Notes to the Financial Statements

June 30, 2013

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) Tier IIA (contributory) and Tier III (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
   6/30/2012    6/30/2012    6/30/2012
Retirees and beneficiaries          
receiving benefits    43,887    32,294    239
Terminated plan members          
entitled to but not yet          
receiving benefits    1,561    1,609    2
Active plan members    47,868    49,808    204
Total    93,316    83,711    445

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 and Tier III Plans 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.

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    $1,059,652    $787,536    $16,006
Interest on net pension          
obligation    244,717    (42,725)    2,689
Adjustment to annual required          
contribution    (219,938)    54,236    (3,454)
Annual pension cost    1,084,431    799,047    15,241
Contributions made    1,058,113    787,536    16,006
Increase (decrease) in net          
pension obligation    26,318    11,511    (765)
Net pension obligation (asset)          
beginning of year    2,966,249    (502,643)    32,584
Net pension obligation (asset)          
end of year    $2,992,567    $(491,132)    $31,819

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    2011    $999,261    82.6%    $2,913,694
  2012    $978,898    94.6%    $2,966,249
  2013    $1,084,431    97.6%    $2,992,567
        
TRS    2011    $576,460    100.7%    $(498,593)
  2012    $753,196    100.5%    $(502,643)
  2013    $799,047    98.6%    $(491,132)
        
JRS    2011    $16,534    0%    $31,983
  2012    $15,696    96.2%    $32,584
  2013    $15,241    105.0%    $31,819

Funded Status and Funding Progress
The following is funded status information for each plan as of June 30, 2012 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    $9,745    $23,019    $13,274    42.3%    $3,355    395.7%
TRF    $13,735    $24,862    $11,127    55.2%    $3,653    304.7%
JRF    $175    $320    $145    54.7%    $30    477.9%

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    6/30/2012    6/30/2012    6/30/12
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    19 Years    22.4 years    19 Years
Asset Valuation Method    5-year smoothed actuarial value    4- year smoothed market    5-year smoothed actuarial value
Actuarial Assumptions:          
Investment Rate of Return    8.00%    8.5%    8.00%
Projected Salary Increases    4.00%-20.00%       3.75%-7.0%    4.75%
Includes inflation at    3.75%    3.0%    0.00%
Cost-of-Living Adjustments    2.3%-3.6%    2.0%-3.0%    2.30-4.75%

Defined Contribution Plan
The State also sponsors the Connecticut Alternate Retirement Program (CARP), a defined contribution plan. CARP is administered by the State Comptroller’s 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 $35.4 million and $16.9 million, respectively.