How healthy is your pension plan? It’s a topic often in the national news and we thought you would be interested in an update specific to our state. In this newsletter, we’ll go over the:
The state actuary performs an annual valuation of the retirement plans, studying the experience of each and analyzing the effects of anticipated economic and demographic changes. In the valuation, the actuary recommends the money to be contributed annually to pay for the benefits members are expected to earn during their public service.
The collective funded status for all of Washington’s plans is currently 100 percent, which means that overall, the value of the assets on hand equals the accrued liabilities. The total funded status was previously 99 percent (2005), 105 percent (2004), 107 percent (2003) and 118 percent (2002).
Only two of the state’s large retirement plans – PERS 1 and TRS 1 – have unfunded accrued liabilities. In 1989, the Legislature enacted a policy that requires bringing those plans to fully funded status by the year 2024.
We sometimes receive calls from retirees who are concerned about their benefits. It’s important to remember that your benefit is secure. You’ve earned it and it will be paid to you.
You can find more detailed information on the funded status of each plan in the 2006 Actuarial Valuation Report, available on the state actuary’s Web site.
While you most often hear from DRS, other organizations have important roles when it comes to Washington’s pension systems.
The state Legislature’s Select Committee on Pension Policy studies pension plan issues and recommends any changes in the plans to the Legislature. Retirees and active members are represented on the committee, as are state legislators and public employers.
The Legislature enacts retirement plan policy, which includes policies on changing benefits and funding the plans, and establishes the contribution rates.
The Office of the State Actuary performs regular valuations of the retirement plans to determine overall health and funding status and recommend contribution rates to the Pension Funding Council.
The Pension Funding Council evaluates the state actuary’s recommendations, including the economic and demographic assumptions used, and makes a determination on adopting them, which impacts recommended contribution rates.
The Washington State Investment Board invests the trust fund dollars.
The Department of Retirement Systems collects and accounts for contributions from public employees and their employers; verifies member data submitted by employers; maintains pension records, communicates information to retirees and members and pays retirement benefits each month.
We mailed you a copy of our Summary Annual Financial Report a few weeks ago. This document summarizes the information in our nearly 200-page Comprehensive Annual Financial Report and includes information on plan funding, membership in each plan, and trust fund investment activity.
Please be sure to let us know if you did not receive your copy of the Summary Annual Financial Report. It’s a financial overview of your pension system and the other systems we administer.
You should be receiving this newsletter – Retirement Outlook – twice a year. One edition concentrates on any new legislation that affects your benefits, while the other brings you information about Washington’s pension plans overall.
Be sure to let us know if there is other information you would like to see in this newsletter. Just e-mail your suggestion to communications.
We enjoy hearing from you!
Actuarial assumptions. In studying the financial condition of the pension plans, the actuary also makes assumptions about factors that will impact the plans in the future. Those assumptions fall into two categories: economic and demographic. Economic assumptions are used to estimate the amount of future pensions and include salary growth, inflation and the rate of return on investment earnings. Demographic assumptions are used to estimate when and how long benefits will be paid and include the expected retirement, mortality and disability.
Funded status/ratio. The ratio of a plan’s assets to its current liabilities. When a plan is funded at 100 percent, the last dollar of assets is expected to match the last dollar of earned benefits paid to the last member or beneficiary.
Open/closed plans. Open plans are available for new members to join, while closed plans are not. For example, PERS Plan 1 closed to new members in 1977. PERS Plans 2 and 3 are both open to new membership.
Plan assets. The money on hand today, including contributions and investment earnings, to pay benefits that have been earned to date.
Unfunded liabilities. The excess, if any, of plan liabilities over the value of its assets.
Valuation. Every year the state actuary studies the financial condition of the PERS, SERS, TRS, PSERS, LEOFF and WSPRS plans to determine the contribution requirements for the following year. The resulting information is known as the Valuation Report, which is available on the state actuary’s Web site.
Winter/Spring 2008