NPERS Cash Balance Plan

Nebraska Public Employees Retirement Systems Cash Balance Plan Presented to KPERS Study Commission By Phyllis Chambers, Executive Director August 31, 2011 NPERS Overview circle5 NPERS administers six retirement plans with 112,000 members and $9 billion in assets. ◦ School –DB – established 1946 ◦ State Patrol –DB –1947 ◦ Judges –DB –1955 ◦ State –DC –1964 and CB –2003 ◦ County –DC –1965 and CB –2003 ◦ Deferred Compensation (DCP) –1976 2 2010 NPERS Funded Status circle5Schools –82% circle5Patrol –85% circle5Judges –100% State CB –94%circle5 circle5County CB –93% circle5DC plans –100% circle5 GASB 25 Funded ratio = AVA÷AAL 3 Cash Balance Plan circle5 Introduced mid-1980’s in corporate sector. circle5 DB Hybrid –IRS considers it a DB plan because of the

guaranteed credited rate. circle5 Individual account consists of EE and ER contributions, interest credits & dividends. circle5 Member account value never goes down. circle5 Pooled assets managed by professionals. circle5 Plan requires an annual actuarial valuation. circle5 Annuity is based on account value & age, not a formula. 4 Nebraska Benefit Adequacy Study circle5 2000 actuarial study circle5 Compared State and County with School DB plan circle5 S & C average annual salaries lower. ◦ School -$40,000, State -$35,000, County -$30,000 circle5 Average annual investment return, 5-year period ◦ 7% for DC plans & 11% School DB plan circle5 Retirement Income replacement was 5-8 % higher for DC plans to maintain same standard of living. ◦ 78% for Schools, 83% for State, 86% for County. 5 Goals of Cash Balance Plan circle5 Improve retirement benefits for State and County Employees -from DC to CB circle5 Retention -reward long-term employment. circle5 Offer self-funded annuity & COLA options ◦ over 90% were taking lump sum refunds circle5 Reduce DC investment & timing risk. ◦ 90% of employees in 3 funds, 50% in balance fund ◦ Market crisis can affect timing of retirement ◦ Reduces investment education for members. circle5 Reduce costs & fees. ◦ DC -$92/member & CB -$71/member 6 Nebraska CB Features circle5 Mandatory for new hires. DC members one-time option to transfer in 2003 –1/3 transferred, another 1/3 transferred again in 2007. circle5 NPERS Contribution rates: ◦ State –4.8 % EE, 156% ER –7.48% = 12.28% ◦ County –4.5% EE, 150% ER –6.75% = 11.25% circle5 Credited rate based on Federal mid-term rate+1.5 % with 5% minimum guarantee by the State. July 2011 MTR was 2.0%. circle5 Rate adjusted quarterly. Accounts credited daily. circle5 Annuity rate is 7.75% -determined by Board. 6 Nebraska CB Features (cont’) circle53-year vesting for employer portion. circle5Distributions options for termination, retirement ( age 55) or disability – Refund, rollover, annuity, or combination. Death –Beneficiaries receive refund or circle5 rollover; spouse may also receive annuity; if already receiving a benefit, determined by the annuity option. circle5Optional dividend granted by Board. 8 CB Dividends circle5 Board may grant dividend if actuarial contribution rate is at least 90% of the actual contribution rate per statute. circle5 Board added policy -funded ratio must be 100%. circle5 Dividend based on account value at previous calendar year end. circle5 Problem when employees terminate between December 31 and dividend payment -dividend posts...

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