PERS: Today and Tomorrow

Transcription

1 PERS: Today and Tomorrow A Presentation to Oregon State University Retirement Association Paul R. Cleary, Executive Director March 4,

2 Pre-PERS Reform Headlines Soaring price of PERS bludgeons public agencies Oregonian, 2002 New PERS costs rock public sector Oregonian, 2002 PERS rate hike outrageous Oregon Public Broadcasting, 2002 PERS rates to skyrocket in 2003 Statesman Journal, 2002 PERS shortfall empties piggy bank for services Statesman Journal,

3 Recent PERS Headlines State s pension reforms have been successful workers get fair treatment, Oregon gets needed services Statesman Journal, 2006 The time has come to move beyond PERS Oregon Business Plan, 2006 This state s PERS turned its funding crisis around with bold reforms and innovative investments PLANSPONSOR, 2007 Time and markets heal PERS four years after meltdown, Oregon s pension program is among healthiest in U.S. Statesman Journal, 2007 Oregon currently has the best funded pension system in the country Pew Charitable Trusts, 2007 State system, close to collapse in 2003, now a national success Bend Bulletin,

4 Unfunded Actuarial Liability (UAL) (as of December 31, 2006) Prior to reform, the Board s actuary projected the system s UAL at approximately $17 billion, effective April 2003 As of December 31, 2006, there was no UAL in the Tier One/Tier Two program when counting employer side accounts (totaling $7.2 billion). The Tier One/Tier Two program had a surplus of $5.02 billion when including side accounts which hold pension obligation bond proceeds and other advance employer payments OPSRP had a surplus of $36 million as of December 31,

5 System Funded Status (as of December 31, 2006) In early 2003, the system s funded level was calculated by the Board s actuary at about 65 percent As of December 31, 2006, the system s funded level was 110 percent when counting side accounts. Excluding side accounts, the system s funding level was 96 percent. These funding levels compare to a national average funding level of 86 percent for all public pension systems The net asset value of the PERS fund increased from a market downturn low of about $31 billion in September 2002 to a high of about $67 billion in October 2007 The OPSRP funded status was 131 percent as of December 31,

6 Net Plan Assets (Fiscal Year Ending June 30) $M 2007: 65, : 55, : 49, : 45,359* 2003: 37, : 34, : 37, : 41, : 34, : 32, : 28, : 23, : 19,503 $M 70,000 60,000 50,000 40,000 30,000 20,000 10, *2004 and beyond includes OPSRP and IAP 6

7 Average Employer Contribution Rates Systemwide average employer contribution rates for Tier One/Tier Two as a percent of covered salary as of valuation date (includes side account rate offsets in 2003 and 2005) Rates are set every two years based on odd-year system valuations. The most recent valuation (December 31, 2006) shows that if rates were set using that valuation, they would continue their downward trend PERCENT OF PAYROLL 16% 15% 14% 13% 12% 11% 10% 9% 8% EMPLOYER CONTRIBUTION RATE AVERAGE RATE = 10.69% VALUATION DATE 7

8 2007 Preliminary Earnings Crediting ($ millions) Regular Account Reserve Reserves Before Crediting 2007 Preliminary Crediting Reserves After Crediting 2007 Preliminary Rates Contingency Reserve N/A Tier One Member Regular Accts 6, , % Tier One Rate Guarantee Reserve 1, ,889.4 N/A Benefits In Force Reserve 22, , , % Tier Two Member Regular Accts % Employer Reserves 15, , , % OPSRP Pension % UAL Lump-Sum Payment Side Accts* 7, ,926.1 Various IAP Accounts* 1, , % TOTAL $57,048.8 $5,770.5 $62,819.3 * Information only; not affected by Board reserving or crediting decisions. Note: The Variable Account earnings crediting rate for 2007 is currently estimated at 1.75 percent. 8

9 Returns for periods ending 1/31/08 Oregon Public Employees Retirement Fund Regular Account Historical Performance Year OPERF Policy Target $ Thousands Actual To-Date YEAR YEARS YEARS YEARS YEARS Domestic Equity 14-24% 19% 13,459, % (6.44) (3.26) Non-US Equity 14-24% 19% 11,921, % (9.20) Global Equity 5-11% 8% 4,409, % (8.87) Private Equity 12-20% 16% 8,908, % N/A Total Equity 60-70% 62% 38,698, % Opportunity Portfolio 477, % (0.19) 2.81 Total Fixed 22-32% 27% 16,616, % Real Estate 8-14% 11% 4,856, % (0.48) Cash 0-3% 0% % TOTAL OPERF Regular Account 100% 60,655, % (3.84) OPERF Policy Benchmark (3.72) Value Added (0.12) (0.62) (0.66) TOTAL OPERF Variable Account $1,505,550 (5.62) (6.10) Asset Class Benchmarks: Russell 3000 Index (6.06) (3.08) MSCI ACWI Free Ex US (9.68) Russell 3000 Index bps--quarter Lagged N/A LB Universal--Custom FI Benchmark NCREIF Property Index--Quarter Lagged N/A Day T-Bill ,000 TOTAL OPERF NAV (includes variable fund assets) One year ending January 2008 ($ in Millions) 66,836 65,000 63,628 64,583 64,285 63,535 63,316 65,587 64,968 64,870 60,942 62,073 62,161 60,000 55,000 50,000 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 9

10 Kantor and Strunk/Eugene Rulings Multnomah County Circuit Court Judge Kantor ruled June 20, 2007 in the Arken/Robinson cases and held a status conference for all parties August 16, 2007 Judge Kantor clarified the scope of his June 20, 2007 ruling on calculating benefits based on percent versus 20 percent earnings in The Judge recognized that correcting benefits to be based on percent crediting was not covered by his June order. Judge Kantor indicated that he would further consider the issues and the scope of his ruling 10

11 PERS Actions Resulting from Kantor Ruling For benefit recipients receiving monthly payments If the benefit was adjusted prior to Judge Kantor s June 20, 2007 ruling and included a deduction calculated under the actuarial reduction method (ARM), that deduction will continue to be applied until we have further direction from the courts. If a one-time payment was made to PERS in lieu of the ARM, the payment will not be returned at this time If a benefit has not yet been adjusted, PERS will adjust the benefit payments to the percent basis for 1999 earnings crediting and include all applicable cost-of-living adjustments (COLAs) but not invoice or ARM to collect overpayments until we receive more direction from the courts For all other benefit recipients If a benefit was adjusted prior to Judge Kantor s June 20, 2007 ruling and an invoice was paid in a single payment, the payment will not be returned while we await further direction from the courts If no invoice has been sent for an overpayment, PERS will not issue further invoices until we receive more direction from the courts 11

12 Accounts Affected by Strunk/Eugene and Settlement Agreement Category Accounts Member and alternate payee retirements after March 1, ,000 Account withdrawals (member and alternate payee) 5,000 Final lump-sum installment for retirements before April 1, ,000 Pre-retirement death benefits 1,400 Non-retired alternate payee/member divisions 3,000 Reemployed retirees 140 TOTAL ACCOUNTS 44,540 12

13 Estimated Financial Impact of Eugene and Settlement Agreement (as of August 2005) Active/inactive members Future distributions yet to be paid $800 million Benefit recipients Future distributions yet to be paid $650 million Prior distributions already paid Lump-sum payments $62.5 million Annuity payments $87.5 million $150 million TOTAL REDUCTION IN LIABILITIES: $1.6 billion 13

14 Strunk/Eugene Progress (as of December 31, 2007) Benefit Type Adjustment Timeline # of Accounts Accounts Adjusted* Estimated benefits (convert to actual) Feb. 06 Sep. 06 4,500 4,414 Recipients with annuity payments Divorce Apr. 06 June 09 1, Non-COLA freeze benefits (benefit recipients not affected by July 1, 2003 COLA freeze) COLA freeze benefits (benefit recipients affected by July 1, 2003 COLA freeze) Sep. 06 Mar. 07 5,200 4,051 Apr. 07 June 09 19,000 15,942 Death benefits Jan. 07 June 09 1,100 0 Police & Fire units Apr. 07 June 09 1, Recipients with a lump-sum payment(s) Lump-sum benefits (pre-2000 retirements) Apr. 06 Dec Total lump-sum benefits Sep. 06 Mar. 07 3,240 2,008 Death benefits (post-retirement;passed away with a beneficiary) Apr. 07 June Withdrawals (withdrew PERS accounts) Apr. 07 Dec. 08 6,800 0 TOTALS 44,540 27,190 14

15 Other Litigation White (Multnomah County Circuit Court) Summary: Challenge to the terms on which PERS settled the City of Eugene litigation in April 2004 and allocated earnings and reserves for 2003 and 2004 Status: Pending scheduling of trial Henderson (U.S. Circuit Court) Summary: Action seeking contempt order against PERS Board for using blended mortality tables in alleged violation of 1978 court order Status: Case appealed to U.S. Ninth Circuit Court 15

16 Strunk Case Attorney Fees/Costs The Oregon Supreme Court held on March 8, 2005, that two aspects of the 2003 PERS Reform legislation impaired the PERS contract and declared them void: 1. Eliminating annual crediting at the assumed rate for Tier One member Regular Accounts PERS credited 0 (zero) percent to Tier One Regular Accounts in 2003 based on legislation passed that year. This has been corrected to 8 percent crediting under Strunk/Eugene implementation 2. Temporarily suspending cost-of-living adjustments (COLAs) to certain retired members Based on legislation, COLAs were temporarily suspended (effective August 1, 2003) for all Tier One members who retired under the Money Match calculation with effective retirement dates on or after April 1, 2000, and before April 1, This is being corrected under Strunk/Eugene implementation 16

17 Strunk Case Attorney Fees/Costs (continued) The Oregon Supreme Court awarded approximately $2.1 million in fees and costs to the plaintiff s attorneys in the Strunk case (fall 2007) This affects current Tier One members (approximately $1.4 million in fees and costs) and benefit recipients whose cost-of-living adjustments (COLAs) were frozen by 2003 legislation (approximately $0.76 million in fees and costs) 17

18 Effect on Current Tier One Members The PERS Board will credit 8 percent to Tier One regular accounts for A portion of that 8 percent will be used to pay the attorney fees/costs as directed by the Oregon Supreme Court At its February 15, 2008 meeting, the Board approved a preliminary 2007 earnings crediting rate net of attorney fees/costs of 7.97 percent 18

19 Effect on COLA Freeze Benefit Recipients For current benefit recipients whose COLAs were frozen by 2003 legislation, the fees/costs will be paid out of the restored COLA adjustments PERS will calculate the COLA amount each recipient would have received effective July 1, 2004 and allocate the fee award in proportion to the amount of the increase each person would have received. As such, retiree A, who would have received a $60 COLA pays twice the amount of retiree B whose COLA would have been $30 For affected monthly benefit recipients, the one-time deduction for attorney fees and costs in the Strunk case will come out of the July 2008 PERS benefit (payable August 1, 2008) 19

20 COLA Freeze Population 21,260 benefit recipients in the COLA freeze group Average monthly benefit effective July 1, 2004: $2, Average COLA amount effective July 1, 2004: $37.71 Average fee award (one-time deduction occurring August 1, 2008): $

21 2007 PERS Payments Amount Recipients Average Payment Total $2,741,600, ,275 $22,422 U.S. $2,735,669, ,955 $22,432 International (47 countries) $5,931, $18,536 Oregon $2,385,180, ,312 $23,087 Top five states other than Oregon (number of benefits paid): 1. Washington 6, California 2, Arizona 1, Idaho 1, Nevada 681 Top five foreign countries (number of benefits paid): 1. Canada United Kingdom Australia Mexico (tie) Japan, New Zealand, Philippines 13 each U.S. territories and the District of Columbia were excluded; data for those areas was insignificant 21

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