Pension Reform—2015

Senate Bill 1 From Senate Leadership memo on Senate Bill 1

Proposed Changes under Senate Bill 1 Creates mandatory Defined Contribution Plan and Cash Balance Plan for new employees hired on/after July 1, Makes changes to future benefits of current employees – Pre-Act 120 employees will need to increase employee contribution to keep 2.5 multiplier for future benefits – Act 120 employees will be limited to defined benefit plan for future benefits on salary up to Social Security wage base. Have optional DC and Cash Balance plan for salary above. – Anti-spiking provision for pre-Act 120 employees – Revenue neutral Option 4 – Contribution savings provisions for pre-Act 120 employees choosing higher employee contribution with 6% corridor (4% for Act 120 employees) 3

Senate Bill 1 4 From PERC Actuarial Note on SB 1

New Employees (hired on/after July 1, 2016) New employees become Class T-I—no Defined Benefit plan 5 Cash Balance PlanDefined Contribution Plan Employee contribution of 3%; no employer contribution Employee contribution of 3%; employer contribution of 2.59% (employee can contribute up to an additional 3% in DC plan) Employees credited with interest at the lower of 4% or rate paid by 30 year Treasury Bonds Employee is fully vested in employer contributions after 4 years

Pre-Act 120 Employees (hired before July 1, 2011) Employees currently in Class T-D will become Class T-G or Class T-H for all benefits earned after 7/1/16 6 Class T-GClass T-H Employee contribution rate=10.5%; multiplier of 2.5 Employee contribution rate=6.25%; multiplier of 2.0 Optional Cash Balance Plan: employee contribution up to 3% No defined contribution plan Shared risk based on actual returns: 6% corridor (10.5%-4.5%) No shared risk provision T-D employees will automatically default to T-G employees for benefits earned after 7/1/16. Will have 180 days to elect to become T-H employee— once decision is made, it is irrevocable.

Act 120 Employees (hired on/after July 1, 2011) Employees currently in Class T-E and Class T-F Retirement compensation under DB is limited to Social Security wage base—only amount up to wage base can be used in calculation of final average salary 7 Classes T-E and T-FCash Balance PlanDefined Contribution Plan Retain current DB plan for all benefits after 7/1/16 up to the Social Security taxable wage base ($118,500 for 2015) Optional participation in Cash Balance plan: employee contribution up to 3% for salary above Social Security wage base Optional participation in DC plan: employee contribution 3%; employer contribution 2.59% for salary above Social Security wage base Shared risk based on actual returns: 4% corridor Employee must participate in BOTH the Cash Balance and DC plans if choosing to participate in one

8

Senate Bill 1 9 From PERC Actuarial Note on SB 1

Senate Bill 1 10 From PERC Actuarial Note on SB 1

11 From PERC Actuarial Note on SB 1