PERC Actuarial Note May 2014

7/21/2019 PERC Actuarial Note May 2014

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H EY IPLI EPLOEE EIEE OIIO

R R

B ID: Amenment Number 06917, 07089, an 07096 toHoue B Number 353, Printer' Number 2152

Sytem Pubic Schoo Empoyee' Retrement Sytem anState Empoyee' Retrement Sytem

Subject Hybr Retrement Benet Pan

Y

Amenment Number 06917, 07089 an 07096 to Houe Bi Number 1353, Printer'

Number 2152, wou amen both the Pubic Schoo Empoyee' Retrement Coe an theState Empoyee Retirement Coe to 1 impement a hybr retrement benet pan 2

exempt State Poice ofcer om memberhip n the new hybr benet tier; an 3) r

PSERS, retore the parttime memberhp egbty threho to pre-Act 120

requirement More peccay, the amenment wou amen the Coe n the owing

manner

Amenment Number 06917 wou amen the Pubic Schoo Empoyee' Retrement Coeto


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Y (CONT'D)

Auarial Note ramittal

Amedmet Numer 069 0089 ad 0096 to

Houe Bi Numer Priter Numer

service, and 7% of compensation on pay above $50000 or any service over 25

years. The empoyer contribution would be 0.5% of the member's rst $50,000 of

compensation r the rst 25 years of service, and 4% of compensation on pay

above $50,000 or any service over 25 years

Amendment Number 06917 would amend the State Empoyees' Retirement Code to

1) Eective January 1 2015, estabish a hybrid benet tier, which includes dened

benet and dened contribution components, applicable to most new State

employees or empoyees returning aer a break in service Current members of

SERS woud be ineligible to participate in the new hybrid tier

2) For the dened benet portion most State employees woud become members of

"Cass A5 and would earn benets at a 2% benet accrual rate A member

would be vested in the dened benet component after accumuating 10 years of

service credit The benet rmua would be equivaent to 2% multipied by the

members years of service (maximum of 25 years) mutipied by the member's

nal average salary (highest ve years) with an annua pay limit of $50000indexed at 1% per year. Class A5 members would contribute 6% of

compensation r the rst $50000 r the rst 25 years of service


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IT

SYNOPI (OD)

Ataial Note amittal

Amedmet Nme 069 0089 ad 0096 to

Hoe B Nme Pte Nme

benets upon attaining 20 years of credited service. Additionaly r new State

Poice ofcers hired on or after July 1 2017, overtime compensation would be

limited to 10% of base saary

Amendment Number 07096 to House Bil Number 353 Printer's Number 2152 as

amended by Amendment Number 06917 woud amend the Public Schoo Employees'

Retirement Code to:

1 Reinstate the Pubic School Employees Retirement System (PSERS PreAct 120

membership qualication requirements applicabe to parttime employees.

Under the bi as amended a parttime school empoyee compensated on anhoury or per diem basis woud be required to re-qualify r PSERS membership

each year This would require an employee to wor at east 80 days (per diem or

500 hours (hourly each year to meet the membership eligibility threshold.

DICUION

The Retireet oes a SystemsC tl t l ti bi h d t t b f ith th


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DCUION (CON'D)

Ataria Note ramittal


Houe Bi Numer Prter' Numer

Fo mos membes of boh Sysems he bsi bene ml sed o deemine e nom

eiemen bene is eqivlen o he pod of 2.5% mliplied by he membes yes of

mled sevie edi ("eliibiiy poins mliplied by he membes nl vee

(hihes hee yes sy Sine he psse of A 9 of 2001 (whih inesed he

l e mos membes om 20% o 25%, mos membes of PSERS e Css T-D

membes nd onibe 7 5% of ompension o PSERS, while mos membes of SERS e

Clss membes nd onibe 625% of ompension o SRS Wihin boh Sysemshee e nmbe of ddiion membeship lsses wih oespondin bene l

nd empoyee onibion es h die om he moiy of shool nd se employees

A 120 of 2010 impemened mjo pension bene ems, indin he esblishmen ofnew bene ies pplible o mos new membes Eeive Jny 1, 2011 mos new

membes (indin membes of he Gene Assembly, e eqied o beome membes of

one of wo membeship lsses nown s "Clss A3 nd "Clss A. Mos new membes

of SERS ohe hn Se Poie ofes o membes employed in posiion whih

lss of sevie ohe hn Clss A o Clss is edied o old be eleed beomemembes of Css A-3 beinnin Jny 1, 201 (o if membe of he Gene Assembly,

beinnin Deembe 1, 2010 Clss A3 membes e eliible n nniy bsed pon nnnl bene e of 2% nd hve oespondin employee onibion

eqiemen of 625% of ompension As n lenive o Clss A-3 n empoyee who

b b f SERS f J 1 2011 l Cl A b hi


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DCUON (COND)

_ l Atuarial Note ramittalAmedmet Numer 069 0089 ad 0096 to

Houe B Numer Priter Numer

retirement benet wthot redction nder the Pbic Schoo Empoyees Retirement

Code sperannation or norma retrement age r most members s age 62 wth at least

one l year of servce age 60 wth 30 or more years of servce or any age with 35 years of

servce nder the State Employees Retirement Code sperannaton or normaretirement age r most members is age 60 with three years of service or any age with 35

years of service whle age 50 is the norma retirement age r members of the General

Assembly and certain pbic saty employees. For most members of the Systems who rst

became members after the eective dates of Act 20 the sperannation reqrement s

age 65 with a minmm of three years of service credit or any combnaton of age and

service that totas 92 wth at least 35 years of credited servce and age 55 r members of

the Genera Assembly and certain pblic safety employees

efned eneft nd efned nttn etement st msIn a dened benet plan sch as PSERS and SERS the penson benet to be provided at

retirement s dened whle the contrbtons to be made over the perod of employment are

varabe based on the experience of the penson nd pon retirement a dened benet

pan particpant is entited to receve a denitey determinable benet that is caclated

sing a rmation that consders ctors sch as age dration of servce wth the

empoyer and compensaton. Becase the benet is dened and cacated sng a rmla


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DICUION (T')

Atuaria Noe ramitta


Houe Bi Numer Priter Numer

mean ha he invesmen experience impacs on he bene amoun increasing i when

earnings are higher and reducing i when earnings are lower Therere he employer

bears he invesmen risk in a dened bene plan and he empoyee bears he invesmen

risk in a dened conribuion pension plan

For mos employees dened conribuion plans are generally regarded as more vauabe r

hose in he early sages of heir careers or r hose who are employed in careers ha

enail greaer mobiliy Dened conribuion accouns are porabe and can readily move

wih he empoyee as ha empoyee moves om one empoyer o he nex In conras

dened bene plans are relaivey more valuable r hose employees who end o remain

wih one empoyer and o ong-service employees in he aer sages of heir careersbecause he vaue and cos of he dened benes earned each year increase as employees

approach reiremen age

Hybrid Beefit Tiers fo r chool a tate EmployeesThe bil as amended woud esablish wo new "sacked hybrid bene iers applicabe o all

new public empoyees or employees reurning afer a break in service who are hired byschoo or Sae empoyers wihin he Commonweah aer July 1 2015 in he case of

PSERS and January 1, 2015 in he case of SERS The hybrid bene iers woud incude


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Actuarial Note TransmittalAmendment Numbers 69 89 and 96 toHouse Bll Number 353 Printer's Number 5

DICUION COD

able

Hybid Benefit ies

Membes of Cass G in PSERS and Class A-5 in SERS

Defined Beneft Component Defned Contribution Component

Beneft Accral 2 X Years ofSerice on rst 5, of Balance of paricipats account n m ofcompensaton rst 25 years of servce) nuityX Fina Average Saay (Hgh 5 Yeas)

Empoyee Contribton contbution on rst 5 of contrbution on st 5 ofcompensaton rst 25years of sevice compensation r st 25 yeas of sece

contibution above 5 or over 25 contibtion above 5 or over 25years of sevice years of sevice

Employer Contribtion Actuaay detened ate compensation 5 contbton on st 5 ofbelow 5 compensation r st 25 years of sevice

r compensaton above 5, contibtion above 5, or over 25years

Vesting years Immediatey paicipant yeas rempoyer contributions

Sperannation Age Age 5 (with yes of sevice PSERS) Not appicabeDeath Beneft f moe than bt ess than 25 yeas of Payment of paicipats account baance


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DCUON ()

Actuaral Note Transmttal

Amendment Numbers 69 89 and 96 to

House Bi Number 353 Prnter's Number 5

Likewie, ay empoyee who r become a member of SERS or rer afer a break i

ervice o or afer Jaary 1 2015, wod become a madaory member of he hybrid

bee ier ad a member of a ew memberhip ca kow a Cla A5. A Ca A5

member wold be eiled o a deed bee eqa o a 2% aa bee accral raemiplied by he member' year of ervice (maximm of 25 year mliplied by he

member' al averae alary (hihe ve year wih a aal pay limi of $50000

idexed a % per year Cla A-5 member wod be reqired o make empoyee

coribio eqa o 6% of compeaio r he r $50000 r he r 25 year of

ervice I he cae of empoyee i Ac 111 colecive baraii i he eecive dae i

delayed il crre areeme expire. For Capio Police ad park raer, he dae i

Jy 1, 2015 Empoyer coribio o behalf of he member r he deed bee plawold be a acarialy deermied rae

For member reri afer a break i ervice bee aready accmaed a a rmer

PSERS or SERS member wold be oze i he Syem, b avaiable o he empoyee

po reireme i cojcio wih bee accred a a member of Cla TG or Cla A

5 ad a a paricipa i he deed coribio pa (Pla If he member become

veed i boh a exii memberhip cla ad eiher Cla T-G or Cla A5 he hemember may receive oy oe aiy der oe opio po aaii peraaio

ae. Afer becomi a paricipa i oe of he Pla, a empoyee wod be prohibied


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DICUION (COND)

esting

T Actuarial Note TranmittalAmendment Number 69 89 and 96 toHoue Bi Number 353 Printer' Number 5

Weeas te dened benet component of te ybd pan does not entte new membes to

vestng of etement benets unt 10 yeas of sevce, te dened contbuton panpovdes 100% vestng om te st day of membesp. Fo bot Cass T-G and Cass A-5,

supeannuaton age s age 65, wt 3 yeas of sevce equed PSERS. Vested membes

may not wtdaw contbutons and nteest n eu of ecevng a benet Vested membes

ae egbe to eceve an eay etement benet afte competng 25 yeas of sevce To

eceve an uneduced etement benet, oweve, membes must attan age 65

Defie otribtio Plas

Te ybd benet tes aso contan a dened contbuton component. Fo t puposes of

te Commssons dscusson, te mao ssues of te new dened contbuton poton of te

ybd benet te ave been dvded nto te owng u categoes 1) estabsment,

oganaton and opeaton; 2) coveage, benets and contbutons; 3) nvestments and 4)

ancay ssues

stabisent rganizatin an eratin


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CUON (COND)

Aturil Not Trmittl

Amdmt Numr 69 89 d 96 to

ou B Numr 3 3 Pritr' Numr

Po Ofrs would b xmpt om jonng th nw dnd ontrbuton plan wth nw

mploys of ths group ontnung to b lgbl r mmbrsp n Class A3 of SERS aftr

2015

Partpants n th Plans may mak addtonal ontrbutons to th Pans up to t mts

mposd by fdral law. Contrbutons on bhalf of th partpant and th mployr would

b rdtd to an "ndvdual nvstmnt aount r ah partpant of th nw Pans

aong wth all ntrst and nvstmnt gans or losss For nvstmnt purposs th

Boards may poo th assts of t partpants n t Plans.

Partpants n th Plans would bom lly vstd

th mployr-mathng

ontrbuton aftr thr yars of mpoymnt Th partpants ontrbutons would vst

mmdaty

nvstnts

W t bl as amndd dos not spally mnton th typ of nvstmnts that wll b

ord to t partpants govrnmntal dnd ontrbuton plans typally or a vartyof nvstmnt optons nudng fstyl nds that ar basd upon ag and protd

rtrmnt dat. Th Pans wll most lkly also mak avalabl nvstmnt optons that


11/138

"

DCUO (COND)

Actuaral Note Transttal

Aendent Nubers 69 89 and 96 to

House B Nber 353 rnter's Nuber 5

contbution pans ae opeational and abe to accept the employee and empoye

contbutions Contibutons n the holding vehice woud ean annual inteest at a ate o

4%, nceased o deceased by any investment eanings o osses

Penson Forfeiture Act Unde Act 40 o 978, known as the Publc Empoyee Pension

Foeitue Act (43 PS 3 35) a publc oica o publc employee who is convctedo peads guilty o no dense to a cme eated to publc oce o publc empoyment is

dsquaied to eceve a etiement o othe benet o payment o any kind except a etun

wthout nteest o the contbutons paid into a etement system Unde the bil as

amended, the accumulated contibutons o a paticipant shal not be eted, but wi be

made avalable payment o any nes o estituton.

Liitatios o Compensation a Fia Average SaaThe bil as amended poposes two new changes to the lmts on compensaton that may be

used puposes o calculating the etement benets o pospectve membes o PSERS

and SERS. The two changes ae: ) nceasing the peod ove which the membes nal

aveage saay may be calcuated om thee yeas to ve yeas; and 2) imposng an "annual

compensation mt to mt the amount o compensaton eligible to be calcuated unde the

dened benet plan etement benets to $50,000. The imt wl be ndexed at % pe


12/138

ICUION (COND)

Actuarial Note Tranmittal

Amendment Number 69 89 and 96 to

Houe Bi Number 353 Printer' Number 5

hareRisk Proisio

One of he aor changes o Ac 20 was he pleenaion of a variabe eployee

conribuon rae, nown as he "shared ris conrbuion rae which was applicable o newebers (Casses A-3, A- TE, and T-F) of boh Syses. The shared rs conribuion

rae is ied o he nvesen perrance of each Syses pension nd and woud be

added o he basc conribuon rae of each ebershp class under ceran condions

Every hree years each Syse will copare he acua nvesen rae of reurn ne of

es o he acuaria assued rae of reurn r he previous 0year perod. If he acual

rae of reurn is less han he assued rae by % or ore he oa eber conrbuion

rae wil increase by % per year up o a axu oa increase of 20% If he acualrae s equal o or ore han he assued rae he oa eber conribuon rae wil

decrease by % New hires conrbue a he rae in eec when hey are hired The

addiona shared rs conribuions are used o reduce he ununded accrued labiiies of

he Syses If he Syse s y nded a he ie of he coparson hen he shared

ris rae wl be zero r ha period For any year n which he eployer conribuon rae

is ower han he nal conribuon rae, he epoyee conribuon rae would be he basic

conribuion rae There woud be no ncrease n he epoyee conrbuon rae where

here has no been an equivaen ncrease o he eployer conribuion rae over he

previous hree-year perod Unil here s a l 0year "oo bac period, he loo bac


13/138

DICUIN ()

Actuarial Nt ransmittal

Amndmnt Numbrs 69 89 and 96 t

Hus B Numbr 3 3 Prntrs Numbr

nde cuent pogam povsns, patcpatng egbe annutants eceve health

nsuance pemum assstance payments om the Health Insuance Account equal to the

lesse of $100 a month o the amount of the actual monthy pemum As of June 30, 2012

thee wee appoxmately 87,977 etees ecevng pemum assstance benets om thepogam An addtona 45,321 etees wee elgble to patcpate but wee ethe enoled

n non-appoved plans o dd not puchase healthcae coveage, and so wee not elgble to

eceve pemum assstance payments

Assets to pay pemum assstance benets om the Health Insuance Pemum Assstance

Pogam ae hed n the Health nsuance Account, whch s a sepaate nd wthn the

penson plan tust. The Heath Insuance Account s cedted wth the contbutons of theCommonweath and school employes and s nded on a payas-yougo bass, wth the

equed contbutons caculated by the consultng actuay as pat of the valuaton pocess

based upon expected annual dsbusements and nded one yea n advance of the

actua dsbusements. A evew of the most ecent actuaal valuaton epot the Pubc

Schoo Employees Retement System (June 30, 2013) eveals contbutons to the pogam

equal to 090% of tota payol

The bll as amended would amend the denton of "egble annutants n Secton 8102 of

the PSERS Code to exclude Cass TG membes om patcpatng n the Health Insuance


14/138

DICUION (CONT'D)

Actuarial Nt ransmittal

Amndmnt Numbrs 069 0089 and 0096 t

Hus B Numbr Printrs Numbr

The benets of State oe ofes ae aeted by the DLauo abtaton awad The

awad povded that ofes wth 20 yeas of seve ae egble to eeve a etement

benet of 50% of the oes hghest yeas salay, and those wth 25 yeas of seve

shall eeve 5% of the hghest l yeas saay Yeas of seve between 20 and 25 oafte 25 do not podue nemental benet neases The awad appes to ofes who

ete on o afte Juy 1 1989 (Class A membes wth less than 20 yeas of seve ae not

aeted by the awad and ae elgble the statutoy Class A benet at a 20% benet

aual ate No State oe ofe s entted to the At 9 benet aual ate of 25%

beause membes of the State oe wee spealy exuded om oveage by that

statute) By the at of August 5, 1991 [ L 183 No 23] 1 a. C S. 5955 was amended

to povde that SERS etement benets ae exusvey statutoy and annot be hangedby oletve baganng ageements o abtaton awads unde suh ageements. That

seton gandtheed peexstng awads nudng DLauo, but the amendment does not

eose the egslatue om pospetvely alteng benets new State ole ofes by

statute

Amendment Numbe 0089 woud exempt a swon ofe of the ennsylvana State oe

om membeshp n the new hybd benet te. pospetve employees of ths goupwould ontnue to be elgbe membeshp n Class A3 n SERS untl they beome

elgbe the enhaned State Toope etement benets upon attanng 20 yeas of


15/138

DICUION (CND)

Actuarial Note ransittal

endent Nubers 0697 07089 and 07096 to

House Nuber Printers Nuber

the juday halengng the benet hanges as apped to ebes of the uda banh.

These out ases utately esuted n the pesevaton of the judays enttleent to

speal ebeshp status and enhaned benets The ost saent of these ases ee the

Goodheat Supee Cout desons (See Goodhear

vCasey 521 Pa 316 (1989) 523 Pa

188 (1989) and Klein v Sae Employees' Reiremen Sysem, 521 Pa 330, 555 A.2d 1216,1221 (1989)) Essentay, the Supee Cout of Pennsyvana ued that the 194aendents to the Code, hh elnated the opton to eet speal lass ebeshp

ee unonsttutonal as appled to ebes of the juday The Supee Cout uled

that n ode to peseve an ndependent uday udges ust be adequatey

opensated, penson benets ae pat of opensaton, and all ebes of a sngle-leve

out peng sa funtons and exesng sla authoty ust be opensatedat the sae ate As a esult, al ndvduals ho beae ebes of the uday

llong the 194 aendents to the SERS Code ust be petted to eet spea lass

(Class E1 o E-2) ebeshp, ake the equed hghe ebe ontbutons and

eeve the hghe penson benet attbutabe to the ebeshp lass.

Based upon the ndependent status of the uday n Pennsyvana the ase la egadng

the speal status of ts ebes and the exluson of State Poe ofes and eduatonaeployees (as noted belo) as the only exeptons o the ne benet te f enated, the

bll as aended s lkey to be halenged n the outs.


16/138

I

DICUION (CONTD)

Actuarial Note ransmittal


House Bi Number Printers Number

e Sysems Sice e aleaive deed coibuio pa oeed o scool empoyees

would ave a employe coibuio ae moe a wice e amou o wa would be

oeed ude e ew deed coibuio plas ad a lowe employee coibuio ae i

is ikely a a majoiy o ue eigibe employees would coose e moe aacive

aeaive pla.

Funding MethodoTe dig meodology used by SERS e deed bee pla is a vaiaio o e

ey age omal cos meod Ude e adiioal ey age oma cos meod (as

used by PSERS) a coibuio ae is deemied all employees suc a i a ae isapplied o e membes salay, om dae o ey io e pla ui e membe eies, i

wil be sucie o d e membe's lieime eieme bee. Te meod used by

SERS (wic is se i saue) bases e omal coibuio ae oly o e bees ad

coibuios ew empoyees ae a al cue membes Sice ew Ac 20

membes ae eiled o bees o a esse value a membes ied pio o e eecive

dae o Ac 20, e employe omal coibuio is aicialy ow Te dieece

bewee e acual omal coibuio ae ad e ae deemied ude e SERSmeodoogy becomes a compoe o e uded accued liabiliy wic is e ded

ove 30 yeas Te 30-yea amoizaio peiod is a oge peiod a wa is cosideed

e aveage uue wokig liime o e membe I oe wods e meodoogy used


17/138

DCUON ()

Actuaral Note ransmttal

Aendment Numbers 069 0089 and 0096 to

House Bi Number Prnters Number

year. If they dd not qafy r membershp, they dd not receve SERS credt r the year

ness ater prchased when they dd become a member mendment Nmber 07096

wod amend the SERS Code to restore the parttme membershp ebty threshod to

pre-ct 120 reqrements and prohbt parttme members om prchasn any prevosnon-qaed parttme servce credt

Miscel laeos Provsi os

Cotractual Beefit Rights of Deed Cotributio Pla Participats Secton 02 of

rtce n the b as amended expcty states that a member n ether of the Systems or a

partcpant n ether the Schoo Empoyees Dened Contrbton an or the StateEmpoyees Dened Contrbton an sha not have "an express or mped contracta

rht n reaton to reqrements r any of the own provsons 1) qacaton of the

ans as a qaed pan(s) nder the Interna Revene Code 2) compance wth the

Unrmed Servces Empoyment and Reempoyment Rhts ct (USERR); 3)

contrbtons to partcpaton n, or benets om the ans or Systems and ) domestc

reatons orders reardn aternate payees of partcpants n the ans

Aortizatio Periods Crrenty, chanes n the nnded accred abty, except those

de to esatve acton are amortzed on a evepercentae of compensaton over 2 years

SERS d d b 30 d SERS Ch d


18/138

SUMMRY OF ACURL O MPC

Atuarial Note ransmittal


House B Number Printers Number

Te Commsson's consulng cuy s evewed e bl s mended nd peped n

cul cos noe. In pepng e cul noe, e Commssons consulng cuy

evewed cul cos esmes povded by Buck Consulns, consung cuy o e

Publc Scool Empoyees' Reemen Sysem, Hy Goup consulng cuy o e Se

Employees Reemen Sysem nd Mlmn, Inc, consulng cuy o e Govenos

Ofce of e Budge.

In developng e esmes e Commssons consung cuy so ulzed poeced

ue bene sems pyol poecons nd oe elevn demogpc nd economc

d supped o e Commsson by e consung cues PSERS nd SERS Te

Commsson's consulng cuy deveoped e cos esmes ndependeny ulzng em's own models.

Tee s been muc dscusson nd some dsgeemen w espec o e cos-svngs

kely o be geneed by e poposed ybd pln. I s mpon o noe ,

ndmenlly, cu scence enls e sudy of sk Acues use vey of

ssumpons nd ecnques n poecng coss of penson pns Consdeng e

ybd pln wl pply o ue empoyees ony e demogpc ccescs of eue empoyees used n e modelng wl ve n mpc on e level of svngs

esmed nd umey elzed Te moun of ue svngs wl be dependen upon

l b f S d f


19/138

Actuarial Note ransttalAendent Nubers 069 0089 and 0096 toHouse Bi Nuber Printers Nuber

SUMMRY OF ACURI O MPC ()

used dieren assumpions regarding ime and parime emploees Miliman kep

he lime and parime popuaions separae wereas Buck deermined service accruals

r new enrans as a whoe based on he average ure service accruals daa eld shown

on he valuaion daa r new enrans over a hreeear period

The cos noes om Ha (consuing acuar o SERS) and Miliman boh showed cos

savings under he brid plan r SERS For he period 201 hrough 2044 Milmans

resus showed cumuaive savings of $7.2 bilion and Has resuls showed cumuaive

savings of $6 bilion

Alhough he numbers appear arge, in reai he range of savings cacuaed b hevarious acuaries is no signicanl dieren Wen ou compare e accumulaed savings

of e brid pan over he 30-ear period o he oa esimaed empoer conribuions

under exsing law r he 30ear period en he savings would range om 11% o 13%

r SERS and 2% o % r SERS The acual savings wil ulimae depend upon

acual plan experience

However regardess of he acua leve of savings projeced, he hbrid bene pan willhave he llowing eecs 1) decrease he evel of risk o e Commonweah and school

empoers b shifing risk om he emploer o e members of he reiremen pans 2)


20/138

IJ Actuarial ote TransmittalAmendment umers 069 009 and 0096 oHouse Bi umer Printers umer

SUMMRY OF ACURIL O MPC ()

Table 2

Pub ic School E mployees' Retirement SystemProjecion Empoyer Contribuions (DB and DC)

Under the xising Law Under Hybrid Pan ProposaIncrease/

Fsca Dola Amon Dolar Amount (Decrease)Year Percenage (In Billions) Percenage (In Billions) (n Blons)15 5% $ 1 5% $ 1 $

16 5% $ 35 5% $ 353 $ 3

17 93% $ 73% $ 3 $ 6

1 3% $ 69 7% $ 57 $ (.119 39% $ 757 % $ 77 $ (3

31 6% $ 5 9% $ 97 $ (

1 31 % $ 5 1 61 99% $ 595 $ (66

31 % $ 5316 97% $ 53 $ (6

3 31 5% $ 551 1 96% $ 56 $ (15

31 5% $ 569 97% $ 556 $ (15

5 315% $ 571 97% $ 57 $ (13

6 315% $ 65 9% $ 59 $ (.167 31 6% $ 636 9% $ 66 $ (1 73

316% $ 6 9% $ 63 $ (16

9 317% $ 663 99% $ 69 $ (195

.


21/138

Actuaria Note ransmttaAmendment Numbers 069 009 and 0096 toHouse B Numbe nter's Number

SUMMRY OF ACURIL O MPC ()

Tabe 3

Sae Emloyees Reement SystemProecion Emloyer Conributions (DB an DC)

Une he xsng Law Une Hybi Pan PoposalInca/

Fical Dola Amount Doa Amount {Dca)Ya Pcnta In Bi llions) Pcnta n Bilons) (In Bllions)15 .5% $15 5% $155 $

16 5% $1576 5% $1577 $1

17 95% $1917 95% $19 $3

1 3% $35 97% $1991 ($

19 96% $5 9% $199 ($51

9% $56 1% $199 ($5

1 % $66 73% $ ($65

75% $77 6.6% $6 ($7

3 6% $9 5.% $1 ($79

6% $11 5 .1% $15 ($55 5.6% $ 1 13 5% $1 ($9

6 5.% $16 3% $7 ($99

7 % $ 139 3 % $ 3 ($ 15


22/138

D R A F f Actuarial Note Transittmendent Numbers 0697 0709 and 07096 toHouse Number 1353, Printer's Number 252

UMM CTU T MCT

Tables and show projections r the aected Systems' nded ratios under the existingla compared with the bill as amended. The nded ratio of a retirement system is equal to

the actuarial assets dvided by the liability and is usel in evaluating the relative health of

a retirement system As the tables show, over time the liabilities of the dened benet plan

will decline as new members gradually replace current members in the new hybrid plan


23/138

Atuarial Not Transmittal

Amnmnt Numbrs 0697 0089 an 0096 to

Hous B Numbr 35 3 Ps Numb 252

SUMMRY OF ACURL O MPC (

Tabe 4

Pu bic Schoo Emp oyees Reiremen SysemProjecion of Fund ed Raio and Ununded iabi iy

Under he xisin aw Under brid Pan ProosaUnunded Lably Unfunded Laby

scal unded Rao Dola moun Funded Rao Dola mounYea Pecenage In Bilons) Pecenage In Billons)15 596% $ 357 596% $ 357

16 5% $ 96 5% $ 96

17 57.7% $ 3 577% $ 3

56.6% $ 5. 566% $ 5

19 56% $ 71 56% $ 71

57% $ 666 577% $ 666

1 593% $ 636 59% $ 636

6.5% $ 63 6.3% $ 63

3 6% $ 579 61% $ 579

637% $ 536 63% $ 536

5 655% $ 399 65% $ 3996 67.5% $ 6 671% $ 6

7 697% $ 937 69% $ 937

7 % $ 3 93 71 % $ 3 93


24/138

Acturl Note rsmtt

Amedmet Numers 067 0708 d 0706 toHouse Bi Numer Prter's Numer

SUMMR OF ACURIL O MPC (CONTD)

Table 5

State Employees Retirement SystemProjection of Funded Ratio and nfunded Liabiity

nder the xisting Law nder Hbrid Plan ProosalUnfunded abiity Unfunded abity

Fica Funded Rato Doar Amount Funded Ratio Dola AmountYea Percentage In Bi li ons) Pecentae (In Bilons15 586% $1876 555% $686

16 585% $18773 556% $183

17 586% $19 131 56% $135

18 6% $1881 577% $87

19 61 6% $85 59% $7

63% $187 67% $

1 6% $17871 61% $958

658% $1751 1 636% $1989

3 67% $1719 651% $1856

686% $167 666% $1799

5 699% $168 68% $17386 713% $1581 696% $1677

7 77% $15313 71 1% $16

8 7 % $ 777 7 7% $5 68


25/138

OICY ONIERION

Actuarial Note Transittal

Aendent Nuers 069 0089 and 0096 to

House B Nuer 5 Printer's Nuer 5

Fundamenal Shif in Risk Shain The bene ems poposed in he bil asamended wil ake seveal yeas o modify he isk pole of he Sysems. Ove

ime as dened bene plan paicipaion deceases and dened conibuion pan

paicipaion inceases he Commonwealh and school empoyes wil assume less

isk and moe isk wil be shifed o membes of he Sysems The Geneal

ssembly and he Goveno mus deemine if his shif in isk is appopiae

Cos Conainmen The bill as amended povides a measuable incease in savings

ove exising aw which wil seve o conain employe coss in ue yeas These

cos savings esul because new empoyees paicipaing in he Sysems will accue

benes ha ae less cosy o he Commonwealh and school employes

Bene Vaue and S cuity The hybid bene ies poposed in he bil as amendedwoud povide new schoo and Sae empoyees and membes euning afe a beak

in sevice wih a eiemen bene ha is likey o be less valuable pedicabe and

secue han ha povided by he cuen adiional dened bene pension plans

Reiemen planning based on pojeced dened conibuion accoun balances i

likely o be ess pedicable and invove geae individual aenion o iskmanagemen han paicipaion in a adiional dened bene plan The Geneal

ssembly and he Goveno mus deemine he appopiaeness of such a change in

h C h bli i i


26/138

I

OCY ONERON (CONTD)

Actuar Note Transmttal

Amendment Numers 0697 07089 and 07096 to

House Numer Prnters Numer

han eher he cos-oflvng ndex or naon he eec wl be o cause a gradua

eroson n he value of he dened bene componen of he hybrd plan over me

D gaton of L gsatv Authorty. The bl as amended empowers he Boards ofhe Sysems o develop he deals of maor dened conrbuon plan desgn

eemens and admnsrave deals by rule or regulaon The General Assemby

and he Governor mus deermne f he broad powers aorded he Boards consue

an approprae deegaon of egsave auhory.

Techncal Op ratona Issues. In revewng he bll as amended he Commssonsa noed he owng echncal operaonal ssues

Risk Shring Under he dened bene srucure of PSERS and SERS al

of he ongevy rsk (he rsk of members ouvng her reremen ncome)

and mos of he nvesmen rsk s borne by he reremen sysem Under

curren law, ony hose members subjec o Ac 120 of 2010 (Classes TE and

T-F Classes A-3 and A4) share n he nvesmen rsk of he Sysems

hrough he shared-rsk conrbuon requremen mposed by Ac 120 lpreAc 120 members of he Sysems are exemp om he sharedrsk

conrbuon requremen Under he bl as amended al new or reurnng

l ld b l d h b d b d ld b d


27/138

D R A F f

TTCMT

ctuarial Not ransmt

mndmn Numrs 0697 0709 and 07096 toous Nur Prntrs Numr

Actuarial Note provided by Kenneth Kent of Cheiron Inc

Actuarial cost estimate provided by Buck Consultants consulting actua r the Public

School Employees' Retirement System.

Actuarial cost estimate provided by the Hay Group consulting actuary r the State

Employees Retirement System

Actuarial cost estimate proded by Milliman Inc consulting actuary r the Governor's

Ofce of the Budget

Amendment Number

Amendment Number

Amendment Number


28/138


29/138

ay 26, 2014

Jes L McnenyEecuive Director

ubc Empoyee Reemen Cosson5 0 nce BdgHb A 1710

Re: Stacked Hybrid Plan

De Jim

2 7 01

RTIEMENCOMISN

We e tng w red to e proposed stacked hybd erent p r e Sate Empoyees' Retement System (SERS) d ePubc Scoo Empoyees Rereent System (PSERS) coectey eed to e Sysems

Oew nd Implicos ofthe Stcked Hybrid Retiement lan

or SERS eecve 201 5 d PSERS eecve uy 20 5 e stacked ybrd rerement pn (eeaer reed to as eybd p) reates o new membersp casses (Cass A-5 n SERS d Cass -G n PSERS respectvey) ese new memers dny members reg o actve memesp w be covered by e ybrd p at provdes a dened benet B) r sa up to$50000 (c be ndexed by 0% per ye) r up o 25 yers o serce d a dened conbuton C) p r aary excesso$ 0000, as ndexed, d sce up to d n excess o2 yes.

Te DB p s tgeed to provide benet accs r e rst 25 yes o empoymen. ereer e DC p w be e pmay

reement bene e empoye D conbuon eng to 0% on a s.

Tonsr : h


30/138

Jes L McnyMy 26 204Pge 2

plicos of e hyd pl e:

To redce ovel cost o e Systs ogh otnaly lowr bents to new ebrs To dd to he potenti sgs y nsg a sgnct oion of vesnt rsk d longev isk o rovidg eteent

sc to ese new mmbes clses wc wl rovde lowr reement sct r r emloyees At e s tim h

eployees gn nog o e psde ivesent isk om e DB pl To d e acced b conbon ovr e tot ao of cve DB mms d DC pct Threre e DC

icipt ployrs wod ng not oy ir mployer conibto r e DC pl t o p of e dedacce abilit of e DB pl.

Prode dosde vsnt sk protecon by odg r dect sf of h cost of lower epcted vesent re te ieass emer conbons.

o n vel of rement sc r cpts mg $50000 however c sc wll erode over me as ay evel s to e de at % ye d os od w on

o o s e cost sgs es wil be r ernt twen e to Syss cae of dg mods of dngd oaon of e ded lb Tpcay a new er of enets reslts no edate sangs d s ect over me snew ens reac e stg wooce wi e lowr cost benets.

Secicly ere is soe conce wher ere wll be long te svngs r PSERS sed on wok sbtd by e PSERS acye emloyer DB oal cost der sg law t e end of e 0yr projecton wen most of e emers e Act 2 0ebrs s protely .25% of say Undr e yd pl e tol DB l DC mployer conbton s promately 5%of s. Th c ployer noal cost will dpnd on assmpons sed d the demorpcs of th mrsp t on e

ce of it e cost of ents beng d dr s hybrd pl s r ber tg to accot e potential svgs to ployer of veent d longet sk srs om e DB plan to e DC None of e aces hv aempted todmoste e poent isk s sgs wc cod e apoted by cosdng e lcions on cost ed on morecoativ vesent stions d o les

ee s so conce over e long te svgs r SERS d o ct cost ethod sed by SE. ey se vrit of eny e no cost meod t cces e no cot sed on ne d deograics of e nw res yd ln


31/138

es MenyMay 26 2014Page 3

redues benets der e p r Cs A- members; erere e no ot as a perent o pay wll be lower r Class Amembers at o e uent members. Ts meod applies e Class A no ost te to l members, regardless o ebenets at apply to e oer membersp clses ecause e tot present vue of benets has not hged r e oermembersp asses s auses e abi r ent members to crease even ogh he benets have not hged has eeect o deeg employer conbutons to e tre sce e employer nol cost onbuton will be lowe d e "increasen the labty ue to e hybrd p s ozed over 20 yes wh s a onger perod o e t were nded rough enoal cos Gog d, each ye e no os w dese sg es r new hes e assed to nree ahgher rate an e ree e $0,000 ompensaton e resultng adusent to e ab s en nded over 0 yes,agan deng onbuons to e re ue to s meodology y ost savngs der e hybd p wll be oversted.

s vaton o e en age noal meod had been crczed when apped to new lower tier benets beae t esuls n lowerita conbuons d as a resut ders paent to e te creatg ergeneraon eu ssues. Under GAS 6 d 68

ps must use e adtonal dvdu eny age noa g meod

ere contues to remain a long te rs w the dsot ate asspon The cuent 0% asspton has been used n my oe prjectos The rstes sodng the need to onsider s tpe o hybd pl s based on the pact o ost voatld sustnable dg levels s s adessed at e soe rough more conseatve assptons, the deryng scont rateasspton, d potenaly oer acal asspons e prjeted revenue savgs l be eay dshed. However e overallrs o e Sysems cod be redued, provdng ost stabzaton

ased on e work by e oer ates e potential proeted savings eludng the savings om e PSERS heae premmasssce ove e 0 ye proecton peod s s

ed n e log able

SSSS

S l

BkI $ 3.5N/A Hy llIA $ 7.2$ 65 $


32/138

es L McenyMay6, 0Page 4

Beow we povide a detaed dcripon of e hybrd pln d pojecons of e mplcos of is new benet sce on the ndedsas of he Sysems From o poecon e bk of he savgs s ouh cost eucions he re ncpae by e emeggnew ent casses r each System However e epecon at e System remn nchged ove e 30 ye poecton

peod is low Coideg how he leve of benet secury bed on e low dexaon of e $50000 compensaion lmit ll eodewh ato excess of % per ye w lely cee icesg pressre to modi e mt over e

Summa ofthe Staked ybrd eement an

he ace ybrd eemen p cres a new membesp cass r SER (Cs A5 PSRS (Css TG empoyees e onor aer Ju 1 2015 r SES d y 2015 r PSES d er acve membes eg to acve seice oweve tepoce hired on or aer Ju 1 20 1 5 d er active ste poice reg to acve sece ill em Clss A-3 d Class AI addo e hybd pl woud evse ce ng povsions of SERS d SES d would estblsh a dened cobto DC)pl r ese membesp ces

I gene he loig dened bee DB) povsions wold apply to Cass A5 Cls TG membes: Deed benet compeno lmt he dened benet compeaon im would be $50000 015 d woud ncease each

yea by 10% rounded o e neest 00 Benet a 20% o 5ye avege mled by se u to 25 ye e s ued in e cculn of e

average sy would be ed o e dend bene compensaon mt Membe conbuons 60% of saly each ye up to e ene bee compensaon it e s 5 yes of servce "Shesk - Membrs wod be subec to e Ac 2 0 shed-sk cobutons if nveset e o no meet cen

eshls houh to membr conibuos cot be ess 60% or moe n 80%. e nvesent rae of re is

to o eceeds e assed rae of e bsed on e pio ten-ye perod en member conibution rate wil decease by0.5%. Likewse he member conibuton ate wll cease by 05% if e invesent e of re dg e tenye peiod is 0% o moe beow e assed e nveent ate of e

Ebii r supeaon Age 6 wi 3 yes of sece Eblty r ey erement yes of sevce Benes wil be acay ruced r erly retiremen


33/138

Jes L McenyMay 6, 014Pge 5

Veg 1 0 yes of sevce Members cot reie ey ess ey e 25 yes of seice Vested mebers cot receive ared of conbuos eu of ecevg uit embers who teate pror o becomg vesed receve a red of

conbuons to Egib r d d dsab benes S o Ac 120. Heth ce pre ssice (SES oy) - Not egble

gene, te og DC p provisos woud apply o Cass A5 d Cs G pcipts: Pcpt conbuons - 1 .% of sy o e dened benet compenaon i r e st 5 yes of serce d 7 .% of

s excess of e dened benet copensaon it o r sece excess of5 yes. Empoyer conbuio 0.5% of sy up to e deed bene copensaton l r e 25 yes of sece d 0% of

s excess of e deed bene compesaon or r sece excess of25 ys. eng - Pcp conbuons would ve edaely Empoyer conbon woud vest er 3 yes Pme serce (SE oy) Ree e reqrement r qucon 5 os or 80 days r oury or per dem

epoyees) by a ember o exing d new o acce reteen cdt I do eate e pcae of sece oponr nonuied ptte serce.

gener e og ndng proviso apply Te acced liab conbuon be ded over e o payroll of acve DB ebers d DC pcpts erere

e DC pcpt employe wod be pag no oy e employer conibuions r e DC pl but so p of ended labili of e DB p

For SERS, e chnge ab esltg o e ybrd pl be nded over 20 yes

evel do ont Fuechges abii r SERS conue o be ozed a eve do o

or PSERS, e 1 0 ye asset soong eod wod be conned o be n 3 0% of te ke vaue of assets Theozon of e ded abit w not addessed r PSERS which s assed to stay at e cuent 2 yes

e Act employer conibion colls l re pce e en col s 45%.

J


34/138

M Jes L AenyMy 26 04Pge 6

Te plcaons o e hybrd pl e to chge e cost o penson benes ove me d mprove e nded ss To luste themplictions we were povided w e epected proected sry d benet pyous om e SERS d PSERS acres to prepe o

o mode projecons We dd no e ac census d o meodoloes proecon derent om e ER dER ctes whc wl rest nmec derences in vlues. Howeer e proecons e eecve n providng nsit nto eong e ends o e Systes e mplcaons of e bd pl d when e svngs e ticipted. For PSERS e results ecudee hece prem assistce

O rst set of gp e to set he stge proectg e assets nd labilties bsed on staon populaon d assg newmembers cnnue to picipat i SE d PER der e exng law e t of o pes of hs we wll be ing n ouysis represent e lables shown s e bs d sses sho e es over tme. e nmbes t e top of e bs show eded sas e acia ses ded by the labes over me o eple n he year 200 SERS s proected to be 63%d l of e sption nudg e cent nvesen re e exty rezed h e s s so predcated on e

acally deened conbuon beng conbuted ec ye precons sho SERS d PSERS reacng 98% d 100%ded respecvely, by e end o he 30 ye proecon.

$45

G S Eo Rmn s g Lawri ii ri r Asss

o"O61oI c "---------------0o.=10:":x p. r -r'


35/138

Jes McenyMay 26, 014Pe 7

G BPuc Shl Emo Rn Ssm g aw---- -- -$A by A Ass -Me sse ol C o[o / C? _ $ olo_f.C" - ------M p w I o! l"b[o t j )_. J l I ' $ [ b"' " u R ! . I lo _ .0 .r;"bo "( = T l .. l ! J 1 Lo , C F J j 1 ., ' i r " u( l L, -:" i-- . . t J t \ ! br m : ' j l , I - , j l f t - . ' I l Di l _ . I l 1 - ' ' : I _ _ - J t ' . . . 1 l i t 1 ' : i l 'I I 1 _ l f ; I I . j , : [' -

i ; ! }- I !, i K 1 .Z05 01 0 03 0 0 03 0 33 03 03 03 042 -e ne graphs o alysis show e pojecon of conbuon breg ou e membe conbuon d he employeconibuions eac de e esg la. Te tota noal cost ae eesens e cos of e benes eed eac ye as aecen of payro e exisg law ae epesens e cuen empoye o cos as a pecen of payol o povie a comson oectons a demonae coss de e bid l

Fo SERS e o no co ae emns a .3% of a ove e poecon eod Because SRS uses a vaon of e en aenoa co meod ee e no cos s based on e benets d demacs of e ne es is e ma deceasesas l iuaed de e hbrid p poeco

o PSERS e dion divdal en age no cos meod is used o ccuae e nom cos eee PSRS, eno c eceases sowly ove me as moe membes e coveed de e Ac 2 l osos

e bance of e cos epesens e oon of e nded liab d e see in u of coss itl is e aicaonof conbuon cols wch l e conbon ncese each ea o no moe 5% n he acly deee


36/138

Jes L Mceyay 26, 014Pe 8

cobuion rae s ower. A a poin we projec e employer cos ll be approxmately 30% of paol r SERS d SERS. a proeced bss s o s eeced o ecease each ye r SRS as e de lab s ozed s a level dol onFor SERS e proeced empoyer cobuon s eeced o crease slly l e n nded liabl base is orzed

becae e ded l s beg orzed over 24 es

a level pecen o pay. eac Syste e coss drop o

ecen unded bses e moed umaey educn he cos o e ol cos mouns

60%S

Q4&/

G C S moy Rmn ysm g LMember ate EmolyerDB meRate - ToalNC te ExgLwRa\ J o . ' . ,c;iJ\ " ao!l" oj< I / ,. i 'o o oj< J.< ' ,.: 1"J:t;.o ; 1 , ,i :I"S o lo. { - -

i j l ' ! 1 I 1 1 n 05 0 0 0 0 0 0 0 0 0 0 0

EIRON


37/138

es cenyay26 24Page

Grh Puc ch Ems Rtrmnt sm Exg Law

Mbr t p DB ly t

t t

wR

0% . - .- 1 10% : . ; I I i i I I l 1 1 I , 1 , 1 0% 25 27 ' 29 22 223 22 22 22 23 23 23 23 23 2 23

W e ce sa f SERS PS ER ackgd we e aly e rss f e yr l r e ew eesclasses, cludng e a f e D css as a ercent f e ced a)l Ude e yrd l, e cs f eDB s decease ve e d e cs f e s ncease ver e due e dened ene censan t d e 5year serce t n e DB l Over e 30 ye rjec e ere s a e cst savngs SERS ad PSERS


38/138

L MeMy 2Pae

$

$

$

$

$

$

$

$

$

$

$

G 2A S Emlos Rmn Sm - bd Pln

Acarial Labty Aaa t " ' Mart se

Gh 2B Pc Schoo Emlo Rmn S - d Pn

Aaa La Aaal A Mkt A

ERN


39/138

es L McAnenyay 26 0 4Page 1 1

Loog at te ng equemens we now a e emegg DC pl costs along w e DB pl cost components By te en ofe 0 ye poecon e empoye D pl conbon as a pecent of tot employee pao epesens 1 9% 23% o f SS PSS paol especvel e lac e sows e leve of coss ne exg w o lae how e cos savngs s

cpae o emege Meme conons e now cobe to epesen e B DC embe conuon aes Also of noe se ga ecle o e noal cost ae ue o e ee enet copensaton t e 25 yea sece lt e esuls owa e eloye conbon ate s slty lowe e e yb pl, ne e exsng law Keep mn ese conuones e cculate une e combe pojecte payol e bo D DC pans

%

t3/

0

Graph 2C State Emoy' Rereent se - Hbd PlanMember te Emer D e y DC Rate - te ExgLw R

\ Q q: , cfC[o&Joi" f


40/138

M Js L MnnyMy 26 204Pg 2

h 2D Pulic S E Rin Hid Pan

c Mb Ra Eploy DB ploy t - Toa NC t xsng Law Ra,___________20 207 20 202 0 202 202 20 20 20 20 20 2

W v nlu bs t n os ot son sus n tbul omv oss

y y k

Hy ysis o ost t o yb ln on SERS B oi sml nlysis PSS ll lsoovi sl yss SERS PSERS Con s vi Hys ost not t My , 2014 Bus ost not ty 2, 204 lls ost not t y 2014

ost nots o Hy n bo so o sngs un yb l SERS Fo t io 20 5 oug 20Mil's sus so umutiv sings o $72 bilon Hy' s suts so uv svngs of $65 blion

W o nots o Bu bo so ost svings ybi PSERS ov oon o w on n vg F 2 h 204 w o billon w Bs sults so umv sns o blion sts xlu sns om mium

ERON


41/138

Jes L MceyMa 26, 014e 13

assisce Buc's lysis ndcated at ere wuld be addion sags $20 ilon fr e hece prem sstce eree a couple reass hat acct fr e dierce e resuts Bucks alysis as based he data used e e 30, 03act vaion whereas Mlls sis was bed on e aa ed Je 0, 201 aca vaain A compson

e data e vuaon repors shwed a reduco e ner d compean acve members Milm adusted erpel resut fr 20 bed n e December 10, 201 PSES Brd presenatin addo Milm d Buck used derentassptons regdg ll-e d pme employees. Mll kept e lte d pe popaons septe heres Buckdeteed serce accs fr ne ents as a whe ased on e avee e serce accals data eld sh n e valuandaa fr new ents ver a ree ye perd

ese resuts e esates ed n e derlyin assupti Act relts e based e vuatis erfmed each ye bye Sste actes. What is becg creasl appent n public ps is e abi t respond t e s volali oe dery veents bacg the beet pse Ts uped e creg numer o membe eigie t rete ee re have cnibuted t e on resces he prjected co savgs at do t eme fr a er o yes c

beimpated by e Systems expeence Tese ysis shud be acomped by poectios at corate steps t lower e verask proe e Systems to beer mage e pote log te expetaos o e hybd pl

It c be cpated at ese ew e wl so chge rement paes ey becme a lger potin o e ovell activepopulaon herefre, when new ers e added e experece stdies shud look at pl expeece sepately fr ese ters dcosder usg derent tenaon d retrement assptos i ecessry

Under exg aw d e hybrd pl it is e ded accred abii at is drig e cs. e l cost (ie e vue o ecent benet accals) is lw compsn to e uded laili cost Based on Hays ysis e no cot fr SERS at eend e projecn peod i s appxately 50% uder e exi law d 3 0% der e hybd pln ncludg e Ccnbion. Bucks ys e n cst fr PSERS a e end o e pjec ped is approximatey 3 25% under eexstg law d 5% der e hybd pla icludng e co. in e case SES it is pssible tat e lote e cost coud be he uder he hybd p depedg on p expeence erefre hat v e cs d e reasonwhy cobo e i d reacg over 30% fr SERS d PSS is e cs o payg fr e uded laly. The udeiabi weed t be pd redess e pl desi


42/138

M es L ceyMay 26 204Page 14

Over e pojecon eod sded e rests show sm u mee, caed savngs der e yrd l r oh Syses

However leave spo sow maril ierens e eeed savgs demoed ete d eSysems' aces. The ends of sse o adopt spons eow e 7% nvesen assupon of boh SERS d PSES toreduce e oerisks of the Syse apped ere woud likely eliate e savngs

For e sangs over e 0 ye proecon perod rges om $65 to $2 bllon. For P e sags over e 30 yperod rges om $ to $7.2 blio When you compe he acculaed sags of e yrd p over te 0 ye perod o etol esaed emplyr conuo der e esg law r e 30 ye perod en e avgs wod rge om 1% to 3% rS d 2.5% to % r PSER erere e rge o savgs cclated by e vos actes s not scntly deren. eac savgs ll depend upo aca p expeence

Muc of e ended savigs oen as not een easred tes of e risk nsr om the Sysems o ese new clses ofmembes due to e s on compensaon uder e DB pl t e se e no quaon of reducon of reremensec r ese m wose ome replaceent at reteent wll kedy lower been estated.

ere s doside ivesen rsk d longevi risk pection as pt of e enet s rovided der e DC pl. t e e tee D pl wl no delver e benes o e DB pl d ere s no reducon e long e cost to pay do e deality w e long te dsco rae o5% beg ed d suec o material voaity

s yid pl ropos does proide r e cost svgs as ew employees pcipate der e Syses ecauseer reemen enet l be ower ess cosy to e oonweat Te cos educons e both epc d sow to eergein tes o limts o e deed benet povded d pct as a sct poon of e new reeent bene ce will edevered a dened conbuon pl srrig e cost of vesen risk reiement oget risk o e pcipsor new employees e oss of reemen secu s eater e vue of e cos savngs r e Coonwe ey no olyke on e nvesen d longev rsk, but ose e vaue of rsk polg (sed rsk of lge goups icipaed uder cepe gemens) a is aceved der bo e iveent opies of ge s dvdul accou d avgto mage e dened conuo pls over e retiement ves

e nc ress sown ere e lao o a ner of lkely sceros of proeced coss resug om e ybrid plHowever, ac e costs wll be detered y re acil vuao Consderaon sould e gven not oly to e so

+EO


43/138

es L McenyMay 26 204Pae 15

cos sags bu so o e lon e ilicions I addon en e lon na of SRS d PSRS i is ipraeo considr s sis us conserae pions o deee e on sans

reg o proeco w wre proidd cipad bn ss d aro precos r eac cord ou ofeployes o llow o soae e iplicaons der ybrd p We er no wor o original cnsus daa d reled onenely accepd aci ecques n e deelopen of e odl o e ou projecons Reinc on our projecd ussoud be r poses of e nae of ong e nds d no spcc alues as e nae of roecon a an incresingdeee of ce e er o e a projecon is n

s sis w pred exclusiy r e Publc loye een Cossion I is no nndd o bene rd pd Ceiron asses no d or liabi o suc p

o bs of ou knowldge s rpor d is conns a ben prp in accrdce w genr rcogid and accted

aca rincipls d praccs wc e consisn i e Cod of rossionl Conduc d applicabl Aci Sdds ofracce s ou by Acal Stdds Bod eore, credeniled aces we ee e Quicaion Sndds of eic Acade of Aces o rendr oiion conned n s reor s ror dos no adess ny conacl o legissues We e no aos d our does no prode y eg sercs or adic

Sncerel,Ceion Inc

Kee A Ken FSA FCAPrnc Consung Ac

Tony Psi

Je Cra, FSA FCAPcipal Cosn Ac


44/138

M. Jes L. cAenyMa26, 014Page 6

Hybrid PanSuppleental Stistcs of rojected Fiacal Impact

tte mpoyees' Rerement SyemPojecon of F n.ded o

Eg HybrdYea aw Pa205 58.6% 555%206 585% 556%07 586% 560%2018 602% 577%2019 ' 66% 592%2020 630% 607%202 644% 62%2022

658% 636%2023 672% 65%2024 686% 666%2025 699% 680%2026 713% 696%2027 727% 7%2028 742/ 727%2029 756% 744%2030 77% 76%203 787% 9%2032 803% 798%2033 89% 88%2034 835% 839%2035 852% 862%

2036 870% 88%2037 887% 9022038 905% 924%2039 924% 947%2040 94.2/ 97%204 96% 997%2042 973% 07%2043 98% 03%0 985% 040%

-EIRON

e poyees Reremet yemPoecon of Unfunded Lab

Yea2052062072082092020202

202023202420252026202720282029203020320322033202035

2036203720382039204020420422020

( bi lo)Eig

aw$ 8276$ 877$ 93$ 884$ 8520$ 8207$ 787

$ 75$ 729$ 6720$ 6282$ 5814$ 1533$ 147$ 4203$ 3589$ 2930$ 2225$ 70$ 0660$ 9793

$ 88$ 7868$ 6800$ 5656$ 4429$ 33$ 294$ 577$ 1359

Hybd

$ 20686$ 2083$ 325$ 20872$ 20472$ 2004$ 19.584

$ 9 089$ 8560$ 7992$ 7382$ 6727$ 6024$ 5268$ 457$ 35$ 267$ 1639$ 0556$ 9392$ 841

$ 701$ 5858$ 4587$ 3220$ 1.751$ 07$ (1 .035)$ (964)$ 2.523)


45/138

M. Jaes L. McAenyMy 26, 2014Pge 17

Se ployees' Reremen SyemPjctn f Emo Cnuts B a nd DC)

F ng HYea Law Pan2015 205% 05%016 50% 250%2017 95% 295%2018 34% 972019 96 9 200 9% 281%02 282 273%0 75% 66203 68% 258/o202 6% 51%205 256 5%

2026 50% 2.8/2027 44% %208 38% 6%09 3 0%2030 227% 14%031 222 09%03 7% 0403 2% 1992034 07% 19035 0 168036 198% 64%037 93% 16%038 189% 157%

039 185% 153%040 81% 150%2041 1 1 1 %204 113% 8320 81% 5.2%204 6 33

-+EIRON

Se ployee Reeme SyemPectn loe Conuts B and D)

( biis)i Exng Hr

Yea aw an ncJe.205 $ 1 254 $ 155 $ 000016 $ 576 $ 15 $ 0001207 $ 97 $ 190 $ 000308 $ 2035 $ 1991 $ (00)019 $ 20 $ 19 $ 05)200 $ 56 $ 198 $ 0)02 $ 2066 $ 20 $ 0)02 $ 077 $ 2006 $ (0)23 $ 089 $ 2010 $ 0)024 $ 101 $ 05 $ 0)205 $ 213 $ 021 $ 009)

206 $ 226 $ 07 $ (00}07 $ 2139 $ 034 $ (00)028 $ 15 $ 041 $ 011)09 $ 66 $ 2049 $ (01)030 $ 2180 $ 0 $ (03)031 $ 95 $ 067 $ (0.)03 $ 20 $ 076 $ (01)3 $ 225 $ 087 $ 0)03 $ 41 $ 098 $ (0035 $ 258 $ 1873 $ (0.385036 $ 75 $ 886 $ )2037 $ 293 $ 189 $ (94)208 $ 31 $ 191 $ (0.39)

039 $ 39 $ 1926 $ (0.04)040 $ 49 $ 190 $ (8)2041 $ 89 $ 12 $ (012)2042 $ 1559 $ 16 $ (0414)043 $ 1155 $ 0739 $ (0.4160 $ 0902 $ 0 $ (041)

T $ )


46/138

J L AyM 6 214P 18

ul Shool loy' Rrt SymPojo o Fu ao

a E HbrYa La Pa

2015 59.6% 596%2016 584% 584%207 7 577%2018 566% 566%2019 56.2% 56.2%2020 78% 577%202 593% 592/2022 605% 603%2023 620% 6 S2024 63.7% 634%2025 65.5% 652/2026 675% 671%2027 697% 692%

2028 720% 74%2029 744% 738%2030 770% 763%203 797% 790%2032 89%2033 857% 850%2034 889% 883%2035 924% 99%2036 9% 937%2037 95.5% 951%2038 967% 964%2039 97.6% 973%2040 982% 980%204 987% 986%

2042 99% 990%2043 99.4% 993%204 995% 99.4%

ERN

ul Shool loy Rrmt SyPoo o Uu ab

Ya

201520162017201820192020202202220232024202520262027

2028202920302032032203320342035206203720380392040204

204220420

bo)E

a

38574 40906$4283852284702664$46326$46322$45789$45036498942628$40937

$38893$36484$33690$30474$26799$22629$792$2629

$9980$7850$5847$4475$3345$2422$1684$237$1.038

HbPa

$385740906$2.838$4587026664$4632663225789$45036$398926280937

388933648433690$30474$2679922.629$17.921$12629

$9980$7850$57475$35$2422$684$237038


47/138

M s L AyMy 26, 2014Pg 19

lc c es eet mecn p Cnins and DC)

Fia Eing Hbrid

ea Law Pan2015 205% 205%2016 250% 250%207 293% 27.3%208 300% 27.8%209 309% 284%2020 31.6% 292%2021 314% 299%2022 31.4% 29.7%202 315% %2024 .5% 297%2025 3 297%202 .5% 29.8%2027 36% 298%2028 36% 292029 3.7% 29.9%2030 318% 30.0%20 19% 0.1%202 20% 0.%203 321% 03%204 323% 304%205 34% 305%2036 189% 70%2037 1 5.5 136%2038 140% 12.0%2039 106% 105%2040 9.0% 92%

2041 77% 82%2042 66% 72%04 5.% 3%20 47% 5.5%

EON

bc c mees etremen emrectin f ml er Cnrtins ( a nd DC)

a

ear2052016201720182019202020212022202320242025202620270282029030203120322033204205202072382092040

2041204224320

T

(n bins)Eig Hrd

Law an$28 2 $2.812$3520 $523$.228 $424$4.469 $4.$. 757 $4. 727$5022 974$5.61 $5095$5316 $5.230$551 $5.406$5689 $55$5871 $5. 728$6.052 $892$6. $6.0$6420 $62$6 603 $6.409$6.791 $6591$.984 $6. 780$7.181 $6974$7.80 $773$7.8 $7382$779 $596$4.735 $4.52$3.998 $386$3.89 $3521$2888 $2 736$52 $2.385

$2209 $2.097$95 $1.8$57 $.520$28 $1.

nc./Dec.$0.000$0003$0.00

($002)($0030)($.048)($0.066)($0086)($0.105)($0125)($0143)($0.160)($0.173)($0.18)($0195)($0.200)($0.204)($0.207)($0.207)($0204)($0201)($193)($0.82)($0168)($0.5)($0136)

($011)$0086)($0054)$0096($.53 )


48/138

buckonsltants

May 2, 2014

Mr. Jeey B. ClayExecutive D ectoPennsylvania Public Schoo Employees' Retement System5 Noh 5th SteetHarsburg PA 7 0

Amm No A o Ho No No

Dear Je:

Xx

As equested we have exam ned Amendment No A069 7 to House Bl No. 353, Printers

Number 2152 (heeae smpy referred to as House Bl No 1353), which woud create a new cassT-G membeshp under the Pennsyvania Public School Empoyees Retrement System (PSERS)or emp oyees hi red aer June 3 0, 20 5 an d orme active membes of PSERS return ng to activesece on or afer Ju y , 201 5. I n addition, the bil would estab sh a dened contributon (DC) pl anfor cass T-G mem bers eectve Ju y 1 , 2 0 5 wou d revise cetan PSE RS fund ng povisionseectve Juy 1 20 5.

PER provisions aicable o lass T ebers Compensation consdeed o benefit determinaton would be imited to the fst $50,000 o

pay each yea The $50000 pay mit woud be inceased/ndexed by % per yea (oundedto the nearest $1 00). Compensaton for both part-tme service and paa years o servce


49/138

M. Jefey B. CayMay 2 2014Page 2

Eligibiiy for unedued reremen benefis woud be reahed upon aanmen of age 65

wh hree years of seie. The resuls shown in aahed Table 1 wee based on anelig ib liy ieron of age 65 wh no seve equi remen as was previously ommu naed ous on he bass of an ealer veson of he legislaon n ealy Apr The addiion of arequremen of hree years of sevie has le or no ee on he os savngs projeed.Simiarly we undersand ha he opion fo hghereduaon members o ele TIAACREFoverage wl be mananed u nder he fnal vesion of he bi and hs wl l a so have ile orno ee on he projeed os savngs.

Members woud ves afer 1 0 yeas of seve bu woud no be eig be o apply for an ear yeemen bene uness hey have ompeed 25 yeas of serve. Benefs of memberseleng o ommene paymen pror o age 65 would be edued based on auaalequivaene faors.

Vesed members woud be nelgbe o whdaw heir onrbuions wih inees n ieu ofreeving a pension

Membes wih fve years of serve woud be elgibe for dsabily benes

Suvvos of members wih 1 0 yeas of seve wou d be el ig bl e o eeve deah benefs.

Membes would no be eigib le for he Heah Care Premu m assisane pogam

Pla provisions Shoo empoyees who begi n o reun o shool serve on or ae Ju y 1 , 20 1 5, would be

enroled in he C pan

C plan mandaoy paipan onbuons woud be


50/138

M Jerey B. CayMay 2 2014age 3

Each DC aican wil have an ndividua invesment account whee al arcant and

emoyer contibuions are accumuated and investment exeience fees and costs arecredited or chaged.

The resus reoed n his cos noe ae based on he assumtion tha the DC an wil cover onyemoyees hi ed on or afe Ju ly 1 20 1 5 and d o no take int o consideaon forme SE RSmembers reurnng o actve sevce. In addition he emloyer conbuon unde he DC an doesnot reflect an oset for foetues from aiciants who terminate or o comleing three years ofseice.

I shoud be noted ha under House Bill No 353 he ortion of the benets rovded o class TGmembers by he DC an is subjec o investment risk tha woud be fuy borne by aticiantsUnde SERS ony Cass TE T-F and TG membes share resonsbiity for the funds invesmentisk hrough he Ac 201 0 20 and House Bi No. 353 sharedrisk addtona membecontributions (as Cass TC and TD membes ae not subect to he "sharedisk conibutions)Addionaly atcants would bear he ful cost assocaed wih "longevty risk (i.e the chance ofrunnng out of money n erement) fo benes ovided by he DC an while unde SERSongeviy rsk is assumed by he Sysem

PSERS funding provisions The accued iabiity conbuon rae would be comuted as a leve ercentage of toa

comensaion of a actve SERS membes and acive DC atciants using anamortiaion eod o f 24 years

The exerence adustment facto woud be calcuated as a eve ercentage of the oal

comensation of all acive SERS members and acive DC aicants using a 24yeaamoaion erod

Changes in he accrued iabliy of SERS esuling from egisaton ae to be funded as a


51/138

Mr eey B CayMay 2 2014Page 4

The aached Tabe lusaes he poeial epeced savigs hroug h he 2045 fscal year Tabe

1 copa res proeced ep oyer cobuo obl ga os uder he cu re beei ad fud gpovs ios of PS ERS wh hose proeced o arse ude he provsi os o Hou se Bi N o. 1 353. Weoe ha he PSE RS oa l coibu o ae ude House B No 353 s o be deered as aeve perceage o oa copesao o acve PSERS ebers. However o provdecossecy he coparso ade he esuls are show as a perceage of oa copesaoof al acive PSERS ebes ad acve DC pacpas. Siary he pesio corbuo aecolla s deeied o he bass o he resuig oral cos ad ufuded accued abiycorbuo raes deeied o he bass of oa copesaio of a acve PSERS ebes ad

acive DC paricipas

We oe ha Tabe shows a red o decreasi g cos savg s owards he ed o he eaa operod: as ore epoyees receive copesao eceedg he deed $50000 cap oreeployer cobuos ae ade o he DC pla a he 4% ae Cosequey he ed odecreasig cos savgs woud be epeced o coue beyod 2045

Table 2 alocaes he oa poeced cos/(savgs) bewee pesio ad healh cae peuasssace

The cacuaos peseed here ae based o he daa ehods ad assu pios used he ue30 203 acuara vauao of PSERS as we as he olowg assupos for he projecedacuaal valuaos

The wokfoce sze is assued o ea cosa over he proeco period; ad

Fuure ew epoyees ae assued o have sar chaaceiscs (age/gede/saay) o

ew epoyees fo he period u ly 1 2 01 0 hough ue 30 20 3

Oe dffcuy we us oe he esiao of he cos ipac of beefi chages s he poealor chages eree paes whe beef elees are educed I g eeal decreasg


52/138

Mr Jerey B. CayMay 2 2014Page 5

on asses may be waraned If so he roecions shown on he aachmens shoud be

recaculaed accord ngy

Fuue acuaa measuemens may die sgnficany fom he curen measuemen esened inhis analyss due o su ch facors as lan exerience dferen fom ha aniciaed by he econo micand demogahic assumons; inceases or deceases execed as a of he naura oeraion ofhe mehodology used for hese measuremens; and changes in lan rovsons or alicable lawAn analyss of he oenia ange of such fuue measuremens s beyond he scoe of hs sudy.Accordngy he esus conaned in his analyss shoud ony be vewed as an esimae of heoenia imac of he alenaive benefi efm roosas.

Also aached are five benef comaisons beween he esmaed cuen benefis rovded underPSERS a nd oosed benefis u nder House Bl 353 for hyoheical members who are eig ibe formmedae reremen. The DC Pan acian accoun baances ae based on a ae of reun of6% e annum. Converson of he DC Plan membe accoun baances o benefis is based on annees ae of 3% er annum and he oosed RP 2014 Whe Cola moaiy able wh fulgeneaona moaly mrovemen using he roosed scale MP2014 These comarisons aresummaized in aached Table 3.

Cae shoud be exercsed in communicaing any esuls o hird aes o ensure ha he abovecaveas and undeying basis of he esimaions ae clearly communicaed o any ossbeecens.

am a Feow of he Socey of Acuares and a Member of he Amercan Academy of Acuaes Imee he Qualifcaon Sandards of he Academy o render he acuaial onons conained heeinThs analysis has been eaed n accordance wih all alcabe Acuaial Sandards of Pracceand I am avaabe o answe quesons concening i

Pease e me know if you have any q uesions .


53/138

HB5AcalPayr fr New

Appopaon Payro MemrsPariipan> 630/1 EmoyContrbuonIosnd! ousands .DB/DC Pa eof

Fs $0, $50,000Y ndand Indexed Ya HB 1SJ -o /or 2 MareRa , Cut SOC VoS o R 0 1,112 ,, 3 43 . 3 737 013 ,97, 1,297, 0 40014 3,7,00 1372, 0 7.43 4320 5 1000 1000 7 50 7.4 421 13,1,3 131,53 7304 0 7 50 7.47 7.4721 1421,69 1,214689 ,1,66 0 750 7 '8 818 1613,82 14,61,430 1,657, 0 5 78 2219 1283 15,033,665 228,36 0 70 49 32 15465,597 5,,5 276,1 0 7.0 7.49 7321 15914196 59231 331683 939 7 50 749 2022 1,3,5 16,392,723 381214 1,383 .0 7 s 223 16526 16,836 443051 3951 50 50 12 17,39,17 1736323 499202 9486 70 750 13225 18,59 17863165 ,56,09 192244 7.50 0 7 826 1835127 1869089 6,9,0 330131 7 5 750 722 18853,3 18,87205 66191 515650 7 5 69428 1 9 6 95 3 8, 6 ,1336 79,996 7 5 SO 682029 9087 19,360 75325 034,10 50 7 51 676 2036835 23949 8138399 1374767 7 5 7 1 .23 26803 2000 629 633 70 7 5 65032 2,4,56 1"318 90, 979 75 32033 2193 2,59,58 9,58636 2,66,33 750 75 63 458,7 2,4,3 1,,2n 3,3,4 7 7 5 603 3,0M 2304538 14959 34425 75 751 589236 23,5118 3,61,on 1915776 4,516,80 5 71 5.71 ,18,309 2,194719 11,32591 525224 51 51208 242,8 2,9, 117138 605,659 50 51 31039 255607 25923 1295 6,9,98 0 7_5 S00 25995,45 265313 12394242 891313 750 7 48921 26,666,591 228114 12690,50 8,9382 750 751 4.604 7,375,32 2740911 129554 66 750 7 1 4420-3 212,239 28,19,66 33 121683 7 0 51 4 2044 2,9,89 291118 13,275,8 53522 750 7 51 398245 916 39 9838 1 372.080 18 341 o 3

Table 1

Pulic School Employees' Retiemen System of PennsyvaniaPojetion of Conrbtion Raes ad Funded Rtos As of Je 30, 201 3

Cun PSRS House Bll No 1353 (Pnes No. 152)

Heal

EmoyerUnndd Prelmnary Emoye Car To Emoyr

C La . Pnio Rate Conbun ContrbuonRaeB HB 15l- HB 33- 35: HB 5- B u D C B DBD

8 2 0 % 5 % 627 " 182 065 65 65 6 66 866 99 12.99 2 6 5 2 0 12 1 365 57 152 155 232 3 093 0.93 193 693848 848 7 7 2 259 090 21.4 214823 23 002 195 195 228 2728 084 84 2. 2583 803 004 0.41 2041 284 8 0 3 0 83 292 93184 770 2159 2158 943 292 02 09 325 3012766 7.39 0 83 28 349 321 0 79 73 312 31 017.49 09 0 09 23 239 3.30 3.88 7 0.69 308 31667 32 6 8 1 393 39 325 301 77 66 3202 31 1 651 12 24 12 1 31 3061 7 1 3201 3 346 99 623 1 2 319 30 73 5 3222 343683 95 017 245 243 3158 306 2 0,5 32.30 31 397 568 20 25 29 31 67 30 9 50 3236 31 366 5 24 252 1 317 3061 69 0 343 333634 515 02 5 49 2546 31 3 301 06 06 32 52 31366.17 34 24 39 3059 69 44 320 3175.99 4 0 2600 2597 31 99 30 69 02 328 314151 43 04 6 3 37 30 069 0 3 7 34 4,13 05 53 29 1 62 0.69 03 32 3546 3 062 68 37 3065 396 3635,27 3.3 0 279 2705 6 069 0.3' 335 3209 339 00 2 39 234 38 33 69 3 33 3890 3,14 089 768 763 258 30,77 0 69 09 3327 3 2.90 00 40 14OJ 18 7 1693 09 1946 18043 26 1 0 .67 5.3 1335 .69 0 59 17 3 5 21 9 23 9 3 1 66 069 22 26 131 16 23 133 .57 755 1 1 7 3 7 09 12 2 11 31398 01 45 9S 5 93 993 9 1 1 9 8 2 57 453 452 4 6 34 9 6 93 036 1 63 169 3 29 39 6 93 49 69 1 762 6 5349 1 2 9 S 3 44 69 1 16 5 38336 1 33 2 3 95 0 9S 31 8 9 1 0 oo 4 7232 1, . 2 69 008 9 47

Fud

cc Eve otrn(ou) tio mUllonsCot Sang)eiHB1J53DB soJD, HB 1353 ur D Ba> 20' D c

4 664 90 9,5304, 38 2,986 2,88

,3279 2,3, 0 0 6 6 1 6 3,63 3632,884 4 0 0 598 9 8 38339 38,339351 3579520 2,869 2,483 58 5 585 40,6953 69534,10639 4,1618 5,578 4,490 57,3 3 3,158 43148,40,687 4402,796 (1792 (3,397 5 566 5558 4584700,9 46620 (38,9 (270 579 57 8 44 495,6,36 ,89979 (6185 39,84 59 S9 76 7 4,76 75095,26 512,53 3,3) 5,193 62 61 448952 ,89:2522,34 ,136936 1598) 59321 1 6 6 1 4 5750 4,7 5317 5,3290 2895) 628 3 2 91 43 1560377 86 152911) (7192 ' 8 6 3,2392 43392,775477 562338 13139) (814 5 662 42,1 2187159516 560 (19615 (82,335 685 68 40,1 8 81 86310 593 (22928 (83,1 706 700 391.3 39,1 3630,23 6,09,36 (23,917 (395

22 384 3204

9,07 62603 (2,34 (89 75 75 38921 39 16298 18237 56 (80.031) 7 77.0 3228 22086635 659589 598 (7778) 796 2157 91770539 67932 (29 (74,713) 1 824 2559 255 224570 6,,5 (80,43 (07 8 8 4 2 ,.6 2,58!6,9,60 7,163,2 (28643 (6,43 893 88 7,73 ,073 76543 3,5 (29,39 {63384 92 21 19992 9992,586,93 4296752 (9 (59,11 2 9 9,595 5 959,811 3649 (872 (5,56 9 951 7 7-35316 ,247354 (280,2} (49,527) 5 6,26 042 63,149,225 ,74,91 (274,933 (45,03 97' 97 1 ,58 4,58,760,77 2492996 (269 (4838 98 979 338 0 3,38202,407,993 2,5632 (25,261 (35,653 9 98 2,310 2,43 ,06, 1,52,73 (233,2 (3091 991 990 113 1,3,2,7 6 (13 63 993 992 12878 ,28 8,711 ,3778 76367 ;t 99A 993 1 , 1 1 0 1 1 3 4D 57 t80 99 9 3 9

COt 33 2515


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Table 2

Pubic Shool Employees' Retirement System of PennsyvaniaCos(Savings) Al location of Table 1 - otal Potentia Projected Cos(Savings)

Due to House Bi No. 1353 (Printers No 2152)(Amounts in mllons)

Present Value as ofCash Flow Basis June 30 2014

Benefit Reforms (3,39) (055)Health Care premium assistance 2,175) 470)otal House Bill No 1353 Cos(Savings) (552) (525)


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Ta

Publc School Employees' Retirement System of Pennsylvania

Com parson of Benefits un der Act (Class T-E m embers)Ad House B ll No.1 353 (Class T-G members)

Empoyee A B c DQe a He 30 30 30 30ge a Temnaon 65 65 65 65Reemen ge 65 65 65 65Saa a Tem naon $ 3 1 1 1 $5 852 $2592 $93333Ac 120 3Yea Fna veae S ala ry $30000 $50000 $0000 $90000HB 353 5Yea Fna verae Salay $28942 $41 $49000 $49000Ac 1 20 bene $21000 $35000 $49000 $63000HB 353 bene $ $29395 $32344 $3562Bene ao Ac 1 20 HB 353 1 8 % 1 9 % 5 % 6%

Notes: or the above benef under HB the DC baances ae assumed to gow based on anannua retun on assets and the baances have been conveed to a beneft based onan annual nteest rate.

he above beneft compasons have been based on curent compensaton eves andassumng the member was empoyed o aternatvey, years n the past. The pay cap was d scounted back by pe year and the curent pay evels were dscountedback by the saa ncrease assumpton used fo the June PSERS actuara vaauton.

If the beneft compasons wee assumed to be o altenatvey, yeas nto the futuethe deences n benes would genealy be greate due to futue saa nceases benggreater than the annual ndexng of the pay cap, and thus the ratos of the Act benefs to the HB benefs woud be hgher than those shown above

E406565

$5 852$50000$4$25000$25408

98%


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PSERS - BUCK Caculation of prospective Ful Time/Pat Time Employee Under Staked Hybid Plan

Buck's method of projecting future System m em bers does no t separately repace

current full-time and parttime members with corresponding fulltime and parttime

mem bers. O ur a pproach for the a dvisory note is as fol lows:

a Su mm arize the System's new mem ber data for the 3year period Ju ly 1, 2010 to Ju ne30, 2013.

b G roup the data by gender an d fifhage. For each representative genderbased age

group, compen sation a nd expected future sevice val ues are determin ed by averaging

the d ata reported for th e grou p du ring the coveed period Eac h gend erbased age

group is assumed to repace a proportional share (over the tota new member

populati on) of exiting mem bers For example, the age 27 femal e cohort has an averageactu al s al ary of $3 1,161 with an average expected future service of 910 per year an d is

13. 6% of the n ew mem ber pop ulation entering the System duri ng the fist year.

c. In su bsequen t years' cohots, the actua l sal ary is in creased by 3 5% from the p revious

year's actua l sa lary assum ption

Our methodoogy does not distinguish between fultime and parttime members afer

the June 30, 2013 base year Based on the System's valuation assumptions, there will be

a remaining potion of the current base year fulltime and parttime members who will

stil be in active status during the 30year examnation period Each current baseyear


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A refund is a return of contrib utions p lus any nterest earned on thi s money A refund s the ony

opton f a me mber terminates al Pennsyvania p ubic schoo em poyment and :

(in t he case of Class T-C a nd Class D)

the me mber is und er age 62 and has fewer tha n fve years of credited sece or

the mem ber is at east age 62 with ess than one year of credited service at the time of

termination of service.

(i n the case of Class TE a nd Ca ss TF)

the m ember is under age 65 an d has fewer than ten years of credited sece, or

the m em ber is at east age 65 wth fewer tha n th ree years of credted service at the tim e

of termi natio n of sevice

In each val uaton th e System's la bity for refund s due to no n-vested termna tions is

determined on the basis of expected rates of withdrawa amo ng me mbers who have not yet

met the requ rements for vestng As requi red und er Secton 8502(j) of the Retirement Codeexperence studies a re performed eve fve years The Ju ne 30 2013 actua ra vau aton was

prepared on the bass of demographc a nd economc assumptons recommended on the bass of

an experience study covering the period from u y 1 2005 through Ju ne 30 2010 a nd ado pted

by the B oard of rustees on M arch 11 2011 As man dated by the Retrement Code these

assum ptions wl rema n n effect for va uaton purposes u nti such time the Boa rd of Trustees

adopts other assumptions.

Our projected cost/(savngs) analyses reated to HB 1353 are based on the data and actuarialassumptions that were used n the une 30 2013 valuaton which incudes a 7 50% assumed

future investment rate of return and the folowng assum ptions for the proected actuara


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Und h currn plan all pospcv nw mmb rs af J un 30, 2015 a assum d o bCass -E mmbs ndr h poposd nw pan, al prospcv nw mmbs a Jun 30,

2015 a assum d o b Class -G mm brs, as rqurd by h gslaion

W no ha smas o h ponal cos of h p roposa woud cha ng wr possbl o

anici pa spcic cha ngs in im n parns ha may as as a sul o rducions in

bnfi nmns n gnral d cass n imn bnis may l ad m mbrs o

pospon rrmns sin c h bnfs may no b adq ua o povid or mmb s na nca

nds a h ags a which hy woud hav rid hr wr no chang i bnfs

Howv, h xn and n aur o such cha ngs wi no b d nifab unl mmb s sa o

r und r h nw bn dsign an d a oma l xpinc sudy s ppard hfo whav no assumd ha hr wl b any m mdia chang n mm brs imn pans


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Actuarial Cost Note -Projected Impact of Legisation Related to a

SERS Hybrid Dened Benet (DB)/Dened Contribution (DC) Plan DesignProposed by Representative Tobash

As requested n connecton wth the dra egsatve anguage provded to us as proposedAmendments to House B No. 1 353 , keyed to control number HB 353A06757 anddated "04/25/14 that sets rh a hybrd dened benet (DB)/dened contrbuton (DC) pandesgn proposed by Representatve Mke Tobash (hereaer, the Tobash proposa), we haveperrmed cost projectons to approxmate the mpact on the ture SERS ndng assumngthat most empoyees who on SERS on or aer Janu , 20 5 woud no longer be covered bySERS' current benets, but rather woud be covered by a plan desgn ncludng key features asdescrbed below

For ceran groups of employees, the hybrd pan star date would not be January 1 , 20 1 5 :

For Park Rangers and Captol Poce, the hybrd pan star date would be July 20 1 5 For Pennsylvana State Poce, the hybrd plan start date woud be Juy 1 , 20 7

The Tobash proposal would mandate that a empoyees hred or rehred aer the hybrd planstar date become partcpants n a new SERS hybrd DC plan, whch would be separate omthe SERS DB system Each hybrd DC parcpant woud have establshed r hmer ndvdual nvestment account wthn the SERS hybrd DC trust nd whch would be separateom the SERS DB nd. __


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Such SES members would no have an oon o leave her exsng casses of servce andon he hybrd lan

In general, curren SES members who have a break n servce and reu o emoymen aerhe hybrd an sar dae would be erolled n he hybrd an uon her re

New SRS Dened Benet DB) ass

he obash roosa would creae "Class A5, a new cass of DB membersh acabe oall SES emloyees who are red or rehred aer he hybrd lan sar dae

Class A5 woud be a new er wn he exsen SES DB sysem; he new srucure wouldno be a searae lan and would no have a searae nd Under hs roosal SES woudno be closed o new members; SES woud reman oen o Class A5 members no he e

Ahough mos exsng SES dng rovsons woud connue o ay, he obash roosalwould enac legslaonrelaed ndng aroaches ha devae om cren Sae Emloyeeseremen Code (SEC) rules

As you know, he dra language rovded o us was no e comee as relaed o emoyerconrbuon rae colars o ry o ancae your needs, hs noe reecs he mac of s

roosal's egsaonreaed ndng rovsons combned wh wo deren aroaches oure rae coars whch are oulned brey sarng on age 5

Proposed Hybrid DB/D Design


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a The Tobash roosal would dene AC in the SEC as ows: "orcalendar year 201 5, the amount of $5 0,000 or each subseuent calendarye, the Class A5 annua comensation limit wil be I% greater than therevious years amount, rounded to the nearest hundred dollars

b With resect to the hybrid DB comonent, the AC imts the amount of comensation each calendar year that would be

used to determine a members veyear AS, and imits the amount of comensation uon which emloyee andemoyer contributions would be based r each calendar year duringthe member's rst 25 years of service.

c. With resect to the hybrid DC comonent, the AC woud serve as the"breakoint r uroses of determiing emloyee/emloyer contributionrates alicabe each calendar year during the ariciants rst 25 years ofservce

3 Cass A5 Service imit: A second new imit which would lay a signicant role incoordination of the roosed hybrid DB and DC comonents is a maximum of 25years of service credit (or ataiment of 25 eligibiity oints, to use SEC

terminology) r uroses of hybrid DB lan ariciation That is, whendetermning ticiation and annuity benets ayable under te hybrid DB system,credited service r Cass A5 members woud be imted to 25 years.


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b nua indexing of % er caendar year n the AC coud resut n ighersaaries being ctored into the FAS determnation

5 . Contrbuton ates under Propos d Hbrid Pan D sign: See table that fllows .Proposed Hybrid Dened Benet (DB)/Dened ontribution (D) Pan

ontribution RatesFirst 25 ears of Service Aer 25 es of Service

Saary U To Say Over Saary U To Saary OverCass A5 AC Cass A5 AC Cass A5 AC Cass A5 AC

Dened Benet DBEmoyee Acabe to A 6% Not Acabe Not Acabe Not Acabe

Emoyer Aicabe to A Actuariay Not Acabe Not Acabe Not AicabeDetermined

Dened ontribution (DCEmo Acab to A % 7% 7% 7%Emo r Aicab to:

Majori of Emo s 05% 4% 4% 4%Emoyees Not Covered by 6.5% 0% 0% 0%Socia S curi


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Projections atached to this note e based on an assumption that the targetinvestment res e eed in all tre years; therere r purposes of this costnote this provision would not impact tre SERS costs.

1 1 Hbrid DC V sting: Immediate vesting r employee contributions and reatedeangs/osses; 3-year ci r employer contributions and related egs/losses.

12 Hbrid DC Disabii and Death Benets Vested account balances woud generalybe avaiabe

Proposed hanes to urrent SERS Fundin Provisions

As noted previousy most existing nding provisions would continue to apply; however theTobash proposal does cude new legislation-related nding provisions (described in Item below) that deviate om current SERC nding Aso the Tobash proposa woud nd thended accred liability (U) over tota (DB + DC) payro (as described in Item 2 below)and coud possibly lower existing empoyer contribution rate collars described in Item 3below)

1 unding of Liabiities Arising om L gislation: With respect to changes in SERS'U that woud arise om this egisation:

a. the change in iability would be nded using a 20-year eveldolarorization and


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b. or subsequen scal years he rae would increase by 0 5% each year (i e o 2.75%, 3.25%, ec) unil as under curen law he acuariay deerminedconribuion rae is below he coared conribuion rae Noe Changes inhe U ha woud arise om egisaed changes o he curren coarswoud be handed as acuaria gains/osses each of he scal yearsimpaced including levedollar ortizaion over 30 years

Hybrid DB Plan - mployer Norma ost and U

Hbrid DB Plan Emplo r Norma CosBased on he empoyer normal cos calculaion mandaed by he SERC Hay Group hasdeermined ha he ne empoyer noa cos r he hybrid DB ier expeced o oin SERS in20 5 (a Class A5 new enrans oher han Sae Police) would be approximaey 0.9 percen

of payro below he ACL.

This hybrid DB norma cos is signicany ower han he curren norma cos of 50 percenof payroll primariy due o he owing key dierences in he proposed hybrid DB designversus he curren SERS design:

The hybrid DB design woud limi pensionable compensaion o he ACL ($50,000

indexed) and credied serice o 25 years (r bene accra and member conribuionpurposes) whereas no such lis curreny apply. shoud be noed ha hese imisresul in a ne decrease in employer coss resuling om ower ure bene accraswhich reduce employer coss and lower ure member conribuions o he hybrid DB


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I is our expecaion ha, over ime, he rae of increase in he average saly (up o he ACL)r he anual new enr cohor would be abou 3 .05 percen per year, consisen wih aualsalary schedule increases assumed in our valuaions Because he ACL would be scheduled oincrease by 1 percen per ye, over ime, he acuarial presen value of ure eefs r henew enran cohor would no icrease as rapidly as he acuial presen value of ure

ompesio r he new enran cohor. Thus, spreading he normal cos over a relaivelylger payroll base would ranslae ino a gradual decline in he hybrid DB oal normal cos raeas a percenage of covered payroll

In order o properly allocae e employer nding of he SERS DB sysem beeen heemployer normal cos and he UAL, we have projeced ure normal cos levels o esimae heimpac of his gradual chge. Based upon our hybrid plan ding projecions, he employernormal cos rae (shown in he "Floor Conribuion colun of he aached projecions) sarsa abou 0.9 percen of payroll in scal 201 4/201 5 d decreases by abou 0.01 57 5 percen ofpayroll per year o reach a level of abou 0 32 percen of payroll in scal 205 1 /2052, he end ofour projecion period

Hbrid DB Pl UALIf he Tobash proposal would become law, eecive in scal 20 1 4/201 5, he SERS employer

normal cos rae would decrease om he curren 501 percen of payroll based upon Class A3new enrans o abou 09 percen of payroll based on Class A5 new enrs A he same ime,approximaely $24 billion in liabiliies ha were previously scheduled o be funded via ureemployer normal cos paymens would be added o SERS UAL hereby icreasing he amoun


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For puoses of hese projectionswhch include hree sepae, disnc, and muuallyexclusive ure payroll sreams to which employer nding raes will be appledwe havesegmented the aggregae expected tre SERS payroll no ree projected sub-payrolls:

L gac DB Paroll: Ths s the projected ure payroll aribuable to current SERSmembers and members who jon SERS prior to he hybrd plan sar date. Future

employer cost rates to be spread over (applied to) this ure payroll stream would be:

o Hybrid DB employer normal cos, ando U amorization. Hbrd DB/DC Paroll: This is the projected ure payroll atrbuable o Class A5

members, wh he ACL and 25year serce limit applied Futre employer cos rates obe spread over (appled to) this ure payroll sream would be:

o Hybrid DB employer normal cos,o UAL amorzation, ando Hybrd DC employer conribuions on DB/DC payroll (based on the "belowlimt raes of 0 5% of pay r the majoriy of employees and 6 5% of pay remployees no covered by Socal Secury).

Hbrid DC-Onl Paroll: Ths is he projeced ure payroll atrbutable to Class A-5paricipans recognzng (i) only pay in excess of he ACL during the rst 25 years ofcredited serice and (ii) all pay aer 25 years of credited service Future employer cost

t t b d ( li d ) th ll ld b


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Schedules ttached to This ost Note

We have atached to ths note the results of our ndng proections as llows:

Tobash #1 Hybrid DB/D Plan Design - No hange in Rate oars Hbrid Planor os20 ew nants Cn SS Bene rovisions e0 5 irsonng Cn SS n ovsons xep as Sae s 2 oag 5 No Chang to Curent Emplo r Contributon ate Collars: This tabe presentsour proection of tre SERS nding through scal year 205 1 /2052 and reects theimpact of (i) the proposed change to a hybrid plan design (as outlined in pages 1 4) rnew entrants on or aer January 1 20 1 5 and (ii) revisions though imted to currentSERS nding provisions (as described in Items and 2 on page 5)

Tobash #2 - Hybrid DB/D Pan Design ncluding Lower Rate ollars: HbrdPan For Post20 4 ew Entrants Cuent SS Bnt Povsons r Pre0 5Hres otnn rn S n ons Eep as Sa n es n 2on pag 5 Chg to Current Emo r Contribution ate Colars, as Stated in Item 3on pag 5 This table presents our proection of tre SERS nding through scalyear 205 12052 and reects the changes described in the "Tobash # description aongwith lower employer contrbution rate coars (as stated in Item 3 on page 5)

Baseline Projection This table presents r purposes of comparison the resuts of ourDecember 3 1 20 2 actuara valuation and our projection of ture nding toughsca year 205 1 /2052 assuming no changes to any of the current SERS benet

i i d th d i

7/21/2019 PERC Actuarial Note Ma

PERC Actuarial Note May 2014

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