PERS & SB1566 Update: A presentation to SDAO Legislative Days. Kevin Olineck PERS Director January 18, 2019

Transcription

1 PERS & SB1566 Update: A presentation to SDAO Legislative Days Kevin Olineck PERS Director January 18, 2019

2 The PERS Funding Equation At the end of each calendar year, the PERS actuaries calculate the system s funded status using the following basic equation: B = C + E BENEFITS = present value of earned benefits Set by: Oregon Legislature CONTRIBUTIONS + employer funds to pay pension benefits Set by: PERS Board EARNINGS future returns on invested funds Managed by: Oregon Investment Council Every two years, the PERS Board adjusts contributions so that, over time, those contributions will be sufficient to fund the benefits earned, if earnings follow assumptions. 2

3 TOTAL LIABILITY $92.4 ACCRUED LIABILITY $84.0 ASSETS $61.7 (Excludes Side Accounts, Contingency Reserve, and Tier One Rate Guarantee Reserve) UNFUNDED ACTUARIAL LIABILITY $22.3 Problem: the B and C+E Don t Align Present Value of Future Normal Cost Actives: $8.4 Present Value of Future Normal Cost Actives: $8.4 OPSRP Active Members: $4.9 Tier Two Active Members: $8.2 Tier One Active Members: $10.7 Present Value of Future UAL Contributions: $22.3 OPSRP Employer Pool: $4.1 Inactive Members: $4.9 Tier One/Tier Two Member Accounts: $5.5 Tier One/Tier Two Employer Reserves: $27.8 Retired Members: $55.3 Obligations ( B ) Dollars shown in billions As of Tier One/Tier Two Benefits in Force Reserve: $24.3 Resources ( C+E ) 3

4 Solving the Equation When setting employer contribution rates, the PERS Board considers the following objectives and principles: Transparent process and inputs Predictable and stable employer contribution rates Protect funded status to secure future benefit payments Equitable across generations of taxpayers funding the system Actuarially sound fully fund the system if assumptions are met GASB compliant Some of the objectives can conflict, particularly in periods with significant volatility in investment return or projected benefit levels. Overall system funding policies should seek an appropriate balance between conflicting objectives. 4

5 Funded Status and Unfunded Actuarial Liability (UAL) System-total Pension Funded Status ($ billions) Valuation date: 12/31/ /31/ /31/2017 Assumed return: 7.50% 7.20% 7.20% Actuarial liability $ 76.2 $ 81.0 $ 84.1 Assets (excluding side accounts) UAL (excluding side accounts) $ 21.8 $ 25.3 $ 22.3 Funded status (excluding side accounts) 71% 69% 73% Side account assets $ 5.6 $ 5.4 $ 5.6 UAL (including side accounts) $ 16.2 $ 19.9 $ 16.7 Funded status (including side accounts) 79% 75% 80% 5

6 Actuarial Accrued Liabilities (as of December 31, 2017) Approximately 72 percent of PERS total accrued liability is for members who are no longer working in PERS-covered employment (retired and inactive members). 4,115 TIER ONE 13% 13,180 TIER TWO 9% RETIREES 66% OPSRP 6% INACTIVES 6% 127,687 Tier One Tier Two OPSRP Actuarial Liability by Member Category Current Retirees by membership group (as of December 31, 2017) 6

7 Actuarial Accrued Liabilities Although OPSRP members have 6% of accrued liability they make up 68% of the active working population. TIER ONE 13% TIER ONE 12% RETIREES 66% TIER TWO 9% OPSRP 6% INACTIVES 6% OPSRP 68% TIER TW0 20% Actuarial Liability by Member Category Active Members by Tier (as of June 30, 2018) 7

8 Employer Contribution Rate Setting Cycle Actuarial valuations are conducted annually, but alternate between advisory and rate setting : e.g., the December 31, 2016, valuation results were used to project employer rates, but the December 31, 2017, valuation was used to set actual rates for the biennium. Once employer rates are adopted by the PERS Board (in the fall of the even-numbered year), they become effective the following July 1 of the odd-numbered year (18 months after the valuation date). Valuation Date Employer Contribution Rates 12/31/2015 July 2017 June /31/2017 July 2019 June /31/2019 July 2021 June

9 Current Rate Collar Design The maximum change typically permitted by the rate collar is: 20% of the rate currently in effect (3% of payroll minimum collar width) If funded status is 60% or lower, the width of the rate collar doubles 40% of rate currently in effect (6% of payroll minimum collar width) If the funded status is between 60% and 70%, the rate collar s width is pro-rated between the single-collar and double-collar widths 32.00% Illustration of Rate Collar 28.00% 24.00% 20.00% 16.00% Single Collar Prior Rate Double Collar 12.00% 8.00% Collars limit the biennium to biennium increase in the UAL Rate for each individual employer (or pool, if an employer participates in one) 9

10 System-Wide Weighted Pension-Only Rates Rates for set prior to economic downturn rates first to reflect -27% return in shown before (dotted line) and after (solid line) legislated changes set pre-moro reflecting 2012 (+14.3%) & 2013 (+15.6%) returns, first decrease in assumed return set post-moro, reflecting 2015 return (+2.1%) and second decrease in assumed return reflects +15.4% return in 2017 and third decrease in assumed return; dotted line is advisory valuation s estimate prior to 2017 return Uncollared Rate Collared Base Rate Collared Net Rate Assumed return: 8.00% 8.00% 8.00% 7.75% 7.50% 7.20% 10

11 Collared Pension Net Rates System-Wide Excludes Retiree Health Care & IAP Contributions 12/31/ Final 12/31/ Final Tier 1 / Tier 2 Payroll OPSRP Weighted Average 2 Tier 1 / Tier 2 Payroll OPSRP Weighted Average 2 Collared Base Rate 24.13% 17.62% 20.85% 28.91% 22.56% 25.23% Side Account (Offset) (6.14%) (6.14%) (6.14%) (6.51%) (6.51%) (6.51%) SLGRP Charge/(Offset) (0.48%) (0.48%) (0.48%) (0.40%) (0.40%) (0.40%) Collared Net Rate 17.51% 11.00% 14.23% 22.00% 15.65% 18.32% Increase 4.49% 4.65% 4.09% Rates vary by employer, as only some employers have side accounts Changes in side account offsets are not collared 1 For this exhibit, adjustments are assumed not to be limited due to an individual employer reaching a 0.00% contribution rate. 2 Weighting based on the pool s payroll levels (Tier 1/Tier 2, OPSRP) as of the valuation date 11

12 Projected Contributions ($ millions) State Agencies School Districts All Others Projected Payroll* (A) Projected Contribution Projected Payroll* (B) Projected Contribution (B - A) Projected Contribution Increase $ 5,920 $ 820 $ 6,350 $ 1,125 $ 305 6, ,100 1, ,650 1,130 8,200 1, Total $ 20,200 $ 2,875 $ 21,650 $ 3,965 $ 1,090 Collared net rates are used to project contributions The advisory valuation had a projected contribution increase of $1,415 million, compared to a projected increase of $1,090 million in this valuation * Assumes payroll grows at 3.50% annually based on 12/31/2017 active member census. The collared net rate applied to this payroll reflects the proportional payroll composition (Tier 1/Tier 2 vs. OPSRP) as of the relevant rate-setting valuation dates. 12

13 Employers Planning for the Future The Board approves Employer Contribution Rates on a biennial basis. They approved actual rates for the biennium on October 5, In fall 2019, the Board will announce advisory rates for the biennium. Employers may influence their actual contribution rate if they choose to establish a side account with PERS. These accounts are considered assets of the system, but for the sole benefit of the employer who made the deposit. We expect employer contribution rates to continue to climb in the future, and appreciate that PERS payments are a significant part of each employers budget, which will lead to challenging discussions and decisions. 13

14 Employers Planning for the Future PERS has created an interactive tool for employers to use to estimate their own potential contribution rates and amounts for planning purposes over the next several biennia. Employers may also use the tool to determine the potential impact of establishing side accounts. 14

15 Employers Planning for the Future This is an example of Tualatin Valley Fire & Rescue data reflecting a hypothetical $10 million side account. All data relevant to the tool are available on the tool website. 15

16 Employers Planning for the Future In the Outputs tab, the tool calculates projected payroll, contribution rates, contributions, and impact of potential side accounts. 16

17 Employers Planning for the Future Employers may also see a graphical representation of the impact of potential side accounts. 17

18 Senate Bill 1566 (2018) Establishes the Employer Incentive Fund (EIF) separate and distinct from the General Fund; employers may apply for up to a 25% match of their lump-sum payment. Funding expected in July 2021, through repatriation off-shore funds (SB 1529) Establishes the UAL Resolution Program to provide technical expertise to improve employers funded status PERS Actions: Board adopted rules to administer the EIF Surveyed employers to determine interest in the EIF, potential deposits for EIF match and content of the UAL Resolution Program Created communication plan to advise employers of next steps Established EIF with Treasury and determined process with other agencies to establish transfer protocols and timing 18

19 Senate Bill 1566 Establishes the School District Unfunded Liability Fund separate and distinct from the General Fund; creates a side account for the school district pool funded by interest from unclaimed property and excesses from debt collection, capital gains taxes, estate taxes and the repatriation of taxes Allows employers making a lump-sum payment equal to or greater than $10M to select an amortization schedule of 6, 10, 16 or 20 years PERS Actions: Board adopted rules to administer the Fund Surveyed School Districts to learn of their preferred amortization period (response of a 20-year preference) Created a communication plan to advise the School Districts of next steps Determined process with other agencies to establish revenue amounts, transfer protocols and timing 19

20 Thank You Kevin Olineck PERS Director January 18,