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Introduction to Statewide Retirement Funds. Howard Bicker, Executive Director, SBI Dave Bergstrom - Executive Director, MSRS Mary Most Vanek - Executive Director, PERA Laurie Fiori Hacking - Executive Director, TRA. January 18, 2011. State Board of Investment (SBI). - PowerPoint PPT Presentation
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January 18, 2011
Howard Bicker, Executive Director, SBIDave Bergstrom - Executive Director, MSRSMary Most Vanek - Executive Director, PERA
Laurie Fiori Hacking - Executive Director, TRA
Introduction to Statewide Retirement Funds
2
State Board of Investment (SBI)
Invest assets of the Pension Funds and other State Funds
Board is defined in Article XI of Minnesota Constitution:◦ Governor◦ State Auditor◦ Attorney General◦ Secretary of State
Assisted by 17 member Investment Advisory Council (IAC)◦ 10 experienced investment
professionals◦ Executive Directors of
statewide retirement plans◦ Commissioner of MMB◦ Three Governor
Appointees
3
Target Investment Allocation
15.20%
-18.80%
-5.0%
3.40% 2.90%
9.00%9.70%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
2010 2009 2008 5 Yr 10 Yr 25 Yr Since 1980
4
Short and Long-Term Net Investment Returns
SBI Returns – for periods ending 6/30/2010
8.5%Actuarial
Required Return
July – Dec 2010 return = 16% +
Investment Returns Fund Most of Pensions
5
67¢Investment
Earnings
Pensions are a shared responsibility.Every dollar paid to retirees comes from three sources
18¢Employers
15¢Employees
Sources of MN public pension fund revenue, 1991-2010
Covers state employees, University of Minnesota (non-faculty), Metropolitan Council, MNSCU and others
Governed by an eleven-member board◦ Four elected General and/or Unclassified Plan members◦ Three Governor appointees◦ An elected State Patrol member◦ An elected Correctional Plan member◦ An elected retiree◦ One appointee representing the Amalgamated Transit Union
Total net assets of all MSRS administered plans totaled $13 billion on June 30, 2010◦ $9.1 billion in mandatory retirement plans◦ $3.9 billion in supplemental/voluntary plans
6
Minnesota State Retirement System
Retirement Plan
Assets(6/30/2010)
Active Participant
s
Benefit Recipients
Deferred, Vested
ParticipantsGeneral Plan $7.7 billion 48,494 28,435 15,388Correctional Plan $525 million 4,268 1,859 993State Patrol Plan $489 million 848 924 39Judges Plan $126 million 312 291 18Legislators $26 million 47 359 88Elective State Officers Plan
$0 0 15 1
Unclassified (Defined Contribution)
$253 million 1,430 0 1,844
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MSRS Plans
Voluntary and/or Supplemental Plans
Assets (6/30/2010)
Active Participants
Minnesota Deferred Compensation Plan (MNDCP)
$3.5 billion 79,822
Health Care Savings Plan (HCSP) $317 million 63,189Hennepin County Supplemental Plan $109 million 1,900
8
MSRS General Plan Funding HistoryFunding on Market ValueFunding on Actuarial Value
Year 2007 2008 2009 2010
Return 18.3% -5% -18.8% 15.2%
Year 2007 2008 2009 2010
Return 18.3% -5% -18.8% 15.2%
Current rate: 5% employee/5% employer
9
MSRS Correctional Plan Funding HistoryFunding on Market ValueFunding on Actuarial Value
Year 2007 2008 2009 2010
Return 18.3% -5% -18.8% 15.2%
Year 2007 2008 2009 2010
Return 18.3% -5% -18.8% 15.2%
Current rate: 8.6% employee/12.1% employer
10
MSRS State Patrol Plan Funding History
Funding on Market ValueFunding on Actuarial Value
Year 2007 2008 2009 2010
Return 18.3% -5% -18.8% 15.2%
Year 2007 2008 2009 2010
Return 18.3% -5% -18.8% 15.2%
Current rate: 10.4% employee/15.6% employer*
* Not covered by Social Security
General Plan Correctional Plan
State Patrol Plan
Post Retirement Increase
Future increases of 2% until a funding ratio of 90% is reached
Future increases of 1.5% until funding ratio 90%
Deferred Augmentation
2% for future years beginning January 2012
Contribution Rate Increases
None 2% employee3% employer (7/1/2011)
Vesting Hired after 7/1/2010
Five years Phased in from five to ten years of service
Five years
Refund Interest Lowered from 6 percent to 4 percent beginning 7/1/2011
Reduction in Unfunded Liabilities*
$650 million
$45 million $62 million
* Source: Mercer FY2010 Actuarial Evaluation 11
MSRS 2010 Benefit Reforms
Covers City, County & Non-teaching School District employees
Governed by an eleven-member Board of Trustees◦ Five elected by the PERA membership
Three General Plan members One Police & Fire One Retiree
◦ Five Governor appointees representing cities, counties, schools boards, retirees, and the general public, respectively
◦ The State Auditor Total net assets of all PERA administered plans totaled
$16.9 billion on June 30, 2010
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Public Employee Retirement Association
Retirement Plan Assets(6/30/2010
)
Active Participant
s
Benefit Recipients
Deferred, Vested
ParticipantsGeneral Plan $11.3 billion 140,389 68,474 45,151
Police & Fire $4.4 billion 11,002 7,541 1,315
Correctional $211 million 3,521 441 1,895
Defined Contribution Plan
$32 million 7,227 N/A N/A
Minneapolis Employees Retirement Fund(MERF)
$844 million 143 4,343 102
13
PERA Plans
Also, administrators of the Statewide Volunteer Firefighter Retirement Plan
14
PERA General Plan Funding HistoryFunding on Market ValueFunding on Actuarial Value
Year 2007 2008 2009 2010
Return 18.3% -5% -18.8% 15.2%
Year 2007 2008 2009 2010
Return 18.3% -5% -18.8% 15.2%
Current rate: 6.25% employee/7.25% employer
15
PERA Police & Fire Funding HistoryFunding on Market ValueFunding on Actuarial Value
Year 2007 2008 2009 2010
Return 18.3% -5% -18.8% 15.2%
Year 2007 2008 2009 2010
Return 18.3% -5% -18.8% 15.2%
Current rate: 9.6% employee/14.4% employer*
* Not covered by Social Security
16
PERA Correctional Plan Funding HistoryFunding on Market ValueFunding on Actuarial Value
Year 2007 2008 2009 2010
Return 18.3% -5% -18.8% 15.2%
Year 2007 2008 2009 2010
Return 18.3% -5% -18.8% 15.2%
Correctional Plan Contribution Rate History
Established in 1999, the Correctional Plan has maintained a level contribution rate; 5.83% employee & 8.75% employer
General Plan Police & Fire CorrectionalPost Retirement Increase
Future increases of 1% until funding ratio of 90%
Increases of 1% for 2011 & 2012; then CPI up to 1.5% until funding ratio of 90%
Future increases of 1% until funding ratio of 90%
Deferred Augmentation
1% for future years beginning January 2012
Contribution Rate Increases
0.25% employee 0.25% employer
0.2% employee0.3% employer
None
Vesting Hired after 7/1/2010
Five years Phased in from five to ten years of service; fully vested at ten years
Refund Interest Lowered from 6 percent to 4 percent beginning 7/1/2011Reduction in Unfunded Liabilities*
$2.8 billion $625 million $15 million
*Source: Mercer FY2010 Actuarial Valuation17
PERA 2010 Benefit Reforms
Covers all K-12 public school teachers & administrators, charter schools, some State Universities & Community College faculty
Governed by an eight-member Board of Trustees◦ Four elected by active members◦ An elected retiree member◦ Three statutory appointments
made by the: Commissioner of Minnesota
Management & Budget; Commissioner of Education; and the Minnesota School Boards
Association
18
Teachers Retirement Association Plan Information
6/30/2010Assets $14.9 billion
Active Members 77,356
Benefit Recipients
51,853
Deferred, Vested Members
12,756
19
TRA Funding HistoryFunding on Market ValueFunding on Actuarial Value
Year 2007 2008 2009 2010
Return 18.3% -5% -18.8% 15.2%
Year 2007 2008 2009 2010
Return 18.3% -5% -18.8% 15.2%
0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%9.00%
10.00%
Teachers Retirement Contribution Rate History
Employee Employer
Current rate: 5.5% employee/5.5% employer
Post Retirement Increase
No increases in 2011 & 2012; future increases of 2% until funding ratio of 90%
Deferred Augmentation
2% for future years beginning July 2012
Contribution Rate Increases
2% employee & 2% employer phased in over four years beginning 7/1/2011
Vesting No change; three yearsRefund Interest Lowered from 6 percent to 4 percent
beginning 7/1/2011
Reduction in Unfunded Liabilities*
$1.75 billion
*Source: Mercer FY2010 Actuarial Valuation
20
TRA 2010 Benefit Reforms
Change Made in 2010 State Increased Contributions for Employees
Colorado, Mississippi, Vermont, Missouri*, Louisiana, Iowa, Wyoming
Increased Contribution for Employers
California, Florida, New Jersey
Changes to Cost of Living Adjustments
Colorado, Illinois*, Maryland, Michigan*, Rhode Island, South Dakota, Virginia*
Plan Design Changes (existing plan)
Arizona*,California*,Colorado, Illinois*, Missouri*, Louisiana*, New Jersey, Vermont, Iowa*, Mississippi*
New Hybrid Plan added Michigan*, Utah*Reduction in Investment Return Assumption
Colorado, Pennsylvania, Virginia, New York, Indiana, District of Columbia, Illinois
Benefit Studies Connecticut, Puerto Rico, Virginia* Only impacts new employees or those who are not vested
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What happened in other states?
Unlike other states, MN public pensions have:Disciplined funding – correct problems as they occur with
positive effect on state’s bond ratingModest benefits – public employer contributions represent
only 1.6% of total MN state & local government spending, compared to 2.9% of spending of other states
Proactive benefit reforms -- Post Fund eliminated, age 66 retirement age (passed in 1989), Rule of 90 eliminated
Employee contributes half the cost (except public safety) 2010 Pension Reform Bill – bold corrective action that is
working
22
MN Pensions More Conservative than Other States
Legal challenge • Class action suit filed by retirees claiming contract
right to annual increases - hearing in March Benefit Design Study (2010 Legislative directive)
• System directors analyzing DB, DC and alternative designs, report due June 1, 2011
• Public stakeholder meetings held in September, next meeting scheduled for February 1
• Actuarial analysis is in process• Draft circulated late March, early April for comment
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Other Updates
Please contact us:
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Questions
651-284-7888
651-296-8358
651- 296-6523
