TIER 1 Members participating prior to 9/1/08 I NFORMATION & FEEDBACK SESSION October 2020
KERS Contribution Rates 90% 83.0% 80% 70% 60% 49.0% 49.0% 49.0% 49.0% 49.0% 50% 39.0% 39.0% 40% 27.0% 30% 20% 10% 0%
KERS Contribution Amounts $35 Millions $30.8M $30 $25 $20 $17.4M $16.8M $16.6M $16.5M $16.1M $14.9M $14.1M $15 $11.0M $10 $5 $0 *FY14-FY20 Actuals, FY21 Budgeted, FY22 Projected
2020 General Assembly: Final Action • Senate Bill 249 passed • All decisions regarding the pension system delayed by one year • Our contribution rates are frozen at current levels through 6/30/21 • HB 1 options available: Hard Freeze Exit (pay off in lumpsum or installments) Soft Freeze Exit (pay off in lumpsum or installments) Status Quo (remain in the KERS system) • Requires decision by January 1, 2021 • Recommendation to Board at December meeting
Pension Impact Summary FY22 & Beyond Year 1 Total Debt Employee Impact Benefit Impact Payments Service Hard Freeze $13.1M $294.4M (30 yrs) All employees exit KERS Tier 1 – most see a loss in retirement Lump Sum benefits Tier 2 – most see a loss in retirement benefits Tier 3 – Most benefit from DC plan Hard Freeze $21.6M with $314.2M (16 yrs) All employees exit KERS Same as above Installment 1.5% escalator Soft Freeze $16.1M $442.2M (30 yrs) All Tier 1 & 2 stay in KERS, No impact to Tier 1 & 2 Lump Sum Tier 3 exits Tier 3 – Most benefit from DC plan Soft Freeze $19.6M with $591.1M (27 yrs) All Tier 1 & 2 stay in KERS, Same as above Installment 1.5% escalator Tier 3 exits Status Quo $30.8M N/A All employees stay in KERS No impact to Tier 1 & 2 (83% Tier 3 – Most would lose benefits contribution than in DC plan rate) NKU currently pays $16.4M based on a 49% contribution rate
Overview of Options • Status quo – Contributions would increase over $14M in the first year and likely continue to increase in future years. • Hard Freeze Installment – First year payment would be over $5M more than current with annual 1.5% increases. Overall debt service would be over $314M (versus $294M for lump sum). • Soft Freeze Installment – First year payment would be over $3M more than current with annual 1.5% increases. Overall debt service would be nearly $600M (versus $442M for lump sum). • Based on the above, the Hard Freeze and Soft Freeze lump sum options are the most financially viable options
Tier 1 Soft Freeze All Tier 1 participants will continue in the KERS DB plan • No change in KERS Pension • Will continue to accrue service time • Eligible to retire with unreduced benefit • at age 65 or older with at least 1 month of service credit. • At any age with 27+ years of service credit. • Eligible to retire with reduced benefit • Prior to age 65 with 25 years of service • Age 55 with at least 5 years of service
Tier 1 Hard Freeze Service time in KERS will stop accruing as of 7/1/2021 TIAA - Adjusted KERS Effective 7/1/2021, you will be enrolled in NKU’s defined You will retain the KERS service time contribution pension plan with TIAA. earned as of 6/30/2021 NKU’s TIAA plan requires that you contribute 5% and NKU will At retirement, you will receive your contribute 10% to your TIAA pension plan. monthly pension benefit based on service time through 6/30/2021. In addition to the 10% NKU will contribute an age adjusted % to better align your total pension benefit at the time of retirement with Sick time service credit will be based on your projected soft freeze KERS pension benefit. your sick bank balance as of 6/30/2021. Employees have a choice of over 35 different investment options through TIAA. At retirement, the TIAA funds remaining in your account will continue to be invested. 8
TIAA • The TIAA-CREF Lifecycle Index Funds are one of the top performing target date mutual funds series relative to their Morningstar peers over the 3-, 5- and 10-year time periods. • Morningstar reports for the moderate balanced mutual fund peer group, median returns of 5.41% over 5 years (558 funds) and 7.99% over 10 years (412 funds) for the category as of 6/30/20. Lifecyle Index Fund 2050 2045 2040 2035 2030 2025 2020 2015 2010 Birth year 1984-1988 1979-1983 1974 - 1978 1969 - 1973 1964 - 1968 1959 - 1963 1954 - 1958 1949 - 1953 Earlier - 1948 Average Annual Total Returns 1 Year 3.89% 3.95% 4.46% 5.03% 5.42% 5.74% 6.06% 6.22% 6.29% 10 year 10.67% 10.63% 10.59% 10.28% 9.69% 9.06% 8.43% 7.82% 7.28%
Sample Employee Tier 1 Cessation Date 7/1/2021 Pension Tier 1 55 Age at cessation 20 Service at cessation Estimated Final Average Salary at cessation $50,000 Age 65 Retirement 30 Estimated service at retirement Estimated future service 10 Estimated Final Average Salary at retirement $55,500 Accumulated value of DC restoration plan $172,600 Estimated retirement benefit from KERS $2,700 Frozen KERS Benefit $1,600 Annuitized Defined Contribution Benefit $1,100 Total Benefit $2,700 Total Benefit Won/(lost) $ $ Total Benefit Won/(lost) % 0.0% Assumptions Salary Growth 1.5% Investment Return 5.0% Contribution percent (includes employees 5%) 25.0% 10
Current Plan Retiree Insurance Comparisons Tier 1A hired Prior to All employees hired 7/1/2003 after 6/30/2003 Eligibility Receiving a KERS annuity Receiving a KERS annuity 120 months if hired prior to August Vesting N/A 1, 2008, 180 months otherwise Medical plan and premiums chosen by KERS Insurance Benefit $13.78 per year of service 15-19 years 75% 20 or more years 100% Medical inflation included in KERS Cost-of-Living-Adjustment (COLA): 1.5% per year premium Additional employee contributions None 1.0% to 401(h) account With a hard freeze, a member will receive retiree medical benefits based on service on 7/1/2021 • Tier 1A individuals who will not have attained 20 years of service as of 6/30/2021 will be eligible to receive medical coverage through KERS with a 75% premium subsidy. This creates a 25% shortfall if they would have achieved 20 years of service in KERS without cessation • Tier 1B (hired 7/1/2003-8/31/2008), Tier 2 (hired 9/1/2008-12/31/2013) and Tier 3 (hired 1/1/2014 or later), would have earned $13.78 x years of service, with a 1.5% COLA. For these participants, they would lose the benefit of service accruals from 7/1/2021 thru the year they retire reflecting the vesting rules above
Accessing KERS Benefits Information • Internet What can you do with your online account? • Member Self Service (MSS): Myretirement.ky.gov • Contact Information • KRS website: Kyret.ky.gov • Account History • Telephone: 800-928-4646 • Account Balance Letter • Account Summary • Mail • Benefit Estimate • Email: krs.mail@kyret.ky.gov • Service Purchase Estimator • Annual Statement Email is not secure
Pension Central Pension Reform Information Hub Latest news and updates Pension Benefits FAQs Pension Talk Videos Information on Tiers 2020 Timeline Pension@NKU.edu
Key Pension Timeline Dates Beginning the Week of October 12, 2020 • Information sessions with various tiers of staff Through the Month of October, 2020 • Segal refining, updating, and analyzing tools for employees Beginning the Week of October 12, • Consultants work on potential capital market execution 2020 plan • Employee support, tools and resources Beginning the Week of Nov 2, 2020 November 20, 2020 • President Vaidya’s Fall Forum with the campus community • Special BOR meeting to vote on Presidential December 2, 2020 Recommendation • Deadline to inform KERS of NKU’s pension decision January 1, 2021 • NKU’s Hard Freeze or Soft Freeze Cessation from July 1, 2021 KERS
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