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A Review of MCPS Budget Category 12Office of Legislative Oversight Report 2012-2

Presentation to Montgomery County Board of Education

Fiscal Management Committee

January 9, 2012

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Category 12 Expenditures

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Category 12 Expenditures

$235$270

$306$335

$373$411 $430 $442

$472$462

$0

$50

$100$150

$200

$250

$300

$350$400

$450

$500

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

Milli

ons

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Category 12 Expenditures As Percent of Total Operating Budget (Tax-Supported)

FY03 18%

FY12 23%

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FY12 Category 12 Expenditures

Group Insurance Active46%

FICA21%

Group Insurance Retiree10%

Retirement15%

Other8%

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Retirement Costs

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MCPS Employees’ “Core” Pension Benefit

• 77% (mostly teachers) in pension plan funded and administered by State

• 23% (mostly non-teachers) in pension plan funded by County and administered by MCPS

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MCPS Employees’“Supplemental” Pension Benefit

• All permanent employees receive pension supplement funded by the County and administered by MCPS

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FY03 $16.7 million

FY12 $77.8 million

MCPS’ Share of Pension Contribution

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Increase in Pension Fund Contribution Caused By:

• Salary increases

• Growth in workforce size

• Lower than assumed investment performance

• 2006 plan enhancements

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Liabilities ($ obligated to pay)

Assets ($ in the fund) =Funded

Ratio

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MCPS Pension Fund

Funded Ratio

FY03 102%

FY11 70%

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Decrease in Funded Ratio

Investment losses

Liabilities

Assets

2006 plan enhancements

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Future Pension Costs

MCPS’ actuaries project:

• Minimal change in FY13

• Increased cost in FY14 and FY15

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Group Insurance

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Group Insurance Funds

• Revenue: primarily employer and employee premium contributions

• Expenditures: primarily health care claims

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MCPS Group Insurance Fund Expenditures

Fund FY03 FY12 % Increase

Active Employee $131.4 million

$260.7 million 98%

Retiree $39.9 million

$84.6 million 112%

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Group Insurance Budgeting Challenges

• Changes in claims experience

• Calendar vs. fiscal year

• Time between budget development and start of fiscal year

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Active Employee Group Insurance Fund

FY11 Beginning

Fund Balance (July 1, 2010)

$8.5 million

Fund Activity During FY11

Revenue $263.4 million

Expenditures $250.3 million

Difference $13.1 million

FY11 Ending Fund Balance

(June 30, 2011)

$21.6 million

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Active Employee Group Insurance Fund Surplus

• Monthly data show expenditures trending lower than projected

• Cumulative expenditures $7.6 million lower than projected midway through the fiscal year

• In February/March, actuaries advised MCPS that a significant year end surplus was likely

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Active Employee Group Insurance Fund

Fiscal YearEnd of Fiscal Year

BalanceBalance as % of

Expenditures

FY08 $11.8 million 5.6%

FY09 $2.8 million 1.2%

FY10 $8.5 million 3.5%

FY11 $21.6 million 8.6%

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Education Committee Recommendations

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Recommendations for Council Action

• Request BOE submit supplemental information to Council in April and October of each year

• Integrate information into annual budget decision making and ongoing oversight

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April•Estimated future pension contributions•Plan to achieve desired pension funding ratio•Budgeted vs. actual group insurance data•Projected year-end insurance fund balances

October•Budgeted vs. actual Category 12 expenditures •Summary of intra-Category 12 transfers•Explanation of need for transfers

Additional Information

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• Category 12 cost drivers and expenditures

• Status of pension “funded ratio”

• Fund balance policy for group insurance

Education CommitteeDiscussion Issues

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A Review of MCPS Budget Category 12Office of Legislative Oversight Report 2012-2

Presentation to Montgomery County Board of Education

Fiscal Management Committee

January 9, 2012