Retirement Services Division Minutes ACTUARIAL SUBCOMMITTEE October 15, 2008

MINUTES OF MEETING
STATE EMPLOYEES RETIREMENT COMMISSION
ACTUARIAL SUBCOMMITTEE

October 15, 2008

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

OTHERS PRESENT
Dr. Thomas Woodruff, Director, Retirement Services Division
Jeanne Kopek, Assistant Director, Retirement Services Division
Althea Schwartz, Milliman
Rebecca Sielman, Milliman
Stephen Chykirda, Milliman

The meeting began at about 2:00.

Becky Sielman presented the results of the State Employees Retirement System (SERS) gain/loss analysis. She explained that there were two big changes between what was expected to happen based on the prior valuation and what actually happened. 1) The investment performance as a result of very poor market returns of -4.8% led to market losses of $1,321 million, however, because recognition of market gains and losses is smoothed over five years the impact on the actuarial value of assets was more modest, with a 6.76% rate of return and actuarial losses of $165 million. 2) Salaries were 1.1% higher mainly in hazardous duty groups and in Tier IIA non-hazardous duty. Becky also noted that retiree cost of living increases were greater than expected and there were more data changes from non-hazardous duty to hazardous duty.

With respect to active membership changes, Becky advised that there were fewer terminations and fewer retirements than expected and more disabilities due to the Retirement Services Division's change in disability processing which will not be reflected next year. Workers compensation reporting problems also have an effect but there were no really big changes other than the investment performance and salary changes. The total actuarial liability is 1.4% higher than anticipated based on last year's projections.

Becky presented the graphs comparing the 2008 results to those of prior years. She advised that for the first time Tier IIA membership has overtaken Tier II membership, the average compensation chart shows that the biggest growth in compensation occurred this year, SERS assets have tripled since 1990 with an 8.44% cumulative rate of return. She noted that Tier IIA members represent the smallest percentage of liability even though there are more members. In 2003 inactive members represented 2/3 of the actuarial liability and active members represented 1/3. There has been a gradual shift to higher active member liability and a $1 billion change to the unfunded liabilities. In response to a trustee's question regarding the system funding ratio, Becky referred the trustees to page 32 of the draft valuation for the actuarial funding ratio from 1992 which was 51.37%.

Becky advised that the higher employer contribution rates for fiscal years 09-10 and 10-11 were partly due to the assumption changes, the effect of the Longley decision and a shorter amortization period.

The effect on the contribution rate of using the level percentage of pay rather than entry level normal method was discussed. The Milliman staff advised that the results would not be a lot different under the entry level normal method. Althea stated that strengthening the assumptions was moving the system in the right direction.

The review of the draft results of the Judges, Family Support Magistrates and Compensation Commissioners Retirement System was discussed. Milliman will make some of the same assumption changes and send draft reports to the Subcommittee members. The discussion will be done through a conference call arranged by Division staff on Wednesday, November 12, 2008 at 2:00 p.m.

The Subcommittee unanimously recommended that Milliman prepare the final SERS actuarial valuation report for presentation to the full Commission at the November 20, 2008 meeting.

Meeting adjourned at about 3:45.

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