Retirement System Review Board of Supervisors Personnel Committee - PowerPoint PPT Presentation

Retirement System Review Board of Supervisors Personnel Committee Meeting Philip Hagen, Budget Services Coordinator October 3, 2017

Agenda ▪ Application of Potential Benefit Changes ▪ Tentative Timeline ▪ Impact of Cost Savings on Contribution Rates ▪ Potential Plan Design Changes for New Hires ▪ Retirement Eligibility Requirements ▪ Option 1 – Rule of 90 (ERS) ▪ Option 2 – Minimum Retirement Age of 60 (ERS) and 50 (URS/PORS) ▪ Salary Averaging Period ▪ Option 3 – 5-Year Salary Averaging Period (All) ▪ Pre-Social Security Supplement ▪ Option 4 – Eliminate Pre-Social Security Supplement (ERS/URS) Option 5 – Limit Pre-Social Security Supplement to 5 (ERS) and 7 (URS) Years ▪ ▪ Retiree Cost-of-Living Adjustments ▪ Option 6 – Limit Application of Retiree COLA (All) ▪ Examples of Packages of Changes ▪ Discussion October 3, 2017 Retirement System Review 2

Application of Potential Benefit Changes ▪ If changes are approved by the Board, they would apply to new employees hired on or after January 1, 2019 ▪ No benefit changes for current employees or retirees ▪ Following Board direction, staff is working to improve the knowledge transfer process during DROP. The policy changes necessary to provide greater focus on succession planning during DROP will impact employees’ responsibilities during DROP but will not impact the benefit structure for current employees. ▪ If a feasible structure for a pre-Social Security supplement buyout can be established and is approved by the Board of Supervisors, then current employees would be able to decide whether to participate in the program or continue under the current benefit structure. October 3, 2017 Retirement System Review 3

Tentative Timeline ▪ Fall 2017 – Spring 2018 ▪ Engagement with employees ▪ Discussions with FCPS ▪ Review/discussion of changes to plans by a subcommittee of the Board ▪ Summer/Fall 2018 – Implementation of changes in code ▪ Changes effective for new hires on or after January 1, 2019 October 3, 2017 Retirement System Review 4

Breakdown of Employer Contributions ▪ The chart on the right shows the FY 2018 Employer Contribution Rate Components estimated components of the FY 2018 45% Employer Contribution Rates 40% ▪ The Normal Cost represents the benefits 35% accrued by active employees each year 30% Amortization Amortization 20.12% 21.62% 25% ▪ Changes made to the retirement systems Expense 20% will only impact the Normal Cost 0.40% Expense Amortization 0.25% 16.30% components 15% Expense Normal Cost 10% Normal Cost 0.25% ▪ The Normal Cost components shown 18.46% 16.97% Normal Cost 5% represent the blended values of the pre- 8.74% 0% and post-2013 plans Employees' Uniformed Police October 3, 2017 Retirement System Review 5

Impact of Cost Savings on Contribution Rates ▪ For changes to the retirement systems that only FY 2000 through FY 2034 impact new hires, savings will accrue gradually as new employees are hired under the new plans 110% 100% 100% ▪ Following the Board’s adopted retirement funding 90% policy, the employer contribution rates will not be 80% reduced until each plan is fully funded Lower Rates 70% ▪ Prior to full funding, savings from any changes will Reach 100% 60% result in either: Funding Faster 50% ▪ Mitigation of other factors that put upward pressure on 40% the employer contribution rates 30% 29% 29% 29% 29% 29% 29% 29% 29% 29% 29% 29% 29% ▪ Faster progress toward full funding of the systems 28% 27% 25% 23% 22% 20% 20% 19% 19% 18% 17% ▪ After the systems are fully funded: 15% 10% 10% 10% 10% 9% 8% 8% 8% 6% 6% 6% 6% 6% ▪ The employer contribution rate will be reduced to the 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 0% Normal Cost 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 ▪ Savings from changes will be realized as a lower Normal Fiscal Year Cost EE Contribution ER Contribution Funding Ratio October 3, 2017 Retirement System Review 6

Impact of Cost Savings on Contribution Rates ▪ The chart on the right January 2013 Changes Reduction in Employer Normal Cost shows the reduction in 20% Normal Cost that will 18.54% Plan A 0.56% 18% 17.01% Plans B/D 17.98% Plan B Decrease of eventually occur as a 0.89% 3% of total 16% Decrease of result of the January 16.12% Plan E Normal Cost 5% of total 14% 2013 changes to the Normal Cost 12% systems 10% 8.86% Plans A/B ▪ Savings related to 1.16% 8% new plan design 7.70% Plans C/D Decrease of 6% 13% of total changes will impact Normal Cost 4% these reduced Normal 2% Costs 0% Employees' Uniformed Police October 3, 2017 Retirement System Review 7

Potential Plan Design Changes ▪ The options presented in the following slides are not an exhaustive list of potential plan design changes. Additional options that could be explored with actuarial analysis of their cost impact include: ▪ Reduced multiplier for new hires ▪ Capped benefit level for new hires ▪ Use of sick leave for retirement purposes for new hires ▪ Increased employee contribution rate for new hires ▪ Wage types included in benefit calculation for new hires ▪ Optional buy-out of pre-Social Security supplement for existing employees October 3, 2017 Retirement System Review 8

Retirement Eligibility Requirements Potential Plan Design Changes for New Hires October 3, 2017 Retirement System Review 9

Retirement Eligibility Comparison General Employees Jurisdiction Retirement Eligibility Minimum Retirement Age Rule of 85 Fairfax County Employees Retirement System (ERS) -or- 55 Plans C/D Age 65 with 5 Years of Service Rule of 90 Virginia Retirement System (VRS) Hybrid Plan -or- None (Alexandria, FCPS, Loudoun, Prince William) Normal Social Security Retirement Age with 5 Years of Service Minimum Retirement with 30 Years of Service -or- Federal Government (FERS) Age 60 with 20 Years of Service 55 - 57 -or- Age 62 with 5 Years of Service Rule of 80 -or- Arlington County 30 Years of Service None -or- Age 62 with 5 Years of Service October 3, 2017 Retirement System Review 10

Retirement Eligibility Comparison General Employees Earliest Retirement Age by Age at Hire 80 75 Earliest Retirement Age 70 65 60 55 50 45 40 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 Age at Hire VRS Hybrid ERS C/D October 3, 2017 Retirement System Review 11

Retirement Eligibility Comparison Public Safety Employees Jurisdiction Retirement Eligibility Minimum Retirement Age 25 Years of Service Fairfax County Uniformed Retirement System (URS) -or- None Plan E Age 55 with 6 Years of Service 25 Years of Service Fairfax County Police Officers Retirement System -or- None (PORS) Plan B Age 55 25 Years of Service Virginia Retirement System (VRS) Plan 2 -or- 50 (Loudoun, Prince William) Age 60 with 5 Years of Service Federal Government (FERS) 20 Years of Service 50 25 Years of Service City of Alexandria -or- 50 Age 55 with 5 Years of Service 25 Years of Service Arlington County -or- None Age 52 with 5 Years of Service October 3, 2017 Retirement System Review 12

Retirement Eligibility Comparison Public Safety Employees Earliest Retirement Age by Age at Hire 80 75 Earliest Retirement Age 70 65 60 55 50 45 40 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 Age at Hire VRS Plan 2 URS PORS October 3, 2017 Retirement System Review 13

Option 1: Rule of 90 (ERS) Potential Plan Design Changes for New Hires October 3, 2017 Retirement System Review 14

Potential Change for New Hires Rule of 90 in the Employees’ System ▪ Increase the Rule of 85 (Age + Service) Rule of 90 Reduction in Employer Normal Cost to the Rule of 90 to match VRS 0% Rule of 90 Normal Cost decreases by ▪ Applies only to ERS -5% 1.0% (From 7.70% ▪ Estimated to impact 73% of new hires to 7.62% of pay) -10% ▪ Employees would typically be required to work for 2.5 more years prior to -15% retirement -20% ▪ Annuity payments would increase due to: -25% ▪ Greater years of service ▪ Higher final average salary -30% Employees' Uniformed Police October 3, 2017 Retirement System Review 15

Retirement Eligibility Comparison General Employees – Rule of 90 Earliest Retirement Age by Age at Hire 80 75 Earliest Retirement Age 70 65 60 55 50 45 40 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 Age at Hire VRS Hybrid ERS C/D Rule of 90 October 3, 2017 Retirement System Review 16

Rule of 90 Projected Impact on Future New Hire Population 100% 90% Percent of Employees (cumulative) 80% 70% 60% 50% 40% Rule of 90 30% 20% 10% 0% 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 Projected Earliest Retirement Age ERS A/B ERS C/D URS PORS ERS - Rule of 90 October 3, 2017 Retirement System Review 17