State of Connecticut

Notes to the Financial Statements

June 30, 2010

Note 11 State Retirement Systems

The State sponsors three major public employee retirement systems: the State Employees' Retirement System (SERS)-consisting of Tier I (contributory), Tier II (noncontributory) and Tier IIA (contributory), the Teachers' Retirement System (TRS), and the Judicial Retirement System (JRS).

The State Comptroller's Retirement Division under the direction of the Connecticut State Employees Retirement Division administers SERS and JRS. The Teachers' Retirement Board administers TRS. None of the above mentioned systems issue stand-alone financial reports. However, financial statements for SERS, TRS, and JRS are presented in Note No. 13.

Plan Descriptions and Funding Policy
Membership of each plan consisted of the following at the date of the latest actuarial evaluation:

SERS TRS JRS
6/30/2010 6/30/2010 6/30/2010
Retirees and beneficiaries receiving benefits 41,782 30,493 212
Terminated plan members entitled to but not yet receiving benefits 1,602 1,315 2
Active plan members 50,064 51,368 230
Total 93,448 83,176 444

State Employees' Retirement System
Plan Description

SERS is a single-employer defined-benefit pension plan covering substantially all of the State full-time employees who are not eligible for another State sponsored retirement plan. Plan benefits, cost-of-living adjustments, contribution requirements of plan members and the State, and other plan provisions are described in Sections 5-152 to 5-192 of the General Statutes. The plan provides retirement, disability, and death benefits, and annual cost-of-living adjustments to plan members and their beneficiaries.

Funding Policy
The contribution requirements of plan members and the State are established and may be amended by the State legislature. Tier I Plan B regular and Hazardous Duty members are required to contribute 2 percent and 4 percent of their annual salary, respectively, up to the Social Security Taxable Wage Base plus 5 percent above that level; Tier I Plan C members are required to contribute 5 percent of their annual salary; Tier II Plan Hazardous Duty members are required to contribute 4 percent of their annual salary; Tier IIA Plan regular and Hazardous Duty members are required to contribute 2 percent and 5 percent of their annual salary, respectively. The State is required to contribute at an actuarially determined rate. Administrative costs of the plan are funded by the State. During fiscal year 2010, the State reduced the annual required contribution to the plan by $176.9 million to help reduce the deficit of the Stateís General fund.

Teachers' Retirement System
Plan Description
TRS is a single-employer defined-benefit pension plan covering any teacher, principal, superintendent, or supervisor engaged in service of public schools in the State. Plan benefits, cost-of-living allowances, required contributions of plan members and the State, and other plan provisions are described in Sections 10-183b to 10-183pp of the General Statutes. The plan provides retirement, disability, and death benefits, and annual cost-of-living adjustments to plan members and their beneficiaries.

Funding Policy
The contribution requirements of plan members and the State are established and may be amended by the State legislature. Plan members are required to contribute 6 percent of their annual salary. The State is required to contribute at an actuarially determined rate. Administrative costs of the plan are funded by the State.

Judicial Retirement System
Plan Description
JRS is a single-employer defined-benefit pension plan covering any appointed judge or compensation commissioner in the State. Plan benefits, cost-of-living allowances, required contributions of plan members and the State, and other plan provisions are described in Sections 51-49 to 51-51 of the General Statutes. The plan provides retirement, disability, and death benefits, and annual cost-of-living adjustments to plan members and their beneficiaries.

Funding Policy
The contribution requirements of plan members and the State are established and may be amended by the State legislature. Plan members are required to contribute 6 percent of their annual salary. The State is required to contribute at an actuarially determined rate. Administrative costs of the plan are funded by the State.

Annual Pension Cost and Net Pension Obligation
The State's annual pension cost and net pension obligation for each plan for the current year were as follows (amounts in thousands):

SERS TRS JRS
Annual required contribution $897,428 $559,224 $15,399
Interest on net pension obligation 213,181 (41,428) 4
Adjustment to annual required contribution (157,856) 35,358 (3)
Annual pension cost 952,753 553,154 15,400
Contributions made 720,527 559,224 -
Increase (decrease) in net pension obligation 232,226 (6,070) 15,400
Net pension obligation (asset) beginning of year 2,508,005 (487,390) 49
Net pension obligation (asset) end of year $2,740,231 $(493,460) $15,449

Three-year trend information for each plan is as follows (amounts in thousands):

Annual Percentage Net
Fiscal Pension of APC Pension
Year Cost (APC) Contributed Obligation/(asset)
SERS 2008 $776,227 91.7% $2,396,999
2009 $810,776 86.3% $2,508,005
2010 $952,753 75.6% $2,740,231
TRS 2008 $542,508 464.2% $(480,510)
2009 $532,423 101.3% $(487,390)
2010 $553,154 101.1% $(493,460)
JRS 2008 $13,435 100% $48
2009 $14,174 100% $49
2010 $15,400 0% $15,449

Funded Status and Funding Progress
The following is funded status information for each plan as of June 30, 2010 the most recent actuarial valuation date (amounts in millions):

Actuarial Actuarial Unfunded UAAL as a
Value of Accrued AAL Funded Covered Percentage of
Assets Liability (AAL) (UAAL) Ratio Payroll Covered Payroll
(a) (b) (b-a) (a/b) (c) ((b-a)/c)
SERF 9,349.6 21,054.2 11,704.6 44.4% 3,295.7 355.1%
TRF 14,430.2 23,495.9 9,065.7 61.4% 3,646.0 248.6%
JRF 179.7 276.8 97.1 64.9% 31.6 307.3%

The schedule of funding progress, presented as RSI following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits.

Actuarial Methods and Assumptions
The following is information as of the most recent actuarial valuation:

SERF TRF JRS
Valuation Date 6/30/2010 6/30/2010 6/30/10
Actuarial Cost Method Projected unit credit Entry Age Projected unit credit
Amortization Method Level percent of payroll, closed Level percent closed Level percent of payroll, closed
Remaining Amortization Period 21 Years 25.3 years 21 Years
Asset Valuation Method 5-year smoothed market 4- year smoothed market 5-year smoothed market
Actuarial Assumptions:
Investment Rate of Return 8.25% 8.5% 8.25%
Projected Salary Increases 4.0%-20.0% 4.0%-7.5% 5.25%
Includes inflation at 4.0% 4.0% 0.00%
Cost-of-Living Adjustments 2.7%-3.6% 2.0%-3.0% 2.75-5.25%


Defined Contribution Plan
The State also sponsors the Connecticut Alternate Retirement Program (CARP), a defined contribution plan. CARP is administered by the State Comptrollerís Retirement Office under the direction of the Connecticut State Employees Retirement Division. Plan provisions, including contribution requirements of plan members and the State, are described in Section 5-156 of the General Statutes.

Unclassified employees at any of the units of the Connecticut State System of Higher Education are eligible to participate in the plan. Plan members are required to contribute 5 percent of their annual salaries. The State is required to contribute 8 percent of covered salary. During the year, plan members and the State contributed $35.5 million and $24.6 million, respectively.