Public Employees Retirement System Teachers Retirement System

1
Public Employees Retirement System Teachers
Retirement System
Funding Status
Presented ByAlaska Division of Retirement and
Benefits
2
Overview of Valuation Process

• PERS and TRS Actuarial valuations are performed
  annually.
• Buck Consultants was selected as the new actuary
  last fall.
• Buck began by replicating the last PERS and TRS
  valuations prepared by Mercer.
• Reviewed Plan provisions.
• Reviewed benefit calculations prepared by the
  Division.
• Reviewed assumptions and methods.
• Physically replicated the 2004 valuation results.
• To ensure complete understanding of Mercers
  valuation process.
• To ensure complete understanding of the PERS and
  TRS Defined Benefit plans.
• To ensure accuracy of pension and medical
  liability calculations generated from their
  systems.

3
Results of Replication Process

• PERS
• Minor differences in pension benefits.
• Bucks work revealed that Mercer understated
  healthcare benefits by 7 percent.
• Bucks accrued liability 2.80 percent higher than
  Mercers.
• Bucks normal cost 4.21 percent higher than
  Mercers.
• Bucks actuarial employer contribution rate 7.73
  percent higher than Mercers.
• TRS
• Bucks results matched Mercers results closely.
• Bucks accrued liability 0.17 percent higher than
  Mercers.
• Bucks normal cost 0.65 percent lower than
  Mercers.
• Bucks actuarial employer contribution rate 0.07
  percent lower than Mercers.

4
2005 Actuarial Valuation Results

• 2005 Actuarial Valuation Results presented to the
  ARMB in March

• Final actuarial valuation reports and the PERS
  supplement report will be presented to the ARMB
  at their June meeting. Once approved by the
  ARMB, reports will be available on the Divisions
  website.

5
Alaska Public Employees Retirement
SystemEarningsActuarial RateEmployer
RatesFunding Ratios

• Actuary Valuation Report FY 01 FY 02 FY 03 FY
  04 FY05
• Fiscal Year Employer Rate FY 04 FY 05 FY 06 FY
  07 FY08
• Actual Investment Return (5.25) (5.48) 3.67 1
  5.08 8.95
• Actuarial Investment Return 8.25
  8.25 8.25 8.25 8.25
• Cumulative Dollar Shortfall, in billions 0.1 (
  2.5 ) ( 2.9 ) ( 3.4 ) (4.4 )
• (in billions, market value)
• Average Calculated Rate 6.77 24.91 25.63 28.
  19 32.43
• Board Adopted Rate 6.77 11.77 16.77 21.77 T
  BD 6/2006
• Funding Ratio Assets \ Liabilities
• Total Benefits 100.9 75.2 72.8 70.2
  65.7

Three primary factors contribute to the unfunded
liability for PERS (1) rising health care costs
(2) loss of investment income and (3) change in
assumptions due to actual plan experience.
6
Alaska Teachers Retirement SystemEarningsActuar
ial RateEmployer RatesFunding Ratios

• Actuary Valuation Report FY 01 FY 02 FY 03 FY
  04 FY05
• Fiscal Year Employer Rate FY 04 FY 05 FY 06 FY
  07 FY08
• Actual Investment Return (5.35) (5.49) 3.68 15
  .08 9.01
• Actuarial Investment Return 8.25
  8.25 8.25 8.25 8.25
• Cumulative Dollar Shortfall, in billions ( 0.6
  ) ( 1.7 ) ( 2.1 ) ( 2.3 ) (2.5)
• (in billions, market value)
• Average Calculated Rate 14.44 35.57 38.85
  41.78 42.14
• Board Adopted Rate 12.00 16.00 21.00 26.00
  TBD 6/2006
• Funding Ratio Assets \ Liabilities
• Total Benefits 95.0 68.2 64.3 62.8
  60.9

Three primary factors contribute to the unfunded
liability for PERS (1) rising health care costs
(2) loss of investment income and (3) change in
assumptions due to actual plan experience.
7
Public Employees Retirement System Teachers
Retirement SystemDefined Contribution
Retirement Plan
Introducing the
Defined Contribution Retirement Plan
Presented ByAlaska Division of Retirement and
Benefits
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Background

• During the 2005 Special Session the Legislature
  passed, and Governor Murkowski signed into law
  Senate Bill 141 Chapter 9 FSSLA 2005.
• This legislation created Tier IV Public
  Employees Retirement System (PERS) and Tier III
  Teachers Retirement System (TRS).
• All new employees who first enter a PERS or TRS
  covered position, on or after July 1st, 2006,
  will be members of these new tiers.

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Background (continued)

• PERS Tier IV and TRS Tier III will have a
  Defined Contribution Retirement (DCR) Plan,
  death and disability benefits, medical coverage,
  and a Health Reimbursement Arrangement (HRA)
  account.
• Nonvested members of PERS and TRS will have the
  option to convert their Defined Benefit plan to
  the DCR Plan.
• This is only available if the employer has
  elected to participate in the conversion option
  found in AS 39.35.940 and AS 14.25.540.

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Background (continued)

• The newly created Alaska Retirement Management
  Board (ARMB) currently performs the duties
  formerly assigned to
• Public Employees Retirement Board,
• Teachers Retirement Board, and
• Alaska State Pension Investment Board.
• The AS 37.10.210 states, Consistent with
  standards of prudence, the board has the
  fiduciary obligation to manage and invest these
  assets in a manner that is sufficient to meet the
  liabilities and pension obligations of the
  Systems.

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Defined Contribution Retirement Plan
General Features

• The amount in an individuals account is funded
  by three sources
• Member contributions (8 percent PERS and TRS).
• Employer contributions (5 percent PERS and 7
  percent TRS).
• Investment gains or losses, net of expenses.
• The member is in the driver seat.
• Each member decides how the money in their
  account is invested from a list of ten
  investment options approved by the Alaska
  Retirement Management Board.

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PERS/TRS DCR Plan

• Employee Contributions
• Members will contribute 8 percent of their
  salary to their individual account AS 39.35.730
  and AS 14.25.345.
• Members will also have the option to contribute
  a higher percentage, up to federal limitations,
  on a monthly basis.
• Members will also be able to roll in funds from
  other qualified plans.

13
PERS/TRS DCR Plan

• Employer Contributions
• Employers will, in total contribute
• PERS Employer Rates 10.12 percent for all
  other, (10.48 percent for peace officers and
  firefighters).
• 5 percent contribution to the DCR Plan.
• 1.75 percent contribution to the DCR Plan for
  retiree medical.
• 3 percent contribution to the Health
  Reimbursement Arrangement.
• 0.37 percent contribution for Occupational
  Death/Disability for all other. CS HB475
• 0.73 percent contribution for Occupational
  Death/Disability for peace officers and
  firefighters. CS HB475
• TRS Employer Rates 12.01 percent.
• 7 percent contribution to the DCR Plan.
• 1.75 percent contribution to the DCR Plan for
  retiree medical.
• 3 percent contribution to the Health
  Reimbursement Arrangement.
• 0.26 percent contribution for Death and
  Disability. CS HB475

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PERS/TRS DCR Plan

• Investments will be member directed
• Each member has the opportunity to decide how the
  money in their account will be invested.
• Managed Accounts.
• Financial Advice.
• Financial Education.
• Members can elect to change or transfer all or a
  portion of their existing account balance among
  available investment funds as often as once a day.

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PERS/TRS DCR Plan

• Vesting
• Member contributions are immediately 100 percent
  vested including related earnings.
• Employer contributions are 100 percent vested
  after 5 years. (AS 39.35.790 and AS 14.25.390)
• 25 percent with two years of service.
• 50 percent with three years of service.
• 75 percent with four years of service.
• 100 percent with five years of service.

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Eligible for Retirement and Medical Eligibility

• Medical Benefits are available to members in
  accordance with AS 39.35.870-880 and AS
  14.25.470-480.
• Retire directly from the plan and be active
  member 12 months prior to retirement.
• 25 years of membership service as peace officer
  or firefighter.
• 30 years of all other and TRS service.
• 10 years of membership service and reach normal
  retirement age.
• Normal Retirement Age means the age set for
  Medicare eligibility at time member retires.

17
Medical Benefits

• Medical Benefits are available to members in
  accordance with AS 39.35.870-880 and AS
  14.25.470-480.
• If not eligibility for Medicare member must pay
  full monthly premium for retiree major medical.
• After satisfying AS 39.35.870 and AS 14.25.470
  and being Medicare eligible, the retiree will pay
  the percentage of monthly premium based on years
  of service.
• 10 percent with 30 or more years of service.
• 15 percent with 25 to 29 years of service.
• 20 percent with 20 to 24 years of service.
• 25 percent with 15 to 19 years of service.
• 30 percent with 10 to 14 years of service.

18
Health Reimbursement Arrangement (HRA)

• Employers will make a fixed dollar contribution
  (based on 3 percent of the average salary of
  employees who participate in the plans) CSHB475
  clarifies that this amount should not be based on
  a separate calculation for each employer.
• Members are eligible for the HRA in accordance
  with AS 39.35.870 and AS 14.25.470.
• 25 years peace officer and firefighter.
• 30 years all other and teachers.
• Reaches normal retirement age (i.e., Medicare
  eligible) and has at least ten years of
  membership service.
• Member is reimbursed for medical expenses as
  defined by U.S.C. 213(d).

19
Disability Benefits

• Occupational Disability (AS 39.35.890 and AS
  14.24.485).
• Must be presumably permanently and totally
  disabled from an accident, injury, or illness
  caused by job.
• 40 percent of salary at the time of termination
  because of disability.
• Converts to normal retirement when member first
  attains eligibility for normal retirement.
• Peace officers and firefighters may choose
  between accessing retirement savings account or
  receiving lifetime monthly benefit in accordance
  with AS 39.35.370(c).

20
Death Benefits

• Nonoccupational death benefit
• Balance of retirement savings account, including
  employee contributions, vested portion of
  employer contributions, and net gains or losses
  experienced.
• Occupational death benefit
• Peace officers and firefighters 50 percent of
  salary at time of death.
• All others and teachers 40 percent of salary at
  time of death.
• Converts to normal retirement when participant
  would have reached normal retirement age.

21
Disability/Death Benefits

• During the time a disabled member or surviving
  spouse is receiving benefits the employer will
  continue to pay the employee and employer
  contributions into the participant retirement
  savings account, the HRA, and the retiree medical
  account.
• The participant retirement savings account can be
  accessed at normal retirement unless, for peace
  officers and firefighters, an alternate lifetime
  monthly benefit is elected.

22
Disability/Death and Medical Benefits

• Medical benefits are not provided during the
  period the participant or a surviving spouse is
  receiving death or disability benefits.
• Service continues to accrue towards medical
  eligibility until participant would have reached
  normal retirement.
• Access to medical benefits and premium subsidy at
  time of normal retirement.

23
Upon Termination of Employment

• Portable Options and Lifetime Annuity Options
• If the member leaves a PERS or TRS covered
  position there are several options available to
  the member found in AS 39.35.820 and AS
  14.25.420
• Leave the account balance in PERS/TRS Retirement
  Systems.
• Rollover the account balance into another
  employer sponsored retirement fund or individual
  retirement account.
• Single Life Annuity.
• Joint and Survivor Annuity.
• Life Annuity with period certain payment.
• Cash-in the account balance.

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What does all of this mean to Employers?

• Different retirement plans for employers
  employees.
• DB plan for those who first became members prior
  to July 1, 2006.
• DCR Plan for those who first become a member on
  or after July 1, 2006.
• Different rate structure for the two separate
  plans.
• Defined Benefit rate structure.
• One rate for every DB employee.
• Defined Contribution rate structure.
• One retirement savings account rate for every DCR
  Plan employee.
• One HRA dollar amount for every DCR Plan
  employee.
• One Retiree medical account rate for every DCR
  Plan employee.
• One Occupational death and disability rate for
  every DCR Plan employee.

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What does all of this mean to Employers?

• New reporting tool
• eReporting will replace DataEntr on July 1, 2006.
• Record layout changes have been communicated to
  employers.
• Training for users of the new reporting tool.
• Training sessions in Juneau, Anchorage and
  Fairbanks in May.
• Electronic enrollment now available.
• Training video distributed in May.
• Webinar in June.

26
What does all of this mean to Employers?

• Conversion
• Employer needs to make a decision.
• Tools to assist the employer with this decision.
• Conversion Eligibility Report.
• Actuarial data to identify the impact on
  employers defined benefit costs.
• Employer submits a resolution and a Participation
  Agreement Amendmentto the Division indicating
  their decision to allow conversion. This
  decision is irrevocable once made.
• Division accepts the Employers resolution and
  amendment.
• Division notifies nonvested employees of
  employers decision.
• Tools to assist the employee with decision.
• Choice Kit.
• Employee non-biased seminars co-sponsored by
  Recordkeeper and the Division.
• Recordkeepers advice service.

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What does all of this mean to Employers?

• Conversion (continued)
• Employees notify the Division when they choose to
  convert.
• Division notifies employer of employees choice
  and bills the employer for the matching
  conversion balance.
• The employers matching contribution shall be
  from funds other than the trust funds of the DB
  Plan.
• Employer has 30 days to satisfy the matching
  requirement.

28
What does all of this mean to Employers?

• HB 475A technical clean-up bill for SB 141.
  Provisions that affect employers. (continued)
• Allows the past service rate component of the DB
  Plan rate to be calculated over the employers
  entire payroll base (DB and DCR Plan members)
  effective July 1, 2006. Will add another rate to
  the DCR Plan rate structure.
• Postpones the implementation of a minimum
  contribution rate equal to the normal cost rate
  until July 1, 2008.
• Requires employers in the TRS DCR Plan to pay
  occupational disability and death benefits
  through actuarially calculated contributions.
  FY07 rate set at 0.26 percent.

29
What does all of this mean to Employers?

• HB 475A technical clean-up bill for SB 141.
  Provisions that affect employers. (continued)
• Adjusts the occupational disability and death
  rates for the PERS DCR Plan to 0.73 percent for
  peace officers and firefighters and 0.37 percent
  for all other plan members.
• Once a member is appointed to occupational
  disability, the member becomes fully vested in
  employer contributions regardless of years of
  service.
• Occupational disability is redefined.

30
What does all of this mean to Employers?

• HB 475A technical clean-up bill for SB 141.
  Provisions that affect employers. (continued)
• Provides a time limit with regard to
  conversiononce the employer consents to
  conversion an eligible member has 12 months to
  convert from the DB Plan to the DCR Plan. At the
  end of this period, the employer may consent to
  an additional 12-month period for those eligible
  employees to whom the initial period of
  conversion was not available.
• Adds a definition of membership service for
  purposes of clarifying what service credit is
  eligible for conversion.

31
What does all of this mean to Employers?

• HB 475A technical clean-up bill for SB 141.
  Provisions that affect employers. (continued)
• Adds language to clarify that the employer match
  required under the conversion option is subject
  to Internal Revenue Code contribution limits.
• Changes the employer contribution from an
  individual employer contribution amount to a
  uniform employer contribution amount for
  participants of the HRA Plan.

32
What does all of this mean to Employers?

• HB 475A technical clean-up bill for SB 141.
  Provisions that affect employers. (continued)
• Adds a funding source in statute to pay for the
  monthly pension that may be elected by a disabled
  peace officer or firefighter upon eligibility for
  normal retirement.
• Adds termination provisions related to the DCR
  Plan.

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Retiree Rehire Program

• The following guidelines apply to employment of
  retired members of the PERS under HB 161
  effective July 1, 2005.

• Requirements Prior to Hiring a Retired Worker
• Employer adopts a policy permitting the
  employment of retirees and files a resolution
  adopted by their governing body with the Division
  of Retirement and Benefits (Division).
• The policy must describe the recruitment
  difficulties and reasons for the shortage.
• The employer is also required to develop a
  knowledge transfer plan.

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Retiree Rehire Program (continued)

• Hiring a Retiree Under the Program The hire of
  a retiree must meet the following criteria
• The employer has a valid policy and resolution on
  file with the Division that is effective before
  the date of hire.
• Only retired members retired with a normal
  benefit are eligible.
• The retired member has been terminated from all
  employment with the employer for a minimum of
  thirty days.

35
Retiree Rehire Program (continued)

• Hiring Process The PERS employer must certify
  that
• A competitive recruitment was conducted for a
  minimum of thirty days.
• The recruitment resulted in fewer than five
  qualified, eligible, and available applicants,
  including the retired member.
• A rehired retiree employed in a full-time
  position has been enrolled in the health plan
  offered to all other full-time employees of the
  employer.
• Reemployment Period
• Retirees who reemployed under HB 242 before
  November 3, 2004, may continue under the program
  until December 31, 2006.
• Retirees reemployed on or after July 1, 2005
  The period of reemployment is defined as the
  period between rehire, under the waiver, until
  July 1, 2009.

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Retiree Rehire Program (continued)

• Health Insurance
• A retiree who reemploys under this program in a
  full-time position will not receive retiree
  medical insurance if the employer provides active
  medical insurance to its full-time employees.
• Contributions
• Employer will made contributions to the system
  based on a past service calculation.
• Current Enrollment
• As of January 2006, there are 17 PERS employers
  participating in HB 161 with 25 PERS waivers on
  file.

37
PO Box 110203Juneau, AK 99811-0203(907)
465-4460(800) 821-2251 www.state.ak.us/drb
Division Contact Information
www.state.ak.us/drb
Presented ByAlaska Division of Retirement and
Benefits