Michigan Public School Employees’ Retirement System

Public Act 300 of 2012 Study

November 15, 2012DRAFT

Copyright © 2012 by The Segal Group, Inc., parent of The Segal Company. All rights reserved.

THE SEGA101 NorthT 312.984

  

Benefits, C Founding M

 

Novem

Mr. JohMr. JasMr. RanMichig100 CapLansing

Re:

Gentlem

We are 2012 foreviewi

Sincere

THE SE

Kim NiConsult

kn/ns

5215958v4

AL COMPANY Wacker Drive, S

4.8527 F 312.984

Compensation and

Member of the Multi

mber 15, 2012

hn Nixon, Bue Bolger, Spndy Richardan State Cappitol Avenueg, Michigan

Public Act

men:

pleased to sor the Miching this repo

ely,

EGAL COM

icholl, FSA, ting Actuary

4/08971.001

Suite 500 Chicag4.8590 www.seg

d HR Consulting

national Group of A

2

udget Directpeaker of thedville, Senatepitol Buildine 48933

300 of 2012

submit this rhigan Public rt with you a

MPANY

FCA, MAAy

go, IL 60606 galco.com

Offices throughou

Actuaries and Cons

tor e House e Majority Lng

2

eport containSchool Em

and answerin

AA, EA

ut the United States

sultants, a global a

Leader

ning our stumployees’ Re

ng any quest

s and Canada

affiliation of indepen

udy related toetirement Sytions you ma

ndent firms

o Public Actystem. We ay have.

t 300 (PA 30look forwa

00) of ard to

 

 

TABLE OF CONTENTS

Page

1 EXECUTIVE SUMMARY ....................................................................................... 2

2 PLAN DESIGN COMPARISON .............................................................................. 6

3 PEER GROUP PLAN SURVEY ............................................................................. 16

4 PLAN DESIGN AND ECONOMIC IMPACT OF VARIABILITY IN PLACE EXPERIENCE ......................................................................................................... 31

5 BENEFIT ADEQUACY ANALYSIS ..................................................................... 40

6 WORKFORCE MANAGEMENT ......................................................................... 46

7 PLAN TRANSITION .............................................................................................. 48

8 FUNDING METHODS ........................................................................................... 54

9 RETIREE HEALTH PLAN ANALYSIS .............................................................. 62

10 INPUT FROM RETIREMENT SYSTEM MEMBERSHIP CONSTITUENCY ORGANIZATIONS ................................................................................................. 72

APPENDIX 1 .................................................................................................................. 73

APPENDIX 2 .................................................................................................................. 76

APPENDIX 3 .................................................................................................................. 77

 

 

The Segaand the SEmploye

BACKG

Enacted PHybrid pthe bill reimplemen

The obje

1. Einemco

2. Psyef

3. Aadw

4. Potco

5. Rmcam

6. Idcocolow

al Company Speaker of thees’ Retireme

GROUND

PA 300 of 2plan or in a dequires that nting a defin

ctives of thi

Explore the ancluding howmployees coontribution r

repare an evystem, incluffect on emp

Assist the Stadequately fu

with guidelin

rovide a revther public somparable e

Review impamember contralculations a

mortality and

dentify and aosts of the pontribution aong-term rete

workforce ma

1.

has been enhe House to pent System (

012 gives nedefined contra study be coned contribu

s study are a

advantages anw a defined compares to thrates, unfund

valuation of tding the pro

ployer contri

ate in workinunded into thes contained

view of plan state school eemployees.

ct of amendmributions, veand cost of lid longevity ra

analyze proslans, investmamount, straention of emanagement to

EXECUT

ngaged by theprepare a stu(MPSERS).

ew employeribution planonducted to

ution plan for

as follows:

nd disadvantcontribution he Hybrid plded liability

the effectivebability that

ibutions if th

ng to ensure he future, as d in Governm

design, fundemployee pl

ments to theesting, serviciving allowaates, payroll

s and cons, ement return randed cost immployees, incool, and imp

TIVE SUM

e State Budgudy regardin

es the choicen with a matc

evaluate ther all new hire

tages of impplan identic

lan in terms implications

eness of the at actuarial anhe assumptio

that the retirwell as the p

mental Acco

ding methodslans and priv

e Hybrid plance credit purances, rate of increase rat

conomic imprisks, fundin

mplications, cluding portaplications to

MMARY

get Director,ng the Michi

e between paching emploe existing Hyes.

plementing bcal to the plaof normal cos, and benefi

assumptionsnd statutory aons are not m

rement systepros and con

ounting Stand

s, benefits pvate retireme

n features surchases, retirf investmenttes and other

mpact and funng or not funadequacy ofability of benbond rating

    ‐2‐   

, the Senate Mgan Public S

articipating oyer contribuybrid plan an

benefit desigan available tosts, transiti

fit adequacy.

s used by theassumptions

met.

em is affordans of fundingdards Board

rovided andent plans cov

uch as reportrement allowt returns, disr similar feat

nding implicnding the annf benefits andnefits and utagencies.

   

Majority LeSchool

in the existinution. In addnd the impac

gn changes, to State ion costs, sta

e retirement s are met and

able and g in accordan

statements.

d other featurvering

ting unit andwances

count rates, tures.

cations relatinnual requiredd attraction tility as a

 

ader,

ng dition, ct of

able

d the

nce

res in

d

ng to d and

 

 

7. Rthto

8. Rm

The studyin the fungo methohealth befunded st

The key additiona

Therevolatinflatassumemplplans

The l

risk, accrutake oplan, empl

If giv

plan tWhilwoul

MPS

1917priorilevelsage atransiamoremplprovior actand d

Review and ihe Hybrid plo the current

Review the cumethods (incl

y must also nding of retirod, to prefunenefits undertatus of retir

findings of tal review.

e are numeroility, accountion, and lonme most of thoyees in hyb

s (DC).

legacy systemespecially fo

ued liabilitieson the longemost risks aoyees bearin

ven a choice that most bee the costs od be expecte

ERS’ peer g-1953 and hities. Most os for new hir

and/or servicitioned new rtization perioyer costs oided to memtuarially det

demographic

dentify shorlan and implt plan for Sta

urrent payroluding impli

discuss and ree health be

nding benefitr MPSERS bree health be

this report ar

ous risks thanting, investmngevity risk. he risk for dbrid plans, an

ms (MIP andor contributis. In the exis

evity, diversiare shared wng the inflati

of participatenefits them of the DC plaed to increas

group offers ave rich hist

of these planres, loweringe for retiremhires to a DC

iod are withif the plans a

mbers, fundinermined), sp

c assumption

rt-term and loementing a d

ate employee

oll funding mications to th

identify proenefits from ts. The studyby PA 300 ofnefits.

re below alon

at exist in penment return, Risk assignm

defined benefnd employee

d Basic) are on volatilitysting State Dification, infl

with the emplion risk. (See

ting in the Hbased on coan are fixed se the per-per

DB plans. Ttories of adaps have madeg cost-of-liv

ment eligibiliC plan. The in a comparaamong the peng approacheplit between ns, and amor

ong-term nodefined contes hired after

method, outlihe School Ai

s, cons, and a cash disbu

y must also af 2012, and t

ng with reco

nsion and rediversificati

ment is primfit plans (DBes bear the m

DB plans any, accountingDC and propoflation, and inloyer retainine Table 1 to

Hybrid plan ost, career plafor the emplrson cost of

The ten peer ppting to chan

e recent desiging adjustmeity. No peer MPSERS sm

able range ofeer group bees, contributiemployer an

rtization peri

ormal costs atribution planr March 31,

ine options fid Fund), and

funding impursement meanalyze the cthe likely im

ommendation

etirement plaion, time hor

marily a functB), risk is shmajority of ri

nd the emplog risk and funosed DC planvestment ring the contricompare the

or a DC planans, and percloyers, offer

f the Hybrid p

plans were fnging workfgn changes sents for all psystem has cmoothing pef its peers. T

ecause of diffion determinnd employeeiods.

    ‐3‐   

and transitionan for new m

1997.

for alternativd evaluate e

plications relethod, whichchanges mad

mpact of thos

ns of areas t

ans includingrizon, demotion of desig

hared betweeisk in define

oyers bear thnding of any

an for teacheisk. In the cuibution volate risks amon

n, employeesceived valuering employeplan.

founded duriforce and gosuch as loweparticipants, closed its DBeriod, return There are varfferent benefnation methoe contributio

   

n costs of clomembers iden

ve funding ach alternati

lated to a chh is a pay as de to retiree se changes o

that need

g contributiographic,

gn. Employeen employersed contributi

he majority oy unfunded ers, employeeurrent Hybritility risk an

ng plans.)

s will select e of the beneees a choice

ing the perioovernmental ering benefitand raising

B plan and assumption

riations in thfit structures ods (i.e., statons, economi

 

osing ntical

ive.

hange you

on the

on

ers s and on

of

es id nd

the efit.

od

t the

and he

tutory ic

 

 

Over

retireworkCensuretirework(somThe t

Varia

and rpurchtheir plan iprotethe imperceboth perceMoreWithyear c

Bene

retireretireplansincreand bHybrplan freplaSociadetail

Retir

desigtermiworkGeneplansand dboth retire

the past 25 ement arrangkers are not ous Bureau. T

ement savingkers. Currente of these pltrend in the p

ation in plan risk. Establishase, cost-ofimpact on fuis the cost-octing retiree

mpact of marent assumed of which are

ent decrease eover, the ratin that periocausing cont

fit adequacyement arrangement incoms, Social Secases as the p

benefit amourid plan. Thefor all test cacement ratioal Security, fl.)

ement benefgn can attractinate employ

kforce needs erally, DB pls in attractingdesire portabDC and DB

ement benefi

years, privatgements to Doffered a retiThis absencegs programs ly, 30 percenlans are closeprivate secto

design and shing design f-living allowunding undef-living adju

es from signirket volatilitinvestment r

e within the rin the returnte is set as and, there willtribution vol

y is measuredgement. Ther

me should be urity, and pe

pre-retiremenunts for sampe replacemenases. When c

o adequacy tefalls short of

fits are one ot, motivate, ayment or to rand then des

lans encourag workers w

bility. Hybridplans. Know

it strategy.

te sector empDC plans. It sirement plane of DB planraises concent of full-timed to new pa

or, if an empl

economic exand demogr

wances and merstood. One ustment so itificant diminty and the inreturn for threasonable r

n assumptionn average tol be significalatility.

d by the levere are studieavailable fro

ersonal savinnt income deple employeent ratios are hcombined west. Conversf the replacem

of the tools thand retain taretire. Emplosign retireme

age longer-tewho do not ind plans can bwing what th

ployers haveshould be no

n through thens and limiteern of inadeqme private-searticipants) wloyer offers

xperience grraphic elememortality ratof the most

t should be dnishment of bnvestment rethe legacy DBrange for pubn there is a 1 be achieved

ant swings in

el of pre-retis that indicaom all sourcngs) in retireecreases. Thies under thehighest in th

with Social Sesely, the PA ment ratio ad

hat employealent. Plan deoyers need toent arrangem

erm employmntend to remabe attractive he workforce

e transitioneoted that oveeir employerd access to e

quate retiremector workerwith 55 perca plan, is tha

reatly influenents such as tes need to bexpensive c

designed to bbenefits oveturn assump

B plan and 7 blic plans. A5-20 percen

d over a longn the actual r

irement incoate that betweces (i.e., empement. The ris study revi

e PA 300 DChe Hybrid plaecurity the H300 DC plandequacy test

ers can use toesign can also assess theiments that sument but mayain with an eoptions as th

e goals are is

    ‐4‐   

ed a majorityer half of privrs according employer-sp

ment income rs are coverecent covered at it will be

nce a plan’s vesting perie carefully c

cost componbe flexible wr time. Equation. MPSERpercent for t

A rule-of-thunt increase ing period (50 rates of retur

ome that is reeen 75-95 pe

ployer sponsreplacement iews the repl

C plan, State an and lowesHybrid plan n, when comt. (See Table

o manage itsso encourageir current andupport those y not be as uemployer forhey combines essential to

   

y of their vate sector to the US

ponsored for these

ed by a DB pby DC plana DC-type p

long-term cod, service cconsidered anents of a DBwhile still ally importanRS utilizes athe Hybrid p

umb is that fon liabilities. years or morn from year

eplaced by aercent of posored retiremratio neededlacement ratDC plan an

st in PA 300meets the

mbined with es 7, 8 and 1

s workforce. e individualsd future needs.

useful as DCr a long perie the attributo a viable

 

plan ns. plan.

ost credit and B

nt is an 8 plan, or a 1

ore). r-to-

a st

ment d tios d the

0 DC

0 for

Plan s to

C iod tes of

 

 

Whenconsiadmineducacompcontr$1.6 bdeterm

The M

unfunto newwoulrequifirst t

MPSmanyplus acontrbeen inactibasedcovermakinconsi

Any v

the imbenefreasounfunexceeand inUndewhich

The OCoaliThe MretireSchounfunsharin

n moving froidered in ordnistrative pration. To compared the annributions to tbillion (see Cmining an ac

MPSERS Lended liabilityw members,d decrease rired employeten years (se

ERS faces my employers an amortizatribution basenegatively iive liabilitied contributioring the “strang lower conider to adjust

viable solutimpact of liabfits at sustain

onable obtainnded retiree ed the pay asnvesting the

er PA 300, mh should be

Office of Reition for SecMichigan Asement plan stol Business nded liabilityng in the sol

om one plan der to assess rocesses, venmpare the conual contributhe Hybrid pChart 7). Asctual cost is

egacy plan uny is being am, with new hesulting in ther contributioee Chart 9).

many challenthrough poo

tion paymened upon that impacted in ts, and (3) pr

ons. The comanded costs”ntributions. t contributio

ion to managbilities shoulnable levels ned from emhealth liabils you go ann assets, MPS

much of the rconsidered w

tirement Serure Retiremssociation oftructure withOfficials recy to the scholution.

structure tothe impact o

ndor selectioost of the exiutions over a

plan would ins PA 300 prodifficult but

nfunded accmortized oveires enteringhe need to acon for transi

nges in fundioled contribut toward theemployer’s three ways: rivatization ombined impac” for those emThis report m

on levels to m

ging the risinld be two-folby coordina

mployers and ities must be

nual paymenSERS has a vretiree healthwhen measu

rvices solicitment supports

f Retired Schh modificatiocommend a sool districts r

another, theof the chang

on and managisting Hybria 30- year pencrease by $ovides a choit over time is

crued liabilityer a 25-year pg the DC placcelerate conition costs to

ing retiremenutions. The c unfunded acpayroll. The(1) decline i

of non-educact is that cermployers whmakes recommore fairly d

ng costs of reld: (1) gove

ating the benemployees t

e amortizedts. By establvehicle to ach care financuring the ade

ted input fros retention ofhool Personnons to the restudy to idenresponsible f

e transition ee. These trangement, empd plan and theriod. Over t500 million ice for new hs expected re

y must addreperiod. If the

an, the closedntributions.

o be approxim

nt benefits. Tcontributionsccrued liabile payment ofin active worational servicrtain participhose payrollmmendationsdistribute cos

etiree healthernment empnefits with thto finance ththrough paylishing a reticcumulate fucing is transfquacy of the

om constituenf the currentnel also suppetirement agentify a methofor the costs

    ‐5‐   

effects and cnsition itemsployee commhe State DCthis period, tand to the S

hires to selecesult in cost

essed. Curree existing pld group’s actThis study pmately $4.5

The costs ars are equal tolity. Each emf the unfundrkforce, (2) ce further re

pating emplos have declins that MPSEst among em

h benefits whployers musthe funds that he benefits, ayments from iree health bunds to pay fferred to the e overall reti

ncy organizat retirement pports retentioe eligibility. od that fairly with all pub

   

cost must be s include munication, a plan we the annual State DC planct the DC plsavings.

ently, the lan were clostive payroll

projects the billion over

e shared acro the normalmployer payded liability hincrease in

educing payroyers are ned, therefor

ERS may wamployers.

hile addressit set retiree hcan be

and (2) the employers t

benefits trust future benefiemployees,

irement bene

ations. The plan structuron of the curThe Michig

y allocates thblic schools

 

and

n by lan,

sed

the

ross l cost s a has

roll

re ant to

ng health

that fund

fits.

efit.

re. rrent gan he

 

 

DEFINEPLANS

Governmtheir empcategorieclassificamechanis

Defined bpension pThe beneretiremenadequatethe retireoptions thbenefits”From thethe ultim

Defined cor in the IRS codefixed andbenefit istypically options. Sbenefits aemployeeperspectiwill be p

Hybrid pplans havOregon, teachers ColumbiRetireme

Examplevariable adependin

ED BENEFI

mental emploployees throues: defined bations are desms used to

benefit plansplans. Underefit is commont. The contr funding of b

ee, often withhat may be o

”), subsidizede employer p

mate costs.

contributionpublic secto

e that governd the amounts simply the pay a lump

Since the paare limited toe access to five, the ultimaid from the

plans have a ve gained poGeorgia, Utacurrently paa (Source: R

ent Plans, Na

s of hybrid pannuity plan

ng upon how

2. PL

IT PLANS,

oyers sponsough pre-retirenefit (DB) fined by thesupply those

s are commor a DB plan, only based uributions necbenefits. DBh additional offered in DBd early retireperspective, t

n plans are coor, in the formn their admint of benefits total of contsum amoun

articipant’s bo this amoun

funds throughmate cost of te plan.

combinationopularity in tah, Washing

articipate in hRonald Snellational Conf

plans includens. Hybrid pl

w they are str

LAN DESI

DEFINED

or retirementrement contrplans, defin

e forms of bee benefits.

on in the pubthe pension

upon factors cessary to fu

B plans typicsurvivor benB plans incluement benefithe amount o

ommon in thm of a supplnistration. Unthat each pa

tributions allt at retireme

benefit is defnt. Unlike Dh loans or hathe plan is fi

n of defined the last few dgton, and Nehybrid retire, “State Cash

ference of St

e DB/DC oflans can resuructured.

IGN COM

CONTRIBU

t plans in ordributions. Thed contribut

enefits that a

blic sector ann amount is d

such as the und these bencally pay bennefits that caude active dits, and post-of benefits th

he private secemental 457nder a DC p

articipant reclocated to th

ent, althoughfined to be th

DB plans, DCardship distrixed and wil

benefit and decades, andbraska, amoment plans ih Balance, Date Legislatu

ffset plans, cult in reduce

MPARISO

UTION PL

der to providhese plans cation (DC) plaare provided

nd are often defined at retparticipant’snefits are adjnefits as a man be electeddeath and dis-retirement chat will be p

ctor, often in7(b) plan, refplan, the contceives is unkhe employee,h some DC pheir account C plans someributions. Frll determine

defined contd are in effecong others. Inin 11 other s

Defined Contures, July, 20

ash balance d cost volati

    ‐6‐   

ON

LANS, AND

de post-retirean be dividedans, and hyband by the f

referred to atirement for s age, servic

djusted, as neonthly annu

d upon retiresability benecost- of- livi

paid from the

n the form oferring to thetributions in

known. At re, with intere

plans also offbalance, dis

etimes providrom the emplthe amount

tribution attrct for state emn addition tostates and thetribution and012).

plans, combility to the em

   

HYBRID

ement incomd into three

brid plans. Tfunding

as “traditionaeach partici

ce, and salaryeeded, to ensity for the li

ement. Additfits (“ancillaing adjustmee plan will d

f a 401(k) ple sections of

nto the trust aetirement, thst. DC plans

ffer annuity sability and dde an active loyer of benefits t

ributes. Hybmployees ino Michigan, e District of d Hybrid

bined plans, mployer,

 

me to main hese

al” ipant. y at sure fe of tional ary ents. drive

lan f the are

he s

death

that

brid

f

and

 

 

In most clower coGenerallywith simiplan but tIn a DB pthe emploemployee

SUMMA

The Michdefined boperatingCompiled

Until 197was fundthe Basicin order t

The Memwere BasBasic Pla

Features

Retir(high

Unreservic

Early

benef

Defer

Duty

Duty

For reexcesretire

cases, DC plst structure iy, benefits pilar employethe resultingplan, primaroyee. Hybrides.

ARY OF CU

higan Publicbenefit plan qg under the pd Laws 38.1

74, both empded entirely tc Plan. MPSto adapt to c

mber Investmsic Plan meman members

of the MIP i

ement benefhest three con

duced retiremce (5 years i

y retirement bfits commen

rred retireme

and non-dut

and non-dut

etirees after ss of plan eaees before Ja

ans are desigis a result of

provided fromer costs. A Dg benefits worily the empld plans were

URRENT PL

c School Emqualified unprovisions of301 et seq.)

ployers and ethrough empSERS has evhallenges fa

ment Plan (Mmbers at the t

again had th

include:

fits equal to nsecutive ye

ment benefitf consecutiv

benefits at ance prior to a

ent benefits

ty disability

ty death ben

January 1, 1rnings above

anuary 1, 198

gned to havef the transfer m a DC plan

DC or hybridould likely boyer assume

e developed

LANS

mployees’ Reder section 4f Michigan's.

employees cployer contriolved throug

aced over the

MIP) is a DBtime could che opportuni

credited servears)

ts at any ageve and imme

age 55 with 1age 60

after 10 year

benefits

nefits

1987, a choice 8% (Basic 87, the great

e lower emplof risks from

n are lower thd plan can bebe less than tes the risks, win part to sh

tirement Sys401(a) of thes Public Act

contributed tobutions — agh a series oe past 25 yea

plan that wachoose the Mity to select t

vice times 1.

e with 30 yeadiately prece

15 years of s

rs of service

ce between pplan) or a fi

er of these tw

loyer costs tm the emplohan benefitse designed wthose providewhile in a D

hare these ris

stem is a stae Internal Re300 of 1980

o the pensioa noncontribuof changes toars.

as introduceMIP, which tothe MIP in th

.5% of final

ars of serviceding retirem

service, redu

e, commenci

post-retiremefixed 3% simwo increases

    ‐7‐   

than DB or hoyer to the em

provided frowith the same

ed from a DDC plan the rsks between

atewide publievenue Servi0, as amende

on fund. By 1utory plan to

o benefits an

ed in late 198ook effect Jahe fall of 19

average com

e or age 60 wment)

uced ½% for

ing at retirem

ent increasemple increase

s

   

hybrid plansmployees. om a DB plae cost as a DB plan woul

risks are bornemployers a

ic employeeice Code

ed (Michigan

1977, the sysoday knownd contributio

86. Those whanuary 1, 19

991.

mpensation

with 10 year

each month

ment age

s related to te (MIP); and

 

. The

an DB

ld be. ne by

and

e

n

stem n as ons

ho 987.

rs of

h that

the d for

 

 

Similar bat age 55

Public sc(PPP), a

Features

Retir(high

Retir

Emplto a m

No ea

Defer

Duty

Duty

Imme

Four-

No po

PA 300 othe rate othe currein Chart choice becontributfor emplounder the

All Statemandatorfirst 3% oemployee

benefits appl5 with 10 yea

chool employHybrid plan

of the Hybri

ement benefhest five cons

ement at age

loyee contribmaximum of

arly retireme

rred retireme

and non-dut

and non-dut

ediate vestin

-year vesting

ost-retireme

of 2012 allowof future accrnt rate of be12 in the Apetween partition plan. Choyers than the Hybrid pla

of Michiganry employerof employeres can direct

ly to memberars of service

yees hired onn with a DB a

id plan inclu

fits equal to secutive yea

e 60 with 10

butions of 2%f 1% of pay

ent benefits

ent benefits

ty disability

ty death ben

ng in employ

g in employe

nt cost of liv

wed memberruals or an innefit accrual

ppendix. PAcipation in thhart 8 illustrhe value of en.

n employeesr contributionr contributiont their contri

rs of the Base or age 60 w

n or after Juland a DC co

ude:

credited servars), plus the

years of ser

% of pay to

after 10 year

benefits

nefits

yee contribut

er contributio

ving adjustm

rs first hiredncrease in thl). The proje

A 300 also allhe Hybrid prates that oveemployer-pro

s hired on orns of 4% andns. Employeibutions into

sic Plan (alsowith 10 year

ly 1, 2010 pomponent.

vice times 1.DC account

rvice

a DC accoun

rs of service

tions

ons

ments

d before July he required eected financlows membelan describeer the long-tovided bene

r after Marchd an employer contributio a 401(k) or

o a DB planrs of service.

articipate in

.5% of final t balance

nt, matched

e, commenci

1, 2010 a chemployee cocial savings oers hired on ed above or aterm, the optfits (i.e., the

h 31, 1997, ayer matchingons are place457 plan.

    ‐8‐   

), with retire.

n the Pension

average com

at 50% by th

ing at retirem

hoice betweeontribution raof this electior after Sept

an optional dtional DC ple employer n

are part of a g contributioned into a 401

   

ement eligib

n Plus Plan

mpensation

he employer

ment age

en a reductioate (to mainton is illustratember 4, 20

defined an is more c

normal cost r

DC plan witn of 100% o1(k) plan and

 

ility

r up

on in tain ated 012 a

costly rate)

th of the d

 

 

As part othese riskchoice of

CHOICE

An impoantiselectknowledgunexpect

A simplelump sumhealthy pannuity. not livingmost. Asincreasinaggregate

This concthan one retiremenwho are hretiremenDB plan choice beoften subretiremen

CONCLa DC plaWhile thebe expec

The overdiscussed

CONTR

DB plansemployerlosses thereturns dreturns wcontributportion o

of this study,ks would be f participatin

E AND ANT

rtant conception. Antiselge of their pted costs to t

e example ofm and an annparticipants wRetirees in pg as long. Em a result, tho

ng the cost ofe, the individ

cept would aretirement p

nt may elect hired mid-cant benefit, sumore costly

etween plansbsidize the cont.

LUSION: If an, it should be costs of thted to have t

rall risk profid below in li

RIBUTION V

s are pre-funr contributioe plan exper

directly affecwill result in tions are fixeof the contrib

, Segal was aaffected if n

ng in the Hyb

TISELECT

pt in retiremelection is theersonal situathe plans if th

f this in practnuity. Retirewill expect tpoor health wmployees wiose taking thf the plan. Edual selectio

also apply wplan. Participto participat

areer may pluch as is pres to the empls – younger,ost of older,

future emplobe expected e DC plan arthe effect of

files of the Might of additi

VOLATILI

nded based uon will increariences. In pat the unfundvolatility of ed at a set pebutions, so c

asked to expnew employebrid plan or

TION RISK

ent planninge tendency oation and thahe choices a

tice is the eles will factoo live longerwill be moreill make the

he annuity wiven though t

ons of partici

when particippants who arte in a DC pan to remainsent in the Hoyer, since – lower servichigher servi

oyees are givthat employre fixed for t

f increasing t

MIP, Basic plional risks fa

ITY RISK

upon annual aase or decreaarticular, unaded actuarial f the actuariaercentage of ontribution v

plore the riskees participaanother DC

and design of employeesat are in theirare not prope

ection that aor how healthr and will be

e likely to takelection thatill likely livethe benefits ipants tend t

pants are offere younger alan that featu

n until retiremHybrid plan. – in the case ce participanice participa

ven the choiyees would ethe employethe per-perso

lan, Hybrid paced by emp

actuarial valase each yeaanticipated caccrued liab

ally calculatef payroll, empvolatility is t

ks associatedate in the Sta

arrangemen

is the risk pos to make finr own best inerly anticipat

a retiring emhy they are ie more likelyke a lump sut they believe longer thanmay be actu

to increase th

ered the choand more likeures a more ment and eleThis could h where partints who are m

ants who are

ce of particielect the planers, offering on employer

plan, and proployees and c

luations. Thear based upochanges in dbility (UAALed contributiployers are rthe employe

    ‐9‐   

d with these pate DC plan ont.

osed from pnancial choicnterests. Thited.

mployee makeinto this deciy to elect to rum with the eve will benefn the averageuarially equivhe overall co

ice of particely to leave portable ben

ect for a morhave the effeicipants are nmore likely more likely

ipating in then that benefiemployees a

r cost of the H

oposed DC pcontributing

e actuariallyn the actuari

demographicL). Periods oion rate. Whresponsible fers’ responsib

   

plans and hoor are given

articipant ces that refleis can create

es between aision. Relatireceive an expectation fit themselvee retiree, valent in theosts to the pl

ipation in mservice befonefit. Particire stable DBect of makinnot given a to withdrawto stay until

e Hybrid plaits them the ma choice wouHybrid plan

plans are g employers.

y calculated ial gains ands and asset of volatile asen employeefor the remability.

 

ow the

ect

a vely

of es the

e lan.

more ore ipants

B ng the

w l

an or most. uld .

d

sset e

aining

 

 

Employedirectly a

DC plan in demogwill havebecause othrough a

It is impothe unfunliability aacceleratcontribut

CONCLcontributemployer

Implemeon behalfthe same(approximHybrid pappropria

ACCOU

Just as vocan be saThe Govreportingexpense ithe reporunderlyin

These riswhich wiallocate tbalance sbasis, thebelow thigreater Nmarket v

Under GApension e

ers may be beaffected by c

contributiongraphics or ae no effect onof changes inan election b

ortant to notended liabilityare being mated, as the DBtions to the c

LUSION: Thtion volatilityrs assume th

nting a DC pf of newly h. Over time,mately 20-30

plan dies wouate contribut

UNTING RI

olatility in daid for liabiliernmental A

g of retiremeis equal to thrted Annual Rng plan.

sks will be evill begin to ttheir portionsheets. As loe NPL shoulis amount, th

NPL. In additolatility.

ASB Statemexpense is eq

etter able to changes in th

ns are fixed basset returns n employer cn demograph

by the emplo

e that in a tray will remainade based onB plan memclosed DB pl

he MIP and y risk. The H

he contributio

plan for newired employas employe

0 years), theuld the risk btion level to

SK

emographicsities and exp

Accounting Snt plans on the employerRequired Co

ven more prake effect in

n of the unfunong as contribd be based ohe interest ration, the NPL

ments 67 and qual to the c

accept this rhe employee

by the plan pwill affect thcosts. In addhics or asset

oyee to do so

ansition fromn throughoutn DB plan m

mber payroll wlan until the

Basic plans Hybrid plan on volatility

w employees ees. The riskes in the DC

e risk would be eliminatedfund a secur

s and asset rpenses that mStandards Bothe employer contributionontribution (

onounced wn 2014. Thesnded liabilitybutions to M

on the currenate used to dL is based o

68, the penschange in the

risk than eme contribution

provisions ashe ultimate b

dition, the emt returns. Emo, if it is allow

m a DB plant the transiti

member payrowill decline unfunded li

are DB plancombines a risk for the

would elimik profile for

C plan replacbe reduced.d. In additiore retirement

returns createmust be reporoard (GASB)ers’ financialn, which is rARC) will f

with the adopse Statementy (called the

MPSERS are nt interest ratdetermine then the market

sion expensee NPL from o

mployees, whn rates.

s a percent obenefit receimployee’s co

mployee contwed.

n with an unfon. If paymeoll, the paymover time. Tability is am

ns where theDB benefit wDB portion

inate this risthe current p

ce those in thNot until th

on, the risk ot would also

es volatility rted on the p) issues stanl statements.relatively stafluctuate wit

ption of GASts require cone net pension based on ante assumptioe NPL wouldt value of as

e is no longeone year to t

    ‐10‐   

hose take-hom

of covered paived by the pontribution wtributions wi

funded liabilents toward

ments will neThis will resu

mortized.

employers awith a DC aof the benef

sk for emploplan membehe Hybrid ple last retired

of determinino be shifted t

in contributplan’s financndards that g. For a DC pable. For DBth gains and

SB Statemenntributing emn liability or n actuarially on. If contribd be lower, rssets so it wi

er equal to ththe next with

   

me pay wou

ayroll. Chanparticipants, will not chanill change on

lity to a DC the unfunde

eed to be ult in increas

assume all oaccount. The fit.

yer contribuers would remlan d member in ng the to the emplo

ions, the samcial statemenovern the

plan, the annuB plans, howe

losses in the

nts 67 and 68mployers to NPL) on thedetermined

butions fall resulting in aill be subject

he ARC. Insth certain

 

uld be

nges but

nge nly

plan, d

sed

of the

utions main

the

yees.

me nts.

ual ever, e

8,

eir

a t to

tead,

 

 

deferrals other chaand 10 yeshare of p

CONCLaccountinaccountinassume th

Moving tThe risk the DC pretired mplan wou

INVEST

In a DB ppaid to msalary hisvaluationcontributdeterminmust be cobligated

Most pubthe emplowould shstatute, thcontributreturns.

In a DC pemployeepoor assefaced witonly for mpoor inveprofessiothat empl

CONCLinvestmestructure

allowed. Changes, such aears). Pensiopension expe

LUSION: Acng risk. The ng risk. The he accountin

to a DC planprofile for c

plan replace tmember in theuld not affect

TMENT RE

plan, the invmembers are story at retirn process andtions and the

ne benefits arcarefully mod to make the

blic sector Doyer. If emp

hare a large phey would ntions are fixe

plan, the inve’s account bet returns. If th an “unfunmaking scheestment returonals to manloyers are be

LUSION: Thent return risk

spreads the

hanges in theas gains and on expense wense in their

ccounting risMIP and BaHybrid plan

ng risk for th

n for new emurrent plan mthose in the e Hybrid plat the current

ETURN RIS

vestment riskdefined by a

rement. An ed contributioe investmentre independeonitored. Eveese benefit p

DB plans requployee contriportion of invnot directly shed; the politi

vestment riskbalance, no u

f returns are nnded liabilityeduled contrirns is shiftedage their poretter able to

he MIP and Bk. The Hybrinvestment

e NPL due tolosses, are a

will also be vr financial st

sks only appasic plans aren combines ahe DB portio

mployees woumembers woHybrid plan

an dies wouldt liabilities of

K

k is mostly ba formula anestimate of thons are madet returns thatent of these ren if asset repayments.

uire contribuibutions adjuvestment rethare this riskical risk of le

k is assumedunfunded lianot enough t

y” for the shoibutions to thd to the emprtfolios and baccept inves

Basic plans arid plan comreturn risk b

o plan amenamortized ovvolatile and atements.

ply to the eme DB plans wa DB benefiton of the ben

uld eliminatould remain n, the risk wod the risk bef the System

borne by the nd based upohese benefitse in order to t result fund returns, the returns fall sh

utions by theust each yearturn risk. If ek. However,egislated con

d by the emplability will dto fund an adortfall that ishe employeeloyee. Becaubenefit fromstment return

are DB plansmbines a DB bbetween emp

ndments are rver a very shcontributing

mployers. Emwhere the emt with a DC anefit.

te this risk fothe same. O

ould be redue eliminated.

m or change h

plan sponsoon each empls is projectedmeet those othe benefits

ratio of assethort of expec

e employee ir with the acemployee co employees ntribution in

loyee. Sincedevelop for thdequate benes needed. Thes’ accountsuse employe

m economies n risk than e

s where the benefit with

ployers and e

    ‐11‐   

recognized ihort time perg employers

mployees do nmployers assaccount. The

or newly hireOver time, as uced. Not un. However, mhow they are

or or employeloyee’s age, d as part of tobligations. . Since the fts to liabiliti

ctations, the

in addition toctuarial valuaontributions share some

ncreases as a

e the benefit he employerefit, the emp

he employer , at which timers often emp of scale, it imployees.

employers ah a DC accouemployees.

   

immediatelyriod (betweewill report t

not face sume all of te employers

ed employeeemployees i

ntil the last moving to a e accounted

ers. Benefitsservice, and

the actuarialThese

factors that es of the plaemployer is

o those madation, emploare fixed byrisk even if result of po

is equal to thr as a result oployee can bis responsibme the risk oploy full-timis widely vie

assume all ofunt. This

 

and n 5

their

the

es. in

DC for.

s d l

an

e by oyees y

or

he of e

ble of

me ewed

f the

 

 

Moving trisk profiDC plan

INVEST

A DB plaof professecuritiespurchasewho cont

In a DC pinvestmeBecause expect lo

A recent implyingdiversificBenefit P

CONCLdiversificinvestmeemployeecompone

Moving thired emtime, as eshifted to

INVEST

Investmereturn onin order ttypically

DB plan fund is esexpectedmechanis

In a DC plifetime i

to a DC planile for the cureplace thos

TMENT DIV

an is able to ssional manas. DB plans ms, and lowertinuously mo

plan, investment options, sof the small

ower returns

study conclug that a DB pcation effect

Pension Plan

LUSION: Thcation risk exent diversifices. This is soent.

to a DC planployees. Theemployees ino employees

TMENT TIM

ent time horin assets. Typto minimize more willin

assets are mssentially inf

d rate of retursms to damp

plan, the parincome, mus

n for new emurrent plan mse in the Hyb

VERSIFICA

pool the assagers, a DB pmay also benring investmonitor and re

ment diversifsuch as Realer universe ofor the same

uded that theplan would c. (Source: A

ns. NIRS Aug

he MIP and Bxists. Becau

cation risk isomewhat off

n for new eme risk profilen the DC pla.

ME HORIZ

zon risk is thically, an invthe possibili

ng to invest a

managed for afinite, the plrn. While the

pen the effec

rticipant recest manage th

mployees woumembers woubrid plan, the

ATION RIS

sets for thousplan may divnefit from ec

ment expenseebalance the

fication is lim Estate, Hedof investmene amount of

e effect of thcost 26% less Better Bang

gust 2008)

Basic plans ase the Hybri found in thefset by the la

mployees woue for the curran replace th

ZON RISK

he risk that tvestor with aity of large laggressively

all participanlan may chooe returns mat on contribu

eives a lumphe risk of the

uld shift all uld remain the risk would

SK

sands of partversify invesconomies ofs. DB plans risk/reward

mited to the dge Funds, annt options, anrisk.

his efficiencys than a DC g for the Buc

are DB plansid plan has ae DC plan poack of invest

uld shift all rent plan me

hose in the H

the timing ofa shorter timlosses. Invesand earn a h

nts in the aggose a risk/reway be more vutions.

p sum paymee fund for a s

of this risk the same. Ov

d be complete

ticipants in astments overf scale in maalso benefit

d profiles of t

available asnd Private En individual

y for DB plaplan purely ck: The Econ

s where verya DB and a Dortion, whictment divers

investment dembers woul

Hybrid plan, t

f benefit payme horizon mstors with lonhigher rate o

gregate. Sinward profile

volatile, the p

ent at retiremshorter time

    ‐12‐   

to newly hirever time, as eely shifted to

a single fundr a broad uniaking relative from profesthe fund.

sset choices.Equity, may nl investment

ans was appras a result o

nomic Efficie

y little invesDC componeh is assumedification risk

diversificatiold remain thethe risk wou

yments will amust invest lenger time ho

of return.

ce the time he that can yieplan may use

ment and, if thorizon. Thi

   

ed employeeemployees ino employees

d. With the hiverse of ely large ssional mana

Certain not be availaaccount wo

roximately 2of this encies of Def

tment ent, the d by the k in the DB

on risk to nee same. Oveuld be compl

affect the ratess aggressivorizons are

horizon of theld a greater e actuarial

the goal is is generally

 

es. The n the s.

help

agers

able. uld

26%,

efined

ewly er letely

te of vely

he

 

 

means inBecause horizon r

In the casare receivdecreasesreturn ex

CONCLhorizon rrisk will plans are

Because found in

Moving thired emtime, as erisk woul

DEMOG

Demograwill affecrates of r

A DB plaAs long aparticipanthe plan iover the experienccontribut

A DC plaperiod ofto withdrretiree mexpectedwill have

For examretiree is this perio

nvestment in of the long-t

risk than emp

se of a closeving benefit s, the plan m

xpectations.

LUSION: Thrisk exists. Hbegin to app

e managed as

the Hybrid pthe DC plan

to a DC planployees. Theemployees inld be comple

GRAPHIC R

aphic risk resct plan costsretirement, d

an is able to as actuarial ants who are is large relatentire groupces demogrations.

an accumulaf retirement. raw funds. In

must estimated could potene assets rema

mple, based uapproximat

od. The 99th

less risky, loterm nature ployees are.

ed DB plan, wpayments, t

may be forced

he MIP and BHowever, as pear. If the cus one pool, th

plan has a Dn portion, wh

n for new eme risk profilen the DC plaetely shifted

RISK

sults from ch. Demograph

disability, wit

collect the rassumptionsmore expen

tive to the risp without an aphic risks th

ates assets foThe retiree

n order to op the amount

ntially outlivaining after d

upon recent mely 22 years

h percentile l

ower return of pension p

where the astime horizond to manage

Basic plans athe plans exurrent Hybrihe time hori

B and a DC hich is assum

mployees woue for the curran replace thd to employe

hanges to thehic factors ththdrawal, an

risks of many are met, thosive to the psks of indiviindividual’s

hrough actua

or one particiis responsib

ptimize the bof time they

ve their savindeath.

mortality tab, so one halfife span is ap

asset classesplans, emplo

ssets are decln risk is realiz the risk ove

are DB plansxperience decid plan remazon risk is m

component,med by the em

uld shift therent plan me

hose in the Hes.

e demographhat affect pe

nd salary inc

y participantose participaplan (i.e., thoidual particips benefits beiarial losses, w

ipant and thele for manag

benefits paidy expect to lings. A partic

bles, the medf of the annupproximatel

s to lower thoyers are bett

lining as thezed by the per a shorter t

s where verycreasing memains in placemitigated.

, the investmmployees.

investment embers woul

Hybrid plan, t

hic nature ofension plan lreases.

ts and combants who are ose who live pants, the rising affected.which could

e assets are pging this acc

d from the fuive. A partic

cipant who li

dian life spanuitants wouldly 44 years, s

    ‐13‐   

he probabilityter able to ac

e remaining rplan. As the ptime horizon

y little invesmbership theand since as

ment time ho

time horizonld remain thethe investme

f the plan paliabilities inc

ine them intless expenslonger than

sk can be spr. However, a

d increase req

paid over thicount and muund after retircipant who liives shorter t

n of a 65 yead expect to lso approxim

   

y of a large lccept time

retired memplan’s lifesp

n, lowering th

tment time e time horizossets of all th

orizon risk is

n risk to newe same. Oveent time hori

articipants anclude mortal

to a single poive offset expected). S

read efficiena DB plan stquired emplo

is participanust decide wrement, the ives longer tthan expecte

ar old male ive longer th

mately one in

 

loss.

mbers pan he

on hree

also

wly er izon

nd ity,

ool.

Since ntly till oyer

nt’s when

than ed

han n

 

 

every hunRisks in

This riskproceedsrisk-pooldemograp

CONCLdemograpshared be

Moving temployeeemployeecomplete

POST-R

A DB placalculateinflation have a lainflation

DB plansgranted opercent oof-living

In a DC passets earHoweveroutpace i

CONCLlimited ccost-of-lifor inflat

The Hybemployeeplan mem

ndred retireeRetirement”

k can be mitig. However, tling arrangemphic risks th

LUSION: Thphic risk. Beetween empl

to a DC planes. The risk es in the DCely shifted to

RETIREME

an calculatesd, does not ghas the effec

arge impact owill reduce

s are able to on a systemaor tied to “ex

increases ar

plan, some inrn interest dur, retirees muinflation.

LUSION: Thost-of-livingiving risk is ion that is gr

rid plan for es) shifts pombers would

es is expecte”, Institutiona

gated somewthe annuity wment that pe

han individua

he MIP and Because the Hloyers and em

n for new emprofile for th

C plan replaco employees.

ENT COST-

s a benefit fogenerally chct of erodingon purchasinthe effective

mitigate thisatic or an ad-xcess” returnre provided,

nflation proturing the parust assume th

he legacy, org increases opartially assreater than th

employees hst-retiremen

d remain the

ed to live at lal Retiremen

what by the pwill come atnsion plans al employees

Basic plans aHybrid plan hmployees.

mployees wouhe current ple those in th.

OF-LIVING

or each partihange during g the purchang power throe value of $1

s risk throug-hoc basis. Tns on assets,

the risk will

tection is avrticipant’s rehe risk of no

r now-closedor additional sumed by thehe plan’s inc

hired on or ant cost of livi

same.

least double nt Income Co

purchase of at an additionprovide, ems.

are DB planshas a DB and

uld shift demlan members

he Hybrid pla

G RISK

cipant at thethe period o

sing power oough this co1,000 to $74

gh retiree benThese increas

so the risk isl be complet

ailable durinetirement, wot meeting th

d MIP and Bpayment pro

e employers.creases.

after July 1, 2ing risk to m

this period. ouncil, Vol

an annuity wnal cost to themployers are b

s where the d a DC comp

mographic ris would reman, demogra

e date of retirof retirementof the benefi

ompounding 0 over fiftee

nefit cost-ofses are typics not completely assumed

ng the periodwhich can helhe minimum

asic plans arovisions for . The employ

2010 (or momembers. Th

    ‐14‐   

(source: “Q3, Number 3

with the DC e participantbetter able to

employers aponent, dem

isk to newly main the sameaphic risk wo

rement. Thist. As the reti

fit. Even modeffect. A 2%

en years.

f-living increcally limited etely eliminad by the retir

d of retiremelp mitigate th

m rate of retur

re DB plans retirees. Poyee bears th

oving to a DChe risk profil

   

uantifying K3).

balance t. Because ofo manage

assume mographic ris

hired e. Over timeould be

s benefit, oniree ages, dest inflation% annual rate

eases that canto a maximu

ated. If no corees.

ent. The DC his risk. rn necessary

that feature st-retiremen

he remaining

C plan for nele for the cur

 

Key

f the

sk is

e, as

nce

n can e of

n be um ost-

y to

nt risk

ew rrent

 

 

SUMMA

The risks

TABLE

Risks

Contribut

Accounti

Return R

Diversific

Time Hor

Demogra

Cost-of-L

ARY

s discussed a

1 – Bearers

tion Volatility

ng Risk

Risk

cation Risk

rizon Risk

aphic Risk

Living Risk

above are sum

of Risks

H

y Risk E

E

S

S

S

S

E

mmarized in

Current P

ybrid

MPLOYERS

MPLOYERS

HARED

HARED

HARED

HARED

MPLOYEES

n the followi

Plan P

DC

S N/A

S N/A

EM

EM

EM

EM

S EM

ing table.

Proposed Pl

C

A

A

MPLOYEES

MPLOYEES

MPLOYEES

MPLOYEES

MPLOYEES

    ‐15‐   

lan Le

MIP/B

EMP

EMP

EMP

EMP

EMP

EMP

SHAR

   

egacy Plan

Basic

LOYERS

LOYERS

LOYERS

LOYERS

LOYERS

LOYERS

RED

 

 

 

In order tMPSERSprogramsMichiganprograms

Illino

India

Iowa

Kentu

Minn

Misso

New

Ohio

Penn

Wisc

Teacher

The Teacto providelementafunded rawould beincluded determincontributcontribut

A new tietier delayfrom fouthe COLAfunded stchanges w

to compare tS, we have as. This “peern and is oftens sponsored

ois — Teach

ana — Teach

— Public E

ucky — Tea

nesota — Te

ouri — Publ

York — Sta

— State Te

sylvania —

onsin — Wi

s’ Retireme

chers’ Retirede retirementary and seconatio of 58%, e determineda phase-in f

ned amount stion during thtion amount.

er of benefityed retiremenr years to eigA. The assumtatus as of Juwill be made

3. PE

the plan desiassembled inr” group conn used as coby the state.

ers’ Retirem

hers’ Retirem

Employees’ R

achers’ Retir

achers Retir

lic School R

ate Teachers

achers Retir

Public Scho

isconsin Ret

ent System o

ement Systemt, disability, ndary schoolthe state int

d such that Tfor the first 1since the incehe 15-year p.

ts was implemnt eligibilityght years, camed return oune 30, 2012e due to the

EER GRO

ign, funding formation fr

nsists of planmparators w The ten pla

ment System

ment Fund (a

Retirement S

rement Syste

rement Assoc

etirement Sy

’ Retirement

rement Syste

ool Employee

tirement Syst

of Illinois

m (TRS) waand death bels outside thtroduced its “

TRS would b15 years. Theeption of thephase in peri

mented for ty, extended thapped the salon investmen2 was reportepoor funded

OUP PLAN

method, benrom other puns from ten swhen evaluatans included

a component

System

em

ciation

ystem

t System

em

es' Retireme

tem

s establishedenefits to tea

he city of Chi“50-year fune 90% fundee State has be policy. Howiod falls well

teachers hirehe averaginglary at the Sonts was recened to be 42.5

d status.

N SURVEY

nefit provisiublic state scstates in the sting MPSERare:

t of the India

ent System

d by the Statachers emploicago. In 199nding plan” wed by fiscal been contribuwever, the stl below an a

ed on or afterg period for ocial Securitntly lowered5%. It is exp

    ‐16‐   

Y

ions, and othchool employsame geogra

RS and the ot

ana Public R

te of Illinois oyed by Illin96, with a thwhereby con2045. The fuuting the statatutorily de

actuarially de

r January 1, final averagty wage based from 8.5%pected that ad

   

her features oyee retiremeaphic region ther retireme

Retirement Sy

on July 1, 1nois public hen-current ntributions unding plan

atutorily etermined etermined

2011. The nge compensae, and lower

% to 8.0%. Thdditional

 

of ent

as ent

ystem)

939,

new ation red he

 

 

Indiana

The India1921 as abenefits tthe pay-a1996 Acccontributwhich pr

There areHowever(ASA), wcan conv

Iowa Pu

The IowaLegislatuschool emcoveragerates andand emplby emploeach yearcontribut

Other chaperiod foretiremento applyiexisting m

Kentuck

Since its benefit restate. Emfor membpension rsession. Hin this tiereduction

State Teach

ana General a pay-as-youto its membeas-you-go pocount. Beneftions. The 19rovides some

e no employr, employeeswhere, at retivert their bala

blic Employ

a Public Empure on July 4mployees (ane). In 2010, td benefits forloyer contriboyers. Beyonr, by no mortion rate.

anges to benor final averant reduction ng to emplomembers.

ky Teachers

inception inetirement pro

mployee/empbers coveredreform legislHB 1 createder require mons, and accru

hers’ Retire

Assembly cu-go defined ers and theirortion of the fits accrued 995 legislatioe level of fun

ee contributs are requiredirement, memances into an

yees’ Retire

ployees’ Ret4, 1953 and cnd excludinghe Iowa Legr the Regularbution rate wnd 2011, IPEre than one p

nefits, whichage compensfor memberyees hired o

' Retiremen

n July 1940, ogram for lo

ployer contribd under univlation was pd a new tier ore service fue benefits u

ement Fund

created the Inbenefit retir

r beneficiarieplan (effectiunder the 19on also inclunding for the

ions requiredd to contribumbers can wn annuitized

ement Syste

tirement Syscovers all pug university gislature pasr membershi

was 13.45% oERS is authopercentage p

h went into esation from trs who retire on or after Ju

nt System

the Kentuckocal school dbution rates ersity emploassed under of benefits f

for early retirunder a lower

ndiana State rement plan es. In 1995, live June 30, 996 Accountuded the creae Pre-1996 A

d to fund theute 3% of sal

withdraw theiamount that

m

stem (IPERSublic employand communsed a bill thaip. Beginninof pay, with

orized to adjuoint, based u

ffect July 1, three years tobefore reach

uly 1, 2012, t

ky Teachers’districts and and provisio

oyment versuHouse Bill

for membersrement eligibr formula.

Teachers’ Rto provide plegislation w1995) and c

t are funded ation of the P

Account.

e defined benlary to an Anir ASA balant is added to

S) was establyees in the stnity college at included c

ng July 1, 2040% paid b

ust the total cupon the actu

2012, incluo five years hing normalthese change

Retirement other publicons of the beus non-unive1 (HB 1) in

s hired on or bility, have h

    ‐17‐   

Retirement Fpension and dwas introduccreated a newwith actuariPension Stab

nefit portionnnuity Savinnces in a lum

o their define

lished by thetate, includinpersonnel w

changes to th11, the comby employeescontributionuarially requ

ude extendingand increasi

l retirement aes affect futu

t System proc educationalenefit formuersity emploa 2008 spec

r after July 1higher early

   

Fund (TRF) idisability ed that closew tier called ially determibilization Fu

n of TRF. ngs Accountmp sum or thed benefit.

e Iowa ng teachers awho elect othhe contributibined emplos and 60% p

n rate up or duired

g the averaging the earlyage. In additure accruals

vides a definl agencies in

ula are differeoyment. Majoial legislativ, 2008. Mem

y retirement

 

in

ed the

ined und,

t hey

and her ion oyee paid down

ing y-tion for

ned n the ent or ve mbers

 

 

Minneso

The Minncoveragecreated foeligibilityretirementhose Tieadditionaprospecti0.5% con

LegislatiSince 19Retiremeannual inpassed infixed at 2passed thJanuary 1TRA (baannual inbenefit rejudge uph

Public S

The PublMissourischool emRetiremeRetiremefunded psurvey gr2011) am

New Yor

The StateLegislatuschool teyears, NYsecond tihired on which agmade by

ota Teachers

nesota Teache to educatorfor members y, removed tnt reduction er II memberal changes toive-only formntribution rat

on enacted i80, postretir

ent Investmencreases for in 2008, the P2.5% annualhat temporar1, 2013, annsed on the m

ncrease will becipients froheld the con

chool Retir

lic School Ri in May 194mployees anent System oent System) —ercentage asroup. It also

mong plans in

rk State Tea

e Teachers’ Rure to provideachers and aYSTRS operier of benefitor after July

gain providedactive mem

s Retiremen

hers Retiremrs in 1931. Ehired on or

the Rule of 9factors, and

rs who are ho early retiremula multiplte increases

in 2010 affecrement benefent Fund (refin-payment-

Post Fund waly (effectiveily suspendeual increase

market value be restored bm the 2010

nstitutionality

ement Syste

Retirement Sy45, to providnd their familof Missouri (— provides s of June 30,has the high

n the survey

achers’ Reti

Retirement Sde retirementadministratorated as a sints (that gene

y 1, 1973. Add lower benebers.

nt Associati

ment AssociaEffective July

after that da90 eligibilitymodified th

ired on or afement benefilier improvefor both mem

cted the COLfit increases ferred to as th-status benefas merged ine July 1, 2010ed the COLAs would be fof assets) re

back to 2.5%legislation wy of the State

em of Misso

ystem was ese retirementlies. A sister(formerly knbenefits to n 2011 over 8

hest requiredy group.

irement Sys

System was t, disability,rs (excludinngle tier defirally providedditional tierefits and — f

on

ation (TRA) y 1, 1989, a nate. The new y criteria, imphe benefit forfter July 1, 2ts). The 200

ement for sommbers and e

LA applicabhad been prhe “Post Fun

fits on investn with the ac0). Then in M

A for 2 yearsfixed at 2% peaches 90%.

% annually. Twas challenge laws that e

ouri

stablished byt, disability, r system — t

nown as the Nnon-certifica85%, PSRS id member co

stem

established and death beg public schined benefit ed reduced brs (Tier 3 anfor the first t

began provinew tier of btier (Tier II)

mplemented armula. Addit

2006 (longer 06 pension pame existing

employers.

ble to existingrovided fromnd”). Prior totment yieldsctive membeMay of 2010s (2011 and 2per year unti Once this thThe decreaseged in the couenacted the d

y the Public and death bethe Public ENon-Teacherated public sis one of the

ontribution ra

in 1921 by tenefits to eli

hools in Newprogram. In

benefits) wasd Tier 4) wetime — requ

    ‐18‐   

iding definedbenefits and ) delayed ret

actuarially eqtional chang

r vesting requackage also TRA memb

g retirees in m the Minnes

o 2010, the P over 5%. Ur funds and 0, additional2012), and bil the fundedhreshold is ae in COLA furts, but on decrease.

School Retienefits to cer

Education Emr School Emchool person

e best fundedate (14.5% e

the New Yorigible New Y

w York City)n response tos implement

ere created inuired contrib

   

d benefit peneligibility wtirement quivalent earges were maduirement andcontained a ers, as well

payment stasota Post Post Fund ba

Under legislatthe COLA w

l legislation wbeginning d percentageachieved, thefor current June 29, 201

irement Act rtificated pu

mployee mployee nnel. With ad plans in theeffective July

rk State York State p. For over fi

o rising coststed for membn 1976 and 1butions to be

 

nsion was

rly de to d

as

atus.

ased tion

was was

e of e

11, a

of ublic

a e y 1,

public ifty s, a bers 1983, e

 

 

In responbenefits: membersbenefit acfrom actiamount, wbenefit/mafford the

State Te

STRS Ohmembersstate of Ofrom actioption anThe defininto a def10% of thto fund a

In Marchplanning The procwhich coNormal sminimumthrough Jto age 55time periover threincrease from a 3%

In additioincluded reemployabsence.

Pennsylv

On July 1law estabAlthoughincrease provided“Tier D”

nse to the recTier 5 for m

s hired on orccruals, incrive memberswhich is 11.

member conte cost of spo

achers Reti

hio was estabs of public scOhio. In addiive membersnd a “Combined contribufined contribheir salary to

a reduced def

h 2009 — amprocess to a

cess culminatontained penservice retirem age of 60 wJuly 1, 20235 with 30 yeaiod. Additionee years, a chin the final a% simple inc

on to those cvarious othe

yment at reti

vania Public

18, 1917, theblishing a deh minor chanin member c

d a 2.5% ben was availab

cent recessiomembers hirer after April rease reductis. The State 11% of payr

tribution struonsoring NY

irement Sys

blished on Mchools, boardition to a defs and 14% frined Plan” opution plan probution accouo their definfined benefit

midst the 200address the imted with the sion reform ement eligibiwith 35 year. Early retirears of servicenal changes hange in the average salarcrease to a 2

changes to beer changes suirement, and

c School Em

e Pennsylvanefined benefinges in benecontribution efit multiplie

ble to existin

on, the legisled between J1, 2012. Theions for earlyis required troll as of theucture of Tie

YSTRS into t

tem of Ohio

May 8, 1919,ds of educatfined benefitrom employeption to memovides a 20.

unt. The Comed contributt portion.

08-2009 finampending fupassing of Sprovisions aility is changrs of service ement eligibe (and actuainclude a 3%benefit formry period fro

2% simple in

enefits and cuch as the elinclusion of

mployees’ R

nia Public Scit retirement fits and eligirate in 1983er, but also a

ng member th

lature has imJanuary 1, 20ese tiers furthy retirement,o pay the ac

e last reporteer 6 is expectthe future.

o

, as a retiremtion, state-sut plan (whichers), STRS ambers who o5% contribu

mbined Plan tion account

ancial crisis —unding challSubstitute Seapplicable toged from anyand is phaseility is chang

arial reductio% increase inmula (with soom three yeancrease.

contributionslimination of interest on

Retirement S

chool Emplosystem cove

ibility had b3, a new tier a higher memhat elected to

mplemented t010 and Marher delay ret, and require

ctuarially deted actuarial vted to allow

ment plan to upported collh currently ralso offers a opt out of deution (10% m

option allowand the 14%

— the STRSenge createdenate Bill 34o existing mey age with 3ed in over thged from ag

ons), and wiln the membeome elementars to five ye

s listed abovf purchased the cost to p

System

oyees’ Retireering teacheeen enacted of benefits w

mber contribo pay the hig

    ‐19‐   

two additionrch 31, 2012tirement elige increased ctermined convaluation (20the State to

teachers andleges, and unrequires a 10defined confined benefi

member/10.5ws members % employer c

S Board initid by the mar42 on Septemembers and c30 years of sehe period Aue 55 with 25ll be phased er contributiot of grandfatears, and a de

ve, Sub. SB 3service subs

purchase a p

ement Act (Pers and schoo

over time, iwas introducbution rate. Tgher contribu

   

nal tiers of 2 and Tier 6 gibility, reducontributionsntribution 011). The continue to

d faculty niversities in0% contributntribution plait plan cover5% employer

to contributcontribution

iated a long-rket downturmber 12, 201current retireervice to a

ugust 1, 20155 years of serin over the son rate phasthering), an ecrease in C

342 also sidies, rules ast leave of

PSERS) becol employeesincluding a 1ced in 2001 tThis so-calleution rate.

 

for uce s

n the tion an rage. r) te

n goes

-term rn. 12, ees.

5 rvice same ed in

COLA

for

came s. 1% that ed

 

 

Act 120 oGovernorbecome nmultiplie10.3% cofor in priaddition,to increafunded oincrease

Wiscons

The Wiscsector woWisconsiexecutivehave a semethods is formulsecond cacontributmember to grow a 

of 2010 wasr on Novembnew memberer and 7.5% montribution rior tiers and the memberse by up to 2n an actuariafrom year to

in Retireme

consin Retirorkers, incluin (excludinges, elected oeparate benefand retiring

la based usinalculation istions plus anhas the optioat “market” i

passed by thber 23, 2010rs of PSERSmember con

rate. Both Tionly allow pr contributio2%. Act 120al basis, subjo year.

ent System

ement Systeuding teacherg the City offficials and wfit, eligibilitymembers re

ng a benefit m a money pu

n equal amouon of participinvestment r

he General A0. Act 120 crS on or after ntribution rater E and Tie

purchases of on rates conta also includeject to limits

em provides rs and non-tef Milwaukeeworkers in py, and contri

eceives the gmultiplier, fi

urchase calcuunt of emplopating in thereturns rathe

Assembly onreates two tiJuly 1, 2011te while Tierer F extend rf prior servicain a “shareded a requirems on how mu

retirement, deaching educe and Milwauprotective seibution struc

greater of thefinal averageulation based

oyer contribue “Variable Fer than the “C

n Novemberers of benefi

1. Tier E pror F provides retirement elce credit at thd risk” proviment for the uch the contr

death, and dcation persoukee Countyrvice classif

cture. Benefie two calculae earnings, and on an emputions plus acFund”, whicCore” interes

    ‐20‐   

r 15, 2010, anfits for indiviovides for a 2

a 2.5% mulligibility beyhe full actuarision that ca employer coribution requ

disability benonnel, in the y). WRS alsofications, butfits are calculations. The fnd years of s

ployee’s requccumulated h allows thest credit.

   

nd signed byiduals who 2% benefit tiplier and

yond that allorial cost. In

an cause the rontribution tuirement can

nefits to all pstate of o covers t these memblated under tfirst calculatiservice. The uired interest. A

eir contributi

 

y the

owed

rate to be n

public

mbers two ion

ions

TABLAsset

Michig

Illinois

Indiana

Iowa

Kentuc

Minnes

Missou

New Y

Ohio

Pennsy

Wiscon

UAL A

Michig

Illinois

Indiana

Iowa

Kentuc

Minnes

Missou

New Y

Ohio

Pennsy

Wiscon

1

 

 

E 2 - ActuaSmoothing

San 5

5

a 4

4

cky 5

sota 5

uri 5

York 5

4

ylvania 1

nsin 5

mortization fo

Am

an L

L

a L

L

cky L

sota L

uri L

York L

L

ylvania L

nsin L

                   E.g., a 20% co

greater than

rial Method

Smoothing 5 years

5 years

4 years

4 years

5 years

5 years

5 years

5 years, base

4 years

10 years

5 years

or Annual Req

Amortizatiomethod Level % of pa

Level % of pa

Level dollar

Level % of pa

Level % of pa

Level % of pa

Level % of pa

Level % of pa

Level % of pa

Level dollar

Level % of pa

                       orridor means tn 120% of mark

ds

period

ed on 3%

quired Contrib

on

ay

ay

ay

ay

ay

ay

ay

ay

ay

                   that the calculaket value

CorridorNo corrido

No corrido

20% corrid

20% corrid

No corrido

No corrido

No corrido

No corrido

9% corrido

No corrido

No corrido

bution

Payroll g3.50%

4.40% (ap

N/A

4.00%

4.00%

3.75%

3.50%

N/A (unkn

3.5% for 74.0% thereN/A

3.20%

ated actuarial v

r1 or

or

dor

dor

or

or

or

or

or

or

or

growth

pprox.)

nown)

7 years, eafter

value of assets

Return a8.00% no

8.00%

7.00%

7.50%

7.50%

8.50%

8.00%

8.00%

7.75%

7.50%

7.20%

AmortizClosed pe

30 year o

Closed pe

30 year o

30 year o

Closed pe

30 year la

Average f

30 year o

30 year o

Closed pe

cannot be less

    ‐21‐   

assumptionon-Hybrid, 7.0

zation perioeriod (25 yea

open

eriod (30 yea

open

open

eriod (26 yea

ayered (20 ye

future workin

open

open

eriod (18 yea

s than 80% of m

   

n 00% Hybrid

d rs remaining)

rs remaining)

rs remaining)

ears for benef

g lifetime (Ag

rs remaining)

market value or

 

)

)

)

fit changes)

ggregate)

)

r

TABL

Michig

Illinois

Indiana

Iowa

Kentuc

Minnes

Missou

New Y

Ohio

Pennsy

Wiscon

 

 

E 3 - Retire

an T

Ts

a Tea

a

cky As

sota T

uri d

t

York T

ylvania T

nsin

ment Plan S

Coverage

Teachers and

Teachers emschool distric

Teachers in aemployees, aand public un

Regular memand protectio

Any position state agencie

Teachers and

Certificated, fdistricts in MiCity), public 2non-profit eduto join

Teachers and

Licensed teac

Teachers and

General EmpElected Offici

Structure

d public schoo

ployed by puts located out

a public schooand some emniversities

mbers (incl. tean occupations

requiring teaces

d educators

full-time emplssouri (excep2-year collegeucational asso

d public schoo

chers and oth

d public schoo

ployees (incl. tials, Protectiv

ol employees

blic common tside the city

ol corporationployees in ch

achers), shers

cher certificat

oyees of pubpt St. Louis cites, and certaiociations that

ol employees

her faculty me

ol employees

teachers), Exves

s

and charter of Chicago

n, certain TRFarter schools

riffs, deputies

ion in certain

blic school ty and Kansan statewide t have elected

s

embers

s

xecutives &

Tiers

Most hired Hybri9/4/12

Tier ITier I

F s

Pre-1Accou

, Single

Membhired

Membhired

as

d

Single

Tier 1Tier 2Tier 3Tier 4Tier 5Tier 6

Single

T-C (and T

Single

    ‐22‐   

s

pre 7/1/10 hibetween 7/1/d/PPP; mem2 can choose

: membershipI: membershi

996 Accountunt (post 7/1/

e tier

bers hired beon and after

bers hired beon and after

e tier

1: membershi2: membershi3: membershi4: membershi5: membershi6: membershi

e tier

legacy), T-D T-F (both post

e tier

   

res are MIP; /10 and 9/3/1bers hired on

e between Hy

p prior to 1/1/p on or after

t (closed grou/95 hires)

efore 7/1/08; M7/1/08

efore 7/1/89; M7/1/89

p prior to 7/1/p 7/1/73 - 7/2p 7/27/76 - 8/p 9/1/83 - 12/p 1/1/10 - 3/3p on or after

(post 7/1/01 ht 7/1/11 hires

 

members 2 go into

n or after ybrid or DC

11; 1/1/11

up); 1996

Members

Members

/73; 26/76; /31/83; /31/09;

31/12; 4/1/12

hires), T-E )

TABL

Michig

Illinois

Indiana

Iowa

Kentuc

Minnes

Missou

New Y

Ohio

Pennsy

Wiscon

 

 

E 4 - Contri

an

a

cky

sota

uri

York

ylvania

nsin

ibutions

Employe

Basic, eleBasic, eleMIP, elec

Pre 7Hiredof $15Hired$15,0

MIP, elecHybrid pla

9.40%

None

5.78% (R

7.625% (

Currently

14.50%

Tiers 3-4Tier 5: 3.5Tier 6: 3.5

Currently

T-C: 5.25T-D: 6.5%T-E: 7.5%T-F: 10.3Average:

5% (Gene

ee Contribu

ecting reduceecting to maincting reduced 7/1/90 hire: 3.9d between 1/15,000;

d on or after 7000; cting to maintaan: 3% of firs

Regular Memb

University); 9

y 6.00%; 3x0.5

: 3% for first 15%; 5% through 3

y 10%; 3x1%

5% pre 7/22/8% pre 7/22/83%, but can inc3%, but can in

7.40%

eral employee

ution Rate

ed future accruntain current afuture accrua

9%; /90-6/30/08:

/1/08: 3% of f

ain current acst $5,000 + 3.6

bership only)

9.105% (Non-

5% increases

10 years;

3/31/13, then

increases beg

83 hire, 6.25%3 hire, 7.5% pcrease as highncrease as hig

es only)

ual under PA accrual underal under PA 3

3% of first $5

first $5,000 +

ccrual under P6% of next $1

university)

s beginning 7/

a percentage

ginning 7/1/12

% post 7/22/83ost 7/22/83 hh as 9.5% ("sgh as 12.3% (

300: None; r PA 300: 4.0

300:

5,000 + 3.6%

3.6% of next

PA 300: 7.0%10,000 + 6.4%

/1/12 (7.50%

e (3% to 6%) d

2 (13% ultima

3 hire; hire; shared risk" pr("shared risk"

    ‐23‐   

%;

of next $10,0

t $10,000 + 6

%; % in excess o

ultimate)

dependent on

ate)

rovision); " provision);

   

000 + 4.3% in

6.4% in exces

of $15,000

n salary

 

excess

s of

TABL

Michig

Illinois

Indiana

Iowa

Kentuc

Minnes

Missou

New Y

Ohio

Pennsy

Wiscon

2

 

 

E 4 - Contri

an

a

cky

sota

uri

York

ylvania

nsin

The variacontributamortizatthe level

                   The 20.90% r

the System

ibutions (co

Employe

Actuarially

Amount toby 2045

Pre-1996 appropriaAccount fset by Bo

Currentlybeginningdetermineexceed 1

Actuarially

Statutory

Statutory

Actuarially

Statutory

Normal Cof UAL (larate collar

Actuarially

ations in the tion (i.e., station period, of employee

                       rate for Michigas of Septemb

ontinued)

er Contribu

y-determined

o achieve 90%

Account fundations (pay-asfunded by conard and paid

: Statutory fixg 7/1/12: actued, change in.0% per year

y-determined

fixed rate

fixed rate

y-determined

fixed rate

Cost + 24 yearayered), subjer

y-determined

level of empatutory or actthe economie contributio

                   an PSERS is ber 30, 2011.

tion Basis

contribution

% funded rati

ded by State s-you-go); 199ntribution rateby employers

xed rate; arially rate cannot

contribution

contribution

r amortizationect to pension

contribution

ployer contrtuarially deteic assumptioons.

based on the ac

Fund

the A

Yes

o No

96 e s

No

No

Yes

No

No

Yes

No

n n

No

Yes

ribution ratesermined), thons, the bene

tuarially determ

ding ARC? E

2M

2

7

8o

U(2

CSin

1

1

1

1P

6

s is due to thhe funded staefit structure

mined contribu

    ‐24‐   

Employer C

20.90%2; (20.MIP, 19.70% f

28.63%

7.50%

8.67% (Regulonly)

Univ.: 22.365%>08); Non-un

24.845% (>08

Currently 6.69Supplementalncreases beg

14.50%

11.11%

14.00%

12.36% (reflecPension Colla

6.9% (Genera

he basis for datus of the ples provided t

ution using the

   

Contribution

97% for Basifor PPP)

ar Membersh

% (<08), 23.3niv.: 23.845% 8)

9% (wtd. avg.l); 3x0.5% ginning 7/1/12

cts Act 120 ar)

al employees

determining lan, the to members,

funded positio

 

n Rate

c and

hip

365% (<08),

, incl.

2

only)

the

and

on of

TABL

Michig

Illinois

Indiana

Iowa

Kentuc

Minnes

Missou

New Y

Ohio

Pennsy

Wiscon

 

 

E 5 - Retire

an

a

cky

sota

uri

York

ylvania

nsin

ment Eligib

Normal

Basic plaMIP: 30 yservice ea60/10) Hybrid pla

Tier 1: 35Tier 2: 67

65/10; 60age 55

Age 65; 6age 55

27 years;

Pre-7/1/8Post-7/1/8exceed a

60/5; 30 y

Tier 1: 35Tiers 2-4:Tier 5: 62Tier 6: 63

Currently into 60/35

T-C & T-DT-E & T-F65/3

Age 65; 5

bility Criteria

retirement a

n: 55/30; 60/1years; 60/5 (if ach of last 5 y

an: 60/10

5 years; 60/107/10

0/15; Rule of 8

62/20; Rule of

60/5

9 hire: 65/3; 689 hire: SSNRge 66

years; Rule of

5 years, 55/20: 30 years, 62

2/10, 57/30; 3/10

30 years or 65 by 2023

D: 35 years; 6F: Rule of 92 w

57/30

a

age

10 earn .1 year

years; otherw

0; 62/5

85 with at leas

f 88 with at le

62/30; RA, not to

f 80

0; 2/5;

65/5; phasing

60/30; 62/1;with 35 years

Ea

of wise

BasHyb

TieTie

st 50/

ast Age

PrePos

PrePos

55/

TieTie

g Cur60/

s; 55/

Age

rly retireme

sic plan and Mbrid plan: non

er 1: 55/20 er 2: 62/10

/15

e 55

e-7/1/08 hire: st-7/1/08 hire

e-7/1/89 hire: st-7/1/89 hire

/5; 25 years

ers 1-4: 55/5;ers 5-6: 55/10

rrently 55/25 /5 by 2023

/25 for "specia

e 55

    ‐25‐   

ent age

MIP: 55/15 ne

55/5; e: 55/10

55/3; 30 yeae: 55/3

or 60/5; phas

al" early retire

   

rs; Rule of 90

sing into 55/3

ement

 

0;

0 or

TABL

Michig

Illinois

Indiana

Iowa

Kentuc

Minnes

Missou

 

 

E 6 - Retire

an

a

cky

sota

uri

ment Benef

Final Av

Basic pla

1.5% x FA300 will h

Tier I: 4 y

Tier I (pre(2.4x)] Tier I (po

5 year FA

1.1% x FA

Currently

2% x FACFAC)

In genera

UniversityUniversity1.85% x FNon-univpost-7/1/8Non-univsvc>=10)Non-univ(10<svc<(if svc>=3

5 year FA

Pre-7/1/8and 1.9%augmentaPost-7/1/6/30/06 h

3 year FA

2.5% x FA

fits

verage Com

an and Hybrid

AC x svc (Bahave future se

year FAC; Tie

e-7/1/05): Ma

st-7/1/05) and

AC

AC x svc

y: 3 year FAC

C on 1st 30 ye

al: 5 year FAC

y pre-7/1/08 hy post-7/1/08 FAC (20<svcersity pre-7/183 svc on svcersity 7/1/02-) on svc up toersity post-7/

<=20), 2.3% x30)

AC

89 hire: Max[1% after 7/1/06,ation to/actua89 hire: 1.7%

hires) augmen

AC

AC; up to 7/1

mpensation

plan: 5 year

sic and MIP mervice credited

er II: 8 year FA

x[min(2.2% x

d Tier II: Min(

; beginning 7/

ears + 1% x F

C; 55/27: 3 ye

hire: 2% x FAhire: 1.5% x <=27), 2% x F/02 hire: 2%

c up to 30 + 3-6/30/08 hire: o 30 + 3% x FA1/08 hire: 1.7

x FAC (20<svc

.2% x FAC fi, 1.7% x FAC arial reduction

% x FAC prior ntation to/actu

/2013, a mem

and Benefit

FAC; MIP: 3

members elecd at a 1.25%

AC

x FAC x svc, 7

(2.2% x FAC x

/1/12: 5 year

FAC on next 5

ear FAC

AC; FAC (if svc<=FAC (if svc>=x FAC for pre

3% x FAC on 2% x FAC (ifAC on svc in

7% x FAC (if sc<=26), 2.5%

rst 10 years +prior to 7/1/0

n from age 65to 7/1/06 and

uarial reductio

mber may reti

t Formula

year FAC

cting reducedmultiplier)

75% FAC), M

x svc, 75% x

FAC

5 years, max

=10), 1.7% x =27); e-7/1/83 svc +svc in excessf svc<10), 2.5excess of 30

svc<=10), 2%% x FAC (26<s

+ 1.7% x FAC06 and 1.9% a5, Money Purcd 1.9% after 7on from SSNR

re with 2.55%

    ‐26‐   

d future accru

oney Purchas

FAC)

imum 35 yea

FAC (10<svc

+ 2.5% x FACs of 30; 5% x FAC (if 0; % x FAC svc<=30), 3%

C over 10 yeaafter 7/1/06 wchase annuity7/1/06 with 3%RA, not to exc

% x FAC with

   

al under PA

se annuity

rs (65% x

c<=20),

C for

% x FAC

ars prior to 7/1with 3% y (2.2x)]; % (2.5% for poceed 66

31+ years

 

1/06

ost-

TABL

New Y

Ohio

Pennsy

Wiscon

 

 

E 6 - Retire

York

ylvania

nsin

ment Benef

Final Av

Tiers 1-5

Tiers 1-2Tiers 3-4year overTier 5: 1.over 30); Tier 6: 1.over 20)

Currently

CurrentlythereafteBeginning

3 year FA

T-C & T-ET-D: 2.5%T-F: 2.5%

3 year FA

Max[min(Money P

fits (continu

verage Com

: 3 year FAC;

: Min[1.8% x : 1.67% x FAr 30); 67% x FAC (i

67% x FAC (i

y: 3 year FAC

y: Max[2.2% xr, up to a maxg 8/1/15: 2.2%

AC

E: 2% x FAC % x FAC for "S% x FAC x svc

AC

(2.165% x FAurchase calcu

ued)

mpensation

; Tier 6: 5 yea

FAC for pre-7C (if svc<20),

if svc<25), 2%

if svc<20), 1.7

; beginning 8/

x FAC first 30 ximum of 100% x FAC for a

x svc; School" servic

AC for pre-200ulation]

and Benefit

ar FAC

7/1/59 svc + 2, 2% x FAC (2

% x FAC (25<

75% x FAC (i

/1/15: 5 year

years, 2.5% 0% x FAC, Moall service

ce + 2% x FA

00 service + 2

t Formula

2% x FAC for20<=svc<30)

<=svc<30), 60

if svc=20), 35

FAC

x FAC for 31oney Purchas

AC for "Non-s

2% x FAC for

    ‐27‐   

r post-7/1/59 s, 60% + 1.5%

0% + 1.5% x F

5% + 2% x FA

st year, + 0.1se calculation

school" servic

r post-1999 se

   

svc, 79% x FA% x FAC (each

FAC (each ye

AC (each year

% x FAC eac];

e;

ervice, 70% x

 

AC]; h

ear

r

ch year

x FAC),

TABL

Michig

Illinois

Indiana

Iowa

Kentuc

Minnes

Missou

New Y

Ohio

Pennsy

Wiscon

 

 

E 6 - Retire

an

a

cky

sota

uri

York

ylvania

nsin

ment Benef

Early R

Basic pHybrid

Tier I: 6Tier II:

1.2% p

Currenttransitio

Pre-7/1Post-7/

Pre-7/1Post-7/

Actuariunder a

Tier 1: Tiers 2-Tier 5: Tier 6:

Current10% foBeginn

"Speciaequival

4.8% pafter at

fits (continu

Retirement

plan and MIP:plan: no early

6% per year p6% per year

er year from 6

tly: 3% per yeon rules for ex

/08 hire: 5% /1/08 hire: 6%

/89 hire: 3% /1/89 hire: act

al reductionsa modified for

5% for each y-4: 6% for firs6.7% for first 6.5% per yea

tly 3%/year frr 28 years, 15ing 8/1/15: ac

al" early retireence

er year from ttainment of a

ued)

Reductions

Reduced fory commencem

prior to age 60prior to age 6

65 to 60, 5%

ear prior to NRxisting memb

per year prio% per year prio

per year on stuarial reducti

; up to 7/1/20rmula ranging

year less thanst 2 years prio2 years prior

ar

rom 65 for firs5% for 27 yeactuarial reduc

ement: 3% pe

NRA; 4.8% isage 57

s

r commencemment

0 67

per year from

RA; beginningbers)

r to earlier of or to earlier o

step-rate comions

013, a membeg from 2.2% to

n 20 years, noor to 62, 3% thr to 62, 5% the

st 5 years; 5%ars, 20% for 2ctions

er year to a ma

s reduced by

ment prior to a

m 60 to early r

g 7/1/12: 6%

age 60 or 27of age 60 or 27

mponent; actua

er under age 5o 2.4% with n

ot to exceed 5hereafter; ereafter;

% thereafter (m26 years, and

aximum redu

.001111% for

    ‐28‐   

age 60, 6% pe

retirement

per year prio

7 years; 7 years

arial on augm

55 with 25 to no reduction

50%;

max reductiond 25% for 25 o

ction of 15%;

r each month

   

er year;

r to age 65 (w

mented compo

29.9 years ca

n of 5% for 29or less years)

; otherwise ac

of creditable

 

with

onent;

an retire

9 years, );

ctuarial

e service

TABL

Michig

Illinois

Indiana

Iowa

Kentuc

Minnes

Missou

New Y

Ohio

Pennsy

Wiscon

 

 

E 6 - Retire

an

TT

a

cky

sota w

uri A

York 56

ylvania

nsin Aa

ment Benef

Post-retirem

MIP: 3% simpBasic plan: suHybrid plan: n

Tier I: 3% comTier II: Min(3%

No automaticbeen made (v

Retired prior Retired after

1.5% compou

No increase iwill revert to 2

Approved by

50% of CPI, n62 (retired for

Currently: 3%Beginning 7/1

None

Annuities incradjustment w

fits (continu

ment Increa

ple; upplemental/none

mpound; %, 1/2 of CPI

c increases afvalued as 1%

to 7/1/90: Min6/30/90: Favo

und

n 2012; 2% in2.5% (compo

Board, subje

not less than r 5 years) or a

% simple; 1/12: 2% simp

reased if invewould be at lea

ued)

ases

13th check on

) compound,

fter retiremen% compound C

n[CPI, 3%] orable Experi

ncreases starund).

ct to guideline

1% nor greatage 55 (retire

ple, starting a

estment incomast 0.5%)

nly (based on

starting at 67

t are providedCOLA)

ence Dividen

rting in 2013.

es, with 80%

ter than 3%, ped for 10 years

at 60 for new r

me credited to

n investment e

7

d; periodically

nd reserve acc

When fundin

maximum inc

payable on ths)

retirees

o retired life fu

    ‐29‐   

earnings);

y, unschedule

count

ng ratio reach

crease; 2% co

he first $18,00

unds exceeds

   

ed increases h

es 90%, incre

ompound in 2

00, beginning

s 5% (and res

 

have

eases

2012

at age

sulting

 

 

TREND

The genein DB plaretiremen

In the miorganizatemployeeTwenty-fonly 30%plan coveapproximBenefits, 80% of thJune 200

Several fprimary rplans, pafinancial Furthermsubject to

Unlike Dfunded. Psurvey of(the medwas 10.4employercontributcommon the first 65, includaverage vemployerHow Ame

SUMMA

The retireChanges hires throfuture acmembersemployee

S IN PRIVA

eral trend forans and a risnt plans are l

id-1980s, ovtions participes were covefive years lat

% of full-timeerage, the pr

mately 55%. May 2011.)

he private se07).

factors have reason is the

articularly asstatements.

more, employo investment

DB plans in thPrivate sectof plans indician deferral % (median or contributiotion only, anmatching ar

6% of pay eming Tables 7value of the r via the materica Saves,

ARY

ement systemhave been im

ough increascruals for ex

s as well as res.

ATE SECTO

r retirement se in participless common

ver 90% of fupated in empered under ater, retiremee employeesrevalence of (Source: Em Another stu

ector workfo

contributed e increased v it relates to DC plans ha

yer contributt volatility.

he public seor DC plans tcates that therate was 6.0of 9.6%). Thon; 45% provnd 37% provirrangement (mployee def7 and 8, for a“promised mtching formu June 2012.)

ms that are pmplemented

sing retiremexisting plan mretirees. No s

OR PLAN D

benefits in thpation in DCn than in the

ull-time empployer-sponsa DB plan anent plan coves covered unDC plans ha

mployee Beneudy shows thorce in 1979

to the shift fvolatility of D

retirement pave no unfuntions and fin

ctor, privatetypically fea

e average par0%). The avehe report alsovide a matchide both a m(23% of planferral. This ma discussion match” (i.e., ula) in 2011 )

peers to MPSd to most of tent ages and members. Twsystem has i

DESIGN

he private se arrangemen

e past.

ployees of msored retiremnd 40% coveerage in the pnder a DB plaas actually inefit Researchhat participatto less than

from DB plaDB plan costplan expensended liability

nancial statem

e sector DB pature an emprticipant defeerage total pao cites that 9

hing contribumatching andns covered inmirrors the Pand illustratthe maximuwas 4.3%; m

SERS all havthe peer systlowering ac

wo systems mplemented

ector has beents. In additi

medium and lment plans. Aered under soprivate sectoan. Despite tncreased, wih Institute Dtion in DB p40% in 2007

ans to DC plts relative toe and liability to report oment expens

plans are typployee contriferral rate to articipant an90% of plansution only, 8d nonmatchinn this study)

PA 300 DC ptions on the aum value of tmedian was

ve a definedtems to provccruals. Somhave reduce

d a mandator

    ‐30‐   

en a decline ion, all types

large privateApproximateome sort of Dor has droppthe large droith coverage

Databook on plans has dro7 (Source: E

ans in the pro the predictaties reported on the balances for DC pl

pically 100%ibution compa DC plan in

nd employer s provide for

8% provide ang contributi) is 50 cents plan design; adequacy ofthe match pr3.0%. (Sour

d benefit planvide lower be

me peer systemed COLAs fory DC plan f

   

in participats of private s

e sector ely 80% of DC arrangemed to 66%, w

op in retireme rising to

Employee opped from oEBRI, Fast F

rivate sectorable cost of in employer

ce sheet. lans are not

% employer-ponent. A ren 2011 was 7contribution

r some type a nonmatchinion. The moon the dollarefer to Sect

f this benefitromised by trce: Vanguar

n structure. enefits to nems have lowor existing for new

 

tion sector

ment. with

ment

over Facts,

. A DC r’s

ecent 7.1% n rate of ng st

ar on tion t. The the rd-

w wered

 

 

4. P

REVIEW

Employe

DB planscontributon these

The benemember’benefits fworkforchome pay

The MIPlevel on a

The Hybportion wnot affec

Vesting R

In a DB pin the plaof five toconsidereto withdr

A longerprior to thare madecan be usperson ba

The MIPrequiremare uncom

The Hybvesting reimmediat

PLAN DES

W OF PLAN

er and Emp

s are funded tions are morcontribution

efit provideds account. Tfor employece managemey.

P and Basic pa long-term

rid plan comwould raise tt the DB pla

Requiremen

plan, the lenan before beio ten years foed fully vestrawal benefit

r vesting perihe vesting p

e on behalf osed to fund oasis.

P and Basic pment would re

mmon in the

rid plan comequirement ftely vested a

SIGN AND

N AMENDM

ployee Contr

by contribure valuable w

ns.

d in a DC plaTherefore, ines. Howeverent implicati

plans are DBbasis.

mbines a DB the funded lean funded lev

nts

ngth of the veing eligible for retirementted with no rts that are eq

iod is less coeriod receiv

of an employother particip

plans are DBeduce emploe public secto

mbines a DB for most benand employe

D ECONOPLAN E

MENTS AN

ributions

utions and aswhen made s

an is equal tocreased contr, requiring tions, since th

B plans for w

benefit withevel of the plvel, but wou

esting periodfor benefits.t benefits. Inrequirement qual to the m

ostly to the pe minimal b

yee who leavpant’s benefi

B plans with oyer contribuor.

benefit withnefits. The Der contributio

OMIC IMPEXPERIE

ND ACTUAR

sociated invsooner rathe

o the total oftributions wothat employehis would ef

which increas

h a DC accoulan. Increase

uld result in p

d determinesTypically, p

n almost all cfor service.

member’s con

plan than a shenefits. Furt

ves prior to bfits. This mak

a ten-year vutions, but v

h a DC accouDC componenons are veste

PACT OFNCE

RIAL ASSU

vestment retuer than later d

f accumulateould result iees increase ffectively red

sed contribut

unt. Increasees in contribupotentially la

s how long apublic sectorcases, emploThis allows ntributions.

hort one, sinthermore, embecoming vekes the plan

esting requiresting period

unt. The DBnt has emploed after four

    ‐31‐   

F VARIAB

UMPTIONS

urns. In a risidue to inves

ed contributiin increased contribution

duce the emp

tion would r

es in contributions to thearger benefit

an employee r plans have oyee contribufor non-ves

nce employemployer contested remain

less expensi

rement. Lends of longer

B componentoyee contribr years.

   

BILITY IN

S

ing asset matment earnin

ons to the expected

ns could havployees’ tak

raise the fund

utions to thee DC plan wts for employ

must particivesting peri

utions are ted participa

es who leavtributions thin the plan aive on a per

ngthening thithan ten yea

t has a ten-yebutions that a

 

N

arket, ngs

ve ke

ded

e DB ill yees.

ipate iods

ants

e hat and

is ars

ear are

 

 

Service C

Public retheir benmilitary tpaymentsactuarial In some cunfunded

Service pelect annretiree livnormal a

While seallows fofactors isexperiencwith serv

Cost of L

Allowancsector. Infixed amCOLAs awould ha

As with aattractiveretirees rcases are

The MIPmembersdoes not

Rate of I

The actuaof investmlower ratto this asdecrease

Credit Purc

etirement sysefits under ttime, materns or payroll dtables that g

cases, the cod liability wh

purchases arenuities at retives. This oftccrued servi

rvice purchaor service pus outside the ce, along wivice purchase

Living Allow

ces for adjusncreases mayount (such aare generallyave a large e

any reductioe to new memreceiving bene currently pe

P plan offer ss would reduoffer COLA

Investment

arial assumpment return.te of return ysumption. Ain this assum

chases

stems often athe plan or tonity/paternitydeductions ogenerally atteost to purchahen a service

e subject to trement typic

ten has the efice.

ases are not aurchases on a

scope of thith adjustmenes.

wances (CO

stments to rey be granted as the MIP) oy very expenffect on liab

on in benefitsmbers. In adnefits has facending.

systematic Cuce costs, buAs.

Return

ption that has The rate of

yields a highA common acmption will r

allow particio create conty leave, etc.)over a set peempt to mak

ase service ise purchase is

the anti-selecally do so wffect of mak

allowed unda subsidized is report. Honts to the fac

OLAs)

etiree benefiton an ad-ho

or on a levelnsive relativeility and resu

s, reducing oddition, the aced legal cha

COLAs for alut may not be

s the greatesf return is invher liability actuarial rule-result in a 15

ipants to purtinuity of em). Purchases riod. The co

ke the purchas subsidized,s made.

ection risks. Pwith the expeking purchase

der the Hybribasis. A com

owever, a perctors, if nece

ts are a featuoc or systema that is tied te to other plaulting contri

or eliminatinability to reduallenges in s

ll retirees. Re legally perm

st effect on oversely relateamount. The -of-thumb su5%-20% inc

rchase servicmployment (i

are typicallyost of the serases cost-neu, meaning th

Participants ectation of lies more exp

id plan, the lmplete revieriodic reviewessary, could

ure that is veatic basis. Cto asset returan provisionibutions.

ng COLAs wuce COLAs

several jurisd

Reducing thesmissible in M

overall plan ped to the liabamount of l

uggests that crease in the

    ‐32‐   

ce credits in i.e. Out of Syy made throurvice is deterutral to the p

hat there is an

who purchaiving longer

pensive to the

legacy DB pw of the serv

w of service d reduce the

ery common COLAs may b

rns (like the ns, so change

would make tfor active em

dictions. Sev

se COLAs foMichigan. T

position is thbilities of theliabilities is ha single percliabilities of

   

order to incrystem purchugh lump surmined usingplan in aggren increase in

ase service anthan the ave

e plan than

plan currentlyvice purchaspurchase costs associ

in the publibe granted a Basic plan)

es in COLAs

the plan lessmployees anveral of these

for current he Hybrid p

he expected e plan, so a highly sensitcentage poinf a pension p

 

rease hases, um g egate. n

nd erage

y se

iated

c at a . s

s nd e

lan

rate

tive nt plan.

 

 

The rate policies oobjectiveassumpticover thehorizon t

If the rateapproprialiabilities

The MIPreturn of public seinvestme2012). Locontributcontribut

Mortalit

Rates of project dapplied b

For all buto determtables tha

Over the every agethat planunanticippayments

We have

ECONO

Funding assumptiinvestmeis worse actuarial adverse e

of investmenof the plan aes and risk toon is consid

e period for wthat could be

e of investmate. This cous will appear

P and Basic pf 7%. These aector of the 1ent return assowering thestions, while itions.

ty Rates

mortality dedeath benefitsby gender (m

ut the largestmine the probat are created

last several e. These imps do not refl

pated costs ins.

reviewed th

OMIC IMPA

of MPSERSons correspo

ent return riskthan assumelosses that i

experience o

nt return shoand be aligneolerance shoudered. An imwhich payme up to 50-70

ment return isuld result in r higher than

plans use an are both with

126 state retisumption betse assumed rincreasing th

etermine hows for active a

male/female)

t retirement bability of ded based upon

decades, advprovements aect a marginn future year

he mortality

ACT OF VA

S relies on asond to risks k, contributi

ed (e.g., actuincrease the on projected

ould be carefed with otheruld be determ

mportant consents from th0 years or be

s too high, thinadequate f

n appropriate

assumed rathin the reasoirement plantween 7% anrates would hese assume

w long retireand inactive and age.

systems, staeath at each n their own e

vancements are expectedn for future mrs as retirees

tables used f

ARIABILIT

ssumptions agenerally boion risk and ual investmencost of the pemployer co

fully consider actuarial asmined beforsideration is he plan will beyond.

he plan’s liabfunding. If the and may ca

te of return oonable rangens listed in a nd 8%, incluincrease liabd rates woul

es will receimembers. T

andard indusage. Systemexperience.

in medicined to continuemortality imps live longer

for MPSERS

TY IN EMER

as to future eorne by the edemographint return lowplan. The folontributions

ered and shossumptions. re the actuarithat the assu

be made. Th

bilities will ahe investmenause unneces

of 8% and the of rates currecent surve

usive (NASRAbilities and rld decrease l

ive paymentsTypically, mo

stry mortalityms that are ve

e have decreae by most in provements,than expect

S and find th

RGING EX

experience oemployers mic/longevity wer than expllowing charof the curren

    ‐33‐   

ould reflect tThe plan’s iial rate of inumed rate of

his is a very l

appear lowernt return ratessary alarm.

he Hybrid plarrently beingey; all but sixA Issues Bri

require additliabilities an

s. They are aortality assu

y tables are uery large ma

ased mortalithe industry

, plans will eed and recei

hat they are r

XPERIENC

of the plan. Smentioned ab

risk. When aected), the p

rts demonstrant MPSERS

   

the investmeinvestment

nvestment retf return shoulong-term

r than e is too low,

an assumes ag used in thexteen used aief – August tional

nd required

also used to umptions are

used as the bay use mortal

ity rates at my. To the exteexperience ive more

reasonable.

E

Some of thesove, such asactual experplan sustainsate the effec (pre-PA 30

 

ent

turn uld

the

a

an

basis lity

most ent

se s rience s ct of 0).

 

 

Investme

The curreportion oyear projinvestmeeach yearportion).

If expectproduce apayroll in

Another volatilityprojectioaverage oreturn wayear retuconsider of 8% (n

ent Return

ent actuarialof the plan anection of the

ent return assr in the futur

ed returns ara compoundn twenty yea

characteristiy in the actuan assumes thover the projas experiencrns, thus crethe followinon asset-wei

Risk and V

l assumptionnd 7% per yee actuarially sumptions arre (i.e., 7.5%

re underperfding effect thars.

ic of investmal returns exphat the assumjection perioed over a pe

eating volatilng pattern ofighted).

Volatility

n for future inear for the Hrequired em

re met, and 2% earned on t

formed everyhat is project

ment return riperienced bymed returns od. In actualieriod of timelity in the prf investment

nvestment reHybrid compmployer cont2) the investmthe legacy po

y year, the acted to increas

isk is contriby MPSERS. are achievedity, even if ae, there woulojected requreturns over

eturn is 8% pponent. The ftribution ratement return ortion and 6

ctuarial lossse the emplo

bution rate vIn the table

d in each futuan average reld likely be luired contribr a 20-year p

    ‐34‐   

per year for following gre under two falls short b

6.5% earning

es generatedoyer contribu

volatility thaabove, the bure year, andeturn equal tlarge deviati

bution rates. Aperiod that y

   

the legacy raph shows ascenarios: 1)

by 50 basis pg on the Hyb

d each year ution by 10%

at stems frombaseline d therefore, to the assumons in year-bAs an examp

yield an avera

 

a 30-) the

points brid

% of

m

on ed by-ple, age

 

 

This 20-yexperiencimpact ofthe follow

year sample ced over thef the volatiliwing chart (a

is not unlike past 20 yea

ity on the cona similar pat

e the patternars. While thentribution rettern with a 7

n of actual ine geometric equirement c7% average

nvestment retaverage of t

can be signifis applied to

    ‐35‐   

turns many sthe returns eficant, as demo the Hybrid

   

systems havquates to 8%monstrated oplan).

 

e %, the on

 

 

Ultimateranges frused in thWithout

Contribu

MPSERScurrent aback-loadin this cathe “undeto the ununder thelowered t

ly, the contrrom +/-12% he above prothis smoothi

ution Risk

S amortizes tssumption foded since the

ase). Howeveerpayment” funded liabie baseline scto one-half o

ribution requas compared

ojection smoing mechani

the existing for payroll gre dollar amoer, if the 3.5%of the requirlity. The fol

cenario compof the curren

uirement appd to the baseooth investmsm in place,

unfunded acrowth is 3.5%ount of the am% assumptiored amortizalowing chartpared to a scnt assumption

proaches the line. It is wo

ment gains an the contribu

ccrued liabili%. This meamortization pon is not achation payment shows a prenario whern.

same level aorth noting thnd losses oveution rate vo

ity as a levelans that the apayment inc

hieved, the ant) generatesrojection of tre the payrol

    ‐36‐   

after 20 yearhe actuarial

er a period oolatility wou

l percentageamortization creases each adverse expers an actuariathe required l growth ass

   

rs, but the raasset valuesf five years. ld be magnif

e of payroll. payments ayear (by 3.5rience (relat

al loss that adcontribution

sumption is

 

ate s

fied.

The are 5%, ted to dded n rate

 

 

As demosome of trequirem

Demogra

In a definapproprialiving lonlosses thaprojectedaccountinincrease assumptiassumptito be upd

onstrated abothe “back-lo

ment in the sh

aphic/Long

ned benefit pate assumptinger can be pat increase thd contributiong for improon aggregateon and belieons. Howev

dated to refle

ove, anticipatoading” in thhort-term.

evity Risk

plan, all longion for futurepre-funded. he unfunded

on rates of Movements in e liabilities).eve that is rever, as mortalect these imp

ting a reducehe amortizati

gevity risk ise mortality iAn inadequa

d liability of MPSERS if th

future rates . Note that wasonable wility is expecprovements.

ed rate of inon contribut

s borne by thmprovemenate mortalitythe plan. Th

he current mof mortality

we have reviethin the contted to contin

crease in futtion, but incr

he retirementnts, the cost ay assumptionhe graph belo

mortality assu(approxima

ewed the curtext of the cunue to impro

    ‐37‐   

ture coveredreases the co

t system. Hoassociated wn will result ow illustrateumption wereated by way rrent MPSERurrent set of

ove, the assu

   

d payroll remontribution

owever, withwith retirees

in mortalitys the impacte not adequaof a 7.5% RS mortalityf actuarial umption will

 

moves

h an

y t on ately

y

need

 

 

The imparequired valuation

ImplicatAnnual F Contributhat intenensures tfunding punfundedfunded raamount. this issuethe long t Rating agcontributstate andbetter funproposal

act on projecemployer ra

n of MPSER

tions of FunFunding Re

utions to MPSnds to amortihat assets wpolicy were d liabilities watios are thoThese plans

e are so greatterm as long

gencies, suchtions when s

d local governnded pensionto implemen

cted contribuate. To reiter

RS’ liabilities

nding or Notequirements

SERS are mize the unfunill continue modified so

would increase where thes are under st that in man

g as contribu

h as Moody’etting bond nments whon plans. Mont four adjus

utions is an arate, we haves and have de

t Funding ths

made on an acnded liabilitito be availabthat contrib

ase. The pube contributiosevere financny cases theyutions are ma

’s consider thratings for sse plans are

oody’s has restments to pe

average incree reviewed thetermined th

he Annual R

ctuarially deies over a 25ble to pay be

butions were lic sector ret

ons have beencial stress any are prohibiade on an act

he funded rastate and loca

poorly fundecently issueension liabil

ease of apprhe current mhat it is appro

Required C

termined ba5-year periodenefits as theno longer ac

tirement plann less than th

nd the contribitive. A retirtuarially det

atio and the lal governme

ded are lowered a Requestlities and cos

    ‐38‐   

roximately 3mortality tabl

opriate.

ontribution

asis under a fd. This fundey become dctuarially dens that have he actuariallbutions needrement systetermined bas

level of requents. The bonr than gover

t for Commest informatio

   

.0-3.3% in tle used in the

ns or other

funding policing policy

due. If the etermined, th

the poorest ly determineded to addresm is viable f

sis.

uired nd ratings fornments withent on its on.

 

the e

cy

he

ed ss for

or h

 

 

Moody’s A

ra A A U F

pr

If Moodyhave adjuplans.

s proposed adActuarial accate. (For adju

Assets smootAnnual pensiUnfunded act

or multiple eroportionally

y’s adopts itsusted unfund

djustments irued liabilityustments to 2thing is elimion contributtuarial accruemployer coy based on e

s proposal, thded liabilitie

nclude; y discounted2010 and 20inated – resutions are bas

ued liability aost-sharing pemployer’s s

hose plans ws and contrib

d using a hig011 pension ults based onsed on 5.5% amortized ov

pension plansshare of total

with poor funbutions that

gh-grade longdata, discoun fair valuediscount rat

ver 17 years s, the liabilitl contributio

nded ratios oare much gr

    ‐39‐   

g-term corpount rate woul

te as a level do

ties will be an

on an actuarireater than b

   

orate bond inld be 5.5%)

ollar amountallocated

ial basis willbetter funded

 

ndex

t

l d

3

 

 

RetiremeDefined bfor the lifaccumulaat retiremchallengiyielded b

A commopayable fthings. Fbe compa"replacem

The replato an empmonthly that provper mont60%, or $

As part oretiremenwas enjowhat theyincome inhousing efully paidResearchwill needretiremensources opersonal  

                   These replace

http://rmictr

ent benefit prbenefit (DB)fe of the memate contribut

ment. Given ting to compaby one plan m

on approachfor life to mairst — now oared to a defment ratio" a

acement ratiployee's earnearnings of

vides monthlyth when conv$3,000/$5,00

of this type ont income is yed while acy were whilen order to mexpendituresd off), and wh indicates thd a 94 percennt years3. Thof retirementsavings.

                       ement ratios arer.gsu.edu/Pape

5. BEN

rograms are ) type plans mber and thetions and invthe differentare the valuemust be "con

h is to annuitatch the formon an applesfined benefitand the adeq

o is the rationings just pr$5,000 and hy income of verted to a li00.

of analysis, aactually nee

ctively worke earning a l

maintain the ss in retireme

work-related hat middle-innt to 78 perche lower rangt income inc

                   e noted on pagers/RR08-1.pdf

NEFIT AD

intended to provide retire member’s vestment inct style of retie of one versnverted" to th

tize any DC m of paymens-to-apples bt counterpart

quacy of all b

o of total retirior to retiremhas two retir

f $1,500 and ife annuity —

a determinatieded to mainking. As a retiving, it is nsame standarent are usuallexpenses (e.

ncome emploent replacemge of replace

clude Social

e ii of the 2008f

DEQUACY

provide a sorement incombeneficiary)

come into a "irement benesus the otherhe form of th

account balant provided bbasis — the vt. Second, bobenefits com

irement incoment. For exrement plansa defined co

— this indivi

ion can be mntain a similatired individot necessaryrd of living. ly lower (eit.g., clothingoyees (those

ment ratio to ement applieSecurity, em

8 GSU/Aon RE

Y ANALY

ource of postme in the for). Defined co"nest egg" thefit providedr. In order tohe other veh

ances into mby a DB planvalue of a deoth benefit ty

mbined can be

ome availablxample, if a rs available —ontribution aidual would

made of benear standard odual's circumy to replace 1For example

ther by down, commuting

e earning $20maintain a s

es to higher imployer-spon

ETIRE Project R

    ‐40‐   

YSIS

t-employmerm of an annontribution (hat is availabd by each pla accomplish

hicle.

monthly strean. This accomefined contriypes can be e assessed an

e from all soretiring emp

— a defined account that have a repla

efit adequacyof living in r

mstances are 100% of pree, generally nsizing or hag, etc.) no lo0,000 to $90similar lifestincome indivnsored retire

Report:

   

nt income. nuity (payab(DC) plans ble to draw uan, it is

h this, the ben

ams of incommplishes twoibution plan converted tond evaluated

ources comployee has benefit progyields $1,50

acement ratio

y and how mretirement thdifferent fro-retirement speaking,

aving a homeonger exist. 0,000 per yeatyle in their pviduals. Theement plans a

 

ble

upon

nefit

me o can

o a d.

pared

gram 00 o of

much hat om

e

ar) post-

e and

 

 

We havephases. F300 (PA we have July 1, 20basis for

1) hy

2) hy

3) hy

Newly hiare hireda definedallows mmatchingemployeremployercontribut 

assessed theFirst, we hav300) of 201analyzed the010 (includecomparison

ire age of 25ears of servi

ire age of 35ears of servi

ire age of 45ears of servi

ired employed. The defauld contributio

members to dg contributior contributior matching ction), we hav

e retirement ve analyzed t2, as well ase retirement ed as Appendn. The straw

5, earning $2ice, respectiv

5, earning $2ice, respectiv

5, earning $3ice, respectiv

ees currentlylt option is thn plan. The

defer a percenon on a portioon, plus an adcontribution ve assumed t

programs avthe retiremens the DC planprograms avdix 1). This employees a

25,000, retirively)

27,500, retirively)

30,000, retirively)

y have the chhe Hybrid plalternative ontage of theion of those ddditional main the optionthe member

vailable to Mnt options avn that coversvailable to puanalysis exa

are:

ing at (a) age

ing at (a) age

ing at (a) age

hoice betweelan, which cooption is a deir pay on a pdeferrals. Thatching contrnal DC plan will defer 6

Michigan pubvailable to nes state of Miublic school

amines sever

e 55 and (b)

e 55 and (b)

e 55 and (b)

en two retireonsists of boefined contri

pre-tax basis he State DC pribution. In o(which is 50% of pay in

    ‐41‐   

blic school eew hires undichigan empl employees ral "straw" e

age 60 (with

age 60 (with

age 60 (with

ement prograoth a definedibution onlyand the empplan provideorder to max0% up to a mthe DC only

   

employees inder Public Aloyees. Secohired prior tmployees as

h 30 and 35

h 20 and 25

h 10 and 15

ams when thd benefit plany plan, whichployer provies for a flat 4ximize the maximum 3%y scenarios.

 

n two Act ond, to s the

hey n and h des a 4%

%

 

 

TABLE 7

Assumption

* EmployeeDB contribu

* Account b7.0% and co

* Monthly b

* Outlined cthese cases,

The tableretiremenbenefit temember’years intoavailable

Straw EmpSample

Sample

Sample

Straw EmpSample

Sample

Sample

Straw EmpSample

Sample

Sample

7 – New Em

ns:

e contributions arutions, DC contr

balances from DConverted to life a

benefits shown a

cells represent agpayments would

es above shont, the monthen years aftes retiremento retirement

e at certain ag

Hire Age

loyeese 1: a 25

b 25

e 2: a 35

b 35

e 3: a 45

b 45

Hire Age

loyeese 1: a 25

b 25

e 2: a 35

b 35

e 3: a 45

b 45

Hire Age

loyeese 1: a 25

b 25

e 2: a 35

b 35

e 3: a 45

b 45

mployee Repl

re assumed to beributions, and pe

C and personal sannuities using tw

above are adjuste

ges where the red commence fiv

ow, for each hly retiremener retirementt date. The reto illustrate

ge/service re

Retirement Age

YeS

55

60

55

60

55

60

Retirement Age

YeS

55

60

55

60

55

60

Retirement Age

YeS

55

60

55

60

55

60

lacement Ra

e the same acrosersonal (pre-tax)

savings arrangemwo-thirds female

ed for inflation (

etiring individualve years after reti

sample empnt benefit at , and the acteplacement rthat paymen

etirement co

ears of ervice

AnnuCompen

30 $25,0

35 $25,0

20 $27,5

25 $27,5

10 $30,0

15 $30,0

ears of ervice

AnnuCompen

30 $25,0

35 $25,0

20 $27,5

25 $27,5

10 $30,0

15 $30,0

ears of ervice

AnnuCompen

30 $25,0

35 $25,0

20 $27,5

25 $27,5

10 $30,0

15 $30,0

atio Analysis

ss both plans. Tosavings.

ments are projecte mortality and 5

3.5%) between a

l is not eligible tirement (at age 6

ployee, the unretirement,

tuarial presenratio and monts from the mbinations a

ual nsation

N

ReplacemRatio @ R

000 8%

000 60%

500 5%

500 43%

000 2%

000 25%

ual nsation

ReplacemRatio @ R

000 27%

000 39%

500 18%

500 27%

000 8%

000 14%

ual nsation

ReplacemRatio @ R

000 37%

000 54%

500 24%

500 37%

000 11%

000 20%

s, 7% Investm

otal contributions

ted to retirement5.0% interest.

age at hire and r

to begin receivin60).

nderlying dathe replacemnt value of r

onthly benefiDB plan ma

and the valu

New Employee El

ment Ret

Monthly Ben @ Ret

$375

$2,975

$159

$1,349

$62

$671

New Employee E

ment Ret

Monthly Ben @ Ret

$1,338

$1,954

$549

$849

$209

$384

New Employe

ment Ret

Monthly Ben @ Ret

$1,839

$2,682

$760

$1,173

$291

$533

    ‐42‐   

tment Return

s are allocated (a

nt at an assumed

retirement age.

ng payments from

ata, the replament ratio anretirement infit amount aray not be im

ue of any pos

lecting Hybrid/PP

Repl. Ratio@ Ret + 10

M@

49%

60%

33%

43%

16%

25%

Electing DC Plan

Repl. Ratio@ Ret + 10

M@

27%

39%

18%

27%

8%

14%

ee Under the Stat

Repl. Ratio@ Ret + 10

M@

37%

54%

24%

37%

11%

20%

   

n Assumptio

as applicable) be

investment retur

m the DB plan. I

acement rationd monthly ncome as of tre shown at t

mmediately st-retirement

PP Participation

Monthly Ben @ Ret + 10

Presen@

$2,418 $284

$2,975 $444

$1,026 $120

$1,349 $20

$427 $50

$671 $100

n Participation

onthly Ben @ Ret + 10

Presen@

$1,338 $216

$1,954 $292

$549 $88

$849 $126

$209 $33

$384 $57

te DC Plan

onthly Ben @ Ret + 10

Presen@

$1,839 $296

$2,682 $400

$760 $122

$1,173 $175

$291 $47

$533 $79

 

n

etween

rn of

In

o at

the ten

t

nt Value Ret

4,824

4,657

0,828

1,613

0,080

0,288

nt Value Ret

6,174

2,158

,642

6,851

,778

,353

nt Value Ret

6,994

0,872

2,786

5,363

,076

,720

 

 

increasesthe Appeobstacle shown toamounts amount s

An additithe valuethe Sampthe DB pportion). Sample 1scenarios

Since theretiremenand 3a) acommencyears afte

This analretiremenresult in tSecurity,dependinAge — thearlier co

In compaat age 60Security,the additiratio for

One advato age 60income athis advaoptional additionaslightly l

                  4 Adjusting approximate

s (relevant foendix). Dollato understan

o have a monof new retir

shown would

ional item toe of employeple 1 membeportion, base

In order to h1 makes an as in addition

e Hybrid plannt income avare from the ce at age 60;er retirement

lysis shows tnt income wthe total rep, adjusted forng on when the age that fommenceme

arison, if Sam0 is expected, the total repional 4% emSample 1b i

antage that th0. In the examat age 55 thatantage, the acDC plan for

al 4% emploarger than u

                       for inflation andely 80% for Sam

or when the dar amounts anding the numnthly retiremrees with lond be nearly $

o note is thatee contributioer contributiod upon the ghave the memadditional co

to the regul

n does not pvailable immDC plans. T; this amount.

that for a carould be repllacement ratr inflation, isthose paymefull benefits ent.

mple 1b elecd to replace 3placement ra

mployer contrs much close

he DC plan hmple of Samt is over 3.5 ctuarial presr each straw yer contribu

under the Hyb

                   d using the 2008 mple 1, 85% for S

discussion inabove have bmbers. For e

ment benefit ong service. W$10,000 per m

t in order to ons such thaon to the Hygraded contrimber contrib

ontribution (0ar 6% assum

rovide for anmediately in tThe benefit frnt is included

reer employeaced by the tio meeting os expected tonts commencan be recei

cts participat39% of pre-ratio would stribution in ther to the 60%

has is the abmple 1a, the r

times the ament value at employee. H

ution, the actbrid plan.

GSU/Aon RETIRSample 2, and 90

ncludes the lbeen adjustedexample, a 3of $2,975 pe

Without an admonth.

make the coat they are thybrid plan in ibution schebution the sa0.60% in the

mption.

n early retirethe scenarios

from the DB d in the colum

ee retiring atHybrid planor exceedingo replace 20

nce. In generved — is ag

tion in the Dretirement intill be less thhe State DC

% from the H

bility to acceretiring memmount availaretirement o

However, untuarial presen

IRE Project Repo0% for Sample 3

legacy defind to remove 5-year caree

er month, whdjustment fo

omparison mhe same acro

the first yeaedule, plus aname for all the first year, f

ement benefs with age 55plan under tmn that show

t age 60 (Samn. Factoring ig the targets % to 25% of

ral, Social Sege 67, with a

DC plan, the vncome. Evenhan the adequ plan scenar

Hybrid plan.

ess the value mber could beable under thof the Hybridnder the Statent value for

ort as a guide, ad3.

    ‐43‐   

ned benefit pinflation, wh

er employee hich is on paor inflation, t

more equitabloss all plans. ar is 6.60% on additional hree plans, wfor example)

fit prior to ag5 retirementthe Hybrid sws the month

mple 1b), 60in Social Secfor adequacf pre-retiremecurity Normreduced ben

value of the n after considquacy target. rio, the total

of the accouegin receivinhe Hybrid pld plan is gree DC arrangeSample 1a a

dequacy targets

   

plan, as showhich can be (Sample 1b)

ar with recenthe benefit

le, we have sFor exampl

of pay (4.60%2.0% to the

we assume ) in the DC o

ge 60, the ont (Sample 1ascenario wouhly benefit t

0% of pre-curity would

cy4. Social ment income,mal Retiremenefit payable

account baldering SociaWhen inclureplacement

unt balance png monthly lan. Even wiater than theement, with and Sample

would be

 

wn in an ) is

nt

set le, % to DC

only

nly a, 2a, uld ten

d

, ent e for

ance l

uding t

prior

th e the

1b is

 

 

In the firinvestme7%, the Dbenefit pinvestmereturn, th

TABLE

Assumption

* EmployeeDB contribu

* Account b6.0% and co

* Monthly b

* Outlined cthese cases,

Straw EmpSample

Sample

Sample

Straw EmpSample

Sample

Sample

Straw EmpSample

Sample

Sample

st set of tablent return of DC accountsrovided from

ent performahe following

8 – New Em

ns:

e contributions arutions, DC contr

balances from DConverted to life a

benefits shown a

cells represent agpayments would

Hire Age

loyeese 1: a 25

b 25

e 2: a 35

b 35

e 3: a 45

b 45

Hire Age

loyeese 1: a 25

b 25

e 2: a 35

b 35

e 3: a 45

b 45

Hire Age

loyeese 1: a 25

b 25

e 2: a 35

b 35

e 3: a 45

b 45

les, contribut7% each yea

s will generam the DB ponce. To demtables are b

mployee Repl

re assumed to beributions, and pe

C and personal sannuities using tw

above are adjuste

ges where the red commence fiv

Retirement Age

YeS

55

60

55

60

55

60

Retirement Age

YeS

55

60

55

60

55

60

Retirement Age

YeS

55

60

55

60

55

60

tions made tar in the futu

ate lower reportion of the monstrate the

ased on assu

lacement Ra

e the same acrosersonal (pre-tax)

savings arrangemwo-thirds female

ed for inflation (

etiring individualve years after reti

ears of ervice

AnnuCompen

30 $25,0

35 $25,0

20 $27,5

25 $27,5

10 $30,0

15 $30,0

ears of ervice

AnnuCompen

30 $25,0

35 $25,0

20 $27,5

25 $27,5

10 $30,0

15 $30,0

ears of ervice

AnnuCompen

30 $25,0

35 $25,0

20 $27,5

25 $27,5

10 $30,0

15 $30,0

to DC accouure. To the eplacement ratHybrid plan

e sensitivity oumed investm

atio Analysis

ss both plans. Tosavings.

ments are projecte mortality and 5

3.5%) between a

l is not eligible tirement (at age 6

ual nsation

N

ReplacemRatio @ R

000 7%

000 58%

500 5%

500 42%

000 2%

000 25%

ual nsation

ReplacemRatio @ R

000 24%

000 33%

500 16%

500 24%

000 8%

000 13%

ual nsation

ReplacemRatio @ R

000 33%

000 46%

500 22%

500 33%

000 11%

000 19%

unts were assextent that actios (and low

n is the same of the DC bement returns

s, 6% Investm

otal contributions

ted to retirement5.0% interest.

age at hire and r

to begin receivin60).

New Employee El

ment Ret

Monthly Ben @ Ret

$326

$2,890

$144

$1,320

$59

$663

New Employee

ment Ret

Monthly Ben @ Ret

$1,166

$1,657

$499

$751

$199

$357

New Employe

ment Ret

Monthly Ben @ Ret

$1,600

$2,272

$691

$1,038

$278

$495

    ‐44‐   

sumed to earctual returns wer monthlyregardless o

enefits to a ls of 6% per y

tment Return

s are allocated (a

nt at an assumed

retirement age.

ng payments from

lecting Hybrid/PP

Repl. Ratio@ Ret + 10

M@

48%

58%

32%

42%

16%

25%

Electing DC Plan

Repl. Ratio@ Ret + 10

M@

24%

33%

16%

24%

8%

13%

ee Under the Sta

Repl. Ratio@ Ret + 10

M@

33%

46%

22%

33%

11%

19%

   

rn annual are less than

y income). Thof actual lower investmyear.

n Assumptio

as applicable) be

investment retur

m the DB plan. I

PP Participation

Monthly Ben @ Ret + 10

Presen@

$2,369 $276

$2,890 $432

$1,011 $118

$1,320 $197

$424 $49

$663 $99

n Participation

Monthly Ben @ Ret + 10

Presen@

$1,166 $188

$1,657 $247

$499 $80

$751 $112

$199 $32

$357 $53

te DC Plan

Monthly Ben @ Ret + 10

Presen@

$1,600 $258

$2,272 $339

$691 $11

$1,038 $155

$278 $44

$495 $74

 

n he

ment

n

etween

rn of

In

nt Value Ret

6,865

2,034

8,457

7,367

9,608

9,088

nt Value Ret

8,294

7,684

0,561

2,273

2,194

3,292

nt Value Ret

8,502

9,567

1,545

5,123

4,864

4,060

 

 

Using a 6largely ucomponeSpecificaenough toa 6% inv

Sample 2Presumaba possiblWhile thisomethinplan sponemployeeemphasisemployee

In generawhen facUsing anplan appradequacylargely inHybrid bprovides circumstarisk and tactual retfrom the benefit isthe retireincome (annuity fgenerallyscenariosthe definfor portabattractiveplan.  

6% investmenchanged. T

ent. The DC ally, in the cao make this

vestment retu

2 and Samplebly, they woe retirementis portion of

ng to bear in nsor will type, but for oths on mid-cares.

al, retiremenctoring in Son assumptionroaches the ry targets as wnsulated frombenefit is pro

members thances. Undetherefore theturn achieveDC only sce

s paid to retiree to be assuri.e., longevit

from an insuy result in a ls, however, ded benefit cobility of the e aspects of t

ent return insThis is becau

only plans, hase of the Stplan more v

urn assumpti

e 3 represenould have 10t benefit attrif their retiremmind when

pically focus her reasons (reer hires as

nt benefits procial Securityn for future inretirement bwell. Howevm the assumpovided by thehe tool necesr the DC arre replacemend by individenarios that rees in the fored of not outy risk), the rance carrierlower relativdo allow a momponent ofbenefit for mthe DC plan

 

stead of 7%,use most of thhowever, yietate DC planvaluable thanion instead o

nt employees to 20 years ibutable to thment incomestudying theon retireme

(such as attrawell when a

rovided by thy — meet ornvestment reenefit provid

ver, the benefption for fute DB compossary to custorangements, nt ratio provdual participaare 5-15% loorm of a lifeutliving the vaccount balar. Conservat

ve annuity vamember to ref the Hybrid members thas that are ge

, the replacemhe benefit preld results th

n, the addition the Hybrid of the 7% ass

s who would of service w

his portion oe is not specie results for ent benefit adaction of tale

analyzing the

he Hybrid plr exceed targeturn of 7% ded by the Hfits providedture investmeonent of that omize their rthe memberided by thesants; an averower. In adde annuity. Unvalue of accuance would ntism, profit, aalue as part oetire and rece

plan. In addat terminate enerally not a

ment ratios frovided fromhat are betweonal 4% emp

plan to Samsumption.

d be considerworking at soof their careeifically consstraw emplodequacy in thent) they stile entire retire

lan to a longgets for retireper year, the

Hybrid plan ad from the Hent return siplan. The D

retirement inr assumes allse plans will rage annual rdition, the DBnder the DC umulated coneed to be uanti-selectioof this conveeive their bedition to thisemploymentavailable in t

    ‐45‐   

from the Hym this plan iseen 5-15% l

ployer contribmple 1a and S

red “mid-carome other emer payable atsidered in thioyees 2 and 3he context oll may wish ement progr

g-service, carement income benefit fromand would li

Hybrid plan pince the vast

DC portion ofncome basedl of the invesdepend in lareturn of 6%B portion ofarrangemen

ontributions aused to purchon and other ersion. The Dnefit prior to

s, the DC arrt mid-careerthe DB porti

   

ybrid plan rems from the Dower. bution is notSample 2a u

reer” hires. mployment wt a future datis analysis, i3. In general

of a full careeto put some

ram provided

reer employeme adequacym the State Dikely meet thpackage are

majority of f the Hybrid

d on individustment returnarge part on

% yields benef the Hybrid nts, in order and investm

hase a life factors will DC only o age 60, unlrangements ar. These are ion of the Hy

 

main DB

t using

with te. t is l, a er

d to

ee — . DC he

f the d ual n the

efits plan for

ment

like allow

ybrid

 

 

Workfor

An impoemployeehiring enemployerimportanattractiveonerous Iprivate coDB planshires fou

In some callows thDB plan,portabilitto work w

Mid-careplans. Beportable plans pro

In generaattract qumay havebenefits.

Because younger benefit atportion v

The MPSattract boattractive

The provSubsidizeservice thbenefit at

rce Manage

rtant issue ine behavior. O

nvironment, brs use retirem

nt in the puble retirement IRS and accoompanies has, and hybridnd predomin

cases, DC plhe participan, where benety can make with the sam

eer employeeecause their wbenefits. Ins

ovide.

al, moving frualified empe less of an e

many hybridnew hires. Yttractive, wh

valuable.

SERS Hybridoth younger eness of the b

visions of DBed benefits lhresholds aret age 62 will

6. WO

ement

n employee rOver the lastbut this coulment plans tolic sector, whplans to makounting ruleave mostly ed plans that onantly in the

lans may be nt to take the efits payablea DC plan a

me organizati

es who are cworking life

stead, they m

rom a DB orloyees to theeffect for yo

d plans haveYounger hirehile older hir

d plan offersand older nebenefits to o

B plans may like early rete met. For exl invariably s

ORKFOR

retirement ant ten years, tld change as o help attrachere potentiake up for low

es and the higeliminated thoffer a mean

e public secto

more attractDC account upon withd

a more attracion for an ex

loser to retiretimes are shmay be more

r hybrid plane extent that unger emplo

e DB and DCes who plan tres who plan

s both a DB ew hires. Moolder potentia

also be usedtirement mayxample, a Dsee a spike i

RCE MANA

nd benefit pthe state of Mthe econom

ct and retain al hires oftenwer compensgh volatility

heir DB planningful DB bor.

tive to new ht balance wh

drawal beforective option txtended perio

rement will ohorter, these

likely to fin

n to a DC plapotential em

oyees who v

C features, thto withdraw

n to work unt

and DC comoving all newal new hires

d to affect emy encourage B plan that on retirement

AGEMEN

lans is the efMichigan has

my improves.qualified emn have an exsation than iassociated ws and moved

benefit, an at

hires. The pohen leaving se retirement to younger eod.

often prefer employees m

nd value in th

an will reducmployees finvalue the port

hey can be at earlier will til retiremen

mponent. Thew hires to a D.

mployee behemployees t

offers an unrts at age 62.

    ‐46‐   

NT

ffect that thes not faced a. In a growinmployees. Thxpectation ofin the privatewith these md to DC planttractive feat

ortability feaservice. Thisare typically

employees w

the benefits may not be ahe lifetime b

ce the emplond DB plans rtability of th

ttractive to bfind the DC

nt age will fin

ese benefits DC plan may

havior after tto retire whereduced earl

   

e plans have a competitiveng economy,his is especiaf participatine sector. Due

measurementns. This has mture for pote

ature of DC ps differs fromy smaller. Th

who may not

provided byas attracted tbenefits that

oyer’s abilityvaluable. Th

he DC plan

both older anC portion of t

nd the DB

are expectedy reduce the

the date of hen certain agly retirement

 

on e , ally ng in e to s, made ntial

plans m a his t plan

y DB to DB

y to his

nd the

d to e

hire. ge or t

 

 

To the exemployeemanagemunwantedservice (3who are awould reretire. Thfill these employer

DC plansa DC plaallow forreturns, t

Another is througgroup of for emploincrease and with

The DB cmay assismore diff

xtent that thees leave acti

ment. Howevd workforce 30 years, forat their mostach the serv

hese employepositions m

r’s best emp

s do not provan benefit dor a retirementhey may be

method avaih special retemployees t

oyers who wthe liabilitiean increased

component ost with workficult to addr

e employers ive service atver, if not car

implicationr example) mt valuable toice thresholdees may still

may be prohibloyees to lea

vide subsidizes not allow

nt age that is required to w

ilable in DB tirement bento encourage

would prefer s of the DB d benefit.

of the MPSEkforce managress workfor

whose emplt the age of 6refully consis. For examp

may have the the organizd in their earl be productibitive. In shoave.

zed early retw for these ty

considered work well in

plans that cnefits, or “wie their retiremthat a groupplan as they

ERS Hybrid gement. If nerce managem

loyees partic62, this wouidered, earlyple, an unrede effect of enation. Particrly 50s, and ive, and the ort, this bene

tirement benypes of benef“normal”. Innto old age.

an be used indows”. Wiment during

p of employey encourage e

plan provideew employe

ment issues t

cipate in the uld be an effey retirement duced retiremncouraging thcipants who wwould then costs of hiri

efit may hav

nefits, as the fits. The DCn fact, if DC

n order to inindows can bg a specific pees leave actemployees t

es for a “norees are movethrough the p

    ‐47‐   

plan desire tective tool fobenefits canment benefithe retiremenwere hired abe encouragng and train

ve the effect o

account balaC plan structuC participants

nfluence worbe structuredperiod. This mtive service. to retire soon

rmal” retiremed to a DC plplan.

   

that their for workforcen result in t at a set levent of participat a young agged by the plning new hireof causing th

ance structurure does not s experience

rkforce behad to target a may be desirWindows w

ner than expe

ment age andlan, it will b

 

e

el of pants ge lan to es to he

re of

poor

avior

rable will

ected

d be

 

 

Transitio

The effeccontempldate will tiers. As

In the casto be complan requinformatibe selecte

In additioin the evemultiple will activ

Since theSystem’swould lik

Projecte

The cost measureda DC struidentical percentag

on

ct of transitiolating a planresult in newa result, ther

se of a transimpletely oveuires recordkion. An outsed and moni

on, the plan ent that empcontributing

vely deal wit

e System curs staff has likkely reduce t

d Costs

of benefits fd as the empucture. A proto the curren

ge of pay an

on from onen change. Chw plan “tiersre may be an

ition from a erhauled to rekeeping of thside vendor uitored to mak

change mustployees are gg employers,th employee

rrently has sekely dealt withe effect of

for future hirployer normaojection of thnt DC plan fd as projecte

7. PLAN

plan structuhanging benes” that will nn increase in

DB plan to eflect the difhe individualusually provke sure that t

t be clearly cgiven a choic, the commus and answe

everal tiers oith many of t

f future trans

res — withoual cost for a Dhese costs fofor State emped dollars (in

TRANSIT

ure to anotheefit structureneed to be mn actuarial va

a DC plan, tfferent naturl account balides DC admthe needs of

communicatce between twunication effoer their quest

of employeethese transititions.

ut regard to DB structureor the existinployees hiren millions), i

TION

er must also es for particip

maintained sealuation and

the administrre of the benlances and e

ministration,f the plan are

ted to emplowo plans. Foort must alsotions.

s and featuretion issues in

any existinge and the emng Hybrid pled after Marcis shown bel

    ‐48‐   

be considerepants hired a

eparately fromadministrati

rative procenefits to be premployee acc so the vende being met.

oyees. This isor MPSERSo be extende

es a DC comn the past. Th

g unfunded limployer contrlan comparedch 31, 1997, low.

   

ed when after a certaim the existinive costs.

sses would nrovided. A Dcess to

dor would ne

s especially , which has

ed to those w

mponent, thehis experien

iability — caribution rated to a plan both as a

 

in ng

need DC

eed to

true

who

nce

an be e for

 

 

The projeemployeremployeeincreasescontributemployeeprovideddifferencprojectedprojected

ection of norr. Employer e contributios (due to the tions for the es will defer

d under the pce is expected to increase d dollar amou

rmal costs fonormal cost

on — as a penature of thState DC sc

r at least 3% lan (100% md to be betwto nearly 5%

unt basis.

or the Hybridt under the Hrcentage of pe existing gr

cenario incluof their pay

match up to 3ween 3% and% of payroll

d plan includHybrid plan ipay — will iraded contrib

udes the 4% ey in order to m3% of pay co

d 4% of payro. The follow

des a 1% DCis projected increase ovebution schedemployer allmaximize thontribution).oll. Over the

wing chart sh

    ‐49‐   

C contributioto decrease r time as ave

dule). The prlocation and

he matching . In the shorte long-term, hows the imp

   

on from the since the erage pay rojection of d assumes thaformula t-term, the the differen

pact on a

 

at

nce is

 

 

Projectedincrease would inadditiona

PA 300 ifor an emthat follonew hireparticipatpay in orassuming

d annual normby $500 milcrease by ne

al cost under

ncludes a Dmployer matcows shows ths elect to parte in the opti

rder to receivg all new hir

mal cost conllion over 30early $1.6 bir the State D

C-only plan ching contribhe short- andrticipate in thional DC plave the maximres elect the H

ntributions u0 years. Undellion over thC plan is app

option as a bution of 50d long-term ihe optional Dan. In both amum availabHybrid plan

under the curer the State D

he same perioproximately

choice for n% up to a mimpact on noDC plan and

alternatives, mble employer, is shown fo

rrent Hybrid DC arrangemod. Without

y $13.6 billio

new hires. Thmaximum con

ormal costs ud 2) half of amembers arer match of 3%or compariso

    ‐50‐   

d plan are expment, projecdiscounting

on over 30 ye

he optional Dntribution ofunder two scall new hirese assumed to%. The baseon.

   

pected to cted contribug for interestears.

DC plan provf 3%. The chcenarios: 1) s elect to o defer 6% oline projecti

 

utions , the

vides hart all

of ion,

 

 

In the shosavings. lowest w

The analyunfundedunfunded2011) as new hireof a levelalternativdollar ampayroll) —plan — i

CurrentlyFor purpoat 8% an7%.

ort-term, anyHowever, ov

when all mem

ysis above ild liability frod liability is a level percs entering a l percentageve approach

mortization p— includings show in th

y, the entire oses of the pd unfunded

y level of paver the long-

mbers elect th

llustrates theom the legacamortized oventage of paDC plan, the of payroll awould be to

policy. A prog the transitioe following

unfunded acprojections thliability from

articipation in-term, the rehe Hybrid pl

e cost impactcy MPSERS ver a closed

ayroll. If the e closed grou

amortization o maintain thojection of reon cost relatchart.

ctuarial liabihat follow, um the Hybrid

n the optionaquired empllan option.

t on a theoreDB plan muperiod (25 yexisting planup active paapproach w

he closed amequired empled to the exi

lity is amortunfunded liabd plan is amo

al DC plan iloyer contrib

etical basis. Iust be addresyears remainn is closed t

ayroll would would no longmortization pe

loyer contribisting unfund

tized using aability from tortized at the

    ‐51‐   

is projected tbution is proj

In practice, tssed as well.ning as of Seto new membdecrease ov

ger be approeriod, and swbution (as a ded liability

an 8% assumthe legacy ple assumed d

   

to result in jected to be

the existing . Currently, teptember 30bers, with al

ver time and opriate. Onewitch to a levpercentage o for the lega

med interest rlan is amorti

discount rate

 

the

the , ll use

vel of acy

rate. ized of

 

 

The shorof the exprojectednew hireunder a Dliability iDC plan

The analyplan, excpoint occis approxillustrate

rt-term transiisting unfun

d to be appros entering th

DC arrangemis completelyexceeds the

ysis around cept that withcurs earlier aximately the s these point

ition cost is ided actuaria

oximately $4he Hybrid plament identicay amortized,cost of the c

the optional h the lower pand the long-same as the ts.

initially aboual liability. O4.5 billion. Ian exceeds tal to the plan, the long-tercombined le

MPSERS Dpromised em-term cost ofcombined le

ut 6% of payOver the firstIn the intermthe cost in thn for State emrm cost of thgacy DB pla

DC plan for nmployer cost f the combinegacy DB an

yroll due to tt ten years, th

mediate term,he scenario wmployees. Hhe combinedan including

new hires miunder the op

ned legacy Dnd Hybrid pl

    ‐52‐   

the “accelerhis additiona, the cost asswhere new h

However, oncd legacy DB g the Hybrid

irrors that ofptional plan,

DB plan and lan. The cha

   

ated” recognal cost is sociated with

hires are covece the unfundplan and Stacomponent.

f the State D, the crossovoptional DC

art that follow

 

nition

h all ered ded ate

DC ver C plan ws

 

 

The costswould fa

s associated ll in between

with one-han the lines in

alf of new hirn the table ab

res electing bove.

the optional

    ‐53‐   

l MPSERS D

   

DC arrangem

 

ment

 

 

Backgro

The MPSactive menormal camortizatSeptembprojected

The MPSfrom 327a decreasbillion foSeptemb$13.66 bupon a stthe emploHad payrcontribut

The decliSome emMPSERSpopulatioportion o2011, the$41.9 bilcollectedmore rapwhich is

Amortiz

The goalreasonabalso be reresults incurrent yare insuffmethods

ound

SERS membember payroost plus an ation of the mer 30, 2011)

d to increase

SERS active 7,000 membese of 28%. Dor the fiscal yer 30, 2011. illion. Insteatable active moyer contribroll grown btion rate as a

ine in activemployers havS while otherons have remof the amortie total UAALllion (or 66%d as a percenpidly may no

attributable

zation Metho

of an approle time perioelated to the n a contributiyear) and incfficient to covof amortizat

ber and emploll. The actuaamortizationmajority of th) assuming a

by 3.5% eac

member popers as of Sep

During this sayear ending Had payroll

ad, it was $9member popution rate foy 3.5% annu

a percentage

e member pove reduced thr employers

mained stablezation of theL was $22.4

%) is attributatage of payr

ot be paying to retirees. T

ods

priate fundinod. For the pworking life

ion that fundludes a paymver the benetion are disc

8. FUNDI

loyer contribarially comp

n of the unfunhe UAAL is a stable activch year.

pulation hasptember 30, 2ame period, September 3l grown by 3.56 billion, w

pulation. Theor FY 2014. ually over thof payroll w

opulation hashe number of

have not doe or declinede UAAL com billion. Theable to retire

roll, employea reasonableThis portion

ng policy is purposes of gfetime of the ds the Normament towardefits that havcussed below

ING MET

butions are cputed employnded actuaribased on a c

ve member po

s declined sig2003 to 237the active m

30, 2003 to $3.5% from 2which is 30%e September The FY 201

he past eight would be low

s not been unf employees

one so. As a rd at a slowermponent of te accrued liabees and beneers whose ace share of theis also calle

to fund the bgenerational group being

al Cost (i.e., s the UAAL

ve been earnew.

HODS

ollected as ayer contributial accrued liclosed perioopulation an

gnificantly d,000 membe

member payr$9.56 billion003, the 201

% lower than30, 2011 ac4 employer years, the FY

wer.

niform across who are eliresult, emplo

r pace than othe contributability totaledeficiaries. Sinctive membee UAAL comed the “stran

benefits payequity, the a

g covered. A the cost of b

L, which is thed in the pas

    ‐54‐   

a percentagetion rate is eiability (UAd (25 years r

nd covered m

during the paers as of Seproll declined n for the fisc11 payroll wn projected ictuarial valuacontributionY 2014 emp

ss all school gible to partoyers whose

others are betion. As of Sd $63.4 billionce contribu

er populationmponent, a mded cost” of

able from thamortization

An appropriatbenefits accrhe amount fost. Some com

   

of covered equal to the

AAL). The remaining as

member payr

ast eight yeaptember 30, 2

from $10.02al year endin

would have bein 2003 baseation determn rate is 20.9ployer

employers. ticipate in e active memaring a high

September 30on of which

utions are ns have declimajor portionf the plan.

he plan over n period shoute funding pruing in the or which assmmonly used

 

s of roll

ars, 2011, 2 ng een

ed mines 90%.

mber er 0,

ined n of

a uld olicy

ets d

 

 

A “closedspecific fpredictab

An “openperiod asthan withDependinperiod. OGovernm30-year oyears beg

A “level payroll oto occur of pay, thlarger in during thstable coexpectedperiod m

A “level the amorthe level early yea

In some cpolicies. window,

For a muassigned

Option 1employercontributis the emmethod u

ADVANover the

d” amortizatfuture date. Able manner, b

n” amortizats the previouh a closed peng on the am

Open amortizmental Accouopen amortizginning after

percent of pof the group. over the amohe amount ofthe later yea

he first yearsntribution ra

d. In additionmay result in t

dollar” amotization peripercent of p

ars of the am

cases, retiremA common while amort

ultiple emploto individua

1: Cost averr contributiotion rate incl

mployer contrused by MPS

NTAGES: Thentire group

tion period wA closed perbut can resul

tion period reus year. The eriod, but themortization pzation periodunting Standzation periodr June 15, 20

payroll” amoAn assumpt

ortization pef the paymenars. This can of the amor

ate, but can rn, combiningthe UAAL in

ortization expiod. This resupayroll metho

mortization pe

ment systemexample is ttizing the rem

oyer plan, anal employers

raging for alon rate (as a pludes the Noribution rate SERS.

his method ip, volatility is

will reduce thriod has the lt in volatile

e-amortizes contributione UAAL is nperiod, the Uds are commdards Board (d. GASB sta013, the 30-y

ortization exption must beeriod. While nts is smalle

n result in a “rtization periresult in undg the level pencreasing ev

presses the aults in greateod. While theriod, the pa

ms use a combto use a shormaining UA

nother compos. Some of th

ll groups —percent of pa

ormal Cost anmultiplied b

is simple ands reduced.

he UAAL ofadvantage o contribution

the UAAL ons under an onot amortized

UAAL may inmonly used in

(GASB) alloandards haveyear amortiz

presses the ae made about

the paymener in the earli“negative amiod. This am

derpayments ercent of payvery year in

amortization er payments

he payments ayments do n

bination of trt, closed per

AAL over a l

onent of the hese possible

— Employeesay) is calculnd the UAAby the emplo

d easy to imp

f the plan ovf effectivelyns, as the rem

of the plan eopen amortizd as quicklyncrease unden the public ows financiae been revisezation standa

amortization t the increas

nts are expecier years of t

mortization”,mortization m

if actual payyroll methodthe future.

payments a at the beginreduce the U

not remain c

the methods riod for a ononger, open

funding polie methods ar

s’ liabilities alated for the

AL payment.oyer’s active

plement. Sin

    ‐55‐   

ver a set timey amortizing maining peri

each year ovezation period

y as with a cler an open amsector, and c

al reporting aed and beginard will be el

payments oe in payroll

cted to be levthe amortiza, where the U

method generyroll increasd with an ope

s a fixed dolnning of the UAAL moreonstant as a

above in thene-time bene

period.

icy is how thre discussed

are grouped entire plan. Each emplo

e member pa

nce the avera

   

eframe, endithe liability

iod gets sma

er the same d are less volosed period.mortization current assuming up

nning with plliminated.

over the futurthat is expec

vel as a perceation period UAAL growrally results ses are less then amortizat

llar amount operiod than

e quickly in tpercent of p

eir funding fit adjustme

he costs are d below.

together andThis employ

oyer’s contribayroll. This i

age is calcul

 

ing at a y in a aller.

latile .

p to a lan

re cted ent and

ws in a han tion

over with the

payroll.

nt or

d an yer bution is the

ated

 

 

DISADVhigher panumber otrue of emreduce pe

Option 2of the UAamortizatheadcoun

ADVANtoward th

DISADVa large coto be estaemployee

Option 3based uporganizatitem that

ADVANallocation

DISADVwhose pa

Option 4from yeacontributexceeds tfund the

Impact o

Article IXFund, to systems. unfundedto pay th

VANTAGESayroll will paof retirees. Tmployers wiensionable p

2: Active cosAAL attributtion componnt basis and

NTAGES: Lihe UAAL fo

VANTAGESost assignmeablished to des that work

3: Contribuon a non-paytions’ operat can be track

NTAGES: Mn method.

VANTAGESayrolls have

4: Contribuar to year, aretions. From athe amount oplan on an a

of Different

X, Section 1be used for One way to

d accrued liae amount of

S: No assignay a larger sh

This method th decreasin

payroll to red

st averagingtable to activnent of the Uis assigned t

imits contribor inactives to

S: Employerent relative tdetermine hoked for multip

tions based yroll measurting expendiked by the S

May be more

S: Presents tdeclined.

tion caps —e attractive ta funding staof the cap. Ifactuarially so

Funding M

1 of the Micaid to schoouse the Sch

ability at a cef annual requ

nment of retihare of the rcreates equi

ng payroll. Uduce the requ

g with inactve employee

UAAL attributo the emplo

bution volatio the employ

rs with largeto their ongoow to assign ple employe

on some otre of the empitures, numbystem.

closely tied

the same leg

— Contributioto employersandpoint, capf this were cound basis.

Methods on t

chigan Constol districts, hihool Aid Funertain level auired contrib

iree UAAL iretiree UAALty issues bet

Under this meuired contrib

tive cost asses is calculatutable to reti

oyer where th

lity for activyer where th

inactive liaboing budgets

the contribuers.

her financiaployer’s org

ber of employ

to the emplo

acy cost issu

on caps, or ls who seek tops create proase, the cap

the School A

titution of 19igher educat

nd would be and provide ution that ex

is made by eL, even if thtween emploethod, emplobution.

ignment —ted using a mirees and benhe inactive e

ve employeehe liability w

bility and sh. Consider w

ution toward

al measureganization. Tyees, numbe

oyer’s ability

ues as the me

imits in the o limit the voblems whenwould need

Aid Fund

963 establishtion, and schto cap the emfor State Schxceeds the em

    ‐56‐   

employer, sohese employeoyers. This woyers are enc

— the amortizmethod descrneficiaries isemployee ear

es. Assigns cwas earned.

hrinking payrwhether methd the UAAL

— Costs areThis could beer of student

y to pay than

ethods abov

employer’s volatility of tn the true ac

d to be remov

hed the Statehool employemployer ratehool Aid Funmployer max

   

o employers wers have a lowill especiallcouraged to

zation comporibed above.s calculated rned the ben

contributions

roll may rechods would nfor inactive

e calculated e the s, or any oth

n the payroll

ve for employ

contributiontheir ctuarial cost ved in order

e School Aidee's retiremee for the nd contributximum rate.

 

with ower ly be

onent The on a

nefits.

s

eive need

her

l

yers

n

to

d ent

tions

 

 

In this sepay the rwould becontributwould berequired Fund conincrease

CONCL

MPSERSmany emcost plus30, 2011amortizecontribut

The amoeconomicdecreasinUAAL ismember declining

Second, fliabilitiesamortizeattributabemployee

Third, soservices, as contrastaff in M

The follocase, we amortizat

ense, the “capemaining req

e advantageotion can onlye at risk frompayments. In

ntribute to thin required c

LUSIONS

S faces manymployer grou

an amortiza) as a level pd over a foution based up

rtization towc environmeng the payros based uponpayroll incre

g.

for employes remain andd over the reble to inactives worked.

ome employecontracting

actors. In addMPSERS.

owing are rechave estimation period o

p” would onquired controus to employ be made tom losing thesn addition, i

he Plan, the econtribution

y challengesups through pation componpercentage or-year closedpon that emp

ward the UAAent has causell that is the

n the assumpeases have fa

rs with declid continue toemaining payves are amor

ers are able tsubstitute te

dition, charte

commendedated the impaof 25 years f

nly apply to eribution, the oyers whose o the extent tse contributiof future lawemployers ws.

in funding rpooled contrnent that is b

of payroll. Thd period as aployer’s pay

AL has beened many empbasis for cal

ption that payfallen short o

ining payrolo increase. Thyroll of the ortized predom

to reduce theeachers and oer schools ha

d amortizatioact on five dfor all unfund

employers. Stotal requirecosts would

that the Schoons if the Scwere to rem

would see an

retirement beributions. Thbased upon ahe cost for tha level perce

yroll.

n negatively ployers’ actilculating conyroll increas

of the 3.5% a

l, active liabhe UAAL atother groupsminantly by

eir covered pother employave the optio

on methods thdistricts of vaded liability

Since the Sched contributid be limited tool Aid Fundchool Aid Fu

move the requimmediate a

enefits. The he contributioa closed 25-yhe early retirentage of pay

impacted inive workforcntributions. Tses by 3.5% assumption a

bilities have ttributable tos. This creategroups othe

payroll by pryees, and fil

on of not enr

hat MPSERarious sizes. y calculations

    ‐57‐   

hool Aid Fuion would beto the cap. Hd is able to pund were unauirement thaand likely si

costs are shons are equayear period (rement incenyroll. Each e

n three ways.ce to declineThe amortizeach year. Sand have bee

decreased wo inactive liaes equity issu

er than those

rivatizing nolling positionrolling their

S may consiWe have us

s.

   

und is requiree made. This

However, thepay. The funable to makeat the Schoolgnificant

hared across al to the norm(as of Septemntive is employer pay

. First, the ree rapidly, zation towardSince 2003, en flat or

while inactiveabilities are ues as the Uwhere the

on-educationns with retireinstructiona

ider. In eachsed a closed

 

ed to s e nd e the l Aid

mal mber

ys a

ecent

d the

e

UAAL

nal ees

al

h

 

 

Funding

1. Abywfa

Since thesame ratehigher copayment

2. AcoO

Since thepercent othe abilitwill resulamortizat

g Alternative

Amortize the y employer b

which utilizesacing.

Distri

Detro

Ann A

Big R

Fores

Laker

e allocation oe as a percenontributions will remain

Amortize the omponent (u

Operating Ex

Dist

Detro

Ann

Big R

Fore

Lake

e allocation oof payroll. Uy of larger Dlt in an amortion period.

es

UAAL usinbased on eacs the Option

ict

it

Arbor

Rapids

st Hills

r Schools

of the amortint of payroll.as a percent the same, th

UAAL usinusing the Opxpenditures (

rict

oit

Arbor

Rapids

est Hills

er Schools

of the unfundUsing the CODistricts to prtization pay

ng a level doch employer 1 approach,

CuAmortiz

17

17

17

17

17

ization paym. Amortizingof payroll in

he payments

ng a level perption 3 appro(COE).

CuAmortiz

17

17

17

17

17

ded is made E for this all

pay more. Amyment that is

llar method r’s payroll. T, addresses t

urrent zation Rate

7.03%

7.03%

7.03%

7.03%

7.03%

ment is madeg the UAAL n the early y will decreas

rcent of pay oach) by emp

urrent zation Rate

7.03%

7.03%

7.03%

7.03%

7.03%

over COE, location is dmortizing thes the same pe

and allocateThe level dolthe issue of f

ProAmorti

22

22

22

22

22

e over payroon a level d

years of the ase on a perce

method andployer based

ProAmortiz

20

16

17

15

21

each districtdesirable to te UAAL on ercent of pay

    ‐58‐   

e the amortizllar amortizaflat payroll th

oposed zation Rate

2.25%

2.25%

2.25%

2.25%

2.25%

ll, each distrdollar basis wamortizationent of pay ba

d allocate thed on each em

oposed zation Rate

0.85%

6.23%

7.92%

5.97%

1.74%

t pays a diffethe extent thaa level perc

y throughout

   

zation compoation methodhat MPSER

e

rict pays the will result in n. Since the asis over tim

e amortizatiomployer’s Cu

erent rate as at COE refleent of pay bt the

 

onent d, S is

me.

on urrent

a ects asis

 

 

3. Athp

This metconservapayroll, epayroll gpayroll insame for years. Afpayroll (p

4. AatAemsoreem

Dist

Detr

Ann

Big

Fore

Lake

*Includes 2

This metdistrict pinactive l

Amortize the hereafter. Alayroll.

Distr

Detro

Ann

Big R

Fore

Lake

hod uses theative assumpeach district

growth of 0%n the early ythe first 10

fter that periprovided tha

Allocate the Uttributable to

Allocate the pmployer is rome period (esponsible fomployer pay

trict

roit

n Arbor

Rapids

est Hills

er Schools

.66% payment fo

hod allocateays the sameliability and

UAAL assullocate the am

rict

oit

Arbor

Rapids

est Hills

er Schools

e existing metion for payrpays the sam

% for the firstyears of the ayears, the paod, the amor

at payroll inc

UAAL into to retirees andportion attribesponsible f(25 years, foor making anyroll and as a

CurreRat

17.03

17.03

17.03

17.03

17.03

for ERI

es the active e amount as the rate will

uming payromortization c

CurAmortiza

17.0

17.0

17.0

17.0

17.0

ethodology, roll growth. me rate as a pt 10 years w

amortizationayments willrtization paycreases as as

two portionsd beneficiaributable to refor making aor example) ond amortizata level perce

ent te

ProAct

3% 4

3% 4

3% 4

3% 4

3% 4

UAAL on aa percent of

l vary by dis

ll growth is component b

rrent ation Rate

03%

03%

03%

03%

03%

which is an Since the alpercent of p

will result in h. Since the pl remain leve

yments are scssumed).

s using the apies and the ptirees and be

an amortization a level dotion paymenent of pay.

oposed ive Rate I

4.88%

4.88%

4.88%

4.88%

4.88%

a percent of pf pay. For inastrict. This ca

0% for the nby employer

PropAmortiza

20.

20.

20.

20.

20.

Option 1 apllocation of tayroll. Amohigher contr

payment andel as a percecheduled to

pproach in Oportion attribeneficiaries tion paymentollar basis. In

nt toward act

ProposedInactive Rat

23.39%

11.88%

17.92%

10.17%

28.20%

pay basis andactives, the aan result in r

    ‐59‐   

next 10 yearr based on ea

posed ation Rate

.74%

.74%

.74%

.74%

.74%

pproach, but the unfundedortizing the Uributions as ad payroll willent of payrolbegin to inc

Option 2 — tbutable to acto each emp

t toward retirn addition, etive UAAL a

d te*

Total

2

1

2

1

3

d over payroallocation isrates that are

   

s and 3.5% ach employe

uses a d is made ovUAAL assuma percent of l remain the l during thesrease along

the portion tive member

ployer. Each ree UAAL oeach employallocated by

Proposed Rate

28.27%

6.76%

22.80%

5.05%

33.08%

oll, so every s based upone relatively h

 

er’s

ver ming

se with

rs.

over yer is

n the high

 

 

for smallcalculate

5. Abatfofoalex

Dis

De

An

Big

For

Lak

*Includes 2

This metdistrict pthe inactihigh for samortizatincreases

How the We havedesirablea large poassets aredecrease,

No matteimplementhat the aamortizatto the potmethod.

ler districts wd on a level

Allocate the Ueneficiaries ttributable toor making anor example) llocate the amxpenditures

strict

troit

n Arbor

g Rapids

rest Hills

ker Schools

.66% payment fo

hod allocateays a differeive UAAL asmaller distrtion is calcus.

UAAL is alassumed tha

e to assign a ortion of inae devoted to , while the a

er which amonted, as caps

amortization tion methodtential for em

with larger indollar basis

UAAL into tand the port

o retirees andn amortizatioon a level domortization (COE). This

CurrRa

17.0

17.0

17.0

17.0

17.0

for ERI

es the active ent amount aand the rate wricts with lar

ulated on a le

llocated betwat actives anlarger portio

active particiinactive liab

active liabilit

ortization ms will comprmethod be a

ds for differenmployers to

nactive legac, the rate wil

two portionstion attributad beneficiarion payment ollar basis. Acomponent bs alternative

rent ate

PrAc

03%

03%

03%

03%

03%

unfunded liaas a percent owill vary by rger inactive evel dollar ba

ween actives nd inactives son of the assipants are cubilities than ty rates will

ethod is choromise the papplied consnt employermanipulate t

cy costs. Noll decrease o

s — the portiable to activeies to each etoward retire

Amortize thebased on eaccombines th

roposed ctive Rate

5.97%

4.65%

5.13%

4.58%

6.23%

ability on a pof pay. For idistrict. Thilegacy costs

asis, the rate

and inactiveshare equallyets to inactiv

urrently receiactive liabiliincrease.

osen, we recoayment of thsistently to as will result their contrib

ote that sinceover time as

ion attributae members. A

employer. Eaee UAAL ove UAAL usinch employerhe approache

ProposeInactive Ra

23.39%

11.88%

17.92%

10.17%

28.20%

percent of painactives, thes can result s. Note that

e will decrea

es is importay in the asseve liabilitiesiving paymeities, the ina

ommend thathe UAAL. Inall employers

in administrbutions by m

    ‐60‐   

e the inactivepayroll incre

able to retireeAllocate theach employever some perng a level dor’s current opes from Opti

ed ate*

Total

2

1

2

1

3

ay basis ovee allocation in rates that since the ina

ase over time

ant in the abets. However than active

ents. To the eactive liabilit

at no contribun addition, ws. Using diffrative issues

modifying the

   

e amortizatioeases.

es and e portion er is responsiriod (25 yeaollar methodperating ions 2 and 3

Proposed Rate

29.36%

6.53%

23.05%

4.75%

34.43%

er COE, and is based upoare relativel

active e as payroll

ove calculatr, it may be liabilities, s

extent that mty rates will

ution caps bewe recommenferent s, as well as le amortizatio

 

on is

ible ars, d and

.

each on ly

tions.

ince more

e nd

lead on

5

6

7

8

 

 

The tablefollowing

Fco

L E Im S

Funding

Fairness

Likelihomanipul

Funding

Sustainaimplicat

Cost stab

Competitdual goalfinancingchildren economyconsistenis beyonddevelop a

                   Alternatives w All five recom

a full amortlevel percencontribution

Implications femployer’s contribution

Level dollar achallenge fovolatility in

e below meag criteria:

airness acroosts

Likelihood foEffectivenessmplications ftability of em

g Alternative

s

od for lation5

g effectivene

ability ions7

bility8

tion for fundls of increasig. Both are lis an essenti

y. Likewise,nt manner. Rd the scope oa rational fun

                       where the requimmended alterntization of the untage of payroln, the effectivefor sustainabiliability to pay.

n leads to a higamortization reor budgeting pu

ncreases as the

asures the fun

ss employer

or manipulats in funding tfor the sustamployer cos

e: 1

Lo

Hi

ess6 Hi

Med

Lo

ding is a coming teacher rlaudable objial service an it is fiscally

Reconciliatioof this studynding alloca

                   ired contributionatives are effeunfunded accrull amortizationeness of that altity are measure A method wh

gh probability osults in a requiurposes. The samortization p

nding alterna

rs, including

ion the retiremen

ainability of tts for budge

1

ow

gh

gh

dium

ow M

mmon challenretirement plectives. The

nd impacts thy prudent to on of how to, It is, howe

ation to both

on rate is unrelective in fundinued liability. L. If any emploternative woulded based on howhere more emplof a sustainableired contributiostability of all fperiod decrease

atives outlin

assigning co

nt system ovthe retiremetary plannin

2

Low

Low

High

High

Medium

nge for policlan funding e need to prohe future heaadequately f

o balance theever, an issuepriorities.

lated to payrollng the retiremeLevel dollar amoyers are unabld be threatenedw an alternativloyers have thee system. on that is not lefive alternativees.

ned above ag

osts to the em

ver time nt system

ng purposes

3

Low

High

High

Medium

Medium

cymakers. Slevels and oovide qualityalth of the Sfund teacherese two compe that needs

l provide the loent system overmortization fune to pay their ad. ve adjusts the re strongest abil

evel as a percees is subject to

    ‐61‐   

gainst the abi

mployers tha

4

High

Medium

High

Medium

Medium

Such a conflioverall publicy education ttate’s and na

r retirement ipleting but cmore exami

owest likelihoor time because

nds the plan at aallocated share

required contriblity to pay thei

entage of payromarket volatil

   

ility to meet

at incurred th

5

Hig

m Low

Hig

m Hig

m Medi

ict exists in tc education to Michiganation’s in a timely acompeting neination to

od for manipulae they all accoua faster rate tha

e of the require

bution rate for ir required

oll, and thereforlity and this

 

the

hose

gh

w

gh

gh

ium

the

n’s

and eeds

ation. unt for an d

an

re a

 

 

This sectto a chandisbursemretiree hemethod oMPSERSretiree he

Impact o

In 2004, standardscounties,to calcula(other poUnder GAon an actcash disbwhile GAwho spon

While GAwill focugovernmbenefits wapproachcash disbfor becaupromisedhealth carequire paccepted rules enssustainabemployerprefundinexpense,

tion of the stnge in the funment methodealth benefitof valuation.S by PA 300ealth benefit

of GASB OP

the Governms, GASB 43 , cities, and pate and repo

ost-employmASB rules, gtuarial basis bursement reASB 45 covensor OPEB p

ASB rules apus on the imp

ment employewere actually

h under GASbursement amuse most govd to employeare incremenpublic emplo

accounting ure transpar

bility of thosrs prefund thng these costas discussed

9. RETIR

tudy identifiending of retid, which is as is based on This section

0 of 2012 ands.

PEB Rules o

ment Accounand GASB 4

public schoort the costs o

ment benefitsgovernment over employ

equirements.ers financial plans. These

pply to all typact to retireers generallyy paid either

SB rules provmount. Therevernments diees. This meantally within

yers to prodprinciples, aency as to the benefits. It

he costs of thts, such as ud below.

REE HEA

es and discuree health be

a pay as you n individual n also analyzd the likely i

on Governm

nting Standa45, which ap

ol districts. Tof post-empl), as part of employers myees’ period GASB 43 dreporting an

e rules have b

ypes of post-e health ben

y funded OPEr as premiumvides for signefore, until rid not determans that manthe context

duce actuariaand to reporthe full costs t is importanhe OPEB pla

utilizing high

ALTH PLA

usses the prosenefits provigo method, projected bezes the changimpact of tho

ment Emplo

ards Board (Gpply to all go

These new acloyment benthe governm

must now reps of service,

describes finnd accountinbeen fully ef

-employmennefits. BeforeEB plans on

ms or as claimnificantly hirecently, OPmine the longny governmeof the annua

al valuations t OPEB liabiof retiree he

nt to note thaan. Howeverher discount

AN ANAL

s, cons, and ided by MPSto prefundin

enefits utilizges made toose changes

oyers

GASB) finalovernmentalccounting sta

nefits other thmental entityport liabilitie, rather than ancial report

ng standards ffective sinc

nt benefits ote GASB rule

n a pay as youms. The newigher annual

PEB liabilitieg-term costsents have adal budgeting for their OP

ilities in theiealth benefitsat GASB star, there are srates and rep

    ‐62‐   

LYSIS

funding impSERS from ang benefits. Pzing an entry retiree healton the fund

lized two nel entities sucandards requhan pensions

y’s overall fines that accrubased on the

rting rules fofor governm

ce 2008.

ther than penes were implu go basis as

w accrual accl accounting es were larges of retiree heddressed the r

process. GAPEB, followiir financial rs and focus a

andards do nignificant adporting lowe

   

plications rela cash Prefunding

y age normal th benefits ued status of

ew accountinch as states, uire governms, or OPEB nancial liabiue in OPEB pe current yea

or OPEB planment employ

nsions, this slemented, s retiree heacounting expense tha

ely unaccounealth benefitrising costs

ASB rules noing generallyreports. Thesattention on ot require thdvantages toer liability an

 

lated

cost under

ng

ments

ility. plans ar’s ns, ers

study

alth

an a nted ts of ow y se the

hat o nd

 

 

A governkey comp

OPEB

Eligib

Curre

Contr

Healt

Inves

Demo

Changes reported specific gthat grouexceed thover timesuch asse

Since GAreported which remexample,entity, thcan resulof the cauReportinhealth pla

State govstrategy fcontributand Newcare benebenefits. required liabilitiestrust fundDelaware

nment emploponents, incl

B plan desig

bility for ben

ent and expe

ributions ma

th care inflat

stment rate o

ographic ass

made to anyunder GASBgroup of emp

up. In additiohe amount use that partialets would red

ASB OPEB rliabilities thmain unfund, unfunded O

hereby increalt in negativeuse of the ing the costs oan design, fu

vernments hafor most stattions from bo

w Mexico havefits, as wellIn addition tcontribution

s, including Dds to accumue, Georgia, K

oyer’s GASBluding but n

gn (what ben

nefits

ected future p

ade towards

tion rate

of return

sumptions (e

y of these keB rules. For ployees grad

on, if contribsed to pay aclly offset theduce the OP

requirementhat are much ded, can havOPEB liabilitasing the cose publicity ifncreased liabof OPEB plaunding meth

ave focused tes has been oth employeve increased l as increasedto capping a

n funding. MDelaware, Pulate assets sKentucky, L

B OPEB liabnot limited to

nefits are pro

participant p

benefits, and

e.g., rates of

ey componenexample, eli

dually reducebutions towarctual benefit

e OPEB liabiEB liability

s have becomhigher than e a potentialties may resu

st of borrowif the organizility, as well

ans puts preshods and sou

on a range oto reduce be

ers and emplthe amount

d employer aand eliminati

Many states hPennsylvaniasince GASBouisiana, Ma

bility is detero the followin

ovided to reti

populations

d the timing

termination,

nts can reduciminating elies OPEB liard retiree hets for the yeaility. Furtheramount.

me effectivethe pay as y

lly negative ult in a loweing money. Azation is not pl as present asure on gove

urces, and red

of approacheenefit levels oyees. For eof service reand/or emploing certain b

have increasea, and Ohio. went into eaine, Maryla

rmined by tang:

irees)

thereof

, retirement

ce the OPEBigibility for

ability becaualth benefitsar (prefundinrmore, favor

e, most goveryou go costsimpact on g

er credit ratinA spike in thprepared to a well-reasoernments to duction of re

es to manageand/or incre

example, Noequired to beoyee contrib

benefits, Utahed contributiA number offect, includand, Massach

    ‐63‐   

aking into ac

and mortalit

B liability reqretiree healt

use no liabilits made durinng), assets carable investm

rnment emp. Large OPE

governmentang for the gohe entity’s ovprovide a clned solutionseek alterna

etiree health

e OPEB liabementally inorth Carolinae eligible for

butions towah has movedions toward

of states haveding Alabamhusetts, Ohi

   

ccount a num

ty)

quired to be th benefits foties accrue fng each year an accumula

ment returns

loyers have EB liabilitiesl entities. Foovernmentalverall liabiliear explanat

n to the probatives for reti

liabilities.

ilities. The ncrease a, Rhode Islar retiree hea

ard those d to full actuunfunded e also establi

ma, Connectico, Rhode Isl

 

mber of

or a for r ate on

, or l ity tion lem. iree

and, lth

uarial

ished cut, land,

 

 

South CaFunding

Still, statfiscal yeaof their tohave fundOhio, Orretiree heobligatioStates, Ju

Prefund

One waycost of Oamount eplan accrunfundedpayment PAYGo ptowards rtowards rtransferrebenefits ucreditorsused for well as so

Advantag

In order tinvestmeprefund Odiscount liabilitiesreasonabactuarial term invereturns bthat repretowards a

Another liabilitiescredit rat

arolina, UtahStrategies V

tes have genear 2010, the otal bill for Oded 25% or

regon, Virginealth care lians for OPEBune 2012)

ing OPEB l

y to reduce OOPEB plans. equal to the aruals in the cd accrued liatoward the upayments. Inreducing OPretiree healthed to a trust under the ter. The contribanother purpome disadva

ges of Prefun

to determineent return on OPEB costs,rate is set eq

s will justifyle asset allocvaluation of

estment returecome a reaesent prior ya funding am

potential advs from the gotings and the

h, Vermont aVary Widely,

erally not sePew Center OPEB, whicmore of theinia, and Wisabilities. TwoB liabilities.

liabilities vs

OPEB liabilitTo fully funannual requicurrent year ability over aunfunded acn addition, inPEB liabilitieh benefits, su(or equivalerms of the Obutions cannpose. Prefunantages, to th

nding

e OPEB liabiOPEB plan

, but instead qual to the ra

y use of a higcation. A higf OPEB liabrns rather thlity of growi

years’ accruamount equal

vantage of povernmentalereby reduce

and West Vir, Standard &

et aside enouon the State

ch is estimateir retiree heasconsin. Thiro states, Neb(Source: Th

. pay as you

ties is to connd OPEB liabired contribu(referred to

a period not tccrued liabilin order for thes, GASB reuch as paym

ent arrangemOPEB plan annot be held ading OPEB he employer

ilities, a govassets (referpays those c

ate that genegher discoungher discounilities assum

han cash conting assets, th

als so that theto the value

prefunding Ol entity’s bale the cost of b

rginia. (Sour& Poor’s, Jun

ugh money foes reported thed to be $62alth care oblirty-six statesbraska and Oe Widening

u go (PAYG

ntribute amoubilities, gove

ution (ARC),as the normato exceed 30ity, the ARChe aggregate

equires that tment of claimment) in whicnd are legall

as general assliabilities casponsoring

vernment emrred to as thecosts from geral revenuesnt rate based nt rate will p

mes some of ttributions. Fhese assets re dollar amoof the curre

OPEB costs iance sheet imborrowing m

rce: U.S. Stane 2009)

or their retirehat states ha

27 billion. Foigations: Alas have set asiOklahoma, dGap Update

Go)

unts towardsernment emp, which repral cost) plus 0 years. By i

C will be sube annual conthese contrib

ms or premiumch plan assetly protected sets of the gan provide sian OPEB pl

mployer muste discount ra

general revens earn. Howeon the expec

produce a lowthe money f

Furthermore,reduce the amount of the Aent year’s acc

is that reductmproves deb

money.

    ‐64‐   

ates’ OPEB L

ees’ OPEB lad put away oor example, jaska, Arizonide less thano not acknowe, The Pew C

s the actuariployers mustresents the co an amount tincluding anstantially gr

ntributions tobutions be pams, or irrevots are dedicafrom the emovernment eignificant adlan.

t assume an ate). If the emnues on a PAever, prefuncted investmwer ARC befor benefits c as the expecmount of unf

ARC marchecruals only.

tion of largebt ratios, wh

   

Liabilities an

liabilities. Aonly five perjust seven st

na, North Dan 50% of thewledge Center on the

ally determit contribute osts of OPEBto amortize t

n amortizatioreater than ano be countedaid directly ocably

ated to providmployer’s employers todvantages, as

expected mployer doe

AYGo basis, ding OPEB

ment returns cause the comes from lcted investmfunded liabils downward

e unfunded hich may imp

 

nd

As of rcent tates akota, eir

e

ned an B the

on nnual

d

ding

o be s

es not the

of a

long-ment lities

d

prove

 

 

Finally, abenefits abudgets obodies anemployerinflation of those c

Overall, pcontributpaymentscontributcomponedemograpsignificanportion o

Disadvan

PrefundinproducesassociateimmediatOPEB liaof other gsome poiPAYGo abecome mfor a rela

In additioirrevocabtoday or relatively

The issuefactor in benefit coout genercurrentlydown andOPEB liaemployeethem.

accurate accoare earned dof governmend credit ratir to take intorate, and a gcosts over a

prefunding rting amountss that will action rates to ents such as mphics. More ntly lower th

of the liabilit

ntages of Pre

ng OPEB lias a lower anned with thosetely. In timeabilities meagovernment int in the futuamounts andmore expensatively larger

on, once genble trust for rin the future

y few govern

e of intergenweighing thosts are consrational ineq

y accruing bed the ARC cabilities, incles and taxpa

ounting of ademonstratesent employering agencieso account futgrowing numdefined peri

retiree healths while an emctually be mareflect actuamortality ratimportantly

han under a Pties.

efunding

ability involvnual cost for e benefits inves of severelyans governmprograms anure, as the cd the prefundsive than prer portion of O

neral assets hretiree healthe. These disanment emplo

nerational eqhe advantagesidered overquity so that enefits (e.g., consists mainluding payin

ayers are fun

and payment fiscal respors, includings. Prefundingture costs im

mber of retireiod of time.

h benefits fomployee is eade in the fual experiencetes, inflationy, the total coPAYGo app

ves significaretiree healt

volves payiny constrained

ments must bend/or serviceosts of OPEding paymenefunding. AgOPEB plan c

have been deh benefits), tadvantages ooyers have ad

quity in fundies of prefundr the long-teremployees aonce the un

nly of the nong a portion nding the ben

toward beneonsibility to ig retirees andg OPEB liabmplicit in incees and eligi

ollows a simiearning accruuture, the eme of the plan n, actual inveontributions

proach becau

ant opportunth benefits, wng a significad budgets foe able justifyes for this puB plans rise

nts will be regain, this is bcosts than ca

edicated to Othat capital iof prefundingdopted prefu

ing the costsding versus thrm, prefundiand taxpayer

nfunded liabiormal cost). Hof prior year

nefits payabl

efits promiseinterested stad employeesilities on an

creased longeible benefici

ilar path as fued benefits

mployer has tn and to accoestment returthat must be

use investme

ity costs. Thwhereas prefantly higher

or governmeny reduced fuurpose. Still,, the relationeversed, and because overash contribut

OPEB fundinis no longer g OPEB liabunding mech

s of retiree hhe PAYGo ming OPEB liars are payingilities from pHowever, inrs’ accruals,le to the gen

    ‐65‐   

ed to employakeholders t, taxpayers, actuarial ba

evity, healthiaries, and to

funding a penunder the pl

the ability toount for fluctrns and shifte made to prent returns fu

hat is, the PAfunding the annual contnt employer

unding to or e, it is importanship betwee

d the PAYGor time investtions.

ng (e.g., tranavailable for

bility may exhanisms.

health benefimethod. If reabilities eveng for only thprior years’ an the short te means that eration that

   

yees as thosethat can affeclegislative

asis allows thh care cost o spread paym

nsion plan. Blan towards

o adjust tuating cost ts in refund benefund a large

AYGo approliabilities tribution amors, prefundineven eliminaant to note then annual o method wiltment return

nsferred to anr other needs

xplain why

ts may also etiree healthntually smoo

he cost of accruals are rm, prefundicurrent came before

 

e ct the

he

ment

By

fits is

ach

ount ng ation hat at

ll s pay

n s

be a h othes

paid ing

e

 

 

Retiree h

While GAthe annuaof reasonlast decadhealth behigher coretiremenamounts,decreasedeligible f

In additiopopulatiocare infla

As retireecosts, redThe Systin the Coliability freported discount

Since theMPSERSlimiting treal econcare inflanumber ocost savinadding a amounts measuresin the lasretiree hebasis, as

health bene

ASB reportinal PAYGo ans. One reasode. Since ea

enefits, a decontribution rnt incentive p, since over d the active for retiree he

on, health caons combineation rate.

e health bendesign benefem has calcu

omprehensivfor retiree heunfunded rerate for the

e early 1990sS Retirementthe rate of pe

nomic growthation rate. Beof cost savinng measuresPreferred Prand implem

s, the employst ten years. Fealth care coillustrated in

fits under M

ng rules havmounts of reon for this isch school di

cline in activates, althougprogram off17,000 memmember pop

ealth benefits

are costs coned with longe

efit costs hafits so that thulated and re

ve Annual Finealth benefitetiree health PAYGo fun

s, the Departt Board haveer capita cosh. This strateecause of the

ngs initiatives mainly focurovider Orga

menting utilizyer contributFurthermore

osts well belon the table be

MPSERS

ve illuminateetiree health s the decline istrict in MPve members mgh the total dfered to MPS

mbers retired pulation whis.

ntinue to riseer life expec

ave continuedhey are sustaeported the unancial Reps in accordaliability for ding method

tment of Tece utilized a fst growth foregy has maine strategic ps, resulting ius on plan danization (PPzation managtion rate for

e, the cost saow the nationelow (provid

ed the true cocontributionin MPSERSSERS pays ameans total pdollar amounSERS membunder the prle providing

e at a rate sigtancies are m

d to rise, MPainable, and runfunded accort (CAFR) nce with GAfiscal year 2

d).

chnology, Mformal strater health care ntained healtlanning procin cumulativ

design elemenPO), increasgement progretiree healt

avings measunal expenditded by MPS

ost of MPSEns have increS’ active mema percentagepayroll is alnt needed stabers in 2010 rogram that

g a spike in th

gnificantly himajor contrib

PSERS has tretool fundincrued liabilisince 1999 a

ASB requirem2011 was $2

Management egic planning to the comp

lth care cost cess, MPSERve savings innts that redu

sing deductibgrams. Becauth benefits hures have hetures for heaERS).

    ‐66‐   

ERS’ retiree eased rapidlmber populae of their payso decliningays the sameincreased thyear, which

the number o

igher than inbuting factor

taken many sng bases andty for retireeand has repoments since 5.9 billion (b

and Budget g process towpound rate oincreases beRS has impln excess of $uce health cables and otheuse of the cohas increasedlped MPSER

alth care on a

   

health benefly for a numbation over thyroll for retir

g, which cause. An early he annual PA

further of individual

nflation. Agirs to the hea

steps to contd mechanisme health beneorted OPEB 2006. The based on a

(DTMB) anward the goaf inflation an

elow the heaemented a 1 billion. Th

are costs, sucer cost-shari

ost saving d only three tRS maintaina per capita

 

fits, ber

he ree ses

AYGo

ls

ing alth

trol ms. efits

nd the al of nd

alth

hese ch as ng

times n

 

 

*Center for

˚Figures are

As disculower emThe folloover timecontributmember

TAB

Year

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Medicare and M

e shown net of pr

ssed above, mployer controwing chart ie, as projectetion rate is a contribution

BLE 9 – Hea

National

$4

$5

$5

$6

$6

$6

$7

$7

$7

$8

Medicaid Service

remiums and oth

one advantaribution rateillustrates emed by the Syhigher than

ns. However,

alth Care Ex

Per Capita*

4,878

5,240

5,682

6,098

6,458

6,827

7,198

7,561

7,845

8,086

es, National Hea

her revenue.

age to prefune and avoid dmployer contystem. Note t

the post-Ac, the intent o

xpenditure p

* Retirem

lth Expenditures

nding OPEB drastic fluctutribution ratethat this char

ct 300 rate. Inof the chart is

per Capita

ment System

$2,623

$2,78

$3,076

$3,328

$3,710

$3,786

$3,402

$2,979

$3,176

$3,180

s, www.cms.gov/

liabilities isuations in thie for MPSERrt is pre-Actn addition, ths to show an

    ‐67‐   

Compariso

m’s Per Cap

3

1

6

8

0

6

2

9

6

0

/NationalHealth

s that it helpsis rate over tRS retiree het 300, so the the chart doen illustration

   

n

ita˚

ExpendData.

s maintain a the long-termealth benefitadvance fun

es not reflectn of the conce

 

m. ts nding t ept.

 

 

CHART

Even paramount ofor MPSEamount, determinthan the 4for full pand reducIn additioallows sogrow acctime.

PA 300 o

Currentlyand benebenefits afrom empPrior to tmedical bwere eligthat redu10 and 3090% of thafter Julyemployer

11

rtial prefundiof liabilities.ERS retiree even though

ned based on 4.0% assumrefunding ofces the total on, partial prome assets tocording to th

of 2012 as p

y, MPSERS eficiaries. Soare funded oployer contrthe enactmenbenefits and gible for 90%ce the maxim0 years. Memhe maximumy 1, 2008 whr paid premi

ing of OPEB According thealth benef

h it may be lea blended d

ed rate for af the ARC. TOPEB liabi

refunding ofo accumulatee rate of retu

part of the so

offers compome benefits on a cash disbibutions withnt of PA 30090% emplo

% employer pmum employmbers hired m employer pho are age 60um amount

B plans can pto the annuafits, if the emess than the

discount ratea PAYGo funThe higher, blities amoun

f any amounte in the MPSurn, which in

olution

prehensive grare self-funbursement bh the balanc

0, pensionersyer paid denpaid health byer paid portafter July 1,paid premium0 or older recfor service b

provide an inal actuarial vmployer contfull ARC, th. That is, an nding methoblended discnt that is requt greater thanSERS retireen turn reduce

roup medicaded while ot

basis. The Sye paid by thes were generntal, vision abenefits. Howtion of prem 2008 who am with 25 yceive betweebetween 10 a

ncremental ivaluation reptribution is mhe System’s appropriate

od and less thcount rate in uired to be rn the PAYGe health planes total unfu

al, dental andther benefitsystem pays ae retiree (or rally eligibleand hearing bwever, a num

miums for meare less than ears of servien 30% and and 25 years

    ‐68‐   

improvemenport as of Sepmore than thOPEB liabildiscount rat

han the 8.0%turn produc

reported undGo contributin. These can unded OPEB

d vision covs are fully ina portion of tother benefi

e for 100% ebenefits, whmber of exceembers with age 60 at re

ice or more. 90% of the

s.

   

nt in the totalptember 30,

he PAYGo lities can be te would be

% assumed races a lower Aer GASB ruion amount be invested

B liabilities o

erage for retnsured. Retirethe premium

fit recipient).mployer paiile dependeneptions applyservice betw

etirement recMembers himaximum

 

l 2011

more ate ARC les.

and over

tiree ee

m id nts y ween ceive ired

 

 

Beginninan irrevolegality omandatorCourt. Ducollected

PA 300 obeginninpaid portthe premof premiuservice bpremiumMPSERSpremium

Second, tmemberscontributaccount fEmployetheir 401

In additiocoveragewho elecequal to tpost-retirreimbursmembersof healthcompens

The chanimpact oncurrent y

(1) Cb

ng in July 20ocable trust toof this requirry contributiuring the app

d and is held

of 2012 makg January 1,tion of healthium amountums, that am

between 10 am amount paiS who are eli

m, with the em

this bill elims of MPSERtion of up to for employeeees will not b(k) plan or 4

on, existing me premiums act the 2% mathe 3% of corement savinement indiv

s who do not care premiuation deduct

nges made ton OPEB liab

year, or the n

Current emplecause the e

010, PA 75 reowards prefured member ion is unconpeals procesin escrow.

kes several im, 2013, for exh care premit. For retiree

mount will beand 30 years.id by retireesigible for Mmployer paid

minates retireS on or after2% of the e

es who contrbe permitted 457(b) plan.

members maand instead ratching contrompensationngs, as well aidual account elect the 2%ums at terminted from wag

o retiree healbility amounnormal cost, w

oyees will amployer pai

equired MPSfunding retirecontributionstitutional, thss, the 3% m

mportant chaxisting empliums will be s who are noe further redu. Generally, s. However, edicare as od portion rem

ee health carr September mployee’s dribute 2% ofto take a loa

ay elect, prioreceive the 2ribution benen that was paas a small cont upon term% matching nation, this bges under PA

lth benefits unts for severawill be redu

accrue smalleid premium a

SERS membee health benn, and the Mhe case is be

member contr

anges to retirloyees and cureduced to 8

ot eligible fouced accordthis represencurrent retirf January 1,

maining at 90

e coverage f4, 2012. Ins

deferral compf compensatian against th

or to Octobe2% matchingefit will also

aid to a retireontribution a

mination if agcontributionbill sets forthA 75 into an

under PA 30al reasons. Tced in two w

er benefits eaamount paya

bers to contrinefits. Whileichigan Coueing appealeribution unde

ree health beurrent retire80%, with re

or the maximding to currennts an increarees receivin2013 will pa0%.

for employeestead, emplo

mpensation inion towards he matching

er 26, 2012, tg contributioo receive conee health trusamount basedge and servicn, and then dh a method f

n individual a

00 will have The value of ways:

ach year begable at retire

    ‐69‐   

ibute 3% of e lawsuits churt of Appealed to the Micer the Act co

enefits underes the maximetirees payin

mum employnt rules for rase of at leasng health caray only 10%

es who first oyers will manto a defined

post-retiremcontribution

to opt out ofon benefit. Exntributions tost fund unded on servicece eligible. F

do not qualifyfor transferriaccount 401

an immediatOPEB plan

ginning Januement has be

   

compensatiohallenged thels ruled that chigan Supreontinues to b

r MPSERS. mum employng the balancer paid portiretirees with st 10% of there benefits fr

% of the

become ake a matchid contributionment savingsn amount fro

f the retiree hxisting memo their 401(ker PA 75 tow to a health

For existing fy for the paying the 3% o(k) plan.

te and signifaccruals in t

uary 1, 2013 een reduced;

 

on to e the

eme be

First, yer ce of ion

e rom

ing n .

om

health mbers k) plan

wards

yment of

ficant the

and

 

 

(2) Npremthnbthatfu

Additionretiree heless valua

The nonpchanges mliabilitiesa $10.8 bcontribut

Conclusi

Any viabimpact ofretiree heyear are pMPSERSby PA 30funds nechealth co

Second, gaccompliannual pafunding aRevenue reasonabincrementowards a

It is imposhrinkingemployeelevels an

New employeremiums, wimployer is nhe future. Thot count towecause the che 2% emplot least 2% ofunding for b

nally, the unfealth benefitable due to t

partisan Senamade to MPs by $12.4 bibillion reducttions.

ions

ble solution tf reported Oealth benefitpaid with funS’ strategic p00 move reticessary to pa

osts such as h

government ish this task,ayments. Unamounts to aCode sectiole asset alloc

ntal impact oaddressing u

ortant to noteg employee pes’ increasesd the fundin

ees, as well aill accrue no

not promisinghe 2% emplowards OPEB

ontribution ioyer matchinf compensatienefits paid

funded accrus already accthe reduced e

ate Fiscal AgPSERS’ retireillion, includtion from co

to managingOPEB liabilit

s at a sustainnds that can planning proiree health beay benefits mhealth care in

employers m, employers mnfunded liabia GASB fundon 115 establcation. Even

on OPEB liabunfunded liab

e that the chpopulation. As, MPSERS

ng sources fo

as current emo benefits thag to provide

oyer matchinliability becis funded in ng contributiion towards after retirem

ued liability mcrued by exiemployer pa

gency for thee health bending a $1.6 bontinuing em

g the rising coies should bnable level. Treasonably

ocess for conenefit levels

must be able nflation and

must pay dowmust contribilities can beding vehiclelished by PA

n partial prefbilities. It apbilities and f

hanges made As the ratio will need to

or such benef

mployees what are counte any retiree

ng contributicause it is nothe same ye

ion, which isretirement r

ment.

may also be isting membaid portion o

e Michigan nefits under billion reduc

mployee cont

osts of retiree two-fold. FThis means tbe obtained

ntaining the c towards susto take into shifts in dem

wn unfundedbute to MPSEe reduced moe, (such as thA 77) and invfunding retirppears that thfuture accrua

by PA 300 dof retirees rerevisit the s

fits.

ho opt out ofed towards Ohealth benef

ion made on ot dedicated tear in which s only made retiree health

reduced undbers and currof premiums

state legislatPA 300 wil

ction for incrtributions an

ee health benFirst, governthe benefits from emplo

costs of benestainability. account fluc

mographics.

d OPEB liabERS an amoore dramatic

he irrevocablvests those aree health carhe changes mals for retire

do not addreeceiving heasustainability

    ‐70‐   

f the retiree hOPEB liabilitfits that will behalf of thto retiree heit is earned.if the emplo

h care, is a n

der PA 300 brent retirees iat retiremen

ture estimatel reduce unf

reasing retirend increasing

nefits while nment emplopromised an

oyers and emefits and the However, thctuating elem

bilities over ount greater cally if MPSle trust underamounts accore benefits cmade by PA e health ben

ess the problalth benefits y of retiree h

   

health coverties. That is,be payable

hese groups dalth benefits Furthermor

oyee contribuew source o

because the in prior year

nt.

es that the funded OPEBee premiumsg employer

addressing toyers must snd accrued e

mployees. changes ma

he budgetingments of reti

time. In ordethan the PAYERS transfer Internal ording to a

can have an 300 take a s

nefits.

lem of a to active

health benefi

 

rage , the in does s and re, utes f

rs is

B s and

the et

each

ade g of iree

er to YGo

ers

step

it

 

 

Finally, csubstantiemployeenew empretiree heemployeefree basisemployeeof healthexchange

consider thatial, positive ies has an ov

ployees may ealth coverages to elect tos. It is unlikees will be ad coverage ines mandated

t while elimiimpact on Oerall negativpotentially rge and an emo voluntarilyely that the rdequate for thn retirement,

by the Patie

inating retireOPEB liabilitve impact onreceive addit

mployer-subsy contribute tretiree healthhese individsuch as a M

ent Protectio

ee health covies, shifting

n the adequactional contrisidized premtoward the ch benefits prdual to retire

Medicare and/on and Afford

verage for neretiree healt

cy of retiremibutions to a

mium. Currenost of retiree

rovided undewithout ava

d/or potentialdable Care A

    ‐71‐   

ew employeth cost risks

ment incomea retirement antly, IRS rule health beneer MPSERS ailability of slly the healthAct (PPACA

   

ees has a entirely to . Under PA account in liles do not peefits on a taxfor new

some other fh insurance A).

 

300, ieu of ermit x-

form

 

 

10

As requirretiremenresponseare includ

Commen

CSR supplan for mcurrent st

The ractive

DC ptools

The bbenefindiv

The Dwork

CSR alsoexpendituthe emplo

Commen

MARSP be modif

The r

An ancost iunderperso

CommenMSBO redistricts rthe costs

0. INPUT

red by PA 30nt system mes were receivded below.

nts from the

ports retentimembers hirtructure incl

retirement bee member in

plans shift thavailable to

benefits provfits will be d

vidual emplo

DC plan maykforce.

o recommendures in orderoyer that cre

nts from the

supports retfied to adjust

regular retire

nalysis shouinto the statertaken to ass

onnel who do

nts from theecommends responsible fincluding th

FROM THCONST

00 of 2012, tembership coved and are

e Coalition f

ion of the cured on or aftelude:

enefit structunsecurity abo

e risks to me manage DC

vided under tdependent upyees.

y be detrime

ds that the Ur to assure theated the cos

e Michigan

tention of thet the retirem

ement eligibi

uld be undertewide per pusess the impao not particip

e Michigan a study to idfor the costshose not man

HE RETIRTITUENC

the Office oonstituency included in

for Secure R

urrent defineder July 1, 20

ure has chanout future ch

embers. UnlC plan risks.

the DC planpon the inves

ental to attrac

UAL costs behat the UAL st.

Association

e current retiment eligibilit

ility age, cur

taken in ordeupil foundatiact of early rpate in MPS

School Busidentify a me. MSBO bel

ndated to par

REMENTCY ORGA

f Retirementorganizationthe Appendi

Retirement,

d benefit pla010. The reas

nged three timhanges.

ike DB plan

n may not be stment return

cting and ret

e shifted fromrelated to pr

n of Retired

irement planty age.

rrently age 6

er to determion grant. In retirement inERS.

iness Officiathod that failieves that alrticipate in M

T SYSTEMANIZATIO

t Services sons. As of theix. A summa

, MI (CSR)

an structure, sons that CS

mes in the pa

ns, individua

adequate fons earned an

taining empl

m payroll toreviously ea

School Per

n structure bu

60, should be

ine a fair waaddition, an

ncentives cou

als (MSBO)irly allocatesll public schoMPSERS.

    ‐72‐   

M MEMBEONS

olicited inpue date of thisary of the rel

which incluSR supports r

ast five year

al employees

or a secure rend the longev

loyees and m

current opearned benefit

rsonnel (MA

ut recommen

e indexed to

ay to incorpon analysis shoupled with th

) s the UAL toools be requ

   

ERSHIP

ut from the s report, fourlevant comm

udes the Hybretention of

rs leading to

s do not have

etirement as vity of the

managing the

erating ts remain wi

ARSP)

nds the struc

life expecta

orate the UAould be he hiring of

o the school uired to share

 

r ments

brid the

e the

e

ith

cture

ancy.

AL

e in

 

 

PA 300 o

Separate (first hirerequired MPSERStheir penmembersusing a 1date are sto the defcontributbased ondate.

In this an(outlinedtransitionaccrued upurposescontribut

TABLE  

Straw EmploSample

Sample

Sample

Straw EmploSample

Sample

Sample

of 2012 Leg

from the ched before Julthese memb

S. Members sion formula

s who do not.25% pensiostill based upfined benefittion of 4% o the 1.5% m

nalysis, we cd in Section 5n, and Samplunder the cu of this illustion level (up

10 – Existin

Hire Age T

oyees4: a 25

b 25

5: a 35

b 35

6: a 45

b 45

Hire Age T

oyees4: a 25

b 25

5: a 35

b 35

6: a 45

b 45

acy Plan El

oice availably 1, 2010) h

bers to make who elect toa. Memberst make an eleon multiplierpon the 1.5%t plan and swf pay to a tax

multiplier and

consider straw5), except thle 6 is age 50rrent DB platration, all thp to 4.3% of

g Employee

Age at Transition

RetiremAge

40 55

40 60

45 55

45 60

50 55

50 60

Age at Transition

RetiremAge

40 55

40 60

45 55

45 60

50 55

50 60

APP

lection – Im

le to new hirhad to make a choice to

o increase ths who elect toection) will r; the pensio

% multiplier.witch to a dex-deferred a

d service and

w employeehat Sample 4 0 at transitioan, Sample 5hree are assuf pay).

e Replacemen

ment e

Years of Service Co

30

35

20

25

10

15

ment e

Years of Service Co

30

35

20

25

10

15

PENDIX 1

mpact on Ben

res is the choin connectioincrease, maeir contributo maintain thaccrue futurn formula fo Finally, a m

efined contribaccount. Thed final averag

s 4-6 who aris age 40 at

on. Therefore5 has 10 yearumed to be c

nt Ratio Ana

Annual ompensation

RepRat

$25,000 4

$25,000 5

$27,500 2

$27,500 3

$30,000

$30,000 2

Annual ompensation

RepRat

$25,000 4

$25,000 5

$27,500 2

$27,500 3

$30,000

$30,000 2

1

nefits

oice that exion with PA 3aintain, or sttion would rheir current

re benefits (aor years of semember mayibution plan e “frozen” bege compensa

re similar to t transition, Se, Sample 4 rs, and Sampcurrently con

alysis, PA 30

MIP-Graded Partic(In

lacement io @ Ret

Monthly B@ Ret

43% $2,125

51% $2,518

20% $632

36% $1,146

0% $0

22% $579

MIP-Graded Pa(Exist

lacement io @ Ret

Monthly B@ Ret

43% $2,117

51% $2,553

21% $650

37% $1,160

1% $29

22% $585

    ‐73‐   

isting DB pla300 of 2012.top their conretain the 1.5level of con

after the tranervice prior y elect to ceathat provideenefit from tation up to th

straw emploSample 5 is ahas 15 years

ple 6 has 5 yntributing at

00 Election

cipant Electing to Rncreased ContribuBen t

Repl. Ratio@ Ret + 10

5 56%

8 66%

26%

6 47%

17%

28%

rticipant Electing tting Contribution SBen t

Repl. Ratio@ Ret + 10

7 55%

3 65%

26%

0 46%

16%

28%

   

an members. PA 300

ntributions to5% multiplientribution (ornsition date) to the transiase contribues an employthe DB planhe transition

oyees 1-3 age 45 at s of service

years. For the MIP-Gr

Retain 1.5% Multipution)

Monthly Ben @ Ret + 10

Prese@

$2,762 $45

$3,273 $48

$821 $13

$1,489 $21

$437 $53

$753 $11

the 1.25% MultiplieSchedule)

Monthly Ben @ Ret + 10

Prese@

$2,702 $44

$3,237 $47

$824 $13

$1,469 $21

$430 $53

$739 $10

 

s

o er in r

ition utions yer n is n

raded

 

 

plier

ent Value @ Ret

50,152

82,546

33,823

9,570

3,488

0,979

er

ent Value @ Ret

40,059

77,734

34,203

6,896

3,767

09,112

 

 

Assumption

* Employeebetween DB

* Account b7.0% and co

* Monthly b

* Outlined cthese cases,

For an exmultipliebetween tax basis 2.75% toprovidedtable abo(as well asubstanti 

PA 300 o

The legacretiremencurrent aunfundedfuture sercurrent afollowingthat one-higher m

Straw EmploSample

Sample

Sample

ns:

e contributions arB contributions, D

balances from DConverted to life a

benefits shown a

cells represent agpayments would

xisting MIP mer is nearly idthe 7% requand include

o 3.00% of pd under the “rove. Opting oas deferring ially lower th

of 2012 Leg

cy component system ovctive employ

d liability byrvice rather ccrual with ag graph illushalf of the a

member contr

Hire Age T

oyees4: a 25

b 25

5: a 35

b 35

6: a 45

b 45

re assumed to beDC contribution

C and personal sannuities using tw

above are adjuste

ges where the red commence fiv

member, thedentical to eluired contribued as retiremay) is simplyretain currenout of the de7% of the em

han either of

acy Plan El

nt of the defver the short yees in the B

y offering thethan 1.5%) wa higher requ

strates the esaffected memribution rate.

Age at Transition

RetiremAge

40 55

40 60

45 55

45 60

50 55

50 60

e the same acrosns, and personal

savings arrangemwo-thirds female

ed for inflation (

etiring individualve years after reti

e value of elelecting the loution and th

ment income. y used as addnt contributioefined benefimployee’s of the options

lection – Im

fined benefitand interme

Basic and MIese memberswith the samuired memb

stimated projmbers elect th.

ment e

Years of Service Co

30

35

20

25

10

15

ss all three plans(pre-tax) saving

ments are projecte mortality and 5

3.5%) between a

l is not eligible tirement (at age 6

ecting the inower future e existing coIf the differditional earnon schedule”it plan and re

own earningsthat involve

mpact on Pro

t plan will coediate term. IP groups ats a choice be

me contributier contributijected contrihe lower futu

Annual ompensation

RepRat

$25,000 2

$25,000 3

$27,500

$27,500 2

$30,000

$30,000

. Total contributs.

ted to retirement5.0% interest.

age at hire and r

to begin receivin60).

ncreased conmultiplier soontribution srence in contnings, the va” option willeceiving the s) results in re remaining

ojected Cost

ontinue to beThe change

ttempts to coetween a lowion structureion (4% for Bibution requiure accrual r

MIP-Graded Pa

lacement io @ Ret

Monthly B@ Ret

24% $1,16

30% $1,497

15% $467

23% $727

4% $106

14% $375

    ‐74‐   

tions are allocate

nt at an assumed

retirement age.

ng payments from

ntribution to o long as theschedule is stribution (apalue of retireml be lower th 4% employretirement inin the DB pl

ts

e a large pors contained

ontain futurewer future ace or maintenaBasic, 7% foirement withrate and one

articipant Electing t

Ben t

Repl. Ratio@ Ret + 10

1 27%

7 33%

17%

25%

11%

16%

   

ed (as applicable

investment retur

m the DB plan. =

retain the 1.e difference saved on a prpproximatelyment incom

han shown inyer DC allocancome that islan.

rtion of the ein PA 300 fo

e growth in thccrual (1.25%ance of the or MIP). Thh the assump-half elect th

the DC Plan Optio

Monthly Ben @ Ret + 10

Prese@

$1,310 $21

$1,623 $24

$527 $85

$799 $73

$283 $38

$414 $36

 

 

e)

rn of

= In

5%

re-y e n the ation s

entire or he

% for

he ption he

n

ent Value @ Ret

2,497

41,494

5,491

3,018

8,853

6,759

 

 

The PA 3affected melection spayroll. gradually

300 election members, plscenario, theOver the rem

y decreases t

for current llus a small de initial redumaining unfuto around 1.0

legacy plan mdecrease in uuction in the unded liabili0% of payro

members resunfunded actuemployer reity amortizatll.

sults in a lowuarial accrue

equired contrtion period,

    ‐75‐   

wer employeed liability. ribution rate the projected

   

er normal coUnder this is about 1.3

d savings

 

ost for

3% of

 

 

Actuaria

For purpoassumptiGabriel R

Balac

The calcuGRS. Segreasonabapplying valuation

Projectiointended availableassumptithe actuamethodoexperienc 

 

 

al Assumpti

oses of projeons are the s

Roeder Smith

Beginning Sellocated to thctuarial liabi

ulations are gal has reproleness and dthe changes

ns and apply

ons, by their to serve as e

e to us at the ons and met

al experiencelogies are usce, the econo

ions and Me

ections of plsame as thosh & Compan

eptember 30,he legacy plaility allocate

based upon oduced the Sdetermined ths in normal cing those ch

nature, are nestimates of time the mo

thodologies de proves to bsed. Actual omy, stock m

 

APP

ethods

an costs andse used in theny (GRS), ex

, 2012 and than was amor

ed to the Hyb

the results oSeptember 30he financial cost, coveredhanges to the

not a guarantfuture finan

odeling is undescribed he

be different fexperience m

market perfo

PENDIX 2

d benefits cone Septemberxcept as note

hereafter, thertized at 8% brid plan wa

of the Septem0, 2011 valuimpact of al

d payroll, ane GRS valuat

tee of futurencial outcomndertaken anderein. Emergfrom these asmay differ dormance and

2

ntained in thr 30, 2011 vaed below:

e projected uinterest and

as amortized

mber 30, 201uation to withlternative sce

nd benefit paytion results.

e results. Thmes that are b

d completedging results ssumptions o

due to such vd the regulato

    ‐76‐   

his study, thealuation perf

unfunded actd the projecte

at 7% intere

11 valuation hin a range oenarios cont

ayments unde

he modeled pbased on the d, and the agrmay differenor if alternat

variables as dory environm

   

e actuarial formed by

tuarial liabiled unfundedest.

prepared byof tained hereiner the Segal

projections ainformationreed-upon nt significantive demographicment.

 

lity d

y

n by

are n

ntly if

c

 

 

 

APPPENDIX 33

    ‐77‐        

 

 

 

    ‐78‐        

 

 

    ‐79‐        

 

 

    ‐80‐        

 

 

    ‐81‐        

 

 

    ‐82‐        

 

 

    ‐83‐        

 

 

    ‐84‐        

 

 

    ‐85‐        

 

 

5215958v4/08971.001

    ‐86‐