|
TO: |
Members of the Legislative Commission on Pensions and Retirement |
|
FROM: |
Ed Burek, Deputy Director |
|
RE: |
Review of Prior Service Credit Purchase Provisions and Procedure for Estimating Full Actuarial Value: Second Consideration Memo |
|
DATE: |
August 19, 2003 |
Introduction
For the Commission’s second consideration of recently enacted full actuarial value prior service credit purchase provisions and review of the full actuarial value payment computation method, staff has prepared this memo for your review. The first part reviews the service credit purchase statement in the Commission’s policy document, reviews the coded general law service credit purchase provisions enacted since 1998, and notes inconsistencies between the Commission’s policy document and the applicable provisions of statute. These provisions were initially set for repeal a few years ago, but due to legislation supported by teacher unions and other groups, the sunset dates on these provisions have been extended to May or July of 2004. An issue for the 2004 Legislature is whether to permit these provisions to expire, to extend them again, or to make these provisions permanent. The second part of this memo reviews the full actuarial value estimation procedure used to compute the price that an individual must pay to receive service credit under these provisions. That revised method temporarily replaced the prior full actuarial value estimation method. That revised methodology is set to expire on July 1, 2004, at which time the previous full actuarial value method in statute would become effective.
Review of Service Credit Purchase Provisions
10. Purchases of Prior Service Credit
Purchases of public pension plan credit for periods of prior service should be permitted only if, on a case-by-case basis, it is determined that the period to be purchased is public employment or substantially akin to public employment, that the prior service period must have a significant connection to Minnesota, that the purchase payment from the member or from a combination of the member and the employer must equal the actuarial liability to be incurred by the pension plan for the benefit associated with the purchase, appropriately calculated, without the provision of a subsidy from the pension plan, and that the purchase must not violate notions of equity.
Individual Review. The Commission considers each service credit purchase request separately, whether the request is proposed legislation for a single person or is proposed legislation relating to a group of similarly situated individuals.
Public Employment. The period requested for purchase should be a period of public employment or service that is substantially akin to public employment.
Minnesota Connection. The employment period to be purchased should have a significant Minnesota connection.
Presumption of Active Member Status at the Time of Purchase. The principle states that contributions should be made by the member or in combination by the member and by the employer. It is presumed that the individual covered by the service purchase request is an active employee, because retirees generally are not considered to be "members" of a plan and these individuals no longer have a public employer.
Presumption of Purchase in a Defined Benefit Plan. The prior service credit purchase contributions in total should match the associated actuarial liability. The specific procedures in Minnesota Statutes and law for computing service credit purchase amounts, Minnesota Statutes, Sections 356.55 and 356.551, presume that the purchase is in a defined benefit plan with a benefit based on the individual’s high-five average salary.
Full Actuarial Value Purchase. The pension fund should receive a payment from the employee, or from the employee and employer in combination, which equals the additional liability placed on the fund due to the purchase. This amount is referred to as the full actuarial value of the service credit purchase.
No Violation of Equity Considerations. Purchases of service credit should not violate equity considerations. Equity is a resort to general principles of fairness and justice whenever the existing law is inadequate.
A general policy concern raised by the various general law full actuarial value service credit purchase provisions reviewed in this section is a lack of individual review. Other policy conflicts are noted after the summary of the provision.
1999 Session Provisions
General Law Teacher Plan Service Credit Purchase Provisions
Full Actuarial Value Military Service Credit Purchase. A vested TRA or first class city teacher plan member who performed service in the armed forces before becoming a Minnesota teacher plan member, or who did not make contributions to obtain service credit while on a teacher plan military leave of absence, is entitled to purchase service credit for the initial period of enlistment, induction, or call to active duty not including any voluntary extension. To receive the service credit, the member must pay the full actuarial value. The purchase is not permitted if the individual is eligible for a military pension or if the individual has service credit in another plan due to this military service. (Laws 1999, Chapter 222, Article 16, Sections 1 and 7. Coded as Minnesota Statutes, Section 354.533 for TRA and Section 354A.097 in first class city teacher plan statutes.)
Conflicts with Policy Statement: May lack any Minnesota connection. Raises several equity concerns, including failure by some to take advantage of a more generous treatment under military leave of absence provision, and lack of any requirement that the individual must honorably serve to be eligible. Other issue: The teacher plans have contended that the prohibition against purchases if the individual is entitled to a military pension may conflict with federal law.
Out-of-State Teaching Service Credit Purchase. A vested member may purchase up to ten years of service credit in the applicable teacher plan for out-of-state teaching in an educational institution established and operated by another state, a governmental subdivision of another state, or the federal government, providing the individual is not eligible for service credit in another plan. To receive the service credit, the member must pay the full actuarial value. (Laws 1999, Chapter 222, Article 16, Sections 2 and 8. Coded for TRA as Minnesota Statutes, Section 354.534, and for the first class city teacher plans as Section 354.A.098.)
Conflicts with Policy Statement: Lacks any Minnesota connection; this provision provides service credit in Minnesota plan for service provided to residents of other states.
Maternity Leave of Absence or Maternity Break in Service Purchase of Service Credit. A vested member may purchase up to five years of service credit in the applicable teacher plan for maternity leaves for which service credit was not received, or for a maternity break in teaching service, providing the individual is not eligible for service credit in another plan. To receive the service credit, the member must pay the full actuarial value. (Laws 1999, Chapter 222, Article 16, Sections 3 and 9. Coded for TRA as Minnesota Statutes, Section 354.535, and for the first class city teacher plans as Section 354A.099.)
Conflicts with Policy Statement. Provides service credit for period to time during which the individual was not providing service to a Minnesota employer.
Parochial or Private School Teaching, Purchase of Service Credit. A vested member may purchase up to ten years of service credit in the applicable teacher plan for private or parochial school teaching service, providing the individual is not eligible for service credit in another plan. To receive the service credit, the member must pay the full actuarial value. (Laws 1999, Chapter 222, Article 16, Sections 4 and 10. Coded for TRA as Minnesota Statutes, Section 354.536, and for the first class city teacher plans as Section 354A.101.)
Conflicts with Policy Statement: May lack any Minnesota connection. Provides Minnesota public plan coverage for private sector or church-related employment. May offer coverage for periods where the individual willfully took employment lacking any retirement coverage.
Peace Corps or VISTA (Volunteers in Service to America) Service Credit Purchase. A vested member may purchase up to ten years of service credit in the applicable teacher plan for Peace Corps or VISTA service providing the individual is not eligible for service credit in another plan. To receive the service credit, the member must pay the full actuarial value. (Laws 1999, Chapter 222, Article 16, Sections 5 and 11. Coded for TRA as Minnesota Statutes, Section 354.537, and for the first class city teacher plans as Section 354A.102.)
Conflicts with Policy Statement. May lack any Minnesota connection. Presumably offers coverage for periods where the individual willfully took employment lacking any retirement coverage.
Charter School Teaching, Purchase of Service Credit. A vested member may purchase up to ten years of service credit in the applicable teacher plan for charter school teaching service providing the individual is not eligible for service credit in another plan. To receive the service credit, the member must pay the full actuarial value. (Laws 1999, Chapter 222, Article 16, Sections 6 and 12. Coded for TRA as Minnesota Statutes, Section 354.538, and for the first class city teacher plans as Section 354A.103.)
Conflicts with Policy Statement. May lack any Minnesota connection. May raise public/ private concerns in some circumstances. May offer coverage for periods where the individual willfully took employment lacking any retirement coverage.
The following provision applied only to first class city teacher plans:
Previously Uncredited Part-Time Teacher Service, Purchase of Service Credit. A vested member with previously uncredited part-time teaching service may purchase service credit in the applicable first class city teacher plan for that teaching service providing the individual was not previously eligible for credit for that service. To receive the service credit, the member must pay the full actuarial value. (Laws 1999, Chapter 222, Article 16, Section 13. Coded as Minnesota Statutes, Section 354A.104.)
Conflicts with Policy Statement. May raise equity issue if these service was properly excluded from law at the time service was rendered.
A full actuarial value military service credit purchase provision, similar to that passed in 1999 for TRA and first class city teacher plan members, was enacted for MSRS-General, MSRS-Correctional, the State Patrol Plan, PERA, and PERA-P&F.
Military Service Credit Purchase. A vested member of MSRS-General, MSRS-Correctional, the State Patrol Plan, PERA, or PERA-P&F who performed service in the armed forces before becoming a member of the applicable plan or who failed to make contributions to obtain service credit while on a military leave of absence is entitled to purchase service credit for the initial period of enlistment, induction, or call to active duty not including any voluntary extension. To receive the service credit, the member must pay the full actuarial value. The purchase is not permitted if the individual is eligible for a military pension or if the individual has service credit in another plan due to this military service. (Laws 2000, Chapter 461, Article 4, Sections 1 to 4. Coded as Minnesota Statutes, Section 352.275 for MSRS-General and MSRS-Correctional, Section 352B.01, Subdivision 3a, for the State Patrol Plan, and Section 353.01, Subdivision 16a, for PERA and PERA-P&F.)
Conflicts with Policy Statement: May lack any Minnesota connection. Raises several equity concerns, including failure by some to take advantage of a more generous treatment under military leave of absence provision, and lack of any requirement that the individual service honorably to be eligible.
In 2000, the full actuarial value service credit purchase provisions in TRA and first class city teacher plan law permitting service credit purchases for private and parochial school teaching were revised to also include nonprofit community-based corporation teaching service:
TRA Service Credit Purchase for Nonprofit Community-Based Corporation Service. The TRA and first class city teacher plan provisions authorizing service credit purchases at full actuarial value for private or parochial school teaching service are revised to also authorize purchases of nonprofit community-based corporation teaching service. (Laws 2000, Chapter 461, Article 11, Sections 3 and 5.)
Conflicts with Policy Statement: May lack any Minnesota connection. The full section as revised provides Minnesota public plan coverage for private sector or church-related employment, and raises the issue of whether nonprofit community-based corporation is sufficiently akin to public employment. May offer coverage for periods where the individual willfully took employment lacking any retirement coverage.
2001 Session Provisions
In 2001, existing TRA and first class city teacher plan service credit purchase provisions were expanded as follows:
Out-of-Country Teaching Service and Tribal Teaching Service Credit Purchase. The TRA and first class city teacher plan out-of-state teaching service credit purchase provisions were expanded to include teaching service provided in another country or teaching service where the employing unit is a federally recognized American Indian tribe. (Laws 2001, First Special Session, Chapter 10, Article 6, Sections 5 and 11.)
Conflicts with Policy Statement: Can lack any Minnesota connection. May offer coverage for periods where the individual willfully took employment lacking any retirement coverage.
Developmental Achievement Center Service Credit Purchase. The TRA and first class city teacher plan service credit purchase provisions permitting service credit purchase for teaching in a nonprofit community-based corporation, private school, or parochial school, were expanded to include teaching at a developmental achievement center. (Laws 2001, First Special Session, Chapter 10, Article 6, Sections 6 and 12.)
Conflicts with Policy Statement: May lack any Minnesota connection. Raises issue of whether this is proper coverage to add to a public plan. May offer coverage for periods where the individual willfully took employment lacking any retirement coverage.
Also in 2001, the Legislature enacted a full actuarial value service credit purchase provision in TRA and first class city teacher plan law to enable members who taught at the University of Minnesota but who were not covered by a pension plan for that service to purchase service credit in TRA or the applicable first class city teacher plan. The TRA and first class city teacher plan provisions are:
Purchase of Service Credit for Uncovered Prior Teaching at the University of Minnesota. TRA or first class city teacher plan members who are vested and who provided University of Minnesota teaching service but who are not entitled to a current or deferred age and service retirement annuity or disability benefit related to that service may purchase service credit in TRA or a first class city teacher plan, as applicable, at full actuarial value reflecting that university service, not to exceed ten years. (Laws 2001, First Special Session, Chapter 10, Article 6, Sections 8 and 14. The TRA provision is coded as Minnesota Statutes, Section 354.541, and the first class city teacher plan provision is coded as 354A.109.)
Conflicts with Policy Statement: May offer coverage for periods where the individual willfully took employment lacking any retirement coverage.
During the 2001 First Special Session, a full actuarial value parental/family leave provision was enacted. The provision applies to MSRS-General MSRS-Correctional, PERA-General, PERA-P&F, TRA, the first class city teacher plans, MERF, Minneapolis Firefighters Relief Association (MFRA) and Minneapolis Police Relief Association (MPRA).
Parental/Family Leave or Break-in-Service Service Credit Purchase Provision. A member of an applicable plan, as described above, who had or has a family leave of absence, a parental leave, or a break in service from the same employer due to parental or family-related matters (due to birth of a child, adoption, or care of a near relative or in-laws), may purchase service credit for the period of the leave or break in service, not to exceed five years, by paying the full actuarial value of the service credit purchase. (Laws 2001, First Special Session, Chapter 10, Article 6, Sections 1 to 4, 10, 12, 16 to 20. The provision is coded as Minnesota Statutes, Section 356.555.)
Conflicts with Policy Statement: Provides coverage for a break in service, rather than for some period of uncovered service provided to a Minnesota public employer.
Review of Service Credit Purchase Full Actuarial Value Estimation Methodology
In 1998, the Legislature passed a revised full actuarial value methodology that is coded as Minnesota Statutes Section 356.55. The methodology applies to all purchases of service credit in Minnesota public pension plans unless another approach was specified in the applicable special or general law. The provision temporarily replaced another method for computing full actuarial value service credit purchases, which is coded in statutes as Section 356.551. The new provision was requested by various pension funds, particularly the Teachers Retirement Association (TRA) and various other teacher funds, who contended that the prior approach produced price estimates that were too high, unjustly discouraging service credit purchases. Milliman USA, the actuary retained by the Legislative Commission on Pensions and Retirement (LCPR), played a key role in developing the revised methodology, but under contract with the pension fund administrations rather than at the direction of the Commission.
The revised full actuarial value methodology in Section 356.55 includes a requirement (Subdivision 7) that the Commission-retained actuary must include in a report to the Commission indicating the purchase payment made in each case and the resulting increase in the pension plan’s liability due to the purchase as reflected in the next actuarial valuation. The actuary provides this information in a table in the Summary of Valuations, provided annually to the Commission. The applicable tables from the 2000, 2001, and 2002 actuarial valuation summaries are attached (Attachments A, B, and C). There will be no comparable table in 2003 and later actuarial valuation summaries. The Commission recently recommended that the table be eliminated as part of a package to cut costs, due to the condition of the current Commission budget.
The information in the attached tables permits the Commission to determine whether the revised full actuarial method is producing reasonably accurate results. If the Commission is satisfied with the results, it could recommend a repeal of the expiration date, making the provision permanent. If the Commission is not convinced that the Section 356.55 full actuarial value estimation approach is sufficiently accurate, the Commission could permit Section 356.55 to be repealed, which has the effect of reinstating the prior methodology for estimating full actuarial value. The Commission could also recommend some other alternative. When Section 356.55 was enacted in 1998 it included a July 1, 2001, expiration date. The expiration date was later extended, first to July 1, 2002, then to July 1, 2003, and during the 2003 Session was extended again to July 1, 2004.
The Commission may wish to conduct a thorough review of the procedure’s results using the information in this memo. Before beginning that data review, let us first consider the concept of a full actuarial value service credit purchase. This provides some standards by which to evaluate the results of the purchase of service credit prices produced using Section 356.55.
Under a full actuarial value service credit purchase, the price should be set to match the pension plan’s additional liability created by the additional service credit the individual will receive. The intent is to avoid any windfall to any individual or plan. If the purchase price accurately reflects the full actuarial value of the service credit purchase, no liability in excess of the purchase price will be shifted to the plan (which would occur if the purchase price is too low), and no windfall should be created for the plan (which would occur if the purchase price is too high, exceeding the additional liability that is created). Any windfall to the individual would harm the plan. Any harm to the individual would create a windfall to the plan.
It is important to recognize that no full actuarial value estimation method, however refined, will be consistently accurate. Therefore, permitting full actuarial value purchases will always place risk on the pension fund. While the general concept of full actuarial value pricing is straightforward, it is difficult if not impossible to precisely estimate those prices. Any flaw or bias in the procedure used to compute the full actuarial prices will create error. While it may be possible to further refine a flawed procedure, another source of error will never be overcome:
- To produce a full actuarial value estimate that proves to be accurate over time, it would be necessary to know the future with certainty. Since no one has that knowledge, the calculations must be based on assumptions about the future, assumptions which inevitably will prove to be incorrect.
Computing a full actuarial service credit purchase price requires estimating what the full required reserves will be for an individual’s pension at the time of retirement with and without the additional service credit. The present value of the difference, with some possible refinements, is the price of the service credit purchase. To produce an estimate which harms neither the individual nor the pension fund, the future events listed below must be known with certainty. Each is followed by the problems that will occur in practice.
The Date the Individual Will Retire. If the individual decides to retire later or sooner than anticipated in the full actuarial value calculation, the purchase price will be incorrect, either higher or lower than the true amount. The error may not be significant if the individual at the time of purchase is very close to normal retirement age or unreduced retirement age, but the error could be considerable when the purchase is made by an individual in early or mid-career.
The High-Five Average Salary That the Individual Will Have on the Retirement Date. The high-five average salary is a key determinant of the pension amounts. To predict the high-five average salary, it is necessary to precisely predict future salary increases between the purchase date and the retirement date. Considerable error could occur whenever the purchase is several years or decades before retirement. The first consideration memo noted that the salary increase assumption used in the calculation is five percent per year. This differs from the salary increase that is applicable in actuarial work for the plan providing coverage. The current law salary increase procedure for purposes of the actuarial report combines two assumptions, the select assumption and the ultimate assumption, which combined rarely total to five percent. Also, in the years following the purchase of service credit, the Commission and the Legislature may revise salary assumptions in law. The need to revise these assumptions may further undermine the credibility of the five percent salary assumption that was used in the purchase price calculation. In any event, what will ultimately matter is the actual salary increases of the specific individual. Those increases may bear little resemblance to any assumption made for plan members in general.
The Value of the Benefit Package in Effect on the Termination Date. The value of the benefit package on the retirement date will influence the true cost of the service credit purchase. Whenever benefits are enhanced in a plan after the purchase is made, the purchase is subsidized if the benefit improvement will apply to the years that were purchased.
Investment Returns from the Current Date (Purchase Date) to the Time of Retirement. Built into the service credit purchase price calculation is an assumption that the pension fund earns an 8.5 percent annual return from the purchase date until retirement. Future investment returns are unknown. If the pension fund earns more than 8.5 percent per year, the pension fund may receive a windfall from the purchase; if it earns less, the pension fund is subsidizing the purchase.
The Date the Individual Will Die, and the Date That Any Joint-and-Survivor Annuitant That the Individual May Name Will Die. The dates of death would need to be known to ensure that no subsidy or windfall will occur. If the covered individual or individuals live longer than expected, the plan suffers a mortality loss and the purchase price is too low. If death occurs before predicted, the purchase price is too high.
While recognizing the inherent problems with any method to compute full actuarial values for service credit purchases, we must deal with the situation at hand. Service credit purchases are currently permitted under numerous full actuarial value service credit purchase provisions. The Commission needs to decide if it has sufficient faith in the procedure that is being used. To assist the Commission with this task, in the sections that follow we concentrate on what can be concluded from the current data found in the actuary’s summary reports. The reports include tables indicating the purchase price paid by the individual (the full actuarial value service credit purchase price computed under Section 356.55) and the added liability as determined in the next actuarial valuation due to these purchases. This permits these two amounts to be compared. These comparisons are the best indicators we have, admittedly fairly soon after the events occurred, to indicate whether the methodology in Section 356.55 is working with a level of accuracy acceptable to the Commission. If the results suggest reasonable consistency between the purchase price data and the actuarial valuation data, that might seem comforting, but the Commission might wish to recognize that both are efforts to predict future events. The estimates might be similar, but both could be poor predictors of future liabilities. If the data sets are not similar, that might add to concerns about continuing the current full actuarial value estimation method and the numerous general law purchase provisions that have been added to statute since 1998.
Overview of Data
Attachments A through C provide a detailed list of the purchases of service credit using the revised full actuarial value method found in Section 356.55 that occurred during fiscal years 2000, 2001, and 2002, respectively, for each of the following plans:
TRA Teachers Retirement Association
DTRFA Duluth Teachers Retirement Fund Association
MTRFA Minneapolis Teachers Retirement Fund Association
SPTRFA St. Paul Teachers Retirement Fund Association
MSRS Minnesota State Retirement System
MSRS-Correctional MSRS Correctional State Employees Retirement Plan
PERA Public Employees Retirement Association
PERA-P&F Public Employees Police and Fire Retirement Plan
MERF Minneapolis Employees Retirement Fund
The information is grouped under two categories – "active member" and "retired member," although active members of the applicable funds made all the purchases. These terms refer to the status of the individual on the actuarial valuation date. The "active member" category includes all purchases during the year made by active members where the member remained active on the actuarial valuation date. The "retired member" category includes all purchases made during the year by an active member who had retired by the actuarial valuation date. The actuary’s tables also include a "deferred member" group, applicable in cases were the individual was active when the service credit was purchased but was in deferred status by the actuarial valuation date. There were few of these cases, and some plans had no individuals in that category during the three years under study. The "deferred member" category is not included in this analysis.
An example of results for a service credit purchase follow. The example is a PERA active member service credit purchase made during the period ending June 30, 2000. (This is the first purchase listed in Attachment A):
|
Service |
Employee |
Employer |
Change in |
Gain/(Loss) |
|
|
Active Member #1 |
3.417 |
$19,582 |
$0 |
$26,747 |
($7,165) |
In the above example, the individual purchased 3.417 years of service. Like most of the service credit purchases, the individual did not purchase service credit in even full year increments. The purchase payment amount determined under Section 356.55 was $19,582, which is the amount the individual paid for the service credit as shown in the "employee payment" column (there was no employer payment). The next column indicates the change in accrued liability recognized in the pension fund due to that purchase. To compute that figure, the actuary determined the liability recognized in the plan on the actuarial valuation date for that individual including the service credit just purchased. The actuary also computed the liability that would have been recognized in the actuarial valuation related to that individual if the purchase of service credit had not occurred. The difference between these two amounts is the change in plan liability due to the service credit purchase as recognized in the subsequent actuarial valuation. This amount appears in the "change in liability" column. It would be reassuring if the change in accrued liability equaled the service credit purchase amount determined under Section 356.55. In this case, the change in liability was $26,747, but the purchase of service price was $19,582, resulting in a loss to the plan (indicated in the gain/loss column) of $7,165. If the reader scans Attachments A through C and reviews the gain/loss column, it is apparent that results derived through the actuarial report approach do not track at all well the service credit purchase prices computed under Section 356.55. The indicated gain/loss is almost never zero, and the deviation, whether positive or negative, is often large.
Attachments A to C provide a considerable amount of data. Table 1 summarizes the information from the attachments for each pension plan in which full actuarial value service credit purchases occurred.
Table 1
Summary of Service Credit Purchase Data
|
TRA |
DTRFA |
|||||||||||||||
|
2000 |
2001 |
2002 |
Total |
2000 |
2001 |
2002 |
Total |
|||||||||
|
Active |
||||||||||||||||
|
Total |
143 |
166 |
303 |
612 |
3 |
2 |
7 |
12 |
||||||||
|
w/Gain |
124 |
87% |
126 |
76% |
253 |
83% |
503 |
82% |
1 |
33% |
1 |
50% |
5 |
71% |
7 |
58% |
|
w/Loss |
19 |
13% |
40 |
24% |
50 |
17% |
109 |
18% |
2 |
67% |
1 |
50% |
2 |
29% |
5 |
42% |
|
Avg. Payment |
$17,062 |
$19,079 |
$23,461 |
$20,777 |
$9,238 |
$30,719 |
$26,186 |
$22,704 |
||||||||
|
Avg. Liability Change |
$12,713 |
$15,399 |
$18,890 |
$16,500 |
$9,001 |
$36,677 |
$22,217 |
$21,323 |
||||||||
|
Avg. Gain/Loss |
$4,349 |
$3,680 |
$4,571 |
$4,277 |
$237 |
($5,958) |
$3,969 |
$1,381 |
||||||||
|
Retired |
||||||||||||||||
|
Total |
41 |
34 |
28 |
103 |
4 |
1 |
1 |
6 |
||||||||
|
w/Gain |
16 |
39% |
14 |
41% |
9 |
32% |
39 |
38% |
1 |
25% |
0 |
0% |
1 |
100% |
2 |
33% |
|
w/Loss |
25 |
61% |
20 |
59% |
19 |
68% |
64 |
62% |
3 |
75% |
1 |
100% |
0 |
0% |
4 |
67% |
|
Avg. Payment |
$13,199 |
$16,928 |
$18,756 |
$15,941 |
$19,550 |
$37,694 |
$60,004 |
$29,316 |
||||||||
|
Avg. Liability Change |
$31,903 |
$17,234 |
$22,628 |
$24,540 |
$26,187 |
$66,017 |
$58,154 |
$38,153 |
||||||||
|
Avg. Gain/Loss |
($16,698) |
($306) |
($3,872) |
($7,800) |
($6,637) |
($28,323) |
$1,850 |
($8,837) |
||||||||
|
MTRFA |
SPTRFA |
|||||||||||||||
|
2000 |
2001 |
2002 |
Total |
2000 |
2001 |
2002 |
Total |
|||||||||
|
Active |
||||||||||||||||
|
Total |
4 |
1 |
37 |
42 |
20 |
7 |
30 |
57 |
||||||||
|
w/Gain |
2 |
50% |
1 |
100% |
28 |
76% |
31 |
74% |
19 |
95% |
3 |
43% |
12 |
40% |
34 |
60% |
|
w/Loss |
2 |
50% |
0 |
0% |
9 |
24% |
11 |
26% |
1 |
5% |
4 |
57% |
18 |
60% |
23 |
40% |
|
Avg. Payment |
$30,917 |
$45,815 |
$30,734 |
$31,111 |
$24,842 |
$5,544 |
$20,190 |
$20,024 |
||||||||
|
Avg. Liability Change |
$25,256 |
$29,462 |
$25,814 |
$25,848 |
$17,186 |
$7,070 |
$22,429 |
$18,703 |
||||||||
|
Avg. Gain/Loss |
$5,661 |
$16,353 |
$4,920 |
$5,263 |
$7,656 |
($1,526) |
($2,239) |
$1,320 |
||||||||
|
Retired |
||||||||||||||||
|
Total |
2 |
0 |
1 |
3 |
5 |
1 |
4 |
10 |
||||||||
|
w/Gain |
1 |
50% |
0 |
0 |
0% |
1 |
33% |
2 |
40% |
0 |
0 |
0% |
2 |
20% |
||
|
w/Loss |
1 |
50% |
0 |
1 |
100% |
2 |
67% |
3 |
60% |
1 |
4 |
100% |
8 |
80% |
||
|
Avg. Payment |
$52,998 |
$10,030 |
$38,675 |
$18,720 |
$22,197 |
$19,625 |
$19,430 |
|||||||||
|
Avg. Liability Change |
$78,989 |
$18,615 |
$58,864 |
$23,335 |
$63,402 |
$53,584 |
$39,441 |
|||||||||
|
Avg. Gain/Loss |
($25,991) |
($8,585) |
($20,189) |
($4,615) |
($41,205) |
($33,960) |
($20,012) |
|||||||||
|
MSRS |
MSRS-Correctional |
|||||||||||||||
|
2000 |
2001 |
2002 |
Total |
2000 |
2001 |
2002 |
Total |
|||||||||
|
Active |
||||||||||||||||
|
Total |
2 |
8 |
11 |
21 |
0 |
1 |
1 |
2 |
||||||||
|
w/Gain |
1 |
50% |
5 |
63% |
7 |
64% |
13 |
62% |
0 |
1 |
100% |
1 |
100% |
2 |
100% |
|
|
w/Loss |
1 |
50% |
3 |
38% |
4 |
36% |
8 |
38% |
0 |
0 |
0% |
0 |
0% |
0 |
0% |
|
|
Avg. Payment |
$17,489 |
$15,947 |
$21,878 |
$19,201 |
$14,113 |
$15,286 |
$14,700 |
|||||||||
|
Avg. Liability Change |
$13,126 |
$13,536 |
$18,897 |
$16,305 |
$11,471 |
$10,629 |
$11,050 |
|||||||||
|
Avg. Gain/Loss |
$4,363 |
$2,411 |
$2,981 |
$2,895 |
$2,642 |
$4,657 |
$3,650 |
|||||||||
|
Retired |
||||||||||||||||
|
Total |
0 |
3 |
0 |
3 |
0 |
1 |
0 |
1 |
||||||||
|
w/Gain |
0 |
0 |
0% |
0 |
0 |
0% |
0 |
1 |
100% |
0 |
1 |
100% |
||||
|
w/Loss |
0 |
3 |
100% |
0 |
3 |
100% |
0 |
0 |
0% |
0 |
0 |
0% |
||||
|
Avg. Payment |
$46,364 |
$46,364 |
$12,208 |
$12,208 |
||||||||||||
|
Avg. Liability Change |
$90,313 |
$90,313 |
$11,402 |
$11,402 |
||||||||||||
|
Avg. Gain/Loss |
($43,949) |
($43,949) |
$806 |
$806 |
||||||||||||
|
PERA |
PERA-P&F |
|||||||||||||||
|
2000 |
2001 |
2002 |
Total |
2000 |
2001 |
2002 |
Total |
|||||||||
|
Active |
||||||||||||||||
|
Total |
4 |
18 |
27 |
49 |
0 |
3 |
12 |
15 |
||||||||
|
w/Gain |
1 |
25% |
8 |
44% |
19 |
70% |
28 |
57% |
0 |
3 |
100% |
7 |
58% |
10 |
67% |
|
|
w/Loss |
3 |
75% |
10 |
56% |
8 |
30% |
21 |
43% |
0 |
0 |
0% |
5 |
42% |
5 |
33% |
|
|
Avg. Payment |
$18,418 |
$15,769 |
$23,909 |
$20,471 |
$34,721 |
$48,880 |
$46,048 |
|||||||||
|
Avg. Liability Change |
$20,879 |
$16,004 |
$21,673 |
$19,526 |
$28,586 |
$46,524 |
$42,937 |
|||||||||
|
Avg. Gain/Loss |
($2,461) |
($235) |
$2,236 |
$945 |
$6,135 |
$2,356 |
$3,112 |
|||||||||
|
Retired |
||||||||||||||||
|
Total |
1 |
4 |
2 |
7 |
0 |
1 |
0 |
1 |
||||||||
|
w/Gain |
0 |
0% |
2 |
50% |
0 |
0% |
2 |
29% |
0 |
0 |
0% |
0 |
0 |
0% |
||
|
w/Loss |
1 |
100% |
2 |
50% |
2 |
100% |
5 |
71% |
0 |
1 |
100% |
0 |
1 |
100% |
||
|
Avg. Payment |
$4,918 |
$25,846 |
$8,538 |
$17,911 |
$18,656 |
$18,656 |
||||||||||
|
Avg. Liability Change |
$20,962 |
$30,492 |
$10,304 |
$23,362 |
$49,910 |
$49,910 |
||||||||||
|
Avg. Gain/Loss |
($16,044) |
($4,646) |
($1,767) |
($5,452) |
($31,254) |
($31,254) |
||||||||||
|
MERF |
||||||||
|
2000 |
2001 |
2002 |
Total |
|||||
|
Active |
||||||||
|
Total |
0 |
0 |
1 |
1 |
||||
|
w/Gain |
0 |
0 |
1 |
100% |
1 |
100% |
||
|
w/Loss |
0 |
0 |
0 |
0% |
0 |
0% |
||
|
Avg. Payment |
$67,184 |
$67,184 |
||||||
|
Avg. Liability Change |
$27,327 |
$27,327 |
||||||
|
Avg. Gain/Loss |
$39,857 |
$39,857 |
||||||
|
||||||||
|
Total |
0 |
0 |
0 |
0 |
||||
|
w/Gain |
0 |
0 |
0 |
0 |
||||
|
w/Loss |
0 |
0 |
0 |
0 |
||||
|
Avg. Payment |
||||||||
|
Avg. Liability Change |
||||||||
|
Avg. Gain/Loss |
||||||||
Number of Purchases (Table 1)
TRA has far more service credit purchases than any other plan. In fact, TRA members made more than three times the number of service credit purchases than occurred in all of the other plans combined. For the three-year period, there were 612 TRA service credit purchases by individuals who remained active at the next actuarial valuation date, and 103 purchases by individuals who retired by the next actuarial valuation date, for a total of 725 purchases. The total number of purchases in all other plans combined was 230.
Pattern of Gains and Losses (Table 1)
In no case did the service credit purchase amount exactly match the additional liability due to the purchase noted in the next actuarial report, and the amounts are rarely even close. The pattern we observe is that most active purchases (purchases by individuals who remained active members at the next actuarial valuation) resulted in a gain to the plan (the added liability due to the purchase as recognized in the next actuarial valuation was less than the purchase price). The opposite result is seen for those individuals who purchase service credit and then retired by the next actuarial valuation (the "retired purchases"). When the purchase price is compared to the change in liability reflected in the next actuarial valuation due to the purchase, most retired purchases resulted in losses to the fund.
For the three-year period as a whole, this pattern of active purchase gains and retired purchase losses held for all funds. For TRA, for the period as a whole, 82 percent of the active purchases resulted in a gain to the fund compared to the additional liability due to the purchase recognized in the next actuarial valuation, while for the retired purchases most cases (62 percent) resulted in a loss to the fund. The typical active purchase caused a gain of $4,277 for the fund, while the typical retired purchase resulted in a $7,800 loss. For DTRFA, 58 percent of the active purchase were gains, while 67 percent of the retired purchases recorded losses. In the MTRFA, 74 percent of active purchases were gains for the fund, while 67 percent (two out of three) retired purchases were losses, creating an average loss for the retired group in that fund of $20,189 per case. For the SPTRFA, 60 percent of the active purchases were gains, while 80 percent of the retired purchases were losses, creating an average loss per retired purchase of $20,012. For MSRS, 62 percent of the active purchases were gains, and all retired purchases (there were only three) were losses. In that plan, the average loss per retiree purchase was $43,949. In MSRS-Correctional, where very few purchases occurred, both active purchases were gains and the one retired purchase was a loss. In PERA-General, 57 percent of active purchases were gains and 71 percent of retire purchases were losses, with an average loss per retiree purchase of $5,452. In PERA-P&F, 67 percent of the active purchases were gains and the one retired purchase was a $31,254 loss. In MERF, one active purchase occurred, which was recorded as a sizable gain to the fund ($39,857) and no retired purchases occurred.
Viewing each year separately rather than as a three-year total, there were a few cases where the "active gain/retired loss" pattern did not hold, but that is, in part, a consequence of a small sample size. A few purchases could significantly shift the averages. In PERA, there were more active losses than gains in 2000 and 2001, but most purchases occurred in 2002 and a strong percentage of the 2002 active purchases were gains (70 percent). In DTRFA, two-thirds of the active purchases during 2000 were losses, but there were only 3 active purchases in total. In SPTRFA, most active purchases in 2001 and 2002 were recorded as fund losses, but in 2000, 95 percent (19 out of 20) of purchases were gains, resulting in more active gains than losses for the three-year period as a whole.
Size of Reported Gains (Table 2)
In Table 2, TRA active and retired purchase gains are examined in more detail (Table 3 will examine TRA losses in detail). While this information covers only TRA, based on our review of Attachments A through C, it appears that the results for TRA are generally indicative of the results for other funds. Also, in examining TRA we are examining the vast majority of all the service credit purchases that have occurred. In some of the other funds the sample size is too small to support any general conclusions.
Table 2
Examination of TRA Gains
|
TRA: Examination of Fund Gains |
TRA: Examination of Fund Gains - |
|||||||||||||||
|
2000 |
2001 |
2002 |
Total |
2000 |
2001 |
2002 |
Total |
|||||||||
|
Active |
||||||||||||||||
|
Total # of Purchases |
143 |
166 |
303 |
612 |
39 |
34 |
103 |
176 |
||||||||
|
With Gain |
124 |
87% | ||||||||||||||