Arizona PSPRS Pension Task Force

Transcription

1 Arizona PSPRS Pension Task Force Mark Buis, FSA, EA, MAAA Jim Anderson, FSA, EA, MAAA October 24, 2014 Copyright 2014 GRS All rights reserved.

2 Table of Contents PSPRS June 30, 2014 Valuation Results Permanent Benefit Increases (PBI) Preliminary Projections Comparing Costs Under: Arizona Firefighters Association Proposal PSPRS Plan with SB 1609 Provisions ( valuations) Current PSPRS Plan (2014 valuation) Other Current PSPRS Plan Provisions 2

3 PSPRS Valuation Results Copyright 2014 GRS All rights reserved.

4 PSPRS Development of Employer Contributions Contribution for Fiscal Year Ending June 30, Pension Normal cost requirement Service pensions Disability pensions Survivors of active members Refunds of members' accumulated contributions Total normal cost requirement Employee contributions Total employee rate Less portion used to pay down unfunded liability Net employee rate Employer normal cost requirement Amortization of unfunded liabilities Total recommended pension contribution rate (before phase-in) Total pension contribution rate (after phase-in) Health Normal cost requirement Amortization of unfunded liabilities Total health contribution requirement Total contribution rate (before phase-in) Total contribution rate (after phase-in) 16.65% 16.22% % 20.05% % 7.65% 12.55% 12.40% 18.48% 28.68% 31.03% 41.08% N/A 34.38% 0.34% 0.35% 1.17% (0.06)% 1.51% 0.29% 32.54% 41.37% N/A 34.67% 4

5 PSPRS Change in Contribution Rates (Prior to Phase-in) Contribution Rate Pension Health Total Contribution Rate Last Valuation 31.03% 1.51% 32.54% PBI Effect 7.17% N/A 7.17% Asset Losses 1.30% N/A 1.30% Transfer of Assets to Health 1.38% (1.38)% 0.00% Other 0.20% 0.16% 0.36% Contribution Rate This Valuation 41.08% 0.29% 41.37% 5

6 PSPRS Present Value of Future Benefits and Accrued Liabilities June 30, Pension A. Accrued Liability 1. For retirees and beneficiaries $ 5,142,376,315 $ 6,423,088, For DROP members 1,363,153,228 1,526,606, For vested terminated members 25,997,914 31,162, For present active members a. Value of expected future benefit payments 6,352,571,232 6,494,332,233 b. Value of future normal costs 2,339,745,376 2,242,173,376 c. Active member accrued liability: (a) - (b) 4,012,825,856 4,252,158, Total accrued liability 10,544,353,313 12,233,016,817 B. Present Assets (Funding Value) 6,185,073,611 6,018,984,092 C. Unfunded Accrued Liability: (A.5) - (B) 4,359,279,702 6,214,032,725 D. Stabilization Reserve 16,068,231 15,315,551 E. Net Unfunded Accrued Liability: (C) + (D) $ 4,375,347,933 $ 6,229,348,276 F. Funding Ratio: (B) / (A.5) 58.7% 49.2% 6

7 & Up Employer Pension Contribution Rates June 30, 2014 Valuation Before Phase-In After Phase-In 7

8 0-10% 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% 70-80% 80-90% % % % % % % Over 150% Pension Funded Percents June 30, 2014 Valuation Funded % 8

9 Permanent Benefit Increases (PBI) Copyright 2014 GRS All rights reserved.

10 SB 1609 Key Features Change PBI program for all members Investment threshold increased from 9% to 10.5% New funded status threshold of 60% created Maximum PBI based on funded ratio (varied from 2% to 4%) PBI fund no longer accumulates PBI delayed to age 55 for new hires Additional employee contributions to pay down unfunded liabilities (up to 4% of pay) Lower Tier of benefits for new hires 10

11 Current Plan Key Features Retains excess earnings model Fields case restored original PBI formula for members who were retired as of June 1, 2011 Resulted in very large contribution increases for FY Hall case (pending) would restore original PBI formula for current active members and reverse changes in the employee contribution rate

12 Current Plan - PBI Illustration The impact of the PBI may vary significantly by employer For PSPRS, each member receives the average PBI (same dollar amount applies to everyone) Total High Low 1. Average Monthly Retiree Benefit 4, , , PBI based on 4% average benefit Ratio 4.0% 2.3% 13.7% 12

13 Current Plan PBI Illustration Benefit stream based on $100 annual benefit, 4% current year PBI and 2% expected future PBI Current Annual Benefit $100 $100 $100 $100 $ > Current year PBI $4 $4 $4 $4 $ > Possible Future PBIs I $2 $2 $2 $ > I $2 $2 $ > I $2 $ > V $ > All possible future PBIs now reflected in development of liabilities. If, in any year, there is no PBI, the plan will have an actuarial gain. If, in any year, there is a PBI greater than the assumed PBI, the plan will have an actuarial loss. 13

14 Arizona Firefighters Association Proposal Key Features Eliminate current excess earnings model for the COLA Reduce employee contribution rate to 7.65% eliminating the 4% maintenance of effort contribution Create a new account funded by contributions (4.0% employee and 1.0% employer) plus actual investment income which would fund an annual COLA payable after 3 full years of contributions. A COLA would be paid each year based on funds available in the account 14

15 Preliminary Pension Cost Projections Copyright 2014 GRS All rights reserved.

16 Preliminary Pension Cost Projections Firefighters proposal investigated for PSPRS in total (Spring 2014) Results applicable to plans that are similar to PSPRS average in terms of demographics, funding levels, etc. Breakdown of PSPRS plans by number of active members as of June 30, 2014 Small Medium Large Very Large Total % 17% 11% 2% 100% 16

17 Preliminary Pension Cost Projections 17 Today, review Firefighters proposal impact on certain individual plans 01 Small very mature Fire plan 04 Large immature Fire plan 07 Very Large very mature plan 36 Medium maturing Police plan 70 Small maturing Police plan 76 Small very mature Police plan 120 Medium very immature plan Note: retroactive benefits paid are reflected in the projection of the current plan are not reflected in the projection of the Firefighters proposal or in SB 1609

18 Plan Pension Cost Projection -- Summary: Individual Plan Stats No. Active No. Retired Active/ Retired Ave. Act Age/Svc Avg. Pay/Benefit /6.8 $47,594/$38, /13.1 $84,925/$57, , /11.8 $66,358/$50, /9.1 $64,893/ $53, /8.7 $66,186/$45, /9.5 $81,487/$48, /10.8 $83,574/$62,671 PSPRS 18,526 10, /11.2 $75,048/$51,616 18

19 Pension Cost Projections Summary: Individual Plan Stats Plan Funding Value Assets ($millions) Liabilities ($millions) Plan Funded Status Plan Contribution Rate 01 $1 $11 8% 87.66% 04 $71 $106 67% 26.48% 07 $366 $1,015 36% 76.00% 36 $14 $33 43% 42.24% 70 $11 $30 38% 50.31% 76 $7 $28 25% 71.78% 120 $26 $31 83% 15.58% PSPRS $6,019 $12,233 49% 41.08% 19

20 Contribution Rate Funded Status PSPRS Projection Results Division 01 - Small, Very Mature Fire Plan Open Group 100% 140% 90% 80% 120% 70% 100% 60% 50% 40% 80% 60% 30% 40% 20% 10% 20% 0% Year Median funded status - AZ Firefighters' Proposal Median funded status - SB 1609 (2013 valuation) Median funded status - Current (2014 valuation) Median contribution rate - AZ Firefighters' Proposal Median contribution rate - SB 1609 (2013 valuation) 0% Contribution Rates AZ Firefighters' Proposal 72.4% 68.0% 66.5% 64.7% 65.9% 10.0% 9.0% 9.0% 9.0% SB 1609 (2013 valuation) 74.9% 69.5% 66.4% 61.8% 52.8% 8.0% 8.0% 8.0% 8.0% Current (2014 valuation) 87.7% 81.4% 78.1% 73.2% 69.5% 8.0% 8.0% 8.0% 8.0% 20 Median Funded Rate AZ Firefighters' Proposal 9.7% 10.7% 21.5% 43.8% 75.0% 99.2% 104.2% 109.9% 118.9% SB 1609 (2013 valuation) 9.6% 8.5% 20.2% 44.8% 80.7% 101.8% 104.7% 107.4% 111.8% Current (2014 valuation) 8.2% 8.4% 19.4% 41.8% 77.4% 101.4% 104.3% 107.6% 112.6%

21 Contribution Rate Funded Status PSPRS Projection Results Division 76 - Small, Very Mature Police Plan Open Group 80% 70% 60% 50% 40% 30% 20% 10% 0% Year Median funded status - AZ Firefighters' Proposal Median funded status - SB 1609 (2013 valuation) Median funded status - Current (2014 valuation) Median contribution rate - AZ Firefighters' Proposal Median contribution rate - SB 1609 (2013 valuation) 120% 100% 80% 60% 40% 20% 0% Contribution Rates AZ Firefighters' Proposal 58.7% 58.9% 58.6% 58.4% 59.5% 9.0% 9.0% 9.0% 9.0% SB 1609 (2013 valuation) 62.4% 62.0% 60.3% 57.4% 54.9% 8.0% 8.0% 8.0% 8.0% Current (2014 valuation) 71.8% 71.5% 70.0% 67.0% 64.3% 8.0% 8.0% 8.0% 8.0% 21 Median Funded Rate AZ Firefighters' Proposal 29.4% 34.8% 45.8% 61.2% 83.7% 99.9% 105.1% 108.5% 111.8% SB 1609 (2013 valuation) 28.6% 33.2% 45.2% 62.6% 86.5% 100.9% 103.7% 104.4% 106.9% Current (2014 valuation) 25.4% 30.4% 42.3% 59.5% 84.5% 100.6% 103.4% 104.3% 106.7%

22 Contribution Rate Funded Status PSPRS Projection Results Division 07 - Very Large, Very Mature Plan Open Group 90% 80% 70% 60% 50% 40% 30% 20% 10% 120% 100% 80% 60% 40% 20% 0% Year Median funded status - AZ Firefighters' Proposal Median funded status - SB 1609 (2013 valuation) Median funded status - Current (2014 valuation) Median contribution rate - AZ Firefighters' Proposal Median contribution rate - SB 1609 (2013 valuation) 0% Contribution Rates AZ Firefighters' Proposal 62.5% 64.2% 63.6% 64.3% 63.7% 9.0% 9.0% 9.0% 9.0% SB 1609 (2013 valuation) 66.0% 67.0% 65.0% 63.5% 62.0% 8.0% 8.0% 8.0% 8.0% Current (2014 valuation) 76.0% 77.3% 75.5% 73.3% 71.6% 8.0% 8.0% 8.0% 8.0% 22 Median Funded Rate AZ Firefighters' Proposal 41.4% 44.6% 54.6% 67.6% 86.4% 100.4% 105.2% 107.9% 111.3% SB 1609 (2013 valuation) 40.0% 40.6% 50.4% 64.7% 86.3% 100.6% 103.5% 104.5% 107.0% Current (2014 valuation) 36.1% 37.0% 46.8% 61.4% 84.1% 100.5% 103.2% 104.2% 106.8%

23 Contribution Rate Funded Status PSPRS Projection Results Division 70 - Small, Maturing Police Plan Open Group 60% 120% 50% 100% 40% 80% 30% 60% 20% 40% 10% 20% 0% Year Median funded status - AZ Firefighters' Proposal Median funded status - SB 1609 (2013 valuation) Median funded status - Current (2014 valuation) Median contribution rate - AZ Firefighters' Proposal Median contribution rate - SB 1609 (2013 valuation) 0% Contribution Rates AZ Firefighters' Proposal 41.0% 42.0% 40.6% 40.2% 40.3% 9.0% 9.0% 9.0% 9.0% SB 1609 (2013 valuation) 44.1% 44.4% 41.6% 40.3% 35.8% 8.0% 8.0% 8.0% 8.0% Current (2014 valuation) 50.3% 50.9% 48.1% 46.5% 42.5% 8.0% 8.0% 8.0% 8.0% 23 Median Funded Rate AZ Firefighters' Proposal 43.2% 49.8% 62.1% 74.7% 89.8% 101.1% 106.5% 109.0% 113.0% SB 1609 (2013 valuation) 42.0% 47.3% 61.6% 76.1% 92.0% 101.3% 104.1% 105.6% 107.3% Current (2014 valuation) 37.8% 43.3% 57.7% 72.9% 90.4% 101.1% 104.0% 105.4% 107.2%

24 Contribution Rate Funded Status PSPRS Projection Results Division 36 - Medium, Maturing Police Plan Open Group 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Year Median funded status - AZ Firefighters' Proposal Median funded status - SB 1609 (2013 valuation) Median funded status - Current (2014 valuation) Median contribution rate - AZ Firefighters' Proposal Median contribution rate - SB 1609 (2013 valuation) 140% 120% 100% 80% 60% 40% 20% 0% Contribution Rates AZ Firefighters' Proposal 34.2% 34.4% 33.2% 33.0% 32.4% 9.0% 9.0% 9.0% 9.0% SB 1609 (2013 valuation) 36.8% 36.2% 34.4% 31.8% 30.0% 8.0% 8.0% 8.0% 8.0% Current (2014 valuation) 42.2% 41.9% 39.7% 38.5% 34.5% 8.0% 8.0% 8.0% 8.0% 24 Median Funded Rate AZ Firefighters' Proposal 49.0% 55.6% 66.5% 76.9% 90.2% 101.6% 107.3% 111.8% 117.6% SB 1609 (2013 valuation) 47.6% 55.7% 68.8% 80.9% 93.4% 101.6% 105.0% 106.5% 109.3% Current (2014 valuation) 42.8% 51.0% 64.7% 77.9% 92.0% 101.5% 104.7% 106.5% 109.1%

25 Contribution Rate Funded Status PSPRS Projection Results PSPRS Projection Results - All Divisions Open Group 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Year Median funded status - AZ Firefighters' Proposal Median funded status - SB 1609 (2013 valuation) Median funded status - Current (2014 valuation) Median contribution rate - AZ Firefighters' Proposal Median contribution rate - SB 1609 (2013 valuation) 120% 100% 80% 60% 40% 20% 0% Contribution Rates AZ Firefighters' Proposal 34.5% 35.4% 34.4% 34.4% 33.4% 9.0% 9.0% 9.0% 9.0% SB 1609 (2013 valuation) 36.8% 36.9% 35.5% 33.5% 31.9% 8.0% 8.0% 8.0% 8.0% Current (2014 valuation) 41.1% 41.3% 39.6% 38.5% 35.5% 8.0% 8.0% 8.0% 8.0% 25 Median Funded Rate AZ Firefighters' Proposal 54.7% 58.0% 67.3% 76.6% 89.7% 101.6% 107.0% 110.9% 116.4% SB 1609 (2013 valuation) 53.0% 59.5% 71.2% 82.0% 93.7% 101.7% 104.8% 106.2% 108.9% Current (2014 valuation) 49.1% 55.7% 68.1% 79.6% 92.6% 101.4% 104.6% 106.0% 108.6%

26 Contribution Rate Funded Status PSPRS Projection Results Division 04 - Large, Immature Fire Plan Open Group 30% 25% 20% 15% 10% 5% 140% 120% 100% 80% 60% 40% 20% 0% Year Median funded status - AZ Firefighters' Proposal Median funded status - SB 1609 (2013 valuation) Median funded status - Current (2014 valuation) Median contribution rate - AZ Firefighters' Proposal Median contribution rate - SB 1609 (2013 valuation) Contribution Rates AZ Firefighters' Proposal 22.7% 23.4% 21.8% 21.3% 17.2% 9.0% 9.0% 9.0% 9.0% SB 1609 (2013 valuation) 24.5% 25.5% 24.5% 24.5% 25.3% 8.0% 8.0% 8.0% 8.0% Current (2014 valuation) 26.5% 27.5% 26.4% 26.3% 26.9% 8.0% 8.0% 8.0% 8.0% 0% 26 Median Funded Rate AZ Firefighters' Proposal 71.9% 77.6% 85.4% 90.5% 97.1% 104.5% 111.3% 115.1% 121.1% SB 1609 (2013 valuation) 69.9% 75.3% 83.0% 89.1% 95.8% 102.5% 106.1% 108.1% 110.2% Current (2014 valuation) 66.9% 72.8% 81.5% 88.1% 95.3% 102.3% 105.9% 107.8% 110.1%

27 Contribution Rate Funded Status PSPRS Projection Results Division Medium, Very Immature Plan Open Group 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Year Median funded status - AZ Firefighters' Proposal Median funded status - SB 1609 (2013 valuation) Median funded status - Current (2014 valuation) Median contribution rate - AZ Firefighters' Proposal Median contribution rate - SB 1609 (2013 valuation) 140% 120% 100% 80% 60% 40% 20% 0% Contribution Rates AZ Firefighters' Proposal 14.2% 14.2% 13.0% 11.7% 9.0% 9.0% 9.0% 9.0% 9.0% SB 1609 (2013 valuation) 15.3% 14.9% 14.2% 14.4% 14.8% 8.0% 8.0% 8.0% 8.0% Current (2014 valuation) 15.6% 15.2% 14.5% 14.7% 15.1% 8.0% 8.0% 8.0% 8.0% 27 Median Funded Rate AZ Firefighters' Proposal 85.6% 89.7% 94.7% 97.3% 101.0% 108.2% 115.0% 121.7% 128.4% SB 1609 (2013 valuation) 83.6% 90.0% 93.4% 95.1% 98.1% 103.6% 107.0% 109.4% 111.9% Current (2014 valuation) 82.6% 89.2% 92.9% 94.8% 98.0% 103.6% 107.0% 109.3% 111.9%

28 Pension Cost Projections -- Some Observations Maturing and very mature plans Firefighters proposal results in similar contributions to SB 1609 Addition of retroactive benefits paid increases contributions 2.5%-3% annually, with suppression of recovery in funded status Immature plans (high active/retiree ratio) Due to lower retiree exposure All plans Minimal Impact from SB 1609 reversal Muted impact of addition of retroactive benefits paid Firefighters proposal lowers expected contributions when compared to current plan 28

29 Other Current PSPRS Plan Provisions Copyright 2014 GRS All rights reserved.

30 Lateral Hire Example Not Eligible to Retire Until Age 57 Age at Hire 32 Years of Service at Hire 5 Present Value at Retirement (Age 47) $900,000 Years of Service at Hire (Tier 2) 0 Present Value at Age 47* $680, Difference (at Age 47) $220,000 Estimated Impact to Date (23 Employees) $5M

31 Disability Retirement Example (Less than 20 years of service) Disability Age 45 Years of Service 10 Annual Benefit at Disability* $42,000 Present Value at Disability $600,000 Benefit at First Retirement Eligibility Present Value at First Retirement Eligibility $65,000 $420,000 Difference $180, * 50% of Final Average Compensation

32 DROP Example Pension at DROP Entry $50,000 EE DROP Account Balance at Separation (Lump Sum Payment 5 Years Later) $305,000 EE Annual Pension $75,000 Forgone Plan Contributions (5 Year Total) Town Contribution $300,000 Employee $55,000 Total Foregone Contributions $355,000 32

33 33 Thank You

34 Disclaimers Circular 230 Notice: Pursuant to regulations issued by the IRS, to the extent this presentation concerns tax matters, it is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) marketing or recommending to another party any tax-related matter addressed within. Each taxpayer should seek advice based on the individual s circumstances from an independent tax advisor. This presentation shall not be construed to provide tax advice, legal advice or investment advice. Readers are cautioned to examine original source materials and to consult with subject matter experts before making decisions related to the subject matter of this presentation. This presentation does not necessarily express the views of PSPRS, the Task Force or of Gabriel, Roeder, Smith & Company. 34