Copyright © 2015 by The Segal Group, Inc. All rights reserved. GOVERNMENT OF THE VIRGIN ISLANDS RETIREMENT SYSTEM Prepared for the Legislature September 2015 Rocky Joyner, ASA, FCA, MAAA, EA Vice President & Actuary 2 Agenda 1. Actuarial Valuation and Review as of October 1, 2014 2. Projections of Market Value of Assets and Impact of Proposed Pension Reform Legislation 3. Questions This presentation was prepared under the supervision of Rocky Joyner, ASA, FCA, MAAA, EA, and Aldwin Frias, FSA, FCA, MAAA, EA 3 Actuarial Cost Analysis (in $Millions) October 1, 2013 October 1, 2014 1. Total Salary $370.1 $355.6 2. Normal Cost • Dollar $36.7 $36.6 • Percent of Salary 9.9% 10.3% 3. Actuarial Accrued Liability $3,080.5 $3,128.3 4. Unfunded Accrued Liability $1,843.3 $1,973.6 5. 20-year Amortization of the Unfunded Liability • Dollar $168.2 $180.1 • Percent of Salary 45.4% 50.6% 6. Annual Cost: (2) + (5) including Provision for Expenses* • Dollar $220.9 $232.7 • Percent of Salary 59.7% 65.4% 7. Annual Cost Net of Projected Employee Contributions • Dollar $189.7 $200.1 • Percent of Salary 51.3% 56.3% * Administrative expenses are assumed to be $16 Million for the October 1, 2013 and 2014 plan years. The annual cost continues to increase, with a 5% increase over the prior year. 4 Active Membership: 2006 - 2014 10,041 7,756 6,558 5,992 698 2,620 2,835 3,235 0 2,000 4,000 6,000 8,000 10,000 12,000 2006 2011 2013 2014 Tier 1 Tier 2 10,739 10,376 9,393 9,227 The Tier 2 provisions are applicable for those employees hired on or after October 1, 2005. The Tier 2 benefit formula is 30% lower than the Tier 1 formula. 5 Membership Summary Year Ended September 30 Category 2011 2013 2014 Active participants in valuation: Number 10,376 9,393 9,227 Average age 45.7 46.3 46.2 Average years of service 13.9 14.6 14.4 Average salary* $38,885 $39,405 $38,539 Retired members and beneficiaries: Number in pay status 7,592 8,024 8,465 Average age 69.4 69.5 69.7 Average semi-monthly benefit $1,104 $1,157 $1,168 * For regular and public safety employees limited at $65,000 Participant data as of September 30, 2014 was provided by GERS: Annual distributions will exceed $250 million in 2015. This is an estimated economic impact of over $600 million which is about 16% of the USVI GDP. 6 Contributions and Benefit Payments (in $Millions) 1.11 0.97 0.93 0.78 0.75 0.68 0.57 0.60 0.59 0.60 0.54 0.62 0.57 0.61 0.62 0.56 0.56 0.42 0.38 0.40 0.0 0.2 0.4 0.6 0.8 1.0 1.2 0 20 40 60 80 100 120 140 160 180 200 220 240 260 280 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Contributions Benefits and Expenses Ratio For the past 19 years, the System has negative cash flow. 7 Actuarial and Market Rates of Return 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Actuarial 8.7% 2.4% 13.8% 9.5% 10.2% 8.2% 5.6% 3.6% 5.0% 5.4% 6.0% 8.5% 11.7% 6.5% 5.1% 4.2% 2.8% 1.7% 5.8% 6.7% Market 14.3% 9.5% 18.8% 4.0% 11.3% 8.8% -4.9% -2.1% 17.6% 10.6% 11.8% 7.5% 14.1% -10.2% 2.9% 8.1% 1.5% 14.5% 9.1% 5.2% -15% -10% -5% 0% 5% 10% 15% 20% Actuarial Market Actuarial return reflects an averaging/smoothing process of market returns. Actuarial and market return for the year ended 9/30/2014 are based on draft financial statements. 8 Actuarial and Market Value of Assets (in $Millions) 600 800 1,000 1,200 1,400 1,600 1,800 Market Actuarial The Market Value of Assets has declined by almost 30% since 2007. 9 Summary of Current Key Benefit Provisions Service Pension Eligibility Tier 1—Amount Tier 2—Amount Regular Employees Age 60 with 10 years of service or any age with 30 years of service 2.5% of Final Average Salary* per year of service up to 100% 1.75% of Final Average Salary* per year of service up to 100% Public Safety Employees Age 55 with 10 years of service or any age with 20 years of service 3% of Final Average Salary* per year of service up to 90% 2.1% of Final Average Salary* per year of service up to 90% Legislature Age 50 with 6 years of service or any age with 20 years of service 2.5% of highest compensation for years 1-6 3% of highest compensation for years 7-12 4% of highest compensation for years above 12 up to a maximum of 75% 3.5% of highest compensation for years 1-6 4% of highest compensation for years 7-12 4.5% of highest compensation for years 13-20 5% of highest compensation for years above 20 up to a maximum of 100% Judges** Age 50 and have completed at least one term. One term is equivalent to 6 years of service 5% highest compensation per year of service up to 100% 5% highest compensation per year of service up to 100% * Final Average Salary for Regular and Public Safety employees is based on the average of the highest annual salary up to a maximum of $65,000 for any five years in the last 10 years. ** Board established Tier 2 for Judges on January 23, 2015 Early Pension Eligibility Amount Regular Employees Age 50 with 10 years of service Service pension reduced 3.9% per year less than age 60 Public Safety Employees Age 50 with 10 years of service Service pension reduced 3.9% per year less than age 55 Deferred Retirement (Vesting) Eligibility Amount 10 years of service and leave contributions in System Service pension accrued at termination 10 Summary of Current Key Benefit Provisions continued Contribution Rates Tier 1 Tier 2 Regular Employees 8% 8.5% Public Safety Employees 10% 10.625% Legislature 9% 11% Judges 11% 14% Employer 17.5% Non-Duty Connected Disability Eligibility Tier 1—Amount Tier 2—Amount 9 years of service and total and permanent disability 2% of Final Average Salary* per year of service Minimum of 20% Maximum of 60% 1.4% of Final Average Salary* per year of service Minimum of 14% Maximum of 42% * Final Average Salary for Regular and Public Safety employees is based on the average of the highest annual salary up to a maximum of $65,000 for any five years in the last 10 years. Post- Retirement COLAs Effective January 1, 2013, no annual increases apply to non-disabled pensioners 1% of the original retirement benefit each year up to age 60 for Disability Pensioners No annual increases apply to survivor annuitants Duty Connected Disability Eligibility Tier 1—Amount Tier 2—Amount Total and permanent disability as a result of performance of duty 75% of salary less workers compensation 52.5% of salary less workers compensation Severance Benefit Refund of contributions with 4% annual interest, if no other benefit is payable Starting January 1, 2015, the contribution rate for Tier 1 and Tier 2 employees increases 1% per year for 3 years and the employer contribution rate increases to 20.5%. Board established Tier 2 for Judges on January 23, 2015. 11 Key Assumptions and Methods Mortality Rates RP-2000 Combined Healthy Mortality Table set forward 2 years Sample Turnover Rates Retirement Rates for Actives Public Safety: Upon the attainment of the earlier of 25 years of service or 55 with 10 years of service Judges: Upon the attainment of age 50 with 20 years of service Legislature: Upon the attainment of age 53 with 6 years of service Net Investment Return 7.5% (assumes GERS cash flow issues are solved) Salary Scale 4.0% Age / Service Retirement Rates for Regular Members Males Females 54 and 30 years of service 20% 0% 57 and 30 years of service 30% 25% 60 and 30 years of service 30% 50% 63 and 10 years of service 100% 100% Age Regular Members Public Safety Members 22 7.9% 5.3% 32 6.9% 3.2% 42 4.7% 0.8% 12 70.8% 64.7% 59.4% 53.5% 45.7% 40.2% 36.9% 70.8% 58.5% 56.2% 55.6% 40.2% 40.7% 36.9% 30% 50% 70% 1999 2001 2003 2006 2011 2013 2014 AV assets to AAL MV assets to AAL Funded Percentages: 1999-2014 13 Contribution History: 1999-2014 The decline in funding % since 1999 is due in a large measure to statutory contributions being significantly less than needed for proper actuarial funding of the System. History of Employer Contributions Plan Year Ended September 30, Actuarially Determined Contributions Actual Contributions Percentage Contributed 1999 $62,237,129 $45,148,387 72.54% 2000 64,992,493 44,078,554 67.82% 2001 64,179,332 43,387,158 67.60% 2002 95,186,021 50,594,531 53.15% 2003 117,124,599 51,588,235 44.05% 2004 108,358,399 54,084,454 49.91% 2005 120,184,848 51,542,030 42.89% 2006 131,059,471 65,061,430 49.64% 2007 137,797,268 60,778,382 44.11% 2008 138,488,871 75,871,146 54.79% 2009 147,490,851 80,177,004 54.36% 2010 157,817,709 77,004,630 48.79% 2011 162,841,336 80,849,762 49.65% 2012 178,644,349 66,677,155 37.32% 2013 172,439,842 64,431,322 37.36% 2014 189,715,251 68,298,617 36.00% 14 Comparison of Funding % and Contribution % 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Percentage Contribution % Funding % 15 Actuarial, Employer and Employee Contribution Amounts (in $Millions) $55.5 $52.7 $52.6 $156.9 $168.2 $180.1 $70.6 $64.8 $70.2 $33.7 $31.2 $32.6 $0.0 $25.0 $50.0 $75.0 $100.0 $125.0 $150.0 $175.0 $200.0 $225.0 $250.0 $275.0 Normal Cost 20-year Amortization Employer Employee $212.3 $104.3 $220.9 $95.9 $232.7 $102.9 The annual contribution deficit on a dollar basis for 2014 is $129.9 million. The projected contributions for 2014 include the increase to employee and employer contribution rates effective January 1, 2015. 2011 2013 2014 16 At the current level of employer and employee contribution rates, there is a projected deficit of 36.5% of pay between the actuarially determined contributions and actual contributions after reflecting the increase to the employer and employee contribution rates effective January 1, 2015. 13.7% 14.2% 14.8% 38.9% 45.4% 50.6% 17.5% 17.5% 19.8% 8.4% 8.4% 9.2% 0% 25% 50% 75% Normal Cost 20-year Amortization Employer Employee 52.6% 25.9% 59.7% 25.9% 65.4% 28.9% Actuarial, Employer and Employee Contribution Rates 2011 2013 2014 17 Tier 2 employees have a lower normal cost percentage than Tier 1, but a higher average contribution rate. Comparison of Normal Cost and Contribution Rates by Tier for the year beginning October 1, 2014 Tier 1 Tier 2 Total 1. Total Salary ($Millions) $246.7 $108.9 $355.6 2. Normal Cost • Dollar ($ Millions) $27.1 $9.5 $36.6 • Percent of Salary 11.0% 8.7% 10.3% 3. Employee Contribution Rate 9.1% 9.4% 9.2% 18 Agenda 1. Preliminary Actuarial Valuation and Review as of October 1, 2014 2. Projections of Market Value of Assets and Impact of Proposed Pension Reform Legislation 3. GASB 67/68 Implementation This presentation was prepared under the supervision of Rocky Joyner, ASA, FCA, MAAA, EA, and Aldwin Frias, FSA, FCA, MAAA, EA 19 Projection Assumptions: The active population is assumed to remain level at 9,227 employees Total payroll of $355.6 million is assumed to increase 2.5% per year, but not greater than $615 million to reflect the $65,000 salary cap for Regular and Public Safety employees. • Under the scenarios showing increases in employer contribution rates, payroll is assumed to remain level during the period of contribution rate increases and then increase 2.5% per year thereafter in addition to any increases due to changes in salary limits. Administrative expenses are assumed to be $16 million during the fiscal year ending September 30, 2015 then increase with inflation Future actuarial accrued liability and expected benefit payments were determined based on an open group forecast with the number of active participants assumed to remain level and the new entrants to have similar characteristics to those hired in the past five years. • Projected benefit payments and actuarial accrued liability were updated based on the proposed pension reform legislation Unless otherwise stated, assets are assumed to earn a 7.5% market return each year Projection Parameters 20 Caveats: The closer the plan gets to insolvency, asset illiquidity may become an issue and earning the assumed return may become more difficult. Projections, by their nature, are not a guarantee of future results. The modeled projections are intended to serve as estimates of future financial outcomes that are based on the information available to us at the time the modeling is undertaken and completed, and the agreed-upon assumptions and methodologies described herein. Emerging results may different significantly if the actual experience proves to be different from these assumptions or if alternative methodologies are used. Actual experience may differ due to such variables as demographic experience, the economy, stock market performance and the regulatory environment. Periodic review and updates of projections should be performed to measure how well the proposed plan modifications are working out in actual practice. Projection Parameters continued 21 Comparison of Projected Market Value of Assets Assumes 7.5% Market Rate of Return for all years $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 $1.4 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Billions Market Value as of September 30: Reflecting Contribution Rate Changes effective January 1, 2015 Prior to Contribution Rate Changes effective January 1, 2015 22 Comparison of Projected Market Value of Assets $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 $1.4 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Billions Market Value as of September 30: 7.5% return for all years 7.5% return for the year ended 9/30/2015 and annual 0.5% decreases in annual return thereafter 10.0% return for the year ended 9/30/2015 and 7.5% thereafter -10.0% return for the year ended 9/30/2015 and 7.5% thereafter 20.0% return for the year ended 9/30/2015 and 7.5% thereafter -20.0% return for the year ended 9/30/2015 and 7.5% thereafter 23 Projection of Market Value of Assets (in $Millions) Year ending Sept. 30: Contributions Disbursements Return on Assets Market Value of Assets Funded Percentage (AVA/AAL) Employee Employer Benefit Shortfall Benefit Payments Expenses 2014 $1,154.3 37% 2015 $32.6 $70.2 - $263.2 $16.0 $80.0 1,057.9 34% 2016 36.3 74.7 - 262.5 16.5 73.0 963.0 31% 2017 41.0 76.6 - 259.7 17.0 66.3 870.1 28% 2018 43.0 78.5 - 258.8 17.5 59.5 774.8 25% 2019 44.2 80.5 - 258.5 18.0 52.4 675.3 22% 2020 45.3 82.5 - 270.8 18.5 44.6 558.4 18% 2021 46.5 84.5 - 271.4 19.1 35.9 434.9 14% 2022 47.8 86.7 - 273.9 19.7 26.6 302.4 10% 2023 49.1 88.8 - 274.2 20.3 16.8 162.6 5% 2024 50.4 91.0 - 275.2 20.9 6.4 14.3 0% 2025 51.7 93.3 $138.9 276.7 21.5 - - 0% 2026 53.1 95.6 150.8 277.4 22.1 - - 0% 2027 54.5 98.0 148.3 278.0 22.8 - - 0% 2028 55.9 100.5 146.9 279.8 23.5 - - 0% 2029 57.4 103.0 144.0 280.2 24.2 - - 0% 2030 58.9 105.6 139.7 279.3 24.9 - - 0% 2031 60.4 108.2 135.6 278.5 25.7 - - 0% 2032 62.0 110.9 130.4 276.9 26.4 - - 0% 2033 63.6 113.7 125.2 275.2 27.2 - - 0% 2034 65.2 116.5 119.1 272.8 28.1 - - 0% Annual Net Investment Return: 7.5% Employer Contribution Rate: 17.5% of payroll increased to 20.5% effective January 1, 2015 Employee Contribution Rate: 3.0% increase over three years beginning in 2015 (for all employees) After reflecting the contribution rate increases, projected insolvency is during the year ending September 30, 2025, a two year delay from the prior scenario. 24 Plan of Benefits Contribution Rates For all regular and public safety employee provide benefits for salaries above $65,000 • 1% of the difference between each year’s salary and $65,000 if the salary is over $65,000 • Benefits above $65,000 are limited to the Social Security cap ($118,500) in 2015 • Applies for plans years on or after October 1, 2015 Tier 2 benefit accruals based on compensation each year and no longer based on average compensation at retirement (i.e. career average benefit design) • We have assumed this change would be made for all years of service not prospectively Prior proposed changes including modifications to retirement ages for Tier 2 employees and a reduction in Tier 1 benefits were not included in this study No additional contribution rate increases are included in the proposed pension reform legislation other than the following increases effective January 1, 2015: • Employer: Effective January 1, 2015 the contribution rate increased from 17.5% to 20.5%. • Employee: Effective January 1, 2015 the contribution rate increased 1%, followed by two additional annual increases of 1%. As a result of the change in the plan of benefits to allow for benefit accruals above salaries of $65,000, contributions will also be made for salaries in excess of $65,000. Summary of Proposed Pension Reform Legislation 25 Actuarial Cost Analysis (in $Millions) Impact of Proposed Pension Reform Legislation Proposed Changes to Benefit Provisions – Effect on Total Costs Amounts Based on October 1, 2014 Actuarial Valuation ($Millions) October 1, 2014 Proposed Pension Reform 1. Total Salary $355.6 $369.7 2. Normal Cost • Dollar $36.6 $36.3 • Percent of Salary 10.3% 9.8% 3. Actuarial Accrued Liability $3,128.3 $3,126.5 4. Unfunded Accrued Liability $1,973.6 $1,971.8 5. 20-year Amortization of the Unfunded Liability • Dollar $180.1 $179.9 • Percent of Salary 50.6% 48.7% 6. Annual Cost: (2) + (5) including Provision for Expenses • Dollar $232.7 $232.2 • Percent of Salary 65.4% 62.8% 26 14.8% 14.1% 50.6% 19.8% 19.8% 9.2% 9.2% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% Normal Cost 20-year Amortization Employer Contributions Employee Contributions 28.9% 65.4% 62.8% Proposed Changes Comparison of Alternative Annual Plan Costs Impact of Proposed Pension Reform Legislation Current Plan 48.7% 28.9% These results are based on the October 1, 2014 valuation and reflects the impact of the Proposed Pension Reform Legislation summarized on slide 30 27 The decrease in the normal cost of Tier 2 employees is primarily due to the change from a final average salary design to a career average salary design. Comparison of Normal Cost and Contribution Rates by Tier as of October 1, 2014 Tier 1 Current Plan Tier 1 Proposed Changes Tier 2 Current Plan Tier 2 Proposed Changes 1. Total Salary ($Millions) $246.7 $257.4 $108.9 $112.3 2. Normal Cost • Dollar ($ Millions)* $27.1 $27.0 $9.5 $8.7 • Percent of Salary 11.0% 10.3% 8.7% 7.7% 3. Employee Contribution Rate 9.1% 9.1% 9.4% 9.4% 4. Net Employer Normal Cost 1.9% 1.2% -0.7% -1.7% 28 Comparison of Projected Market Value of Assets $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Billions Market Value as of September 30: Current Plan Proposed Pension Legislation Proposed Pension Legislation and Additional Employer CR Increases Proposed Pension Legislation and $600 Million Increase in Assets Proposed Pension Legislation, $600 Million Increase and ER CR Increases All scenarios assume a 7.5% investment return for all years 29 Projection of Market Value of Assets (in $Millions) Impact of Proposed Pension Reform Legislation Annual Net Investment Return: 7.5% Employer Contribution Rate: 17.5% of payroll increased to 20.5% effective January 1, 2015 Employee Contribution Rate: 3.0% increase over three years beginning in 2015 (for all employees) Proposed Pension Reform Year ending Sept. 30: Contributions Disbursements Return on Assets Market Value of Assets Funded Percentage (AVA/AAL) Employee Employer Benefit Shortfall Benefit Payments Expenses 2014 $1,154.3 37% 2015 $32.6 $70.2 - $263.2 $16.0 $80.0 1,057.9 34% 2016 37.7 77.7 - 262.6 16.5 73.2 967.4 31% 2017 42.6 79.6 - 260.0 17.0 66.8 879.4 29% 2018 44.7 81.6 - 259.0 17.5 60.3 789.5 25% 2019 45.9 83.7 - 258.9 18.0 53.7 695.9 23% 2020 47.1 85.8 - 271.1 18.5 46.3 585.3 19% 2021 48.3 87.9 - 271.8 19.1 38.1 468.7 15% 2022 49.6 90.1 - 275.2 19.7 29.3 342.8 11% 2023 50.9 92.3 - 274.8 20.3 20.0 211.0 7% 2024 52.3 94.7 - 278.1 20.9 10.1 69.1 2% 2025 53.7 97.0 $80.5 278.8 21.5 - - 0% 2026 55.1 99.4 145.9 278.3 22.1 - - 0% 2027 56.5 101.9 143.4 279.0 22.8 - - 0% 2028 58.0 104.5 141.7 280.7 23.5 - - 0% 2029 59.6 107.1 138.7 281.2 24.2 - - 0% 2030 61.1 109.8 134.5 280.4 24.9 - - 0% 2031 62.7 112.5 130.2 279.7 25.7 - - 0% 2032 64.4 115.3 124.6 277.9 26.4 - - 0% 2033 66.0 118.2 119.0 276.0 27.2 - - 0% 2034 67.7 121.2 112.6 273.4 28.1 - - 0% The proposed benefit changes do not impact the short term funding shortfall. Assets are still projected to be depleted during the plan year ending September 30, 2025 30 Projection of Market Value of Assets (in $Millions) Increase in employer contribution rate to 35.5% ultimate rate Annual Net Investment Return: 7.5% Employer Contribution Rate: 3.0% increases every two years starting 1/1/2017 to an ultimate rate of 35.5% by 1/1/2025 Employee Contribution Rate: 3.0% increase over three years beginning in 2015 (for all employees) Proposed Pension Reform Year ending Sept. 30: Disbursements Return on Assets Market Value of Assets Funded Percentage (AVA/AAL) Employee Employer Benefit Shortfall Benefit Payments Expenses 2014 $1,154.3 37% 2015 $32.6 $70.2 - $263.2 $16.0 $80.0 1,057.9 34% 2016 37.7 77.7 - 262.6 16.5 73.2 967.4 31% 2017 41.5 86.2 - 260.0 17.0 67.0 885.1 29% 2018 43.6 91.3 - 259.0 17.5 61.1 804.5 26% 2019 43.6 100.0 - 258.9 18.0 55.3 726.6 23% 2020 44.8 105.5 - 271.1 18.5 49.3 636.5 21% 2021 44.8 114.5 - 271.8 19.1 42.8 547.6 18% 2022 46.0 120.4 - 275.2 19.7 36.3 455.3 15% 2023 46.1 129.6 - 274.8 20.3 29.7 365.6 12% 2024 47.3 136.0 - 278.1 20.9 23.1 272.9 9% 2025 47.3 145.4 - 278.8 21.5 16.4 181.7 6% 2026 48.6 152.2 - 278.3 22.1 9.9 92.0 3% 2027 49.9 156.0 $3.9 279.0 22.8 - - 0% 2028 51.2 159.9 93.1 280.7 23.5 - - 0% 2029 52.6 163.9 88.9 281.2 24.2 - - 0% 2030 54.0 168.0 83.3 280.4 24.9 - - 0% 2031 55.4 172.2 77.8 279.7 25.7 - - 0% 2032 56.8 176.5 71.0 277.9 26.4 - - 0% 2033 58.3 180.9 64.0 276.0 27.2 - - 0% 2034 59.8 185.5 56.2 273.4 28.1 - - 0% 31 Projection of Market Value of Assets (in $Millions) Includes $600 million increase in assets during the year ended 9/30/2015 Annual Net Investment Return: 7.5% Employer Contribution Rate: 17.5% of payroll increased to 20.5% effective January 1, 2015 Employee Contribution Rate: 3.0% increase over three years beginning in 2015 (for all employees) Proposed Pension Reform Year ending Sept. 30: Disbursements Return on Assets Market Value of Assets Funded Percentage (AVA/AAL) Employee Employer Benefit Shortfall Benefit Payments Expenses 2014 $1,154.3 37% 2015 $32.6 $70.2 - $263.2 $16.0 $80.0 1,657.9 53% 2016 37.7 77.7 - 262.6 16.5 118.2 1,612.4 52% 2017 42.6 79.6 - 260.0 17.0 115.1 1,572.8 51% 2018 44.7 81.6 - 259.0 17.5 112.3 1,534.9 50% 2019 45.9 83.7 - 258.9 18.0 109.6 1,497.1 48% 2020 47.1 85.8 - 271.1 18.5 106.4 1,446.7 47% 2021 48.3 87.9 - 271.8 19.1 102.7 1,394.7 46% 2022 49.6 90.1 - 275.2 19.7 98.8 1,338.2 44% 2023 50.9 92.3 - 274.8 20.3 94.7 1,281.1 43% 2024 52.3 94.7 - 278.1 20.9 90.4 1,219.5 41% 2025 53.7 97.0 - 278.8 21.5 85.8 1,155.7 39% 2026 55.1 99.4 - 278.3 22.1 81.2 1,091.0 37% 2027 56.5 101.9 - 279.0 22.8 76.4 1,024.1 35% 2028 58.0 104.5 - 280.7 23.5 71.5 954.0 34% 2029 59.6 107.1 - 281.2 24.2 66.3 881.5 31% 2030 61.1 109.8 - 280.4 24.9 61.1 808.2 29% 2031 62.7 112.5 - 279.7 25.7 55.7 733.8 27% 2032 64.4 115.3 - 277.9 26.4 50.4 659.4 25% 2033 66.0 118.2 - 276.0 27.2 45.0 585.4 22% 2034 67.7 121.2 - 273.4 28.1 39.7 512.5 20% Assets are projected to be depleted during the year ending September 30, 2043. 32 Projection of Market Value of Assets (in $Millions) Includes $600 million increase in assets during the year ended 9/30/2015 Annual Net Investment Return: 7.5% Employer Contribution Rate: 3.0% increases every two years starting 1/1/2017 to an ultimate rate of 35.5% by 1/1/2025 Employee Contribution Rate: 3.0% increase over three years beginning in 2015 (for all employees) Proposed Pension Reform Year ending Sept. 30: Disbursements Return on Assets Market Value of Assets Funded Percentage (AVA/AAL) Employee Employer Benefit Shortfall Benefit Payments Expenses 2014 $1,154.3 37% 2015 $32.6 $70.2 - $263.2 $16.0 $80.0 1,657.9 53% 2016 37.7 77.7 - 262.6 16.5 118.2 1,612.4 52% 2017 41.5 86.2 - 260.0 17.0 115.3 1,578.5 51% 2018 43.6 91.3 - 259.0 17.5 113.1 1,549.9 50% 2019 43.6 100.0 - 258.9 18.0 111.2 1,527.9 49% 2020 44.8 105.5 - 271.1 18.5 109.4 1,497.9 49% 2021 44.8 114.5 - 271.8 19.1 107.4 1,473.6 48% 2022 46.0 120.4 - 275.2 19.7 105.7 1,450.8 48% 2023 46.1 129.6 - 274.8 20.3 104.3 1,435.7 48% 2024 47.3 136.0 - 278.1 20.9 103.3 1,423.3 48% 2025 47.3 145.4 - 278.8 21.5 102.7 1,418.3 48% 2026 48.6 152.2 - 278.3 22.1 102.6 1,421.4 49% 2027 49.9 156.0 - 279.0 22.8 103.0 1,428.5 50% 2028 51.2 159.9 - 280.7 23.5 103.7 1,439.1 51% 2029 52.6 163.9 - 281.2 24.2 104.6 1,454.8 52% 2030 54.0 168.0 - 280.4 24.9 106.0 1,477.5 54% 2031 55.4 172.2 - 279.7 25.7 107.9 1,507.6 56% 2032 56.8 176.5 - 277.9 26.4 110.4 1,547.0 58% 2033 58.3 180.9 - 276.0 27.2 113.6 1,596.6 61% 2034 59.8 185.5 - 273.4 28.1 117.6 1,658.0 64% 33 Agenda 1. Preliminary Actuarial Valuation and Review as of October 1, 2014 2. Projections of Market Value of Assets and Impact of Proposed Pension Reform Legislation 3. Questions This presentation was prepared under the supervision of Rocky Joyner, ASA, FCA, MAAA, EA, and Aldwin Frias, FSA, FCA, MAAA, EA 34 Questions Rocky Joyner Vice President & Actuary rjoyner@segalco.com 678-306-3119 8200545 35 Appendix 36 Projection of Market Value of Assets (in $Millions) Year ending Sept. 30: Contributions Disbursements Return on Assets Market Value of Assets Funded Percentage (AVA/AAL) Employee Employer Benefit Shortfall Benefit Payments Expenses 2014 $1,154.3 37% 2015 $32.6 $70.2 - $263.2 $16.0 $80.0 1,057.9 34% 2016 36.3 74.7 - 262.5 16.5 68.2 958.1 31% 2017 41.0 76.6 - 259.7 17.0 57.1 856.1 27% 2018 43.0 78.5 - 258.8 17.5 46.7 748.1 24% 2019 44.2 80.5 - 258.5 18.0 37.0 633.1 20% 2020 45.3 82.5 - 270.8 18.5 27.6 499.2 15% 2021 46.5 84.5 - 271.4 19.1 18.9 358.7 11% 2022 47.8 86.7 - 273.9 19.7 11.2 210.7 6% 2023 49.1 88.8 - 274.2 20.3 4.6 58.7 1% 2024 50.4 91.0 $96.0 275.2 20.9 - - 0% 2025 51.7 93.3 153.1 276.7 21.5 - - 0% 2026 53.1 95.6 150.8 277.4 22.1 - - 0% 2027 54.5 98.0 148.3 278.0 22.8 - - 0% 2028 55.9 100.5 146.9 279.8 23.5 - - 0% 2029 57.4 103.0 144.0 280.2 24.2 - - 0% 2030 58.9 105.6 139.7 279.3 24.9 - - 0% 2031 60.4 108.2 135.6 278.5 25.7 - - 0% 2032 62.0 110.9 130.4 276.9 26.4 - - 0% 2033 63.6 113.7 125.2 275.2 27.2 - - 0% 2034 65.2 116.5 119.1 272.8 28.1 - - 0% Annual Net Investment Return: 7.5% for the year ended September 30, 2015 followed by annual 0.5% decreases Employer Contribution Rate: 17.5% of payroll increased to 20.5% effective January 1, 2015 Employee Contribution Rate: 3.0% increase over three years beginning in 2015 (for all employees) If the market rate of return declines by ½% each year, assets are projected to be depleted during the plan year ending September 30, 2024 37 Projection of Market Value of Assets (in $Millions) Year ending Sept. 30: Contributions Disbursements Return on Assets Market Value of Assets Funded Percentage (AVA/AAL) Employee Employer Benefit Shortfall Benefit Payments Expenses 2014 $1,154.3 37% 2015 $32.6 $70.2 - $263.2 $16.0 $106.6 1,084.6 35% 2016 36.3 74.7 - 262.5 16.5 75.0 991.6 33% 2017 41.0 76.6 - 259.7 17.0 68.4 900.9 29% 2018 43.0 78.5 - 258.8 17.5 61.8 807.9 26% 2019 44.2 80.5 - 258.5 18.0 54.9 710.9 23% 2020 45.3 82.5 - 270.8 18.5 47.3 596.7 19% 2021 46.5 84.5 - 271.4 19.1 38.8 476.0 15% 2022 47.8 86.7 - 273.9 19.7 29.7 346.6 11% 2023 49.1 88.8 - 274.2 20.3 20.1 210.1 7% 2024 50.4 91.0 - 275.2 20.9 10.0 65.4 2% 2025 51.7 93.3 $87.8 276.7 21.5 - - 0% 2026 53.1 95.6 150.8 277.4 22.1 - - 0% 2027 54.5 98.0 148.3 278.0 22.8 - - 0% 2028 55.9 100.5 146.9 279.8 23.5 - - 0% 2029 57.4 103.0 144.0 280.2 24.2 - - 0% 2030 58.9 105.6 139.7 279.3 24.9 - - 0% 2031 60.4 108.2 135.6 278.5 25.7 - - 0% 2032 62.0 110.9 130.4 276.9 26.4 - - 0% 2033 63.6 113.7 125.2 275.2 27.2 - - 0% 2034 65.2 116.5 119.1 272.8 28.1 - - 0% Annual Net Investment Return: 10.0% for the year ended September 30, 2015 followed by 7.5% each year thereafter Employer Contribution Rate: 17.5% of payroll increased to 20.5% effective January 1, 2015 Employee Contribution Rate: 3.0% increase over three years beginning in 2015 (for all employees) 38 Projection of Market Value of Assets (in $Millions) Year ending Sept. 30: Contributions Disbursements Return on Assets Market Value of Assets Funded Percentage (AVA/AAL) Employee Employer Benefit Shortfall Benefit Payments Expenses 2014 $1,154.3 37% 2015 $32.6 $70.2 - $263.2 $16.0 $213.2 1,191.2 41% 2016 36.3 74.7 - 262.5 16.5 83.0 1,106.2 38% 2017 41.0 76.6 - 259.7 17.0 77.0 1,024.1 35% 2018 43.0 78.5 - 258.8 17.5 71.0 940.4 31% 2019 44.2 80.5 - 258.5 18.0 64.8 853.3 27% 2020 45.3 82.5 - 270.8 18.5 57.9 749.7 24% 2021 46.5 84.5 - 271.4 19.1 50.3 640.6 21% 2022 47.8 86.7 - 273.9 19.7 42.1 523.5 17% 2023 49.1 88.8 - 274.2 20.3 33.4 400.3 13% 2024 50.4 91.0 - 275.2 20.9 24.2 269.8 9% 2025 51.7 93.3 - 276.7 21.5 14.5 131.1 4% 2026 53.1 95.6 $19.7 277.4 22.1 - - 0% 2027 54.5 98.0 148.3 278.0 22.8 - - 0% 2028 55.9 100.5 146.9 279.8 23.5 - - 0% 2029 57.4 103.0 144.0 280.2 24.2 - - 0% 2030 58.9 105.6 139.7 279.3 24.9 - - 0% 2031 60.4 108.2 135.6 278.5 25.7 - - 0% 2032 62.0 110.9 130.4 276.9 26.4 - - 0% 2033 63.6 113.7 125.2 275.2 27.2 - - 0% 2034 65.2 116.5 119.1 272.8 28.1 - - 0% Annual Net Investment Return: 20.0% for the year ended September 30, 2015 followed by 7.5% each year thereafter Employer Contribution Rate: 17.5% of payroll increased to 20.5% effective January 1, 2015 Employee Contribution Rate: 3.0% increase over three years beginning in 2015 (for all employees) 39 Projection of Market Value of Assets (in $Millions) Year ending Sept. 30: Contributions Disbursements Return on Assets Market Value of Assets Funded Percentage (AVA/AAL) Employee Employer Benefit Shortfall Benefit Payments Expenses 2014 $1,154.3 37% 2015 $32.6 $70.2 - $263.2 $16.0 -$106.6 871.3 23% 2016 36.3 74.7 - 262.5 16.5 59.1 762.4 21% 2017 41.0 76.6 - 259.7 17.0 51.2 654.5 19% 2018 43.0 78.5 - 258.8 17.5 43.3 543.1 17% 2019 44.2 80.5 - 258.5 18.0 35.0 426.2 14% 2020 45.3 82.5 - 270.8 18.5 25.9 290.6 9% 2021 46.5 84.5 - 271.4 19.1 15.8 146.9 5% 2022 47.8 86.7 $12.2 273.9 19.7 - - 0% 2023 49.1 88.8 156.5 274.2 20.3 - - 0% 2024 50.4 91.0 154.6 275.2 20.9 - - 0% 2025 51.7 93.3 153.1 276.7 21.5 - - 0% 2026 53.1 95.6 150.8 277.4 22.1 - - 0% 2027 54.5 98.0 148.3 278.0 22.8 - - 0% 2028 55.9 100.5 146.9 279.8 23.5 - - 0% 2029 57.4 103.0 144.0 280.2 24.2 - - 0% 2030 58.9 105.6 139.7 279.3 24.9 - - 0% 2031 60.4 108.2 135.6 278.5 25.7 - - 0% 2032 62.0 110.9 130.4 276.9 26.4 - - 0% 2033 63.6 113.7 125.2 275.2 27.2 - - 0% 2034 65.2 116.5 119.1 272.8 28.1 - - 0% Annual Net Investment Return: -10.0% for the year ended September 30, 2015 followed by 7.5% each year thereafter Employer Contribution Rate: 17.5% of payroll increased to 20.5% effective January 1, 2015 Employee Contribution Rate: 3.0% increase over three years beginning in 2015 (for all employees) 40 Projection of Market Value of Assets (in $Millions) Year ending Sept. 30: Contributions Disbursements Return on Assets Market Value of Assets Funded Percentage (AVA/AAL) Employee Employer Benefit Shortfall Benefit Payments Expenses 2014 $1,154.3 37% 2015 $32.6 $70.2 - $263.2 $16.0 -$213.2 764.7 17% 2016 36.3 74.7 - 262.5 16.5 51.1 647.8 16% 2017 41.0 76.6 - 259.7 17.0 42.6 531.3 14% 2018 43.0 78.5 - 258.8 17.5 34.0 410.6 12% 2019 44.2 80.5 - 258.5 18.0 25.1 283.8 10% 2020 45.3 82.5 - 270.8 18.5 15.2 137.5 5% 2021 46.5 84.5 $22.0 271.4 19.1 - - 0% 2022 47.8 86.7 159.2 273.9 19.7 - - 0% 2023 49.1 88.8 156.5 274.2 20.3 - - 0% 2024 50.4 91.0 154.6 275.2 20.9 - - 0% 2025 51.7 93.3 153.1 276.7 21.5 - - 0% 2026 53.1 95.6 150.8 277.4 22.1 - - 0% 2027 54.5 98.0 148.3 278.0 22.8 - - 0% 2028 55.9 100.5 146.9 279.8 23.5 - - 0% 2029 57.4 103.0 144.0 280.2 24.2 - - 0% 2030 58.9 105.6 139.7 279.3 24.9 - - 0% 2031 60.4 108.2 135.6 278.5 25.7 - - 0% 2032 62.0 110.9 130.4 276.9 26.4 - - 0% 2033 63.6 113.7 125.2 275.2 27.2 - - 0% 2034 65.2 116.5 119.1 272.8 28.1 - - 0% Annual Net Investment Return: -20.0% for the year ended September 30, 2015 followed by 7.5% each year thereafter Employer Contribution Rate: 17.5% of payroll increased to 20.5% effective January 1, 2015 Employee Contribution Rate: 3.0% increase over three years beginning in 2015 (for all employees)