Planning for Retirement

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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

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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)

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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

Assets

Market Value

Actuarial Value

SCRS

July 1, 2010 July 1, 2011

(draft)

$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

Amortization Period*

$13.4 billion

30 years

$14.4 billion

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

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How We Got Here – SCRS

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

Other

Liability Experience

COLA Benefits

Investment Gains/Losses - Deferred

Fiscal Year

Assumption Changes

Non-COLA Benefits

Investment Gains/Losses - Recognized

Net Unfunded Liability

2010 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

Benefits Paid

2010 2011

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.

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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 member s

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

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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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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

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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

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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

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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

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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

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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

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

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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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

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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

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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

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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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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.

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Other Retirement System Initiatives

From an Operational

Perspective

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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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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 25 th)

:

Ability to submit a service purchase request electronically

Ability to view service purchase invoice

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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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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.

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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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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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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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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]

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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.

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