Actuarial Experience Review

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November 2020 / Matt Strom / Brad Ramirez

Actuarial

Experience Review

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│

Agenda

Overview

Analysis:

• Economic Assumptions

• Demographic Assumptions

Summary of Recommended Assumptions

Cost Impact

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Overview: Purpose of an Experience Study

An experience study provides the basis for developing recommended assumptions to be used in the annual actuarial valuation

• Performed on a periodic basis, typically every three to five years

• Current study is based on the 4-year period January 1, 2016 through June 30, 2019

Actuarial Standards of Practice No. 27 and 35 provide guidance on best practices for performing assumption-setting analysis

• The assumptions should be “reasonable” individually and in aggregate

Segal’s role is to make appropriate recommendations to the Board for each assumption

• The assumptions are the Board’s assumptions and the Board can adopt all, none, or some of the recommendations of the actuary

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Overview: How Assumptions Are Set

Review past experience (“actual”) and compare with assumptions (“expected”) Determine trends – make judgments about the future

Develop component parts of each assumption

• Maintain internal consistency Keep in mind:

• No “right” answer

• Assumptions are long-term in nature

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Overview: Actuarial Assumptions

Demographic

• Death after retirement

• Death in active service

• Retirement

• Termination

• Disability

Economic

• Inflation

• Investment return

• Active membership growth

• Salary increase

• Payroll growth

Actuaries make assumptions as to when and why a member will leave active service

and estimate the amount, duration and present value of the pension benefits paid.

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Basis for Setting Economic Assumptions

Each economic

assumption has 2

or 3 components

Each component should be consistent across all economic assumptions,

but may include a provision for adverse deviation.

Real Rate of Return Inflation Productivity Career Scale Inflation

Interest Rate

Salary Increases

Payroll Growth

Productivity

(7)

Assumed Rate of Inflation

Inflation represents the annual increase in the cost of living The current inflation assumption is 2.40%

• Inflation is a component of the following economic assumptions:

– Investment return

– Individual salary increases

– Payroll growth

Segal’s recommendation is to lower the assumption from 2.40% to 2.30%, based on:

• The average 20-year inflation assumption from the 2020 Horizon Survey of Capital Market Expectations is 2.16%

• The market’s expectation of inflation is similar over 20-year and 30-year time horizons

• Aon’s 30-year inflation assumption of 2.30%

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Assumed Rate of Investment Return

The investment return is a principal assumption used in the actuarial valuation

and is used to discount future expected benefit payments to the valuation date

in order to determine the liabilities of the plan

The current investment return assumption of 7.25% consists of two components:

• Inflation*: 2.40%

• Real rate of return: 4.85%

Our approach is to analyze inflation and real return separately

(9)

Basis for Expected Real Rate of Return

We have based our analysis of the expected real rate of return on the Horizon Survey of Capital Market Assumptions (2020 Edition)

• This survey compiles and averages the capital market assumptions of 39 investment consultants (including Aon and Segal Marco Advisors)

– 18 respondents provided assumptions for “long term”, or 20 years

• Expected arithmetic returns are used to determine the expected returns by asset class

• The 20-year expected geometric portfolio real rate of return was generated from the 50th _{percentile of 5,000}

simulated portfolio return trials

Over a 20-year period, PERA’s Total Fund is expected to earn an annual real rate of return of at least 5.10% half of the time

• Reflecting the proposed inflation assumption of 2.30% results in a nominal 50th _{percentile return of 7.40%}

• The current 7.25% assumption includes an allowance for adverse experience

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Assumed Rates of Individual Salary Increase

In order to project future benefits, salaries are projected forward over the

expected career for each active member

Individual member salary increase components:

• Inflation

• Productivity

• Merit and seniority increases

Since merit and seniority increases are unique to each retirement system, it is appropriate to base this assumption on recent experience

• We study the merit and seniority increases (plus productivity) separately from inflation

(11)

Assumed Rates of Salary Increase

(continued)

School Division

The following table compares the actual and expected individual salary increases over the past 4 years, adjusted to remove actual annual inflation of about 2.1% over the experience period:

Based on this experience, we recommend increases to the non-inflationary portion of individual salary increases for all ages. Productivity is included above for purposes of salary scale analysis.

Age Actual Increase Expected Increase Proposed Increase 20 – 24 _11.11% _6.04% _7.25% 25 – 29 _6.92% _4.71% _5.49% 30 – 34 _4.99% _3.86% _4.26% 35 – 39 _4.73% _3.37% _3.79% 40 – 44 _3.87% _2.80% _3.19% 45 – 49 _3.42% _2.24% _2.60% 50 – 54 _2.73% _1.72% _2.11% 55 – 59 2.39% 1.32% 1.73% 60 – 64 2.13% 1.10% 1.43% 65 + 1.21% 1.10% 1.14% Total 3.97% 2.67% 3.11%

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Assumed Rate of Payroll Growth

The payroll growth assumption is used to determine the amortization of

unfunded actuarial accrued liability (in the actuarially determined contribution)

as a level percentage of payroll

The current payroll growth assumption of 3.50% consists of the following components:

Inflation 2.40%

Productivity 1.10%

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Assumed Rate of Payroll Growth

(continued)

As the recommended inflation component is 2.30%, we need to examine the

productivity component

Productivity can be measured as the excess of the increase in the National Average Wage over inflation. Currently the wage data is only available through calendar 2018. As of December 2018:

Productivity over the prior 10-year period of 0.55% is much lower as compared to productivity over the prior 15 and 20-year periods of 0.79% and 0.84%, respectively. We recommend lowering the productivity component to 0.70% to bring this assumption more in line with national average wage growth over the last 20 years.

Period General Wage

Growth Price Inflation (CPI-U) Productivity 2008 – 2018 2.35% 1.80% 0.55% 2003 – 2018 2.88% 2.09% 0.79% 1998 – 2018 3.00% 2.16% 0.84%

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Assumed Rate of Payroll Growth

(continued)

The following table summarizes PERA’s historical payroll and active population growth:

The average increase in covered payroll and active members is shown below:

Year Ended December 31

Annualized Payroll

($ in Millions) Active Members 2019 $9,570.7 213,294 2014 7,795.7 202,750 2010 7,506.2 201,095 Period Increase in Total Payroll Increase in Active Members Estimated Increase in Payroll Net of Active Member Increase 5-year average 4.19% 1.02% 3.14% 9-year average 2.74% 0.66% 2.07%

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Assumed Rate of Payroll Growth

(continued)

The following table summarizes the components of the current and recommended payroll growth assumption:

Component Current Recommended

Inflation 2.40% 2.30%

Productivity 1.10% 0.70%

Total 3.50% 3.00%

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Active Member Growth Assumption

Annual actuarial projections require an assumption regarding future new

entrants. PERA active membership over the past 10 years is as follows:

As of

December 31 State School

Local Government Judicial DPS 2009 54,333 119,390 16,166 317 N/A 2010 54,977 116,486 16,144 317 13,171 2011 54,956 114,820 16,065 329 13,571 2012 54,804 115,294 12,097 329 13,911 2013 55,354 117,727 11,954 332 14,816 2014 55,300 119,618 12,084 334 15,414 2015 55,291 120,239 12,176 334 15,929 2016 55,725 121,945 12,736 335 15,950 2017 55,686 122,990 12,770 332 15,991 2018 55,511 126,333 13,260 332 16,148 2019 55,252 128,938 13,086 339 15,679

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Active Member Growth Assumption

(continued)

The average increases in active membership growth is as follows:

As of

December 31 State Division School Division

Local Government Division Judicial Division DPS Division Current Active Membership Growth Assumption 1.25% 1.25% 1.00% 1.00% 1.25% Average Annual Increase over Last 10 Years (9 for DPS) 0.17% 0.77% -2.09% 0.67% 1.96% Average Annual Increase over Last Five Years

-0.02% 1.51% 1.61% 0.30% 0.34%

Over the last 10 years, DPS is the only division that exceed the population growth assumption. Over the past five years, School and Local Government are the divisions that exceeded the population growth assumption.

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Active Member Growth Assumption

(continued)

Below are some highlights from the data included in the “Colorado Department

of Affairs State Demography Office – Dashboard”:

• From 2008 to 2018, the Colorado population increased at an annual average rate of 1.51%. From

2013 to 2018, the average annual population increase was 0.78%.

• Due to the changing age distribution in Colorado, growth rates of the labor force are expected to

slow significantly over the forecast horizon of 2040 as compared to historical growth.

Based upon our analysis and considering the information from the Colorado Demography Office, we

recommend the active membership growth assumption be adjusted as follows:

Division Current Assumption Proposed Assumption

State 1.25% 0.25%

School 1.25% 1.00%

Local Government 1.00% 1.00% Judicial 1.00% 0.25%

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Overview: How Mortality Assumption Is Set

Review past experience

Compare past experience (“actual”) with assumptions (“expected”)

• Examine on a benefit-weighted basis

Determine appropriate standardized table as basis for new assumption Assess credibility of data set and calculate weighting factor

• Actual experience can be the assumption basis for fully-credible data

• Partially-credible data is blended with standardized table

• Typically, we assume 1,082 deaths needed in a subgroup to be considered fully-credible

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Death After Retirement

Our analysis uses a benefit-weighted approach, which weights the probability of death with each annuitant’s pension benefit

• This methodology takes into consideration any correlation between the health of the annuitant and the size of the benefit

In 2019, the Society of Actuaries published a series of Pub-2010 mortality tables derived from public plan experience

• Three broad classifications based on teachers, public safety, and general employees

• Three separate versions of each of the table classifications: Baseline, Above Median, and Below Median

• Contingent annuitant mortality studied separately from retiree mortality

– Contingent annuitant mortality is generally worse than retiree mortality

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Death After Retirement

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continued

)

In order to determine which Pub-2010 table(s) should be applied, we separated the data by division, status and gender

Using these results, we recommended the Pub-2010 table variation that most accurately fits the data.

The current assumptions are different for State and Local Government and School, Judicial and DPS. For these groups, the following tables are used:

• For the State and Local Government Division Trust Funds, the mortality table is the RP-2014 Healthy Annuitant Mortality Table with adjustments for credibility and gender.

• For the School, Judicial, and DPS Division Trust Funds, the mortality table is the RP-2014 White Collar Healthy Annuitant Mortality Table with adjustments for credibility and gender.

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Death After Retirement

(

continued

)

Over the experience period, there were generally fewer actual deaths than expected for all groups of

retirees, with the exception of females age 80 and older (State (Non-Troopers), Local Government, School, and DPS) and Judicial. There were more actual deaths than expected deaths for beneficiaries.

Recommend updating base tables to appropriate Pub-2010 mortality tables, with adjustments based on PERA-specific experience where “credible” data exists. In order to reflect future improvements in

mortality, recommend use of the MP-2019 mortality projection scale.

• State and Local Government Divisions (Non-Troopers) – PubG-2010 Retired Lives Table with credibility adjustments by gender and age

• State and Local Government Divisions (Troopers) – Unadjusted PubS-2010 Retired Lives Table for males and females

– Insufficient experience for Troopers within the State Division for two of the four years of the experience period

• School and DPS Divisions – PubT-2010 Retired Lives Table with credibility adjustments by gender and age

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School and DPS Divisions – Healthy Retiree

Mortality

Gender/Age Exposures* Actual Deaths* Expected Deaths*

Actual to Expected*

Female < 80 5,690,471 34,001 38,485 88% Female 80+ 750,867 51,517 48,429 106%

Actual, Expected and Proposed, Benefit-Weighted Basis (Female)

(24)

School and DPS Divisions – Healthy Retiree

Mortality

Male < 80 2,624,837 32,909 31,063 106% Male 80+ 510,345 36,027 40,112 90%

Actual, Expected and Proposed, Benefit-Weighted Basis (Male)

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Death While In Active Service

Mortality rates applied to active members

• Very few members die in active service

– Liability associated with active death is a small percentage of the total liability

– Plan experience is insufficient to set assumption

The current assumptions are based on the RP-2014 White Collar Employee Mortality Table, incorporating a 70% factor to male rates and a 55% factor to female rates to allow for mortality improvements

• We recommend the following tables:

– State and Local Government Divisions (Non-Troopers) – PubG-2010 Employee Table

– School and DPS Divisions – PubT-2010 Employee Table

– Judicial Division – PubG-2010 Above Median Employee Table

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Retirement Eligibilities

Eligibility criteria for retirement differs by division and age. We analyzed retirement experience on a benefits-weighted basis for the following types of retirement:

• Eligible for a reduced benefit

• Eligible for an unreduced benefit in the first year only

• Eligible for an unreduced benefit in all other years

There is little retirement experience for the newer tiers (those hired after July 1, 2005) to analyze

• Retirement rates take into account each members eligibility requirements

• Modifications to certain age/service combinations to reflect our best estimate of emerging retirement experience for the newer tiers

(27)

Reduced Retirement

In the aggregate there were slightly more reduced retirements than expected

• Among divisions and gender, some groups experienced fewer reduced retirements than expected

• We recommend modifications to rates at several ages across most divisions

• The current reduced retirement rates for the Judicial Division and Troopers within the State Division are unisex

– We recommend maintaining unisex rates for the Troopers within the State Division

– We recommend maintaining unisex rates for the Judicial Division and a single set of retirement rates (not split by reduced/unreduced

eligibility)

• Current rates for reduced retirement for the State (Non-Troopers) and Local Government Divisions are similar, but not exact

– We combined the exposures or these two groups and developed a single set of assumptions to apply to both

• Current rates for the School and DPS (PERA Benefit Structure) are the same

– It is appropriate to continue this structure

(28)

Females:

– Overall, more retirements than expected

– Fewer retirements at certain ages

Recommend modifying the rates to better match actual experience

Reduced Retirements – School and DPS (PERA

Benefit Structure) Divisions

Exposures* Actual Retirement Rate* Expected Retirement Rate* Actual to Expected* Proposed Retirement Rate* Actual to Proposed* 383,445 10.40% 9.7% 107% 10.2% 102%

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Males:

– Overall, fewer retirements than expected

– More retirements at certain ages

Reduced Retirements – School and DPS (PERA

Benefit Structure) Divisions

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Unreduced Retirement

In the aggregate there were fewer unreduced retirements than expected

• Among divisions and gender, some groups experienced more unreduced retirement than expected

• We recommend modifications to rates at several ages across most divisions

• The current unreduced retirement rates for the Judicial Division and Troopers within the State Division are unisex

– We recommend maintaining unisex rates for the Troopers within the State Division

– We recommend maintaining unisex rates for the Judicial Division and a single set of retirement rates (not split by reduced/unreduced eligibility)

• Current rates for unreduced retirement for the State (Non-Troopers) and Local Government Divisions are similar, but not exact

– We combined the exposures or these two groups and developed a single set of assumptions to apply to both

• Current rates for the School and DPS (PERA Benefit Structure are the same

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Unreduced Retirement

(continued)

We separately studied retirement experience during the first year members were eligible for unreduced retirement

• There is a higher tendency to retire upon attaining first eligibility for unreduced retirement and a few years thereafter

– In general, for members retiring with unreduced benefits in the legacy tiers, this increased tendency is built into the current retirement rates, However, newer benefit tiers have later ages for retirement eligibility

– We recommend adding the following rates of retirement for members whose first eligibility for unreduced retirement is between 55 and 64:

• These rates are in addition to the rates included in the proposed unreduced retirement rates

Year of Eligibility

State and Local Government Divisions

(Non-Troopers)

School and DPS (PERA Benefit Structure)

Divisions Troopers Female Male Female Male Unisex

1st year 20% 30% 28% 28% 20% 2nd year 9% 13% 10% 4% 20% 3rd year 9% 13% 10% 4% 20% 4th year 9% 13% 10% 4% 20% 5th year 9% 13% 10% 4% 20%

(32)

Females:

Unreduced Retirements – School and DPS

(PERA Benefit Structure) Divisions

(33)

Males:

Unreduced Retirements – School and DPS

(PERA Benefit Structure) Divisions

(34)

Termination

Experience shows that fewer active members are terminating prior to retirement

than expected

The current assumptions are:

• State (Non-Troopers), School, Local Government, and DPS PERA Benefit Structure Divisions: “select and ultimate” tables

– The select termination rates are based on gender for the first five years of service

– The ultimate termination rates are for five or more of service and are age-based

• DPS Benefit Structure Divisions: age-based tables

• Judicial Division: age-based tables

We recommend lowering the termination rates for all divisions except DPS (PERA Benefit Structure):

• Except for DPS (PERA Benefit Structure), proposed rates were developed by weighting the current assumption by two-thirds and the recent experience by one-third

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Select Termination Rates – School Division

* Based on annual benefits in thousands of dollars

Years from Hire Exposures* Actual Termination Rate* Expected Termination Rate* Actual to Expected* Proposed Termination Rate Actual to Proposed 0 13,274 19.81% 34.89% 57% 30.00% 66% 1 39,936 14.23% 20.29% 70% 18.00% 79% 2 61,296 11.69% 15.28% 76% 14.00% 83% 3 77,589 9.15% 12.00% 76% 11.00% 83% 4 89,217 8.05% 11.00% 73% 10.00% 81%

(36)

Females:

– Fewer terminations than expected

Recommend reducing the termination rates

Ultimate Terminations – School Division

Exposures* Actual Termination Rate* Expected Termination Rate* Actual to Expected* Proposed Termination Rate* Actual to Proposed* 2,383,754 2.45% 5.27% 46% 4.30% 57%

(37)

Males:

Ultimate Terminations – School Division

Exposures* Actual Termination Rate* Expected Termination Rate* Actual to Expected* Proposed Termination Rate* Actual to Proposed* 932,848 2.25% 4.26% 53% 3.55% 63%

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Refunds of Contributions

Current assumptions:

• For all but the Judicial Division, the current assumption is that 35% of the vested members who terminate elect to withdraw their contributions and matching employer contributions while the remaining 65% elect to leave their contributions in the plan to be eligible for a benefit at retirement date

– Experience shows that 33.6% elect a refund

– Recommend maintaining the 35% assumption

• For the Judicial Division, the current assumption is that 100% of vested members who terminate elect to leave their contributions in the plan to be eligible for a benefit at retirement date

– Very little actuarial experience

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Disability Retirement

Experience over the prior five years shows that fewer active members retired

under a disability pension than expected

The current disability retirement assumptions are based on age and are unisex for all divisions

• State and Local Divisions have similar disability rates and actual experience is comparable between groups

• School, DPS (PERA Benefit Structure), Judicial, and DPS Benefit Structure Divisions have similar profiles for disability incidence

We recommend a uniform decrease of 19% applied to the current rates for non-Troopers and no changes to the current rates for Troopers

(40)

Spouse Information

Current assumptions:

• 100 % of active members (80% for the DPS Division are Married

• Male spouses are two years older than female spouses

• 100% of spouses are opposite gender

We have limited information on marital status and spouse information

(41)

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Summary of Assumption Impact

Assumption Description Impact on Liability/Cost Impact on Actuarial Valuation Gain/Loss

Inflation The rate at which price levels are rising and purchasing power is falling

The impact that inflation has on liability and cost varies by each economic assumption

The impact that inflation has on gain/loss varies by each economic assumption

Investment Return

Based on invested plan asset categories and assumed rates of return for each asset class

Higher assumption causes lower liability and cost

Higher than anticipated actuarial return will create actuarial gains

Active Membership Growth

The expected increase in the number of active members. This assumption is used for

projections, but not the actuarial valuation

Higher assumption causes greater expected contributions in the projections

Active membership growth assumption is not used for valuation purposes and therefore, has no impact on gain/loss

Salary Increases

The expected rate of future salary increases for employees at various ages or years from hire

Higher assumption causes higher liability and cost

Higher than anticipated salary increases to actives will create actuarial losses

Payroll Growth Used to project covered payroll to estimate the employer normal cost for budgeting purposes

Higher assumption causes lower initial contributions, but has no impact on liability

Payroll growth has no impact on gain/loss, but impacts the ADC calculation

Mortality The probability of dying within one year at each age

Lower mortality increases liability and cost Higher than anticipated mortality will create actuarial gains

Retirement The age (or ages) when employees are expected to retire

Earlier assumed retirement usually increases liability and cost

If more members retired later in their careers, this could result in gains. Generally, losses result when a member retires earlier without a full actuarial reduction. Other scenarios may result in gains/losses.

Termination The expected rate of termination for employees at various ages or years from hire

Greater assumed termination decreases liability and cost

Higher than anticipated terminations will likely result in actuarial gains

Disability The age (or ages) when employees are expected to become disabled

Greater incidence of disability usually slightly increases liability and cost

Greater incidence of disability than anticipated will likely result in slight actuarial losses

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Summary of Economic Assumptions

Assumption Current Proposed

Impact on Actuarially Determined Contribution*

Inflation 2.40% 2.30% N/A

Investment Return 7.25% No change None

Active Membership Growth

State Division School Division Local Government Division

Judicial Division DPS Division 1.25% 1.25% 1.00% 1.00% 1.25% State Division School Division Local Government Division

Judicial Division DPS Division 0.25% 1.00% 1.00% 0.25% 1.00% None

Salary Scale Merit/seniority rates (including productivity) based on age plus inflation

Increases to the merit and seniority (and productivity) portion of individual salary increases based on age plus the revised inflation assumption. Judicial salary

increases based on service

Increase

Payroll Growth 3.50% 3.00% Increase

(44)

Summary of Demographic Assumptions

Assumption Current (Static Mortality) Proposed (Generational Mortality)

Impact on Actuarially Determined Contribution

Healthy

Post-Retirement Mortality - Retirees

State and Local Government Divisions: RP-2014 Healthy Annuitant Mortality Table with adjustments for credibility and gender. For males the adjustments are a 73% factor applied to the rates for ages below 80 and a 108% factor applied to the rates for ages 80 and above, projected to 2018 using the MP-2015 projection scale. For females the adjustments are a 78% factor applied to the rates for ages below 80 and a 109% factor applied to the rates for ages 80 and above, projected to 2020 using the MP-2015 projection scale.

School, Judicial and DPS Divisions: RP-2014 White Collar Healthy Annuitant Mortality Table with adjustments for credibility and gender. For males the adjustments are a 93% factor applied to the rates for ages below 80 and a 113% factor applied to the rates for ages 80 and above, projected to 2018 using the MP-2015 projection scale. For females the adjustments are a 68% factor applied to the rates for ages below 80 and a 106% factor applied to the rates for ages 80 and above, projected to 2020 using the MP-2015 projection scale.

State and Local Government Divisions (Non-Troopers): PubG-2010 Retired Lives Table for males using 94% of the rates prior to age 80 and 90% of the rates for ages 80 and older. For females, the PubG-2010 Retired Lives Table using 87% of the rates prior to age 80 and 107% of the rates for ages 80 and older.

State and Local Government Divisions (Troopers): PubS-2010 Retired Lives Table.

School and DPS Divisions: PubT-2010 Retired Lives Table for males using 112% of the rates prior to age 80 and 94% of the rates for ages 80 and older. For females, the PubT-2010 Retired Lives Table using 83% of the rates prior to age 80 and 106% of the rates for ages 80 and older.

Judicial Division: PubG-2010 Above Median Retired Lives Table.

All Divisions: Update the mortality projection scale to MP-2019 and apply mortality improvement on a generational basis. Increase Increase Increase Healthy Post-Retirement Mortality - Beneficiaries

Same as Retirees mortality above All Divisions: Pub-2010 Contingent Survivor Table for males using 97% of the rates for all ages. For females, 105% of the female rates for all ages. Generational projection using scale MP-2019

(45)

Summary of Demographic Assumptions

Assumption Current (Static Mortality) Proposed (Generational Mortality)

Disabled Post-Retirement Mortality

RP-2014 Disabled Retiree Mortality Table incorporating a 90% factor for males and females.

All Divisions except Troopers: PubNS-2010 Non-Safety Disabled Lives Table using 99% of rates for all ages with generational projection using scale MP-2019.

For Troopers in the State and Local Government Divisions: PubS-2010 Safety Disabled Lives Table with generational projection using scale MP-2019.

Slight Increase

Pre-Retirement Mortality

All Divisions: RP-2014 White Collar Employee Mortality Table. To allow for an appropriate margin of improved mortality prospectively, the mortality rates incorporate a 70% factor applied to male rates and a 55% factor applied to female rates.

State and Local Government Divisions (Non-Troopers): PubG-2010 General Employee Table with generational projection using scale MP-2019

School and DPS Divisions: PubT-2010 Teacher Mortality Table with generational projection using scale MP-2019 Judicial Division: PubG-2010 Above Median Employee Table with generational projection using scale MP-2019 State and Local Government Divisions (Troopers): PubS-2010 Employee Table with generational projection using scale MP-2019.

Slight Increase

(46)

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Summary of Demographic Assumptions

Active Retirement All Divisions: Gender distinct age-based rates based upon eligibility unreduced and reduced benefits except for State (Troopers) and Judicial Divisions, where rates for reduced benefits are unisex and age-based.

In aggregate, there were slightly more reduced retirements than expected and fewer unreduced retirements than expected, while for certain

groups/genders, the opposite was true in each category. Recommended modifications to rates at several ages across most divisions.

Added additional rates of retirement for the first five years of eligibility for unreduced retirement to active members whose first eligibility for unreduced retirement is between age 55 and 64

Increase

Inactive Retirement All Divisions: 100% of inactive members who terminate employment with less than five years of service elect to withdraw their contributions.

Current inactive members who are assumed to leave their contributions in the plan in order to be eligible for a benefit at their retirement date are assumed to retire at the following ages with an unreduced pension benefit:

• PERA Benefit Structure – Age 62

• DPS Benefit Structure – Age 65

No changes N/A

Termination Select and Ultimate Tables for the State Division (Non-Troopers), School and DPS Divisions (PERA Benefit Structure), and Local Government Division. DPS Benefit Structure member assumptions are based on age only. Age-based rates for Troopers.

Rates vary by gender.

School and DPS Divisions use the same rates of termination.

Changes (primarily decreases) in rates of termination. The current select period is retained and select

termination rates are decreased, adopting unisex rates. Sex-distinct rates are retained regarding ultimate rates, also generally decreased.

Separate rates are established for School and DPS Divisions.

(47)

Summary of Demographic Assumptions

Refunds of Contributions

All Divisions except Judicial: 35% of the vested members who terminate elect to withdraw their contributions and matching employer contributions; while the remaining 65% elect to leave their contributions in the plan in order to be eligible for a benefit at their retirement date.

Judicial Division: 100% of the vested members who terminate elect to leave their contribution in in the plan in order to be eligible for a benefit at their retirement date.

No changes N/A

Disability Retirement

Rates are based on age and are unisex for all divisions. The State and Local Government Divisions have similar disability rates, with minor differences.

School and DPS Divisions (PERA Benefit Structure) have different disability rates than the Judicial Division or members under the DPS Benefit Structure. However,

State and Local Government Divisions (Non-Troopers): combined for developing a new assumption and a uniform decrease of 19% is applied to the current composite disability retirement rates.

School, DPS and Judicial Divisions: combined for

developing a new assumption and a uniform decrease of 19% is applied to the current composite disability

retirement rates.

Troopers: no changes.

Slight decrease

Spouse Information 100% of members are married (80% for DPS Division). Male spouses are two years older than female spouses. 100% of spouses are of the opposite gender.

(48)

Change in Present Value of Future Benefits

(Based on December 31, 2019 Actuarial Valuation, $ in Millions)

Division Before Changes

Reflecting Termination Reflecting Termination, Retirement and Disability Reflecting Termination, Retirement, Disability and Mortality Reflecting All Demographic Changes, Salary Scale and Payroll

Growth State % Change Cumulative $28,219.1 $28,417.1 0.7% 0.7% $28,540.9 0.4% 1.1% $29,311.3 2.7% 3.9% $29,402.7 0.3% 4.2% School % Change Cumulative 47,405.0 48,130.8 1.5% 1.5% 48,322.7 0.4% 1.9% 49,699.3 2.8% 4.8% 50,205.0 1.0% 5.9% Local Government % Change Cumulative 5,842.7 5,924.9 1.4% 1.4% 5,939.9 0.3% 1.7% 6,101.3 2.7% 4.4% 6,147.7 0.8% 5.2% Judicial % Change Cumulative 536.7 537.4 0.1% 0.1% 539.2 0.3% 0.5% 539.0 0.0% 0.4% 538.5 -0.1% 0.3% DPS % Change Cumulative 5,026.0 4,961.5 -1.3% -1.3% 4,966.8 0.1% -1.2% 5,089.4 2.5% 1.3% 5,203.2 2.2% 3.5%

(49)

Change in Actuarial Accrued Liability

(Based on December 31, 2019 Actuarial Valuation, $ in Millions)

Growth State % Change Cumulative $25,717.6 $25,699.9 -0.1% -0.1% $25,901.5 0.8% 0.7% $26,594.2 2.7% 3.4% $26,600.3 0.0% 3.4% School % Change Cumulative 42,425.1 42,453.4 0.1% 0.1% 42,782.6 0.8% 0.8% 43,970.9 2.8% 3.6% 44,136.7 0.4% 4.0% Local Government % Change Cumulative 5,316.4 5,319.1 0.1% 0.1% 5,348.8 0.6% 0.6% 5,492.8 2.7% 3.3% 5,503.4 0.2% 3.5% Judicial % Change Cumulative 462.0 462.0 0.0% 0.0% 466.4 1.0% 1.0% 465.3 -0.2% 0.7% 462.0 -0.7% 0.0% DPS % Change Cumulative 4,263.4 4,226.9 -0.9% -0.9% 4,236.9 0.2% -0.6% 4,334.8 2.3% 1.7% 4,374.6 0.9% 2.6%

(50)

Change in Total Normal Cost Rate

(Based on December 31, 2019 Actuarial Valuation, $ in Millions)

Growth State Delta Cumulative 11.66% 12.22% 0.56% 0.56% 12.40% 0.18% 0.74% 12.77% 0.37% 1.11% 13.00% 0.23% 1.34% School Delta Cumulative 12.73% 13.62% 0.89% 0.89% 13.84% 0.22% 1.11% 14.30% 0.46% 1.57% 14.80% 0.50% 2.07% Local Government Delta Cumulative 11.14% 12.01% 0.87% 0.87% 12.14% 0.13% 1.00% 12.50% 0.36% 1.36% 12.92% 0.42% 1.78% Judicial Delta Cumulative 16.76% 16.83% 0.07% 0.07% 17.17% 0.34% 0.41% 17.35% 0.18% 0.59% 17.69% 0.34% 0.93% DPS Delta Cumulative 12.19% 12.23% 0.04% 0.04% 12.29% 0.06% 0.10% 12.71% 0.42% 0.52% 13.41% 0.70% 1.22%

(51)

Change in Actuarially Determined Contribution Rate

(Based on December 31, 2019 Actuarial Valuation, $ in Millions)

Growth State Delta Cumulative 21.05% 21.58% 0.53% 0.53% 22.11% 0.53% 1.06% 23.70% 1.59% 2.65% 25.08% 1.38% 4.03% School Delta Cumulative 20.61% 21.53% 0.92% 0.92% 22.08% 0.55% 1.47% 23.77% 1.69% 3.16% 25.49% 1.72% 4.88% Local Government Delta Cumulative 10.84% 11.73% 0.89% 0.89% 12.09% 0.36% 1.25% 13.56% 1.47% 2.72% 14.58% 1.02% 3.74% Judicial Delta Cumulative 14.13% 14.18% 0.05% 0.05% 14.97% 0.79% 0.84% 15.04% 0.07% 0.91% 15.70% 0.66% 1.57% DPS Delta Cumulative 8.22% 8.00% -0.22% -0.22% 8.13% 0.13% -0.09% 9.25% 1.12% 1.03% 10.58% 1.33% 2.36%

(52)

Change in Total Funded Percentage (

AVA Basis

)

(Based on December 31, 2019 Actuarial Valuation, $ in Millions)

Growth State Delta Cumulative 58.02% 58.06% 0.04% 0.04% 57.61% -0.45% -0.41% 56.11% -1.50% -1.91% 56.10% -0.01% -1.92% School Delta Cumulative 59.90% 59.86% -0.04% -0.04% 59.40% -0.46% -0.50% 57.79% -1.61% -2.11% 57.58% -0.21% -2.32% Local Government Delta Cumulative 80.66% 80.62% -0.04% -0.04% 80.17% -0.45% -0.49% 78.07% -2.10% -2.59% 77.92% -0.15% -2.74% Judicial Delta Cumulative 74.04% 74.05% 0.01% 0.01% 73.34% -0.71% -0.70% 73.51% 0.17% -0.53% 74.04% 0.53% 0.00% DPS Delta Cumulative 79.99% 80.68% 0.69% 0.69% 80.49% -0.19% 0.50% 78.67% -1.82% -1.32% 77.96% -0.71% -2.03%

(53)

Change in Projected Number of Years Until

100% Funded Percentage

(Based Open Group

Projections and Proposed Headcount Increase Assumptions)

Reflecting All Demographic and Economic Changes State Delta 22 years 33 years +11 years School Delta 24 years 35 years +11 years Local Government Delta 14 years 23 years +9 years Judicial Delta 12 years 14 years +2 years DPS Delta 11 years 14 years +3 years

(54)

(55)

│

Appendix

Additional Detail

• Salary Increase

• Mortality

• Retirement

• Termination

(56)

Assumed Rates of Salary Increase

State Division (Non-Troopers)

Based on this experience, we recommend increases to the merit and seniority portion of individual salary increases for all ages under 65. Productivity is included above for purposes of salary scale analysis.

(57)

Assumed Rates of Salary Increase

(continued)

State and Local Government Divisions (Troopers)

(58)

Assumed Rates of Salary Increase

(continued)

Local Government Division

(59)

Assumed Rates of Salary Increase

(continued)

Judicial Division

Current schedule of salary increases is based on age, while proposed are based on service. We recommend increases to the merit and seniority portion of individual salary increases for service under 20 years and

decreases for service 20 years and over. Productivity is included above for purposes of salary scale analysis.

Service Actual Increase Expected Increase Proposed Increase 0 – 4 _3.65% _1.73% _2.94% 5 – 9 _2.62% _1.64% _2.48% 10 – 14 _2.45% _1.61% _2.05% 15 – 19 _1.86% _1.60% _1.79% 20 – 24 _1.23% _1.60% _1.52% 25 – 29 _1.29% _1.60% _1.30% 30 – 34 _0.45% _1.60% _1.06% 35 – 39 1.45% 1.60% 0.75% 40 + 0.35% 1.60% 0.50% Total _2.33% _1.64% _2.11%

(60)

Assumed Rates of Salary Increase

(continued)

DPS Division

Based on this experience, we recommend increases to the merit and seniority portion of individual salary increases for all ages. Productivity is included above for purposes of salary scale analysis.

(61)

State and Local Government Divisions

(Non-Troopers) – Healthy Retiree Mortality

Female < 80 2,533,540 18,630 22,121 84% Female 80+ 298,481 24,771 22,875 108%

(62)

State and Local Government Divisions

(Non-Troopers) – Healthy Retiree Mortality

Male < 80 2,975,878 40,581 35,635 114% Male 80+ 487,360 39,298 41,717 94%

(63)

Judicial Division – Healthy Retiree Mortality

Gender Exposures* Actual Deaths* Expected Deaths*

Total 84,347 1,879 1,810 104%

Actual, Expected and Proposed, Benefit-Weighted Basis (Unisex)

(64)

All Divisions– Beneficiary Mortality

Female 881,535 44,338 38,169 116%

Recommend using the Pub-2010 Contingent Survivor Table, adjusted for credibility

(65)

All Divisions– Beneficiary Mortality

Male 162,413 7,057 6,130 115%

Recommend using the Pub-2010 Contingent Survivor Table, adjusted for credibility

(66)

Disabled Mortality

The current mortality table for all disabled lives is the RP-2014 Disabled Retiree Mortality Table incorporating a 90% factor to both male and female rates

We recommend:

• For all divisions except Troopers, updating to the Pub-2010 Non-Safety Disabled Lives Table for males and females using 99% of the rates for all ages

• For Troopers, we recommend updating to the Pub-2010 Safety Disabled Lives Table for males and females

• For all divisions including Troopers, updating the mortality projection scale to MP-2019 All Division (except Troopers)

Total 540,984 22,093 21,266 104%

(67)

Females:

– Lower retirements at ages 60 and over

Recommend increasing the rates at most ages under 60 and reducing rates at ages 60 and over

Reduced Retirements – State and Local

Government Divisions (Non-Troopers)

(68)

Males:

– Lower retirements at ages 60 and over

Recommend increasing the rates at most ages under 60 and reducing rates at ages 60 and over

Reduced Retirements – State and Local

Government Divisions (Non-Troopers)

(69)

Unisex:

– There were more retirements than expected

– However experience is limited

– Recommend no change

Recommend maintaining the current rates

Reduced Retirements – State and Local

Government Divisions (Troopers)

(70)

Females:

Reduced Retirements – All Divisions (DPS

Benefit Structure)

(71)

Males:

Reduced Retirements – All Divisions (DPS

Benefit Structure)

(72)

Females:

– Overall, retirements close to expected

– However, retirement experience was higher at certain ages and lower at other ages

Unreduced Retirements – State and Local

Government Divisions (Non-Troopers)

(73)

Males:

– Overall, retirements close to expected

Unreduced Retirements – State and Local

Government Divisions (Non-Troopers)

(74)

Unisex:

– Overall, there were fewer retirements than expected

Unreduced Retirements – State and Local

Government Divisions (Troopers)

(75)

Males:

– Fewer retirements at a few ages

Recommend increasing the rates at most ages to better match actual experience

All Retirements – Judicial Division

(76)

Females:

Unreduced Retirements – All Divisions (DPS

Benefit Structure)

(77)

Males:

Unreduced Retirements – All Divisions (DPS

Benefit Structure)

(78)

Inactive Retirements

The current assumption is that 100% of inactive members who terminate employment with less than five years of service elect to withdraw their contributions

Current inactive members in the PERA Benefit Structure who are assumed to leave their contributions in the plan in order to receive a benefit at retirement are assumed to retire at age 62 with an unreduced benefit (age 65 for members in the DPS Benefit Structure)

We have reviewed actual experience for inactive members and recommend no change in these assumptions