MERS Experience Study and Assumptions

Communicating the Facts on the MERS Experience Study PRESENTED BY: [INSERT NAME]

What is What is an an Experience Study? Experience Study? The Experience Study takes place at least every five years The study reviews MERS funding policy for Defined Benefit plans and compares actual experience of our plan with current actuarial assumptions A comprehensive study of this kind is a fiscal best practice designed to ensure municipalities have enough assets in their plan to provide for the benefits that are expected to be paid

Experience Study Goals Experience Study Goals Goals of the Experience Study: Ensure municipalities can pay promised benefits to employees and that each plan is making reasonable progress to achieve full funding Encourage each generation to incur cost benefits for employees within that generation Balance contribution stability with the commitment to ensure plans are properly funded

Economic Assumptions Economic Assumptions Assumptions fall into two categories economic and demographic In today s ever changing world, there is a need to review economic assumptions more frequently with incremental changes Economic assumptions are forward looking MERS pulled up the review of economic assumptions to help ensure plans are continuing to adequately fund benefits

Updated Updated Economic Assumptions Economic Assumptions Key updates that impacted FY 2021 contributions: 1. Investment Rate of Return Assumption Reduced 7.75% 7.35% 2. Wage Inflation Assumption Reduced 3.75% 3.00%

Demographic Assumptions Demographic Assumptions Demographic assumptions not only look back at the plan s actual experience, but also look forward to future expectations It s important to have at least 5 years of data

Changes to Key Changes to Key Demographic Assumptions Demographic Assumptions Key changes that will impact FY 2022 contributions: 1. Updated mortality rates 2. Updated to a fully generational mortality improvement table 3. Updated retirement rates

Summary of Changes to Summary of Changes to Demographic Assumptions Demographic Assumptions Key Change More Information Mortality Rates Change to the recently issued Pub-2010 mortality General rates as published by the Society of Actuaries Change to sex-distinct assumptions Mortality Improvement Change to the recently issued MP-2019 mortality improvement scales on a fully generational basis Retirement Rates Change 100% retirement rates to begin at age 85 vs. current 70 Separate assumptions for public safety divisions Withdrawal Rates Remove scaling factors Separate assumptions for public safety divisions Merit and Seniority Change to a service-based assumption Increase in Final Average Compensation Minimum 1% load introduced for most employers 0% load for base pay definition of compensation

How will these changes affect How will these changes affect our MERS Defined Benefit MERS Defined Benefit plan? our plan? [Here you can talk about how your municipality will be affected by the results of the Experience Study. Refer to the letter MERS provided you that included your specific impacts.] Paying contributions based on the full impact is the default, and MERS strongly encourages employers to pay the full impact For those plans that need additional time: An optional four-year phase-in for the demographic assumptions (FY 2022-2025) To streamline administration, the remaining impact of the economic assumptions will also be spread over four years (resulting in five-year phase in of economic impacts) o o

How Will MERS Help? How Will MERS Help? Recognizing that every municipality has unique needs, MERS offers a broad range of customizable plans to fit our budget, needs and goals MERS will partner with us to help set fiscal goals and discuss our options to address our unfunded accrued liability MERS is available to assist us in answering any questions with local media and the public The MERS team has been trained to explain the issues clearly They will work in partnership with us to deliver a consistent message across the state and to our local media