MINUTES OF MEETING
STATE EMPLOYEES RETIREMENT COMMISSION
ACTUARIAL SUBCOMMITTEE

November 12, 2008

MEMBERS PARTICPATING
Peter R. Blum, Chairman
Robert Baus
Charles Casella
Richard Cosgrove
Claude Poulin
Steve Greatorex
Linda Yelmini

OTHER PARTICPANTS
Dr. Thomas Woodruff, Director, Retirement Services Division
Jeanne Kopek, Assistant Director, Retirement Services Division
Althea Schwartz, Milliman
Rebecca Sielman, Milliman

The meeting was held by conference call and began at about 2:00.

Becky Sielman began by presenting the highlights of the June 30, 2008 draft valuation report for the Judges, Family Support Magistrates and Compensation Commissioners Retirement System (JFSMCCRS).

Becky advised that although there was a lot going on behind the scenes this year with respect to membership changes - 17 deaths, including 1 active member, 14 retirements and 18 new active members - the overall picture had not much change at all. The total membership changed from 438 to 446 with the active membership increasing by only 2 members.

On the compensation side, Becky explained that the fact that there were no pay raises reflected in this valuation resulted in a significant gain to the system since there was no increase to retirement salary if there was no increase to active salary and the liability did not grow as expected.

Concerning the fund assets, Becky stated that market conditions during the past year were very challenging and the approximate rate of return on a market value basis was -4.11%. However due to smoothing the actuarial value of assets was not as affected.

In response to a trustee's question, a discussion of the fund performance described on page 5 of the valuation ensued. Becky stated that the page would be revised in a manner similar to the revision to the description of the fund performance in State Employees Retirement System (SERS) actuarial valuation recently discussed with the actuarial trustees and the Director. The Director explained to the trustees that the Treasurer's Office had received a copy of the draft SERS valuation and requested a revision to the SERS fund performance description. The trustees questioned the release of the draft valuation to an entity outside of the Commission and the Director advised that it was a requirement pursuant to changes in federal law. Althea confirmed that it was Milliman's understanding as well that this was required under public disclosure to the market FEC rules. The Chairman requested that a copy of the law be provided to the trustees. The Director advised that he would contact the Treasurer's Office to obtain this information.

Returning to the asset information, Becky pointed out that the actuarial value of the assets was approximately 14.5 million dollars higher than the market value however the actuarial value will come down over the next several years. The market losses are recognized gradually due to smoothing.

With respect to the actuarial liability Becky advised that it was expected that the liability would grow as there are many years to go in the amortization of the unfunded liabilities. Becky further advised that the breakdown between active and inactive members was pretty consistent. Again in response to a trustee's question, Becky explained that the inactive category included any terminated, vested members as well as retirees in pay status. The unfunded liability of approximately 82 million dollars was up slightly but had climbed less than expected due to no pay increases and the fact that the number of deaths was almost equal to the number of new members. The funded ratio climbed slightly and will climb more rapidly as the amortization period shrinks. The fund will be affected next year as a result of the asset loss. The JFSMCCRS funding has been very stable over the years unlike SERS as the fund was not affected by SEBAC changes or ERIPs and provides a much more predictable picture.

Becky reviewed the assumption changes made as a result of the SERS experience study. The interest rate was lowered from 8.5% to 8.25%; the healthy mortality and disabled mortality tables were updated and the rates of disability were decreased. Becky suggested the possibility of also lowering the salary scale and payroll growth rate. Following discussion, the trustees asked that Milliman make a .25% reduction to the salary scale, payroll and cost of living adjustment assumptions and provide the subcommittee members with updated figures as soon as possible. It was determined that a copy of the executive summary principal results, page 12 of the draft valuation, would be sufficient.

The actual cash flow with respect to the state's contributions to the fund was discussed and the trustees requested that this information be provided to Milliman as soon as possible as it may have an effect on the valuation.

Again in response to a trustee's question, the operating expenses charged to the fund were discussed. The operating expenses contained in the draft report reflect the costs of Milliman's work only; Commission expenses are not charged to the fund. The trustees requested that the Division research the possibility of the allocation of Commission expenses to each fund rather than all Commission expenses being paid from SERS and asked that the issue be placed on the agenda for discussion at the full Commission meeting scheduled for November 20, 2008.

Meeting adjourned at about 3:00.

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