Update on SC
Retirement Systems
May 7, 2012
Tammy B. Nichols
1
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
2
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)
3
How the Plans Are Funded
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
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
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
Additions to Pension Trust Funds
7

SCRS
July 1, 2010
July 1, 2011
(draft)
Assets
Market Value
Actuarial Value
$19.7 billion
$25.4 billion
$22.4 billion
$25.6 billion
Liabilities
Actuarial Accrued Liability
$38.8 billion
$40.0 billion
Actuarial Information
Unfunded Actuarial Liability
$13.4 billion
$14.4 billion
Amortization Period*
30 years
30 years
Funded Ratio
65.5%
64.0%
Unamortized Losses
$5.7 billion
$3.2 billion
*2010 Actuary Valuation required Employer Contribution increase of .92 and
2011 Valuation recommends another 1.63 increase
8
How We Got Here – SCRS
SCRS
Net Unfunded Liability on a Market Value Basis
$22,000
$18,000
$ in millions
$14,000
$10,000
$6,000
$2,000
-$2,000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Fiscal Year
Other
Assumption Changes
Liability Experience
Non-COLA Benefits
COLA Benefits
Investment Gains/Losses - Recognized
Investment Gains/Losses - Deferred
Net Unfunded Liability
2011
9
10
11
How the Plans Are Funded
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
Member Contributions
2003
2004
2005
2006
Employer Contributions
2007
2008
2009
2010
2011
Benefits Paid
Note: Contributions for TERI participants, working retirees and State ORP participants are
included in contribution amounts
12
Possible Ways to Improve Funding
Increase employee contributions
 Increase employer contributions
 Increase investment earnings
 Reduce benefits/plan changes
 Appropriate additional funds

13
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
14
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
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.
16
Introduction to H.4967
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 members
17
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
18
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
19
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
20
Proposed Service Purchase Cost
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
Five-Year AFC Period
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
Payment for Unused Annual Leave
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
Overtime Pay
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
Cost-of-Living Adjustments
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
Benefit Adjustments
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
Benefit Adjustments
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
SCRS Class Three Membership
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
SCRS Class Three Membership
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
Benefit Protection Provision
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
Benefit Protection Provision
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
Benefit Protection Provision
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
Benefit Protection Provision
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
Benefit Protection Provision
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
Benefit Protection Provision
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
Example of Retirement Calculation
Under Protection Provision
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
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
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
38
Example of Retirement Calculation
Under Protection Provision
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
Summary of Retirement Calculations
Under Both Provisions
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
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

41
Other Provisions
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
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
43
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
44
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)
45
Senate Finance Committee
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
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.
47
Other Retirement System Initiatives
From an Operational
Perspective
48
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.
49
On-Line Member Access Active Members
Functionality includes ability to:




View your accounts by System
View & print member statement
View your beneficiaries
Change your address
New features scheduled (available May 25th):


Ability to submit a service purchase request
electronically
Ability to view service purchase invoice
50
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)
51
Customer Services - Live Chat
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 – 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.
53
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.
54
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
55
Questions – Contact Information
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
 [email protected]
Social Media –
 Facebook
 Twitter
-------------------Tammy B. Nichols, CPA
Deputy Director
SC Retirement Systems
Phone: 803-737-6821
email:
[email protected]
56
Disclaimer
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
Download

Planning for Retirement