North Carolina Department of State Treasurer

Local Governmental Employees’Retirement System (LGERS)

North Carolina League of Municipalities Conference

Raleigh, NCOctober 25, 2011

• LGERS 101 – The Basics

• Comparison to other Pension Plans

• Operational Highlights

3 Topics for Discussion

LGERS 101 – The Basics

Local Governmental Employees’ Retirement System (LGERS) began in 1945 with 18 participating local governments and 2,102 members

NOW:• 888 participating governmental entities: (cities, counties, towns, local

commissions, etc.)

• 212,866 Total Participants* • 49,204 Retirees and beneficiaries receiving benefit payments• 41,077 Terminated participants and beneficiaries entitled to benefits but

not yet receiving benefits• 122,585 Active Participants

• $18.5 Billion in Assets*

*data from actuarial valuation as of 12/31/10

LGERS Plan Provisions

Eligibility• Employed by a participating unit and works at least 1,000 hours per year

Employee Contributions• 6% of salary

Employer Contributions• Approximately 6.88% of salary• Unfunded accrued liability

Tax sheltering• Upon employer resolution

Vesting requirements• 5 years of creditable service

LGERS Plan Provisions (con’t).

Service Required for Full (Unreduced) Retirement• 30 years of creditable service• age 60 with 25 years of creditable service • age 65 with 5 years of creditable service (age 55 with 5 years for law

enforcement officers)

Formula for Full Retirement Benefit • 1.85% of AFC (Average Final Compensation of the 4 consecutive years of

salary that produce the highest average) times the years of creditable service. 1.85% x AFC x years of service = annual retirement benefit

Early Retirement & Disability Retirement• Applicable

3 Funding Sources

The Retirement Systems assets come from 3 sources:

• Full-time employees contribute 6% of each paycheck

• Employers contribute annually based on recommendations from the System’s actuary and Board approval

• Earnings from investments made by State Treasurer’s office

LGERS Funding Sources Illustrated

FUNDING

Employee Contributions - 13.3%Employer Contributions - 12.9%Return on investments - 73.8%

For calendar year 2010, these amounts equate to the above percentages of total system funding.

NC Retirement Systems

• Continues to be one of the most secure pension systems in the country

• Program Evaluation Division (PED) of the NC General Assembly ranked TSERS 6th out of 84 public plans – Sept 2011 report

• National Institute on Retirement Security (NIRS) highlighted NC (TSERS plan) as one of 6 states which has weathered the financial storms of recent years – June 2011

• 2009 NASRA (National Association of State Retirement Administrators) Public Pension Fund Survey lists TSERS as having the 4th highest funding ratio among the 50 states

Current Public Sector Retirement Plan Types by US States

• Defined benefit (DB) plan – provides lifetime income based on a formula that includes years of service and salary. The majority of states (38) have this type of plan & investment risk is borne by the state/employer (i.e. LGERS)

• Defined contribution (DC) plan – provides income based on the value of the employee’s account balance. Michigan and Alaska require all new hires to participate solely in DC plan & investment risk is on the employee

• Hybrid plans – Employees are required to participate in both a DB & a DC plan. States include: Georgia, Indiana, Oregon, and Utah

• Choice plans – Employees choose between DB or DC plan. States include: Colorado, Florida, Montana, Ohio, South Carolina, and Washington

• Source: NC General Assembly Program Evaluation Division based on analysis of Center for Retirement Research’s 2011 report

LGERS Funding Status

Actuarial Valuation Date Funded Ratio* • 12/31/04 99.3%• 12/31/05 99.4%• 12/31/06 99.5%• 12/31/07 99.5%• 12/31/08 99.6%• 12/31/09 99.5% • 12/31/10 99.6%

* Funded ratio = Assets/Liabilities

Contribution History

1975 1980 1985 1990 1995 2000 2005 2010 20150

1

2

3

4

5

6

7

8

LGERS Contribution History

Series1 Series3

Year Beginning July 1,

Bas

e C

ontri

butio

n as

% o

f Pay

LGERS Multiplier

LGERS Multiplier

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

2.00%

Year

October 20, 2011 Board of Trustees Meeting

• Annual Required Contributions

• Unfunded Accrued Liability

• New Local

• 18 basis points gain ($10 million)

Projected Employer Contributions

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 $0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

0.00%

5.00%

10.00%

15.00%

20.00%

0.10% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

4.80%

6.35%6.88% 6.74% 7.17% 7.39% 7.55% 7.63% 7.65% 7.63% 7.57% 7.49%

December 31st Undistributed Gains COLA Payable July 1st July 1 Required Base Contribution Rates

Und

istri

bute

d G

ains

CO

LAs

and

Req

uire

d B

ase

Con

tribu

tion

Rat

es

Based on December 31, 2010 results with an assumed annual increase in active membership and CPI for each calendar year after 2010 of 0% and 3%, annual market returns of 7.25% for calendar

years after 2010

North Carolina Local Governmental Employees' Retirement SystemProjection of Undistributed Gains, COLAs and Required Base Con-

tribution Ratesand a valuation interest rate of 7.25%.

A2010

Contribution Benchmarks

• Average public fund: 8.7% of pay

• Neighboring States: South Carolina: 8.05% Tennessee: 9.36%

Georgia: 10.39% Virginia: varies up to 22%

Source: Public Fund Survey

LGERS & TSERS Plan Features Are Either Less Generous or Typical Than Other State’s Plans

Less Generous • Final average salary• Benefit formula multiplier

Typical• Employee contribution rate• Years of service and age for normal retirement• Vesting (less generous in TSERS) 5 yrs. vs. 10

Source: Wisconsin Legislative Council, 2008 as referenced in General Assembly PED report – Sept. 2011

Cost of Living Adjustments (COLA’s)

• TSERS and LGERS grant COLA’s on an ad hoc basis (not automatic)

• Over 50 of the 84 plans examined by the General Assembly PED report grant COLA’s on an automatic basis

Many States Have Recently Changed Plan Features

Cost-Saving Measure Number of States Increase employee contributions 29Increase normal retirement age and/or service requirement 27*Decrease final average salary 25Decrease automatic COLA’s 17Increase vesting years 14*Decrease formula multiplier 13

*Includes North Carolina

Source: National Conference of State Legislatures, 2005 – June 2011 as referenced in General Assembly PED Report - Sept 2011

Operational Highlights

• Call Volume

• Payroll

• Retirements

• Death Notifications

Questions?