Maine Public Employees Retirement System October 3, 2013presentation for

Maine Municipal Association- Retirement Trends

Retirement System Benefits

1Defined Benefit

Retirement Plan

2Survivor

Benefits

3Disability

Retirement

4Group LifeInsurance

5Defined

ContributionPlan

Pension News Across the Nation

Public pensions are a continuing “hot” topic

Comparison is to the private sector which continues to move to defined contribution plans

Notable public pension plan problems spreads doubt about all public plans• Illinois• Detroit

Bad sound bites resonant more than good sound bites• Common assumption is that all public

pension plans are broken, will create bankruptcies, and need to be fixed

Are these just difficult times or do these plans need fixing?

Pension News Across the Nation

Pensions in the News

Example - Morningstar*: “Funding ratios continued to drop in 2012” Aggregate funding of 50 states and Puerto Rico was 72.6%

High State - Wisconsin at 99.9% Low State - Illinois at 40.4% Puerto Rico lowest of all with aggregate of 11.2% funding Maine (State/Teacher) – 77% PLD – 87%

How accurate are the numerous reports of funding status? There are two primary reasons these reports are not “accurate”:

Each plan uses its own assumptions and investment risks, i.e. there is no direct one-to-one comparison

Even when one-to-one comparisons are created they are controversial because there is no agreed upon “accurate” way to measure assets and more importantly liabilities

*Source: P&I Plan Sponsor Digest, Morningstar article

Pension News Across the Nation

Pensions in the News

What’s in the future for public pension plans? Continued scrutiny Continuing plan changes/modernization across the country Possible first-time regulatory changes

GASB (more to follow in this presentation) Possible mandatory Social Security participation Introduction of federal laws (Orrin Hatch)

Other changes affecting public plans Moody’s standardization of actuarial assumptions for bond ratings Society of actuaries studying how plan liabilities should be reported

How will these affect Maine and the PLD Plan? GASB changes will change how liabilities are reported Moody’s calculation of pension liabilities might/might not affect bond ratings

of governmental units Possible continuing changes that are adopted over time based on efforts like

GASB, Moody’s, and Society of Actuaries

Pension News Across the Nation

Pensions in the News

Since the 2008-2009 market down turn most states have made changes to their plans, including increasing employee contribution rates.*

Most States’ employee contribution rates are between 4 – 8% Since 2009, 28 states have increased employee contribution rates

Maine’s PLD employer rates range from 3 – 8%. All plans are scheduled to have employee rate increases in July 2014 of .5% each year for 3 years

Nationally, 25 – 30% of employees of state and local government do not participate in Social Security

Maine's state employees and teachers do not contribute to Social Security.

Approximately 50% of Maine’s PLD members have Social Security coverage.

*NASRA Brief- January 2013

What’s New?

Changes to GASB Reporting

Legislative Changes to the PLD Program

GASB Statement No. 68

What’s Changing? A Lot!• Financial reporting for governmental employers

providing pension plans to employees– Specifically the way liabilities are reported

• Non-employer governmental entities– “Special funding situations”

• Calculation of Net Pension Liability• Calculation of Net Pension Expense• Possible use of a blended discount rate

GASB Statement No. 68

What is MainePERS Role?• Provide your financial and demographic data to the

actuary• Provide timely information to you (employers)

– Individual or proportionate share of Net Pension Liability– Individual or proportionate share of Pension Expense– Information required for your disclosures and

supplemental schedules

• Address any questions you have about the information we provide

GASB Statement No. 68

What is Your Role?• Understand the reporting requirements for the type

of pension plan you provide– Statement of Net Position– Statement of Changes in Net Position– Required notes and disclosures– Required supplemental information and related

disclosures

• Consult with your auditors • Choose a measurement date• Implement the changes for your fiscal year

beginning on or after June 15, 2014

The Road to Modernization

MainePERS

Participating Local District Consolidated Plan

October 2013

Definitions You Might Need

PLD- Participating Local District

Consolidated Plan- MainePERS Retirement Program available for Maine local districts to adopt for employees

COLA- Cost-of-Living-Adjustment

AFC- Average Final Compensation

Creditable Service- Service credit under MainePERS used in the calculation of retirement benefits

NRA- Normal Retirement Age. The age at which a regular plan member can retire without a reduction in benefits due to age.

Why are we changing?

The times we are living in are changing; our plan needs to keep up.

• We are working and living longer

• State & local budgets everywhere are being squeezed – what used to be standard benefits are changing

• The 2008 market crash reduced the PLD Plan funding level to 87% as of 6-30-2012

For New Members to the Plan

Age 65 Normal Retirement Age (NRA)

Effective date July 1, 2014

Early retirement age reduction factor

Age reduction of 6% will be applied to benefits for each year a member is younger than age 65 at retirement

Effective date July 1, 2014

What are the Legislative Changes?

For All Members of the Plan

Future COLAs will be capped at 3% instead of 4%

Effective date 2014

COLA Eligibility at 12 months instead of 6 months

Effective September 2015

Employee contribution rates

Once employer rates return to an aggregate of 8% (in FY 2015),

employee contribution rates will begin to increase at .5% per year for a total of a 1.5% increase until such time as employer rates are reduced

What are the Legislative Changes?

What’s the Bottom Line?

These changes bring the contribution rates closer to paying for the current plan costs

PLD Advisory Committee will continue to monitor the plan to keep it healthy

PLD Advisory Committee Members

Member: Nominated By:

David Barrett Maine Municipal Association

Vacant, awaiting appointment Appointed by Governor

Steven Butterfield Maine State Employees Association

Rick Cailler Professional Firefighters of Maine

Rob Walker Maine Education Association

John Eldridge Maine Municipal Association

Traci Place Teamsters Union Local #340

Janice Kimball Maine Municipal Association

Cornelia Brown Maine School Management Association

Sylvia Hebert AFSCME, Council 93

Dr. Thomas J. Ward Maine School Management Association

Sandy Matheson, Maine Public Employees Retirement System

Executive Director Ex-officio

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Questions

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MainePERS, 46 State House Station, Augusta, ME 04333

Thank you. If you have

additional questions,

please contact us.

Telephone: (207) 512-3100

Toll free: (800) 451-9800

TTY: (207) 512-3102