January 18, 2011 Howard Bicker, Executive Director, SBI Dave Bergstrom - Executive Director, MSRS Mary Most Vanek - Executive Director, PERA Laurie Fiori Hacking - Executive Director, TRA Introduction to Statewide Retirement Funds

2 State Board of Investment (SBI)  Invest assets of the Pension Funds and other State Funds  Board is defined in Article XI of Minnesota Constitution: ◦ Governor ◦ State Auditor ◦ Attorney General ◦ Secretary of State  Assisted by 17 member Investment Advisory Council (IAC) ◦ 10 experienced investment professionals ◦ Executive Directors of statewide retirement plans ◦ Commissioner of MMB ◦ Three Governor Appointees

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4 SBI Returns – for periods ending 6/30/ % Actuarial Required Return July – Dec 2010 return = 16% +

5 67¢ Investment Earnings Pensions are a shared responsibility. Every dollar paid to retirees comes from three sources 18¢ Employers 15¢ Employees Sources of MN public pension fund revenue,

 Covers state employees, University of Minnesota (non- faculty), Metropolitan Council, MNSCU and others  Governed by an eleven-member board ◦ Four elected General and/or Unclassified Plan members ◦ Three Governor appointees ◦ An elected State Patrol member ◦ An elected Correctional Plan member ◦ An elected retiree ◦ One appointee representing the Amalgamated Transit Union  Total net assets of all MSRS administered plans totaled $13 billion on June 30, 2010 ◦ $9.1 billion in mandatory retirement plans ◦ $3.9 billion in supplemental/voluntary plans 6

Retirement PlanAssets (6/30/2010) Active Participants Benefit Recipients Deferred, Vested Participants General Plan$7.7 billion48,49428,43515,388 Correctional Plan$525 million4,2681, State Patrol Plan$489 million Judges Plan$126 million Legislators$26 million Elective State Officers Plan $00151 Unclassified (Defined Contribution) $253 million1,43001,844 7 Voluntary and/or Supplemental PlansAssets (6/30/2010)Active Participants Minnesota Deferred Compensation Plan (MNDCP) $3.5 billion79,822 Health Care Savings Plan (HCSP)$317 million63,189 Hennepin County Supplemental Plan$109 million1,900

8 Funding on Market ValueFunding on Actuarial Value Year Return 18.3%-5%-18.8%15.2% Year Return 18.3%-5%-18.8%15.2% Current rate: 5% employee/5% employer

9 Funding on Market ValueFunding on Actuarial Value Year Return 18.3%-5%-18.8%15.2% Year Return 18.3%-5%-18.8%15.2% Current rate: 8.6% employee/12.1% employer

10 Funding on Market ValueFunding on Actuarial Value Year Return 18.3%-5%-18.8%15.2% Year Return 18.3%-5%-18.8%15.2% Current rate: 10.4% employee/15.6% employer* * Not covered by Social Security

General PlanCorrectional PlanState Patrol Plan Post Retirement Increase Future increases of 2% until a funding ratio of 90% is reached Future increases of 1.5% until funding ratio 90% Deferred Augmentation 2% for future years beginning January 2012 Contribution Rate Increases None2% employee 3% employer (7/1/2011) Vesting Hired after 7/1/2010 Five yearsPhased in from five to ten years of service Five years Refund InterestLowered from 6 percent to 4 percent beginning 7/1/2011 Reduction in Unfunded Liabilities* $650 million$45 million$62 million * Source: Mercer FY2010 Actuarial Evaluation 11

 Covers City, County & Non-teaching School District employees  Governed by an eleven-member Board of Trustees ◦ Five elected by the PERA membership  Three General Plan members  One Police & Fire  One Retiree ◦ Five Governor appointees representing cities, counties, schools boards, retirees, and the general public, respectively ◦ The State Auditor  Total net assets of all PERA administered plans totaled $16.9 billion on June 30,

Retirement PlanAssets (6/30/2010) Active Participants Benefit Recipients Deferred, Vested Participants General Plan$11.3 billion140,38968,47445,151 Police & Fire$4.4 billion11,0027,5411,315 Correctional$211 million3, ,895 Defined Contribution Plan $32 million7,227N/A Minneapolis Employees Retirement Fund (MERF) $844 million1434, Also, administrators of the Statewide Volunteer Firefighter Retirement Plan

14 Funding on Market ValueFunding on Actuarial Value Year Return 18.3%-5%-18.8%15.2% Year Return 18.3%-5%-18.8%15.2% Current rate: 6.25% employee/7.25% employer

15 Funding on Market ValueFunding on Actuarial Value Year Return 18.3%-5%-18.8%15.2% Year Return 18.3%-5%-18.8%15.2% Current rate: 9.6% employee/14.4% employer* * Not covered by Social Security

16 Funding on Market ValueFunding on Actuarial Value Year Return 18.3%-5%-18.8%15.2% Year Return 18.3%-5%-18.8%15.2% Correctional Plan Contribution Rate History Established in 1999, the Correctional Plan has maintained a level contribution rate; 5.83% employee & 8.75% employer

General PlanPolice & FireCorrectional Post Retirement Increase Future increases of 1% until funding ratio of 90% Increases of 1% for 2011 & 2012; then CPI up to 1.5% until funding ratio of 90% Future increases of 1% until funding ratio of 90% Deferred Augmentation 1% for future years beginning January 2012 Contribution Rate Increases 0.25% employee 0.25% employer 0.2% employee 0.3% employer None Vesting Hired after 7/1/2010 Five years Phased in from five to ten years of service; fully vested at ten years Refund Interest Lowered from 6 percent to 4 percent beginning 7/1/2011 Reduction in Unfunded Liabilities* $2.8 billion$625 million$15 million *Source: Mercer FY2010 Actuarial Valuation 17

 Covers all K-12 public school teachers & administrators, charter schools, some State Universities & Community College faculty  Governed by an eight-member Board of Trustees ◦ Four elected by active members ◦ An elected retiree member ◦ Three statutory appointments made by the:  Commissioner of Minnesota Management & Budget;  Commissioner of Education; and  the Minnesota School Boards Association 18 Plan Information 6/30/2010 Assets$14.9 billion Active Members77,356 Benefit Recipients 51,853 Deferred, Vested Members 12,756

19 Funding on Market ValueFunding on Actuarial Value Year Return 18.3%-5%-18.8%15.2% Year Return 18.3%-5%-18.8%15.2% Current rate: 5.5% employee/5.5% employer

Post Retirement IncreaseNo increases in 2011 & 2012; future increases of 2% until funding ratio of 90% Deferred Augmentation2% for future years beginning July 2012 Contribution Rate Increases 2% employee & 2% employer phased in over four years beginning 7/1/2011 VestingNo change; three years Refund Interest Lowered from 6 percent to 4 percent beginning 7/1/2011 Reduction in Unfunded Liabilities* $1.75 billion *Source: Mercer FY2010 Actuarial Valuation 20

Change Made in 2010State Increased Contributions for Employees Colorado, Mississippi, Vermont, Missouri*, Louisiana, Iowa, Wyoming Increased Contribution for Employers California, Florida, New Jersey Changes to Cost of Living Adjustments Colorado, Illinois*, Maryland, Michigan*, Rhode Island, South Dakota, Virginia* Plan Design Changes (existing plan) Arizona*,California*,Colorado, Illinois*, Missouri*, Louisiana*, New Jersey, Vermont, Iowa*, Mississippi* New Hybrid Plan addedMichigan*, Utah* Reduction in Investment Return Assumption Colorado, Pennsylvania, Virginia, New York, Indiana, District of Columbia, Illinois Benefit StudiesConnecticut, Puerto Rico, Virginia * Only impacts new employees or those who are not vested 21

Unlike other states, MN public pensions have: Disciplined funding – correct problems as they occur with positive effect on state’s bond rating Modest benefits – public employer contributions represent only 1.6% of total MN state & local government spending, compared to 2.9% of spending of other states Proactive benefit reforms -- Post Fund eliminated, age 66 retirement age (passed in 1989), Rule of 90 eliminated Employee contributes half the cost (except public safety)  2010 Pension Reform Bill – bold corrective action that is working 22

 Legal challenge Class action suit filed by retirees claiming contract right to annual increases - hearing in March  Benefit Design Study (2010 Legislative directive) System directors analyzing DB, DC and alternative designs, report due June 1, 2011 Public stakeholder meetings held in September, next meeting scheduled for February 1 Actuarial analysis is in process Draft circulated late March, early April for comment 23

Please contact us: 24 MSRS PERA TRA