Comprehensive Annual Financial Report - Minnesota State ...

age of pay, and are specified in statute as
fixed percentages. There are no maximum
or minimum salary limits imposed by statute.
A closed amortization period is used,
with 19 years remaining for the GERF and
MERF, 27 years remaining for the PEPFF,
and 19 years remaining for the PECF. For
actuarial purposes, non-MERF assets are
valued using a 5-year smoothing method.
The plans assume an 8 percent investment
rate of return for the next five years, then an
8.5 percent investment rate of return after
that, with a 3 percent inflation rate. Total
payroll is assumed to grow at 3.75 percent
in the GERF, PEPFF and PECF. Assumed salary
growth in the GERF decreases in annual
increments from 12.03 percent after 1 year
of service to 3.5 percent after 18 years of
service. In the PEPFF salary growth assumptions
decrease from 13 percent after 1 year
of service to 4.5 percent after 23 years of
service. In the PECF salary growth assumptions
decrease from 9.0 percent at age 20 to
4.0 percent at age 65. In the MERF, salary is
projected to grow 4% a year.
13. Changes in Assumptions and Plan Provisions
For all plans, decrement timing was changed
from beginning of year to mid-year in 2012,
and the investment return assumption was
changed from 8.5% for all years to a 5-year
select and ultimate approach, with 8.0%
assumed for fiscal years 2013 through 2017
and 8.5% assumed beyond that.
In FY12 the salary increase rates in the
GERF were updated to be approximately
25 basis points lower on average than the
previous table. Augmentation for privatizations
occurring after 2010 was also reduced.
Actuarial assumption and methodology
changes in the GERF increased the actuarial
accrued liability by $159,567,000.
Several assumptions were changed in the
PECF. Mortality tables for pre-retirement
and post-retirement were changed from
1983 GAM tables to RP 2000 tables. The
mortality table for disabilitants was changed
from a Combined Annuity Mortality table to
an RP 2000 disabled mortality table. The
salary increase assumption was changed
to more closely reflect actual experience.
The annual payroll growth assumption was
lowered from 4.5% to 3.75%. The optional
form assumption for males changed from
0% to 5% electing the 25% Joint & Survivor
(J&S) optional form, from 25% to 10% electing
the 50% J&S form, 0% to 10% electing
the 75% J&S optional form, and from 25%
to 35% electing the 100% J&S optional form.
The optional form assumption for females
changed from 0% to 5% electing the 25% J&S
and the 75% J&S optional forms. Actuarial
assumption and methodology changes
increased the actuarial accrued liability by
$24,719,000.
C. CONTRIBUTIONS REQUIRED AND
CONTRIBUTIONS MADE
Minnesota Statutes, Chapters 353, 353A,
353B, 353E, 353G and 356 set the rates
for employer and employee contributions.
Contribution rates are shown in Figure
9. Contribution rates in the GERF and the
PEPFF are not sufficient to get those funds
fully funded by their statutory full funding
dates of 2031 and 2038 respectively.
Contribution rates in the PECF and MERF
are expected to be sufficient to get those
funds fully funded by their full funding dates
of 2023 and 2031. The actuarially required
contributions are expressed as a level percentage
of covered payroll and are determined
using an individual entry-age actuarial
cost method.
Financial Section
M innesota statutes
set the rates for
employer and employee
contributions for
PERA's defined benefit
plans.
Legislation passed in 2010 increased future
contributions in the MERF. While employee
and employer contributions remain at 9.75
percent of pay, and the employer additional
contribution remains at 2.68% of pay plus
each employer’s share of $3.9 million payable
annually, a new employer supplemental
contribution was added that will be calculated
annually and cannot be less than $27
million. The new contribution will not be
paid until after June 30, 2012. The total of
all employer contributions (regular, additional
and supplemental) cannot exceed
$34 million. The State’s contribution to
MERF will also be calculated annually and
cannot exceed new levels established by
the legislation. In accordance with GASB
25, contributions in FY12 include the State
of Minnesota’s $22.75 million contribution
Public Employees
Retirement Association
of Minnesota
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