NDACo Legislative Wrap-up

1. NDACo Legislative Wrap-up Sparb Collins NDPERS

2. Legislation and Other Actions • Retirement (HB 1452) • Health Insurance

3. NDPERS Participation Retirement Insurance

4. Retirement

5. NDPERS Funded Ratio

6. NDPERS Main System Investment Returns

7. NDPERS Funded Ratio

8. The challenge

9. 2011 Session Recovery Plan SHARED RECOVERY PLAN

10. 2011 Session Recovery Plan

12. NDPERS Main System Investment Returns

13. 2013 Session Recovery Plan (last half)

14. 2013 Session Recovery Plan (last half) 2014 increase approved not 2015

15. 2013 Session Recovery Plan also a DC Option for State Employees

16. 2013 Session Recovery Plan also a DC Option for State Employees Above assumes DC option is permenant, as passed it is only till the middle of 2017 consequently cost would be closer to blue. If permanent then additional cost would be as shown above.

17. Going Forward

18. Going Forward • Additional contribution increases will likely be needed in the future

19. Going Forward • Additional contribution increases will be needed in the future • DC plan costs will need to be added if continued

20. Going Forward • Additional contribution increases will be needed in the future • DC plan costs will need to be added if continued • Effect on political subdivisions will need to be considered and adjustments made if needed

21. New GASB Standards • Governmental Accounting Standards Board (GASB) recently approved two new standards that will change the accounting and financial reporting of public employee pensions by state and local governments. • Statement #67 – Addresses financial reporting for governmental pension plans (NDPERS). Effective for plan year beginning 7/1/13. • Statement #68 – Establishes new accounting and financial reporting requirements for state and local governments (NDPERS participating employers, school districts). Effective for plan year beginning 7/1/14.

22. New GASB Standards Key Implications • Net pension liability will be placed on employer’s balance sheet according to a complicated formula (based on market value of assets and a blended discount rate). This will add a large and unstable element to an employer’s net financial position as presented in the basic financial statements. • Employers in “pooled” plans like PERS will have that “pooled” net pension liability apportioned to each participating employer . This new expense and liability reporting may be difficult to produce and to interpret. • Funding and expense will be decoupled using new pension expense methodology. Having two different “cost” numbers – funding and expense - will be confusing and difficult to communicate.

23. New GASB Standards The guidance contained in these new statements will change how governments calculate and report the costs and obligations associated with pensions. PERS will be working with actuarial consultant & auditor to understand how GASB changes will impact PERS and participating employers. Employers should visit with accounting, audit, and legal specialists for assistance in understanding and implementing the new standards. Additional information can be found on the GASB website, www.gasb.org.

24. Going Forward

25. HEALTH INSURANCE

26. PERS Health Insurance Plan 2013-2015 Rates and Plan Design

27. Sanford Premium 2013-15 Premiums BCBS Premium 12.98% 25.49%

28. 2013-15 Premiums BCBS Premium +12.98% -2.26 PERSBUYDOWN Final Premium for 2015-2017 +10.72% About 5.5% per year

29. High Deductible Health Plan (HDHP) • Plan premium is a little over 10% lower not including an HSA. • This will be a Comprehensive Deductible and Coinsurance plan. • There are no Copayments under this plan. • Deductible will apply first dollar since there is no copay structure on Prescriptions. • Because this is a Comprehensive HDHP a Member can exceed the $1500 Individual Deductible/Coinsurance. Will be available to political subdivisions later this year Political subdivisions can add a Health Savings Account feature if they so elect – such a feature would be separate from the PERS plan If a political subdivision elects this option, it would be for all employees. This plan is not “grandfathered” so a “grandfathered” political subdivision would lose that status if they elect this option

30. AFFORDABLE CARE ACT (ACA) Upcoming Compliance Provisions

31. Large Employers • Small employer is 50 or more employees • Is an employer responsibility not a health plan responsibility • PERS did change our statute this session to comply with the ACA Must: Offer coverage to all full-time employees Must meet certain minimum value guidelines (benefit design and cost- no more than 9.5% of household income) AFFORDABLE CARE ACT (ACA)

32. Significance of Full-Time Employee Status AFFORDABLE CARE ACT (ACA)

33. Significance of “Full-Time Employee” Status • Employer Shared Responsibility rules apply only to “Applicable Large Employers” • Employed an average of at least 50 “Full-Time Employees” for more than 120 days during the preceding calendar year • “Full-Time Equivalent” employees counted for this purpose only • Special rule for seasonal employees • Employer Shared Responsibility penalties apply only with respect to “Full-Time Employees” • Potential $2,000 penalty per FTE if coverage not offered to FTEs and their dependents • Potential $3,000 penalty for each FTE who opts out of the employer’s coverage if it isn’t “affordable” or doesn’t meet a “minimum value” threshold • Note: Penalties are “potential” because they are imposed only if an FTE obtains coverage in a State Health Insurance Exchange and qualifies for a Premium Tax Credit or Cost-Sharing Subsidy AFFORDABLE CARE ACT (ACA)

34. Definition of “Full-Time Employee” • The Employer Shared Responsibility rules only apply with respect to “Full-Time Employees” • “The term ‘full-time employee’ means, with respect to any month, an employee who is employed on average at least 30 hours of service per week.” IRC § 4980H(c)(4)(A). • Because of the potential penalties associated with not offering coverage to “Full-Time Employees”, this definition raises many concerns • Can part-time employees become full-time employees from time to time, just because they work too many hours in a given month? • What about new employees, if the employer isn’t sure how much they will work? • Are there any special rules for temporary and seasonal employees? AFFORDABLE CARE ACT (ACA)

35. Ongoing and New Full-Time Employees AFFORDABLE CARE ACT (ACA)

36. Ongoing Employees • Key Definitions • Ongoing Employee: any employee employed by the employer for at least one complete Standard Measurement Period • Standard Measurement Period: a defined time period, as chosen by the employer, of at least 3 – but no more than 12 – consecutive calendar months, used to determine full-time status for ongoing employees • Stability Period: the period during which coverage must be offered to those employees determined to be “full-time” during the relevant Standard Measurement Period in order to avoid Shared Responsibility penalties. AFFORDABLE CARE ACT (ACA)

37. Ongoing Employees (Cont’d) • Safe Harbor • Each ongoing employee’s full-time status is determined by reference to a Standard Measurement Period • If an employee averages at least 30 hours per week* during the Standard Measurement Period, that employee is a full-time employee during subsequent Stability Period • Actual hours worked during the Stability Period are irrelevant • Must continue to be an employee during the Stability Period • 130 hours of service during a calendar month is treated as the monthly equivalent of 30 hours of service per week. • Paid time off for vacation, illness, disability, etc. generally counts as hours of service. • Special rules for employees of educational institutions, etc. AFFORDABLE CARE ACT (ACA)

38. Ongoing Employees (Cont’d) • Special Rules • Stability Period cannot be shorter than the Standard Measurement Period with respect to those employees determined to be full-time employees during the preceding Standard Measurement Period, and must last at least 6 consecutive calendar months • Stability Period cannot be longer than the Standard Measurement Period with respect to those employees determined to not be full-time employees during the preceding Standard Measurement Period • An “Administrative Period” of as many as 90 days can separate the ending of a Standard Measurement Period and the beginning of the associated Stability Period • Administrative Period must overlap with the prior Stability Period in order to prevent gaps in coverage AFFORDABLE CARE ACT (ACA)

39. Ongoing Employees (Cont’d) • Measurement and Stability Periods can differ in length or in starting and ending dates for the following categories of employees: • Collectively bargained and non-collectively bargained • Salaried and hourly • Employees located in different states *Note: Previous IRS guidance would have permitted different Measurement and Stability periods for employees of different entities. That was not included in the proposed regulations because the proposed regulations apply the Shared Responsibility rules to each “applicable large employer member” within a control group. AFFORDABLE CARE ACT (ACA)

40. New Employees Reasonably Expected to Work Full Time • If coverage offered at or before the end of the employee’s initial 3 calendar months of employment, no Shared Responsibility penalty during that initial 3-month period • Consistent with permitted 90-day waiting period AFFORDABLE CARE ACT (ACA)

41. New Variable Hour and Seasonal Employees AFFORDABLE CARE ACT (ACA)

42. New Variable Hour and Seasonal Employees • Key Definitions • Variable Hour Employee: A new employee if, based on the facts and circumstances at the start date, it cannot be determined if he or she is reasonably expected to work on average at least 30 hours per week. Could include a new employee who is expected to initially work 30 hours or more per week for a limited duration. • Seasonal Employee: Employer can use reasonable, good faith interpretation through end of 2014. AFFORDABLE CARE ACT (ACA)

43. New Variable Hour and Seasonal Employees • Key Definitions (Cont’d) • Initial Measurement Period: a defined time period, as chosen by the employer, of at least 3 – but no more than 12 – consecutive calendar months, used to determine full-time status for new variable hour and seasonal employees. AFFORDABLE CARE ACT (ACA)

44. New Variable Hour and Seasonal Employees • Safe Harbor • Each new variable hour and seasonal employee’s full-time status is determined by reference to an Initial Measurement Period • If a new variable hour or seasonal employee averages at least 30 hours per week during the Initial Measurement Period, that employee is a full-time employee during subsequent stability period • Actual hours worked during the stability period are irrelevant • Must continue to be an employee during the stability period • Stability period must be same length as Stability Period used for ongoing employees AFFORDABLE CARE ACT (ACA)

45. Small Employers • Small employer is 2-50. Could increase in future years • Most PERS employers are on grandfathered plan • However, we did change our statute this session to allow plans to leave without any penalty if required by ACA “By law, issuers must transition all non-grandfathered small group and individual market coverage issued prior to January 1, 2014, to these adjusted community rating rules in the first plan year (small group market) or the first policy year (individual market) beginning on or after January 1, 2014, even if the issuers previously used other rating rules for products in these markets.”