Teachers Retirement: Policy, Sustainability, & Maximizing the System for Supporting Education in Georgia Georgia Association of Educational Leaders July 10, 2018 1943 2018 Recognizing 75 Years of Retirement Security
2
TRS From the Beginning TRS was created in 1943 and became operational in 1945 under the leadership of Governor Ellis Arnall. As a progressive supporter of public education, he stated that he wanted our retired educators to spend out their retirement years in dignity. Since that time, the retirement plan has been a major component in the recruitment and retention of educators. THE WHY? The Enhanced Value of the Defined Benefit Plan for Educational Policy Recruitment...into a most noble profession! Retention to keep the best and experienced in the profession! Retirement withdignityand honor! 3
Governance and Facts Governed by Georgia Law Title 47 Chapters 1, 3 and 20 Defined Benefit Plan As of June 12, 2018: 75.2 Billion in Assets Ranked 24 th largest retirement fund by Pensions & Investments (02/05/18) 231,555 Actively Contributing Member Accounts 24,859 (10.6%) Eligible to Retire (Normal and Early Retirement) 270,201 Active Status Accounts 124,082 Retired Members $3,200 Average Monthly Benefit Payment 4
DB vs. DC 6
Actuarial Funded Status As of June 30, 2016 0.8 Funded Ratio 81.0% 0.8 0.8 79.1% 78.9% 78.0% 0.8 76.0% 0.7 74.3% 74.1% 0.7 0.7 2018 2019 2020 2021 2022 2023 2024 According the latest Public Plan Survey of 126 large public plans, the median funded ratio was 73.1% as of fiscal year 2016, compared to TRS funded ratio of 74.3%. 6
Actuarial Funded Status As of June 30, 2016 7
Sustainability and Funding Contribution rates are determined by the Board of Trustees in accordance with Georgia law. Employee Contributions - 6% O.C.G.A. 47-3-41 5% Minimum 6% Maximum Employer Contributions O.C.G.A. 47-3-43 based on System s liabilities as shown by actuarial valuation FY 2019 20.90% FY 2020 21.14% FY 2021 18.05% Investment Earnings 7.50% Assumed Rate of Return 12.50% FY 2017 Actual Earned Rate of Return 8.94% FY 2018 Actual Earned Rate of Return 8
Future Positive Funding Impacts Actively contributing membership numbers are increasing. New retirement benefit payments for FY 2017 were 7,174. A decrease from FY 2016. Salary increases have been restored to public employees. 240000 235000 230000 225000 220000 215000 210000 205000 200000 195000 TRS Contributing Members FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 TRS Change in Net Position 18 Months Ending 12/2017 The financial markets are showing signs of continued recovery. 73,261,064,000 75,762,925,000 FY 2017 rate of return was 12.5%. 5.0% higher than the assumed 7.50%. 65,552,411,000 67,172,668,000 67,263,722,000 69,770,754,000 71,340,972,000 30-Jun-16 30-Sep-16 31-Dec-16 31-Mar-17 30-Jun-17 30-Sep-17 31-Dec-17 9
Future Employer Contribution Rates 25 Employer Contribution Rate TRSGA 20 15 10 5 0 2018 2019 2020 2021 2022 2023 2024 Employer Rate 16.81 20.9 21.14 18.05 20.62 19.33 16.93 * Each annual actuarial valuation may result in either positive or negative adjustments based on factors impacting the valuation. 10
Promoting Fund Sustainability 2010 - Adopted smoothed valuation interest rate method. 2012 - Eliminated 3% state tax offset increase on first $37,500 of benefits. 2014 - Adopted 30-year closed amortization schedule to pay off the unfunded liability. 2017 - Reviewed assumed rate of return. (No change) 2017 - Reviewed smoothed valuation interest rate method. (No change) 2017 - Evaluated impact to system of retirees returning to work. (Legislation introduced in 2018 but not passed) 2018 - House Fiscal Oversight Committee hears presentation from REASON Foundation consultant 2018 - Senate Appropriations assigns study to Georgia Department of Audits Review ERS Reforms and impact Review ERS 401(k) plan and competitiveness Evaluate potential cost-effective reforms for TRS that would retain the competitive hiring benefit of having a defined benefit plan 11
Pension Reform Broadly speaking, it can include anything that may increase revenues into the fund or decrease current or future benefit obligations of the fund. Additionally, it is widely held that retirement benefits are a contractual obligation to current employees and retirees. While the State s ERS underwent reform in 2009 resulting in a hybrid plan, the TRS system has undergone minimal changes. The current administration and MOST members of the legislature have supported the TRS plan without pressing for significant changes and continuing to allocate funding to meet the employer contribution needs. However, for the first time that I am aware of, an external foundation has visited Georgia twice in 2018 to meet with a very small group of legislators. This foundation has a history of working to help states reform their DB plans so they look more like a hybrid or 401K type of plan (defined contribution). 22
Pension Reform Sick leave? Multiplier? Minimum age to retire? Earnings assumption? Salary cap for calculation of benefit? Highest average salary? Employer & employee contribution rates? Actuarial methodologies? Funding the accrued liability? Vesting requirements? Working after retirement? COLA? Investment Mix or Allocation? Hybrid Plan? DC Plan? 23
Some Reminders Working after retirement No pre-arranged agreements One month break in service Salary limitations Outreach Pre-retirement workshops and counseling Mid-career workshops Employer Training Like/follow us on Facebook! 25