TCDRS Retirement Briefing. March 7, 2012

Transcription

1 TCDRS Retirement Briefing March 7, 2012

2 Who We Are TCDRS was created in 1967 by the Texas Legislature. We are overseen by a nine-member board of trustees appointed by the governor and confirmed by the senate. Today, we are a financially strong,$17.1 billion trust with more than 620 participating county and district employers. Each employer maintains its own customized plan of retirement benefits. Each plan is funded independently by the employers and employees. We do not receive state funding. We help more than 225,000 Texans plan for their futures by partnering with employers to provide retirement, disability and survivor benefits. 2

3 Who We Serve Over 620 participating employers use TCDRS benefits to attract and retain qualified employees. - Range in size from 1 to over 17,000 members - Benefit from professional, low-cost investment management and administration Costs are approximately 25 to 30 basis points Our members provide valuable services, such as health care, utilities and public safety. They include nurses, mechanics, road crew workers, sheriffs, attorneys, office workers, jailers, judges and more. 3

4 Benefits Stay in Texas In 2011, TCDRS paid an estimated $798 million in benefits to retirees and former members, and 96% of that stayed in Texas. 4

5 How the Plan Works TCDRS is a savings-based plan that provides a lifetime benefit at retirement. If Joe leaves employment and is either not eligible or chooses not to retire, he can: Withdraw his money and forfeit matching. Roll over the account to another qualified plan and forfeit matching. Keep his money in TCDRS and continue to earn interest until he becomes eligible to retire or account terminates. 5

6 Service Time and Retirement Eligibility *Must be vested Employees earn one month of service for every month a deposit is received. Military, proportionate and other TCDRS service also counts toward retirement eligibility. Service time does not increase benefits. 6

7 The Benefits System-wide average retiree profile Average Age at Retirement Average County or District Service at Retirement Average Annual Benefit $17,580 All averages reflect plan provisions in effect at the time of each retirement. The averages are based on data as of Dec. 31, Includes cost-of-living adjustments adopted by the counties and districts. 7

8 The Benefits 17 Years of Service Average System Retiree 100% 100% Final Salary 80% 80% 60% 60% 40% 40% 20% 20% 0% 10 Years 15 Years 20 Years 25 Years Employer Portion Fi l S l Employee Portion Percentage of final salary replaced by a TCDRS benefit at age 65 for a new hire, based on an employee deposit rate of 7%, a 200% employer matching rate and annual salary increases using the graded valuation salary scale. 0% 8

9 Other Benefits Survivor Benefit: If a member has four or more years of service, the beneficiary has the option of receiving a lifetime monthly benefit if the member passes away before retirement. This benefit includes employer matching. Disability: Allows a vested member to retire early with a lifetime monthly benefit based on the account balance and employer matching. The member must be permanently disabled and unable to work at any gainful occupation. Non-vested members may be eligible if disability is due to a job-related injury. Group Term Life: Under this program an employer can elect to provide a one-time payment of a member s yearly salary to beneficiaries if the member passes away while still employed. Coverage that provides a $5,000 life insurance benefit to retirees is also available. 9

10 How Benefits Are Funded TCDRS benefits are primarily funded by investment earnings. 77% Investment Earnings 10% Employee Deposits 13% Employer Contributions Estimated as of Dec. 31,

11 Disciplined Savings Grow Over Time 20,000 18,000 16,000 14,000 In millions 12,000 10,000 8,000 6,000 4,000 Cumulative Investment Return * $13,524 M 2,000 0 Cumulative Contributions (net) * $4,087 M * estimated 11

12 Investment Returns Estimated as of Dec. 31, 2011 and net of fees Annualized Returns 2011 Return 10 Year 20 Year 30 Year Total Fund -1.1% 6.2% 7.2% 9.9% 12

13 Asset Allocation Broad diversity in our investment portfolio reduces our total exposure to losses from any single asset class or investment. Our portfolio is constructed to achieve our long-term investment return goal. By meeting our goal, we help employers provide meaningful, secure benefits to their employees and retirees at reasonable, predictable costs. Effective as of 01/01/

14 Funding: Employer Contributions Weighted average required employer contribution rate for 2012 is 10.48%of payroll. 100% of employer plans pay the required contribution rate. There are no contribution holidays. By paying the required rate the funding ratio will move to 100%. Unfunded liabilities paid over a 20-year closed amortization period Plan changes funded over 15 years Accumulation and use of reserves, in addition to the investment policy and asset smoothing, help weather market volatility. Employers can choose to pay more than the required rate to buffer against future volatility, to help with budget stability and to prefund future benefit increases. 14

15 Contribution Rate Averages 12% 10% 8% 9.17% 9.34% 9.08% 9.43% 9.73% 9.54% 9.87% 9.06% 9.25% 8.95% 8.93% 9.50% 9.17% 9.28% 10.55% 10.96% 10.60% 10.20% 9.90% 10.48% 6% 4% 2% 0% Plan Year Minimum Required Contribution Total Contributions Rates are averages weighted by annual payroll and 2012 rates are estimated. 15

16 Annual Decision Process Increase or decrease benefits based on needs, budget Matching rate Employee deposit rate Review eligibility provisions Cost-of-Living Adjustments (COLAs) Flat-rate or CPI-based COLAs available Not automatic: Each year employer has option of adopting a COLA Not pre-funded, but paid for over 15 years through employer s minimum contribution rate. Employers may pre-fund COLAs through lump-sum contributions. Consider additional funding 16

17 Local Control of Benefits and Costs Employers can adjust benefits (employee deposit rate and employer matching rates) annually to meet their needs and budgets. 17

18 Local Control of Benefits and Costs Employers can adjust benefits (employee deposit rate and employer matching rates) annually to meet their needs and budgets. 18

19 Employer Plan Provisions Employee Deposit Rate Employer Match 4% 5% 6% 7% Totals 100% - 120% % - 145% % - 170% % - 195% % - 220% % - 245% % Totals Plan provisions as of Jan. 1, 2012; counts include participating employers as of Dec. 31,

20 Retirement Eligibility and Vesting Age 60 with Vesting of: 10 Years * 192* 8 Years Years Rule of Rule of Years at Any Age Years at Any Age * Includes 3 fixed-rate plans with 12-year vesting. 20

21 System-wide Funded Ratio History TCDRS is one of the top 20% best-funded public retirement systems nationally. 100% 88.7% 90.5% 91.0% 91.4% 94.3% 94.3% 88.6% 89.8% 89.4% 88.1% 80% 60% 40% 20% 0% Plan Year * Estimated * 21

22 Projection of System Assets and Liabilities $100 $80 Billions $60 $40 $20 Actuarial Accrued Liability $ The difference between the actuarial accrued liability and the actuarial value of assets represents the unfunded actuarial accrued liability (the red area). Year Actuarial Value of Assets This is a projection and actual results will vary. This projection is based on the same data, methods and assumptions as those used in the Dec. 31, 2010 actuarial valuation, including a long-term investment return assumption of 8% per year. 22

23 Funded Ratios as of Dec. 31, 2010 Plan Count Percentage Funded Ratio Greater Than or Equal to 100% Funded Ratio Greater Than or Equal to 80%, But Less Than 100% % % Funded Ratio Less Than 80%* 86 14% Total % * In general, these are new plans that need a few years to build up plan assets. All plans are moving to a 100% funding ratio. 23

24 Key Strengths of the TCDRS Plan Savings Based Plan Employees put their own money into the plan Benefits are portable: If employee leaves, can roll over money into another qualified plan or keep account open and continue to earn 7% interest Benefits are earned over the employee s career (eliminates benefit spiking) Advance funding puts the power of investment earnings to work Responsible Funding Funding policy is one of the most conservative All employers fund benefits over employees careers by paying required rate Liabilities are fully funded over a closed 20-year period 24

25 Key Strengths of the TCDRS Plan Local Control Employers choose benefits and can adjust annually Employers have control over costs Plans like TCDRS can provide the same benefit as a 401(k)-type plan for nearly half the cost. Professional investment management Forever young Advantage of pooled demographic risk 25

26 Questions?