Local Governmental Employees Retirement System Principal Results - PowerPoint PPT Presentation

Local Governmental Employees ’ Retirement System Principal Results of Actuarial Valuation as of December 31, 2012 October 17, 2013 Board of Trustees Meeting Larry Langer and Mike Ribble

Purpose of the Annual Actuarial Valuation  Each year, the actuary determines the amount of contributions to be made to the Retirement System during each member’s career that, when combined with investment return, will be sufficient to pay for retiree benefits.  This contribution is determined through the annual actuarial valuation, which is summarized in the annual actuarial valuation report.  In addition, the annual actuarial valuation is performed to: • Determine progress on funding the Retirement Systems • Explore why the results of the current valuation differ from the results of the valuation of the previous year • Satisfy regulatory and accounting requirements 1 Local Governmental Employees ’ Retirement System – December 31, 2012 Valuation Results

The Valuation Process INPUT RESULTS • Member Data • Actuarial Value of Assets • Asset Data • Actuarial Accrued Liability • Benefit Provisions • Net Actuarial Gain or Loss • Actuarial Assumptions • Funded Ratio • Funding Methodology • Employer Contributions 2 Local Governmental Employees ’ Retirement System – December 31, 2012 Valuation Results

Events During Year Ending December 31, 2012 Which Impacted the December 31, 2012 Actuarial Valuation Results  Results of this valuation deviated from last year’s valuation due to several causes: • Market value returns of 11.8% compared to 7.25% assumed • Payroll increased by 0.3% compared to 3% assumed increase  Overall, when compared to the December 31, 2011 baseline projections, the above events resulted in: • Lower employer required base contribution rates for fiscal year ending June 30, 2015 – 6.94% in the valuation compared to 7.81% in the baseline projection for general employees and firefighters – 7.42% in the valuation compared to 8.29% in the baseline projection for law enforcement officers • Lower projected benefit amounts being accrued by active members 3 Local Governmental Employees ’ Retirement System – December 31, 2012 Valuation Results

INPUT RESULTS • Member Data • Actuarial Value of Assets • Asset Data • Actuarial Accrued Liability Member Data • Benefit Provisions • Net Actuarial Gain or Loss • Actuarial Assumptions • Funded Ratio • Funding Methodology • Employer Contributions GROUP NUMBER NUMBER The increase in retiree population is consistent As of 12/31/12 As of 12/31/11 with expectations. Retired members and survivors of deceased members currently receiving 54,547 51,700 benefits The increase in active population means more Terminated members and survivors of deceased members entitled to benefits but benefits accruing, but not yet receiving benefits 47,663 44,350 also more contributions supporting the System. Active members 122,270 121,638 Total 224,480 217,688 Refer to Tables on pages 4 and 5 of the actuarial valuation report for more information on the member data submitted for the valuation. 4 Local Governmental Employees ’ Retirement System – December 31, 2012 Valuation Results

INPUT RESULTS • Member Data • Actuarial Value of Assets • Asset Data • Actuarial Accrued Liability Active Members and Payroll • Benefit Provisions • Net Actuarial Gain or Loss • Actuarial Assumptions • Funded Ratio • Funding Methodology • Employer Contributions $6,000,000,000 150,000 Slight $5,000,000,000 125,000 increase in Reported Compensation compensation Active Members and active $4,000,000,000 100,000 population since prior $3,000,000,000 75,000 year results in higher normal cost. $2,000,000,000 50,000 $1,000,000,000 25,000 $0 0 2008 2009 2010 2011 2012 Actives Reported Compensation Refer to page 1 of the actuarial valuation report for a side-by-side comparison from the 5 past two valuations. Local Governmental Employees ’ Retirement System – December 31, 2012 Valuation Results

INPUT RESULTS Retired Members and Survivors of • Member Data • Actuarial Value of Assets • Asset Data • Actuarial Accrued Liability • Benefit Provisions • Net Actuarial Gain or Loss • Actuarial Assumptions • Funded Ratio Deceased Members • Funding Methodology • Employer Contributions $1,200,000,000 60,000 Steady $1,000,000,000 50,000 increase in amount of Annual Pensions Retired Beneficiaries benefits paid $800,000,000 40,000 out of fund, increasing as $600,000,000 30,000 expected based on plan assumptions. $400,000,000 20,000 $200,000,000 10,000 $0 0 2008 2009 2010 2011 2012 Beneficiaries Pensions Refer to page 1 of the actuarial valuation report for a side-by-side comparison from the 6 past two valuations. Local Governmental Employees ’ Retirement System – December 31, 2012 Valuation Results

INPUT RESULTS • Member Data • Actuarial Value of Assets • Asset Data • Actuarial Accrued Liability Asset Data • Benefit Provisions • Net Actuarial Gain or Loss • Actuarial Assumptions • Funded Ratio • Funding Methodology • Employer Contributions Transactions December 31, 2012 December 31, 2011 Additions Contributions 722,864,146 712,937,950 Net Investment Income 377,556,093 2,094,466,028 Total 2,817,330,174 1,090,494,043 Deductions 940,715,534 Benefits Payments 1,002,122,276 Net Increase / (Decrease) 1,815,207,898 149,778,509 Net Assets Held in Trust for Pension Benefits Beginning of Year 17,908,429,907 17,758,651,398 End of Year 17,908,429,907 19,723,637,805 Estimated net investment return 11.79% 2.14% Returns were more than the 7.25% assumed rate of return, resulting in lower contributions than anticipated as of December 31, 2012 based on the baseline projections presented at the April 2013 board meeting. Refer to Schedule A on page 13 of the actuarial valuation report, for more information on the plan assets submitted for the valuation. 7 Local Governmental Employees ’ Retirement System – December 31, 2012 Valuation Results

INPUT RESULTS • Member Data • Actuarial Value of Assets • Asset Data • Actuarial Accrued Liability Benefit Provisions • Benefit Provisions • Net Actuarial Gain or Loss • Actuarial Assumptions • Funded Ratio • Funding Methodology • Employer Contributions  Benefit provisions are described in North Carolina General Statutes, Chapter 128  There were no significant changes since the prior year’s valuation Refer to Schedule C of the actuarial valuation report, beginning on page 20, for a 8 summary of the benefit provisions submitted for the valuation. Local Governmental Employees ’ Retirement System – December 31, 2012 Valuation Results

INPUT RESULTS • Member Data • Actuarial Value of Assets • Asset Data • Actuarial Accrued Liability Actuarial Assumptions • Benefit Provisions • Net Actuarial Gain or Loss • Actuarial Assumptions • Funded Ratio • Funding Methodology • Employer Contributions  Demographic (future events that relate to people) • Retirement • Termination • Disability • Death  Economic (future events that relate to money) • Interest rate - 7.25% per year • Salary increase (individual, varies by service) • Real return – 4.25% • Payroll growth – 3.00% The latest assumptions were adopted for use with the December 31, 2009 actuarial valuation, based on the experience study prepared as of December 31, 2009 and adopted by the Board of Trustees on October 21, 2010. Our next experience study will be prepared as of December 31, 2014 and presented to the Board in October 2015. Refer to Schedule B of the actuarial valuation report, beginning on page 14, for more information on the actuarial assumptions used for the valuation. 9 Local Governmental Employees ’ Retirement System – December 31, 2012 Valuation Results

INPUT RESULTS • Member Data • Actuarial Value of Assets • Asset Data • Actuarial Accrued Liability Funding Methodology • Benefit Provisions • Net Actuarial Gain or Loss • Actuarial Assumptions • Funded Ratio • Funding Methodology • Employer Contributions  The Funding Methodology is the payment plan for the Retirement System and is composed of the three following components: • Actuarial Cost Methods allocate costs to the actuarial accrued liability for past service and normal cost for current service – Board has adopted a frozen entry age cost method – Separate initial valuations for each employer to account for prior service – Normal cost captures payment for all other unfunded liability – Effective amortization period is dictated by demographics of active members and actuarial assumptions – See next slide for recent change in unfunded accrued liability methodology • Asset Valuation Methods smooth or average the market value returns over time to alleviate contribution volatility that results from market returns – 20% of market value plus 80% of expected actuarial value – Asset corridor: not greater than 120% of market value and not less than 80% of market value Schedule B of the actuarial valuation report, beginning on page 14, provides more information on the funding methodology. 10 Local Governmental Employees ’ Retirement System – December 31, 2012 Valuation Results