Exhibit 1 Morningstar, Pension Overview (Nov. 20, 2013). Also available at https://www.nctreasurer.com/ret/documents/morningstarncpensionreport.pdf
Morningstar Pension Report Release Date: 20 Nov 2013 Page 1 of 12 Pension Overview # of Plans Administered By State: 10 # of Plans State Contributes To: 6 Aggregate Funded Ratio (2011): 93.90% Aggregate (2011): 15 : and DC Multi-Employer or Single-Employer: Both Largest Category of Pension Inv: Equity Largest Investments % of Total 3% Assumed Investment ROR: 5.75-7.25% Total State Contributions ($000s) 295,863 Total State Contributions as 0.80% % of Spending $ Pension Funded Level Pension Level Management Overall Pension Quality Good Good Good Good Pension Funded Level % Pension Funded Levels State % Wisconsin Washington North Carolina South Dakota Tennessee Delaware New York Florida Idaho Oregon Texas Georgia Wyoming Iowa Nebraska Ohio Maine Missouri Utah California Minnesota Arizona Arkansas Nevada Virginia Vermont Massachusetts Michigan North Dakota Alabama New Jersey South Carolina Oklahoma Maryland West Virginia Montana Pennsylvania Colorado New Mexico Hawaii Alaska Indiana Rhode Island Mississippi Kansas New Hampshire Lousiana Connecticut Kentucky Illinois Puerto Rico G O O D F A I R P O O R 99.9 98.1 93.9 92.6 92.1 88.3 87.3 86. 8. 82.0 82.0 81.9 79.6 79.5 78.5 77.2 77.2 76.9 76.5 76.0 75.0 7.0 71. 71.0 69.5 68. 66. 66. 66.3 66.2 65. 65. 65.3 6. 6.0 63.9 63.9 63.2 63.0 59.2 59.2 58. 58.2 58.0 56. 56.2 55.5 9.1 6.8 0. 8. Overview The State administers 10 pension plans, contributing to six of them. TSERS, covering state employees and teachers, is by far the largest plan, accounting for roughly 98% of state pension asset and liabilities. Only the plans to which the State contributes are included in the aggregate funded level and UAAL per capita calculations. Perspective The State s pension systems are strong, with an aggregate System Investments funded level of 93.9% and a low $15 UAAL per capita. State pension contributions are manageable, accounting for less than 1% of spending. System investments are well diversified. Investment returns rebounded in 2011 and 2012, after three consecutive years of losses. The five- and 10-year annualized rates of return are well below the 7.25% discount rate used in the majority of plans. Breakdown % Realized Rate of Return % All Plans Equity 3.0 Fixed Income 37.0 Alternative Investments 20.1 Investments System investments are well diversified. Equity accounts for the largest portion of total investments at just over 5%, followed by fixed income. There is also a moderate exposure to alternative investments. The relative distribution of investments has remained steady in recent years. Investment returns rebounded in 2011, after three consecutive years of losses. Returns remained positive at 3% for fiscal 2012, although significantly lower than fiscal 2011 levels. The five- and 10-year annualized rates of return are below the 7.25% discount rate used in the majority of plans (3% and 6.7%, respectively). 2013 Morningstar, Inc. All rights reserved. Morningstar's Credit Research is produced and offered by Morningstar, Inc., which is not registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization ("NRSRO"). All information contained herein is from sources Morningstar believes to be accurate and reliable. These sources include the Bureau of Labor Statistics, Census, audited financial reports, the Municipal Securities Rulemaking Board (MSRB), and state and local governments. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "as is" and is not warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. For licensing or permission to use this information, call +1 312-696-6869.
Morningstar Pension Report Release Date: 20 Nov 2013 Page 2 of 12 Plan Name: Teachers' and State Employees' Retirement System Multi-Employer or Single-Employer Multiple Yes Payment as % of ARC 100% State Contribution($000s) 22,963 Member Governments 25 entry age level $, closed Remaining Amortization Period 12 Investment Rate of Return 7.25% Projected Salary Increases.25-9.1% The Teachers and State Employees Retirement System (TSERS) is a defined benefit cost-sharing multi-employer pension plan. The system is the main source of pension assets and liabilities for the state, at roughly 98% of the total. TSERS membership is comprised of the State, including state agencies and institutions, local education agencies, universities, community colleges, and certain proprietary component units. Benefit and contribution provisions are established by General Statutes 135-5 and 135-8, and may be amended by the NC General Assembly. Member contributions equal 6% of compensation. The State changed the vesting requirements for employees who become TSERS members on or after Aug. 1, 2011, to 10 years of service. Those who were members before that deadline will continue to have a five-year vesting requirement. The funded level for the system has fallen in recent years but remains very strong at 9%. The UAAL per capita is low at $01.
Morningstar Pension Report Release Date: 20 Nov 2013 Page 3 of 12 Plan Name: Consolidated Judicial Retirement System Multi-Employer or Single-Employer Single Employer Yes Payment as % of ARC 100% State Contribution($000s) 17,20 Member Governments 1 projected unit level $, closed Remaining Amortization Period 12 Investment Rate of Return 7.25% Projected Salary Increases 5-9.25% The Consolidated Judicial Retirement System (CJRS) is a single-employer, defined benefit pension plan which provides benefits to the state judicial system. Members include judges, district attorneys, public defenders, and clerks of court. Benefits and contribution provisions are established by General Statutes 135-57, 135-58, 135068, and 135-69, and may be amended by the NC General Assembly. Member contributions are set at 6% of compensation. The state made a statutory contribution of 15.11% of covered payroll for fiscal 2011, less than the 19.25% ARC. Despite underfunding the ARC in 2011, the plan s funded level remains quite strong at 89.9%.
Morningstar Pension Report Release Date: 20 Nov 2013 Page of 12 Plan Name: Legislative Retirement System Multi-Employer or Single-Employer Single Employer Payment as % of ARC State Contribution($000s) 15 Member Governments 1 projected unit level $, closed Remaining Amortization Period 8 Investment Rate of Return 7.25% Projected Salary Increases 7.50% The plan is a single-employer, defined benefit pension plan providing benefits to members of the State General Assembly. Benefits are not payable if/when a retiree is employed in a position, making him eligible to participate in the TSERS or CJRS. Member contributions are set at 7% of compensation. For fiscal 2011, there was no ARC as the plan was fully funded. Benefits and contribution provisions are established by General Statutes 120-.21, 120-.19, and 120-.20, and may be amended by the NC General Assembly.
Morningstar Pension Report Release Date: 20 Nov 2013 Page 5 of 12 Plan Name: Firemen's Rescue Squad Workers' Pension Fund Multi-Employer or Single-Employer Multiple Yes Payment as % of ARC 100% State Contribution($000s) 1,389 Member Governments 1,836 entry age level $, closed Remaining Amortization Period 9 Investment Rate of Return 7.25% Projected Salary Increases The Firemen's and Rescue Squad Workers' Pension Fund plan is a defined benefit cost-sharing multi-employer pension plan. Under a special funding situation, the State is not the employer but is legally obligated to make contributions to the plan. The State established the plan to provide pension benefits for all eligible firemen and rescue squad personnel. Membership is composed of both volunteer and local firemen and emergency medical personnel. Member contributions are set at $10 per month. Benefits and contribution provisions are established by General Statutes 58-86 and may be amended by the NC General Assembly. The plan s funded level has declined, but remains sound at 83.7%. Due to the plan s relatively small size, the UAAL per capita is minor. The state contributed less than 100% of the annual pension cost in fiscal 2011, marking the first time in three years that less than 100% of costs were contributed.
Morningstar Pension Report Release Date: 20 Nov 2013 Page 6 of 12 Plan Name: National Guard Pension Fund Multi-Employer or Single-Employer Single Employer Yes Payment as % of ARC 115% State Contribution($000s) 7,007 Member Governments 1 entry age level $, closed Remaining Amortization Period 12 Investment Rate of Return 7.25% Projected Salary Increases The National Guard Pension Fund (NGPF) is a single employer-defined benefit pension plan for North Carolina National Guard members. Under a special funding situation, the State is not the employer but is legally obligated to contribute. There are no member contributions. Benefits and contribution provisions are established by General Statutes 127A-0 and may be amended by the NC General Assembly. The plan s funded level is by far the lowest among North Carolina plans, although it has increased in recent years as the State has contributed over 100% of the annual pension cost in recent years. Due to the plan s relative overall size, the UAAL per capita is minimal.
Morningstar Pension Report Release Date: 20 Nov 2013 Page 7 of 12 Plan Name: Register of Deeds' Supplemental Pension Fund Multi-Employer or Single-Employer Multiple Payment as % of ARC State Contribution($000s) Member Governments 100 entry age level $, closed Remaining Amortization Period Investment Rate of Return 5.75% Projected Salary Increases.25-7.75% The Registers of Deed's Supplemental Pension Fund (ROD) pension plan is a defined benefit, cost-sharing multiple employer plan providing benefits to all county registers of deeds. All 100 counties within the state participate in the plan. The plan is funded by revenues from 1.5% of receipts collected by each county s register of deeds office. The annual contribution is not linked to the ARC in any way. Despite this, the plan remains over 100% funded.
Morningstar Pension Report Release Date: 20 Nov 2013 Page 8 of 12 Plan Name: Sheriffs' Supplemental Pension Fund DC Multi-Employer or Single-Employer Multi-Employer Payment as % of ARC State Contribution($000s) 0 Member Governments Latest Actuarial Valuation Date Remaining Amortization Period Investment Rate of Return Projected Salary Increases The Sheriff s supplemental pension fund is a defined contribution plan covering county sheriffs. The State administers but does not contribute to the plan. Individual benefits for the year are calculated as a percentage of accumulated contributions available for benefits, subject to statutory limitations. An individual s eligibility is based on a minimum years of service as sheriff, with a retiree s share increasing with years of service. Funding comes for receipts collected by each county s Clerk of Superior County under General Statutes 71-30(a)(3a), along with investment income. Sheriffs do not contribute to the plan.
Morningstar Pension Report Release Date: 20 Nov 2013 Page 9 of 12 Plan Name: Local Government Employees' Retirement System Multi-Employer or Single-Employer Multiple Yes Payment as % of ARC 100% State Contribution($000s) 0 Member Governments 895 entry age level %, closed Remaining Amortization Period Investment Rate of Return 7.25% Projected Salary Increases.25-8.55% The North Carolina Local Government Employees' Retirement System (LGERS) is a defined benefit cost-sharing multi-employer pension system for local governments. The State administers but does not contribute to the plan. General employees as well as local law enforcement officers are members. 890 governments currently participate. Employee contributions are set at 6%. Employers make contributions based on the ARC. The ARC for fiscal 2011 was 6.82% for law enforcement and 6.35% for general employees and firemen. Employers who join the system with an unfunded liability must make additional contributions toward the liability. The system is exceptionally strong, with a funded level remaining over 99% for the past five years. The UAAL per capita is negligible.
Morningstar Pension Report Release Date: 20 Nov 2013 Page 10 of 12 Plan Name: Optional Retirement Plan DC Multi-Employer or Single-Employer Multiple Payment as % of ARC State Contribution($000s) 0 Member Governments Latest Actuarial Valuation Date Remaining Amortization Period Investment Rate of Return Projected Salary Increases The Optional Retirement Plan is a defined contribution retirement plan that provides retirement benefits with options for payments to beneficiaries in the event of the participant s death. Faculty and administrators with facility rank in the UNC System may join as an alternative to the TSERS plan. Participants contribute 6% and the university contributes 6.8%. There is no other liability. The State administers the plan.
Morningstar Pension Report Release Date: 20 Nov 2013 Page 11 of 12 Plan Name: Seperation Allowance Multi-Employer or Single-Employer Multiple Payment as % of ARC State Contribution($000s) 1,300 Member Governments Latest Actuarial Valuation Date Remaining Amortization Period Investment Rate of Return Projected Salary Increases The State provides a special separation allowance as an agent, multiple-employer defined benefit pension plan for sworn law enforcement officers. Benefits are funded on a pay-as-you-go basis. The State and its component units paid $13.3 million for 866 retired law enforcement officers in fiscal 2011. Each eligible officer is paid 0.85% of their most recent base compensation for each year of service. To qualify, each retired officer must have completed 30 years of service or have attained 55 years of age and completed five years of service and not have attained 62 years of age.
Morningstar Pension Report Release Date: 20 Nov 2013 Page 12 of 12 Data Appendix Actuarial Funding Levels 2007 2008 2009 2010 2011 Consolidated Judicial Retirement System 30,356 33,553 39,987 60,67 U -12,219 18,137 102.9-1 1,933 8,380 98.1 1 72,99 32,962 93.0 512,63 51,996 89.9 6 Firemen's Rescue Squad Workers' Pension Fund 305,869 316,973 315,697 318,273 327,98 U 16,585 322,5 9.9 2 339,022 22,09 93.5 2 351,325 35,627 89.9 370,236 51,963 86.0 6 391,837 63,853 83.7 7 Legislative Retirement System 30,698 30,097 29,792 29,835 29,68 U -7,815 22,883 13.2-1 23,092-7,005 130.3-1 23,511-6,281 126.7-1 23,752-6,083 125.6-1 23,757-5,711 12.0-1 Local Government Employees' Retirement System 16,791,98 17,100,739 17,723,253 18,570,51 19,326,359 U 76,16 16,868,17 99.5 8 17,173,975 73,236 99.6 8 17,80,792 81,538 99.5 9 18,66,30 75,916 99.6 8 19,373,800 7,0 99.8 5 National Guard Pension Fund 7,79 78,067 81,371 86,559 91,108 U 3,637 109,31 68.3 112,77 3,680 69.2 121,855 0,8 66.8 127,066 0,507 68.1 129,500 38,391 70. Register of Deeds' Supplemental Pension Fund 35,53 37,213 38,913 0,529 2,623 U -17,623 17,830 198.8-2 18,365-18,87 202.6-2 21,80-17,073 178.2-2 22,10-18,25 183. -2 22,19-20,29 192.1-2 Teachers' and State Employees' Retirement System 55,283,121 55,127,658 55,818,099 57,102,198 58,125,011 U -2,68,031 52,815,089 10.7-266 55,518,75 391,087 99.3 2 58,178,272 2,360,173 95.9 255 59,876,066 2,773,868 95. 299 61,86,697 3,721,686 9.0 01 2012 Investments Credit Strategies Fixed Income Global Equity Hedged Strategies Inflation Portfolio Private Equity Real Estate Total Pension Funds 3,11,608 27,535,998 31,996,51 267,937 2,213,622 3,563,887 5,77,723 7,67,316 2013 Morningstar, Inc. All rights reserved. Morningstar's Credit Research is produced and offered by Morningstar, Inc., which is not registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization ("NRSRO"). All information contained herein is from sources Morningstar believes to be accurate and reliable. These sources include the Bureau of Labor Statistics, Census, audited financial reports, the Municipal Securities Rulemaking Board (MSRB), and state and local governments. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "as is" and is not warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. For licensing or permission to use this information, call +1 312-696-6869.