Oklahoma State Pension Commission

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• Oklahoma State Pension Commission
• Retirement System

Summary of Actuarial Reports February 11, 2009
Lynda K. Dennen, ASA, EA Research Consultant
NEPC, LLC One Main Street, Cambridge, MA
02142 Tel [phone] Fax
617-374-1313 www.nepc.com CAMBRIDGE I
CHARLOTTE I DETROIT LAS VEGAS I SAN
FRANCISCO Registered Investment Advisors
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(No Transcript)
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System Summary - Characteristics and Assumptions

• Retirement System comprises seven plans
  (Teachers, OPERS, Firefighters, Police, Law
  Enforcement, Judges, and Wildlife)
• Information based on July 1, 2008 Actuarial
  Valuation Reports from Actuaries1 and System
  Financial Statements
• All plans employ Entry Age Normal funding method
• a conservative funding schedule
• All plans employ similar asset valuation method
  (smoothed value)
• Smoothes asset gains and losses over time
• Investment return assumptions range from 7.5 to
  8.0
• All plans have in place long term amortization
  schedules to fund the Unfunded Accrued Liability
• Employee and Employer contribution rates vary by
  plan

• Buck Consultants, Milliman Consultants and
  Actuaries, and Gabriel, Roeder, Smith Company
• Greenwich Associates survey, 2008

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System Summary

• Funded status of the plans remained relatively
  stable since the July 2007 valuations
• Asset declines from the second half of 2008 not
  reflected yet
• Average of plans Actuarial value return was 7.9
  for the fiscal year ending June 30, 2008
• Average of plans Market value return was -4.9
  for the fiscal year ending June 30, 2008
• Asset smoothing will help dampen the losses in
  next years valuations
• Losses recognized over the next 5 years
• Teachers plan remains the largest and the most
  poorly funded of the seven plans
• 18 billion in liabilities, 9 billion in assets,
  50 funded
• Current contributions do not cover annual Normal
  Cost (cost of one years additional benefits),
  despite an increase in Employer contribution
  rates
• Actuaries projected that the Teachers plan will
  not reach 80 funded until after the year 2050

Sources Actuarial valuation reports by Buck
Consultants, Milliman Consultants and Actuaries,
and Gabriel, Roeder, Smith Company
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Funded Status History Actuarial
Judges
Law
Wildlife
Police
OPERS
Fire
Teachers

• Corporate plan funding thresholds
• - - - Fully funded, 94
• - - - Benefit restrictions, 80
• - - - At Risk, 60

Source 1999 and earlier R.V. Kuhns
Associates, 2000 and later Buck
Consultants, Milliman Consultants and Actuaries,
and Gabriel, Roeder, Smith Company
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Liability and Asset History - Actuarial
Teachers
OPERS
Fire
Police
Law
Judges
Wildlife
Teachers
OPERS
Fire
Police
Law
Judges
Wildlife
Source 1999 and earlier R.V. Kuhns
Associates, 2000 and later Buck
Consultants, Milliman Consultants and Actuaries,
and Gabriel, Roeder, Smith Company
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Investment Return Actuarial Value
Asset returns declined an average of 2.2 during
the fiscal year

• Asset declines that happened after June 2008 are
  not reflected this year
• Asset smoothing methods will help dampen the
  losses in next years valuations

Source 1999 and earlier R.V. Kuhns
Associates, 2000 and later Buck
Consultants, Milliman Consultants and Actuaries,
and Gabriel, Roeder, Smith Company
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Investment Return Teachers Plan
Actuarial Value
Market Value

• Market Value may have another steep decline as of
  next years June 30, 2009 valuation
• Actuarial Value will fall, but not nearly as
  dramatically as MV, due to smoothing
• Losses will be reflected over the next 5 years
  even if market rebounds

Source 1999 and earlier R.V. Kuhns
Associates, 2000 and later Buck
Consultants, Milliman Consultants and Actuaries,
and Gabriel, Roeder, Smith Company
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GASB 25 Total Employer Cost as of Payroll
Fire
Law
Police
Judges
Wildlife
OPERS
Teachers
Source 1999 and earlier R.V. Kuhns
Associates, 2000 and later Buck
Consultants, Milliman Consultants and Actuaries,
and Gabriel, Roeder, Smith Company
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Employer Contributions
Source 1999 and earlier R.V. Kuhns
Associates, 2000 and later Buck
Consultants, Milliman Consultants and Actuaries,
and Gabriel, Roeder, Smith Company
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Contributions Rates Employee and Employer

• Median Employee contribution rates are 5.0 if
  participating in Social Sec., 8.0 if not
• Median Employer contribution rates are 8.5 if
  participating in Social Sec., 11.2 if not

Source July 1, 2008 Actuarial Reports by Buck
Consultants, Milliman Consultants and Actuaries,
and Gabriel, Roeder, Smith Company Results
from the Public Fund Survey Summary Findings for
FY 2007, published November 2008 by the National
Association of State Retirement Administrators
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Summary of Major Plan Changes
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Summary of Major Plan Changes (continued)
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Retirement System Investment Return Assumptions

• Based on July 1, 2008 Actuarial Valuation Reports
  from Actuaries1
• The assumed investment return assumption ranges
  from 7.5 to 8.0
• Public Fund assumed investment return median is
  8.02
• Distribution of investment return assumptions for
  surveyed funds below2

1. Buck Consultants, Milliman Consultants and
Actuaries, and Gabriel, Roeder, Smith
Company 2. Greenwich Associates survey, 2007
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Submission of Information to State Pension
Commission

• During the 2002 legislative session, legislation
  was adopted that requires information be
  submitted to the State Pension Commission by the
  following Retirement Boards
• Teachers Retirement System
• OPERS Retirement System
• Firefighters Retirement System
• Police Pension and Retirement System
• Law Enforcement Retirement System
• Retirement System for Justices and Judges
• Valuations are performed, for informational
  purposes only, using a prescribed set of
  assumptions (70 O.S. 2001, Section 17-106.1,
  Section H) for all plans
• Interest rate of 7.5
• COLA assumption of 2
• Mortality table of RP 2000
• Set amortization period of 30 years (level dollar)

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Submission of Information to State Pension
Commission

• Use of a discount rate higher than 7.5 will
  produce lower liabilities
• Use of COLA assumptions lower than 2 will
  produce lower liabilities
• Use of older mortality tables assume people die
  younger, thus will produce lower liabilities

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Submission of Information to State Pension
Commission
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Conclusions

• Four of the seven Oklahoma state pension plans
  are considered well funded from a comparative
  standpoint
• Median public fund plan is funded at 84.3
• 62 of US public plans are funded over 80
• In aggregate, the States plans are 60 funded
• Teachers plan is the least funded at 50, also
  the largest plan
• Scheduled increases in employer contribution
  rates are in place for 3 of the plans
• Rating agencies will be scrutinizing States and
  Municipalities for debt ratings

Results from the Public Fund Survey Summary
Findings for FY 2007, published November 2008 by
the National Association of State Retirement
Administrators