A Path to a Sustainable Retirement System December 16, 2011 Cincinnati Retirement System Board of...
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Transcript of A Path to a Sustainable Retirement System December 16, 2011 Cincinnati Retirement System Board of...
A Path to a Sustainable Retirement System
December 16, 2011
Cincinnati Retirement System Board of Trustees Presentation To
Cincinnati Budget & Finance Committee
Introduction to CRS
Established in 1931, before Ohio PERS Governed by a Board of Trustees CRS not subject to same requirements as
employers covered by OPERS City Council determines benefit and
contribution levels, not the State of Ohio This provides flexibility for the City, but carries
a greater level of responsibility and stewardship
Includes a Pension Trust & Health Care Trust2
Introduction to CRS (Cont.)
Ratio of 1:00 active to 1.35 retirees CRS Membership as of 12/1/11
3290 active employees 4450 pensioners (members receiving pension
checks) 6800 retirees, spouses & children enrolled in
health care City employees do not contribute to Social Security Many career employees & retirees are not eligible for
a Social Security pension benefit
3
CRS Board of Trustees
In October 2010, City Council changed the governance structure of the Cincinnati Retirement System (CRS) Board of Trustees to include member elected trustees and appointed professional trustees.
The new Board’s first assignment – Determine a solution to stabilize and sustain the Retirement System for current and future generations.
The Board’s recommendations recognized and built upon the efforts of Task I and Task Force II.
The Board held three Community Meetings in December 2010 to present ideas and gather input from various stakeholders.
Final recommendations were adjusted based on input from stakeholders.
4
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CRS Board of Trustees (Cont.)
Appointed Madelynn Matlock, Sr. VP Huntington Asset Advisors – CRS Board Chair William Partridge, Retired Sr. Consultant & Pension Actuary, Watson Wyatt Worldwide –
CRS Vice Chair Mark Berliant, Senior Partner, Strauss & Troy, a Legal Professional Association Christopher Meyer, CFA, Managing Principal Fund Evaluation Group LLC Roger Sims, Retired Corp. Dir., Compensation, Benefits & Employee Health Svcs.,
Health Alliance Vacant position
Elected Karen Alder, Risk Manager, City of Cincinnati Don Beets, Retired Supervisor of Field Services, Greater Cincinnati Water Works Mike Fehn, Building Inspector II , Dept. of Community Development, City of Cincinnati Brian Pickering, Retired Principal Engineer, Greater Cincinnati Water Works Mike Rachford, Retired Automotive Crew Chief, City of Cincinnati
CRS Board of Trustees (Cont.)
Committees Investment Committee Benefits Committee Governance Committee Elections Committee
The full Board held 14 meetings since Oct. 2010 to address the System’s challenges
CRS Board made recommendations to Council that were approved in March 2011 making significant progress toward system stabilization
6
Authorities of CRS Board & City Council
CRS Board Makes recommendations to Council regarding
benefit and contribution levels Manages investments and determines the
investment and discount rates of return & other actuarial assumptions
Oversees the management of the Cincinnati Retirement System
City Council approves benefit levels and employer & employee contribution levels
7
Management of CRS Investments
Presented by
Brett Christenson,
Marquette Associates
8
Recent Board Actions
Conducted Actuarial Experience Study (employee turnover, mortality, salary scales, etc.) and modified actuarial assumptions to better reflect actual and expected experience Result: $57M reduction in Pension liabilities Result: $33M reduction in Health Care liabilities
Performed Asset Allocation Study that resulted in revision of long term asset return assumption from 8% to 7.5% per annum. Result: $102M increase in Pension liabilities Result: $ 33M increase in Health Care liabilities
Net Result: $45M increase in Pension liabilities, $0M increase in Health Care liabilities
9
Projected CRS 2011 Cash Flow
Category Dollars
Outflows: Expenses and Benefits $207,500,000
Inflows: Employer Contributions, Employee Contributions and Medicare Reimbursements
$48,400,000
Trust earnings if assets earn 7.5% $150,000,000
Projected Trust earnings to 12/31/2011 (@ 1%)
$20,000,000
Projected net outflows as of 12/31/2011 $139,100,000
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State of Affairs Before CRS Plan Changes Adopted in February, 2011
The status quo approach (same benefits and employer contributions of 17%) will fully drain the pension trust in 21 years and the healthcare trust in 15 years.
In 2010, CRS’ expenses (pension, healthcare and operating costs) exceeded revenues (employer and employee contributions, and Medicare Rx reimbursements) by $145 million.
City employees currently contribute 8% of salary for 2011, and will contribute 8.5% in 2012, capping at 9.0% in 2013.
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Downward Spiral Threatened CRS
Generous Benefit Enhancements Implemented
Poor Asset Performance
Higher Contribution Requirements
Insufficient City Contributions
Generous Early Retirement Window Implemented
Terrible Asset Performance
$125,571,000 Contribution Requirement (Pension and Health Care)
Insolvency
20102010
20082008
20072007
2002-20102002-2010
2006 - 20092006 - 2009
20012001
8819991999
Accelerating Health Care Costs
12
CRS Was Not Stable, Sustainable or Affordable
1313
What’s Within the City’s Control?
14
What’s Within the City’s Control?
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Financial Impact of Plan Changes
Plan Decrease in Accrued Liabilities
Decrease in Annual Required (Employer) Contributions
Pension $111,000,000 $16,700,000
Health Care $231,000,000 $20,700,000
Total $342,000,000 $37,400,000
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Financial Impact of Actuarial Assumption Changes
Pension PlanBefore Assumption Changes
After Assumption Changes
Accrued Liability $2,086,000,000 $2,131,000,000
Actuarial Value of Assets $1,566,000,000 $1,566,000,000
Unfunded Accured Liability
$520,000,000 $565,000,000
Funded Percentage 75.1% 73.5%
17
Financial Impact of Actuarial Assumption Changes
Health Care PlanBefore Assumption Changes
After Assumption Changes
Accrued Liability $657,000,000 $657,000,000
Actuarial Value of Assets $726,000,000 $726,000,000
Unfunded Accrued Liability
$(69,000,000) $(69,000,000)
Funded Percentage 110.6% 100.6%
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Pension Changes
The pension changes include a comprehensive set of grandfather and transition rules.
The impact of these changes on individual employees depends on their proximity to their Normal Retirement age.
For all employees hired prior to 1/1/2011, their earned pension benefit is protected up to the effective date of the change, 7/1/2011.
These employees will also be able to retire under the current age and service rules with adjustments to benefits earned after the change, if applicable.
19
Pension Changes (Cont.)
2020
21
Cost of Living Adjustment (COLA) for future retirees will be based on simple interest, not compound.
COLA will no longer be guaranteed at 3% but will be indexed to the CPI-U to a maximum of 2% per year.
The salary used for benefit calculations will be changed from the highest consecutive 3 year average to the highest consecutive 5 year average.
Pension Changes (Cont.)
21
22
Rate of pension accruals will be reduced from 2.50% (and 2.22% for a closed group) to 2.20% of base pay for all employees for future years of service.
First 30 years of service will accrue at 2.20% rate of pay. Years beyond 30 will accrue at 2.00% rate of pay.
Pension Changes (Cont.)
22
23
Normal Retirement (Hired before 7/1/2011)
30 years of service, age 60 5 years of service, age 65
Normal Retirement (Hired on or after 7/1/2011)
30 years of service, age 62 5 years of service, age 67
Normal Retirement Age and Service Rules
Prior Rules Normal Retirement (Hired before 1/1/2010)
30 years of service, any age 5 years of service, age 60
Normal Retirement (Hired on or after 1/1/2010)
30 years of service, age 55 5 years of service, age 65
New Rules
2323
24
Early Retirement 15 years of service, age 57
Actuarial reduction applies
Early Retirement Age and Service Rules
Prior Rules Early Retirement (Hired before 1/1/2010)
25 years of service, age 55
Early Retirement (Hired on or after 1/1/2010)
25 years of service, age 60
Actuarial reduction applies
New Rules
2424
25
$7,500 death benefit for current retirees is reduced to $5,000. It is eliminated for future retirees.
Pre-retirement lump sum death benefit equal to 50% of salary is eliminated. This type of death benefit is uncommon in DB plans. Usually provided through employer or individual life
insurance. Social Security and OPERS do not provide a similar benefit.
Pre & Post Retirement Death Benefit Changes
2525
Solvency Projections (Pension)
26
Solvency Projections (Pension)
27
Contribution Projections (Pension)
28
Contribution Projections (Pension)
29
Solvency Projections (Pension)
30
Retiree Health Care Changes
31
32
Move all retirees and other recipients to 80/20 PPO medical plan and pay same percent of “retiree plan” premium as actives.
Eliminate Medicare Part B subsidy for retirees.
Eliminate Medicare Part B subsidy for spouses, and other recipients of CRS retiree health care coverage.
Require retirees to pay 100% of premiums for dental and vision benefits if they choose to continue coverage.
Retiree Health Care Changes (Cont.)
32
Solvency Projections (Health Care)
33
Transition Approach
Pension benefits earned to the effective date of the change are protected: All components of the prior formula apply, The earliest normal retirement age available under
the prior plan continues to be available, At that same date, benefits earned under the new
benefit formula are also payable – in an actuarially reduced amount if applicable, and,
Retiree health benefits are available at the same date.
34
APPENDIX
35
36
Plan
Plan TypeAccess In Network Out of Network In Network Out of Network
Annual Deductible $0 $0 Single: $300 Family: $600
Single: $600 Family: $1,200
Annual Out-of Pocket Maximum
Single: $500 Family: $1,000
(includes copays)
Single: $1,000 Family: $2,000
(includes copays)
Single: $1,500 Family: $3,000
(includes copays)
Single: $3,000 Family: $6,000
(includes copays)
Lifetime Maximum
Copay/Coinsurance - Physician
20% 50% 20% 50%
Coinsurance - Hospital 20% 50% 20% 50%
Emergency Room 20% 50% 20% 50%
Urgent Care 20% 50% 20% 50%
Medicare Coordination of Benefits
Monthly Premium for 2011
Rx - Retail Copay/Coinsurance
Rx - Mail Order Copay/Coinsurance
90 day Generic:$10.00 90 day Brand: $30.00 90
day NF Brand: $60.00 $500 Out-of-Pocket
Maximum
Not Covered
90 day Generic:$20.00 90 day Brand: $40.00
90 day NF Brand: $60.00
No Limit
Not Covered
Generic: $5.00 Brand: $15.00 NF Brand: $30.00
$500 Out-of-Pocket Maximum
Generic: $10.00 Brand: $20.00 NF Brand: $30.00
No Limit
$0Single: $20.90 Single + Spouse: $41.80
Single + Child(ren): $57.90 Family: $57.90
Unlimited
Standard Coordination of Benefits
CRS Retiree Medical Plan Designs for 2012
Standard Coordination of Benefits
Unlimited
PPO
Blue Modified Carve-Out
PPO
Blue Access 80/20
37
Plan
Plan TypeAccess In Network Out of Network In Network Out of Network In Network Out of Network
Annual Deductible $0 $0 Single: $100 Family: $200
Single: $200 Family: $400
Single: $300 Family: $600
Single: $600 Family: $1,200
Annual Out-of Pocket Maximum
Single: $500 Family: $1,000
(includes copays)
Single: $1,000 Family: $2,000
(includes copays)
Single: $1,000 Family: $2,000
(includes copays)
Single: $2,000 Family: $4,000
(includes copays)
Single: $1,500 Family: $3,000
(includes copays)
Single: $3,000 Family: $6,000
(includes copays)
Lifetime MaximumCopay/Coinsurance - Physician
20% 50% 20% 50% 20% 50%
Coinsurance - Hospital
20% 50% 20% 50% 20% 50%
Emergency Room 20% 50% 20% 50% 20% 50%
Urgent Care 20% 50% 20% 50% 20% 50%
Medicare Coordination of Benefits
Monthly Premium for 2011
Rx - Retail Copay/Coinsurance
Rx - Mail Order Copay/Coinsurance
90 day Generic:$10.00 90 day Brand: $30.00
90 day NF Brand: $60.00
$500 Out-of-Pocket Maximum
Not Covered
90 day Generic:$10.00 90 day Brand: $30.00
90 day NF Brand: $60.00
$1,000 Out-of-Pocket Maximum
Not Covered
90 day Generic:$20.00 90 day Brand: $40.00
90 day NF Brand: $60.00
No Limit
Not Covered
Generic: $5.00 Brand: $15.00 NF Brand: $30.00
$500 Out-of-Pocket Maximum
Generic: $5.00 Brand: $15.00 NF Brand: $30.00
$1,000 Out-of-Pocket Maximum
Generic: $10.00 Brand: $20.00 NF Brand: $30.00
No Limit
$0 $0Single: $20.90 Single + Spouse: $41.80
Single + Child(ren): $57.90 Family: $57.90
Unlimited
Carve-Out
CRS Retiree Medical Plan Designs for 2011
Carve-Out Carve-Out
Unlimited Unlimited
PPO PPO
Blue Modified Carve-Out
PPO
Blue Modified Blue Access 80/20
Allocation of 2010 employer contributions at 17% contribution rate
DollarsPercent
General Fund $12.7 MM 40% Metropolitan Sewer District $6.0 MM
19% Cincinnati Water Works $5.2 MM 16% Other Funds $7.7 MM 25%
TOTAL $31.4 MM 100%
38
Allocation of Contributions by City Groups
39
Comparison of CRS , OPERS and STRS
Cincinnati Retirement SystemAssumed Rate of Return vs Actual
2000 through 2010
8.0%
8.0%8.0%
8.0%
8.75
%
8.75
%
8.75
%
8.75
%
8.75
%
8.75
%
8.75
%
13.0%
8.0%
20.4%22.0%
9.9%
6.5%
13.6%
-27.8%
-12.1%
-4.6%
-0.1%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Assumed Rate of Return
Actual Rate of Return
40