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Update on SC Retirement Systems. May 7, 2012 Tammy B. Nichols. About the Retirement Systems. Five defined benefit retirement plans South Carolina Retirement System (SCRS) Police Officers Retirement System (PORS) General Assembly Retirement System (GARS)

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update on sc retirement systems

Update on SC Retirement Systems

May 7, 2012

Tammy B. Nichols

about the retirement systems
About the Retirement Systems
  • Five defined benefit retirement plans
    • South Carolina Retirement System (SCRS)
    • Police Officers Retirement System (PORS)
    • General Assembly Retirement System (GARS)
    • Judges and Solicitors Retirement System (JSRS)
    • National Guard Retirement System (NGRS)
  • One defined contribution retirement plan

- State Optional Retirement Program (ORP)

  • More than 500,000 members in total
  • Approximately 850 participating employers
slide3

About the Retirement Systems

Membership

*Data as of July 1, 2011, actuarial valuations (draft)

3

how the plans are funded fiscal year 2011 2012
How the Plans Are FundedFiscal Year 2011-2012

Sources of Revenue

  • Employee Contributions - 6.50%
      • Active Members
      • Working Retirees (including TERI participants)
  • Employer Contributions -
      • SCRS: 9.385% + .15% incidental death = 9.535%
      • PORS: 11.363 + .20% incidental death + .20 % accidental death = 11.763%
  • Investment Income
investment earnings
Investment Earnings
  • Assumed rate of return on investments = 7.5 percent
  • Actual Returns:
    • FY 2011 = 18.59 percent
    • FY 2010 = 14.62 percent
    • FY 2009 = (19.60 percent)
    • 5 year average return = 3.95 percent
    • 10 year average return = 5.02 percent
    • 20 year average return = 6.81 percent
  • As of 2011 actuarial valuation for SCRS –
      • $3.2 billion of deferred losses
slide6

How the Plans Are Funded – All Systems

Fiscal Year 2010-2011

(Amounts expressed in thousands)

slide8

Actuarial Status - Where We Are Today

*2010 Actuary Valuation required Employer Contribution increase of .92 and 2011 Valuation recommends another 1.63 increase

8

how the plans are funded scrs ratio of contributions received to benefits paid
How the Plans Are FundedSCRS Ratio of Contributions Received to Benefits Paid

Note: Contributions for TERI participants, working retirees and State ORP participants are included in contribution amounts

possible ways to improve funding
Possible Ways to Improve Funding
  • Increase employee contributions
  • Increase employer contributions
  • Increase investment earnings
  • Reduce benefits/plan changes
  • Appropriate additional funds
the future
The Future
  • House and Senate Sub-Committees have conducted public hearings and have thoroughly studied the plans administered by the Retirement Systems
  • The House proposed legislation to modify the plans – H4967
  • Senate Finance Committee has recommended amendments to H4967
proposed legislation

Proposed Legislation

Overview of H.4967As Passed by S.C. House of Representatives

Approved by House 3/21/2012

Introduced in Senate 3/27/2012

Referred to Senate Finance Committee

Senate Finance Committee Recommended Amendments to House Bill 5/3/2012

house bill h 4967
House Bill - H.4967
  • Represents the intent of its sponsors in the House of Representatives in determining matters of policy.
  • Still has to be considered by the Senate.  The Senate may make substantive changes before passing or they may not pass it at all.
  • The role of the Retirement Systems is simply to provide information to the policy makers in the House and Senate to aid them in their decisions.
introduction to h 4967 effective date of the bill is july 1 2012
Introduction to H.4967Effective Date of the Bill is July 1, 2012
  • Most of the provisions of the Bill would apply to all SCRS and PORS members
    • Protection is provided for benefits earned prior to the effective date of the bill for members of SCRS and PORS
  • Bill would create a new class of membership in SCRS only – Class Three. (Current members are in Class Two.)
    • Newly hired members who have an effective date of membership after the effective date of the Bill would be in Class Three
    • Class Three members would be eligible for full retirement after 30 years of service or age 65
    • TERI program would be closed to Class Three members
proposed employee contributions
Proposed Employee Contributions
  • SCRS Class Two and Three Members
    • 6.50 percent current rate
    • 7.00 percent effective July 1, 2012
    • 7.50 percent effective July 1, 2013
  • PORS Class Two Members
    • 6.50 percent current rate
    • 7.00 percent effective July 1, 2012
    • 7.50 percent effective July 1, 2013
proposed employer contributions
Proposed Employer Contributions
  • SCRS (rates include .15 percent for incidental death)
    • 9.535 percent current fiscal year
    • 10.60 percent beginning July 1, 2012
    • 12.23 percent beginning July 1, 2013
      • (Required by July 2011 actuary valuation if no legislative changes made)
  • PORS (rates include .20 percent for incidental death and .20 percent for accidental death)
    • 11.763 percent current fiscal year
    • 12.30 percent beginning July 1, 2012
    • 12.30 percent beginning July 1, 2013
proposed employer contribution floor
Proposed Employer Contribution Floor
  • For SCRS Members
    • After June 30, 2012, no less than 10.6 percent of total earnable compensation until accrued liability contribution is no longer required
  • For PORS Members
    • After June 30, 2012, no less than 12.3 percent of total earnable compensation until accrued liability contribution is no longer required
proposed service purchase cost as of effective date of bill
Proposed Service Purchase CostAs of Effective Date of Bill
  • For SCRS and PORS Members
    • Actuarially neutral cost based on member’s age, service credit, and current or career highest fiscal year salary
    • Cost would not be less than 35 percent per year for nonqualified service
    • Cost would not be less than 16 percent per year for all other types of qualified service
    • New rates do not apply to re-establishment of withdrawn service, transfers or other allowable supplemental types of service
retirement credit for unused sick leave as of effective date of bill
Retirement Credit for Unused Sick Leave As of Effective Date of Bill
  • For SCRS and PORS Members
    • Members would not receive additional service credit for unused sick leave at retirement
    • Protection would be provided for benefits earned prior to effective date of legislation
five year afc period as of effective date of bill
Five-Year AFC PeriodAs of Effective Date of Bill
  • For All SCRS and PORS Members
    • Average final compensation (AFC) would be based on a five-year period rather than current three-year period
    • Protection would be provided for benefits earned prior to effective date of legislation
payment for unused annual leave as of effective date of bill
Payment for Unused Annual Leave As of Effective Date of Bill

For All SCRS and PORS Members

  • Termination payment for unused annual leave at retirement would not be included in AFC calculation
  • Protection would be provided for benefits earned prior to effective date
  • Contributions would be collected on unused annual leave payments until July 1, 2015 because of benefit protection provision
overtime pay as of effective date of bill
Overtime PayAs of Effective Date of Bill

SCRS Members

  • After June 30, 2012, overtime payments would not be included in member’s earnable compensation or AFC unless pay is for overtime work as “mandated” by their employer (i.e., non-voluntary overtime)

PORS Members

  • Overtime will continue to be included in earnable compensation or AFC
cost of living adjustments as of effective date of bill would apply starting with july 1 2013 cola
Cost-of-Living AdjustmentsAs of Effective Date of Bill (would apply starting with July 1, 2013 COLA)

For All SCRS and PORS Members

  • Current COLA provisions would be repealed
  • Going forward, COLAs would be called “Benefit Adjustments” (BA)
  • BA’s would be determined using a trigger related to actual investment returns based on a trailing five-year average compared to actuarial assumed rate of return
benefit adjustments as of effective date of bill
Benefit AdjustmentsAs of Effective Date of Bill

Benefit Adjustment Determination

  • When five-year average exceeds assumed rate of return (currently 7.5 percent), a benefit adjustment would be paid
  • Amount of benefit adjustment would be equal to the difference between the five-year average of actual returns and the assumed rate of return, up to a total benefit adjustment of 2.5 percent
benefit adjustments as of effective date of bill1
Benefit AdjustmentsAs of Effective Date of Bill

Benefit Adjustment Determination

  • If the five-year average doesn’t exceed the assumed rate of return, no benefit adjustment would be paid for that year.
  • Regardless of the five-year average return, no benefit adjustment would be paid in any year in which actual returns for that year were less than zero
scrs class three membership as of effective date of bill
SCRS Class Three MembershipAs of Effective Date of Bill
  • Creates a new class of membership for employees who become members of SCRS after the bill’s effective date – Class Three members
  • All of the new provisions of the bill apply to Class Three members
scrs class three membership as of effective date of bill1
SCRS Class Three MembershipAs of Effective Date of Bill

Class Three Retirement Eligibility

  • Age 60 with five or more years of earned service or 30 years of service credit
  • Early retirement provisions would be based on 30-year retirement eligibility rather than 28-year retirement eligibility
  • TERI program would be closed only to Class Three members
benefit protection provision as of effective date of bill
Benefit Protection ProvisionAs of Effective Date of Bill
  • Also referred to as “wear away” provision
  • Designed to protect benefits earned prior to the effective date of bill
  • Sets forth comparison of two benefit calculations as explained on following slides
benefit protection provision as of effective date of bill1
Benefit Protection ProvisionAs of Effective Date of Bill

Benefit Provisions for any member retiring after June 30, 2012:

  • Retirement benefit will first be calculated using new provisions -
    • Five-year AFC period at date of retirement
    • No payment for unused annual leave at retirement is included in the AFC calculation
    • No additional retirement service credit for unused sick leave
benefit protection provision as of effective date of bill2
Benefit Protection ProvisionAs of Effective Date of Bill

For members retiring after June 30, 2012 -

  • Second “protective” calculation would be made to determine member’s accrued benefit as of June 30, 2012, using:
    • Three-year AFC period as of June 30, 2012
    • Inclusion of payment for 45 days of unused annual leave in AFC regardless of when paid
    • Service credit as of June 30, 2012 plus credit for 90 days of unused sick leave
benefit protection provision as of effective date of bill3
Benefit Protection ProvisionAs of Effective Date of Bill

For members retiring after June 30, 2012 -

  • Second calculation protects the benefit member had accrued as of June 30, 2012
  • Second calculation sets a “floor” on the benefit that a member may receive upon actual retirement
benefit protection provision as of effective date of bill4
Benefit Protection ProvisionAs of Effective Date of Bill

For members retiring after June 30, 2012 -

  • If first benefit calculation under new provision is higher than the second benefit calculation using protective provisions, member would receive the higher benefit based on new benefit calculation
  • If second benefit calculation under protective provision is higher than the first benefit calculation using new provisions, member would receive the higher benefit based on second protective benefit calculation
benefit protection provision as of effective date of bill5
Benefit Protection ProvisionAs of Effective Date of Bill

For members retiring after June 30, 2012 -

  • As member accrues additional service credit and receives salary increases after June 30, 2012, it will be more likely that the member’s benefit calculated under the new provisions would be greater than the floor benefit calculated using the protective provision
  • Hence the term “wear away” provision
example of retirement calculation under protection provision
Example of Retirement Calculation Under Protection Provision

Member retires on June 30, 2014 with 28 years of service. The member has the following earnable compensation and service credit for the trailing five years:

example of retirement calculation under protection provision1
Example of Retirement Calculation Under Protection Provision

Benefit calculation for June 30, 2014 date of retirement using new provisions:

  • Five Year AFC = $30,000 + $32,000 + $34,500 + $36,000 + $37,500 (No annual leave)/5 yrs = $34,000
  • Service Credit at Retirement = 28 years
  • Monthly Benefit = 28 yrs x $34,000 AFC x .0182 = $17,326/12 = $1,444 per month
example of retirement calculation under protection provision2
Example of Retirement Calculation Under Protection Provision

Benefit calculation for June 30, 2014 date of retirement using protective provision with benefits accrued as of June 30, 2012:

  • Three Year AFC at June 30, 2012 = $30,000 + $32,000 + $34,500 + $5,971 (45 days annual Leave)/3 yrs = $34,157
  • Service Credit at June 30, 2012 (including credit for 90 days unused sick leave) = 26 years, 4 months and 15 days (26.375 years)
  • Monthly Benefit = 26.375 yrs x $34,157 AFC x .0182 = $16,396/12 = $1,336 per month
summary of retirement calculations under both provisions
Summary of Retirement Calculations Under Both Provisions
  • Under the first or new calculation method, the monthly benefit would be $1,444
  • Under the second or protective calculation, the monthly benefit would be $1,336
  • In this case, the first calculation using the new provision is more than the second benefit calculation so the member receives the higher benefit set out in the first calculation
bill provisions impacting general assembly retirement system gars
Bill Provisions Impacting General Assembly Retirement System (GARS)
  • Increases GARS member contribution rate from 10 percent to 11 percent starting in calendar year 2013
  • Repeals provisions which allow GARS members to retire in place and receive retirement benefits while continuing to serve in the General Assembly
  • Adjusts service purchase to actuarial neutral cost in same manner as for SCRS and PORS
other provisions as of effective date of bill
Other ProvisionsAs of Effective Date of Bill
  • Authorizes the General Assembly to set the actuarial assumed rate of return on Systems’ investments for valuation purposes
  • Initially sets the assumed rate of return by statute at 7.5 percent
  • Changes retirement accounts for inactive members such that they would no longer accrue annual interest like active member accounts (i.e. 4 percent annually)
senate finance committee recommendations reported out may 3 2012
Senate Finance Committee Recommendations Reported Out May 3, 2012
  • SCRS & PORS Retirement Benefit Adjustment – 1% of annual annuity up to a maximum of $500
  • SCRS – New employees have same age eligibility, but proposed Rule of 90 replaces 28 year eligibility
  • PORS – New employees eligible for retirement after 27 years or age 55
  • SCRS & PORS – 5 year AFC for new employees only
  • SCRS & PORS – provisions that remove credit for unused annual and sick leave apply only to new employees
senate finance committee recommendations may 3 2012 continued
Senate Finance Committee Recommendations May 3, 2012 (continued)
  • Service Purchase Cost – adopt House version
  • SCRS and PORS Employee Contribution Rates – increase ½ percent for three years
  • Employer Contribution Rates – maintain differential between Employee and Employer Rates of 2.9% for SCRS and 5.0% for PORS
  • Inclusion of Overtime Pay in AFC – same as House
  • TERI – Closes TERI for new employees plus phases out for existing employees with termination of the program June 30, 2018
senate finance committee recommendations may 3 2012 continued1
Senate Finance Committee Recommendations May 3, 2012 (continued)
  • GARS – 1% additional employee contribution for GARS members as suggested by House. Closes GARS to newly elected members of General Assembly and they can elect to participate in SCRS, ORP or opt out completely.
  • SCRS & PORS – changes vesting from 5 to 8 years for new members
  • Interest on Inactive Member Accounts – eliminates interest accrual (same as House)
senate finance committee recommendations may 3 2012 continued2
Senate Finance CommitteeRecommendations May 3, 2012 (continued)
  • SCRS & PORS Return to Work – Benefits for members who retire after 6/30/12 will be subject to $10,000 earnings limitation and 15 day break in service unless:
    • SCRS member is age 62 at retirement
    • PORS member is age 57 at retirement
    • Return to work conditions do not apply to elected officials or members appointed by Senate (i.e. Magistrates)
  • Establishes governance structure that creates professional Board of Trustees to manage the Retirement Systems, EIP and Insurance Reserve
timing of possible legislation
Timing of Possible Legislation

Senate Finance Committee’s recommended amendments will go to the Senate floor for debate and then back to the House for consideration.

other retirement system initiatives

Other Retirement System Initiatives

From an Operational Perspective

other retirement system initiatives1
Other Retirement System Initiatives

Member Access -

Member Access is an internet based application that was deployed in October 2011 which allows both active and retired members to access their retirement account. After completing a simple online registration process, a member may access information specific to their account with the SC Retirement Systems.

on line member access active members
On-Line Member Access - Active Members

Functionality includes ability to:

  • View your accounts by System
  • View & print member statement
  • View your beneficiaries
  • Change your address

New features scheduled (available May 25th):

  • Ability to submit a service purchase request electronically
  • Ability to view service purchase invoice
on line member access retiree members receiving monthly benefits
On-Line Member Access - RetireeMembers Receiving Monthly Benefits

Functionality includes ability to:

  • View youraccounts by System
  • View your payment record (members can see retirement data - i.e. option, service credit and date of retirement)
  • View your beneficiaries for each retirement account
  • Change your address
  • View/Change tax withholdings for monthly benefits
  • View/print annuity verification letter
  • View/print IRS Form 1099-R
  • View other deductions as they appear on the payee record
  • Add/view/change direct deposit information (available May 11)
customer services live chat
Customer Services - Live Chat

Live Chat is our newest communication tool for Customer Services that was launched May 1, 2012 -

  • Members may now contact the SC Retirement Systems through a live chat option available between 8:30 am and 5:00 pm via the Retirement Systems’ website.
  • To chat live with one of the Retirement Systems’ benefits consultants, go to our website and click on the “Live Chat” button located at the top of the screen. A dialog box will appear and you’ll need to type your name, email address and your question. A member of our live chat team will be available to immediately assist you.
ees electronic employer services
EES – Electronic Employer Services

EES is the Retirement Systems’ electronic reporting system for Employers. Recent enhancements include:

  • Ability to certify employer information for the payment of annuity claims.  The electronic process replaced the paper form #6201. 
  • Ability to certify employer information for the payment of refund claims.  The electronic process replaced the paper form #4201. 
  • Certification of Final Retirement Deductions, previously handled by Form 6202/6203.
  • Data Download feature allows employers to download information concerning their covered employees, such as active member service totals, members approaching retirement eligibility, and information on return to work retirees and TERI participants.
other retirement system initiatives2
Other Retirement System Initiatives

Direct Deposit Initiative for Retirement System Benefit Payments

  • Direct deposit will be required for all benefit payments issued on or after September 30, 2012
  • Significant marketing efforts will be put forth to ensure members are properly notified
  • Prepaid debit card will be issued by Bank of America under State Treasurer’s Office’ s custody, if no direct deposit information is provided.
other retirement system initiatives3
Other Retirement System Initiatives
  • Visitor Center – Spring Break
    • Extended Office Hours 7:30 am – 6:00 pm
    • Partnered with Employee Insurance Program, providing representatives from both divisions to counsel visitors for both retirement and insurance purposes.
    • Survey results prove endeavor was successful
questions contact information
Questions – Contact Information

Physical Location

  • Fontaine Business Center202 Arbor Lake DriveColumbia, SC 29223Office Hours 8:30 am - 5:00 pm

Customer Services

  • 803-737-6800
  • 800-868-9002 (within SC only)

Website

  • www.retirement.sc.gov

Email

  • cs@retirement.sc.gov

Social Media –

  • Facebook
  • Twitter

--------------------

Tammy B. Nichols, CPA

Deputy Director

SC Retirement Systems

Phone: 803-737-6821

email: tnichols@retirement.sc.gov

disclaimer
Disclaimer

THE LANGUAGE USED IN THIS PRESENTATION DOES NOT CREATE ANY CONTRACTUAL RIGHTS OR ENTITLEMENTS AND DOES NOT CREATE A CONTRACT BETWEEN THE MEMBER AND THE SOUTH CAROLINA RETIREMENT SYSTEMS. THE SOUTH CAROLINA RETIREMENT SYSTEMS RESERVES THE RIGHT TO REVISE THE CONTENT OF THIS PRESENTATION.

This presentation is meant to serve as a guide but does not constitute a binding representation of the South Carolina Retirement Systems. The statutes governing the South Carolina Retirement Systems are found in Title 9 of the South Carolina Code of Laws, and should there be any conflict between this presentation and the statutes or Retirement Systems’ policies, the statutes and policies will prevail.

Employers covered by the South Carolina Retirement Systems are not agents of the Retirement Systems.