The Road to Modernization

1. The Road to Modernization MainePERS Participating Local District Consolidated Plan February 2013

2. Logistics for Broadcast Meetings • Please set all of your cell phones and electronics to vibrate • Try not speak over other sites; each site will be called upon for a Q/A session • Please take breaks as you need them Thank you!

3. Definitions You Might Need • PLD- Participating Local District • Consolidated Plan- MainePERS Retirement Program available for Maine local districts to adopt for employees • COLA- Cost of Living Adjustment • AFC- Average Final Compensation • Creditable Service- Service credit under MainePERS used in the calculation of retirement benefits • NRA- Normal Retirement Age. The age at which a regular plan member can retire without a reduction in benefits due to age.

4. What We Heard from You • Does this affect me? • Why weren’t employers informed first to help answer questions? • Why was legislation submitted before the changes were shared with us? • Why are we changing the Plan when 87% funding is still a good funding level? • Help! I just signed up in 2010. Can I leave the plan?

5. What We Heard from You • Does this affect me? • Changes affect everyone differently, but all plan members, future plan members, retirees and employers are affected in some way by these changes • Why weren’t employers informed first to help answer questions, and why was legislation submitted before the changes were shared with us? • The changes were agreed upon in late December after months of review and study. Costs were finalized in early January. Cloture for bill submission was January 18th. This did not provide the time necessary to adequately communicate these changes in advance. The decision was made to communicate properly rather than quickly.

6. What We Heard from You • Why are we changing the Plan when 87% funding is still a good funding level? • 87% is a good funding level if the funding has the opportunity of going up. Without changes to reduce the costs, the funding level will decline or funding requirements will increase. • Help! I just signed up in 2010. Can I leave the plan? • No. The one-time election for employees was implemented in 2010 to comply with Internal Revenue Service regulations.

7. Why are We Changing? • The times we are living in are changing, our plan needs to keep up • We are working and living longer • State and local budgets everywhere are being squeezed – what used to be standard benefits are changing • The 2008 market crash reduced the PLD Plan funding level to 87% as of 6-30-2012

8. What is Changing?

9. How Do We Know What to Change? • The PLD Advisory Committee asked MainePERS to prepare a cost report • This report describes how retirement plan costs work and a broad array of changes that impacts costs • No recommendations were included in this report • Can be found at www.mainepers.org – “Report on Pension Costs to the PLD Advisory Committee”

10. Why these Changes? • Retirement age - The average age for PLD Plan retirements is already 63.6 as people • Work to stay busy • Pay for healthcare • Early retirement reduction factor – very few plans continue to subsidize early retirement because it is a very expensive benefit • Rate increases – necessary to pay the annual costs of the plan

11. Why these Changes? • COLA eligibility – waiting 1 year for an increase is more standard than 6 months • COLA cap at 3% • COLAs are the most costly benefit • A 4% cap is high compared to other plans • COLAs are paid up to the cap, not at the cap every year • COLAs over 3% have occurred approximately 50% of the past 30 years • The average COLA with a 4% cap is about 2.8% • The average COLA with a 3% cap is about 2.3%

12. Who Makes these Decisions? PLD Advisory Committee – a dedicated group of employee and management representatives who recommend changes to The MainePERS Board of Trustees And the Maine State Legislature

13. What is the MainePERS Board of Trustees Responsibility? Set contribution rates to keep the Plan funded • Employer rate increases were implemented as of December, 2009 • Increasing at 1% per year to an aggregate rate of 8% of payroll by 2015 Individual plan rates are at www.mainepers.org • Employee rates requested to increase in 2015 • .5% for each of three years when employer rates reach 8% Example 1 (Plan A)– 6.5% to 7% to 7.5% to 8% Example 2 (Plan 3) – 8% to 8.5% to 9% to 9.5%

14. What is the Legislature’s Responsibility? The Plan provisions are embedded in law • The Legislature is the only body that can change the law • The PLD Advisory Committee and MainePERS submitted legislation based on “Report of the PLD Advisory Committee on PLD Plan Modernization” www.mainepers.org • The Legislature did not initiate these changes

15. What are the Proposed Legislative Changes? For New Members to the Plan • Age 65 Normal Retirement Age (NRA) • Proposed effective date July 1, 2014 • Early retirement age reduction factor • Age reduction of 6% will be applied to benefits for each year a member is younger than age 65 at retirement. • Proposed effective date July 1, 2014

16. What are the Proposed Legislative Changes? For All Members of the Plan • Future COLAs will be capped at 3% instead of 4% • Proposed effective date 2014 • COLA Eligibility at 12 months instead of 6 months • Proposed to become effective in 2015 (18 months after legislation is approved) • Employee contribution rates • Once employer rates return to an aggregate of 8% (in FY 2015), employee contribution rates will begin to increase at .5% per year for a total of a 1.5% increase until such time as employer rates are reduced

17. What’s the Bottom Line? • These changes bring the contribution rates closer to paying for the current plan costs • PLD Advisory Committee will continue to monitor the plan to keep it healthy

18. What other Information Do I Need to Know? Defined benefit plans are under scrutiny • These changes do not decrease the UAL • The Governmental Accounting Standards Board (GASB) is changing the way they are requiring pensions to be reported • Employers will be required to report their share of the unfunded liability on their balance sheet beginning at the end of their FY2015 • When these rules are final MainePERS will calculate and share the projected amount • Moody’s Investor Services is changing how they calculate pension liabilities for rating purpose

19. Where Can I Share My Comments? PLDComments@mainepers.org

20. PLD Advisory Committee Members MEMBER: NOMINATED BY: • David Barrett Maine Municipal Association • Vacant, awaiting appointment Appointed by Governor • Steven Butterfield Maine State Employees Association • Rick Cailler Professional Firefighters of Maine • John Kosinski / Rob Walker Maine Education Association • John Eldridge Maine Municipal Association • Traci Place Teamsters Union Local #340 • Janice Kimball Maine Municipal Association • Cornelia Brown Maine School Management Association • Vacant, awaiting designation AFSCME, Council 93 • Dr. Thomas J. Ward Maine School Management Association • Sandy Matheson, Executive Director Ex-officio Maine Public Employees Retirement System

21. Thank you for Attending For additional information visit www.mainepers.org Click on the PLD Pension Information icon 