South Dakota
Retirement System
Effective Benefit Management and
Allocation of SDRS Resources
September 5-6, 2012
1
Minimum SDRS Sustainability
Equation
Income
Outgo
Contributions
+
Investment
Income
Benefits
+
Expenses
2
Ideal SDRS Sustainability Equation
3
Unsustainable Equation
4
The SDRS Sustainability Equation
Contributions + Investment Return = Benefits + Expenses
•
Historically in balance except for 2009-2010; Board recommended
corrective actions
•
SDRS has frequently met ideal standard with healthy Cushion
•
Currently, SDRS expected to be slightly out of balance due to:
– Board adopted assumption changes
– Expected smaller future Investment Return and less Income
– Relatively small Cushion
– Fixed contributions and commitment to manage SDRS within current resources
•
Review of Benefits one option to restore balance
5
July 1, 2011 Funding Requirements
Amortization
and Interest
0.98%
Expense .25%
2%
8%
90%
Normal Cost
11.25%
Funding Policy Contribution Rate:
12.48% of Pay
Total Anticipated Contribution Rate: 12.48% of Pay
6
Relative Cost of SDRS Benefits
Current Benefit Design and Assumptions
7
First Step in Benefit Review
Identify:
•
Subsidies
•
Inequities
•
Inefficiencies
•
Higher costs than anticipated
•
Above/below competitive practices
•
Conflicts with good public policy and/or HR objectives
8
Subsidies?
Board Review of the Following Potential Subsidies
•Special Early Retirement
•Early Retirement
•Benefits for:
– Married members
– Large families
– Young spouses
•Class A/Class B
•Alternate Formula
•Retire/rehire
•Pre-retirement Survivor and Disability Benefits
9
Benefit Inequities?
Board Review of the Following Potential Inequities
•
Higher benefits for married members and large families
•
Class A/Class B
•
Alternate Formula
•
Retire/Rehire
•
Final Average Pay (salary spiking)
.
10
Benefit Inefficiencies?
Board Review of the Following Potential Inefficiencies
•
Pre-retirement Survivor Benefits
•
Pre-retirement Disability Benefits
•
COLA in excess of CPI
.
11
Higher Costs than Anticipated?
Board Review of the Following Potential Areas of Higher Costs than
Anticipated
•Retire/Rehire
•Final Average Pay
•Alternate Formula
•Class A/Class B
•Lifetime benefits due to improving life expectancy
.
12
Benefits Above/Below Competitive
Practices
Above Competitive Practices
Below Competitive Practices
• COLA
• Class A Benefit Formula
• Three-Year Final Average Pay
• Service Credits
• Three-year Vesting
• Portable Retirement Option
• Indexing deferred Vested Benefits
• Post-retirement Survivor Benefits
• Pre-retirement Survivor Benefits
• Pre-retirement Disability Benefits
• Alternate Formula
• Early Retirement reductions
13
Conflicts with Good Public Policy
and/or Human Resource Objectives?
Board Review of the Following Potential Conflicts with Good Public Policy
and/or Human Resource Objectives
•Normal Retirement eligibility
•Early Retirement incentives
•COLA that exceeds inflation
•Total Survivor and Disability Benefits that exceed 100% of pay
•PRO benefits for non-vested members
•Alternate Formula
14
Other Issues: Varying Benefits with
Funded Status or Economic Measures
Why? SDRS costs would automatically reduce in bad times and increase
in good times
•
Current examples:
– COLA is indexed to Funded Status and partially to CPI
– Interest on accumulated contributions indexed to T-Bill rate
•
Possible additional applications
– Performance Account for additional benefit improvements
– Index retirement age to improved life expectancy
– Introduce DC component to SDRS plan design with smaller DB component
15
What Next?
•
Define the amounts needed to maintain actuarial balance
•
Determine what subsidies, inequities, inefficiencies, higher costs, and
above competitive practices exist and significance
•
Analyze and prioritize
•
Consider legislative changes for 2013 Legislation
16