1. PSRS/PEERS Update
October 2017

2. Quick Facts
PSRS/PEERS’ benefit is an important source of financial security for members and retirees.
PSRS/PEERS Quick Facts:
Over 260,000 active, inactive, retirees and beneficiaries
$41.5 billion in invested assets as of June 30, 2017
For the year ended June 30, 2017, PSRS/PEERS paid more than $2.7 billion in benefits to over 88,600 retirees and beneficiaries
As of June 30, 2016,* 84.8% actuarially pre-funded for PSRS; 86.4% actuarially pre-funded for PEERS
Estimated FY 2017 investment return of 12.48%**
43rd largest public pension plan in the nation, 98th largest institutional investor in the world
* June 30, 2017 actuarial pre-funded status will be available at the November 2017 Board meeting.
Active members: 77,500 PSRS and 48,600 PEERS.

3. PSRS/PEERS: Major Economic Impact
Of the more than 88,600 individuals receiving benefits from PSRS/PEERS, approximately 88% of them live in Missouri. As of June 30, 2017, total benefit payments paid to PSRS/PEERS retirees were paid more than $2.7 billion. Of this amount, nearly $2.4 billion was distributed among Missouri’s 114 counties, positively impacting the state’s economy.
See PSRS/PEERS’ website for an interactive map on Missouri’s counties.

4. PSRS/PEERS Goals
To provide retirement security to Missouri’s educators and education employees after a full career of service.
To help school districts attract and retain the best and brightest educators and employees for Missouri’s school children.
To manage the Systems in a prudent and cost-efficient manner.

6. FUNDING COMPONENTS

7. Funding Components Investment Earnings Contributions PSRS Benefits
Funding Sources
Asset – Liability Comparison
Assumed Rate of Return
Rising Contribution Rates
Statutory Limits
PSRS
Benefits
Legal Considerations
COLA Statutory Flexibility
Tier II Plan Design

8. Pension Funding Components
Pre-Funded Status

9. Investment Earnings Funding Sources
The PSRS/PEERS Dollar:
Pensions are a shared responsibility
Every dollar paid to PSRS/PEERS retirees and beneficiaries comes from three sources:
Source: August 2017 NASRA report
Public Pension Sources of Revenue, *
* 20-year average is as of June 30, 2017.
Source: PSRS/PEERS Investment

10. PSRS Pre-Funded History
(106%)
(104%)
(105%)
(106%)

11. Investment Returns
As of June 30, 2017, the estimated annualized fund performance was 12.48%*.
In FY 2017, there was approximately $4.7 billion in investment earnings.
Investment earnings have been approximately $16 billion over the last five years.
2016 Fiscal Year return: 1.8%
2015 Fiscal Year return: %
2014 Fiscal Year return: %
2013 Fiscal Year return: %
PSRS/PEERS closed FY 2016 with actuarial pre-funded ratios of 84.8% and 86.4%, respectively.
PSRS/PEERS’ investment returns for FY 2017 are expected to be close to median relative to peer universe of public plans above $1 billion.
Investment returns continue to be above median relative to other public pension plans for every time period over the past seven years.
The Systems exhibit a lower risk profile than two-thirds of the peer group.
The long-term (25-30 year) returns for PSRS/PEERS are above 7.75%.
Fiscal Year returns will be finalized in the next couple of weeks

12. PSRS Asset-Liability Comparison

13. PSRS Contribution Rate History
The law limits any change in contribution rates to 1.0% per year (.5% each to the member and the employer)
14.5% (29% total) effective July 1, 2017
14.5% since July 1, 2011
Contribution rates increased (despite long-term investment returns above 8%) primarily due to benefit increases
* contribution rate normally is set at the October Board Meeting.

15. Non-Social Security Public Retirement Systems (As of FY16)
Source: NASRA, Public Fund Survey

16. PSRS Contribution Rate Compared to Other Public Funds
According to the Public Fund Survey for FY 2016 for plans that do not contribute to Social Security:
The average employee contribution rate is 8.93%
The average employer contribution rate is 19.94%
The average total contribution rate is 29.15%
PSRS’ employee contribution rate is the highest of the plans surveyed.
PSRS/PEERS are unique in that employee and employer contributions are split 50/50.

17. COLA REVIEW

18. Cost of Living Statutory Flexibility
Missouri statute provides the PSRS/PEERS Board of Trustees some discretion when setting annual benefit increases.
Section Provides:
An increase in benefits the 2nd January following retirement
An increase in benefits if the cost-of-living (COLA) increase is at least 2%
A maximum 5% annual cost of living adjustment (COLA)
80% lifetime COLA cap
Change in Consumer Price Index (CPI-U)
Minimum Adjustment
Maximum Adjustment
<0% 0%
0%-2% 5%
2%-5% 2%
>5%

19. Goals for COLA Discussion
Provide for the security and financial stability of the Systems, which includes:
Maintaining an 80% pre-funded ratio
Allowing for a reasonable assumed rate of return given capital market projections
Maintaining the contribution rates of both Systems at or below current levels
Maintain retiree purchasing power by providing a consistent cost-of-living adjustment for PSRS/PEERS’ retirees
Cost of living increase should be dependable and affordable without harming the financial stability of the Systems
Requires no statutory, legislative action or change

20. FY 2017 CPI-U Calculation
Raw CPI-U Index values
Index Value
Jun-16
month
to-date
Jul-16 %
Aug-16
0.0009 %
Sep-16
0.0024
0.1618%
Oct-16
0.0012
0.2867%
Nov-16
0.1307%
Dec-16
0.0003
0.1635%
Jan-17
0.0058
0.7472%
Feb-17
0.0031
1.0641%
Mar-17
0.0008
1.1463%
Apr-17
0.0030
1.4462%
May-17
1.5330%
Jun-17
1.6251%
In the United States, the Bureau of Labor Statistics publishes the Consumer Price Index-Urban (CPI-U) every month
CPI-U is time-period dependent
PSRS/PEERS’ regulation requires that the time period for the calculation be from July 1 to June 30.
CPI-U was 1.6% for the 1-year period ended June 30, 2017

21. FY 2018 CPI-U Calculation
Raw CPI-U Index values
Index Value
Jun-17
month
to-date
Jul-17 %
Aug-17
0.0030
0.2302%
Sep-17
0.0053
0.7610%
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
In the United States, the Bureau of Labor Statistics publishes the Consumer Price Index-Urban (CPI-U) every month
CPI-U is time-period dependent
PSRS/PEERS’ regulation requires that the time period for the calculation be from July 1 to June 30.
CPI-U was 0.76% for the month ended September 30, 2017

22. TIMELINE November 2-3, 2017: PSRS Working Session and Board Meeting
Actuarial Valuation draft results presented by PricewaterhouseCoopers (PwC)
COLA options reviewed
COLA set for January 2018
Contribution Rate set for school year
November 2017: Actuarial Valuation reports finalized by PwC
December 11, 2017: PSRS Board Meeting
Audit by Williams Keepers
Comprehensive Annual Financial Report (CAFR) prepared

23. COLA Scenarios Scenario A – Baseline (Current Policy)
0% COLA when CPI-U is below 2%
2% COLA when CPI-U is between 2%-5%
5% COLA when CPI-U is above 5%
Scenario B (Actual CPI-U Between 0%-2%)
0% COLA when CPI-U is negative
Actual CPI-U when CPI-U is between 0%-2%
Scenario C (2011 Funding Stabilization Policy)
2% COLA when CPI-U is between 0%-5%
Scenario D (Pre-2011 COLA Policy)
Actual CPI-U when CPI-U is between 0%-5%
Scenario E (1% COLA Between 0%-2%)
0% COLA when CPI-U is negative
1% COLA when CPI-U is between 0%-2%
2% COLA when CPI-U is between 2%-5%
5% COLA when CPI-U is above 5%
Scenario F (2% when CPI-U reaches Cumulative 2%)
0% COLA when CPI-U is negative or when CPI-U is between 0%-2% and cumulatively below 2%
2% COLA when CPI-U is between 0%-2% and cumulatively 2% or more
2% COLA will start on January 1, 2018
Scenario G (2% when CPI-U reaches Cumulative 2%)
Same as scenario F above, however, cumulative period would start with fiscal year 2017

24. COLA Scenarios At Various Discount Rates
7.75%
Assumed Rate of Return
7.6%
7.5%
7.25%
Scenario A Baseline
(Current Policy) ?
Scenario B
(Actual CPI-U Between 0%-2%)
Scenario C
(2011 Stabilization Policy)
Scenario D
(Pre-2011 COLA Policy)
Scenario E
(1% COLA Between 0%-2%)
Scenario F
(2% Cumulative when 2%, 2% COLA given on January 1, 2018)
Scenario G
(2% Cumulative when 2%, cumulative period would start with fiscal year 2017)
Actuarial calculations will be based on:
FY 2017 investment returns (12.48%)
2017 actuarial valuation (November 2017)
Funding goals
Actuarial Analysis will include:
Cost to enact
Funded ratio of the Systems
Contribution rates for employers and employees

25. Cost of Living Scenario Calculations
Actuarial Calculations will be based on:
FY 2017 Returns
2017 Census Data
Actuarial Valuation Available November 2017
Funding Goals
Discussion and Action

26. Working After Retirement

27. Working After Retirement (WAR)
MRTA
Retiree
Active
Other Associations
MSTA
MASA
MNEA
Superintendents
Educational Associations
School Boards
Public
Legislators
New Hires
PSRS/PEERS
Adjunct Professors
Board of Trustees

28. Working After Retirement
Retired members are able to work for a PSRS/PEERS-covered employer or for a third-party provider in a position that requires a DESE certificate and continue to receive their monthly benefit only if they meet certain criteria:
Work in a part-time or temporary-substitute position (RSMo / )
Up to 550 hours per school year
Earn up to 50% salary for the position in which they serve (PSRS only)
Work under the Critical Shortage provision (RSMo )
PSRS/PEERS changed regulations in 2010 to address some areas of concern
Documentation of hours worked must be maintained by employer and employee
Provide employers and employees with forms to track hours
Termination provision
Legislation passed in 2017 to make the application of the working after retirement law consistently applied.

29. Why Is There a Limit on Working After Retirement?
Risk of districts employing retirees instead of contributing members
A financial impact on Systems
Provide employment opportunities for new teachers and school employees
Implements guidelines that everyone finds “fair”
Avoid public perception of “double dipping”
“Pension envy” by public and General Assembly?
Half of Statutory School Year
522 Hours of Actual Student Attendance
Statutory Required 1,044 Hours of Actual Student Attendance
Statutory School Year
550-Hour WAR Limitation

30. Challenges

31. Challenges and Threats
Economic
Overall Economic Reality
Federal Budget Deficit
Growing Level of Debt
Investment Challenges
Market “short-term” outlook
Potential Funding Challenges
Actuarial Challenges
Mortality
Investment Returns

33. QUESTIONS?