Joint Budget CommitteeStaff Budget Balancing Recommendations and Options

May 11, 2020

Ron Baker, Executive DirectorAmy C. McGarrity, Chief Investment Officer

EMBRACING CHANGEto position PERA for the future

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JBC Staff Budget Balancing Recommendations and Options Concerning PERAFY 2020-21 Treasury JBC Staff Budget Balancing Document

» Suspend PERA Direct Distribution• The JBC staff recommends that the Committee sponsor

legislation to (1) suspend the PERA Direct Distribution payment for FY 2020-21, currently scheduled July 1, 2020, and (2) permanently change the payment date of the PERA Direct Distribution from the first day of each fiscal year, July 1, to the last day of each fiscal year, June 30.

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JBC Staff Budget Balancing Recommendations and Options Concerning PERAFY 2020-21 Statewide Compensation Policies JBC Staff Budget Balancing Document

» Postpone PERA Employer Automatic Increase Adjustments of 0.5 percent• The JBC staff recommends that the Committee pursue legislation to postpone

the automatic increase adjustment for FY 2020-21 to FY 2021-22.

» Postpone PERA Employee Automatic Increase Adjustments of 0.5 percent• The JBC staff recommends that the Committee pursue legislation to postpone

the automatic increase adjustment for FY 2020-21 to FY 2021-22.

» Postpone PERA Employee Contribution Structural Increase of 0.75 percent• The JBC staff recommends that the Committee pursue legislation to postpone

the employee contribution structural increase of 0.75 percent for FY 2020-21 to FY 2021-22. Relatedly, staff recommends that the structural increase of 0.5 percent for FY 2021-22 be postponed to FY 2022-23.

» Shift 2.5 Percent of PERA Employer Contribution to Employees • The JBC staff recommends that the Committee pursue legislation to

implement a PERA contribution swap of 2.5 percent for FY 2020-21 for budget balancing purposes.

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JBC Staff Budget Balancing Recommendations and Options Concerning PERAAddendum to the Statewide Compensation JBC staff balancing document

» Reduce AED and SAED rates by 2.5 percent• The JBC staff as an additional balancing action and “next step”

recommendation, includes a 2.5 percent decrease in the AED and SAED rates, currently set at 5.0 percent for state employees, as outlined in ‘JBC Staff Memo: Addendum to the Statewide Compensation JBC staff balancing document’ dated May 1. The JBC staff recommends such a change for state employees in the State Division only.

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Funded Ratio Comparison School Division

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 2056 2058

Pe

rce

nta

ge

December 31Baseline (as of 12/31/18)

Baseline and 20% as of 12/31/19, 0% as of 12/31/20, and JBC Staff Recommendations & Options

Baseline and 20% as of 12/31/19, -5% as of 12/31/20, and JBC Staff Recommendations & Options

Baseline and 20% as of 12/31/19, -10% as of 12/31/20, and JBC Staff Recommendations & Options

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Funded Ratio Comparison School Division

Year Baseline (as of 12/31/18)

Baseline and 20% as of 12/31/19, 0% as of

12/31/20, and JBC Staff Recommendations &

Options

Baseline and 20% as of 12/31/19, -5% as of

12/31/20, and JBC Staff Recommendations &

Options

Baseline and 20% as of 12/31/19, -10% as of

12/31/20, and JBC Staff Recommendations &

Options

2018 57.92 57.92 57.92 57.92

2020 58.78 60.82 60.06 59.30

2022 58.03 60.60 57.97 55.34

2024 58.85 60.52 56.81 53.10

2026 59.71 61.55 57.45 53.34

2028 60.65 62.69 58.14 53.58

2030 61.74 64.01 58.94 53.88

2032 63.04 65.57 59.93 54.30

2034 64.62 67.43 61.16 54.90

2036 66.55 69.67 62.71 55.75

2038 68.91 72.37 64.66 56.96

2040 71.84 75.65 67.15 58.65

2042 75.31 79.50 70.17 60.84

2044 79.37 83.94 73.75 63.56

2046 84.00 88.96 77.90 66.84

2048 89.17 94.52 82.58 70.65

2050 94.82 100.57 87.75 74.94

2052 100.89 107.03 93.34 79.66

2054 107.31 113.83 99.29 84.74

2056 114.02 120.93 105.53 90.14

2058 120.97 128.26 112.02 95.78

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Contribution Impact Estimates Reflecting Elements of JBC Staff Recommendations and Options* Impacts Based on PERA-Includable Salary Amounts for the Division Trust Funds FY 2020-21

FY 2020-21Impacts

State SchoolLocal

GovernmentJudicial DPS Total

Suspend PERA Direct Distribution (75,594) (129,334) N/A (1,340) (18,732) (225,000)

Postpone PERA Employer Automatic Increase Adjustments of 0.5 percent

(15,369) (26,190) (3,495) (274) (3,778) (49,106)

Postpone PERA Employee Automatic Increase Adjustments of 0.5 percent

(15,369) (26,190) (3,495) (274) (3,778) (49,106)

Postpone PERA Employee Contribution Structural Increase of 0.75 percent

(23,054) (39,285) N/A (411) (5,667) (68,417)

Shift 2.5 Percent of PERA Employer Contribution to Employees Suspend PERA Direct Distribution

0 N/A N/A 0 N/A 0

Reduce AED and SAED rates by 2.5 percent (153,692) N/A N/A N/A N/A (153,692)

Total Estimated Impact = $ (545,321)

*(all contribution impact estimates in thousands)

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Additional Considerations

» PERA Direct Distribution Payment Date Change

» Automatic Adjustment Provision

» Defined Contribution Supplement

» Potential ramifications to State’s credit rating

Questions