Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols.
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Transcript of 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
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 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
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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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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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%
Additions to Pension Trust Funds
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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
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
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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
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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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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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
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.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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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
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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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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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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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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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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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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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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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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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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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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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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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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
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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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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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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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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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
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 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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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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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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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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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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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 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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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 addressNew features scheduled (available May 25th): 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 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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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 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:
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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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