spouses
•Class A/Class B
•Alternate Formula
•Retire/rehire
•Pre-retirement Survivor and Disability Benefits
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Subsidies?
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Board Review of the Following Potential Inequities
• Higher benefits for married members and large families
• Class A/Class B
• Alternate Formula
• Retire/Rehire
• Final Average Pay (salary spiking)
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Benefit Inequities?
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Board Review of the Following Potential Inefficiencies
• Pre-retirement Survivor Benefits
• Pre-retirement Disability Benefits
• COLA in excess of CPI
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Benefit Inefficiencies?
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Board Review of the Following Potential Areas of Higher Costs than Anticipated
•Retire/Rehire
•Final Average Pay
•Alternate Formula
•Class A/Class B
•Lifetime benefits due to improving life expectancy
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Higher Costs than Anticipated?
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Benefits Above/Below Competitive Practices
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Board Review of the Following Potential Conflicts with Good Public Policy and/or Human Resource Objectives
•Normal Retirement eligibility
•Early Retirement incentives
•COLA that exceeds inflation
•Total Survivor and Disability Benefits that exceed 100% of pay
•PRO benefits for non-vested members
•Alternate Formula
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Conflicts with Good Public Policy and/or Human Resource Objectives?
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Other Issues: Varying Benefits with Funded Status or Economic Measures
Why? SDRS costs would automatically reduce in bad times and increase in good times
•Current examples:– COLA is indexed to Funded Status and partially to CPI
– Interest on accumulated contributions indexed to T-Bill rate
•Possible additional applications– Performance Account for additional benefit improvements
– Index retirement age to improved life expectancy
– Introduce DC component to SDRS plan design with smaller DB component
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What Next?
• Define the amounts needed to maintain actuarial balance
• Determine what subsidies, inequities, inefficiencies, higher costs, and above competitive practices exist and significance
• Analyze and prioritize
• Consider legislative changes for 2013 Legislation