New Hampshire Retirement System Presentation for Decennial - - PowerPoint PPT Presentation

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New Hampshire Retirement System

Presentation for Decennial Commission

August 2017

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• Overview
• Membership
• Investments
• Contributions/Funding
• Benefits
• Other Topics
• Appendices

Contents

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• NHRS is a contributory, multi-employer,

defined benefit plan established in 1967

• Provides retirement, disability, and death

benefits, as well as a post-retirement Medical Subsidy, to eligible members and their beneficiaries

• Once members attain eligibility, they can receive

a guaranteed lifetime pension

• Pension benefits are funded through employee

and employer contributions and investment income

• Investment returns have historically provided the majority of

funding for pension benefits

Overview

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• NHRS is a component unit of state government
• verseen by a Board of Trustees
• Board of Trustees and Independent Investment Committee

are fiduciaries

• NH Legislature is the plan sponsor (RSA 100-A)
• NHRS staff implements statute, rules, policies
• Internal Revenue Code
• NH Constitution Art. 36-a
• Protects funds ‘for the exclusive purpose’ of providing

benefits

• Requires Board certify employer rates based on sound

actuarial practice

• Requires employers to pay the rates certified

Overview

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Overview Board of Trustees

The members of the New Hampshire Retirement System (NHRS) Board of Trustees are appointed and serve pursuant to RSA 100 A:14 Public Members Richard Gustafson, Chair David McCrillis Maureen Kelliher Vacant Employee Members Germano Martins, Employee George Walker, Fire William Hart, Police Tonya Angwin, Teacher Five Board committees: Audit, Benefits, Legislative, Governance, and Personnel, Performance and Compensation (PPC) Employer Members Donald Roy, N.H. School Boards Assoc. Julia Griffin, N.H. Municipal Association John Beardmore, State of N.H. Stephen Marro, N.H. Assoc. of Counties Ex Officio Member Bill Dwyer, State Treasurer

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• NHRS Trustees have a fiduciary obligation

to ensure that the plan is adequately funded

Trust Fund Trust Fund

Contributions Investment Income Benefit Payments Expenses

Equation must balance in the long term

Overview

• Trust Fund at 6/30/17: $8.18 billion (unaudited)

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Overview

$5.968 $5.597 $4.461 $4.898 $5.891 $5.774 $6.428 $7.414 $7.530 $7.460 $8.178

6/30/07 6/30/08 6/30/09 6/30/10 6/30/11 6/30/12 6/30/13 6/30/14 6/30/15 6/30/16 6/30/17*

* 6/30/17 is unaudited

• Assets in billions: June 30, 2007 to present

• Significant developments since 2007
• 2007: Change in actuarial methodology
• 2008: HB 1645
• 2009: Independent Investment Committee formed
• 2010: 30-Year Amortization of UAAL begins
• 2011: Board reduced rate of return to 7.75%
• 2011: HB 2 – Legislation increased member

contributions, reduced benefits, changed composition of NHRS Board, and eliminated state employer contribution subsidy to political subdivisions

• 2014-16: NH Supreme Court upholds legislative changes
• 2016: Board reduced rate of return to 7.25%

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Overview

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• Group I
• Employees
• Teachers
• Group II
• Police
• Fire
• 470+ participating employers
• State of NH, counties, school districts,

communities, and other political subdivisions

Membership

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Membership

At June 30, 2016 Employees Teachers Police Fire Total Active 24,520 17,784 4,139 1,626 48,069 Retirees/ Beneficiaries 16,142 11,410 3,629 1,595 32,776

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• Active Members
• Average Age: 46.9
• Average Service: 12.1 years
• Average Salary: $54,118
• Retirees
• Average Age: 70.1
• Average benefit: $20,694

Membership

At June 30, 2016

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• Board of Trustees
• Approves investment policy, including asset allocation
• Hires investment consultant
• Independent Investment Committee
• Created by Legislature, effective Jan. 1, 2009
• Recommends investment policy to the Board
• Oversees the administration of the investment

program within Board’s policies

• Hires investment service providers, such as the

custodian and investment managers

• Prepares a Comprehensive Annual Investment

Report (CAIR) for approval by the Board

Investments

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• Reviewed annually
• Long-term time horizon (25-plus years)
• Manage risk and liquidity
• Diversified portfolio among different types
• f assets

Investments

Strategy

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Investments

Allocation

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Investments

At June 30, 2016

1.0% 3.5% 17.6% 14.5% 0.9% 23.0% 12.9%

• 18.1%
• 4.6%

16.0% 10.0% 10.1% 14.9% 2.5%

• 6.4%
• 6.7%

13.2% 14.4% 17.5% 18.6%

• 20.0%
• 15.0%
• 10.0%
• 5.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 Fiscal Year Source Data: Time-weighted annual returns (net of fees) provided by NEPC, LLC

Twenty-Year History of NHRS Total Fund Returns

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• Historical returns at 6/30/16
• One-year return on investments: 1.0%
• Three-year return: 7.1%
• Five-year return: 7.2%
• 10-year return: 6.0%
• 20-year return: 7.0%
• 25-year return: 8.2%

Investment performance better than 65% of peer group over one-year period, better than 80% over three-, five-and 10-year periods, and better than 75% over 20- and 25-year periods

• One-year return at 3/31/17*: 11.6%

*Most recent available

Investments

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• Member Contributions
• Set by statute
• Employees: 7%
• Teachers: 7%
• Employer Contributions
• Actuarially determined then certified by Trustees on

biennial basis

• Separate rates for Employee, Teacher, Police, and

Fire groups

• NH Constitution requires the payment of the

employer contributions

• Local employers have paid 100% of contributions for

teachers, police and fire since state subsidy was repealed in 2011

• Police: 11.55%
• Fire: 11.8%

Contributions/Funding

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• Normal Cost
• Estimated annual value of pension benefits as

they are earned

• Unfunded Liability
• Estimated value of NHRS benefits earned in the

past, but not yet funded

• Medical Subsidy
• Funded at pay-as-you-go level for most member

groups Unfunded liability accounts for more than 70% of total employer rate

Contributions/Funding

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Contributions/Funding

UAAL as a % of Total Employer Rate – FY 2018-19 Member Category Pension: Normal Cost Pension: UAAL Medical Subsidy Total Employer Rate UAAL as a % of Total Rate

• Emp. – State

2.16% 8.92% 1.07% 12.15% 73.4%

• Emp. – P. Sub.

2.16% 8.92% 0.30% 11.38% 78.4% Teacher 2.07% 13.63% 1.66% 17.36% 78.5% Police 5.67% 19.66% 4.10% 29.43% 66.8% Fire 7.05% 20.74% 4.10% 31.89% 65.0%

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• Unfunded Actuarial Accrued Liability (UAAL)
• The result of artificially low employer contributions

coupled with transfer of ‘excess’ investment earnings to Special Account over an extended period; exacerbated by 2008-09 market downturn

• $5.1 billion at the close of FY 2016, a funded ratio
• f 60.0%
• UAAL grew due to reduction of assumed rate of

investment return from 7.75% to 7.25% and other adjustments to actuarial assumption

• Method is in place to amortize the liability through

employer contribution rates over a 30-year period ending in 2039

Contributions/Funding

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* Beginning of 30-year closed amortization period

In addition to smoothed investment performance, the funded ratio was impacted by reductions to assumed rate of return and other actuarial assumption updates in 2011 and 2016, as well as legislative changes to benefit provisions in 2008 and 2011.

Contributions/Funding

Funded Ratio

67.0% 67.8% 58.3% 58.5% 57.4% 56.1% 56.7% 60.7% 59.2% 60.0%

0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 2007 2008 2009 2010* 2011 2012 2013 2014 2015 2016

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• Biennial Actuarial Valuation
• Calculates funding status
• Used to set employer rates per statute
• Based on numerous actuarial assumptions
• When assumptions don’t match actual experience,

there can be an actuarial gain or loss

• Assumptions are reviewed periodically through

experience studies

Contributions/Funding

Actuarial Analysis

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• Actuarial Experience Study
• Per statute, conducted every five years
• Most recent - 2015
• Systematic evaluation of past experience in

comparison to current actuarial assumptions

• Demographic Assumptions
• Retirement rates; disability; turnover; mortality; population size
• Economic Assumptions, including assumed rate of

investment return

• Wage/price inflation; payroll growth; promotion/step pay

increases; end-of-career payments

• Takes both past experience and future

expectations into consideration

Contributions/Funding

Actuarial Analysis

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• Major Recommendations in

2015 Experience Study

• Demographic
• Update mortality assumptions
• Retirees are living longer, especially teachers
• Economic
• Reduce investment assumption
• Investment assumption is biggest driver of employer rates
• Reduce inflation assumption
• Additional adjustments for Teacher group

Contributions/Funding

Actuarial Analysis

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• Four types of retirement: service, disability,

early service, and vested deferred

• Different benefit provisions apply to

Group I and Group II

• Different benefit provisions apply based on

vested status and date of hire

• Pension benefits are determined by statutory

formulas that consists of three components:

• Creditable Service
• Average Final Compensation
• Benefit Multiplier
• Maximum benefit limit for members hired
• n/after July 1, 2009 and have not vested prior to

January 1, 2012

Benefits

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• Service Retirement Age: 65
• Service Retirement Formula:

Average Final Compensation (AFC) divided by 66, multiplied by creditable service = annual pension $50,000 ÷ 66 = $758 x 30 years = $22,727

For members not vested prior to January 1, 2012, or hired on or after July 1, 2011, AFC is based on a member's highest five years of Earnable Compensation as defined in RSA 100-A:1, XVII (b).

Benefits

Group I Service Retirement: Hired On/After 7/1/11

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$50,000 x 0.20 = $1,000 x 25 years = $25,000

Group II members do not participate in Social Security

• Service Retirement Age: 52.5
• Service Retirement Formula:

AFC multiplied by 0.20%, multiplied by creditable service = annual pension

Benefits

Group II Service Retirement: Hired On/After 7/1/11

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• In FY 2016, $670.4 million in pension

benefits were paid to retirees and beneficiaries, making NHRS one of the state’s largest payrolls

• In the same period, $51.8 million in

post-retirement Medical Subsidy payments were paid on behalf of eligible retirees and beneficiaries

• 80% of annuitants live in NH

Benefits

Group I

• Employee: $13,823
• Teacher: $23,134

Group II

• Police: $35,737*
• Fire: $38,552*

All Retirees

• Average: $20,694

Note: Plan does not include automatic cost-of-living adjustments

* Group II members do not participate in Social Security

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Benefits

Average Annual Pension Benefits at June 30, 2016

• Annual benefit under $10k: 30%
• Annual benefit under $25k: 68%
• Annual benefit under $50k: 95%
• Annual benefit greater than $75k: 1.0%

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Benefits

Distribution of Benefits at 12/31/16

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• Pension Reporting Changes
• GASB 67/68 (2014-15): Pension reporting

changes for accounting only; does not change the statutory funding methodology

• Impact on NHRS not as dramatic as some plans
• Changes mean more volatility in the year-to-year reported

funded ratio

• Share of Net Pension Liability and Pension Expense

is now apportioned to participating employers

Other Topics

GASB

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• OPEB Reporting Changes
• GASB 74-75 (2017-18): New accounting standard

for other post-employment benefits (OPEB) effective 2017 for NHRS; 2018 for employers

• Changes are for accounting only; they do not

impact funding

• Similar to GASB 68, but potentially more

complicated for employers

• NHRS will provide proportionate share of Medical Subsidy,

but employers may likely have other OPEB obligations to report that are not related to the retirement system

Other Topics

GASB

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• Cost of Living Adjustments (COLAs)
• Not automatic
• Subject to legislative action
• Last granted in 2010

Other Topics

COLAs

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• Since 2007, nearly 90 changes have been

made to the statute governing NHRS

• NHRS’ Legislative Role
• Provide data and objective analysis
• Fiscal Note Worksheets
• “Bill Briefs”
• Testimony
• Informational materials (annual reports, actuarial

valuations, etc.)

Other Topics

Legislation

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Appendices

Supplemental Information

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• Active Members
• 2016: 48,069
• 2015: 47,812
• 2014: 48,307
• 2013: 48,688
• 2012: 48,625
• 2011: 49,738
• 2010: 50,467
• 2009: 51,032
• 2008: 50,988
• 2007: 50,802

Appendix

Members and Beneficiaries 2007-2016

• Retirees/Beneficiaries
• 2016: 32,776
• 2015: 31,350
• 2014: 31,054
• 2013: 29,729
• 2012: 28,454
• 2011: 27,130
• 2010: 25,845
• 2009: 24,501
• 2008: 22,870
• 2007: 21,248

• State vs. Political Subdivision
• Membership by Gender

Employees Teachers Police Fire Total State 9,825 1,042 62 10,929 Political Subs. 14,695 17,784 3,097 1,564 37,140 Total 24,520 17,784 4,139 1,626 48,069

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Employees Teachers Police Fire Total Female 14,977 13,908 551 41 29,477 Male 9,543 3,876 3,588 1,585 18,592 Total 24,520 17,784 4,129 1,626 48,069

Appendix

Membership Data at June 30, 2016

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Appendix

Expenses

• NHRS statutory administrative budget

(A) (B) (C) FY 2017 FY 2018 FY 2019 BUDGET BUDGET BUDGET

1 Statutory Budget 2

Salaries & Benefits: $5,945,311 $6,093,162 $6,364,125

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Information Technology:

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Technology-Software & Hardware $890,000 $935,000 $915,000

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All Other Administrative Costs:

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Current Expenses $134,776 $111,720 $113,470

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Rents & Leases 406,300 431,900 431,900

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Utilities 92,000 94,000 94,000

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Building Maintenance 70,800 128,500 128,500

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Equipment 5,000 5,000 5,000

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Retiree Payroll Adm & Other Svcs. 155,500 93,500 94,500

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Consultants (IMEs) 140,000 140,000 140,000

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Retiree Health Care 220,203 232,000 232,000

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Other 209,290 230,691 228,186

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Subtotal $1,433,869 $1,467,311 $1,467,556

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Total $8,269,180 $8,495,473 $8,746,681 % Change 2.7% 3.0%

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Appendix

Expenses

0.35% 0.13% 0.48% 0.13% 0.42% 0.18%

0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% Investment Expenses Administrative Expenses

NHRS expenses as a percentage of assets

NHRS NEPC Public Fund Universe (26 DB funds greater than $1B) NCPERS Universe (179 public DB funds)

• NHRS investment and administrative expenses are

paid from the pension Trust Fund, not the General Fund

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Appendix

Employer Contribution Rates – FY 2016-17 Employer Pension Cost Medical Subsidy Total Employer Rate Normal Cost UAAL GROUP I

• Emp. - State

2.14% 8.72% 1.64% 12.50%

• Emp. - P. Sub.

2.14% 8.72% 0.31% 11.17% Teachers 1.69% 11.03% 2.95% 15.67% GROUP II Police 5.06% 17.48% 3.84% 26.38% Fire 6.56% 18.76% 3.84% 29.16%

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Appendix

Employer Contribution Rates – FY 2018-19 Employer Pension Cost Medical Subsidy Total Employer Rate Normal Cost UAAL GROUP I

• Emp. - State

2.16% 8.92% 1.07% 12.15%

• Emp. - P. Sub.

2.16% 8.92% 0.30% 11.38% Teachers 2.07% 13.63% 1.66% 17.36% GROUP II Police 5.67% 19.66% 4.10% 29.43% Fire 7.05% 20.74% 4.10% 31.89%

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• Biennial Actuarial Valuations
• 6/30/13 valuation determined FY 2016-17 rates
• 6/30/15 valuation determined FY 2018-19 rates
• 6/30/17 valuation will determine FY 2020-21 rates
• Biennial NHRS Trustee Rate Certification
• 9/14 Trustees certified FY 2016-17 rates
• 9/16 Trustees certified FY 2018-19 rates
• 9/18 Trustees will certify FY 2020-21 rates

Appendix

Timeline for Setting Employer Rates

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The New Hampshire Retirement System (NHRS) is governed by New Hampshire RSA 100-A, rules, regulations, and Federal laws including the Internal Revenue Code. NHRS also implements policies adopted by the Board of Trustees. These laws, rules, regulations, and policies are subject to change. Even though the goal of NHRS is to provide information that is current, correct, and complete, NHRS does not make any representation or warranty as to the current applicability, accuracy, or completeness of any information provided. The information herein is intended to provide general information only, and should not be construed as a legal

• pinion or as legal advice. Members are encouraged to address

specific questions regarding NHRS with an NHRS representative. In the event of any conflict between the information herein and the laws, rules, and regulations which govern NHRS, the laws, rules, and regulations shall prevail.