North Carolina Department of State Treasurer

1. Local Governmental Employees’ Retirement System (LGERS) North Carolina League of Municipalities Conference Raleigh, NC October 25, 2011 North Carolina Department of State Treasurer

2. 3 Topics for Discussion • LGERS 101 – The Basics • Comparison to other Pension Plans • Operational Highlights

3. LGERS 101 – The Basics Local Governmental Employees’ Retirement System (LGERS) began in 1945 with 18 participating local governments and 2,102 members NOW: • 888 participating governmental entities: (cities, counties, towns, local commissions, etc.) • 212,866 Total Participants* • 49,204 Retirees and beneficiaries receiving benefit payments • 41,077 Terminated participants and beneficiaries entitled to benefits but not yet receiving benefits • 122,585 Active Participants • $18.5 Billion in Assets* *data from actuarial valuation as of 12/31/10

4. LGERS Plan Provisions Eligibility • Employed by a participating unit and works at least 1,000 hours per year Employee Contributions • 6% of salary Employer Contributions • Approximately 6.88% of salary • Unfunded accrued liability Tax sheltering • Upon employer resolution Vesting requirements • 5 years of creditable service

5. LGERS Plan Provisions (con’t). Service Required for Full (Unreduced) Retirement • 30 years of creditable service • age 60 with 25 years of creditable service • age 65 with 5 years of creditable service (age 55 with 5 years for law enforcement officers) Formula for Full Retirement Benefit • 1.85% of AFC (Average Final Compensation of the 4 consecutive years of salary that produce the highest average) times the years of creditable service. 1.85% x AFC x years of service = annual retirement benefit Early Retirement & Disability Retirement • Applicable

6. 3 Funding Sources The Retirement Systems assets come from 3 sources: • Full-time employees contribute 6% of each paycheck • Employers contribute annually based on recommendations from the System’s actuary and Board approval • Earnings from investments made by State Treasurer’s office

7. LGERS Funding Sources Illustrated For calendar year 2010, these amounts equate to the above percentages of total system funding.

8. NC Retirement Systems • Continues to be one of the most secure pension systems in the country • Program Evaluation Division (PED) of the NC General Assembly ranked TSERS 6th out of 84 public plans – Sept 2011 report • National Institute on Retirement Security (NIRS) highlighted NC (TSERS plan) as one of 6 states which has weathered the financial storms of recent years – June 2011 • 2009 NASRA (National Association of State Retirement Administrators) Public Pension Fund Survey lists TSERS as having the 4th highest funding ratio among the 50 states

9. Current Public Sector Retirement Plan Types by US States • Defined benefit (DB) plan – provides lifetime income based on a formula that includes years of service and salary. The majority of states (38) have this type of plan & investment risk is borne by the state/employer (i.e. LGERS) • Defined contribution (DC) plan – provides income based on the value of the employee’s account balance. Michigan and Alaska require all new hires to participate solely in DC plan & investment risk is on the employee • Hybrid plans – Employees are required to participate in both a DB & a DC plan. States include: Georgia, Indiana, Oregon, and Utah • Choice plans – Employees choose between DB or DC plan. States include: Colorado, Florida, Montana, Ohio, South Carolina, and Washington • Source: NC General Assembly Program Evaluation Division based on analysis of Center for Retirement Research’s 2011 report

10. LGERS Funding Status Actuarial Valuation Date Funded Ratio* • 12/31/04 99.3% • 12/31/05 99.4% • 12/31/06 99.5% • 12/31/07 99.5% • 12/31/08 99.6% • 12/31/09 99.5% • 12/31/10 99.6% * Funded ratio = Assets/Liabilities

11. Contribution History

12. LGERS Multiplier

13. October 20, 2011 Board of Trustees Meeting • Annual Required Contributions • Unfunded Accrued Liability • New Local • 18 basis points gain ($10 million)

14. Projected Employer Contributions

15. Contribution Benchmarks • Average public fund: 8.7% of pay • Neighboring States: South Carolina: 8.05% Tennessee: 9.36% Georgia: 10.39% Virginia: varies up to 22% Source: Public Fund Survey

16. LGERS & TSERS Plan Features Are Either Less Generous or Typical Than Other State’s Plans Less Generous • Final average salary • Benefit formula multiplier Typical • Employee contribution rate • Years of service and age for normal retirement • Vesting (less generous in TSERS) 5 yrs. vs. 10 Source: Wisconsin Legislative Council, 2008 as referenced in General Assembly PED report – Sept. 2011

17. Cost of Living Adjustments (COLA’s) • TSERS and LGERS grant COLA’s on an ad hoc basis (not automatic) • Over 50 of the 84 plans examined by the General Assembly PED report grant COLA’s on an automatic basis

18. Many States Have Recently Changed Plan Features Cost-Saving MeasureNumber of States Increase employee contributions 29 Increase normal retirement age and/or service requirement 27* Decrease final average salary 25 Decrease automatic COLA’s 17 Increase vesting years 14* Decrease formula multiplier 13 *Includes North Carolina Source: National Conference of State Legislatures, 2005 – June 2011 as referenced in General Assembly PED Report - Sept 2011

19. Operational Highlights • Call Volume • Payroll • Retirements • Death Notifications

20. Questions?