update on sc retirement systems 1 may 7, 2012 tammy b. nichols

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Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

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Page 1: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Update on SC Retirement Systems

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May 7, 2012Tammy B. Nichols

Page 2: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

About the Retirement Systems Five defined benefit retirement plans

South Carolina Retirement System (SCRS) Police Officers Retirement System (PORS) General Assembly Retirement System (GARS) Judges and Solicitors Retirement System (JSRS) National Guard Retirement System (NGRS)

One defined contribution retirement plan- State Optional Retirement Program (ORP)

More than 500,000 members in total Approximately 850 participating employers

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Page 3: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

SCRS PORS GARS JSRS NGRS Total

Annuitants (includes

TERI)115,372 13,358 353 198 4,252 133,533

Inactive Members

158,086 11,980 40 4 2,458 172,568

Active Members

187,611 26,650 170 144 12,271 226,846

Total 461,069 51,988 563 346 18,981 532,947

*Data as of July 1, 2011, actuarial valuations (draft)

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About the Retirement SystemsMembership

Page 4: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

How the Plans Are FundedFiscal Year 2011-2012

Sources of Revenue Employee Contributions - 6.50%

Active Members Working Retirees (including TERI participants)

Employer Contributions - SCRS: 9.385% + .15% incidental death = 9.535% PORS: 11.363 + .20% incidental death + .20 %

accidental death = 11.763% Investment Income

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Page 5: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Investment Earnings Assumed rate of return on investments = 7.5 percent Actual Returns:

FY 2011 = 18.59 percent FY 2010 = 14.62 percent FY 2009 = (19.60 percent) 5 year average return = 3.95 percent 10 year average return = 5.02 percent 20 year average return = 6.81 percent

As of 2011 actuarial valuation for SCRS – $3.2 billion of deferred losses

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Page 6: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

How the Plans Are Funded – All SystemsFiscal Year 2010-2011

(Amounts expressed in thousands)

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Employee contributions

$644,33711.21%

Employer contributions

$948,48516.51%

Investment income

$4,145,90772.16%

State-appropriated contributions and other income

$6,9260.12%

Page 7: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Additions to Pension Trust Funds

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Page 8: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

SCRSJuly 1, 2010 July 1, 2011

(draft)AssetsMarket Value $19.7 billion $22.4 billionActuarial Value $25.4 billion $25.6 billion

LiabilitiesActuarial Accrued Liability $38.8 billion $40.0 billion

Actuarial InformationUnfunded Actuarial Liability $13.4 billion $14.4 billionAmortization Period* 30 years 30 years

Funded Ratio 65.5% 64.0%Unamortized Losses $5.7 billion $3.2 billion

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Actuarial Status - Where We Are Today

*2010 Actuary Valuation required Employer Contribution increase of .92 and 2011 Valuation recommends another 1.63 increase

Page 9: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

How We Got Here – SCRS

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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011-$2,000

$2,000

$6,000

$10,000

$14,000

$18,000

$22,000

SCRSNet Unfunded Liability on a Market Value Basis

Other Assumption ChangesLiability Experience Non-COLA BenefitsCOLA Benefits Investment Gains/Losses - RecognizedInvestment Gains/Losses - Deferred Net Unfunded Liability

Fiscal Year

$ in

mil

lion

s

Page 10: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

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Page 11: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

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Page 12: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

How the Plans Are FundedSCRS Ratio of Contributions Received to Benefits Paid

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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.00

250,000.00

500,000.00

750,000.00

1,000,000.00

1,250,000.00

1,500,000.00

1,750,000.00

2,000,000.00

2,250,000.00

Member Contributions Employer Contributions Benefits Paid

Note: Contributions for TERI participants, working retirees and State ORP participants are included in contribution amounts

Page 13: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Possible Ways to Improve Funding

Increase employee contributions Increase employer contributions Increase investment earnings Reduce benefits/plan changes Appropriate additional funds

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Page 14: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

The Future

House and Senate Sub-Committees have conducted public hearings and have thoroughly studied the plans administered by the Retirement Systems

The House proposed legislation to modify the plans – H4967

Senate Finance Committee has recommended amendments to H4967

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Page 15: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Proposed Legislation

•Approved by House 3/21/2012• Introduced in Senate 3/27/2012• Referred to Senate Finance Committee• Senate Finance Committee Recommended Amendments to House Bill 5/3/2012

Overview of H.4967As Passed by S.C. House of

Representatives

Page 16: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

House Bill - H.4967

Represents the intent of its sponsors in the House of Representatives in determining matters of policy.

Still has to be considered by the Senate. The Senate may make substantive changes before passing or they may not pass it at all.

The role of the Retirement Systems is simply to provide information to the policy makers in the House and Senate to aid them in their decisions.

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Page 17: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Introduction to H.4967Effective Date of the Bill is July 1, 2012

Most of the provisions of the Bill would apply to all SCRS and PORS members Protection is provided for benefits earned prior to the

effective date of the bill for members of SCRS and PORS Bill would create a new class of membership in SCRS only –

Class Three. (Current members are in Class Two.) Newly hired members who have an effective date of

membership after the effective date of the Bill would be in Class Three

Class Three members would be eligible for full retirement after 30 years of service or age 65

TERI program would be closed to Class Three members

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Page 18: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Proposed Employee Contributions

SCRS Class Two and Three Members 6.50 percent current rate 7.00 percent effective July 1, 2012 7.50 percent effective July 1, 2013

PORS Class Two Members 6.50 percent current rate 7.00 percent effective July 1, 2012 7.50 percent effective July 1, 2013

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Page 19: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Proposed Employer Contributions SCRS (rates include .15 percent for incidental death)

9.535 percent current fiscal year 10.60 percent beginning July 1, 2012 12.23 percent beginning July 1, 2013

(Required by July 2011 actuary valuation if no legislative changes made)

PORS (rates include .20 percent for incidental death and .20 percent for accidental death) 11.763 percent current fiscal year 12.30 percent beginning July 1, 2012 12.30 percent beginning July 1, 2013

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Page 20: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Proposed Employer Contribution Floor

For SCRS Members After June 30, 2012, no less than 10.6 percent of

total earnable compensation until accrued liability contribution is no longer required

For PORS Members After June 30, 2012, no less than 12.3 percent of

total earnable compensation until accrued liability contribution is no longer required

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Page 21: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Proposed Service Purchase CostAs of Effective Date of Bill

For SCRS and PORS Members Actuarially neutral cost based on member’s age,

service credit, and current or career highest fiscal year salary

Cost would not be less than 35 percent per year for nonqualified service

Cost would not be less than 16 percent per year for all other types of qualified service

New rates do not apply to re-establishment of withdrawn service, transfers or other allowable supplemental types of service

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Page 22: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Retirement Credit for Unused Sick Leave As of Effective Date of Bill

For SCRS and PORS Members Members would not receive additional

service credit for unused sick leave at retirement

Protection would be provided for benefits earned prior to effective date of legislation

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Page 23: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Five-Year AFC PeriodAs of Effective Date of Bill

For All SCRS and PORS Members Average final compensation (AFC)

would be based on a five-year period rather than current three-year period

Protection would be provided for benefits earned prior to effective date of legislation

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Page 24: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Payment for Unused Annual Leave

As of Effective Date of BillFor All SCRS and PORS Members

Termination payment for unused annual leave at retirement would not be included in AFC calculation

Protection would be provided for benefits earned prior to effective date

Contributions would be collected on unused annual leave payments until July 1, 2015 because of benefit protection provision

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Page 25: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Overtime PayAs of Effective Date of Bill

SCRS Members After June 30, 2012, overtime payments would not

be included in member’s earnable compensation or AFC unless pay is for overtime work as “mandated” by their employer (i.e., non-voluntary overtime)

PORS Members Overtime will continue to be included in earnable

compensation or AFC

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Page 26: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Cost-of-Living AdjustmentsAs of Effective Date of Bill (would apply starting with July 1, 2013 COLA)

For All SCRS and PORS Members Current COLA provisions would be repealed Going forward, COLAs would be called

“Benefit Adjustments” (BA) BA’s would be determined using a trigger

related to actual investment returns based on a trailing five-year average compared to actuarial assumed rate of return

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Page 27: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Benefit AdjustmentsAs of Effective Date of Bill

Benefit Adjustment Determination When five-year average exceeds assumed

rate of return (currently 7.5 percent), a benefit adjustment would be paid

Amount of benefit adjustment would be equal to the difference between the five-year average of actual returns and the assumed rate of return, up to a total benefit adjustment of 2.5 percent

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Page 28: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Benefit AdjustmentsAs of Effective Date of Bill

Benefit Adjustment Determination If the five-year average doesn’t exceed the

assumed rate of return, no benefit adjustment would be paid for that year.

Regardless of the five-year average return, no benefit adjustment would be paid in any year in which actual returns for that year were less than zero

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Page 29: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

SCRS Class Three MembershipAs of Effective Date of Bill

Creates a new class of membership for employees who become members of SCRS after the bill’s effective date – Class Three members

All of the new provisions of the bill apply to Class Three members

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Page 30: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

SCRS Class Three MembershipAs of Effective Date of Bill

Class Three Retirement Eligibility Age 60 with five or more years of earned

service or 30 years of service credit Early retirement provisions would be based

on 30-year retirement eligibility rather than 28-year retirement eligibility

TERI program would be closed only to Class Three members

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Page 31: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Benefit Protection ProvisionAs of Effective Date of Bill

Also referred to as “wear away” provision

Designed to protect benefits earned prior to the effective date of bill

Sets forth comparison of two benefit calculations as explained on following slides

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Page 32: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Benefit Protection ProvisionAs of Effective Date of Bill

Benefit Provisions for any member retiring after June 30, 2012: Retirement benefit will first be calculated

using new provisions - Five-year AFC period at date of retirement No payment for unused annual leave at

retirement is included in the AFC calculation No additional retirement service credit for

unused sick leave32

Page 33: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Benefit Protection ProvisionAs of Effective Date of Bill

For members retiring after June 30, 2012 - Second “protective” calculation would be

made to determine member’s accrued benefit as of June 30, 2012, using: Three-year AFC period as of June 30, 2012 Inclusion of payment for 45 days of unused

annual leave in AFC regardless of when paid Service credit as of June 30, 2012 plus credit for

90 days of unused sick leave

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Page 34: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Benefit Protection ProvisionAs of Effective Date of Bill

For members retiring after June 30, 2012 - Second calculation protects the benefit

member had accrued as of June 30, 2012 Second calculation sets a “floor” on the

benefit that a member may receive upon actual retirement

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Page 35: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Benefit Protection ProvisionAs of Effective Date of Bill

For members retiring after June 30, 2012 - If first benefit calculation under new provision is

higher than the second benefit calculation using protective provisions, member would receive the higher benefit based on new benefit calculation

If second benefit calculation under protective provision is higher than the first benefit calculation using new provisions, member would receive the higher benefit based on second protective benefit calculation

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Page 36: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Benefit Protection ProvisionAs of Effective Date of Bill

For members retiring after June 30, 2012 - As member accrues additional service credit

and receives salary increases after June 30, 2012, it will be more likely that the member’s benefit calculated under the new provisions would be greater than the floor benefit calculated using the protective provision

Hence the term “wear away” provision

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Page 37: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Example of Retirement Calculation Under Protection ProvisionMember retires on June 30, 2014 with 28 years of

service. The member has the following earnable compensation and service credit for the trailing five years:

June 30 Earnable Comp Service Credit

2010 $30,000 24 years

2011 $32,000 25 years

2012 $34,500 26 years

2013 $36,000 27 years

2014 $37,500 28 years

Page 38: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Example of Retirement Calculation Under Protection Provision

Benefit calculation for June 30, 2014 date of retirement using new provisions: Five Year AFC = $30,000 + $32,000 + $34,500 +

$36,000 + $37,500 (No annual leave)/5 yrs = $34,000

Service Credit at Retirement = 28 years Monthly Benefit = 28 yrs x $34,000 AFC x .0182 =

$17,326/12 = $1,444 per month

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Page 39: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Example of Retirement Calculation Under Protection ProvisionBenefit calculation for June 30, 2014 date of

retirement using protective provision with benefits accrued as of June 30, 2012: Three Year AFC at June 30, 2012 = $30,000 + $32,000

+ $34,500 + $5,971 (45 days annual Leave)/3 yrs = $34,157

Service Credit at June 30, 2012 (including credit for 90 days unused sick leave) = 26 years, 4 months and 15 days (26.375 years)

Monthly Benefit = 26.375 yrs x $34,157 AFC x .0182 = $16,396/12 = $1,336 per month

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Page 40: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Summary of Retirement Calculations Under Both Provisions

Under the first or new calculation method, the monthly benefit would be $1,444Under the second or protective calculation, the monthly benefit would be $1,336In this case, the first calculation using the new provision is more than the second benefit calculation so the member receives the higher benefit set out in the first calculation

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Page 41: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Bill Provisions Impacting General Assembly Retirement System (GARS) Increases GARS member contribution rate

from 10 percent to 11 percent starting in calendar year 2013

Repeals provisions which allow GARS members to retire in place and receive retirement benefits while continuing to serve in the General Assembly

Adjusts service purchase to actuarial neutral cost in same manner as for SCRS and PORS

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Page 42: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Other ProvisionsAs of Effective Date of Bill

Authorizes the General Assembly to set the actuarial assumed rate of return on Systems’ investments for valuation purposes

Initially sets the assumed rate of return by statute at 7.5 percent

Changes retirement accounts for inactive members such that they would no longer accrue annual interest like active member accounts (i.e. 4 percent annually)

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Page 43: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Senate Finance Committee Recommendations Reported Out May 3, 2012

SCRS & PORS Retirement Benefit Adjustment – 1% of annual annuity up to a maximum of $500

SCRS – New employees have same age eligibility, but proposed Rule of 90 replaces 28 year eligibility

PORS – New employees eligible for retirement after 27 years or age 55

SCRS & PORS – 5 year AFC for new employees only SCRS & PORS – provisions that remove credit for

unused annual and sick leave apply only to new employees

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Page 44: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Senate Finance Committee Recommendations May 3, 2012 (continued) Service Purchase Cost – adopt House version SCRS and PORS Employee Contribution Rates –

increase ½ percent for three years Employer Contribution Rates – maintain differential

between Employee and Employer Rates of 2.9% for SCRS and 5.0% for PORS

Inclusion of Overtime Pay in AFC – same as House TERI – Closes TERI for new employees plus phases

out for existing employees with termination of the program June 30, 2018

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Page 45: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Senate Finance Committee Recommendations May 3, 2012 (continued) GARS – 1% additional employee contribution for

GARS members as suggested by House. Closes GARS to newly elected members of General Assembly and they can elect to participate in SCRS, ORP or opt out completely.

SCRS & PORS – changes vesting from 5 to 8 years for new members

Interest on Inactive Member Accounts – eliminates interest accrual (same as House)

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Page 46: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Senate Finance CommitteeRecommendations May 3, 2012 (continued) SCRS & PORS Return to Work – Benefits for members

who retire after 6/30/12 will be subject to $10,000 earnings limitation and 15 day break in service unless: SCRS member is age 62 at retirement PORS member is age 57 at retirement Return to work conditions do not apply to elected officials

or members appointed by Senate (i.e. Magistrates) Establishes governance structure that creates

professional Board of Trustees to manage the Retirement Systems, EIP and Insurance Reserve

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Page 47: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Timing of Possible Legislation

Senate Finance Committee’s recommended amendments will go to the Senate floor for debate and then back to the House for consideration.

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Page 48: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Other Retirement System Initiatives

From an Operational Perspective

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Page 49: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Other Retirement System Initiatives

Member Access -Member Access is an internet based application that was deployed in October 2011 which allows both active and retired members to access their retirement account. After completing a simple online registration process, a member may access information specific to their account with the SC Retirement Systems.

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Page 50: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

On-Line Member Access -Active Members

Functionality includes ability to: View your accounts by System View & print member statement View your beneficiaries Change your addressNew features scheduled (available May 25th): Ability to submit a service purchase request

electronically Ability to view service purchase invoice

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Page 51: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

On-Line Member Access - Retiree Members Receiving Monthly Benefits

Functionality includes ability to: View your accounts by System View your payment record (members can see retirement data -

i.e. option, service credit and date of retirement) View your beneficiaries for each retirement account Change your address View/Change tax withholdings for monthly benefits View/print annuity verification letter View/print IRS Form 1099-R View other deductions as they appear on the payee record Add/view/change direct deposit information (available May 11)

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Page 52: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Customer Services - Live ChatLive Chat is our newest communication tool for

Customer Services that was launched May 1, 2012 - Members may now contact the SC Retirement Systems

through a live chat option available between 8:30 am and 5:00 pm via the Retirement Systems’ website.

To chat live with one of the Retirement Systems’ benefits consultants, go to our website and click on the “Live Chat” button located at the top of the screen. A dialog box will appear and you’ll need to type your name, email address and your question. A member of our live chat team will be available to immediately assist you.

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Page 53: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

EES – Electronic Employer Services

EES is the Retirement Systems’ electronic reporting system for Employers. Recent enhancements include:

Ability to certify employer information for the payment of annuity claims. The electronic process replaced the paper form #6201.

Ability to certify employer information for the payment of refund claims. The electronic process replaced the paper form #4201.

Certification of Final Retirement Deductions, previously handled by Form 6202/6203.

Data Download feature allows employers to download information concerning their covered employees, such as active member service totals, members approaching retirement eligibility, and information on return to work retirees and TERI participants.

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Page 54: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Other Retirement System Initiatives

Direct Deposit Initiative for Retirement System Benefit Payments

Direct deposit will be required for all benefit payments issued on or after September 30, 2012

Significant marketing efforts will be put forth to ensure members are properly notified

Prepaid debit card will be issued by Bank of America under State Treasurer’s Office’ s custody, if no direct deposit information is provided.

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Page 55: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Other Retirement System Initiatives

Visitor Center – Spring Break Extended Office Hours 7:30 am – 6:00 pm Partnered with Employee Insurance

Program, providing representatives from both divisions to counsel visitors for both retirement and insurance purposes.

Survey results prove endeavor was successful

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Page 56: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

Questions – Contact Information

Physical Location Fontaine Business Center

202 Arbor Lake DriveColumbia, SC 29223Office Hours 8:30 am - 5:00 pm

Customer Services 803-737-6800 800-868-9002 (within SC only)Website www.retirement.sc.govEmail [email protected]

Social Media – Facebook Twitter

--------------------Tammy B. Nichols, CPADeputy DirectorSC Retirement SystemsPhone: 803-737-6821email:

[email protected]

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Page 57: Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

THE LANGUAGE USED IN THIS PRESENTATION DOES NOT CREATE ANY CONTRACTUAL RIGHTS OR ENTITLEMENTS AND DOES NOT CREATE A CONTRACT BETWEEN THE MEMBER AND THE SOUTH CAROLINA RETIREMENT SYSTEMS. THE SOUTH CAROLINA RETIREMENT SYSTEMS RESERVES THE RIGHT TO REVISE THE CONTENT OF THIS PRESENTATION.

This presentation is meant to serve as a guide but does not constitute a binding representation of the South Carolina Retirement Systems. The statutes governing the South Carolina Retirement Systems are found in Title 9 of the South Carolina Code of Laws, and should there be any conflict between this presentation and the statutes or Retirement Systems’ policies, the statutes and policies will prevail.

Employers covered by the South Carolina Retirement Systems are not agents of the Retirement Systems.

Disclaimer

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