Dan Liljenquist Public Sector Pension Reform: Addressing Pressing - PowerPoint PPT Presentation

Dan Liljenquist Public Sector Pension Reform: Addressing Pressing Fiscal Realities from a Long-Term Perspective December 7, 2012

Investment Income (in Millions) $3,000 $2,000 $1,000 $0 -$1,000 -$2,000 -$3,000 -$4,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2 Source: Utah Retirement Systems Comprehensive Annual Financial Reports - 2000-2009 - for year ending Dec. 31

o What impact would the losses have on Utah’s budget now and in the future? o How would the losses impact employer contribution rates? o How long would it take for the pension system to recover? o Would the market recover the losses? o What would happen if Utah had another year like 2008? 3

o Forty year actuarial projections, with market returns of 6%, 7%, 7.75%, and 8.5% o Modeled scenarios included: o Standard option (increase contribution rates) o Do-Nothing option (freeze contribution rates at existing levels) o Delay options (freeze contribution rates for 3 or 5 years and then increase contribution rates) 4

Utah’s Projected Funded Ratio 100.8% 96.5% ? ? ? ? ? 2007 2008 2009 2010 2011 2012 2013 Source: Utah Retirement Systems Comprehensive Annual Financial Reports - 2000-2009 - for year ending Dec. 31; and 5 Memo to the Honorable Daniel R. Liljenquist, Senate Chair, from Gabriel Roeder Smith & Company, November 10, 2009

Utah’s Projected Funded Ratio 100.8% 96.5% 87.8% 85.8% 80.6% 75.1% 70.5% 2007 2008 2009 2010 2011 2012 2013 Source: Utah Retirement Systems Comprehensive Annual Financial Reports - 2000-2009 - for year ending Dec. 31; and 6 Memo to the Honorable Daniel R. Liljenquist, Senate Chair, from Gabriel Roeder Smith & Company, November 10, 2009

Utah’s Projected Employer Contribution Rates 15.4% 13.3% ? ? ? ? ? FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Source: Utah Retirement Systems Comprehensive Annual Financial Reports - 2000-2009 - for year ending Dec. 31; and 7 Memo to the Honorable Daniel R. Liljenquist, Senate Chair, from Gabriel Roeder Smith & Company, November 10, 2009

Utah’s Projected Actuarial Required Contribution Rates 23.1% 22.8% 20.6% 18.2% 16.2% 15.4% 13.3% FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Source: Utah Retirement Systems Comprehensive Annual Financial Reports - 2000-2009 - for year ending Dec. 31; and 8 Memo to the Honorable Daniel R. Liljenquist, Senate Chair, from Gabriel Roeder Smith & Company, November 10, 2009

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Utah’s Projected Funded Ratio with Employer Contributions Frozen at 2010 Rates 100% 8.5% Return 7.75% Return 80% 7% Return 60% 6% Return 40% 20% FY FY FY FY FY FY FY FY FY FY FY FY FY 2010 2011 2012 2013 2014 2015 2020 2025 2030 2035 2040 2045 2050 Source: Utah Retirement Systems Comprehensive Annual Financial Reports - 2000-2009 - for year ending Dec. 31; and 10 Memo to the Honorable Daniel R. Liljenquist, Senate Chair, from Gabriel Roeder Smith & Company, November 10, 2009

o First, you have to contain the situation o Second, you have to work over time to clean things up

o Approximately 8,000 teachers kept out of classrooms for 25 years o 100% of public education growth for the next five years, increasing class sizes by up to 8 children per class o Increased contributions will equate to 19% of current state public education funding

Pension Costs 14

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Existing defined benefit programs closed to new enrollees on June 30, 2011 Employer contributions to new retirement program capped by statute at 10% of base salary New employees can choose between: (1) a straight 401(k) plan, or (2) a hybrid pension / 401(k) plan 16