1. IPERS Update SAI Annual Conference August 3, 2011

2. Reminder: Changes Adopted During The 2010 Legislative Session? A.Contribution Rate—effective July 1, 2011  The combined contribution rate is now 13.45 %  Employee contributes 5.38 % (which is 40 percent of the total)  Employer contributes 8.07 % (which is 60 percent of the total) B. Contribution Rate—effective July 1, 2012  IPERS can adjust the contribution rate up or down each year but no more than one percentage point

3. Contribution Rates DATEMEMBEREMPLOYERCOMBINED RATE 7-1-09 to 6-30-104.3 %6.65 %10.95 % 7-1-10 to 6-30-114.5 %6.95 %11.45 % 7-1-11 to 6-30-125.38 %8.07 %13.45 %

4. Why Contribution Rate Changes Were Necessary Program only about 81% funded Recession; poor investment returns Increasing expenses: – People living longer (e.g., 116 members still collecting IPERS who are over 100 years old; the oldest is 108 years old) – Baby boomers are starting to retire (there are now over 100,000 retirees collecting IPERS) – The need to protect the defined benefit plan – The need to maintain the fiscal integrity of the system

5. Benefit Changes (Effective July 1, 2012) 1.A member becomes vested after seven years of service, or upon reaching age 65 while in IPERS covered employment—whichever comes first. (Currently, a member becomes vested after four years of service, or upon reaching age 55 while in IPERS covered employment—whichever comes first.) [Members who are vested before July 1, 2012, will remain vested.]

6. Benefit Changes (Effective July 1, 2012) 2.The wages used to calculate benefit amounts will be the average over the five years the employee earned the most. (Currently using the high three years to determine benefits.) [Members who are vested on July 1, 2012, will already have earned a right to a lifetime benefit. A member’s highest average salary cannot be lower than the member’s highest average salary as of June 30, 2012. IPERS will use the higher of the two averages in the benefit formula.]

7. Spiking Control (Effective July 1, 2012) IPERS will continue to use a control year outside of the “high five” years to test for wage spiking that inflates benefits. Current: High three-year Final Average Salary (FAS) cannot exceed 121% of your fourth highest year’s salary New provision: High five-year Final Average Salary (FAS) cannot exceed 134 % of your sixth highest year’s salary

8. Early Retirement Reduction (Effective July 1, 2012) “Normal Retirement Age” is 65, or age 62 with at least 20 years of service (Rule of 62/20), or when a member’s age plus years of service equals 88 (Rule of 88). There is no early retirement reduction for anyone qualifying for the “normal retirement age.” Current: Early retirement reduction is 3% for each year (0.25 % for each month) the member receives benefits before reaching normal retirement age. New provision: Increases the reduction to 6% for each year (0.5% for each month) it will take for the member to reach age 65.

9. No Changes In … The Rule of 88 or the Rule of 62/20 The multiplier (stays at 2% for each year for the first 30 years; 1% for each of the next 5 years; maximum multiplier at 65%) Defined benefit plan (not moving toward a defined contribution plan) Favorable Experience Dividend (FED) or adding a COLA for those retiring after July 1, 1990

10. Calculating FED

11. Keep A Watchful Eye: On the growing interest in moving away from a defined benefit plan toward a defined contribution plan (optional for some; mandatory for others)—e.g., HF 418 which would have gone into effect July 1, 2013 On the growing resistance to limit contribution rate increases (even though the legislature has authorized IPERS staff to adjust the contribution rate up or down each year but no more than one percentage point at a time—effective July 1, 2012) On the possibility of reducing the multiplier from 2.0 percent to something like 1.5 or 1.75 percent On the possibility of dropping the Favorable Experience Dividend (FED) [All retirees need some type of cost of living adjustment!]

12. Thanks!! Thanks for your membership and support of SAI. Thanks for your continued interest in the Iowa Public Employees Retirement System— something that is a vital part of your financial future. Thanks for your attendance and interest in this workshop.