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Actuarial Valuation as of June 30, 2008

TEACHERS’ RETIREMENT SYSTEM OF OKLAHOMA. Actuarial Valuation as of June 30, 2008. Presented by J. Christian Conradi and Mark Randall on October 22, 2008. Actuarial Valuation.

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Actuarial Valuation as of June 30, 2008

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  1. TEACHERS’ RETIREMENT SYSTEM OF OKLAHOMA Actuarial Valuation as of June 30, 2008 Presented by J. Christian Conradi and Mark Randall on October 22, 2008

  2. Actuarial Valuation • Prepared as of June 30, 2008, using member data, financial data, benefit and contribution provisions, actuarial assumptions and methods • Purposes: • Measure the actuarial liabilities • Determine adequacy of current statutory contributions • Provide other information for reporting • GASB #25 • CAFR • State Pension Commission • Explain changes in the actuarial condition of TRS • Track changes over time

  3. Membership – Actives and Inactives • The number of active members increased by 545, from 88,133 to 88,678 • 0.6% increase, following a 1.1% increase last year • Over last ten years, active membership has increased an average of 1.0% per year • Payroll for members active on June 30, 2008 increased from $3,599 million to $3,751 million, a 4.2% increase • Payroll has increased by 48% in the last ten years, an average increase of 4.0% per year • We assume a 3.5% average annual increase

  4. Membership – Actives and Inactives • Average pay for active members increased 3.6%, from $40,835 to $42,304 • Average age of active members increased to 45.9, from 45.8 and from 44.3 ten years ago • Average years of service remained at 11.5, and increased compared to 11.2 ten years ago • There are also 6,915 inactive vested members, and 6,908 inactive nonvested members

  5. Membership – Annuitants • The number of annuitants increased by 1,732, from 43,506 to 45,238, a 4.0% increase • Number includes service retirees, disabled retirees, special retirees, and beneficiaries receiving benefits • Over the last ten years, the number of annuitants hasgrown an average of 3.5% per year • Average annual annuitant benefit is $17,532 • There are 2.0 active members for each annuitant • Ratio is slowly decreasing, was 2.5 ten years ago • Over last ten years, the number of actives has increased 10%, while the number of annuitants has increased 41%

  6. Active Members vs. Annuitants 1.0% average increase for active members over last ten years 3.5% average increase for annuitants over last ten years 2.0 active members per annuitant

  7. Payroll 4.0% average increase over last ten years

  8. Average Salary and Average Benefit 3.0% average increase in average salary over last ten years 2.4% average increase in average benefits over last ten years

  9. Assets • Fair market value decreased from $ 9,293 million to $8,634 million • Assets shown exclude 403(b) accounts • 64% in equities, 36% cash and fixed income • Four sources of contributions • Member contributions (7.00% of pay = $287 million) • Includes service purchases, redeposits and EESIP payments • Employer contributions = $309 million • EESIP employers: 7.85% / 8.35% • Non-EESIP employers: 7.05%/7.55% • Rates scheduled to increase in future • State contribution (5.0% of tax revenues = $267 million) • Federal matching contributions (7.00%, $21 million)

  10. Assets • Total contributions of $884 million, compared to $821 million in FY 2007 • The distributions (benefit payments, refunds and administrative expenses) totaled $847 million • Therefore, there is a positive external cash flow of $37 million • 0.4% of market value at end of year • Not significant

  11. Assets • Return on market of approximately -7.5% in FY 2008 • Average return for last ten years was 6.6% • 9.6% for last five years • 9.2% for last fifteen years

  12. Assets • All actuarial calculations are based on actuarial value of assets (AVA), not market value • AVA reflects 20% of the difference between last year’s expected return on market and the actual return • 40% of FY 2007 difference, 60% of FY 2006 difference and 80% of FY 2005 difference • AVA now $9,257 million vs. $ 8,422 million last year

  13. Assets • Actuarial return was 9.4% in FY 2008 • AVA is 107.2% of fair market value (was 90.6 % last year) • $623 million in deferred losses, not yet recognized • Will be recognized over next four years

  14. Actuarial and Market Values of Assets AVA is 107.2% of MVA Deferred losses of $623 million

  15. Estimated Yield Based on Actuarial and Market Values of Assets 6.6% average compound return on market value over the last ten years 9.2% average compound return on actuarial value over the last ten years

  16. Contributions vs. Benefits & Refundsby Fiscal Year * Includes member, state, employer and federal contributions ** Includes administrative expenses

  17. External Cash FlowAs Percentage of Market Value

  18. Benefit and Contribution Structure Changes • New legislation – HB 3112 • This bill implemented a 2% ad hoc COLA for TRS retirees who retired prior to July 1, 2007. • Note that we assumed an increase of 1.00% per year in the last valuation, so we have a loss due to this ad hoc COLA • Actuarial present value of 2.00% ad hoc COLA = $134.7 million • This produced a loss (increase in UAAL) of $67.3 million, net of expected increase • We get a gain in years when there was no COLA granted by the legislature

  19. Changes in Actuarial Assumptions and Methods • During the summer, the Board voted to increase the assumed future ad hoc COLA assumption from 1% to 2%. Otherwise, the actuarial assumptions and methods used in this report are unchanged from last year. • Assumptions were set by the Board based on experience study following June 30, 2004 actuarial valuation • Retirement rates modified in 2006 for EESIP • Next experience study scheduled to follow the June 30, 2009 actuarial valuation

  20. Actuarial Results • Unfunded actuarial accrued liability (UAAL) increased from $ 7,603 million to $9,090 million • The increase in the UAAL is principally due to the increase in our assumed rate of future ad hoc cost of living adjustments (COLA) from 1% to 2%.

  21. Change in UAAL for The Year(In $ Millions)

  22. GASB #25 Funded Ratio

  23. UAAL as a Percentage of Covered Payroll

  24. Actuarial Results • Annual required contribution (GASB #25 ARC = normal cost plus 30-year funding of UAAL, using level percent of pay) of $714 million vs. $590 million last year • 18.19% vs. 15.68 %

  25. Annual Required Contribution (ARC)vs. Actual Contributions * Normal cost, plus 30-year level percent of pay amortization of UAAL since FY 2006 Normal cost, plus 40-year level dollar amortization of UAAL before that ** Employer, state and federal matching contributions

  26. Actual Contributions as Percentage Of Annual Required Contribution

  27. Actuarial Results • Funding period increased from 21.6 years to 54.4 years • The increase in the funding period is principally due to the increase in our assumed rate of future COLAs from 1% to 2%. • UAAL projected to be fully amortized by end of FY 2063 • 80% funded in FY 2052

  28. Actuarial Results • Funding period and UAAL projections based on projection that: • Reflects scheduled contribution rate increases • Assumes net 8.00% market return each year • Phases in deferred asset losses • Assumes no benefit changes or other gains/losses • Assumes no change in number of active members • Projects state revenue starting from OSF estimate for FY 2009--$268 million--increasing at 2.25% through FY 2010, then increasing 3.50% per year • Starting pay for each group of replacement hires increases 3.50% each year

  29. Reporting for State Pension Commission • Specified assumptions • Investment return rate: 7.50% vs. 8.00% in regular valuation • Future COLAs: 2.00%/year (same as under regular valuation) • Mortality: RP-2000 with projections, vs. OTRS tables • Funding: 30-year amortization (level dollar vs. level %)

  30. Reporting for State Pension Commission • Actuarial results: • Actuarial accrued liability: $19.6 billion vs. $18.3 billion in regular valuation • Actuarial assets: $9.3 billion (no difference) • UAAL: $10.3 billion vs. $9.1 billion in regular valuation • Funded ratio: 47.3% vs. 50.5% in regular valuation

  31. Reporting for State Pension Commission • Calculated contribution (in millions) • Was net $719 million last year, or 19.09%

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