MISSOURI STATE EMPLOYEES RETIREMENT SYSTEM - JUDGES

Transcription

1 MISSOURI STATE EMPLOYEES RETIREMENT SYSTEM - JUDGES 5 - YEAR EXPERIENCE STUDY JULY 1, 2010 THROUGH JUNE 30, 2015

2 ACTUARIAL INVESTIGATION REPORT TABLE OF CONTENTS Item Overview and Economic Assumptions Summary of the Valuation Results Salary Increases Retirement Experience Withdrawal Experience Disability Experience Mortality Experience Miscellaneous and Technical Assumptions New Assumption Listing Glossary Section A B C D E F G H I J Missouri State Employees Retirement System - Judges

3 March 30, 2016 Board of Trustees Missouri State Employees Retirement System 907 Wildwood Drive Jefferson City, Missouri Dear Board Members: The results of the 5-year actuarial experience study of the Judges Retirement Plan administered by the Missouri State Employees Retirement System are presented in this report. The investigation was conducted for the purpose of updating the actuarial assumptions used in valuing the actuarial liabilities of the Missouri State Employees' Retirement System. This report provides the rationale for all demographic assumptions used in the valuation. This report was prepared at the request of the Board and is intended for use by the Retirement System and those designated or approved by the Board. This report may be provided to parties other than the System only in its entirety and only with the permission of the Board. This report should not be relied on for any purpose other than the purpose described. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as: plan experience differing from that anticipated by the economic and demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan s funded status); and changes in plan provisions or applicable law. Due to the limited scope of the actuary s assignment, the actuary did not perform an analysis of the potential range of such future measurements. The investigation was based upon the statistical data furnished for annual active member and retired life actuarial valuations concerning members who died, withdrew, became disabled or retired during the last 4 years. The data was furnished by the MOSERS staff. The complete cooperation of the MOSERS staff in furnishing materials requested is hereby acknowledged with appreciation. We checked for internal and year-to-year consistency, but did not otherwise audit the data. We are not responsible for the accuracy or completeness of the information provided by MOSERS. The investigation covered the 5-year period from July 1, 2010 to June 30, 2015, and was carried out using generally accepted actuarial principles and techniques. We believe that the actuarial assumptions recommended in this investigation report represent individually and in the aggregate reasonable estimates of future experience of the Missouri State Employees' Retirement System. All economic assumptions comply with Actuarial Standards of Practice (ASOP) No. 27 and all demographic assumptions comply with ASOP No. 35. Any credibility procedures used comply with ASOP No. 25.

4 Board of Trustees March 30, 2016 Page 2 David T. Kausch and Brad Lee Armstrong are independent of the plan sponsor and are Members of the American Academy of Actuaries (MAAA) and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained herein. Respectfully submitted, David T. Kausch, FSA, EA, FCA, MAAA Chief Actuary & Senior Consultant Brad Lee Armstrong, ASA, EA, FCA, MAAA Actuary & Senior Consultant DTK/BLA:dj

5 SECTION A OVERVIEW AND ECONOMIC ASSUMPTIONS

6 EXPERIENCE STUDY INTRODUCTION Each year as of June 30, the actuarial liabilities of the System are valued. In order to perform the valuation, assumptions must be made regarding the future experience of the system with regard to the following risk areas: Rates of withdrawal of active members. Rates of disability among active members. Patterns of salary increases to active members. Rates of retirement among active members. Rates of mortality among active members, retirants, and beneficiaries. Long-term rates of investment return to be generated by the assets of the System. Assumptions should be carefully chosen and continually monitored. An unrealistic set of assumptions can lead to: Understated costs resulting in either an inability to pay benefits when due, or gradual increases in required contributions as time progresses; Overstated costs resulting in an unnecessarily large burden on the current generation of employers and taxpayers. A single set of assumptions will not be suitable indefinitely. Things change, and our understanding of things (whether or not they are changing) also changes. The package of assumptions is then adjusted to reflect basic experience trends -- but not random year-to-year fluctuations. Actuarial assumptions were last revised following the July 1, 2007 to June 30, 2011 experience study, a 4-year experience report. This experience study covers a 5-year period. No single 5-year experience period should be given full credibility in the setting of actuarial valuation assumptions. When we see significant differences between what is expected from our assumptions and actual experience, our strategy in recommending a change in assumptions is usually to select rates that would produce results somewhere between the actual and expected experience. In this way, with each experience study the actuarial assumptions become better and better representations of actual experience. Consequently, temporary conditions that might influence a particular experience study period will not unduly influence the choice of long-term assumptions. We are recommending certain changes in assumptions. The various assumption changes and their impact on the required contribution are described on the following pages. Missouri State Employees Retirement System - Judges A-1

7 SUMMARY OF FINDINGS Decrement Assumptions Pay Increase Rates. The merit and longevity portion of pay increases were close to the previously assumed rates. No change is recommended. Details are reported in Section C. Normal Retirement Experience. Overall, there were fewer retirements than expected for males and females. Rates were adjusted to bring them closer to actual experience at individual ages. This change decreases the computed employer contribution rate. Details are reported in Section D. Early Retirement Experience. Overall, there were fewer early retirements than expected for males. Rates were adjusted to bring them closer to actual experience at individual ages. This change decreases the computed employer contribution rate. There were no early retirements for females. Rates were lowered for females. Details are reported in Section D. Retirement rates for members hired on or after January 1, 2011 were not adjusted as there is not sufficient experience to warrant changes. Rates of Withdrawal. Crude ultimate turnover rates were higher than assumed rates for males and females. The observed rates were adjusted to bring them closer to actual experience. These changes decrease the computed employer contribution rate. Disability Rates. There was one disabled member for males and none for females during the experience period. No change is recommended. Death-in-Service Mortality Rates. Deaths among active members in the period studied was lower than the assumed rates for both males and females. Rates were adjusted to bring them closer to actual experience. These changes increase the employer contribution rate. Details are reported in Section G. Retired Life Mortality. Retired life mortality was lower than assumed for males and females. The proposed rates take a different approach and assume that future mortality rates will continue to decline with each generation. For this generational approach, we remove the static margin from the base tables and apply a mortality improvement scale to project rates getting lower each year in the future. This means that next year s 65-year-old will have a slightly longer life expectancy than this year s, etc. These changes increase the employer contribution rate. Details are reported in Section G. Missouri State Employees Retirement System - Judges A-2

8 SUMMARY OF DECREMENT EXPERIENCE Expected Decrement Risk Area Actual Present Proposed Change Withdrawal - Total Male Female Disability Male Female Normal Retirement Male (3.3) Female (4.4) Early Retirement Male (3.0) Female (0.3) Mortality - Active Lives Male (2.0) Female (1.0) Mortality - Retired Lives (Normal Retirement Only) Male - Headcount (9.7) Female - Headcount (0.5) Missouri State Employees Retirement System - Judges A-3

9 ECONOMIC ASSUMPTIONS Economic assumptions include long-term rates of investment return, wage inflation (the across-theboard portion of salary increases) and price inflation. Unlike demographic activities, economic activities do not lend themselves to analysis solely on the basis of internal historical patterns because both salary increases and investment return are more affected by external forces; namely inflation, general productivity changes and changes in financial markets. Estimates of economic activities are generally selected on the basis of the expectations in an inflation-free environment and then both are increased by some provision for long-term inflation. If inflation and/or productivity increases are higher than expected, actual rates of salary increase and investment return are likely to exceed the assumed rates. Salaries increasing faster than expected produce unexpected liabilities. Investment return exceeding the assumed rates (whether due to manager performance, change in the mix of assets, or general inflation) results in unanticipated assets. To the extent that inflation, productivity, and other factors have about the same effect on both sides of the balance sheet, these additional assets and liabilities can offset one another over the longterm. Current economic assumptions for the System are as follows: Investment Return 8.0% Wage Inflation 3.0 Price Inflation 2.5 Nominal Rate of Return (Investment Price) 5.5% The nominal rate of return (the spread over price inflation) represents the expected real return so a smaller spread is generally more conservative. Missouri State Employees Retirement System - Judges A-4

10 ECONOMIC ASSUMPTIONS We have presented the results in this report under three different economic scenarios as shown below. The scenarios are intended to illustrate three possible alternatives from a range of reasonable scenarios. Scenario Scenario #1 Scenario #2 Scenario #3 Scenario #4 Scenario #5 Interest Rate Assumption 7.90% 7.80% 7.70% 7.60% 7.50% Wage Growth Assumption 3.00% 3.00% 3.00% 3.00% 3.00% Price Inflation Assumption 2.50% 2.50% 2.50% 2.50% 2.50% Spread ( Interest Rate - Price Inflation) 5.40% 5.30% 5.20% 5.10% 5.00% For a more detailed discussion about the present and proposed economic assumptions used in this report, please refer to Section C of the MOSERS 5-Year Experience Study covering the time period of July 1, 2010 through June 30, Missouri State Employees Retirement System - Judges A-5

11 SECTION B SUMMARY OF THE VALUATION RESULTS

12 SUMMARY OF THE VALUATION RESULTS The valuation results were rolled forward to 2016 for estimating the Fiscal Year 2018 rate. A market value of assets of $120 million is assumed as of 6/30/2016 resulting in an actuarial value of assets of approximately $135 million. The estimated market value is based on the estimate of $7.5 billion for MOSERS provided by staff. Results are summarized on the following page. Missouri State Employees Retirement System - Judges B-1

13 DEMOGRAPHIC EXPERIENCE STUDY ILLUSTRATIVE EFFECT ON THE ACTUARIAL VALUATION FOR FISCAL YEAR ENDING JUNE 30, 2018 Rolled Forward to 6/30/2016 Demographic Scenario Demographic Assumptions Interest Rate Assumption Present Present 8.00% Only Proposed 8.00% Scenario #1 Proposed 7.90% Scenario #2 Proposed 7.80% Scenario #3 Proposed 7.70% Scenario #4 Proposed 7.60% Scenario #5 Proposed 7.50% Wage Growth Assumption 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Price Inflation Assumption 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% Spread (Interest Rate - Price Inflation) 5.50% 5.50% 5.40% 5.30% 5.20% 5.10% 5.00% Contributions Total Normal Cost 18.28% 19.75% 20.13% 20.51% 20.91% 21.32% 21.73% Member Contributions 1.65% 1.56% 1.56% 1.56% 1.56% 1.56% 1.56% Employer Normal Cost 16.63% 18.19% 18.57% 18.95% 19.35% 19.76% 20.17% Unfunded Actuarial Accrued Liability 39.70% 43.81% 43.90% 44.00% 44.10% 44.19% 44.28% Total Employer Contribution* 56.33% 62.00% 62.47% 62.95% 63.45% 63.95% 64.45% Total Employer Contribution ($ in millions) $ 34.3 $ 37.7 $ 38.0 $ 38.3 $ 38.6 $ 38.9 $ 39.2 Actuarial Value of Assets ($ in millions) $134.9 $134.9 $134.9 $134.9 $134.9 $134.9 $134.9 Actuarial Accrued Liability ($ in millions) $498.3 $535.9 $540.8 $545.7 $550.7 $555.8 $561.0 Funded Ratio 27.1% 25.2% 24.9% 24.7% 24.5% 24.3% 24.0% * 58.45% policy minimum would equate to approximately $35.5 million employer contributions in the present scenario. Missouri State Employees Retirement System - Judges B-2

14 SECTION C SALARY INCREASES

15 MERIT & SENIORITY PAY INCREASES (MALE & FEMALE) Age Group Beginning Sample Values* of Year Number Actual Present Proposed % 2.20 % 2.20 % % 1.00 % 1.00 % (0.49)% 0.60 % 0.60 % % 0.60 % 0.60 % % 0.50 % 0.50 % % 0.40 % 0.40 % % 0.00 % 0.00 % 65 & Over % 0.00 % 0.00 % Total 1,875 * Sample values are selected from mid-point of age group. 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% & Over -0.5% -1.0% Age Actual Experience Present Assumptions Proposed Assumptions Missouri State Employees Retirement System - Judges C-1

16 SECTION D RETIREMENT EXPERIENCE

17 AGE & SERVICE RETIREMENT EXPERIENCE (MALE) Expected Crude Sample Rates Retirements* Age Retirements Exposure Rates Present Proposed Present Proposed Totals * Expected retirements Proposed is calculated as the sum of rates applied to exposure at individual ages. Expected retirements Present is the sum of actual probabilities applied in the valuation. 60% 50% 40% 30% 20% 10% 0% Age Actual Experience Present Assumptions Proposed Assumptions Missouri State Employees Retirement System - Judges D-1

18 AGE & SERVICE RETIREMENT EXPERIENCE (FEMALE) Expected Crude Sample Rates Retirements* Age Retirements Exposure Rates Present Proposed Present Proposed Totals * Expected retirements Proposed is calculated as the sum of rates applied to exposure at individual ages. Expected retirements Present is the sum of actual probabilities applied in the valuation. 60% 50% 40% 30% 20% 10% 0% Age Actual Experience Present Assumptions Proposed Assumptions Missouri State Employees Retirement System - Judges D-2

19 EARLY RETIREMENT EXPERIENCE (MALE) Expected Crude Sample Rates Retirements* Age Retirements Exposure Rates Present Proposed Present Proposed Totals * Expected retirements Proposed is calculated as the sum of rates applied to exposure at individual ages. Expected retirements Present is the sum of actual probabilities applied in the valuation. 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Age Actual Experience Present Assumptions Proposed Assumptions Missouri State Employees Retirement System - Judges D-3

20 EARLY RETIREMENT EXPERIENCE (FEMALE) Expected Crude Sample Rates Retirements* Age Retirements Exposure Rates Present Proposed Present Proposed N/A N/A Totals * Expected retirements Proposed is calculated as the sum of rates applied to exposure at individual ages. Expected retirements Present is the sum of actual probabilities applied in the valuation. 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Age Actual Experience Present Assumptions Proposed Assumptions Missouri State Employees Retirement System - Judges D-4

21 SECTION E WITHDRAWAL EXPERIENCE

22 WITHDRAWAL EXPERIENCE (MALE) There were 16 male withdrawals and 874 life years of exposure included in the withdrawal investigation. A withdrawal is a separation from active member status for a reason other than disability, death, or retirement and may be either vested or non-vested. Assumed Termination (Middle of Year) Expected Crude Sample Rates* Withdrawals** Service Withdrawals Exposure Rates Present Proposed Present Proposed Totals * Sample rates are taken from midpoint of age group. ** Expected withdrawals Proposed is calculated as the sum of rates applied to exposure at individual ages. Expected withdrawals Present is the sum of actual probabilities applied in the valuation. 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Service Actual Experience Present Assumptions Proposed Assumptions Missouri State Employees Retirement System - Judges E-1

23 WITHDRAWAL EXPERIENCE (FEMALE) There were 11 female withdrawals and 313 life years of exposure included in the withdrawal investigation. A withdrawal is a separation from active member status for a reason other than disability, death, or retirement and may be either vested or non-vested. Assumed Termination (Middle of Year) Expected Crude Sample Rates* Retirements** Service Withdrawals Exposure Rates Present Proposed Present Proposed N/A Totals * Sample rates are taken from midpoint of age group. ** Expected withdrawals Proposed is calculated as the sum of rates applied to exposure at individual ages. Expected withdrawals Present is the sum of actual probabilities applied in the valuation. 6% 5% 4% 3% 2% 1% 0% Service Actual Experience Present Assumptions Proposed Assumptions Missouri State Employees Retirement System - Judges E-2

24 SECTION F DISABILITY EXPERIENCE

25 MALE DISABILITY EXPERIENCE There was 1 disability benefit claim reported for the 5-year period and 874 years of exposure (exposure includes active members with 5 or more years of service). Expected Crude Sample Rates* Disabilities** Age Disabilities Exposure Rates Present Proposed Present Proposed Under N/A N/A N/A N/A and over - - N/A Totals * Sample rates are taken from midpoint of age group. ** Expected disabilities Proposed is calculated as the sum of rates applied to exposure at individual ages. Expected disabilities Present is the sum of actual probabilities applied in the valuation. 0.45% 0.40% 0.35% 0.30% 0.25% 0.20% 0.15% 0.10% 0.05% 0.00% Age Actual Experience Present Assumptions Proposed Assumptions Disability rates were computed by 5-year age groups. Missouri State Employees Retirement System - Judges F-1

26 FEMALE DISABILITY EXPERIENCE There were no disability benefit claims reported for the 5-year period and 313 years of exposure (exposure includes active members with 5 or more years of service). Expected Crude Sample Rates* Disabilities** Age Disabilities Exposure Rates Present Proposed Present Proposed Under N/A N/A N/A N/A and over - - N/A Totals * Sample rates are taken from midpoint of age group. ** Expected disabilities Proposed is calculated as the sum of rates applied to exposure at individual ages. Expected disabilities Present is the sum of actual probabilities applied in the valuation. 0.20% 0.18% 0.16% 0.14% 0.12% 0.10% 0.08% 0.06% 0.04% 0.02% 0.00% Age Actual Experience Present Assumptions Proposed Assumptions Disability rates were computed by 5-year age groups. Missouri State Employees Retirement System - Judges F-2

27 SECTION G MORTALITY EXPERIENCE

28 MORTALITY EXPERIENCE Findings Post-retirement mortality is an important, but relatively stable ingredient in cost calculations. This assumption should be updated from time to time to reflect longevity improvements. Another consideration is that the Actuarial Standards of Practice (ASOP) have recently been revised with regard to the mortality assumption. ASOP No. 35 Disclosure Section now states, The disclosure of the mortality assumption should contain sufficient detail to permit another qualified actuary to understand the provision made for future mortality improvement. If the actuary assumes zero mortality improvement after the measurement date, the actuary should state that no provision was made for future mortality improvement. The current rates include such margin in the tables by assuming rates lower than those actually observed (referred to as a static improvement assumption). The proposed rates take a different approach and assume that future mortality rates will continue to decline with each generation. For this generational approach, we remove the static margin from the base tables and apply a mortality improvement scale to project rates getting lower each year in the future. This means that next year s 65-year-old will have a slightly longer life expectancy than this year s, etc. The approach we have taken is based on the RPEC_2014 model described by the Society of Actuaries (SOA). The base mortality tables we select from are the RP-2014 mortality tables. The improvement scales we consider are the 2-dimensional MP-2015 mortality improvement scales. It is anticipated that the SOA will release new improvement scales annually. For purposes of MOSERS valuations, we recommend maintaining the MP-2015 improvement scales until the next experience study. MOSERS-Judges does not have a large enough aggregate population to be considered credible for determining an appropriate set of base tables. We apply a credibility procedure in accordance with ASOP No. 25, Credibility Procedures to determine partial credibility based on the limited fluctuation method to determine appropriate adjustments to the base table to be applied to each gender within each member classification. The first step in this procedure is to select the appropriate version of the RP-2014 mortality tables for the aggregate Judges population of healthy retirees. We have performed this analysis on a lives weighted basis. Missouri State Employees Retirement System - Judges G-1

29 MORTALITY EXPERIENCE Healthy Retirees We reviewed the mortality experience of healthy retirees during the 5-year period. The results are shown on pages G-6 and G-7. The expected new deaths for each gender are based on the RP-2014 Healthy Annuitant tables. Based on the good fit of the deaths, these tables are an appropriate selection for the System as a whole. Tables have been extended to younger ages as needed using a cubic spline method with the published Juvenile rates. Additional adjustments by member classification are described below. Disabled Retirees Disabled mortality experience during the study period was not sufficient to be fully credible. We recommend adopting the RP-2014 disabled mortality tables with the same partial credibility adjustments for each member classification as the healthy annuitant tables. Active Members Active mortality experience during the study period was not sufficient to be fully credible. We recommend adopting the RP-2014 employees mortality tables with the same partial credibility adjustments for each member classification as the healthy annuitant tables. Mortality Improvement The Society of Actuaries MP-2015 report recommends considering applying MP-2015 fully generational to the selected RP-2014 table adjusted to the base year of We have applied this adjustment as recommended. Partial Credibility We use the limited fluctuation credibility procedure to determine the appropriate scaling factor of the base mortality tables for each gender and each member classification on a benefits weighted basis. In each case, the Z-factor is computed based on the experience of the group being studied. This Z-factor is a measure of the credibility of the pertinent group. The Best Fit is the ratio of actual to expected deaths using the base table. The final scale is then determined as the weighted average of the Best Fit and 100% based on the Z-factor. For example, for male employees, the Z-factor of 23% suggests the data for that group is 23% credible. The Best Fit for that group would be to scale the base tables by 90%. The final scale of 116% is the credibility-weighted average (98% = 23% x 90% + 77% x 100%). Factors for females are determined similarly. Missouri State Employees Retirement System - Judges G-2

30 Deaths Need for Full Credibility MORTALITY EXPERIENCE Observed Deaths Z-Factor Best Fit Male % 90% 98% Female % 32% 98% Recommendations Final Scale Factor We recommend adoption of the proposed mortality rates, partial credibility adjustments, and improvement scales. The specifics of the recommended mortality tables follow: Healthy Retirees: RP-2014 Healthy Annuitant generational mortality tables for males and females Disabled Retirees: RP-2014 Disabled Retiree generational mortality tables for males and females Active Members: RP-2014 Employee generational mortality tables for males and females The 98% scaling factors for males and females apply to all mortality tables. Mortality Improvement: MP dimensional improvement scales, fully generational applied to the selected RP-2014 tables adjusted to the base year of Missouri State Employees Retirement System - Judges G-3

31 MALE PRE-RETIREMENT MORTALITY EXPERIENCE Expected Crude Sample Rates* Deaths** Age Deaths Exposure Rates Present Proposed Present Proposed Under N/A N/A N/A and over - - N/A Totals 1 1, * Sample rates are taken from midpoint of age group. ** Expected deaths Proposed is calculated as the sum of rates applied to exposure at individual ages. Expected deaths Present is the sum of actual probabilities applied in the valuation. 0.80% 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% Age Actual Experience Present Assumptions Proposed Assumptions Missouri State Employees Retirement System - Judges G-4

32 FEMALE PRE-RETIREMENT MORTALITY EXPERIENCE Expected Crude Sample Rates* Deaths** Age Deaths Exposure Rates Present Proposed Present Proposed Under N/A N/A N/A N/A and over - - N/A Totals * Sample rates are taken from midpoint of age group. ** Expected deaths Proposed is calculated as the sum of rates applied to exposure at individual ages. Expected deaths Present is the sum of actual probabilities applied in the valuation. 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% Age Actual Experience Present Assumptions Proposed Assumptions Missouri State Employees Retirement System - Judges G-5

33 MALE RETIRED-LIFE MORTALITY EXPERIENCE (NORMAL RETIREMENT, ORIGINAL ANNUITANTS ONLY) There were 59 member deaths reported for the 5-year period and 1,627 life years of exposure included in the male retired-life mortality investigation. Crude Sample Rates* Expected Deaths** Age Deaths Exposure Rates Present Proposed Present Proposed N/A & Up Totals 59 1, * Sample rates are taken from midpoint of age group. ** Expected deaths Proposed is calculated as the sum of rates applied to exposure at individual ages. Expected deaths Present is the sum of actual probabilities applied in the valuation. 35% 30% 25% 20% 15% 10% 5% 0% Age Actual Experience Present Assumptions Proposed Assumptions Missouri State Employees Retirement System - Judges G-6

34 FEMALE RETIRED-LIFE MORTALITY EXPERIENCE (NORMAL RETIREMENT, ORIGINAL ANNUITANTS ONLY) There were 1 member deaths reported for the 5-year period and 142 life years of exposure included in the female retired-life mortality investigation. Crude Sample Rates* Expected Deaths** Age Deaths Exposure Rates Present Proposed Present Proposed N/A N/A N/A & Up - - N/A Totals * Sample rates are taken from midpoint of age group. ** Expected deaths Proposed is calculated as the sum of rates applied to exposure at individual ages. Expected deaths Present is the sum of actual probabilities applied in the valuation. 25% 20% 15% 10% 5% 0% Age Actual Experience Present Assumptions Proposed Assumptions Missouri State Employees Retirement System - Judges G-7

35 SECTION H MISCELLANEOUS AND TECHNICAL ASSUMPTIONS

36 PROPOSED MISCELLANEOUS AND TECHNICAL ASSUMPTIONS Marriage Assumption: Age Differences: Approximately 90% of retirees have a beneficiary included in their data record. We recommend that the marriage assumption for death after retirement benefits and death-in-service benefits be increased from 70% to 80%. Age differences between retirees and beneficiaries were on average 4.75 years. We recommend maintaining the current assumption of a 4- year age difference, with males being older than females. Missouri State Employees Retirement System - Judges H-1

37 SECTION I NEW ASSUMPTION LISTING

38 ACTUARIAL ASSUMPTIONS BASED ON EXPERIENCE STUDY WITHDRAWAL RATES Service Index Male Female Missouri State Employees Retirement System - Judges I-1

39 ACTUARIAL ASSUMPTIONS BASED ON EXPERIENCE STUDY SERVICE BASED SALARY SCALE % Merit Increases in Salaries Next Year Age Rate % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % Missouri State Employees Retirement System - Judges I-2

40 ACTUARIAL ASSUMPTIONS BASED ON EXPERIENCE STUDY NORMAL RETIREMENT PATTERN (FOR MEMBERS HIRED PRIOR TO JANUARY 1, 2011) % Retiring Age Male Female 55 20% 3% 56 16% 3% 57 13% 3% 58 9% 3% 59 5% 3% 60 8% 8% 61 5% 8% 62 8% 8% 63 10% 8% 64 12% 8% 65 12% 15% 66 20% 15% 67 20% 15% 68 30% 15% 69 30% 15% % 100% (FOR MEMBERS HIRED ON OR AFTER JANUARY 1, 2011) % Retiring Age Male Female 62 30% 35% 63 20% 20% 64 15% 20% 65 30% 50% 66 25% 25% 67 20% 25% 68 20% 25% 69 30% 50% % 100% Missouri State Employees Retirement System - Judges I-3

41 ACTUARIAL ASSUMPTIONS BASED ON EXPERIENCE STUDY EARLY RETIREMENT PATTERN % Retiring Age Male Female 62 6% 3% 63 6% 3% 64 6% 3% 65 6% 3% 66 6% 3% 67 6% 3% 68 6% 3% 69 6% 3% % 100% Missouri State Employees Retirement System - Judges I-4

42 ACTUARIAL ASSUMPTIONS BASED ON EXPERIENCE STUDY DISABILITY RATES % Becoming Disabled Age Male Female % 0.01% % 0.01% % 0.01% % 0.01% % 0.01% % 0.01% % 0.01% % 0.01% % 0.01% % 0.01% % 0.01% % 0.01% % 0.01% % 0.01% % 0.02% % 0.02% % 0.02% % 0.02% % 0.02% % 0.02% % 0.03% % 0.03% % 0.03% % 0.04% % 0.04% % 0.04% % 0.05% % 0.05% % 0.06% % 0.06% % 0.07% % 0.08% % 0.09% % 0.10% % 0.11% % 0.12% % 0.14% % 0.15% % 0.17% % 0.19% % 0.19% Missouri State Employees Retirement System - Judges I-5

43 ACTUARIAL ASSUMPTIONS BASED ON EXPERIENCE STUDY POST-RETIREMENT MORTALITY RATES % Dying Next Year % Dying Next Year Age Male Female Age Male Female % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % Missouri State Employees Retirement System - Judges I-6

44 ACTUARIAL ASSUMPTIONS BASED ON EXPERIENCE STUDY PRE-RETIREMENT MORTALITY RATES % Dying Next Year Age Male Female % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % Missouri State Employees Retirement System - Judges I-7

45 SECTION J GLOSSARY

46 GLOSSARY The following glossary is intended to provide definitions of a number of terms which are used throughout this report and which are somewhat unique to the discussion of an Experience Study. Actuarial Decrement. The actual number of decrements which occurred during the study. This number is a straight tabulation of the actual number of occurrences of the particular decrement in question. Normally, the actual number of decrements will be subdivided by age and sex, and possibly by service. Aggregate Assumptions. Assumptions which vary only by sex and/or age. The impact of year of service on the decrement is ignored. All experience is combined by age and/or sex without regard to service. Rates of death and disablement are more appropriate to aggregate measurement in a retirement system. Crude Rate of Decrement. The rate of decrement determined by dividing the actual number of the respective decrement for that age (and service) and sex by the corresponding exposure for that age (and service) and sex. The rate is described as a crude rate because no smoothing or elimination of statistical fluctuations has been made. It is indicative of the underlying true rate of the decrement and is the basis used in graduation to obtain the graduated or tabular rate. Decrements. The decrements are the means by which a member ceases to be a member. For active members, the decrements are death, withdrawal, service retirement, and disability retirement. For retired members, the only decrement is death. The purpose of the Experience Study is to determine the underlying rates of each decrement. Expected Decrement. This is the number of occurrences of a given decrement expected to occur for a given age (and service) and sex based on the number of lives exposed to the risk of the particular decrement and the current assumed rate for that decrement. It may also be referred to as the tabular number of decrements. It is the number of deaths, withdrawals, retirements, or disabilities (whichever is applicable) that would have actually occurred had the actuarial assumptions been exactly realized. Missouri State Employees Retirement System - Judges J-1

47 GLOSSARY Exposure. The number of lives exposed to a given risk of decrement for a particular age (and service) and sex. It represents the number of members who could have potentially died, retired, become disabled, or withdrawn at that particular age (and service) and for that particular sex. This term will also be described as the number exposed to a given risk. Graduated Rates. Graduation is the mathematical process by which a set of crude rates of a particular type is translated into graduated or tabular rates. The graduation process attempts to smooth out statistical fluctuations and to arrive at a set of rates that adequately fit the underlying actual experience of the crude rates that are being graduated. The graduation process involves smoothing the results, but at the same time trying to fit the results to be consistent with the original data. It requires that the actuary exercise his or her judgment in what the underlying shape of the risk curve should look like. Interpolated Rates. For the active rates of decrement (death, disability, retirement, and withdrawal), the actuary will develop graduated rates based on quinquennial age groupings (see definition). To arrive at the rates of decrement for ages between two quinquennial ages, the graduated quinquennial rates must be interpolated for these intermediate ages. The interpolated results are arrived at by applying a mathematical interpolation formula to the quinquennial graduated rates. Merit and Longevity Pay Increase Rate. The portion of the total salary scale which varies by service. It reflects the impact of moving up the salary grid in a given year, rather than the increase in the overall grid. It includes the salary increase associated with promotions during the year. Quinquennial Age Groupings. For the active decrements, it is preferable to group the experience in 5-year age groups for graduation and analysis purposes so as to minimize statistical fluctuations resulting from a lack of exposure which may occur for individual ages. Quinquennial age grouping is the 5-year age grouping which is used to develop the graduated rates of decrement for active membership. The quinquennial age is the central age of the 5-year grouping. Missouri State Employees Retirement System - Judges J-2

48 GLOSSARY Select and Ultimate Assumptions. Assumptions which vary by years of service in addition to sex and/or age. In a retirement system you might expect service to be a factor in the rates of withdrawal, retirement, and salary increase. Tabular Rates. The tabular rate of decrement or salary increase is the rate determined by the graduation and interpolation process. It is the expected rate of change as opposed to the crude rate of change. It is deemed to be the underlying rate applicable to the decrement or to the rate of salary increase. In the first phase of the study, the actual results are compared to the expected results based on the tabular rates developed by the previous study. The second phase of the study determines the new tabular rates based on the crude rates. The final phase of the study compares the actual decrement to the expected decrement based on the new tabular rates. Wage Inflation. The general rate of increase in salaries during a year. It is the component of the total salary scale which is independent of age or service. It consists of two components: inflation and productivity increases. It may be viewed as the ultimate rate of increase if there are no more steprate/promotional increases applicable. Missouri State Employees Retirement System - Judges J-3

49 March 30, 2016 Mr. John R. Watson Executive Director Missouri State Employees Retirement System 907 Wildwood Drive Jefferson City, MO Re: Experience Study Dear John: Enclosed are 25 copies of the report of the Experience Study of the Missouri State Employees' Retirement System - Judges. Sincerely, David T. Kausch, FSA, EA, FCA, MAAA DTK:dks:dj Enclosures