1. NDACo Legislative Wrap-up Sparb Collins NDPERS

2. Legislation and other actions • Non Legislative developments: • GASB • DOMA • Legislation: • Retirement (HB 1452) • Health Insurance

3. RETIREMENT PROGRAMS

4. RETIREMENT • DEFINED BENEFIT PLANS – 6 • Main • Judges • National Guard • Law Enforcement -2 • Highway Patrol • Job Service • DEFINED CONTRIBUTION PLANS – 2 • 457 • 401(a) • RETIREE HEALTH INSURANCE CREDIT • ADMINISTRATIVE SERVICES • PRIOR JUDGES • JOB SERVICE RETIREE HEALTH CREDIT

5. NDPERS Participation Retirement Insurance

6. BACKGROUND DATA RETIREMENT SYSTEM

7. NDPERS Main System – July 2012 TOTAL CONTRIBUTIONS: $1,115,000,000 TOTAL PAYMENTS: $1,125,000,000 FUND BALANCE: $1,734,000,000

8. NDPERS Retirees Annual Benefits 2011 $213,931 $197,396 $36,322 $801,150 $564,534 $83,113 $307,268 $904,816 $2,027,684 $2,832,811 $330,225 $260,337 $1,932,181 $721,903 $5,201,407 $192,854 $413,073 $6,502,027 $484,200 $127,793 $966,859 $54,881 $322,244 $130,929 $298,371 $123,281 $630,619 $383,624 $268,615 $111,591 $22,836 $105,716 $25,189,250 $32,889 $4,459,455 $1,129,915 $8,527,104 $2,792,742 $3,865,197 $37,691 $249,644 $180,982 $229,736 $427,000 $1,106,332 $191,659 $268,332 $190,082 $158,288 $84,571 $160,702 $384,589 $89,151 Out-of-State - $10,415,064 Total - $87,724,967

9. NDPERS Retiree Benefits(Main, Judges, Guard, and Law Enforcement Systems) Year Ended June 30

10. NDPERS Retirees June 2012 33 18 7 91 55 26 77 7 176 267 31 42 177 64 416 25 47 519 47 18 93 33 11 20 29 20 62 33 48 7 4 5 1,490 380 9 97 768 240 287 6 27 20 72 33 20 119 26 21 16 9 16 46 10 Out-of-State – 1,001 Total – 7,221

12. NDPERSMain System Active Members

13. NDPERS Active Retirement Members August 2013 83 75 50 226 333 221 47 64 826 597 172 111 504 219 1,339 108 126 1,888 228 70 305 115 48 107 48 27 232 109 201 22 49 35 4,430 1,154 47 331 2,947 653 1,177 10 77 46 216 117 45 423 88 95 42 23 48 126 67 Out-of-State – 1,130 Total – 21,877

14. NDPERS - State Eligible for Retirement

15. NDPERS Pensions In ForceJuly 1, 2012 Main System, Judges, Guard, and Law Enforcement Plans

16. NDPERS Pensions In ForceMonthly Benefit -July 1, 2012 Main System, Judges, Guard, and Law Enforcement Plans

17. NDPERS - State Retired * - Projected

18. NDPERS - State Retired Percent of Eligible * - Projected

20. North Dakota PERS GASB Statements 67 and 68 Moody’s Proposed Pension Adjustments Changes to Pension Accounting and Financial Reporting Standards for Employers and Pension Plans

21. GASB Statements 67 and 68 Governmental Accounting Standards Board Financial Reporting Focus • GASB establishes accounting and financial reporting, not funding policies • Focus is on pension obligation, changes in obligation, and attribution of expense Long-Term Nature of Governments • Cost of services to long-term operation • “Interperiod equity” matches current period resources and costs Employer-Employee Exchange • Employer incurs an obligation to its employees for pension benefits • Transaction is in context of a career-long relationship

22. GASB Statements 67 and 68 GASB Statement 67: Financial Reporting for Pension Plans (revises GASB Statement No. 25) GASB Statement 68: Employer Accounting & Financial Reporting for Pensions (revises GASB Statement No. 27) • Effective dates • For plan reporting: effective for all plan years beginning after June 15, 2013 • Years beginning July 1, 2013 or January 1, 2014 • For employer reporting: effective for all fiscal years beginning after June 15, 2014 • Years beginning July 1, 2014 or January 1, 2015 • GASB “Implementation Guide” • Will address outstanding technical issues in accordance with final Statements

23. Cost-Sharing Plans New GASB 67/68 standards • Recognize “proportionate share” of collective Net Pension Liability and pension expense • Proportionate share determination • Should be consistent with the way required contributions are determined • Use of the projected long-term contribution effort of the employers is encouraged • If different contribution rates are assessed for different groups the allocation should reflect these relationships • For example: different rates calculated within a single fund for different classes or tiers of employees • This share of liability is allocated regardless of the terms of liability assignment in the employer/employee contribution agreement Employers in “pooled” plans will now have a portion of the NPL assigned to their balance sheet.

24. Net Pension Liability • NPL is calculated using: • Projected future benefits • Includes projected future service and salary increases • Includes the cost of ad hoc COLAs if “substantially automatic” • A new blended discount rate • Determined using projections of contributions and benefit payments • “Entry age” actuarial cost method • Most commonly used method • Market value of assets • AKA “Fiduciary Net Position” • No actuarial smoothing Accounting NPL will be more volatile than the current unfunded accrued liability (which will still be used for funding).

25. Key Implications • The faster recognition of net pension liability changes will introduce much greater volatility in the reported expense. • This volatility will be reflected directly on the income statements of plan sponsors. • The new expense amount will most likely be too volatile to serve as a funding policy for most entities By applying the new standards, GASB is effectively decoupling plan funding and plan expense.

27. Retirement

28. NDPERS Funded Ratio

29. NDPERS Main System Investment Returns

30. NDPERS Funded Ratio

31. The challenge

32. 2011 Session Recovery Plan SHARED RECOVERY PLAN

33. 2011 Session Recovery Plan

35. NDPERS Main System Investment Returns

36. 2013 Session Recovery Plan (last half)

37. House Bill 1452 • Increased contributions by 1% for the employer and 1% for the employee

38. 2013 Session Recovery Plan (last half) 2014 increase approved not 2015

39. 2013 Session Recovery Plan also a DC option for State Employees

40. House Bill 1452 • Increased contributions by 1% for the employer and 1% for the employee • Added a DC option for state employees until 2017

41. DC Plan Challenge

46. 2013 Session Recovery Plan also a DC option for State Employees Above assumes DC option is permenant, as passed it is only till the middle of 2017 consequently cost would be closer to blue. If permanent then additional cost would be as shown above.

47. Going Forward • Additional contribution increases will likely be needed in the future

48. Going Forward • Additional contribution increases will be needed in the future • DC plan costs will need to be added if continued

50. Going Forward • Additional contribution increases will be needed in the future • DC plan costs will need to be added if continued • Effect on political subdivisions will need to be considered and adjustments made if needed