North Carolina Department of State Treasurer
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Transcript of North Carolina Department of State Treasurer
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North Carolina Department of State Treasurer
Local Governmental Employees’Retirement System (LGERS)
North Carolina League of Municipalities Conference
Raleigh, NCOctober 25, 2011
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• LGERS 101 – The Basics
• Comparison to other Pension Plans
• Operational Highlights
3 Topics for Discussion
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LGERS 101 – The Basics
Local Governmental Employees’ Retirement System (LGERS) began in 1945 with 18 participating local governments and 2,102 members
NOW:• 888 participating governmental entities: (cities, counties, towns, local
commissions, etc.)
• 212,866 Total Participants* • 49,204 Retirees and beneficiaries receiving benefit payments• 41,077 Terminated participants and beneficiaries entitled to benefits but
not yet receiving benefits• 122,585 Active Participants
• $18.5 Billion in Assets*
*data from actuarial valuation as of 12/31/10
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LGERS Plan Provisions
Eligibility• Employed by a participating unit and works at least 1,000 hours per year
Employee Contributions• 6% of salary
Employer Contributions• Approximately 6.88% of salary• Unfunded accrued liability
Tax sheltering• Upon employer resolution
Vesting requirements• 5 years of creditable service
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LGERS Plan Provisions (con’t).
Service Required for Full (Unreduced) Retirement• 30 years of creditable service• age 60 with 25 years of creditable service • age 65 with 5 years of creditable service (age 55 with 5 years for law
enforcement officers)
Formula for Full Retirement Benefit • 1.85% of AFC (Average Final Compensation of the 4 consecutive years of
salary that produce the highest average) times the years of creditable service. 1.85% x AFC x years of service = annual retirement benefit
Early Retirement & Disability Retirement• Applicable
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3 Funding Sources
The Retirement Systems assets come from 3 sources:
• Full-time employees contribute 6% of each paycheck
• Employers contribute annually based on recommendations from the System’s actuary and Board approval
• Earnings from investments made by State Treasurer’s office
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LGERS Funding Sources Illustrated
FUNDING
Employee Contributions - 13.3%Employer Contributions - 12.9%Return on investments - 73.8%
For calendar year 2010, these amounts equate to the above percentages of total system funding.
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NC Retirement Systems
• Continues to be one of the most secure pension systems in the country
• Program Evaluation Division (PED) of the NC General Assembly ranked TSERS 6th out of 84 public plans – Sept 2011 report
• National Institute on Retirement Security (NIRS) highlighted NC (TSERS plan) as one of 6 states which has weathered the financial storms of recent years – June 2011
• 2009 NASRA (National Association of State Retirement Administrators) Public Pension Fund Survey lists TSERS as having the 4th highest funding ratio among the 50 states
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Current Public Sector Retirement Plan Types by US States
• Defined benefit (DB) plan – provides lifetime income based on a formula that includes years of service and salary. The majority of states (38) have this type of plan & investment risk is borne by the state/employer (i.e. LGERS)
• Defined contribution (DC) plan – provides income based on the value of the employee’s account balance. Michigan and Alaska require all new hires to participate solely in DC plan & investment risk is on the employee
• Hybrid plans – Employees are required to participate in both a DB & a DC plan. States include: Georgia, Indiana, Oregon, and Utah
• Choice plans – Employees choose between DB or DC plan. States include: Colorado, Florida, Montana, Ohio, South Carolina, and Washington
• Source: NC General Assembly Program Evaluation Division based on analysis of Center for Retirement Research’s 2011 report
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LGERS Funding Status
Actuarial Valuation Date Funded Ratio* • 12/31/04 99.3%• 12/31/05 99.4%• 12/31/06 99.5%• 12/31/07 99.5%• 12/31/08 99.6%• 12/31/09 99.5% • 12/31/10 99.6%
* Funded ratio = Assets/Liabilities
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Contribution History
1975 1980 1985 1990 1995 2000 2005 2010 20150
1
2
3
4
5
6
7
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LGERS Contribution History
Series1 Series3
Year Beginning July 1,
Bas
e C
ontri
butio
n as
% o
f Pay
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LGERS Multiplier
LGERS Multiplier
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
2.00%
Year
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October 20, 2011 Board of Trustees Meeting
• Annual Required Contributions
• Unfunded Accrued Liability
• New Local
• 18 basis points gain ($10 million)
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Projected Employer Contributions
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 $0
$100,000,000
$200,000,000
$300,000,000
$400,000,000
0.00%
5.00%
10.00%
15.00%
20.00%
0.10% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
4.80%
6.35%6.88% 6.74% 7.17% 7.39% 7.55% 7.63% 7.65% 7.63% 7.57% 7.49%
December 31st Undistributed Gains COLA Payable July 1st July 1 Required Base Contribution Rates
Und
istri
bute
d G
ains
CO
LAs
and
Req
uire
d B
ase
Con
tribu
tion
Rat
es
Based on December 31, 2010 results with an assumed annual increase in active membership and CPI for each calendar year after 2010 of 0% and 3%, annual market returns of 7.25% for calendar
years after 2010
North Carolina Local Governmental Employees' Retirement SystemProjection of Undistributed Gains, COLAs and Required Base Con-
tribution Ratesand a valuation interest rate of 7.25%.
A2010
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Contribution Benchmarks
• Average public fund: 8.7% of pay
• Neighboring States: South Carolina: 8.05% Tennessee: 9.36%
Georgia: 10.39% Virginia: varies up to 22%
Source: Public Fund Survey
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LGERS & TSERS Plan Features Are Either Less Generous or Typical Than Other State’s Plans
Less Generous • Final average salary• Benefit formula multiplier
Typical• Employee contribution rate• Years of service and age for normal retirement• Vesting (less generous in TSERS) 5 yrs. vs. 10
Source: Wisconsin Legislative Council, 2008 as referenced in General Assembly PED report – Sept. 2011
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Cost of Living Adjustments (COLA’s)
• TSERS and LGERS grant COLA’s on an ad hoc basis (not automatic)
• Over 50 of the 84 plans examined by the General Assembly PED report grant COLA’s on an automatic basis
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Many States Have Recently Changed Plan Features
Cost-Saving Measure Number of States Increase employee contributions 29Increase normal retirement age and/or service requirement 27*Decrease final average salary 25Decrease automatic COLA’s 17Increase vesting years 14*Decrease formula multiplier 13
*Includes North Carolina
Source: National Conference of State Legislatures, 2005 – June 2011 as referenced in General Assembly PED Report - Sept 2011
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Operational Highlights
• Call Volume
• Payroll
• Retirements
• Death Notifications
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Questions?