Arizona State Retirement System. National Institute of Governmental Purchasing Arizona State Capitol Chapter

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1 Arizona State National Institute of Governmental Purchasing Arizona State Capitol Chapter May 14,

2 Discussion Topics ASRS Financial Health 2013 ASRS Legislative Initiatives DC and Retirement Study Committee 1

3 ASRS Investment Returns (as of June 30, 2012) 1 Year 3 Year 5 Year 10 Year Inception Market Returns 1.3% 13.2% 1.8% 6.3% 9.8% July, 2012 Dec. 31, % July, 2012 Jan. 7, % July, 2012 May 10, % 2

4 40% 30% 20% 10% 8% 0% -10% -20% ASRS Investment Returns

5 ASRS Investment Asset Allocation Investment Category Policy Target Policy Range U.S. Fixed Income 26% 16-36% Core 24% High Yield 2% U.S. Equity 40% 30-50% Large Cap 28% Mid Cap 6% Small Cap 6% International Equity 18% 8-28% Developed Large Cap 13% Developed Small Cap 2% Emerging Markets 3% Private Equity 7% 5-9% Real Estate 6% 4-8% Inflation Linked Assets 3% 0-10% Commodities 3% 0-5% TIPS 0% 0-5% Risk Parity 0% 0-5% Absolute Return 0% 0-5% Opportunistic 0% 0-10% GTAA* (Included in allocation above) 10% 8-12% Green: Denotes asset classes typically absent from DC investment options. 4

6 Distribution of ASRS Pensions as of June 30, 2012 Average Years of Service $200,000 and over 4 = 0.004% 37.3 $175,000 - $200,000 7 = 0.006% $150,000 - $175, = 0.01% $125,000 - $150,000 $100,000 - $125,000 46= 0.04% 156 = 0.14% Average Pension $19, $75,000 - $100, = 0.56% $50,000 - $75,000 $25,000 - $50,000 5,134= 4.49% 29,162 = 25.48% $0 -$25,000 79,269 = 69.30% 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 5

7 Defined Benefit Plan ASRS Defined Benefit Plan Fiscal Year End June 30 Market Return Market Value of Assets (in millions) Excess Actuarial Return Actuarial Funded Status Contribution Rate* Actual Normal Cost EE & ER Contributions (in millions) Benefit Payments (in millions) # of New Retirees by Year Avg. Monthly Benefit** % $13, % 113.2% 3.36% 5.44% $299.7 $ ,845 $ % $16, % 117.1% 3.20% 5.20% $309.4 $ ,578 $ % $19, % 120.7% 3.05% 5.21% $321.3 $ ,353 $ % $21, % 116.6% 2.85% 5.24% $348.0 $ ,380 $1, % $23, % 120.4% 2.17% 5.24% $283.8 $ ,822 $1, (6.7%) $21,872.9 (14.7%) 115.1% 2.17% 5.48% $367.2 $ ,224 $1, (8.2%) $18,594.9 (16.2 %) 106.4% 2.00% 5.36% $321.8 $1, ,954 $1, % $18,116.8 (5.6%) 98.4% 2.00% 5.88% $375.5 $1, ,955 $1, % $20, % 92.5% 5.20% 5.95% $866.0 $1, ,430 $1, % $21, % 86.1% 5.20% 6.52% $946.7 $1, ,005 $1, % $23, % 84.3% 6.90% 6.51% $1,265.2 $1, ,143 $1, % $27, % 83.2% 8.60% 6.58% $1,631.2 $1, ,393 $1, (7.5%) $25,296.1 (15.6%) 82.8% 9.10% 6.71% $1,805.7 $1, ,784 $1, (18.1%) $20,403.5 (26.1%) 79.3% 8.95% 6.46% $1,667.0 $2, ,615 $1, % $23, % 76.7% 9.00% 6.49% $1,702.0 $2, ,845 $1, % $28, % 75.8% 9.60% 6.45% $1,735.2 $2, ,730 $1, % $27,604.5 (6.7%) 75.8% 10.50% 6.76% $1,863.9 $2, ,227 $1, /2%*** $31,045*** 10.90% 6.82% * The actual contribution rate is what each active member contributes during a fiscal year. The normal cost rate is what the contribution rate would be if there was no surplus or deficit to amortize. ** Over the 16-year period, average monthly benefits have increased 77% and the number of members retiring each year has increased by 240% *** As of May 10,

8 ASRS Contribution Rates Pension LTD ACR % 0.24% 8.64% % 0.24% 9.20% 7

9 2013 Legislative Initiatives Administration Federal Conforming Changes increases the annual limit of retirement benefits; non-portability of normal retirement benefits; termination or partial termination of fund would cause full vesting Amortization Period Member Identity Security identifies what data the ASRS will release and what data won t be released Health Insurance ASRS Self-insurance adding language to allow the ASRS to self-insure Long Term Disability Plan 36-month calculation for average monthly salary 60% benefit level Plan Design Eliminate PBI for new member Survivor Benefits Non-retired survivor benefit redesign simplify the non-retired survivor benefit calculation by eliminating the PV option and allowing a straight life annuity only 8

10 Defined Contribution and Retirement Study Committee The Legislature established this Committee in the 2011 session to address the concerns expressed globally about DB plans The Committee is comprised of: Investment Committee of the Treasurer s Office 3 Senators 3 Representatives ASRS & PSPRS Representatives Reports: Interim 12/31/2011; Final 12/31/12 Appropriations $50,000 each from ASRS and PSPRS 9

11 Defined Contribution and Retirement Study Committee The Committee shall study: Feasibility and cost of transferring existing members of a public retirement system or plan to a new defined contribution plan Recommendations to the Legislature: Any proposed changes should only apply to future employees or as a choice to existing employees For non-public safety employees, retirement ages for new employees should match that of Social Security Contributions should never be less than what is required to move the plans to fully funded status 10

12 Defined Contribution and Retirement Study Committee The Committee shall study: All existing supplemental retirement plans of PSPRS and ASRS and the feasibility of merging these supplemental plans Recommendations to the Legislature: There doesn t appear to be any cost savings to either members or employers by consolidating these plans at the state level Employers participating in all four retirement systems should be encouraged to use the deferred compensation plans offered by the systems rather than contracting with their own providers 11

13 Defined Contribution and Retirement Study Committee The Committee shall study: The definition of compensation and each plan s spiking capability Recommendations to the Legislature: Limit pensionable compensation to base salary excluding earnings from off-duty work and lump sum payouts of vacation and/or sick leave at termination Consider restricting other methods of increasing compensation that affect final retirement benefits 12

14 Questions 9

STATISTICAL. Financial Schedules. Statistical Analysis. Benefit Summary

STATISTICAL. Financial Schedules. Statistical Analysis. Benefit Summary STATISTICAL Introduction to Statistical Section Financial Schedules Statistical Analysis Benefit Summary Participating Employers INTRODUCTORY FINANCIAL INVESTMENT ACTUARIAL STATISTICAL The Comprehensive