1. 2012 Retirement Legislation Update on LASERS Issues October 4, 2012 Presented by: Beverly Hodges Trustee

2. Basics About LASERS 2 Public trust fund created to provide retirement allowances and other benefits for state officers and employees as well as their beneficiaries. Membership mandatory for most state employees. 55,000 active members 42,000 retirees LASERS administers a single employer defined benefit pension plan.

3. LASERS Funding 3 Currently about $9 billion in assets. Funding sources: employer contributions, employee contributions, and earnings from investments In 2011, 70% of LASERS funding was from investment earnings

4. LASERS Tax Status 4 Tax qualified plan under Section 401 (a) of the Internal Revenue Code. Member contributions tax sheltered System earnings tax sheltered When a member retires, benefit payments are not subject to Louisiana state income tax but are subject to federal income tax. If you move out of Louisiana, retirement benefits are subject to applicable state tax.

5. Basics on Retirement 5 Retirement Eligibility Hired before July 2006: 10 years of service @ age 60; 25 years @ age 55; 30 years @ any age; 20 at any age, actuarially reduced Hired after July 2006: 5 years @ age 60; 20 at any age, actuarially reduced Retirement benefit formula: years of service x FAC x accrual rate

6. Defined Benefit v. Defined Contribution 6 LASERS current defined benefit plan characteristics: Guaranteed benefit based on years of employment, age (for purposes of eligibility), salary and an accrual rate Investment risk borne by the employer Member’s benefit is guaranteed for life regardless of market fluctuations Defined contribution plan characteristics: Benefit based on contributions and investment earnings Employee receives value of the fund on retirement or separation of service Investment risk is borne by the employee Has portability More costly to administer and provides lower returns Cash Balance Plan incorporates elements of each

7. 7 Cash Balance Plan Act 483 of 2012 Session Creates a Cash Balance Plan for all non- hazardous duty LASERS members whose first employment making them eligible for membership in a state system occurs on or after 7/1/2013. Hazardous Duty members are not eligible for the Cash Balance Plan. Current members are not allowed to transfer to the Cash Balance Plan. Members with prior service credit enroll in existing plan.

8. Cash Balance Plan Act 483 of 2012 Session Plan is a defined benefit plan. Division of Administration is seeking clarification of whether benefits from plan meet Social Security equivalence test. Current state employees do not participate in Social Security. LASERS will ask whether addition of plan jeopardizes existing 401(a) status. 8

9. Cash Balance Plan Act 483 of 2012 Session Members’ accounts will be credited with 12% of their pay each month: 8% employee contribution 4% additional contribution Member accounts will earn interest at the system’s actuarial rate of return, less 1%. Interest will be credited for all months prior to separation from service; no interest will be credited for months after a member separates from service. 9

10. Cash Balance Plan Act 483 of 2012 Session Members’ accounts will not be debited for investment losses of the system. Members who separate from service may withdraw from the Cash Balance Plan < 5 years service -- employee contributions only > 5 years service -- entire account balance (employee contributions + 4% + interest) Members with 5 years or more service may leave their account with LASERS and draw an annuity at age 60. 10

11. Cash Balance Plan Act 483 of 2012 Session Retirement eligibility - 5 years @ age 60 Members have option to take full account balance or annuitize to receive a monthly benefit Members who annuitize their benefit may choose the same retirement options currently offered DROP is not available IBO can be selected 11

12. Cash Balance Plan Act 483 of 2012 Session Disability & Survivor Benefits Member will have the option of receiving: Account Balance; or Benefits similar to existing Tier 1 Benefits 12

13. Cash Balance Plan Act 483 of 2012 Session Years of membership in the Cash Balance Plan may be used for reciprocals with other systems. Cash Balance Plan account balances can be transferred to a Cash Balance Plan in another Louisiana retirement system (TRSL/LSERS). Cash Balance Plan rehired retirees are required to begin contributing again upon reemployment. COLAs are not provided unless member chooses annuity with self-funded COLA option. 13

14. Litigation as to Cash Balance Plan 14 Retired State Employees’ Association; et al v. State et al; 19 th JDC Number 614675; Judge Morvant. Was 2/3 vote required for passage of the CBP? Article X, Section 29(F) of the Louisiana Constitution requires a two-thirds vote to enact benefit provisions for members of any public retirement system which have an actuarial cost. The actuarial note prepared by the legislative actuary states that the cash balance plan created by HB 61 has an actuarial cost.

15. Changes to Board Acts 113, 224, and 718 The Commissioner of Administration or his designee is added as an ex officio member of the Board of Trustees, increasing board to 13 members. Educational requirements for trustees are increased, adding two hours of actuarial science and one hour each of ethics/fiduciary duty and laws/rules/regulations. Legislative staff members designated by the Chairs of the House and Senate Retirement Committees are allowed to attend board executive sessions. 15

16. Changes to Membership Acts 718 and 346 Effective August 31, members of the Optional Retirement Plan will be allowed to rejoin the defined benefit plan by paying the actuarial cost of that transfer. Members must pay a $150 actuarial fee for cost calculation. Employees of the Lafitte Area Independent Levee District will be allowed to join LASERS if the board of that district adopts a resolution to allow. 16

17. Forfeiture of Benefits Acts 479 and 868 Upon passage of a constitutional amendment scheduled for the November 6 ballot, benefits of new employees who commit felonies related to their office will be subject to forfeiture. New hires after 1/1/2013 will be required to sign an attestation form explaining the forfeiture provision. LASERS will prepare the form and agencies should maintain. 17

18. Miscellaneous Acts 597, 800, and 872 A sales and use tax rebate bill will direct certain proceeds to help reduce the UAL. $3.7 million was swept from the Adult Probation & Parole Officer Retirement Fund. Upon passage of a constitutional amendment on the November 6 ballot, retirement legislation will be required to be the subject of a public notice 60 days prior to introduction and filed at least 45 days prior to a regular legislative session. 18

19. What Didn’t Happen Defined Contribution Plan for New Hires Increase in Employee Contributions 60 month FAC for current employees Change to Mechanism to fund COLAs Increase in Retirement Age to 67 19