1. Pensions GOMB Response to Budgeting For Results Commission Pension Questions

2. Overview Schedule of Funding Progress Components of UAAL 2011 UAAL contribution by retirement system Employee contributions to pensions

3. Schedule of Funding Progress (1)

4. Schedule of Funding Progress The funded ratio is worse today than it was prior to the $7.3 billion contribution from the 2003 pension bond issuance. The 2011 unfunded accrued liability is virtually the same if measured on a market basis or actuarial basis (5 year smoothing). – 43.4 percent compared to 43.3 percent. The 2011 unfunded actuarial liability as a percentage of payroll is 1.84 times what it was in 2002.

5. C OMPONENTS OF C HANGE IN U NFUNDED L IABILITY

6. The largest contributor to the increase in the unfunded liability is employer contributions less than the normal cost plus interest. Investment returns less than assumed is the second largest contribution to the increase in unfunded liabilities.

7. INDIVIDUAL PENSION SYSTEM DATA UPDATE – 2011 (1) System Salary Increases/ (Decreases) Investment Returns (Higher)/Lower Than Assumed Employer Contributions Higher/(Lower) than Normal Cost Plus Interest (2) Benefit Increases Changes In Actuarial Assumptions Other Factors (3) Total Change in Unfunded Liability From Previous Year TRS (545.6) 1,718.4 1,913.6 - - 589.4 3,675.9 SURS (172.3) 430.0 930.3 - (24.9) 251.8 1,414.9 SERS (116.5) 483.8 749.9 - 554.8 215.2 1,887.2 GARS 4.8 3.6 5.6 - 35.8 (0.1) 49.7 JRS (17.7) 31.5 66.6 - 15.6 42.4 138.4 TOTAL (847.3) 2,667.2 3,666.1 - 581.3 1,098.7 7,166.1 Data compiled from the annual actuarial valuations of the Retirement Systems as of June 30, 2011. Table may not add due to rounding. (1) In millions (2) To determine whether employer contributions represent an increase or decrease in UAAL, such contributions are measured against contributions based on the Normal Cost plus interest. If employer contributions exceed Normal Cost plus interest, the UAAL will decrease. In employer contributions are less than Normal Cost plus interest, the UAAL will increase. (3)Other factors include, but are not limited to, higher or lower incidences of retirement, disability, in-service mortality, retiree mortality or termination than assumed.

8. INDIVIDUAL PENSION SYSTEM DATA UPDATE Despite a contribution of $4.3 billion (which is higher than the statutorily required contribution of $4.156 billion) in 2011 the unfunded actuarial liability (UAAL) increased $7.166 billion. Two factors contribute the Employer Contributions Higher/(Lower) than Normal Cost Plus Interest increase in UAAL – The difference between the actual contribution and the required contribution per GASB 25. – Interest (investment) income loss due to prior contributions not being made. Investment returns were less than assumed due to asset smoothing. Smaller than expected salary increases offset some negative pressures

9. Pensions System Income 2011 How much do employees contribute? SERSTRSSURSGARSJRSTotal Employee Contributions $254,201$909,755$260,177$2,006$16,725$1,442,687 State and Employer Contributions $1,127,887$2,326,029$773,595$11,444$62,694$4,301,648 Investment Income $1,930,208$7,234,539$2,801,109$10,271$105,258$12,081,386 Total$3,312,297$10,470,145$3,834,881$23,720$184,678$17,825,721 Data compiled from the annual actuarial valuations of the Retirement Systems as of June 30, 2011. Table may not add due to rounding. ($ in Thousands) SURS self managed plan not included.

10. 2011 Pension Contributions as a Percentage of Pension Income SERSTRSSURSGARSJRSTotal Employee Contributions 7.67%8.69%6.78%8.46%9.06%8.09% State and Employer Contributions 34.05%22.22%20.17%48.25%33.95%24.13% Investment Income58.27%69.10%73.04%43.30%57.00%67.78%

11. 2011 Pension Contributions as a Percentage of Pension Income State and employer contributions were three times the size of employee contributions in 2011. Benefits and refunds in FY11 were $7.668bn. The difference between investment income and benefits and refunds paid is the new net assets on a market basis (not actuarial). In 2011, market basis funding ratios improved slightly because the change in net assets exceeded the change in actuarial accrued liabilities (AAL). – $10.157bn increase in net assets compared with $7.668 increase in AAL.