May 7, 2012
Tammy B. Nichols
1

 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
2

SCRS PORS GARS JSRS NGRS
Annuitants
(includes
TERI)
Inactive
Members
Active
Members
Total
115,372
158,086
187,611
13,358
11,980
26,650
461,069 51,988
353
40
170
563
198
4
144
346
4,252
2,458
12,271
18,981
Total
133,533
172,568
226,846
532,947
*Data as of July 1, 2011, actuarial valuations (draft)
3

Fiscal 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
4

 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
5

How the Plans Are Funded – All Systems
Fiscal Year 2010-2011
(Amounts expressed in thousands)
State-appropriated contributions and other income
$6,926
0.12%
Employee contributions
$644,337
11.21%
Employer contributions
$948,485
16.51%
Investment income
$4,145,907
72.16%
6

7


Assets
Market Value
Actuarial Value
SCRS
July 1, 2010 July 1, 2011
(draft)
$19.7 billion $22.4 billion
$25.4 billion $25.6 billion
Liabilities
Actuarial Accrued Liability $38.8 billion $40.0 billion
Actuarial Information
Unfunded Actuarial Liability
Amortization Period*
$13.4 billion $14.4 billion
30 years 30 years
Funded Ratio 65.5% 64.0%
Unamortized Losses $5.7 billion
*2010 Actuary Valuation required Employer Contribution increase of .92 and
$3.2 billion
2011 Valuation recommends another 1.63 increase
8

SCRS
Net Unfunded Liability on a Market Value Basis
$22 000
$18 000
$14 000
$10 000
$6 000
$2 000
-$2 000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Other
Liability Experience
COLA Benefits
Investment Gains/Losses - Deferred
Fiscal Year
Assumption Changes
Non-COLA Benefits
Investment Gains/Losses - Recognized
Net Unfunded Liability
9

10

11

SCRS Ratio of Contributions Received to Benefits Paid
2 250 000,00
2 000 000,00
1 750 000,00
1 500 000,00
1 250 000,00
1 000 000,00
750 000,00
500 000,00
250 000,00
0,00
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Member Contributions Employer Contributions Benefits Paid
Note: Contributions for TERI participants, working retirees and State ORP participants are included in contribution amounts
12

 Increase employee contributions
 Increase employer contributions
 Increase investment earnings
 Reduce benefits/plan changes
 Appropriate additional funds
13

 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
14

• 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

 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.
16

Effective 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 member s
17

 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
18



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
19

 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
20

As 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
21

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
22

As 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
23

As of Effective Date of Bill
For 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
24

As 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
25

As 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
26

As 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 fiveyear average of actual returns and the assumed rate of return, up to a total benefit adjustment of 2.5 percent
27

As 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
28

As 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
29

As 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
30

As 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
31

As 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 leave
32

As 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
33

As 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
34

As 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
35

As 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
36

Member 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
2010
2011
2012
2013
2014
Earnable Comp
$30,000
$32,000
$34,500
$36,000
$37,500
Service Credit
24 years
25 years
26 years
27 years
28 years

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
38

Benefit 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
39

Under the first or new calculation method, the monthly benefit would be $1,444
Under the second or protective calculation, the monthly benefit would be $1,336
In 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
40

 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
41

As 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)
42

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
43

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
44

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)
45

Recommendations 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
46

Senate Finance Committee’s recommended amendments will go to the Senate floor for debate and then back to the House for consideration.
47

48

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.
49

Functionality includes ability to:
 View your accounts by System
 View & print member statement
 View your beneficiaries
 Change your address
New features scheduled (available May 25 th) :
 Ability to submit a service purchase request electronically
 Ability to view service purchase invoice
50










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)
51

Live 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.
52

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.
53

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.
54

 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
55

Physical Location
 Fontaine Business Center
202 Arbor Lake Drive
Columbia, SC 29223
Office Hours 8:30 am - 5:00 pm
Customer Services
 803-737-6800
 800-868-9002 (within SC only)
Website
 www.retirement.sc.gov
Email
 cs@retirement.sc.gov
Social Media –
 Facebook
 Twitter
--------------------
Tammy B. Nichols, CPA
Deputy Director
SC Retirement Systems
Phone: 803-737-6821 email: tnichols@retirement.sc.gov
56

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.
57