Funding Pension Benefits for Georgia’s Educators 1943 – 2018 Recognizing 75 Years of Retirement Security

Governance and Facts 76.6 Billion in Assets (78.3 as of 1/23/18) Governed by Georgia Law Title 47 – Chapters 1, 3 and 20 Defined Benefit Plan COLA – 1.5% each January 1st and July 1st subject to CPI base As of January 1, 2018: 76.6 Billion in Assets (78.3 as of 1/23/18) Ranked 24th largest retirement fund by Pensions & Investments (02/06/17) 234,382 Actively Contributing Member Accounts 24,859 (10.6%) Eligible to Retire (Normal and Early Retirement) 268,726 Active Status Accounts 123,762 Retired Members

Facts and Figures 30.5 avg. years of service FY 2016-17 Statistics 28 Median age new members K-12 teaching faculty 34.3 Median age all new members   $4.4 Billion benefits paid 7,174 Retirements processed 2,388 Retirees passed away Retirees with 25+ years of service: 30.5 avg. years of service 59 avg. age at retirement $3,271 avg. monthly benefit payment

Actuarial Funded Status As of June 30, 2016 In Billions $55.19 Present value of future benefits payable to retired members $48.30 Present value of future benefits payable to active members $103.49 Total Liabilities - $11.76 Present value of future contributions $91.72  Actuarial Accrued Liability $ 68.16 Actuarial value of assets ($23.56) Unfunded actuarial accrued liabilities 74.3% Funded as of June 30, 2016 According the latest Public Plan Survey of 126 large public plans, the median funded ratio was 73.1% as of fiscal year 2016, compared to TRS’ funded ratio of 74.3%. 

Sustainability and Funding Contribution rates are determined by the Board of Trustees in accordance with Georgia law. Employee Contributions - 6% O.C.G.A. § 47-3-41 5% Minimum – 6% Maximum Employer Contributions O.C.G.A. § 47-3-43 based on System’s liabilities as shown by actuarial valuation FY 2018 – 16.81% FY 2019 – 20.90% Investment Earnings 7.50% Assumed Rate of Return 12.50% FY 2017 Actual Earned Rate of Return 7.77% Fiscal Year-to-Date Return (July through December…11.9% as of 1/23/18)

Future Positive Funding Impacts Actively contributing membership numbers are increasing. New retirement benefit payments for FY 2017 were 7,174. A decrease from FY 2016. Salary increases have been restored to public employees. The financial markets are showing signs of continued recovery. FY 2017 rate of return was 12.5%. 5.0% higher than the assumed 7.50%.

Board of Trustees and Operational Actions Promoting Fund Sustainability Board of Trustees and Operational Actions 2010 - Adopted smoothed valuation interest rate method. 2012 - Eliminated 3% state tax offset increase on first $37,500 of benefits. 2014 - Adopted 30-year closed amortization schedule to pay off the unfunded liability. Reviewed assumed rate of return. (No change) Reviewed smoothed valuation interest rate method. (No change) Evaluated impact to system of retirees returning to work.

Contributions Employers Base Salary and T&E for State Earned Positions Other Considerations Positions paid with federal funds may debit the federal fund categories, provided funding is available. Employers pick-up the cost for positions above QBE earnings and the amounts of the local teaching/responsibility supplements. Employers impacted the least will be those: with fewer positions above the State earnings. without, or lower, paid supplements.

Future Employer Contribution Rates * Each annual actuarial valuation may result in either positive or negative adjustments based on factors impacting the valuation.

Contributions Factors Impacting Rates Actuarial Assumption Changes Price and Wage Inflation Option Factors Demographics: withdrawals, pre-retirement mortality, disability retirement, service retirement, post-retirement mortality, etc. Investment Earnings Investment Earnings Assumption Changes Increases/Decreases in Actively Contributing Members Increases/Decreases in Member Salaries

Benefit Payments IRS Allowable Salary Section 415 of the Internal Revenue Code limits the contributions allowed to a qualified retirement plan.  Effective July 1, 2017, for TRS members whose current date of membership is on or after July 1, 1996, the maximum earnable compensation for which TRS contributions can be reported or which can be used to calculate a retirement benefit is $270,000. Stella Johnson joined TRS in 1998 and earns $382,500/year. Mrs. Johnson is subject to the IRS limit of $270,000. The remaining $112,500 cannot be reported to TRS or used to calculate her retirement benefit. Benefit Calculation Without IRS Limitation Benefit Calculation With IRS Limitation $382,500 + $382,500 = $765,000 $765,000 ÷ 24 months = $31,875 30 years X 2% = 60% 60% X $31,875 = $19,125/month $270,000 + $270,000 = $540,000 $540,000 ÷ 24 months = $22,500 30 years X 2% = 60% 60% X $22,500 = $13,500/month

Benefit Payments Georgia Law Salary Increases FY 2016 $52,500 Georgia law limits the salary increases that can be used to calculate retirement benefits for members whose current date of membership is on or after July 1, 1984. Increases are limited to 2.50%, plus the annual increase granted by appropriations of the General Assembly. Mr. Baker has been a teacher with the Harper Valley School District for 30 years and earned $52,500 in FY 2016. Mr. Baker’s employer increased his salary 12.50% for FY 2017 and FY 2018. Mr. Baker joined TRS in 1987 and is subject to the salary increase limits. Earned Salaries Allowable Salaries for Retirement Calculations FY 2016 $52,500 FY 2017 $59,063 FY 2018 $ 66,445 FY 2016 $52,500 FY 2017 $54,779 (4.34% salary increase limit compared to FY 16 salary) FY 2018 $57,244 (4.50% salary increase limit compared to FY 17 salary) Benefit Calculation Without Salary Increase Limits Benefit Calculation With Salary Increase Limits $59,063 + $66,445 = $125,508 $125,508 ÷ 24 months = $5,230 30 years X 2% = 60% 60% X $5,230 = $3,138/month $54,779 + $57,244 = $112,023 $112,023 ÷ 24 months = $4,668 30 years X 2% = 60% 60% X $4,668 = $2,801/month

Monthly Benefit Payroll: $390,675,578 Economic Impact January 1, 2018 Monthly Benefit Payroll: $390,675,578 123,762 Retirees $252 million - Direct Impact Initial expenditures made by retirees. $170 million - Indirect Impact Additional goods and services purchased by businesses. $138 million - Induced Impact Employees are hired as a result of the direct and indirect impacts. $562 million - Total Monthly Economic Impact