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The South Carolina Retirement Systems

VS

The S.C. Retirement System Investment Commission

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SCRS PORS GARS JSRS NGRS Total

Annuitants 111,394 12,566 346 194 3,951 128,451

Inactive

Members 156,871 11,899 36 4 2,683 171,493

Active

Members 190,239 26,568 196 144 12,445 229,592

Total 458,504 51,033 578 342 19,079 529,536

*Data as of July 1, 2010, actuarial valuation

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Monthly benefit payable for the member’s lifetime

Retirement age

65 with 5 years of service; or

any age with 28 years of service

The benefit is equal to 1.82% of members 3-year average

compensation times their years of service

Example: John Smith retires with an average final compensation of

$48,000 and 28 years of service

Annual retirement benefit is $24,460 (1.82% x $48,000 x 28)

Replaces almost 50% of the members pre-retirement pay

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The Depth

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Is the defined benefit plan as it existed at

7/1/2010 sustainable?

Who bears the “risks and costs” of the

plan?

Can the system “invest” itself out of the

problem?

What changes, if any, can “permanently

fix” the plan?

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SCRS PORS

Assets

Market Value $19.7B $2.9B

Actuarial Value $25.4B $3.6B

Liabilities

Actuarial Accrued Liability $38.8B $4.9B

Actuarial Information

Unfunded Actuarial Liability $13.4B $1.2B

Amortization Period 30 years 30 years

Funded Ratio 65.5% 74.5%

Unamortized Losses $5.7B $761M

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8

60%

70%

80%

90%

100%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Funded Ratios for SCRS, PORS 1999-2010

SCRS PORS

Actuarial assumptions:

One part educated guess

One part art

One part luck

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Significant sources of revenue to the plans:

Employee Contribution: 6.5 percent

Employer Contributions:

SCRS – 10.6 percent Beginning July 1, 2012

PORS – 12.3 percent Beginning July 1, 2012

Investment income

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12

6.8

5%

6.8

5%

6.8

5%

6.8

5%

6.8

5%

6.8

5%

6.8

5%

7.7

0%

8.2

0%

9.2

1%

9.3

9%

9.3

9%

9.3

9%

9.5

35

%

10

.60

0%

*12

.09

%

6.0

0%

6.0

0%

6.0

0%

6.0

0%

6.0

0%

6.0

0%

6.0

0%

6.2

5%

6.5

0%

6.5

0%

6.5

0%

6.5

0%

6.5

0%

6.5

0%

6.5

0%

*6

.50

%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Employer Contributions Employee Contributions *Expected

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Make up a large share of public pension revenues for mature plans

An average over last 17 years:

Investment Earnings – 60%

Employer contributions – 27%

Employee contributions – 13%

Investment Earnings

60%

Employee Contributions

13%

Employer Contributions

27%

*Chart source: NASRA, 2010 (based on U.S. Census data). Reprinted in the Center on Budget

and Policy Priorities May 12, 2011 report. 14

2.45% 4.75%

7.15%

0.93%

8.88% 8.76%

7.02% 5.13%

13.35%

-2.56%

-19.60%

14.62%

18.59%

-25.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Actual Return Assumed Rate of Return

7.25%

Average for 13-Year Period – 5.34%

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8%

Reduced actuarial assumed rate of return to 7.5 percent from 8 percent

Statute governing the provision of COLAs resulted in:

SCRS – automatic 1 percent

PORS – granted on an ad-hoc basis

Decrease inflation assumption from 3% to 2.75%

Improve the mortality assumption

Other miscellaneous demographic assumptions

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Change retirement eligibility

Actuarial cost for service purchase

Longer average final compensation period

Longer vesting period

Eliminate TERI/RTW provisions

Increased employee contribution

Pay benefit adjustments out of excess earnings

Payments for unused annual leave not included in AFC

Unused sick leave no longer counted as service credit in benefit

calculation

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SCRS and PORS are cost-sharing employer plans

Pension expense – the annual required contribution

amount (ARC)

Employer’s balance sheet liability is the difference between

the ARC and actual contribution

The Unfunded Liability is reported in notes to the

Retirement Systems’ financial statements

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GASB issued two Exposure Drafts in July 2011

Will amend financial statement reporting

Statement 25 deals with the financial statements

of pension plans

Statement 27 deals with the financial

statements of covered employers

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The employment exchange creates a future obligation

To disconnect the accounting for pensions from the

funding of pensions

Add additional note disclosures and required supplemental

information

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Require employers to recognize a portion of the Unfunded

Pension Liability on their balance sheet

Market value of assets used in calculating net pension

liability

New measure of pension expense in the financial

statements

Replacing most notes disclosures and removing actuarial

funding information

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Employer has covered payroll of $20.4 million

Total covered payroll of all SCRS employers equals $7.4

billion

End-of-year market value of assets equals $19.1 billion

($20.4m/$7.4b = .002757 X $19.1b =

$52.7 million net pension liability to be recognized by employer on the face of the financial statements

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Employer has covered payroll of $60.9 million

Total covered payroll of all SCRS employers equals $7.4

billion

End-of-year market value of assets equals $19.1 billion

($60.9m/$7.4b = .008230 X $19.1b =

$157.2 million net pension liability to be recognized by employer on the face of the financial statements

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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. OPINIONS EXPRESSED DURING THIS PRESENTATION AS TO THE

APPROPRIATE PUBLIC POLICY TO BE FOLLOWED REGARDING THE PLANS

ADMINISTERED BY THE SOUTH CAROLINA RETIREMENT SYSTEMS ARE THOSE OF THE

SPEAKER AND DO NOT NECESSARILY REFLECT THE OPINION OF THE RETIREMENT

SYSTEMS, THE S.C. BUDGET AND CONTROL BOARD, THE GENERAL ASSEMBLY OR ANY

PARTICULAR MEMBER OF THE GENERAL ASSEMBLY.

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.

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