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North Dakota Public Employees Retirement System
Actuarial Valuation as of July 1, 2013
Brad Ramirez, FSA, MAAA, EA, FCA Tammy Dixon, FSA, MAAA, EA
November 6, 2013
DRAFT
#5276809
Copyright© 2013 by The Segal Group, Inc. All rights reserved.
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Actuarial Methods
~ Asset valuation method (actuarial value of assets) • Smoothing of investment gains or losses
• PERS uses a five-year smoothing method - Investment returns above or below the expected return are recognized over five years
• No market value corridor is applied (i.e. , actuarial value must fall within 80°/o to 120°/o of market value)
~ Cost method • Allocation of liability between past service and future service
- PERS uses the entry age normal cost method (as do most retirement systems) - Retiree Health Insurance Credit Fund uses the projected unit credit cost method
~ Amortization method • 20-year "open" period to pay off unfunded actuarial accrued liability
• Based on level percentage of payroll
• Governmental Accounting Standards Board requires 30-year maximum period to determine the Annual Required Contribution
• An open amortization period will yield contributions that reduce the unfunded actuarial accrued liability, but will not pay it off
* Segal Consulting
Economic Assumptions
~ Interest Rate • 8°/o
~ Salary Increase Rates • Based on service
• Ranges from 8.25°/o for new members to 4.86°/o for members with 5 or more years of service (5.0°/o for all years for Judges)
~ Payroll Growth • 4.5°/o (4.0°/o for Judges)
* Segal Consulting
Summary of Valuation Highlights - PERS and HPRS
);o> Market value of assets returned 13.4o/o for year ending 6/30/13 (Segal estimated calculation) • Gradual recognition of deferred gains resulted in 3.9°/o return on actuarial assets
• Unrecognized investment gains represent about 14.0o/o of market assets
);o> Net impact on funded ratio was a decrease from 65.1 °/o (as of 7/1/2012) to 62.0°/o (as of 7/1/2013)
);o> Market value of combined assets for PERS and HPRS was $2.015 billion vs. $1.785 billion last year
);o> Combined actuarial value of assets for PERS and HPRS was $1.732 billion vs. $1.675 billion last year
);o> Total actuarial value of assets is 86.0°/o of market value of assets
);o> All investment losses from 2008 and 2009 plan years are now fully recognized. Remaining years' unrecognized appreciation or depreciation will be recognized in subsequent valuations
* Segal Consulting
Summary of Valuation Highlights
Changes in Statutory Contribution Rates
Member Employer
Main System Full-Time Employees 6.00% 6.12%
Effective January 2014 7.00 7.12
Main System Part-Time Employees 12.12 N/A Effective January 2014 14.12 N/A
Judges 7.00 16.52
Effective January 2014 8.00 17.52
Highway Patrol 12.30 18.70
Effective January 2014 13.30 19.70
National Guard 4.00 6.50
Effective January 2014 4.50 7.00
Law Enforcement (without Prior Service) 5.00 N/A
Effective January 2014 5.50 N/A
Member Rate for Employees Member Rate
of Political for Employees Subdivisions of the BCI
Law Enforcement (with Prior Service) 5.00 6.00
Effective January 2014 5.50 6.00
* Segal Consulting
Summary of Valuation Highlights
)> Recommended employer contribution as a percent of payroll
Statutory/ Approved
2013-2014 2012-2013 2013-2014 Main 12.14% 12.24% 6.12%-7.12%
Judges 16.66% 16.33% 16.52%-17.52%
National Guard 9.07% 7.40% 6.50%-7.00%
Law Enforcement (with Prior Service) 11.18% 10.69% 9.31%-9.81%*
Law Enforcement (without Prior Service) 8.11% 7.33% 7.43%-7.93%
Highway Patrol 25.11% 26.83% 18.70%-19.70%
Retiree Health 0.77% 0.90% 1.14%
Job Service 0.00% 0.00% 0.00%
*Rates shown are for employees of Political Subdivisions. The rate for employees of SCI is 10.31%.
)> Funded Ratio (AVA)
July 1, 2013 July 1, 2012
PERS 62.0% 65.1%
HPRS 68.2% 70.3%
Retiree Health 57.8% 51.9%
Job Service 114.9%* 104.3%
*Reflects a change in assumed investment return from 7.5% to 8.0%. * Segal Consulting
Membership - Main System
2013 2012
Active
• Number 21 ,201 20,738
• Payroll* $865.9 mil $781.6 mil
• Average Age 47.1 years 47.1 years
• Average Service 10.4 years 10.5 years
Retirees and Beneficiaries**
• Number 8,637 8,222
• Total Monthly Benefits $8.5 mil $ 7.9 mill
• Average Monthly Benefit $985 $965 ' ............. ------------ -----
* This increase includes a change in our data processing methodology.
**Does not include 13 suspended retirees as of 201 2 and 21 as of 201 3.
Change
+2.2°/o
+10.8%>
+0.0 years
-0.1 years
+5.0°/o
+7.6°/o
+2.1 °/o
* Segal Consulting
Membership - PERS
2013 2012 Change
Active
• Number 21 ,588 21 ,091 +2.4o/o
• Payroll* $888.5 mil $800.9 mil +10.9%
• Average Age 47.0 years 47.0 years +0.0 years
• Average Service 10.4 years 10.3 years +0.1 years
Retirees and Beneficiaries
• Number 8,730 8,303 +5.1 o/o
• Total Monthly Benefits $8.7 mil $8.1 mil +7.4°/o
• Average Monthly Benefit $999 $979 +2.1 o/o
* This increase includes a change in our data processing methodology.
* Segal Consulting
Active and Retired Membership - Main System
25,000
20,000 18,299 ; 2
1~686 2~372 2~359
2~738 2L 201
f • a • ~
17,887 17,745
• 17,522
~ ... ...
.... ....
15,000
10,000
I
5,000 ~ 1i1 '6 ... ~ ~~ 'sfit ·9 9 fl
5,063 5,278 5,540 5,824 6.627
6,990 7,480 7,853
' 3
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
..... Active Members -tiiiilaRetired Members*
*Retired Members excludes beneficiaries.
* Segal Consulting
Active Payroll - Main System
$1,000
$900
$800
$700
$600 Ill r.: 0
$500 :E I $511.9 ~ $494.5
$400
$300
$200
$100
$0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
..... Covered Payroll for Upcoming Year
* Segal Consulting
Average Age and Service of Active MembersMain System
60
50 '46.4 46.6 46:8 --41-;0 4-].;{) 47.0 q /-.J. "I ~ 47.1 4J
40
30
20
10 - -- -
l 10.4 10.5 10.7 10.6 10.5 10.4 10.5 10.6 10.5 10.4
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
..... Average Age ~Average Service
* Segal Consulting
Average Salary and Average Benefit- Main System
$45,000
$40,000
$35,000 $31,169
$30,000
$25,000
$20,000
$15,000
$10,000
I l $8.964 $5,000 -
$0
·.····.· III Inch ....
~ ifj ~ Iii :uSJ ff 'Gf .. . _ ·- $11976 $12,263 B * +.· $9,228 $9,552
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
..... Average Annua l Salary ~Average Annual Benefit
* Segal Consulting
Assets - PERS and HPRS
~ The market value of assets increased from $1.785 billion (as of June 30, 2012) to $2.015 billion (as of June 30, 2013) • Segal determined the investment return was 13.41 °/o, net of investment expenses
~ The actuarial value of assets - which smooths investment gains and losses over five years- increased from $1.675 billion (as of June 30, 2012) to $1.732 billion (as of June 30, 2013) • Investment return of 3.93°/o, net of investment expenses
• Actuarial value is 86.0°/o of market value
• There is a total of $283 million of deferred investment gains that will be recognized in future years
~ The average annual return on market assets over the past 10 years is 6.8°/o
~ The average annual return on actuarial assets over the past 10 years is 4. 7o/o
* Segal Consulting
Market Value of Assets {$ in billions)PERS and HPRS - Historical Returns
Year Ending Market Actuarial June 30 Value Value
2004 16.65o/o 3.16o/o
2005 14.17 4.36
2006 12.04 7.79
2007 19.63 15.84
2008 (5.21) 8.51
2009 (24.05) 1.72
2010 13.25 1.48
2011 21.09 3.31
2012 (0.20) (0.15)
2013 13.41 3.93
* Segal Consulting
Market Value of Assets ($ in billions)PERS and HPRS
Fiscal Year Ending June 30, 2013
Beginning of Year $1.785
Contributions:
• Employer 0.050
• Member 0.048
• Service Purchases 0.008
• Total 0.106
Benefits, Expenses and Refunds (0.115)
Investment Income (net) 0.239
End of Year $2.015
Rate of Return +13.41 °/o
-ft Segal Consulting
Actuarial Value of Assets {$ in billions) -PERS and HPRS
1. Market Value of Assets as of June 30, 2012
2. Contributions, Interest, Dividends, Benefits and Expenses
3. Preliminary Market Value as of June 30, 2013
4. Actual Market Value as of June 30, 2013
5. Excess/(Shortfall ) Return for Year Ended June 30, 2013
Excess/(Shortfall) Returns:
$1.785
0.029 $1 .814
2.015
$0.201
Year Initial Amount Deferral o/o I Unrecognized Amount I .... ,--
2013 $0.201 80°/o $0.160
2012 (0.040) 60°/o (0.024)
2011 0.289 40°/o 0.116
2010 0.153 20°/o 0.031
2009 (0.464) Oo/o 0.000
6. Total $0.283
7. Actuarial Value of Assets as of June 30, 2013: (4) - (6) $1.732
8. Actuarial Value of Assets as a 0/o of Market Value of Assets 86.0°/o ----------------------------------
* Segal Consulting
Market Value of Assets ($ in billions)- Main System
Fiscal Year Ending June 30, 2013
Beginning of Year
Contributions
Benefits, Refunds and Expenses
Investment Income (net)
End of Year
Rate of Return
$1 .683
0.100
(0.1 09)
0.225
$1.899
+13.40o/o
* Segal Consulting
Market and Actuarial Values of Assets - Main System
$2,000 I $1,838
,. $1,800
$1,600 I -. ... IlL - - .. ..._
$1,633
$1,400 -- - - - - $1,580
$1,200 Ill c: I $1,172 0 :: $1,000 ~ ~
$800
$600
$400
$200
$0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
..... Market Value of Assets ~Actuaria l Value of Assets
* Segal Consulting
Asset Returns - PERS and HPRS
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30% l 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
... Market Value of Assets -tiiiit-Actuarial Value of Assets ---Assumed Rate of Return
* Segal Consulting
Contributions vs Benefits and Refunds - PERS
$120
$100
$80
$60
$40
$20
so 2004 2005 2006 2007 2008 2009 2010
-.-contributions* ~Benefits & Refunds**
* Includes member and employer contributions, and service purchases
** Includes administrative expenses
$111.4
2011 2012 2013
* Segal Consulting
External Cash Flow as a % of Market Value -PERS
0.0%
-0.2%
-0.4%
-0.4%
-0.6%
-0.8%
-1.0%
-1.2%
-1.4%
-1.6% -1.5%
-1.8% L 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
..... External CF %
* Segal Consulting
Valuation Results ($ in millions)- Main System
July 1, 2013 July 1, 2012
Actuarial Accrued Liability:
• Active Members $1 ,552 $1,396
• Inactive Members 155 171
• Retirees and Beneficiaries 944 875
Total $2,651 $2,442
Actuarial Assets 11633 11580
Unfunded Accrued Liability $1 ,018 $862
Funded Ratio 61.6°/o 64.7°/o
* S egal Cons ulting
Actuarially Recommended Contribution -Main System
July 1, 2013 I July 1, 2012
Normal Cost Rate 10.31 %> 1 0.04°/o
Member Rate 6.50°/o 5.50o/o
Employer Normal Cost Rate 3.81 °/o 4.54°/o
Amortization of UAAL 8.33°/o 7.70o/o
Actuarially Recommended Contribution 12.14°/o 12.24°/o
Employer Rate 6.12-7.12°/o 5.12-6.12°/o
Contribution Sufficiency/(Deficiency) (4.52o/o) (5.62°/o)
If the actuarially recommended contribution is calculated using the market value of assets, the ultimate contribution sufficiency/( deficiency) is (2.37o/o ).
* Segal Consulting
Valuation Results ($ in millions)- PERS
July 1, 2013 July 1, 2012
Actuarial Accrued Liability:
• Active Members $1 ,591 $1,430
• Inactive Members 969 173
• Retirees and Beneficiaries 157 898
Total $2,717 $2,501
Actuarial Assets 11683 11627
Unfunded Accrued Liability $1,034 $874
Funded Ratio 62.0o/o 65.1 o/o
* Segal Consulting
Actuarial Value of Assets and Actuarial Accrued Liability- Main System
Ill c 0
$3,000
$2,500
$2,000
:: $1,500 ~
11).
$1,000
$500
$0 2004
$1,450
--,-- ·r--
2005 2006
$2,651
$2,157
UAAL $1,018 61.J" tctr.o5'1-- -
I
$1,633)
'r T ---,
2007 2008 2009 2010 2011 2012 2013
..... Actuarial Accrued Liability Actua rial Value of Assets
* Segal Consulting
Funded Ratios - Main System
140%
120%
100%
80%
60%
40%
20%
0%
2004 2005
117%
2006 2007 2008
...... AVA Ratio
2009
MVA Ratio
62%
2010 2011 2012 2013
* Segal Consulting
GASB 25 Annual Required Contribution (ARC) -Main System
14%
12%
12.14%
10%
8%
6% 6.30%
6.03% 6.08% 6.26%
4%
2%
0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
...-GASB 25 Annual Required Contribution (ARC)
* Segal Consulting
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Projected Funded Ratios {AVA Basis)- Main System
110.00%
100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00"'
0.00% ..., '<t ..,.. 10 ,.... 00 C1l 0 .... N ..., oo:r ..,.. 10 ,.... 00 C1l 0 .... N ..., '<t ..,.. 10 ,.... 00 C1l 0 .... N ..., ~ .... .... .... .... .... .... s N s N s N N s s N "" 8 8 8 8 8 8 "" 8 "" s 3 3 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N
- 24%Return - 16%Return - s %Return - o%Return - ·8%Return - -l 6%Return 24% Return
8 .., 10
3 3 N N N
* Segal Consulting
Target Funded Ratios - Main System
Rate of Return Required for All Years Beginning on and after 2014/2015 To Achieve Target in 2033
Target Assumed 2013/2014 Return Funded
Ratio 24.0°/o 16.0°/o 8.0°/o 0.0°/o -8.0% -16.0°/o -24.0o/o
70°/o 6.8% 7.3% 7.7% 8.3% 8.8% 9.5% 10.2%
BOo/o 7.5% 7.9% 8.4% 9.0% 9.5% 10.2% 10.9%
90°/o 8.1% 8.6% 9.1% 9.6% 10.2% 10.8% 11.5%
100°/o 8.7% 9.1% 9.6% 10.1% 10.7% 11.4% 12.1%
* Segal Consulting
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Questions?
* Segal Consulting
5990 Greenwood Plaza Blvd, Ste 118 Greenwood Village, CO 80111 T 303.714.9952
Brad Ramirez, FSA, MAAA, EA, FCA [email protected]
* Segal Consulting
330 North Brand Blvd, Ste 1100 Glendale, CA 91203 T 818.956.6767
Tammy Dixon, FSA, MAAA, EA [email protected]
* Segal Consulting