february 3, 2011

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February 3, 2011 Howard Bicker - Executive Director, SBI Dave Bergstrom - Executive Director, MSRS Mary Most Vanek - Executive Director, PERA Laurie Fiori Hacking - Executive Director, TRA Introduction to Statewide Retirement Funds

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Introduction to Statewide Retirement Funds. Howard Bicker - Executive Director, SBI Dave Bergstrom - Executive Director, MSRS Mary Most Vanek - Executive Director, PERA Laurie Fiori Hacking - Executive Director, TRA. February 3, 2011. State Board of Investment (SBI). - PowerPoint PPT Presentation

TRANSCRIPT

Page 1: February 3,  2011

February 3, 2011

Howard Bicker - Executive Director, SBIDave Bergstrom - Executive Director, MSRSMary Most Vanek - Executive Director, PERA

Laurie Fiori Hacking - Executive Director, TRA

Introduction to Statewide Retirement Funds

Page 2: February 3,  2011

2

State Board of Investment (SBI)

Invest assets of the Pension Funds and other State Funds

Board is defined in Article XI of Minnesota Constitution:◦ Governor◦ State Auditor◦ Attorney General◦ Secretary of State

Assisted by 17 member Investment Advisory Council (IAC)◦ 10 experienced investment

professionals◦ Executive Directors of

statewide retirement plans◦ Commissioner of MMB◦ Three Governor

Appointees

Page 3: February 3,  2011

Domestic Stocks; 45%

International Stocks; 15%

Bonds; 18%

Al-ter-na-

tives; 20%

Cash, 2%

3

Target Investment Allocation

Page 4: February 3,  2011

15.20%

-18.80%

-5.0%

3.40% 2.90%

9.00%9.70%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2010 2009 2008 5 Yr 10 Yr 25 Yr Since 1980

4

Short and Long-Term Net Investment Returns

SBI Returns – for periods ending 6/30/2010

8.5%Actuarial

Required Return

July – Dec 2010 return = 16% +

Page 5: February 3,  2011

Investment Returns Fund Most of Pensions

5

67¢Investment

Earnings

Pensions are a shared responsibility.Every dollar paid to retirees comes from three sources

18¢Employers

15¢Employees

Sources of MN public pension fund revenue, 1991-2010

Page 6: February 3,  2011

Covers state employees, University of Minnesota (non-faculty), Metropolitan Council, MNSCU and others

Governed by an eleven-member board◦ Four elected General and/or Unclassified Plan members◦ Three Governor appointees◦ An elected State Patrol member◦ An elected Correctional Plan member◦ An elected retiree◦ One appointee representing the Amalgamated Transit Union

Total net assets of all MSRS administered plans totaled $13 billion on June 30, 2010◦ $9.1 billion in mandatory retirement plans◦ $3.9 billion in supplemental/voluntary plans

6

Minnesota State Retirement System

Page 7: February 3,  2011

Retirement Plan

Assets(6/30/2010)

Active Participant

s

Benefit Recipients

Deferred, Vested

ParticipantsGeneral Plan $7.7 billion 48,494 28,435 15,388Correctional Plan $525 million 4,268 1,859 993State Patrol Plan $489 million 848 924 39Judges Plan $126 million 312 291 18Legislators $26 million 47 359 88Elective State Officers Plan

$0 0 15 1

Unclassified (Defined Contribution)

$253 million 1,430 0 1,844

7

MSRS Plans

Voluntary and/or Supplemental Plans

Assets (6/30/2010)

Active Participants

Minnesota Deferred Compensation Plan (MNDCP)

$3.5 billion 79,822

Health Care Savings Plan (HCSP) $317 million 63,189Hennepin County Supplemental Plan $109 million 1,900

Page 8: February 3,  2011

93.7% 98.7%90.2% 88.5%85.9%

65.6%

87.3%75.0%

8

MSRS General Plan Funding HistoryFunding on Market ValueFunding on Actuarial Value

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

1973197

4197

5197

6197

7197

8197

9198

0198

1198

4198

5198

6198

7198

8198

9199

0199

1199

2199

3199

4199

5199

6199

7199

8199

9200

0200

1200

2200

3200

4200

5200

6200

7200

8200

9201

00%1%2%3%4%5%6%7%

General Plan Contribution Rate History

Employee Employer

Current rate: 5% employee/5% employer

Page 9: February 3,  2011

73.2%84.0%75.3% 74.3%71.7%

55.6%70.1%

61.7%

9

MSRS Correctional Plan Funding HistoryFunding on Market ValueFunding on Actuarial Value

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

1973

1975

1977

1979

1981

Jul-82 198

4198

6198

8199

0199

2199

4199

6Jul-

97 1999

2001

2003

2005

2007

2009

0%2%4%6%8%

10%12%14%16%

Correctional Plan Contribution Rate History

Employee Employer

Current rate: 8.6% employee/12.1% employer

Page 10: February 3,  2011

95.4% 96.3%85.8% 85.0%80.5%

62.0%

83.0%71.5%

10

MSRS State Patrol Plan Funding HistoryFunding on Market ValueFunding on Actuarial Value

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

1973

1975

1977

1979

1981

Dec-82 198

4198

6198

8199

0199

2199

4199

6199

8200

0200

2200

4200

6200

8201

00%

5%

10%

15%

20%

25%State Patrol Contribution Rate History

Employee Employer

Current rate: 10.4% employee/15.6% employer*

* Not covered by Social Security

Page 11: February 3,  2011

General Plan Correctional Plan

State Patrol Plan

Post Retirement Increase

Future increases of 2% until a funding ratio of 90% is reached

Future increases of 1.5% until funding ratio 90%

Deferred Augmentation

2% for future years beginning January 2012

Contribution Rate Increases

None 2% employee3% employer (7/1/2011)

Vesting Hired after 7/1/2010

Five years Phased in from five to ten years of service

Five years

Refund Interest Lowered from 6 percent to 4 percent beginning 7/1/2011

Reduction in Unfunded Liabilities*

$650 million

$45 million $62 million

* Source: Mercer FY2010 Actuarial Evaluation 11

MSRS 2010 Benefit Reforms

Page 12: February 3,  2011

Covers City, County & Non-teaching School District employees

Governed by an eleven-member Board of Trustees◦ Five elected by the PERA membership

Three General Plan members One Policies & Fire One Retiree

◦ Five Governor appointees representing cities, counties, schools boards, retirees, and the general public, respectively

◦ The State Auditor Total net assets of all PERA administered plans totaled

$16.9 billion on June 30, 2010

12

Public Employee Retirement Association

Page 13: February 3,  2011

Retirement Plan Assets(6/30/2010

)

Active Participant

s

Benefit Recipients

Deferred, Vested

ParticipantsGeneral Plan $11.3 billion 140,389 68,474 45,151

Police & Fire $4.4 billion 11,002 7,541 1,315

Correctional $211 million 3,521 441 1,895

Defined Contribution Plan

$32 million 7,227 N/A N/A

Minneapolis Employees Retirement Fund(MERF)

$844 million 143 4,343 102

13

PERA Plans

Also, administrators of the Statewide Volunteer Firefighter Retirement Plan

Page 14: February 3,  2011

73.3% 77.5%73.6% 72.0%70.0%

53.8%

76.4%66.0%

14

PERA General Plan Funding HistoryFunding on Market ValueFunding on Actuarial Value

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%

General Plan Contribution Rate History

Employee Employer

Current rate: 6.25% employee/7.25% employer

Page 15: February 3,  2011

91.7% 97.5%88.4% 86.4%83.2%

63.6%

87.0%74.7%

15

PERA Police & Fire Funding HistoryFunding on Market ValueFunding on Actuarial Value

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

0%2%4%6%8%

10%12%14%16%

Police & Fire Contribution Rate History

Employee Employer

Current rate: 9.6% employee/14.4% employer*

* Not covered by Social Security

Page 16: February 3,  2011

98.4% 107.5%100.1% 95.5%94.9%

72.9%

97.3%84.9%

16

PERA Correctional Plan Funding HistoryFunding on Market ValueFunding on Actuarial Value

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Correctional Plan Contribution Rate History

Established in 1999, the Correctional Plan has maintained a level contribution rate; 5.83% employee & 8.75% employer

Page 17: February 3,  2011

General Plan Police & Fire CorrectionalPost Retirement Increase

Future increases of 1% until funding ratio of 90%

Increases of 1% for 2011 & 2012; then CPI up to 1.5% until funding ratio of 90%

Future increases of 1% until funding ratio of 90%

Deferred Augmentation

1% for future years beginning January 2012

Contribution Rate Increases

0.25% employee

0.25% employer

0.2% employee0.3% employer

None

Vesting Hired after 7/1/2010

Five years Phased in from five to ten years of service; fully vested at ten years

Refund Interest Lowered from 6 percent to 4 percent beginning 7/1/2011Reduction in Unfunded Liabilities*

$2.8 billion $625 million $15 million

*Source: Mercer FY2010 Actuarial Valuation

17

PERA 2010 Benefit Reforms

Page 18: February 3,  2011

Covers all K-12 public school teachers & administrators, charter schools, some State Universities & Community College faculty

Governed by an eight-member Board of Trustees◦ Four elected by active members◦ An elected retiree member◦ Three statutory appointments

made by the: Commissioner of Minnesota

Management & Budget; Commissioner of Education; and the Minnesota School Boards

Association

18

Teachers Retirement Association Plan Information

6/30/2010Assets $14.9 billion

Active Members 77,356

Benefit Recipients

51,853

Deferred, Vested Members

12,756

Page 19: February 3,  2011

87.5% 92.9%82.0% 81.5%77.4%

59.8%

78.5%67.6%

19

TRA Funding HistoryFunding on Market ValueFunding on Actuarial Value

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%9.00%

10.00%

Teachers Retirement Contribution Rate History

Employee Employer

Current rate: 5.5% employee/5.5% employer

Page 20: February 3,  2011

Post Retirement Increase

No increases in 2011 & 2012; future increases of 2% until funding ratio of 90%

Deferred Augmentation

2% for future years beginning July 2012

Contribution Rate Increases

2% employee & 2% employer phased in over four years beginning 7/1/2011

Vesting No change; three yearsRefund Interest Lowered from 6 percent to 4 percent

beginning 7/1/2011

Reduction in Unfunded Liabilities*

$1.75 billion

*Source: Mercer FY2010 Actuarial Valuation

20

TRA 2010 Benefit Reforms

Page 21: February 3,  2011

21

Plan Cost reduction

MSRS General $ 0.650 billion

MSRS Correctional $ 0.045 billion

MSRS State Patrol $ 0.062 billion

PERA General $ 2.800 billion

PERA P&F $ 0.625 billion

PERA Correctional $ 0.015 billion

TRA $ 1.750 billion

TOTAL $ 5.947 billion

2010 Pension Bill cut costs $5.947 billion

Source: Mercer Consulting FY 2010 actuarial reports

Page 22: February 3,  2011

Change Made in 2010 State

Increased Contributions for Employees

Arizona, Colorado, Iowa, Mississippi,, Missouri*, Louisiana, New Mexico, New York*, Vermont, Virginia, Wyoming

Increased Contribution for Employers

Arizona, California, Colorado, Florida, Iowa, New Jersey

Changes to Cost of Living Adjustments

Colorado, Illinois*, Maryland, Michigan*, Rhode Island, South Dakota, Virginia*

Plan Design Changes (existing plan)

Arizona*,California*,Colorado, Illinois*, Iowa*, Kentucky*, Louisiana*, Mississippi*, Missouri*, Nevada, New Jersey*, New Mexico*, New York*, Pennsylvania*, Rhode Island, Texas, Vermont, Virginia

New Hybrid Plan added Michigan*, Utah*

Lower Investment Return Assumption

Colorado, District of Columbia, Illinois, Indiana, New York, Pennsylvania, Virginia

Benefit Studies Connecticut, New Mexico, North Carolina, Puerto Rico, Virginia

* Only impacts new employees or those who are not vested22

What happened in other states?

Page 23: February 3,  2011

Unlike other states, MN public pensions have:Disciplined funding – correct problems as they occur with

positive effect on state’s bond ratingModest benefits – public employer contributions represent

only 1.6% of total MN state & local gov’t spending, compared to 2.9% of spending of other states (Source: Census Bureau

Proactive benefit reforms -- Post Fund eliminated, age 66 retirement age (passed in 1989), Rule of 90 eliminated

Employee contributes half the cost (except public safety) 2010 Pension Reform Bill – bold corrective action that is

working – reduced benefit liabilities by $6 billion

23

MN Pensions More Conservative than Other States

Page 24: February 3,  2011

Legal challenge • Class action suit filed by retirees claiming contract

right to annual increases - hearing in March Benefit Design Study (2010 Legislative directive)

• System directors analyzing DB, DC and alternative designs, report due June 1, 2011

• Public stakeholder meetings held in September, next meeting scheduled for February 1

• Actuarial analysis is in process• Draft circulated late March, early April for comment

24

Other Updates