Employee Trust Funds Update

Transcription

1 Employee Trust Funds Update Sari King, Administrator Division of Retirement Services Wisconsin Department of Employee Trust Funds April 17, 2007

2 AGENDA Demographics The Dividend Process Future Prospect for Dividends Key Initiatives

3 Demographics

4 WRS Demographics Active Employees Annual payroll of $11.3 billion Annual contributions of $1.25 billion Average age ,927 in the variable division Average years of service 11.2 Average earnings $41,696 Retirees Annual annuities paid of over $3.2 billion in 2006 Average annual annuity is $23,596 Average age at retirement is 60 years 34,292 in the variable division

5 The Dividend Process

6 Question: Why Don t Core Dividends Correlate to Current Year Investment Returns? Answer: The Market Recognition Account (MRA)

7 Smoothing Mechanisms It is undesirable for a retiree to experience wide swings in monthly benefits from year to year, particularly if the swings are downward. This possibility is mitigated in the Core (Fixed) division by the asset smoothing process, as well as by the portfolio mix. The variable fund is market to market each year and subject to wide swings.

8 Additional Comments Average Life Expectancy has increased over the last 10 years Life Expectancy for 70 year old Males Females For each month of added longevity, the dividend is decreased by about 0.25%. This translates into approximately $5 per month for the average annuitant. However, improved longevity means members are receiving benefits for a longer period of time.

9 Core Fund Effective Rate (millions $) 2006 Investment Income $ 9,872 Adjustment for Market Recognition Account 2006 Gain Deferred to Future Years (4,918) Gains and Losses Carried Over From: 2002 (1,764) , Total MRA Adjustment (3,753) Current Year Recognized Income 6,119 Less: Allocations and Adjustments (258) Income Available for Core Effective Rate 5,860 Adjusted Beginning Reserve Balance $ 59,227 Effective Rate ($5,860 / $59,227) 9.8%

10 Core Annuity Calculation Assets Liabilities Beginning Balance 1/1/ , ,638.4 Increases Less Decreases 2, ,635.5 Ending Balance 12/31/ , ,273.9 Ratio (31,180.5/30,273.9) 1.03

11 Post Retirement Changes ETF Core Fund Percentages SWIB Investment ETF Effective ETF Annuity Year Return Rate Dividend % 9.8% 3.0% % 6.5% 0.8% % 8.5% 2.6% % 7.4% 1.4% % 5.0% 0.0% % 8.4% 3.3% % 10.9% 5.7% % 24.1% 17.1% % 13.1% 7.2% % 12.8% 7.7% % 12.5% 6.6% % 11.3% 5.6% % 7.7% 2.8% % 11.0% 4.9% 10 yr ave: 10.5% 10 yr ave: 4.78%

12 Future Prospect for Dividends

13 Assumptions Based on 2006 Core Trust Fund investment returns and dividend Includes investment gains and losses carried forward in the MRA Dividends will be paid if annuity reserve surplus provides at least a 0.5% dividend Annuities will be reduced if annuity reserve shortfall would require at least a -0.5% adjustment

14 Assumptions (cont.) Negative dividends can only be used to reduce dividends granted in prior years. A core annuity cannot be reduced below the original value. 0.5% per year is reserved for mortality improvement and other actuarial adjustments and is not available for dividends

15 If 7.8% Return in Wisconsin Retirement System Core Effective Rate / Dividend Projections SWIB Net Investment Return Core Trust Fund Effective Rate Core Trust Fund Dividend % 7.8% 7.8% 7.8% 7.8% 7.8% 9.8% 12.6% 10.4% 9.6% 9.4% 8.2% 3.0% 6.0% 4.1% 3.3% 3.2% 2.1%

16 If 0% Return in Wisconsin Retirement System Core Effective Rate / Dividend Projections SWIB Net Investment Return Core Trust Fund Effective Rate Core Trust Fund Dividend % 0.0% 7.8% 7.8% 7.8% 7.8% 9.8% 10.8% 8.7% 8.0% 7.8% 6.6% 3.0% 4.4% 2.5% 1.8% 1.7% 0.6%

17 A -23.9% Return or Lower in 2007 will Result in a Negative Dividend Wisconsin Retirement System Fixed Effective Rate / Dividend Projections SWIB Net Investment Return Core Trust Fund Effective Rate Core Trust Fund Dividend % -23.9% 7.8% 7.8% 7.8% 7.8% 9.8% 5.4% 3.2% 2.2% 1.8% 0.0% 3.0% -0.5% -2.5% -3.4% -3.8% -5.3%

18 At least a -19.4% return will be needed in 2007 to pay a dividend Wisconsin Retirement System Fixed Effective Rate / Dividend Projections SWIB Net Investment Return Fixed Trust Fund Effective Rate Fixed Trust Fund Dividend % -19.4% 7.8% 7.8% 7.8% 107.8% 9.8% 6.5% 4.3% 3.4% 3.1% 1.5% 3.0% 0.5% -1.5% -2.4% -2.6% -4.0%

19 There will be no dividend for 2007 if the investment return is between -23.9% and -19.4%

20 Key Initiatives

21 Key Initiatives Benefits Payments System Mapping Video Library

22 Online Presentations Available At: and are found in the Video Library WRS Benefits WRS Statement Of Benefits Planning for the Inevitable (Survivor Benefits and Beneficiaries) Completing Your Retirement Application Calculating your Retirement Benefits Online Buying Creditable Service

23 Contact WRS: Write: Department of Employee Trust Funds, P. O. Box 7931, Madison, WI Visit: 801 West Badger Road, Madison, WI, N W Barstow Street, Rm 411, Waukesha, WI (Office Hours: 7:45 a.m. - 4:30 p.m., Mon. - Fri.) Telephone: Toll Free Madison Main Line Appointments Waukesha (By Appointment Only) Self Service Line: or (to request forms or brochures and change address or tax withholding election) Internet: Pre-recorded Message Center:

24 Questions?