Presentation for:Committee on Appropriations

Subcommittee on Health and Welfare

By: Arizona State Retirement System(ASRS)

January 31, 2017Estimates may be utilized

Presented by:Paul Matson, Director

A.R.S. § 38-712 Conveys Primary Intent of ASRS

1. Provide incentive in recruitment and retention

2. Contribute toward competitive total compensation package

3. Provide employers with the benefits of a stable workforce

4. Promote a high level of public service

5. Provide a base retirement benefit

2

ASRS Provided Programs

1. Defined Benefit Pension Plan

2. Health Insurance Program & Supplement

3. Hybrid Retirement Plan “System”

4. Long Term Disability Program

5. Supplemental Savings Plans

3

4

(June 30, 2016)

* Includes beneficiaries and alternate payees.

ASRS Statistics

Total membership approximately 573,900 Active Members 208,800 Inactive Members 218,900 Retired Members and Survivor Beneficiaries

142,200 Long Term Disability Members 4,000

Annual distributions: $3.2 billion Annual contributions: $2.1 billion Average annual retirement benefit: $19,848* Average years of service of retiree: 19.4 years Average age of retiree: 70.7 years Employees pay 50% of all costs

ASRS Vision

For the benefit of our members, the Arizona State Retirement System will be a leading state benefit plan administrator in the areas of:

Core Member Services Investment Performance Funded Status Operational Effectiveness

This will be accomplished while keeping program benefits and associated costs relatively aligned and maintaining actuarial and fiscal integrity.

5

Funded Status

Actuarial Value of Assets

Market Value of Assets

Pension 77.0% 73.8%

HBS* 95.0% 91.3%

LTD 70.1% 64.7%

Total** 77.6%** 74.4%**

6

(June 30, 2016)

*Arizona may have the highest funded status of U.S. state government health insurance programs.

**Pension and HBS only.

Funded Status Summary

Key Reasons for Changes in Funded Status

Low investment returns during FYs 2001-03 and FYs 2008-09

Change from EAN to PUC (1989) Low contribution rates during 1990s+

Benefit improvements prior to 2002

Certain expensive and ineffective plan design features (most remedied)

Improving life expectancies of retirees

7

Key Remedial Plan Design Changes Implemented

Service Purchase Inequities: Remedies 2004, 2012 Refund Accruals: Remedies 2004 Early Retirement Incentives: Remedies 2004 Miscellaneous: Remedies 2004+ Modified Deferred

Retirement Option: Remedies 2006 Increasing Longevity: Remedies 2006, 2010 Salary Spiking: Remedies 2009, 2010 Refund Amounts: Remedies 2010, 2012 Return to Work Contributions: Remedies 2011 Elimination of PBI: Remedies 2013 Elimination of Service

Purchased Through Lump Sum: Remedies 2013

8

Contribution Rate Summary

Defined Benefit

(DB) PlanHI

DB & HealthInsurance

Supplement

LTD Program Total

Fiscal Year 2016-17(Effective July 1, 2016)

Employee 11.34% 0.00% 11.34% 0.14% 11.48%

Employer 10.78% 0.56% 11.34% 0.14% 11.48%

Fiscal Year 2017-18(Effective July 1, 2017)

Employee 11.34% 0.00% 11.34% 0.16% 11.50%

Employer 10.9% 0.44% 11.34% 0.16% 11.50%

9

10

Annualized Rates of Return

ASRS Total Fund 1 Year 3 Year 5 Year 10 Year Inception*(7/1/1975)

Net of Investment Fees 0.6% 7.1% 7.1% 6.0% 9.6%

Gross of Investment Fees 0.9% 7.7% 7.7% 6.4% 9.8%

Investment ReturnsJune 30, 2016

*ITD gross and net returns are the same for 1975 – 1993, as only net returns were recorded

11

Annualized Rates of Return

ASRS Total Fund 1 Year 3 Year 5 Year 10 Year Inception*(7/1/1975)

Net of Investment Fees 9.0% 6.4% 10.1% 5.9% 9.7%

Gross of Investment Fees 9.3% 6.9% 10.7% 6.3% 9.9%

Investment ReturnsSeptember 30, 2016

*ITD gross and net returns are the same for 1975 – 1993, as only net returns were recorded

12

13

ASRS Objective: Lowest quartile cost. Currently below medians and averages and driving costs lower.

14

ASRS Objective: Highest quartile service. Currently 2nd highest performer in peer group of 15 and driving service levels higher.