1. Alternate Contribution Rates

2. PSPRS Employer Memo 7/28/15 p.4 Currently, rates for PSPRS and CORP are based on the aggregate actuarial valuation and EORP is set by statute. Beginning July 1, 2016, the rates for PSPRS and CORP will be based on your individual actuarial valuations and We (PSPRS) are seeking feedback from the employers as to this change in policy.

3. Allocating Interest Earnings The Old and the New

4. How Interest Earnings Are Allocated Under the old scenario the calculation works as follows: assuming the total pool is $100million and the employer and employee reserve pools are $1million each for beginning equity (the closing balance of 6/30/X1) plus assuming the total pool is $200million and the employer and employee reserve pools are $2million each for ending equity (the closing balance of 6/30/X2). These numbers are added together and divided by two – (total $300million/2; employer $3million/2; employee $3million/2). – The allocation ratio would be employer plus employee pools of $3million ($1.5 million + S1.5million) divided by total average pool of $150million. For an employer allocation factor of 2% ($3million/$150million) of the funds available for allocation. 2% of the total fund as of 6/30/x2 would be allocated to this employer.

5. My Explanation Beginning balance was added to ending balance for the: – Total Retirement System – Employer Reserve – Employee Reserve – Health Insurance Reserve Net gains/losses are allocated based on each Reserves share (percentage) of the Retirement System (beginning plus ending). Inflows and outflows during the year were irrelevant until year end.

6. How Interest Earnings Are Allocated Effective July 1, 2014 the new method is: The amount of funds available for allocation will be each System’s percentage of average daily balance to the combined Systems average daily balance. Funds available for allocation are allocated to the employer reserve pool at end of year. – You get credit for earnings based on each day’s balance but they are allocated at the end of the year when the total inflows are known.

7. Prepayment Of Contributions

8. The Benefits Of Prepaying vs Bi-weekly Contributions: PSPRS – Jared Smout Heavier weighting on the daily balance. Lump sum prepayments will be part of the daily balance from the time of deposit for the balance of the year whereas; Bi-weekly payments will become part of the daily balance when received.

9. Governments Who Have Prepaid In 2015 27 Governments Prepaid – 18 Employer Only – 9 Employer and Employee $135 Million Prepaid

10. Governments Who Have Prepaid Employer Prepayment account – Employer Reserve (Employee interest credited here) – Employee Reserve – Health Insurance Reserve (earns interest) Unrealized, realized, interest, and expenses are all allocated at year end.

11. Lump Sum vs Regular Payments Interest, less costs accumulated for the year, are allocated to each fund based on average daily balance. Returns for FY 2015 – PSPRS estimate, 4.50% before costs – S&P 500 return, 4.53% before costs – State Treasurer Pool 5, 0.12%.

12. If An Employer Contributed $1.3 Million To PSPRS If an employer contributed the entire amount on 7/1/14 interest earnings would be – $58,500. If equal contributions were made every two weeks as a part of payroll (26 total), interest earnings would be – $29,650. If invested in the S&P 500 interest earnings would be – $58,890. If placed in Pool 5 interest earnings would be – $1,560.

13. PSPRS needs to put together a tool to evaluate contributions John Hendricks could give an estimate at least quarterly if not monthly. Will talk to Jared Smout next.