Retirement Study Overview Retirement Work Group Philip Hagen, - - PowerPoint PPT Presentation

December 8, 2017

Philip Hagen, Budget Services Coordinator Department of Management and Budget

Retirement Study Overview

Retirement Work Group

Two-Thirds Requirement

▪ Virginia Code § 51.1-800(A)

▪ Every county and city, and every town having a population of 5,000 or more, shall provide a retirement system for those officers and employees listed in subsection B either

i. by establishing and maintaining a local retirement system which provides a service retirement allowance to each employee who retires at age sixty-five or older which equals or exceeds two-thirds of the service retirement allowance to which the employee would have been entitled had the allowance been computed under the provisions

• f the Virginia Retirement System or

ii. by participating directly in the Virginia Retirement System.

▪ Virginia Code does not provide guidance on how to measure a County defined contribution or hybrid plan against the two-thirds requirement. ▪ Virginia Code would allow the County to establish an optional defined contribution plan.

December 8, 2017 Retirement Study Overview 2

June 2017 Virginia Code presentation

Three Separate Systems

December 8, 2017 Retirement Study Overview 3

▪ Employees’ Retirement System (ERS)

▪ County employees not covered under PORS or URS ▪ Schools employees not covered under VRS

▪ Uniformed Retirement System (URS)

▪ Uniformed Fire and Rescue personnel ▪ Uniformed Sheriff’s Office personnel ▪ Non-administrative Public Safety Communications staff ▪ Helicopter pilots ▪ Animal control officers

▪ Police Officers Retirement System (PORS)

▪ Uniformed police officers

2,000 4,000 6,000 8,000 10,000 PORS URS ERS (Schools) ERS (County)

Membership by System1

Retirees Active Employees

enrollees are included in the retiree count.

June 2017 Demographics presentation

Benefits Features of Retirement Plans

Plans currently in effect for new hires

December 8, 2017 Retirement Study Overview 4

Employees’ Retirement System Uniformed Retirement System Police Officers Retirement System

Employee Contribution 4.00% (Plan C)1 5.33% (Plan D) 7.08% 8.65% Normal Retirement Eligibility Rule of 85 (Age plus Service)

• r

Age 65 with 5 Years of Service 25 Years of Service

• r

Age 55 with 6 Years of Service 25 Years of Service

• r

Age 55 Benefit Multiplier 1.8% (Plan C)1 2.0% (Plan D) 2.5% 2.8% Pre-Social Security Supplement Multiplier 1.0% 0.3% NA Minimum Retirement Age 55 NA NA Salary Averaging Period 3 Years 3 Years 3 Years

1 For ERS Plan C, employees contribute 5.33% of any salary in excess of the Social Security Wage Base, and the benefit multiplier is 2% for the portion of Final Average Salary that exceeds the Social

Security Breakpoint.

June 2017 Demographics presentation

Retirement System Funding

Funding Status as of June 30, 2017

December 8, 2017 Retirement Study Overview 5 Market Value

• f Assets

$3,749.38 Net Pension Liability $1,618.35

Employees’ System

Total Pension Liability = $5,367.73 million Funded Ratio = 69.9% Market Value

• f Assets

$1,365.84 Net Pension Liability $274.83

Police Officers System

Total Pension Liability = $1,640.67 million Funded Ratio = 83.2% Market Value

• f Assets

$1,645.26 Net Pension Liability $388.43

Uniformed System

Total Pension Liability = $2,033.69 million Funded Ratio = 80.9%

May 2016 LOBs presentation (updated)

Retirement System Funding

▪ Systems are funded through a combination of Employee contributions, Employer contributions, and Investment Returns.

Sources of Funding

December 8, 2017 Retirement Study Overview 6

8.8% 11.8% 10.5% 33.4% 25.4% 23.6% 57.7% 62.9% 65.9%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Uniformed Police Officers Employees'

Sources of Funding (20-Year Average)

Employee Contributions Employer Contributions Investment Returns

May 2016 LOBs presentation

Investment Returns

History since 1981

December 8, 2017 Retirement Study Overview 7

(25%) (20%) (15%) (10%) (5%) 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Return Net of Fees

ERS URS PORS

FY 1981 – 1989 Average Return 13.5% 13.1% 13.8% FY 1990 – 1999 Average Return 12.6% 11.6% 12.8% FY 2000 – 2009 Average Return 3.1% 2.8% 2.6% FY 2010 – 2016 Average Return 10.5% 9.3% 10.3% Average 9.7% 9.0% 9.7%

June 2017 Demographics presentation (updated)

Contribution Rates

▪ Actuarial valuations are performed each year to determine rates ▪ Employer Contribution Rates are made up of 4 components:

How are Employer Rates determined?

December 8, 2017 Retirement Study Overview 8

Employer Portion of Normal Cost Administrative Expense Amortization of Unfunded Liability Benefit Enhancements

TOTAL EMPLOYER CONTRIBUTION RATE

• Costs associated

with benefits accrued by active employees each year.

• The Normal Cost is

most indicative of the overall value of the benefits.

• Small component to

account for administrative expenses of the plan.

• A 15-year amortization of

the UAAL (Unfunded Actuarial Accrued Liability). Currently, 98%

• f the UAAL is amortized.

By 2020, 100% of the UAAL will be amortized and included in the rate.

• If a plan is 100% funded,

this component is eliminated.

• Impact of benefit

enhancements approved each year are included in rate (included in Normal Cost in subsequent years).

• If enhancements are

applied to current retirees

• r towards accrued service
• f actives, any resulting

UAAL must be fully funded when the enhancement is approved.

• Until a system

reaches 100 percent funded status, employer contributions will not be reduced.

*Included in multi-year funding strategy approved as part of the adoption of the FY 2016 Budget and presented to bond rating agencies.

May 2016 LOBs presentation

Contribution Rates

Breakdown of Employer Contributions

December 8, 2017 Retirement Study Overview 9 Normal Cost 8.74% Normal Cost 16.97% Normal Cost 18.46%

Expense 0.25% Expense 0.25% Expense 0.40%

Amortization 16.30% Amortization 21.62% Amortization 20.12%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Employees' Uniformed Police

FY 2018 Employer Contribution Rate Components

▪ The chart on the right shows the estimated components of the FY 2018 Employer Contribution Rates ▪ The Normal Cost represents the benefits accrued by active employees each year ▪ Changes made to the retirement systems will only impact the Normal Cost components ▪ The Normal Cost components shown represent the blended values of the pre- and post-2013 plans

June 2017 Demographics presentation

Employees’ System History and Projections

Funding Ratios and Contribution Rates

December 8, 2017 Retirement Study Overview 10

5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 6% 6% 6% 6% 6% 8% 8% 9% 10% 10% 10% 15% 17% 19% 19% 20% 22% 23% 25% 27% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 10% 10%

109% 58% 70% 104%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Fiscal Year

FY 2000 through FY 2034

EE Contribution ER Contribution Funding Ratio

June 2017 Demographics presentation (updated Funding Ratio)

Uniformed System History and Projections

Funding Ratios and Contribution Rates

December 8, 2017 Retirement Study Overview 11

7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 19% 20% 19% 22% 23% 24% 25% 26% 26% 26% 26% 31% 34% 35% 36% 38% 39% 39% 39% 39% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 20% 19%

107% 64% 81% 100%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Fiscal Year

FY 2000 through FY 2034

EE Contribution ER Contribution Funding Ratio

June 2017 Demographics presentation (updated Funding Ratio)

Police Officers System History and Projections

Funding Ratios and Contribution Rates

December 8, 2017 Retirement Study Overview 12

12% 12% 12% 12% 12% 12% 12% 12% 11% 10% 10% 10% 10% 10% 10% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 18% 26% 22% 17% 18% 18% 18% 20% 21% 22% 23% 28% 31% 33% 34% 37% 38% 39% 39% 40% 42% 42% 42% 42% 42% 42% 42% 42% 42% 42% 42% 42% 42% 21% 20%

106% 66% 83% 100%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Fiscal Year

FY 2000 through FY 2034

EE Contribution ER Contribution Funding Ratio

June 2017 Demographics presentation (updated Funding Ratio)

Retirement Contribution Rates

Components of Rates when 100% Funded

December 8, 2017 Retirement Study Overview 13

Normal Cost (ER) 8.74% Normal Cost (ER) 16.97% Normal Cost (ER) 18.46% Expense (ER) 0.25% Expense (ER) 0.25% Expense (ER) 0.40% Normal Cost (EE) 5.33% Normal Cost (EE) 7.08% Normal Cost (EE) 8.65%

0% 5% 10% 15% 20% 25% 30% 35% Employees' Uniformed Police Officers

Employee and Employer Portions of Normal Cost and Expenses (Estimated)

37% Employee 63% Employer 29% Employee 71% Employer 31% Employee 69% Employer May 2016 LOBs presentation (updated)

General Fund Employer Contributions

$23.8 $29.0 $32.2 $35.3 $36.5 $38.7 $41.1 $44.9 $45.2 $38.4 $42.3 $47.2 $50.5 $53.8 $57.7 $60.8 $64.4 $64.9 $33.1 $45.2 $56.5 $63.2 $64.9 $68.8 $79.0 $85.2 $95.3 $0 $50 $100 $150 $200 $250 FY 2010 Adopted Budget FY 2011 Revised Budget FY 2012 Revised Budget FY 2013 Revised Budget FY 2014 Revised Budget FY 2015 Revised Budget FY 2016 Revised Budget FY 2017 Revised Budget FY 2018 Revised Budget

General Fund Employer Contributions

Millions

Employees Uniformed Police

History by Retirement System

December 8, 2017 Retirement Study Overview 14

General Fund Employer Contributions

Components of Increases

December 8, 2017 Retirement Study Overview 15

• $10
• $5

$0 $5 $10 $15 $20 $25 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

Increase in General Fund Contributions

Millions

Valuation/Experience Study Amortization Benefit Enhancements New Positions/Reductions/Budgetary Experience Compensation Adjustments Total Increase

2012 Retirement Study

Employees’ Retirement System Uniformed Retirement System Police Officers Retirement System

Minimum Retirement Age for Normal Service Retirement Increased from age 50 to age 55 No change No change Normal Service Retirement Eligibility Increased from Rule of 80 (Years plus Service) to Rule

• f 85 (Years plus Service)

No change No change Pre-Social Security Supplement and DROP Removed Pre-Social Security supplement from balances accumulated during the DROP Period Not applicable Use of Sick Leave Placed a cap on the use of sick leave for purposes of determining retirement eligibility and benefits at 2,080 hours

Changes effective for new hires on or after January 1, 2013

December 8, 2017 Retirement Study Overview 16

The 2012 retirement study is available at https://www.fairfaxcounty.gov/hr/pdf/fairfaxcountyretirementbenefitsbenefitsstudy.pdf June 2017 Demographics presentation

2012 Retirement Study

Savings as a Percentage of Normal Cost

December 8, 2017 Retirement Study Overview 17 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Employees' Uniformed Police

January 2013 Changes

Reduction in Employer Normal Cost

▪ The chart on the right shows the reduction in Normal Cost that will eventually occur as a result of the January 2013 changes to the systems ▪ Savings related to new plan design changes will impact these reduced Normal Costs

8.86% Plans A/B 1.16% Decrease of 13% of total Normal Cost 7.70% Plans C/D 16.12% Plan E 17.01% Plans B/D Decrease of 5% of total Normal Cost 0.89% Decrease of 3% of total Normal Cost 0.56% 17.98% Plan B 18.54% Plan A

October 2017 presentation

Demographics

Employees’ Uniformed Police New Hires Average Age 37.9 29.0 26.7 Current Employees Average Age 47.1 40.9 39.0 Recent Retirees Median Age at Retirement 60.1 52.3 50.1 Median Potential Length of Pre-Social Security Supplement 5.7 years 13.5 years N/A Current Retirees (Normal Retirement) Average Age 69.6 63.0 63.4

Key Statistics for County Employees and Retirees

December 8, 2017 Retirement Study Overview 18

June 2017 Demographics presentation