Montana Teachers’ Retirement System Valuation Results July 1, 2013 Presented September 27, 2013 Edward A. Macdonald ASA, FCA, MAAA Todd B. Green ASA, FCA, MAAA
Benefit Financing Basic Retirement Funding Equation C + I = B + E Contributions C = I = Investment Income B = Benefits Paid E = Expenses (administration) 2
Benefit Financing C + I = B + E B depends on Plan Provisions Experience C depends on Short Term: Actuarial Assumptions Actuarial Cost Method Long Term: I, B, E 3
Results 4
Comments on Valuation Asset returns – Market asset return 12.94% vs. 7.75% expected return (5.19% greater than expected). – Actuarial asset return 11.99% vs. 7.75% expected (4.24% greater than expected). Funded Ratio – Funding improved from 59.24% to 66.80% Changes Since Previous Valuation – HB 377 passed during 2013 legislative session – Significant positive impact on the Retirement System 5
Comments on Valuation HB 377 – Additional Funding – Supplemental Contributions – Both the members and the employers must contribute a supplemental contribution beginning July 1, 2013 – Member supplemental contribution rate is equal to an additional 1.00%. – Employers supplemental contribution rate is equal to an additional 1.0% and will increase 0.1% per year until it reaches 2.0% – State will contribute $25 million annually to TRS – One time cash infusion from trustees of local school districts that maintain a separate retirement fund (estimated to be $14.7 million on October 1, 2013) – Changes in benefit structure – Created a Tier Two benefit structure for new hires who join the System on or after July 1, 2013. – Tier One members – Reduced GABA until System is at least 90% funded 6
Comments on Valuation HB 377 – Changes in benefit structure (Continued) – Tier Two members – Reduced GABA until System is at least 90% funded – 8.15% Employee Contribution Rate – Normal Retirement » Age 55 and 30 Years of Service » Age 60 and 5 Years of Service – Early Retirement » Age 55 and 5 Years of Service – Professional Retirement Option » A member age 60 with at least 30 years of service will receive a retirement allowance equal to 1.85% of compensation times years of service. Otherwise the multiplier will be equal to 1.67% – Eligible for GABA between 0.50% - 1.50% as set by the Board once the System is 90% funded 7
Comments on Valuation HB 377 – Financial Impact – Reduced Unfunded Liability by $371.1 million – Additional funding and temporary reduction in GABA primarily responsible for the reduction in the amortization period of the unfunded actuarial accrued liability from infinite to 20 years. HB 34 – Each employer must remit 9.85% of total compensation paid to all retired TRS members who are employed in a TRS reportable position. 8
Active and Retired Membership 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Actives 18,251 18,239 18,099 18,176 18,292 18,456 18,953 18,484 18,372 18,249 Retirees 10,375 10,664 11,019 11,356 11,788 12,036 12,440 12,899 13,363 13,868 0.0% annual increase for active members since 2004; 0.67% decrease for 2013. 3.3% annual increase for retired members since 2004; 3.8% increase for 2013. 0.6 retirees per active 9 years ago; 0.8 retirees per active now. 9
Average Salary and Benefits 60,000 50,000 40,000 30,000 20,000 10,000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Full-Time Salary 40,537 41,836 43,198 44,986 46,677 48,377 49,598 50,616 50,987 51,421 Retirees Benefits 15,400 15,954 16,436 17,192 17,729 18,218 18,814 19,420 20,044 20,503 2.7% annual increase for average salary since 2004; 0.9% increase for 2013. 3.2% annual increase for average benefits since 2004; 2.3% increase for 2013. 10
Payroll & Benefits (Millions) $700 $600 633.0 630.4 628.8 622.1 613.1 592.5 568.4 549.3 $500 523.9 510.8 $400 $300 284.3 267.9 250.5 $200 234.0 219.3 209.0 195.2 181.1 170.1 159.8 $100 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Full-time Payroll Benefits 11
Historical Cash Flow (in Millions) $800 $600 $400 $200 $0 -$200 -$400 -$600 -$800 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Contributions Benefits and Adm. Expenses Investment Income Net Cash Flow 12
Assets ($ Millions) $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Market Value $2,355 $2,487 $2,746 $3,209 $2,993 $2,302 $2,521 $2,972 $2,932 $3,185 Actuarial Value $2,486 $2,498 $2,746 $3,006 $3,159 $2,762 $2,957 $2,867 $2,852 $3,068 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Market Return 13.3% 8.0% 8.9% 17.6% (4.9)% (20.8)% 12.9% 21.7% 2.2% 12.9% Actuarial Return 2.1% 2.7% 8.5% 10.2% 7.2% (10.3)% 9.8% (0.1)% 3.2% 12.0% 13
Funding Results July 1, 2013 Valuation July 1, 2012 Valuation Total Normal Cost Rate 9.20% 9.65% Less Member Rate 8.15% 7.15% Employer Normal Cost Rate 1.05% 2.50% Rate to Amortize UAL 9.91% 7.46% Total Employer Statutory Rate 10.96% 9.96% Actuarial Accrued Liability $4,592.7 million $4,814.7 million Actuarial Value of Assets $3,067.9 million $2,852.0 million Unfunded Accrued Liability $1,524.8 million $1,962.7 million Amortization Period 20 Years Infinite Minimum Required Statutory Contribution Rate Increase in order to N/A 4.89% Fund System within Parameters Defined by Funding Policy 14
2013 (Gain)/Loss Analysis ($ Millions) (Gains) Losses Plan Amendments (HB 377) Data Adjustments and Benefit Payment Timing & Other Mortality Withdrawals Disability Retirements Age & Svc. Retirements Pay Increases Investment Income -$400 -$300 -$200 -$100 $0 $100 15
Progress toward 100% Funding $1,800 $1,600 $1,400 Millions $1,200 $1,000 $800 $600 $400 $200 $0 16
Projected Cash Flow (in Millions) $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Contributions Benefits and Adm. Expenses Investment Income Net Cash Flow 17
Sensitivity Analysis (GABA Provision of HB 377) Excluding GABA Including GABA Provision Provision July 1, 2013 Valuation July 1, 2013 Valuation Total Normal Cost Rate 9.62% 9.20% Less Member Rate 8.15% 8.15% Employer Normal Cost Rate 1.47% 1.05% Rate to Amortize UAL 9.49% 9.91% Total Employer Statutory Rate 10.96% 10.96% Actuarial Accrued Liability $4,963.8 million $4,592.7 million Actuarial Value of Assets $3,067.9 million $3,067.9 million Unfunded Accrued Liability $1,895.9 million $1,524.8 million Amortization Period 29 Years 20 Years 18
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