1. Update on SC Retirement Systems 1 May 7, 2012 Tammy B. Nichols

2. About the Retirement Systems Five defined benefit retirement plans South Carolina Retirement System (SCRS) Police Officers Retirement System (PORS) General Assembly Retirement System (GARS) Judges and Solicitors Retirement System (JSRS) National Guard Retirement System (NGRS) One defined contribution retirement plan - State Optional Retirement Program (ORP) More than 500,000 members in total Approximately 850 participating employers 2

3. SCRSPORSGARSJSRSNGRSTotal Annuitants (includes TERI) 115,37213,3583531984,252133,533 Inactive Members 158,08611,9804042,458172,568 Active Members 187,61126,65017014412,271226,846 Total461,06951,98856334618,981532,947 *Data as of July 1, 2011, actuarial valuations (draft) 3

4. How the Plans Are Funded Fiscal Year 2011-2012 Sources of Revenue Employee Contributions - 6.50%  Active Members  Working Retirees (including TERI participants) Employer Contributions -  SCRS: 9.385% +.15% incidental death = 9.535%  PORS: 11.363 +.20% incidental death +.20 % accidental death = 11.763% Investment Income 4

5. Investment Earnings Assumed rate of return on investments = 7.5 percent Actual Returns: FY 2011 = 18.59 percent FY 2010 = 14.62 percent FY 2009 = (19.60 percent) 5 year average return = 3.95 percent 10 year average return = 5.02 percent 20 year average return = 6.81 percent As of 2011 actuarial valuation for SCRS –  $3.2 billion of deferred losses 5

6. How the Plans Are Funded – All Systems Fiscal Year 2010-2011 (Amounts expressed in thousands) 6

7. Additions to Pension Trust Funds 7

8. SCRS July 1, 2010July 1, 2011 (draft) Assets Market Value$19.7 billion$22.4 billion Actuarial Value$25.4 billion$25.6 billion Liabilities Actuarial Accrued Liability$38.8 billion$40.0 billion Actuarial Information Unfunded Actuarial Liability$13.4 billion$14.4 billion Amortization Period*30 years Funded Ratio65.5%64.0% Unamortized Losses$5.7 billion$3.2 billion 8 *2010 Actuary Valuation required Employer Contribution increase of.92 and 2011 Valuation recommends another 1.63 increase

9. How We Got Here – SCRS 9

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12. 12 Note: Contributions for TERI participants, working retirees and State ORP participants are included in contribution amounts

13. Possible Ways to Improve Funding Increase employee contributions Increase employer contributions Increase investment earnings Reduce benefits/plan changes Appropriate additional funds 13

14. The Future House and Senate Sub-Committees have conducted public hearings and have thoroughly studied the plans administered by the Retirement Systems The House proposed legislation to modify the plans – H4967 Senate Finance Committee has recommended amendments to H4967 14

15. Proposed Legislation Approved by House 3/21/2012 Introduced in Senate 3/27/2012 Referred to Senate Finance Committee Senate Finance Committee Recommended Amendments to House Bill 5/3/2012

16. House Bill - H.4967 Represents the intent of its sponsors in the House of Representatives in determining matters of policy. Still has to be considered by the Senate. The Senate may make substantive changes before passing or they may not pass it at all. The role of the Retirement Systems is simply to provide information to the policy makers in the House and Senate to aid them in their decisions. 16

17. Introduction to H.4967 Effective Date of the Bill is July 1, 2012 Most of the provisions of the Bill would apply to all SCRS and PORS members Protection is provided for benefits earned prior to the effective date of the bill for members of SCRS and PORS Bill would create a new class of membership in SCRS only – Class Three. (Current members are in Class Two.) Newly hired members who have an effective date of membership after the effective date of the Bill would be in Class Three Class Three members would be eligible for full retirement after 30 years of service or age 65 TERI program would be closed to Class Three members 17

18. Proposed Employee Contributions SCRS Class Two and Three Members 6.50 percent current rate 7.00 percent effective July 1, 2012 7.50 percent effective July 1, 2013 PORS Class Two Members 6.50 percent current rate 7.00 percent effective July 1, 2012 7.50 percent effective July 1, 2013 18

19. Proposed Employer Contributions SCRS (rates include.15 percent for incidental death) 9.535 percent current fiscal year 10.60 percent beginning July 1, 2012 12.23 percent beginning July 1, 2013  (Required by July 2011 actuary valuation if no legislative changes made) PORS (rates include.20 percent for incidental death and.20 percent for accidental death) 11.763 percent current fiscal year 12.30 percent beginning July 1, 2012 12.30 percent beginning July 1, 2013 19

20. Proposed Employer Contribution Floor For SCRS Members After June 30, 2012, no less than 10.6 percent of total earnable compensation until accrued liability contribution is no longer required For PORS Members After June 30, 2012, no less than 12.3 percent of total earnable compensation until accrued liability contribution is no longer required 20

21. Proposed Service Purchase Cost As of Effective Date of Bill For SCRS and PORS Members Actuarially neutral cost based on member’s age, service credit, and current or career highest fiscal year salary Cost would not be less than 35 percent per year for nonqualified service Cost would not be less than 16 percent per year for all other types of qualified service New rates do not apply to re-establishment of withdrawn service, transfers or other allowable supplemental types of service 21

22. Retirement Credit for Unused Sick Leave As of Effective Date of Bill For SCRS and PORS Members Members would not receive additional service credit for unused sick leave at retirement Protection would be provided for benefits earned prior to effective date of legislation 22

23. Five-Year AFC Period As of Effective Date of Bill For All SCRS and PORS Members Average final compensation (AFC) would be based on a five-year period rather than current three-year period Protection would be provided for benefits earned prior to effective date of legislation 23

24. Payment for Unused Annual Leave As of Effective Date of Bill For All SCRS and PORS Members Termination payment for unused annual leave at retirement would not be included in AFC calculation Protection would be provided for benefits earned prior to effective date Contributions would be collected on unused annual leave payments until July 1, 2015 because of benefit protection provision 24

25. Overtime Pay As of Effective Date of Bill SCRS Members After June 30, 2012, overtime payments would not be included in member’s earnable compensation or AFC unless pay is for overtime work as “mandated” by their employer (i.e., non-voluntary overtime) PORS Members Overtime will continue to be included in earnable compensation or AFC 25

26. Cost-of-Living Adjustments As of Effective Date of Bill (would apply starting with July 1, 2013 COLA) For All SCRS and PORS Members Current COLA provisions would be repealed Going forward, COLAs would be called “Benefit Adjustments” (BA) BA’s would be determined using a trigger related to actual investment returns based on a trailing five-year average compared to actuarial assumed rate of return 26

27. Benefit Adjustments As of Effective Date of Bill Benefit Adjustment Determination When five-year average exceeds assumed rate of return (currently 7.5 percent), a benefit adjustment would be paid Amount of benefit adjustment would be equal to the difference between the five- year average of actual returns and the assumed rate of return, up to a total benefit adjustment of 2.5 percent 27

28. Benefit Adjustments As of Effective Date of Bill Benefit Adjustment Determination If the five-year average doesn’t exceed the assumed rate of return, no benefit adjustment would be paid for that year. Regardless of the five-year average return, no benefit adjustment would be paid in any year in which actual returns for that year were less than zero 28

29. SCRS Class Three Membership As of Effective Date of Bill Creates a new class of membership for employees who become members of SCRS after the bill’s effective date – Class Three members All of the new provisions of the bill apply to Class Three members 29

30. SCRS Class Three Membership As of Effective Date of Bill Class Three Retirement Eligibility Age 60 with five or more years of earned service or 30 years of service credit Early retirement provisions would be based on 30-year retirement eligibility rather than 28-year retirement eligibility TERI program would be closed only to Class Three members 30

31. Benefit Protection Provision As of Effective Date of Bill Also referred to as “wear away” provision Designed to protect benefits earned prior to the effective date of bill Sets forth comparison of two benefit calculations as explained on following slides 31

32. Benefit Protection Provision As of Effective Date of Bill Benefit Provisions for any member retiring after June 30, 2012: Retirement benefit will first be calculated using new provisions -  Five-year AFC period at date of retirement  No payment for unused annual leave at retirement is included in the AFC calculation  No additional retirement service credit for unused sick leave 32

33. Benefit Protection Provision As of Effective Date of Bill For members retiring after June 30, 2012 - Second “protective” calculation would be made to determine member’s accrued benefit as of June 30, 2012, using:  Three-year AFC period as of June 30, 2012  Inclusion of payment for 45 days of unused annual leave in AFC regardless of when paid  Service credit as of June 30, 2012 plus credit for 90 days of unused sick leave 33

34. Benefit Protection Provision As of Effective Date of Bill For members retiring after June 30, 2012 - Second calculation protects the benefit member had accrued as of June 30, 2012 Second calculation sets a “floor” on the benefit that a member may receive upon actual retirement 34

35. Benefit Protection Provision As of Effective Date of Bill For members retiring after June 30, 2012 - If first benefit calculation under new provision is higher than the second benefit calculation using protective provisions, member would receive the higher benefit based on new benefit calculation If second benefit calculation under protective provision is higher than the first benefit calculation using new provisions, member would receive the higher benefit based on second protective benefit calculation 35

36. Benefit Protection Provision As of Effective Date of Bill For members retiring after June 30, 2012 - As member accrues additional service credit and receives salary increases after June 30, 2012, it will be more likely that the member’s benefit calculated under the new provisions would be greater than the floor benefit calculated using the protective provision Hence the term “wear away” provision 36

37. Example of Retirement Calculation Under Protection Provision Member retires on June 30, 2014 with 28 years of service. The member has the following earnable compensation and service credit for the trailing five years: June 30Earnable CompService Credit 2010$30,00024 years 2011$32,00025 years 2012$34,50026 years 2013$36,00027 years 2014$37,50028 years

38. Example of Retirement Calculation Under Protection Provision Benefit calculation for June 30, 2014 date of retirement using new provisions: Five Year AFC = $30,000 + $32,000 + $34,500 + $36,000 + $37,500 (No annual leave)/5 yrs = $34,000 Service Credit at Retirement = 28 years Monthly Benefit = 28 yrs x $34,000 AFC x.0182 = $17,326/12 = $1,444 per month 38

39. Example of Retirement Calculation Under Protection Provision Benefit calculation for June 30, 2014 date of retirement using protective provision with benefits accrued as of June 30, 2012: Three Year AFC at June 30, 2012 = $30,000 + $32,000 + $34,500 + $5,971 (45 days annual Leave)/3 yrs = $34,157 Service Credit at June 30, 2012 (including credit for 90 days unused sick leave) = 26 years, 4 months and 15 days (26.375 years) Monthly Benefit = 26.375 yrs x $34,157 AFC x.0182 = $16,396/12 = $1,336 per month 39

40. Summary of Retirement Calculations Under Both Provisions Under the first or new calculation method, the monthly benefit would be $1,444 Under the second or protective calculation, the monthly benefit would be $1,336 In this case, the first calculation using the new provision is more than the second benefit calculation so the member receives the higher benefit set out in the first calculation 40

41. Bill Provisions Impacting General Assembly Retirement System (GARS) Increases GARS member contribution rate from 10 percent to 11 percent starting in calendar year 2013 Repeals provisions which allow GARS members to retire in place and receive retirement benefits while continuing to serve in the General Assembly Adjusts service purchase to actuarial neutral cost in same manner as for SCRS and PORS 41

42. Other Provisions As of Effective Date of Bill Authorizes the General Assembly to set the actuarial assumed rate of return on Systems’ investments for valuation purposes Initially sets the assumed rate of return by statute at 7.5 percent Changes retirement accounts for inactive members such that they would no longer accrue annual interest like active member accounts (i.e. 4 percent annually) 42

43. Senate Finance Committee Recommendations Reported Out May 3, 2012 SCRS & PORS Retirement Benefit Adjustment – 1% of annual annuity up to a maximum of $500 SCRS – New employees have same age eligibility, but proposed Rule of 90 replaces 28 year eligibility PORS – New employees eligible for retirement after 27 years or age 55 SCRS & PORS – 5 year AFC for new employees only SCRS & PORS – provisions that remove credit for unused annual and sick leave apply only to new employees 43

44. Senate Finance Committee Recommendations May 3, 2012 (continued) Service Purchase Cost – adopt House version SCRS and PORS Employee Contribution Rates – increase ½ percent for three years Employer Contribution Rates – maintain differential between Employee and Employer Rates of 2.9% for SCRS and 5.0% for PORS Inclusion of Overtime Pay in AFC – same as House TERI – Closes TERI for new employees plus phases out for existing employees with termination of the program June 30, 2018 44

45. Senate Finance Committee Recommendations May 3, 2012 (continued) GARS – 1% additional employee contribution for GARS members as suggested by House. Closes GARS to newly elected members of General Assembly and they can elect to participate in SCRS, ORP or opt out completely. SCRS & PORS – changes vesting from 5 to 8 years for new members Interest on Inactive Member Accounts – eliminates interest accrual (same as House) 45

46. Senate Finance Committee Recommendations May 3, 2012 (continued) SCRS & PORS Return to Work – Benefits for members who retire after 6/30/12 will be subject to $10,000 earnings limitation and 15 day break in service unless: SCRS member is age 62 at retirement PORS member is age 57 at retirement Return to work conditions do not apply to elected officials or members appointed by Senate (i.e. Magistrates) Establishes governance structure that creates professional Board of Trustees to manage the Retirement Systems, EIP and Insurance Reserve 46

47. Timing of Possible Legislation Senate Finance Committee’s recommended amendments will go to the Senate floor for debate and then back to the House for consideration. 47

48. Other Retirement System Initiatives From an Operational Perspective 48

49. Other Retirement System Initiatives Member Access - Member Access is an internet based application that was deployed in October 2011 which allows both active and retired members to access their retirement account. After completing a simple online registration process, a member may access information specific to their account with the SC Retirement Systems. 49

50. On-Line Member Access - Active Members Functionality includes ability to: View your accounts by System View & print member statement View your beneficiaries Change your address New features scheduled (available May 25 th) : Ability to submit a service purchase request electronically Ability to view service purchase invoice 50

51. On-Line Member Access - Retiree Members Receiving Monthly Benefits Functionality includes ability to: View your accounts by System View your payment record (members can see retirement data - i.e. option, service credit and date of retirement) View your beneficiaries for each retirement account Change your address View/Change tax withholdings for monthly benefits View/print annuity verification letter View/print IRS Form 1099-R View other deductions as they appear on the payee record Add/view/change direct deposit information (available May 11) 51

52. Customer Services - Live Chat Live Chat is our newest communication tool for Customer Services that was launched May 1, 2012 - Members may now contact the SC Retirement Systems through a live chat option available between 8:30 am and 5:00 pm via the Retirement Systems’ website. To chat live with one of the Retirement Systems’ benefits consultants, go to our website and click on the “Live Chat” button located at the top of the screen. A dialog box will appear and you’ll need to type your name, email address and your question. A member of our live chat team will be available to immediately assist you. 52

53. EES – Electronic Employer Services EES is the Retirement Systems’ electronic reporting system for Employers. Recent enhancements include: Ability to certify employer information for the payment of annuity claims. The electronic process replaced the paper form #6201. Ability to certify employer information for the payment of refund claims. The electronic process replaced the paper form #4201. Certification of Final Retirement Deductions, previously handled by Form 6202/6203. Data Download feature allows employers to download information concerning their covered employees, such as active member service totals, members approaching retirement eligibility, and information on return to work retirees and TERI participants. 53

54. Other Retirement System Initiatives Direct Deposit Initiative for Retirement System Benefit Payments Direct deposit will be required for all benefit payments issued on or after September 30, 2012 Significant marketing efforts will be put forth to ensure members are properly notified Prepaid debit card will be issued by Bank of America under State Treasurer’s Office’ s custody, if no direct deposit information is provided. 54

55. Other Retirement System Initiatives Visitor Center – Spring Break Extended Office Hours 7:30 am – 6:00 pm Partnered with Employee Insurance Program, providing representatives from both divisions to counsel visitors for both retirement and insurance purposes. Survey results prove endeavor was successful 55

56. Questions – Contact Information Physical Location  Fontaine Business Center 202 Arbor Lake Drive Columbia, SC 29223 Office Hours 8:30 am - 5:00 pm Customer Services  803-737-6800  800-868-9002 (within SC only) Website  www.retirement.sc.gov www.retirement.sc.gov Email  cs@retirement.sc.gov cs@retirement.sc.gov Social Media –  Facebook  Twitter -------------------- Tammy B. Nichols, CPA Deputy Director SC Retirement Systems Phone: 803-737-6821 email: tnichols@retirement.sc.gov 56

57. THE LANGUAGE USED IN THIS PRESENTATION DOES NOT CREATE ANY CONTRACTUAL RIGHTS OR ENTITLEMENTS AND DOES NOT CREATE A CONTRACT BETWEEN THE MEMBER AND THE SOUTH CAROLINA RETIREMENT SYSTEMS. THE SOUTH CAROLINA RETIREMENT SYSTEMS RESERVES THE RIGHT TO REVISE THE CONTENT OF THIS PRESENTATION. This presentation is meant to serve as a guide but does not constitute a binding representation of the South Carolina Retirement Systems. The statutes governing the South Carolina Retirement Systems are found in Title 9 of the South Carolina Code of Laws, and should there be any conflict between this presentation and the statutes or Retirement Systems’ policies, the statutes and policies will prevail. Employers covered by the South Carolina Retirement Systems are not agents of the Retirement Systems. Disclaimer 57