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November 2009

November 2009. IPERS Update. Background. Unprecedented market losses in last fiscal year FY2009 return of -16.27% Assumed return of +7.5% Significant impact on long-term funding of retirement systems Concern over declining funded ratios coupled with increasing contribution rates

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November 2009

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  1. November 2009 IPERS Update

  2. Background Unprecedented market losses in last fiscal year FY2009 return of -16.27% Assumed return of +7.5% Significant impact on long-term funding of retirement systems Concern over declining funded ratios coupled with increasing contribution rates Sustainability of current benefit package with no changes 2

  3. Past contribution “holidays” • Rate for regular members set in law lower than actuarial rate • 95% of membership • Added $621 million to UAL in 6 yrs

  4. Contributions still lagging Contribution Actuarial Percent Rate Rate Funded FY2010 FY2010 FY2008 Regular members 10.95% 12.34% 88.4% Special Service members* Sheriffs and deputies 15.24% 15.24% 101.6% Protection occupations 15.34% 15.34% 105.2% *Benefits for Special Service members are higher than those for regular members.

  5. Possible Market Rebound? • To make up for lost ground • 40% return in FY2010 and 7.5% each year after, or • 13% for each of the next 5 years and 7.5% each year after • Brings IPERS back to where projections were on June 30, 2008 • Not impossible, but highly unlikely • Does not appear prudent to rely on future market • returns above assumed rate of return to solve problem 5 5

  6. Baseline – Current Benefits and Contributions 6 6

  7. C+I B+E (Actuarial assets) IPERS’ projected long-term funding (Actuarial liabilities)

  8. Investments 70.1% Income by source 1999–2008 Contributions 29.9% (Employees 12.2%) (Employers 17.7%)

  9. What Can Be Done? C+I B+E C + I = B + E C = contributions I = investment income B = benefits E = expenses 9 9

  10. Benefits Advisory Committee 97B.8B(4) Benefits, services, and law changes Chief Benefits Officer hiring and performance review Investment Board appointments

  11. Change contributions • 13.45% (11.95%) contribution rate on 7/1/11 • Yearly rate change +/–1.0 (0.5) percentage point thereafter • Rate drop allowed when can use 30-year closed amortization period Open Closed

  12. Change benefits • 6% early retirement reduction from age 65 (3%→nearest retirement rule) • Vesting 7 years(4) • High 5 final average salary (high 3)

  13. Impact 2023 valuation move to closed amortization Source: Pat Beckham, Milliman, IPERS Long-Term Funding: Presentation to the IPERS Benefits Advisory Committee, November 2, 2009

  14. Transition rule example: final average salary Average high 5 Snapshot of high 3 on transition date Compare to high 5 when retire Use higher of two Q&A on possible changes & transition rules used in studies on www.ipers.org

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