Notes to the Financial Statements

June 30, 2015

Note 11 Other Retirement Systems Administered by the State of Connecticut

The State acts solely as the administrator and custodian of the assets of the Connecticut Municipal Employees'
 Retirement System (MERS) and the Connecticut Probate Judges and Employees Retirement System (CPJERS). The State makes no contribution to and has only a fiduciary responsibility for these funds. None of the above mentioned systems issue stand-alone financial reports. However, financial statements for MERS and CPJERS are presented in Note No. 12.

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

   MERS    CPJERS
   6/30/2014    12/31/2013
Retirees and beneficiaries       
receiving benefits    6,511    364
Terminated plan members entitled       
to but not receiving benefits    1,258    142
Active plan members    8,477    346
Total    16,246    852
Number of participating employers    187    1

Connecticut Municipal Employees' Retirement System
Plan Description

MERS is a cost-sharing multiple-employer defined benefit pension plan that covers fire, police, and other personnel (except teachers) of participating municipalities in the State. Pension plan assets are pooled and the plan assets can be used to pay the pensions of the retirees of any participating employer. Plan benefits, cost-of-living adjustments, contribution requirements of plan members and participating municipalities, and other plan provisions are described in Chapters 7-425 to 7-451 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
Plan members are required to contribute 2.25 percent to 5.0 percent of their annual salary. Participating municipalities are required to contribute at an actuarial determined rate. The participating municipalities fund administrative costs of the plan.

Investment Policy
The State Treasurer employs several outside consulting firms as external money and investment managers, to assist the Chief Investment Officer as they manage the investment programs of the pension plans. Plan assets are managed primarily through asset allocation decisions with the main objective being to maximize investment returns over the long term at an acceptable level of risk. There is no concentration of investments in any one organization that represents 5.0 percent or more of plan net position available for benefits.

   MERS   
   Target    Long-Term Expected
Asset Class    Allocation    Real Rate of Return
Large Cap U.S. Equities    16.0%    5.8%
Developed Non-U.S. Equities    14.0%    6.6%
Emerging Markets (Non-U.S.)    7.0%    8.3%
Real Estate    7.0%    5.1%
Private Equity    10.0%    7.6%
Alternative Investment    8.0%    4.1%
Fixed Income (Core)    8.0%    1.3%
High Yield Bonds    14.0%    3.9%
Emerging Market Bond    8.0%    3.7%
Inflation Linked Bonds    5.0%    1.0%
Cash    3.0%    0.4%

The long-term expected rate of return on pension plan investments was determined using a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation.

Net Pension Liability of Participating Employers
The components of the net pension liability for MERS at June 30, 2014 were as follows (amounts in millions): 

    MERS
Employers' Total Pension Liability    $2,501
Fiduciary Net Position    2,263
Employers' Net Pension Liability    $238
Ratio of Fiduciary Net Position  to Total Pension Liability     90.48%

Discount Rate
The discount rate used to measure the total pension liability was 8 percent for MERS. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. The long-term expected rate of return on pension plan investments was applied to all period of projected benefit payments to determine the total pension liability.

Sensitivity of the net pension liability to changes in the discount rate
The following presents the net pension liability of MERS, calculated using the discount rate of 8 percent as well as what the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower or 1- percentage-point higher than the current rate (amounts in millions):

1%
Decrease in
Rate
Current
Discount Rate
1% Increase in Rate
Net Pension Liability $544 $238 $(20)

Net difference between projected and actual investment earnings on pension plan investments
Deferred outflows and inflows related to differences between projected and actual earnings on plan investments are netted and amortized over a closed five year period. The collective amount of the net difference between projected and actual investment earnings as of June 30, 2014 compared to the plan's expected rate of return of 8 percent was $107,180,000. The first year amortization of $21,436,000 is recognized as pension expense and the remaining amount is shown as a deferred inflow of resources. Each employer's proportional share of these collective amounts is presented on the schedules of pension amounts by employer.

Deferred outflows and deferred inflows of resources
The cumulative net amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in future pension expense as follows (amounts in thousands):   

   

  

Collective
Deferred
Inflows of
Resources
Net difference between projected and actual   earnings on plan investments     $85,744

Amounts recognized in subsequent fiscal years:

2015    $21,436
2016    21,436
2017    21,436
2018    21,436

The above amounts do not include the deferred outflows/inflows of resources for employer contributions made subsequent to the measurement date. These amounts should be calculated and recorded by each participating employer.

Collective Pension Expense
Collective pension expense includes certain current period changes in the collective net pension liability, projected earnings on pension plan investments and the amortization of deferred outflows of resources and deferred inflows of resources for the current period. The collective pension expense for the period ended June 30, 2014 is as follows (amounts in thousands):

Service Cost    $59,763
Interest on the total pension liability    185,379
Member Contributions    (18,998)
Projected earnings on plan investments    (150,628)
Expensed portion of current period differences  between projected and actual earnings on plan investments    
 (21,436)
Other    (13)
Collective Pension Expense    $54,067

Actuarial Assumptions
The total pension liability was determined by an actuarial valuation as of June 30, 2014, using the following actuarial assumptions, applied to all periods included in the measurement date:

Inflation   3.25%
Salary increase   4.25-11.0%, including inflation
Investment rate of return   8.00%, net of pension plan investment expense, including inflation
  

Mortality rates were based on the RP-2000 Combined Mortality Table for annuitants and non-annuitants (set forward one year for males and set back one year for females).

Connecticut Probate Judges and Employees' Retirement System
Plan Description
CPJERS is an agent multi-employer defined benefit pension plan that covers judges and employees of probate courts. Plan benefits, cost-of-living adjustments, required contributions of plan members and the probate court system, and other plan provisions are described in Chapters 45a-34 to 45a-56 of General Statutes. The plan provides retirement, disability, and death benefits, and annual cost-of-living adjustments to plan members and their beneficiaries.

Pension plan assets are pooled for investment purposes but separate accounts are maintained for each individual court so that each court's share of the pooled assets is legally available to pay the benefits of only its employees. The plan is administered by the State Employee's Retirement Commission.

Funding
Plan members are required to contribute 1.0 percent to 3.75 percent of their annual salary. The probate court system is required to contribute at an actuarial determined rate. Administrative costs of the plan are funded by the probate court system.

Pension Liability
Information concerning the CPJERS total pension liability and significant assumptions used to measure the plans total pension liability, such as inflation, salary changes, discount rates and mortality are available by contacting the State Comptroller's Retirement Division.