Pension Sustainability: A Defined Benefit for Current and Future Generations

Transcription

1 Pension Sustainability: A Defined Benefit for Current and Future Generations James Maxon, Chair, County Member Dr. Jackie Kohlasch, Vice- Chair, State Member Cathy Townes State Member Claudia Armijo State Member Natalie Cordova State Member Patricia Patty French Municipal Member Daniel Esquibel Municipal Member John Melia Municipal Member Daniel Mayfield Retiree Member Loretta Naranjo Lopez Retiree Member Maggie Toulouse Oliver Ex-Officio Member NM Secretary of State Tim Eichenberg Ex-Officio Member NM State Treasurer

2 Welcome The PERA Board recognized in January of 2017 that despite the positive impact of pension reform in 2013, PERA is facing strong headwinds to stay within its goal of paying off our unfunded liability by Over a period of a year and a half, the Board spent significant time and effort looking at how to address those headwinds through improved governance, investment strategies and benefit analysis. Recently adopted economic and demographic assumptions provide a more realistic basis from which to assess the soundness and sustainability of the PERA benefit. In 2018 Moody s downgraded NM and the City of Albuquerque s bond rating citing large pension liabilities as one of the factors. Investments alone will not make up for the shortfall. The Board is continuing to review possible benefit and contribution models and approved a solvency Resolution at its August meeting setting direction for PERA to provide recommendations for the 2019 legislative session. Slide 2

3 PERA in the News Slide 3

4 PERA Who We Serve Active Membership Retiree Membership Municipal General 21,511 Municipal General 13,515 State General 19,114 PE Plan 48,610 State Police & Correctional Officers 1,928 State General 18,770 PE Plan 39,374 State Police & Correctional Officers 1,553 Municipal Police 3,748 Municipal Fire 2,309 Municipal Police 3,748 Municipal Fire 1,938 Data as of 6/30/2018 Slide 4

5 Today s View Fund Value $15.6 Billion Funded Ratio 71.6% (PE Fund) Projected 77.1% in 2043 Funded Period Infinite (PE Fund) Unfunded Actuarial Accrued Liability $6.0 Billion Slide 5

6 2013 Pension Reform Impact Current vs. Pre-2013 Pension Reform 100.0% 90.0% 80.0% 70.0% 71.6% 71.8% 73.3% 77.1% 60.0% 63.3% 58.5% 50.0% 46.0% 40.0% 30.0% 29.0% 20.0% 10.0% 0.0% Current Assumptions PreSB27-FY2012 Slide 6

7 Where Are We? Unfunded Benefit Enhancements and Changing Markets 120% 100% 80% 60% 40% 20% 82% 90% 88% 91% PUBLIC EMPLOYEES PLAN 106% 105% 103% 99% 97% 93% 93% 92% 93% 93% Dot.com Bubble Unfunded Benefit Enhancements Grandfathering Past Service Great Recession 79% 79% 71% 65% 73% 76% 75% 75% 75% Pension Reform SB27 0% Slide 7

8 Understanding Our Liabilities ($20.2 billion) $6,224 31% $417 2% $13,554 67% Retirees Inactives Actives Data as of 6/30/2017 Slide 8

9 Deconstructing Retiree Liability by Age Retiree Liability Age 65 + Age < 65 Total $8,182,999,017 60% $5,370,823,271, 40% Members 22,594 15,417 38,011 Average Age Benefit Payments $ 514,235,279 $ 577,918,739 $ 1,092,154,018 Age 65+ Age <65 Data as of 6/30/2017 Slide 9

10 Baseline ALM Impact on Cash Flow Slide 10

11 Historical PERA COLA Payments vs. CPI Year CPI - U Annual Benefit - $27,655* PERA COLA Annual Benefit - $27,655* % $ 28, % $ 28, % $ 28, % $ 29, % $ 29, % $ 30, % $ 30, % $ 31, % $ 31, % $ 32, % $ 31, % $ 33, % $ 32, % $ 34, % $ 33, % $ 35, % $ 34, % $ 36, % $ 35, % $ 37, % $ 36, % $ 38, % $ 37, % $ 39, % $ 38, % $ 40, % $ 38, % $ 41, % $ 39, % $ 43, % $ 40, % $ 44, % $ 41, % $ 45, % $ 42, % $ 46, % $ 42, % $ 47, % $ 42, % $ 48, % $ 43, % $ 48, % $ 44, % $ 49, From the PERA COLA outpace CPI-U by 32.10% on average * 27,655 based on average State Member benefit in 2017 Slide 11

12 Contributions by Plan Division 30 Yr. UAAL Contribution Rate Statutory Rate Contribution Deficiency Amortization Period Funded Ratio State General 26.98% 16.99% 11.71% Infinite 63.1% State Police/Corrections (2.43%) 25.58% (28.01%) % Municipal General 10.55% 9.73% 1.56% % Municipal Police 23.95% 18.66% 6.41% Infinite 74.8% Municipal Fire 36.92% 21.57% 15.73% Infinite 60.2% PERA Total 19.57% 14.86% 5.73% Infinite 71.6% 8.50% additional contribution required beginning 7/1/2019 to expect 100% funded at 2043 assuming 33 rd percentile returns (6.60%) Slide 12

13 Investment Returns The PERA Fund balance was $15.4 billion on June 30, 2018 During FY 2018, the Fund returned 6.90% (net of fees) PERA Fund paid out benefits of $1.15 billion during FY 2018 As of 6/30/ Year (FY18) 5 Year 10 Year 20 Year 30 Year Since Inception 6/30/1985 PERA Total Fund Returns (Net of Fees)* Policy Benchmark* 6.90% 7.31% 5.55% 6.39% 8.58% 9.00% 5.27% 7.33% % 8.54% 8.90% Value Add** 1.63% -0.03% -0.51% -0.07% 0.04% 0.10% *Annualized returns **May not sum due to rounding Slide 13

14 Investment Returns: Can we catch-up? 75% Funded Ratio 10 Years 20 Years Approximate Required Return to Catch Up to 100% Funding Probability of Achieving Catch Up Return 2043 (25 Years) 10.9% 9.2% 8.8% Current Portfolio 11.0% 14.8% 15.4% 2018 Year End Portfolio 11.2% 15.3% 15.8% 2019 Year End Portfolio 14.4% 22.0% 24.7% 2020 Year End Portfolio 18.6% 27.6% 30.1% Source: Wilshire Associates Slide 14

15 Investment Risk: Why not take more risk? Source: Bridgewater Note: back-dated stress testing on increased portfolio risk level (15.9%) Slide 15

16 Understanding the Impact of Market Volatility 0% Return in FY % 90.0% 80.0% 70.0% 71.6% 71.8% 73.0% 77.1% 60.0% 65.7% 62.9% 60.8% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Current Assumptions Current Assumption & 0% for 2019 Slide 16

17 What We Are Trying to Avoid Slide 17

18 PERA Board of Trustees James Maxon, Board Chair; County Member Jackie Kohlasch, Vice-Chair, State Member Cathy Townes, State Member Claudia Armijo, State Member Natalie Cordova, State Member Patricia French, Municipal Member Daniel Esquibel, Municipal Member John Melia, Municipal Member Loretta Naranjo Lopez, Retiree Member Daniel Mayfield, Retiree Member Maggie Toulouse Oliver, Ex-Officio Secretary of State Tim Eichenberg, Ex-Officio, State Treasurer Slide 18