PERA Plan Updates

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PERA Plan
Updates Prepared by Mary Most Vanek PERA
Executive Director [phone]
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The Contributions that must be paid to fund your
pension
Definition of Normal Cost The percent of your
salary that we must collect and invest to pay the
cost of the pension you are earning for each year
you are a member of the plan. Definition of
Supplemental Cost The percent of your salary
that we must collect and invest to pay off the
unfunded liability (or debt) that has
accumulated, because we havent collected enough
in contributions or the investments we need to
earn havent been what we require them to be (8.5
percent each year). Definition of Expenses The
percent of your salary that we collect to pay for
administering the plan. Sufficiency/Deficiency
The amount of the contributions that are greater
or less than what we need to fund the plan by
2031.
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How well are we doing to make sure the money we
need for your pension is being collected and set
aside for you?
There are two measures to which we refer when we
measure how well we are doing at collecting the
money we need to fund your pension. Minnesota
state law requires that we have 100 percent of
the assets we need to pay everyone their pensions
(current retirees and all active members who will
collect a pension in the future) by 2031. When
you see a figure that shows the contributions we
are collecting are less than what we need
(deficient) or more than what we need
(sufficient), that means we need to increase or
can reduce what we are collecting, assuming well
make an average of 8.5 percent on our investments
each year, to get to 100 percent funded by 2031.
Actuarial Funded Ratio -- the percent of assets
we have set aside to fund all current and future
benefits of our members. To come up with this
number, we divide the investment return over or
under 8.5 percent by 5 and each year add
one-fifth of that number to our current value of
assets. This way we spread investment gains or
losses over five years so that we better manage
the volatility of the stock market. This is the
official measure, required in state law, to be
used when we report to the legislature. Market
Value Funded Ratio -- this number appears in
parentheses because it is not the official number
for measuring how well funded we are. We show you
this because many people ask us if we simply
looked at the market value of our assets compared
to what we currently owe and will owe in the
future, how well funded are we?
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2004 PERA Revenue Sources How are PERA members
benefits paid for?
Percent of revenue received from member
contributions, employer contributions and
investment earnings.
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The PERA Coordinated Plan All local government
employees employed in other than public safety or
correctional guard positions. This group of
public employees are also contributing to social
security and make up the largest group of local
government employees currently participating in
PERA -- about 138,000.
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PERA Coordinated Plan Funding Status and Costs
July 1, 2003 July 1, 2004 Actuarial Funded
Ratio 81.27 76.73 Assets
11,195,902,000 11,477,960,861 (Market
Value Funded Ratio) 74.33 66.81
Assets 10,240,029,000
9,995,086,531
Normal Cost of Benefits Retirement 6.64
6.05 Disability 0.37
0.34 Survivor 0.12
0.14 Deferred Retirements 1.26
1.25 Refunds
0.22
N/A Total Normal Cost 8.61 7.78
The new actuary includes this cost with
survivor and deferred retirement costs, so it is
not shown separately here.
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PERA Coordinated Plan Funding Status and Costs
July 1, 2003 July 1, 2004 Total Normal
Cost 8.61 7.78
Supplemental Cost 3.06
4.25 Expenses
0.22
0.21 Total contribution
needed to fund the benefits
11.89 12.24 Total contribution
rate currently set by law 10.65
10.64 Contribution Deficiency
(1.24) (1.60) The Coordinated
Plan needs this percent of salary of each member
to pre-fund the members future retirement
benefits.
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PERA Coordinated Plan Proposed Schedule of
Contribution Increases
These numbers show the percent of each employees
salary that is currently paid and is proposed to
be paid in the future. The rates shown for
January 1, 2006 and forward are proposed and must
be approved by the legislature before they can go
into effect. . Effective Date Employee
Rate Employer Rate Current 5.10 5.53
January 1, 2006 5.50 6.00 January 1,
2007 5.75 6.25 January 1, 2008 6.00
6.50 January 1, 2009 6.00 6.75 January
1, 2010 6.00 7.00 If the fund recovers and
does not need the 2009 or 2010 increase, the
Board is requesting the authority to not impose
those increases. Also, the Board is requesting
authority to adjust rates automatically,
beginning after 2010, to deal with a contribution
rate sufficiency or deficiency sooner -- to keep
contributions more stable across generations.
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The PERA Police and Fire Plan All law
enforcement officers (licensed by the state) and
paid fire fighters, as well as the Hennepin
County paramedics. These employees do not
contribute to social security on their local
government salaries. There are currently about
10,000 members in this plan.
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PERA Police and Fire Plan The cost of the
benefits in this plan recently increased
significantly. The reasons for the increase are

• Assumption changes used to forecast the cost of
  the plan had to be changed and were adopted
  07/01/03
• Fewer members are leaving before retirement
• More members are retiring early (before age 55)
• More members are being granted disability
  benefits
• Active and retired members are living longer

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PERA Police and Fire Plan Funding Status and
Costs
July 1, 2003 July 1, 2004 Actuarial Funded
Ratio 107.32 101.16 Assets
4,713,606,000
4,746,834,494 (Market Value Funded Ratio)
95.14 88.20 Assets
4,158,060,000 4,138,503,947 Normal Cost
of Benefits Retirement 17.66
16.74 Disability 2.26
3.50 Survivor 0.68
0.58 Deferred Retirements 1.40
1.55 Refunds 0.05 N/A Total
Normal Cost 22.05 22.37 The
new actuary includes this cost with survivor and
deferred retirement costs, so it is not shown
separately here.
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PERA Police and Fire Plan Funding Status and
Costs
July 1, 2003 July 1, 2004 Total Normal
Cost 22.05 22.37 Supplemental
Cost (2.65) (.44) Expenses
0.12 0.12 Total contribution
needed to fund benefits 19.52
22.05 Total contribution currently set in
law 15.50 15.50 Contribution
Deficiency (4.02) (6.55)
We have more than 100 percent of the assets
in this fund needed to pay all current and
projected future benefits. The actuary uses the
extra assets like a savings account and shows how
much we are taking from the extra assets (over
100 percent) to help pay for the current benefits
being earned by the active members of the plan.
This means that in 2004, we may have been able to
collect 0.44 percent less of the salaries of each
member and still be able to pre-fund the benefits
those members were earning.
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The PERA Correctional Plan This is the newest
PERA plan -- started in 1999 -- and covers county
correctional officers who work directly with
inmates in the correctional facilities. These
employees also contribute to social security.
This plan currently has about 3200 members.
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PERA Correctional Plan Funding Status and Costs
July 1, 2003
July 1, 2004 Actuarial Funded Ratio
90.32 88.59 Assets
56,487,000
75,918,151 (Market Value Funded
Ratio) 80.0 88.08 Assets

49,834,000
75,476,235 Normal Cost of Benefits
Retirement 9.05
8.34 Disability
1.86 1.54 Survivor
0.36 0.39 Deferred
Retirements 1.82 2.04
Refunds 0.56
N/A Total Normal Cost 13.65
12.31 The new actuary includes
this cost with survivor and deferred retirement
costs, so it is not shown separately here.
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PERA Correctional Plan Funding Status and Costs
July 1, 2003 July 1, 2004 Total Normal
Cost 13.65 12.31
Supplemental Contribution 0.34
0.55 Expenses 0.14
0.14 Total contribution needed to fund
benefits 14.13 13.00 Total
contribution currently set in law
14.58 14.58 Net
Contribution Sufficiency 0.45
1.58

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Minnesota Post Retirement Investment
Fund (Post Fund) When a member of PERA retires,
we transfer money from the active fund (the fund
in which we are accumulating the money to pay
your lifetime pension) to the Post Fund, a
separate portfolio used to pay your lifetime
benefit. The money is invested in this portfolio
to pay annual increases.
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Minnesota Post Retirement Investment Fund How
increases are determined

• We have to make at least 6 percent on the
  investments in the Post Fund to keep your pension
  fully funded for your lifetime.
• Benefit payments are increased every January 1.
• The increase is guaranteed to be equal to
  inflation up to 2.5 percent
• Any investment above 8.5 percent (6 2.5) is
  spread out over 5 years and shared as an
  additional investment-related increase for
  retirees.
• Investment losses (less than 8.5 percent) are
  also spread out over 5 years and must be made up
  before any investment-related increase can be
  paid, but the guaranteed inflation increase will
  always be paid.

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Minnesota Post Retirement Investment Fund History
of the Post Retirement Fund Increases
January 1
Increase Paid
2005
2.50
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Minnesota Post Retirement Investment Fund
History of the Post Fund Assets and Total
Benefits Payable January 1, 1994 through present
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Minnesota Post Retirement Investment FundYears
to reach full funding in Post Fund based on
different investment returns As of June 30, 2003

Returns 8.5 9 10 12
15 Years N/A 30 13 8
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Depending on what our average rate of investment
returns is in the future, this chart shows that
it can take us anywhere from about 6 years to
over 30 years before well pay anything more than
the guaranteed inflation increase. However, the
long-term average rate of return has been 10
percent, so we may recover in the next 12 to 15
years.
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Minnesota Post Retirement Investment
Fund Position adopted by Boards of PERA, MSRS
TRA

• Retain guaranteed adjustment matching
  inflation up to 2.5
  percent
• Cap total increase at 5 percent when
  investments again yield gains to share with
  retirees
• (inflation guarantee plus investment gain
  capped at 5 percent)
• Allows for more equitable distribution
  of investment gains across generations of
  benefit recipients.
• Retain additional investment income in the
  Post Fund to be used to fund future 5 percent
  increases or to offset market declines.

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Minnesota Post Retirement Investment Fund History
of Asset and Liability Changes If proposed 5
percent cap had been in place Retroactive to
January 1, 1994
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PERAs Contribution to MNs Economy
No. of Retirees 34,905 40,195
43,591 48,083
53,037 56,912 61,190
PERA paid out about 925M to benefit recipients
between 7/1/03 - 6/30/04 Over 90 percent of
PERAs benefit recipients are MN residents
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Questions? Feel free to call PERA at (651)
296-7460 and ask to speak to a benefit counselor,
or if calling from outside the metro area,
call the toll-free number, 1 800 652-9026. You
may also call the executive director at (651)
296-8358, or e-mail her at mary.vanek_at_state.mn.us