Presentation Transcript

1. Kentucky Teachers’ Retirement System Information for: KRTA Legislative & Health Insurance Committees Gary L. Harbin, CPA Executive Secretary November 14, 2011
2. Field of Membershipas of December 2010 Active 0 – 26 Years Non-eligible 44,332 27+ Years* Eligible 15,199 Total Active 59,531 Sub/PT/Retired Return to Work 16,167 Total Contributing Members 75,698 Inactive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retired, Beneficiaries & Survivors . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,763 44,240 137,701 * and/or age 55 with 5 or more years of service within the next fiscal year.
3. Recap of Actuarial Status of the System as of June 30, 2010 Liabilities 24,344.3 Liabilities 3,206.8 Assets 14,851.3 Assets 241.2 Unfunded 9,493.0 Unfunded 2,965.6 Percent 61.0% Percent 7.5% Pre-funded RETIREMENTBenefit Fund Pre-funded* MEDICALBenefit Fund * Transitioning to Pre-funded as of July 1, 2010
4. AGENDA National Atmosphere GASB Pension Envy Wall Street State Atmosphere State Auditors Report on KRS Placement Agents Legislation introduced in 2010 Board Governance State Contributions to Pension Plans Analysis of take home pay and cost to employer Retirement System Atmosphere Update on Shared Responsibility Retiree Healthcare Investment Returns During market meltdown Last Fiscal Year Pathway System
5. Kentucky Teachers’ Retirement System Retiree Analysis 1/2011
6. AGENDA National Atmosphere GASB Pension Envy Wall Street
7. www.nirsonline.org
8. Kentucky Teachers Retirement System Schedule of Funds Available for Retirement Benefits For the Twenty-Six Year Period Ending June 30, 2011 Defined Benefit Plan – Retirement Benefits – (Pre-Funded) in billions of dollars
9. Kentucky Teachers Retirement System Schedule of Funds Available for Medical Benefits For the Twenty –Six Year Period Ending June 30, 2011 Defined Contribution Plan – Medical Benefits – (Pay-go) Medical Insurance … in billions of dollars * * Through Shared Responsibility, this fund became a pre-funded fund as of July 1, 2011.
10. Pension Envy The Russian word zavist, roughly translated, means envy of the meanest, most black-hearted kind. In his 2003 book, "Envy," scholar and critic Joseph Epstein relates a joke of the sort that Russians tell on themselves that perfectly captures the meaning of zavist: "An Englishwoman, a Frenchman, and a Russian are each given a single wish by one of those genies whose almost relentless habit it is to pop out of bottles. The Englishwoman says that a friend of hers has a charming cottage in the Cotswolds, and that she would like a similar cottage, with the addition of two extra bedrooms and a second bath and a brook running in front of it. The Frenchman says that his best friend has a beautiful blonde mistress, and he would like such a mistress himself, but a redhead instead of a blonde, and with longer legs and a bit more in the way of culture and chic. The Russian, when asked what he would like, tells of a neighbor who has a cow that gives a vast quantity of the richest milk, which yields the heaviest cream and the purest butter. 'I vantdat cow,' the Russian tells the genie, 'dead.'" Read more: http://www.stltoday.com/news/opinion/editorial/article_1484c3c6-6f66-5df7-a360-affa3e10ce3d.html#ixzz1RzxTTqZZ
11. AGENDA State Atmosphere State Auditors Report on KRS Placement Agents Legislation introduced in 2010 Board Governance State Contributions to Pension Plans Analysis of take home pay and cost to employer
12. Trustees sign a “Conflict of Interest” statement. Language to be added to outline the penalty the Board will apply. CONFLICT OF INTEREST STATEMENT A Conflict of Interest statement is required by all individuals who have a statutory, contractual or working relationship with KTRS. Individuals affected by this policy shall include, but are not limited to: Employees of KTRS; The Board; Independent contractors of KTRS; Vendors of KTRS; Employees or Officers of the Commonwealth of Kentucky providing legal or expert advice at the request of KTRS; and Any person acting in a fiduciary capacity for KTRS.
13. KTRS Board of Trustees RONALD L. SANDERSVice Chair, Hodgenville BARBARA G. STERRETTChair, Lexington CHARLES LUDWIGLouisville ROBERT CONLEYPaintsville Ex-Officio Ex-Officio DR. TERRY HOLLIDAYCommissioner of the Dept. of Education LAURA ZIMMERMANLexington TODD HOLLENBACHState Treasurer DR. TOM SHELTONLexington RUTH ANN SWEAZYTaylorsville July 1, 2011
14. Comparison ofTake Home & Employer Costs Employee
15. Teachers Pay vs Non-Teachers PayA Look at Social Security Implications Employer
16. Teachers Pay vs Non-Teachers PayA Look at Social Security Implications State
17. AGENDA Retirement System Atmosphere Update on Shared Responsibility Retiree Healthcare Investment Returns During market meltdown Last Fiscal Year Pathway System
18. 200.0 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Primary Funding for Medical Insurance Fund ~ Kentucky Teachers’ Retirement System ~ $897m - $41m = $ 856m Less payments of $ 41m Millions $335m $562m $ 139m $ 134m $ 125m -$6.0m $ 73m $ 62m $29m -$12.0m -$14.0m -$9.0m =$20.0 =$48.0 =$61.0 =$119.0 Member Contribution¾ of 1% of member salary State Match Equals member contribution Redirected Retirement Contributions Redirected Contributions to be Repaid Contributions Repaid by Commonwealth
19. Savings to Local Districts, Other Employers & State
20. Chart 1 for Discussion of Funding of Retiree Health Care House Bill 1 - Active Teachers +1% for new hires after June 30, 2008 $0.9 m These charts show two opposite ends of the health care funding spectrum. They are for discussion purposes only. They are not proposed as potential solutions. The KTRS actuary is working on a range of alternative options for the active members, retirees and constituency groups to consider. Any solution would be phased in over a period of four to six years in the near future and would require legislative action. * Current annual cost of retiree health care includes both the supplement paid directly by KTRS for members and the required Medicare Part B premiums paid directly by members age 65+
21. Chart 2for Discussion of Funding of Retiree Health Care House Bill 1 - Active Teachers +1% for new hires after June 30, 2008 $0.9 m These charts show two opposite ends of the health care funding spectrum. They are for discussion purposes only. They are not proposed as potential solutions. The KTRS actuary is working on a range of alternative options for the active members, retirees and constituency groups to consider. Any solution would be phased in over a period of four to six years in the near future and would require legislative action. Indirect Impact
22. Education Community’s Long Term Plan of Shared Responsibility for Funding Retired Teachers’ Health Care
23. Time-line for Changes to Occur for Active Teachers Beginning July 01, 2010, most active contributing members will contribute an additional ¼ of 1% of salary on a pre-tax basis to the Medical Insurance Fund. This will be gradually increased to an additional 3% over a six-year period. The total contribution will be 3.75% on July 1, 2015. The additional rates willphase in as follows:
24. HB 540 SHARED RESPONSIBILITYTime-line for Changes to Occur for Non-Medicare Eligible Retirees Retirees under age 65, regardless of retirement date, who receive medical benefits through the Kentucky Employees’ Health Plan, began contributing an additional amount to the Medical Insurance Fund effective July 1, 2010. This amount is based on the standard Medicare Part B premium that is currently paid by retirees age 65 and over.
25. EMPLOYERS Effective July 1, 2010, employers began contributing to the KTRS retiree medical insurance fund. Employer’s contribution rate will phase from .25% to 3.0% over the next six years. STATE The State of Kentucky will pay the net health care cost of all new KTRS retirees starting July 1, 2010. Example JAN - JUN $ 589.14 -39.00 $550.14 JUL - DEC $ 589.14 -77.00 $512.14 KEHP Premium Retiree cost NET cost to State
26. Shared Responsibility House Bill 540 provides a long-term, sustainable method for funding medical insurance for retired teachers. It is a plan that has been developed with much study, deliberation and input from all of Kentucky’s education community within the KTRS field of membership: KTRS Board of Trustees-fiduciary Jefferson County Teachers Association Kentucky Association of School Administrators & 3KT Kentucky Association of School Superintendents & 3KT Kentucky Education Association Kentucky Education Association-Retired Kentucky Retired Teachers Association Kentucky School Boards Association & 3KT Universities & Community Colleges & others
27. Bond Issue #1 . . . . . . The pension fund has received $465.4m from a bond issued by the Commonwealth in August 2010. Commonwealth of Kentucky These bond proceeds repay the pension fund for the balance due from the Commonwealth for amounts used to pay retiree health care since 2004.
28. Bond Issue #2 . . . . . . Commonwealth of Kentucky The KTRS Medical Insurance Fund received $268,000,000 in early 2011 from an additional bond issued by the Commonwealth to fund its portion of retiree health care for FY 2010-11 and FY 2011-12.
29. Actuarial Accrued Liability (Billions of Dollars) Reduced in FY 2009 by utilization of an EGWP PDP and Medicare Advantage Passive PPO Projected reduction if Shared Responsibility Legislation passes in FY 2010 Actuarial Accrued Liability after passing Shared Responsibility Legislation in 2010 General Assembly
30. Assets of Medical Insurance Fund (Millions of Dollars)
31. Health care as two words refers to what happens to a patient. Often, health care is a passive event: the provider kicks off and the patient receives. But health care should be more like the full football analogy: after the Provider team kicks off, the Patient team runs with the ball. Health care should be an interactive event: both sides do something. Passive or interactive, health care as two words refers to actions by people who work in healthcare and by patients. Healthcare as one word refers to a system or systems to offer, provide, and deliver health care (two words). Thus, the USA has a healthcare system. In Great Britain, they call it the NHS (National Health Service). The thing that doesn’t work well for anyone; that costs too much; has frequent errors; and too few providers, that is called healthcare. Health care – two words – refers to provider actions.Healthcare – one word – is a system.We need the second in order to have the first.
32. KTRS MEHP to join January 2012 Spear-headed by U of K & administered by Express Scripts New drug ID cards issued before January No substantial changes to the existing KTRS MEHP drug plan design Same deductible, coinsurance rates, and copayment structure Same pharmacy access Kentucky Rx Coalition Leveraging greater prescription purchasing power Deeper drug discounts Dedicated U of K pharmacist assigned to KTRS and available by phone Field prescription questions Help find lower-cost generic equivalent or alternative drugs Under 65 retirees & active teachers already have Express Scripts administering their drug plan
33. Board of Trustees Expands Investment Committee Seven members – five trustees, two non-trustees. Two of the five trustees have investment experience. Both non-trustees are investment experts. All members of Investment Committee sign conflict of interest statements. All trustees receive continuing investment related education.
34. Bevis Longstreth Professional Investment Activities: Since 2005, Member Board of Directors of Grantham, Mayo & Van Otterloo, LLC, Chairman of the Risk Committee From 1972 to 1981 and since 1984, Member, Finance Committee, Rockefeller Family Fund, responsible for investment strategy, manager selection and monitoring, Chairman from 1987 to 2004 Appointed Commissioner, Securities and Exchange Commission, 1981: re-appointed, 1982; resigned January 13, 1984 Member of the Board of Governors of American Stock Exchange from 1992 to 1998
35. Bevis Longstreth Professional Investment Activities (Continued): Member of Board of Trustees of College Retirement Equities Fund (CREF) of TIAA-CREF from 1996 to 2006. Member of Board of Directors of AMVESCAP PLC (INVESCO) from 1993 to 2006 Member of the Pension Finance Committee of The World Bank from 1987 to 1995. Author of three books including, Modern Investment Management and the Prudent Man Rule. Author of over forty investment articles appearing in various publications including Financial Times, New York Times, Washington Post, Chicago Tribune, The Banker Magazine, The Journal of Portfolio Management.
36. George M. Philip Professional Activities: President University of New York at Albany Currently is Investment Advisor to New York State Teachers’ Retirement System Serves and has served on numerous boards and investment committees including: New York Stock Exchange, Advisory Committee Chair of the Council of Institutional Investors Director of US Airways Group Director of First Niagara Financial Group ($15Bn Bank Group) Director of the Real Estate Investment Standards Board
37. George M. Philip Professional Activities (continued): From 1971 to 2007 – New York State Teachers Retirement System* Chief Real Estate Investment Officer - 1988 to 1992 Chief Investment Officer - 1992 to 2007 Executive Director - 1995 to 2007 * One of the ten largest public pension funds in the United States, $105 billion fund with 400,000 members. Mr. Philip was instrumental in diversification of portfolio including real estate and other alternative assets.
38. INVESTMENT PERFORMANCE KTRS Returns for Fiscal Year Ended June 30, 2011 21.4% return Market value of assets currently stands at $15.2 billion
39. KTRS Pathway Project The Pathway System will improve interaction for … Active Members Retired Members Employers & Staff Very Simple … This system will provide the backbone of our services to our members as they each travel their own path – hence, the PathwaySystem.
40. Why Pathway? Fast, Friendly Efficient Self-Service … From the latest technology Member training Employer training Staff training
41. Positive Impact of KTRS For Members Provides retirement security for those who have devoted their careers to teaching. A life-time retirement benefit determined by the member’s length of service and salary. HB 540 begins to pre-fund the Medical Insurance Fund in 2014.
42. Positive Impact of KTRS For School Districts Provides a benefit to attract and retain quality teachers. When teachers retire, this provides positions for new teachers and promotions for current teachers. When teachers retire, this reduces payroll costs as retiring teachers are replaced by new teachers.
43. Positive Impact of KTRSfor State & Local Economies Retired teachers have a significant economic impact in every county in Kentucky. KTRS pays monthly (March 2011): $117 million in retirement annuity benefits $21 million in medical benefits 44,279 retirees, beneficiaries & survivors 90% of KTRS retirees live in Kentucky
44. KTRS Distributes Hundreds of Millions of Dollars Annually Estimated to be $1.615 Billion $1.563 Billion $1.456 Billion $1.348 Billion $1.333 Billion $1.195 Billion $1.109 Billion Over the Last 3 Years$267 Million = 6,675 Jobs @ $40,000 ea. $1.004 Billion $929 Million $841 Million
45. Teachers’ Retirement System of the State of Kentucky Teachers’ Retirement System Our Members Come First! 1.800.618.1687 502.848.8500 www.ktrs.ky.gov of theState of Kentucky Protecting & Preserving Teachers’ Retirement Benefits
46. Members … The only organization whose sole purpose is the welfare of retired teachers. KRTA District Association Local Association
47. Emphasis for the Future: Issues that Continue Continue health insurance coverage. Need to maintain present structure (Defined Benefit Group Retirement Plan) and with adequate full funding. Oppose Mandatory Social Security. Support Repeal of WEP and GPO.