january 18, 2011

January 18, 2011

Howard Bicker, Executive Director, SBIDave Bergstrom - Executive Director, MSRSMary Most Vanek - Executive Director, PERA

Laurie Fiori Hacking - Executive Director, TRA

Introduction to Statewide Retirement Funds

2

State Board of Investment (SBI)

Invest assets of the Pension Funds and other State Funds

Board is defined in Article XI of Minnesota Constitution:◦ Governor◦ State Auditor◦ Attorney General◦ Secretary of State

Assisted by 17 member Investment Advisory Council (IAC)◦ 10 experienced investment

professionals◦ Executive Directors of

statewide retirement plans◦ Commissioner of MMB◦ Three Governor

Appointees

3

Target Investment Allocation

15.20%

-18.80%

-5.0%

3.40% 2.90%

9.00%9.70%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2010 2009 2008 5 Yr 10 Yr 25 Yr Since 1980

4

Short and Long-Term Net Investment Returns

SBI Returns – for periods ending 6/30/2010

8.5%Actuarial

Required Return

July – Dec 2010 return = 16% +

Investment Returns Fund Most of Pensions

5

67¢Investment

Earnings

Pensions are a shared responsibility.Every dollar paid to retirees comes from three sources

18¢Employers

15¢Employees

Sources of MN public pension fund revenue, 1991-2010

Covers state employees, University of Minnesota (non-faculty), Metropolitan Council, MNSCU and others

Governed by an eleven-member board◦ Four elected General and/or Unclassified Plan members◦ Three Governor appointees◦ An elected State Patrol member◦ An elected Correctional Plan member◦ An elected retiree◦ One appointee representing the Amalgamated Transit Union

Total net assets of all MSRS administered plans totaled $13 billion on June 30, 2010◦ $9.1 billion in mandatory retirement plans◦ $3.9 billion in supplemental/voluntary plans

6

Minnesota State Retirement System

Retirement Plan

Assets(6/30/2010)

Active Participant

s

Benefit Recipients

Deferred, Vested

ParticipantsGeneral Plan $7.7 billion 48,494 28,435 15,388Correctional Plan $525 million 4,268 1,859 993State Patrol Plan $489 million 848 924 39Judges Plan $126 million 312 291 18Legislators $26 million 47 359 88Elective State Officers Plan

$0 0 15 1

Unclassified (Defined Contribution)

$253 million 1,430 0 1,844

7

MSRS Plans

Voluntary and/or Supplemental Plans

Assets (6/30/2010)

Active Participants

Minnesota Deferred Compensation Plan (MNDCP)

$3.5 billion 79,822

Health Care Savings Plan (HCSP) $317 million 63,189Hennepin County Supplemental Plan $109 million 1,900

8

MSRS General Plan Funding HistoryFunding on Market ValueFunding on Actuarial Value

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Current rate: 5% employee/5% employer

9

MSRS Correctional Plan Funding HistoryFunding on Market ValueFunding on Actuarial Value

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Current rate: 8.6% employee/12.1% employer

10

MSRS State Patrol Plan Funding History

Funding on Market ValueFunding on Actuarial Value

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Current rate: 10.4% employee/15.6% employer*

* Not covered by Social Security

General Plan Correctional Plan

State Patrol Plan

Post Retirement Increase

Future increases of 2% until a funding ratio of 90% is reached

Future increases of 1.5% until funding ratio 90%

Deferred Augmentation

2% for future years beginning January 2012

Contribution Rate Increases

None 2% employee3% employer (7/1/2011)

Vesting Hired after 7/1/2010

Five years Phased in from five to ten years of service

Five years

Refund Interest Lowered from 6 percent to 4 percent beginning 7/1/2011

Reduction in Unfunded Liabilities*

$650 million

$45 million $62 million

* Source: Mercer FY2010 Actuarial Evaluation 11

MSRS 2010 Benefit Reforms

Covers City, County & Non-teaching School District employees

Governed by an eleven-member Board of Trustees◦ Five elected by the PERA membership

Three General Plan members One Police & Fire One Retiree

◦ Five Governor appointees representing cities, counties, schools boards, retirees, and the general public, respectively

◦ The State Auditor Total net assets of all PERA administered plans totaled

$16.9 billion on June 30, 2010

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Public Employee Retirement Association

Retirement Plan Assets(6/30/2010

)

Active Participant

s

Benefit Recipients

Deferred, Vested

ParticipantsGeneral Plan $11.3 billion 140,389 68,474 45,151

Police & Fire $4.4 billion 11,002 7,541 1,315

Correctional $211 million 3,521 441 1,895

Defined Contribution Plan

$32 million 7,227 N/A N/A

Minneapolis Employees Retirement Fund(MERF)

$844 million 143 4,343 102

13

PERA Plans

Also, administrators of the Statewide Volunteer Firefighter Retirement Plan

14

PERA General Plan Funding HistoryFunding on Market ValueFunding on Actuarial Value

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Current rate: 6.25% employee/7.25% employer

15

PERA Police & Fire Funding HistoryFunding on Market ValueFunding on Actuarial Value

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Current rate: 9.6% employee/14.4% employer*

* Not covered by Social Security

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PERA Correctional Plan Funding HistoryFunding on Market ValueFunding on Actuarial Value

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Correctional Plan Contribution Rate History

Established in 1999, the Correctional Plan has maintained a level contribution rate; 5.83% employee & 8.75% employer

General Plan Police & Fire CorrectionalPost Retirement Increase

Future increases of 1% until funding ratio of 90%

Increases of 1% for 2011 & 2012; then CPI up to 1.5% until funding ratio of 90%

Future increases of 1% until funding ratio of 90%

Deferred Augmentation

1% for future years beginning January 2012

Contribution Rate Increases

0.25% employee 0.25% employer

0.2% employee0.3% employer

None

Vesting Hired after 7/1/2010

Five years Phased in from five to ten years of service; fully vested at ten years

Refund Interest Lowered from 6 percent to 4 percent beginning 7/1/2011Reduction in Unfunded Liabilities*

$2.8 billion $625 million $15 million

*Source: Mercer FY2010 Actuarial Valuation17

PERA 2010 Benefit Reforms

Covers all K-12 public school teachers & administrators, charter schools, some State Universities & Community College faculty

Governed by an eight-member Board of Trustees◦ Four elected by active members◦ An elected retiree member◦ Three statutory appointments

made by the: Commissioner of Minnesota

Management & Budget; Commissioner of Education; and the Minnesota School Boards

Association

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Teachers Retirement Association Plan Information

6/30/2010Assets $14.9 billion

Active Members 77,356

Benefit Recipients

51,853

Deferred, Vested Members

12,756

19

TRA Funding HistoryFunding on Market ValueFunding on Actuarial Value

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

Year 2007 2008 2009 2010

Return 18.3% -5% -18.8% 15.2%

0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%9.00%

10.00%

Teachers Retirement Contribution Rate History

Employee Employer

Current rate: 5.5% employee/5.5% employer

Post Retirement Increase

No increases in 2011 & 2012; future increases of 2% until funding ratio of 90%

Deferred Augmentation

2% for future years beginning July 2012

Contribution Rate Increases

2% employee & 2% employer phased in over four years beginning 7/1/2011

Vesting No change; three yearsRefund Interest Lowered from 6 percent to 4 percent

beginning 7/1/2011

Reduction in Unfunded Liabilities*

$1.75 billion

*Source: Mercer FY2010 Actuarial Valuation

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TRA 2010 Benefit Reforms

Change Made in 2010 State Increased Contributions for Employees

Colorado, Mississippi, Vermont, Missouri*, Louisiana, Iowa, Wyoming

Increased Contribution for Employers

California, Florida, New Jersey

Changes to Cost of Living Adjustments

Colorado, Illinois*, Maryland, Michigan*, Rhode Island, South Dakota, Virginia*

Plan Design Changes (existing plan)

Arizona*,California*,Colorado, Illinois*, Missouri*, Louisiana*, New Jersey, Vermont, Iowa*, Mississippi*

New Hybrid Plan added Michigan*, Utah*Reduction in Investment Return Assumption

Colorado, Pennsylvania, Virginia, New York, Indiana, District of Columbia, Illinois

Benefit Studies Connecticut, Puerto Rico, Virginia* Only impacts new employees or those who are not vested

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What happened in other states?

Unlike other states, MN public pensions have:Disciplined funding – correct problems as they occur with

positive effect on state’s bond ratingModest benefits – public employer contributions represent

only 1.6% of total MN state & local government spending, compared to 2.9% of spending of other states

Proactive benefit reforms -- Post Fund eliminated, age 66 retirement age (passed in 1989), Rule of 90 eliminated

Employee contributes half the cost (except public safety) 2010 Pension Reform Bill – bold corrective action that is

working

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MN Pensions More Conservative than Other States

Legal challenge • Class action suit filed by retirees claiming contract

right to annual increases - hearing in March Benefit Design Study (2010 Legislative directive)

• System directors analyzing DB, DC and alternative designs, report due June 1, 2011

• Public stakeholder meetings held in September, next meeting scheduled for February 1

• Actuarial analysis is in process• Draft circulated late March, early April for comment

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Other Updates

Please contact us:

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Questions

MSRSDave.Bergstrom@state.mn.us

651-284-7888

PERAMary.vanek@state.mn.us

651-296-8358

TRALaurie.hacking@state.mn.us

651- 296-6523