November 3, 2010

Robert Baus
Charles Casella
Claude Poulin
Richard Cosgrove

Jeanne Kopek, Acting Director, Retirement Services Division
Tom Cavanaugh, Cavanaugh Macdonald Consulting, LLC
Ed Koebel, Cavanaugh Macdonald Consulting, LLC

The meeting began at about 2:15 p.m. Tom Cavanaugh and Ed Koebel appeared to present the draft results of the June 30, 2010 State Employees Retirement System (SERS) and Judges, Family Support Magistrates and Compensation Commissioners Retirement System (JFSMCCRS) actuarial valuations.

Ed began by discussing the transition of SERS processing from the Commission's former actuarial firm, Milliman USA. Cavanaugh Macdonald Consulting, LLC (CavMac) found Milliman's methods for the 2008 actuarial valuation to be very reasonable. CavMac results reflected a slightly lower unfunded actuarial accrued liability and normal cost. Slight differences can be attributed to differences in computer systems and processing methods. CavMac did however find that Milliman appeared to have a high liability for death and disability for Tier IIA actives possibly in connection with the $100,000 death benefit. Some discussion of the funding for this benefit occurred. In connection with the transition for JFSMCCRS, CavMac results reflected slightly higher annual payroll and actuarial accrued liability and a lower total contribution rate.

Ed went over the SERS census results for 2010. As expected due to the 2009 RIP, active membership is down and the number of retired members is up. Active payroll numbers are down about 65; average pay increased by .1 percent while annual benefit amounts went way up. The actuarial accrued liability went down for actives but was up for retired, beneficiaries and deferred vested members and the resulting total was close to that projected by Milliman. The employer normal cost and rate went down. The market value of assets reflected an estimated rate of return of 11.56%. The actuarial value of assets was arrived at by making adjustments back to 2005 to reflect the change in the method of developing the actuarial value of assets approved for use in connection with SERS and JFSMCCRS at the May meeting during the review of the Probate Judges and Employees Retirement System (PJERS) actuarial valuation results. Discussion of the effect of the Longley decision on the valuation was discussed and it was determined that the report does reflect the retroactive application of Longley to the extent that the benefits for some retirees prior to Longley have been adjusted. The annual required contribution results reflect the SEBAC agreements; the system funding policy is a decreasing amortization since 1991 set thru negotiations.

The JFSMCCRS valuation reflects a drop in the number of active members and increase in retirees. Annual payroll numbers decreased while annual benefit amounts rose. And the actuarial accrued liability decreased for actives and rose for retired, beneficiaries and deferred active members. The estimated rate of return on market value of assets was 13.42%. The actuarial value of assets for JFSMCCRS was also arrived at using the revised method used for SERS and PJERS.

At the subcommittee's request, Tom addressed the Governmental Accounting Standards Board (GASB) Preliminary Views on major issues related to Pension Accounting and Financial Reporting by Employers (PV). GASB's schedule is to produce a draft statement in June 2011 and a final statement in June 2012. Tom expects that the effective date of the final statement could be even farther out. The PV will require businesses to put the UAL versus the MVA on their balance sheet; any change in retirement liability would be recognized immediately with no amortization; actuarial liability would be reflected over the average working lifetime; market return on assets would be outside 15% corridor and any amount above 15% would be expensed immediately. Tom advised that he was not sure how it would be determined when pensions would run out if money. Tom explained that the PV addresses how an employer accounts for pension costs and is not intended for funding. New methods will be more difficult for multi-employer plans such as MERS.

The recent SEBAC ARP Grievance Award was discussed. Ms. Yelmini requested that Tom advise the Division of CavMac's availability to meet to discuss the charts created for the calculation of the full actuarial cost for ARP members to purchase credit in SERS for past service. Ms. Yelmini explained that one of their concerns was the ability to refund contributions made by ARP members should such member become deceased before reaching eligibility for receipt of a SERS pension. The procedures currently used for purchases of service and refunds in SERS were discussed. Tom will advise the Acting Director of CavMac's availability.

Mr. Baus moved, seconded by Mr. Poulin that CavMac prepare the final reports for the actuarial valuation of SERS and JFSMCCRS as adjusted for presentation at the November 18, 2010 meeting of the Retirement Commission. All members were in favor of the motion.

The meeting adjourned at about 4:15 p.m.

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