2017 SEBAC AGREEMENT Contents: Basis for Projections ................................................................................................................................................... 1 Summary of Savings ................................................................................................................................................. 2 Active Employee Healthcare .................................................................................................................................... 3 Non-Medicare Retiree Healthcare ............................................................................................................................. 4 Medicare Advantage Plan ......................................................................................................................................... 5 Impact of Changes on OPEB Liability ........................................................................................................................ 6 Attrition Savings ....................................................................................................................................................... 8 Alternate Retirement Plan ........................................................................................................................................ 9 30-year SERS ADEC Projections ............................................................................................................................... 10 SERS Membership Projections ................................................................................................................................ 12 Draft SERS Valuation .............................................................................................................................................. 14 Source of SEBAC Agreement Savings Estimates Wage Estimates were developed by OPM: Elimination of potential FY 2017, 2018, and 2019 increases: Removes all of the proposed RSA increase in the Governor’s recommended budget: $300.6 million in FY18 and $486.2 million in FY 2019. Deferral of April 2018 longevity payment to FY 2019: Based on April 2017 longevity payments, this is projected to result in a shift of $11.0 million from FY 2018 to FY 2019. One-time FY 2019 payment. Estimated based on approximately 42,000 filled FTE employees X 2,000 = $84.0 million. Provision to pay lump sum at maximum + $1,000 in lieu of the $2,000 is estimated to add $4.4 million based on a review of employees eligible for the additional payment. Total impact is +$88.4 million. 3 Furlough days in FY 2018 at $12 million per day equals $36.0 million in FY 2018 savings. Active and Retiree Healthcare Projections were based on data received from The Office of the State Comptroller or their healthcare consultant: Segal Consulting. Pension Estimates for SERS were based on projections received from the State’s pension actuary: Cavanaugh-Mcdonald Consulting, LLC. Estimates for the Higher education alternate retirement program were developed by OPM. Attrition savings estimate developed by OPM, based on retirement projections developed by Cavanaugh Mcdonald and assuming that 1/3rd of FY 2018 retirements and 1/10th of FY 2019 retirements will remain permanently unfilled. Page 1 63.3 1.4 0.3 13.3 2.7 (1.1) 0.2 6.3 2.8 7.5 25.4 (0.1) - 300.6 36.0 11.0 - 233.5 5.0 130.5 3.9 0.6 15.9 3.2 (1.3) 0.2 7.5 3.7 4.5 27.0 12.0 - 468.2 (11.0) (88.4) 63.2 258.8 (1.0) 7.0 135.7 5.9 0.9 15.9 3.3 (1.4) 0.2 7.8 3.8 4.5 28.1 12.0 5.6 491.6 - FY 2020 1,064.4 3,675.9 65.4 263.5 (1.0) 7.5 141.1 7.9 1.2 15.9 3.5 (1.4) 0.2 8.1 4.0 4.5 29.2 12.0 11.2 491.6 - FY 2021 1,101.9 4,777.8 67.1 282.9 (1.0) 7.9 146.8 9.0 1.6 1.5 15.9 3.6 (1.5) 0.2 8.4 4.2 4.5 30.4 12.0 16.8 491.6 - FY 2022 1,132.1 5,909.9 68.7 300.0 (1.0) 8.3 152.7 9.4 3.2 2.2 15.9 3.7 (1.5) 0.2 8.8 4.3 4.5 31.6 12.0 17.5 491.6 - FY 2023 1,150.9 7,060.9 70.5 305.3 (1.0) 8.8 158.8 9.7 4.7 2.9 15.9 3.9 (1.6) 0.2 9.1 4.5 4.5 32.9 12.0 18.2 491.6 - FY 2024 1,169.5 8,230.4 72.2 311.6 (1.0) 9.3 165.1 10.1 4.7 3.6 15.9 4.0 (1.6) 0.3 9.5 4.7 4.5 34.2 12.0 18.9 491.6 - FY 2025 1,189.4 9,419.9 74.0 318.7 (1.0) 9.8 171.7 10.5 4.7 4.3 15.9 4.2 (1.7) 0.3 9.9 4.9 4.5 35.6 12.0 19.7 491.6 - FY 2026 1,210.1 10,630.0 75.9 326.1 (1.0) 10.3 178.6 10.9 4.7 5.0 15.9 4.4 (1.8) 0.3 10.3 5.1 4.5 37.0 12.0 20.4 491.6 - FY 2027 1,231.5 11,861.4 77.8 333.7 (1.0) 10.8 185.7 11.4 4.7 5.7 15.9 4.6 (1.9) 0.3 10.7 5.3 4.5 38.5 12.0 21.3 491.6 - FY 2028 1,253.8 13,115.3 79.7 341.9 (1.0) 11.3 193.2 11.8 4.7 6.4 15.9 4.7 (1.9) 0.3 11.1 5.5 4.5 40.0 12.0 22.1 491.6 - FY 2029 1,276.6 14,391.9 81.7 350.0 (1.0) 11.8 200.9 12.3 4.7 7.1 15.9 4.9 (2.0) 0.3 11.5 5.7 4.5 41.6 12.0 23.0 491.6 - FY 2030 1,300.9 15,692.8 83.8 359.0 (1.0) 12.4 208.9 12.8 4.7 7.8 15.9 5.1 (2.1) 0.3 12.0 5.9 4.5 43.3 12.0 23.9 491.6 - FY 2031 1,326.4 17,019.2 85.9 368.7 (1.0) 13.0 217.3 13.3 4.7 8.5 15.9 5.3 (2.2) 0.3 12.5 6.2 4.5 45.0 12.0 24.9 491.6 - FY 2032 1,353.0 18,372.1 88.0 379.0 (1.0) 13.5 226.0 13.9 4.7 9.2 15.9 5.5 (2.3) 0.3 13.0 6.4 4.5 46.8 12.0 25.9 491.6 - FY 2033 1,380.9 19,753.0 90.2 390.0 (1.0) 14.1 235.0 14.4 4.7 9.9 15.9 5.8 (2.3) 0.4 13.5 6.7 4.5 48.7 12.0 26.9 491.6 - FY 2034 1,410.1 21,163.1 92.5 401.7 (1.0) 14.7 244.4 15.0 4.7 10.6 15.9 6.0 (2.4) 0.4 14.0 6.9 4.5 50.6 12.0 28.0 491.6 - FY 2035 1,440.8 22,603.9 94.8 414.2 (1.0) 15.4 254.2 15.6 4.7 11.3 15.9 6.2 (2.5) 0.4 14.6 7.2 4.5 52.6 12.0 29.1 491.6 - FY 2036 1,472.2 24,076.1 97.1 426.9 (1.0) 16.0 264.4 16.2 4.7 12.0 15.9 6.5 (2.6) 0.4 15.2 7.5 4.5 54.7 12.0 30.3 491.6 - FY 2037 Impact by FY: FY 2018 FY 2019 Active Healthcare Financial Incentive to utilize urgent care over ER Full utilization management on PT / OT services PCP and specialist tiering based on quality and cost for PCP specialties PCP and specialist tiering based on quality and cost for non-PCP specialties Site of service: Diagnostic X-rays, high-cost imaging and labs Member incentive based program (SmartShopper) Increased co-pays for non-HEP drugs Adopting the CVS standard formulary Improved pricing in 2018 RFP due to Medicare Advantage pricing improvements Implementation cost Premium Cost Sharing (1%/1%/1% starting 7/1/19 ; new hires = 3% now) 205.3 5.0 53.6 1,042.0 2,611.5 Wages FY 17, 18, and 19 zeros 3 Unpaid Days in FY18 April 2018 Longevity Delay $2K payment / $1K + top-step in FY19 Retiree Healthcare Medicare Advantage Misc. pre-65 benefit changes Medicare Part B changes Retiree Cost Sharing (+1.5% eff. 7/1/17, +3.5% eff. 7/1/22) (2.0) 23.1 868.6 1,569.5 Additional Items Tuition & Reimbursements Attrition Pensions SEBAC Wage Freeze, COLA Holiday, COLA Formula, Contributions & Tier 4 Judicial Marshals ARP Changes 700.9 700.9 Total Cumulative Total: Page 2 Anthem BCBS Confidential and Proprietary Do Not Distribute Anthem Estimate Benefit Description Current Benefit Proposed Benefit Assumptions State of CT Requested Medical Benefit Changes and Estimated Savings Estimated Savings- FY 18 $12,111,111.11 GF Savings/ (cost) $16,000,000 Gross Savings - Anthem Only Gross Savings Total Population/(cost) - Less Employee Share $15,935,185 Estimated Savings- FY 19 $18,518,519 Gross Savings Total Population/(cost) $12,111,111 GF Savings/ (cost) $2,437,361 Gross SavingsTotal Population/(cost) - Less Employee Share $15,935,185 $3,206,956 $18,518,519 $3,726,852 $16,000,000 Gross Savings - Anthem Only6/5/2017 Gross Savings Total Population/(cost) $3,220,000 Create financial incentive to utilize urgent care over ER $2,437,361.11 ─Mandatory change ─57% of ER visit = potentially avoidable ─10% shift to UC ─Limited shift to LHOL ─Non shifting population incurs higher cost share $3,206,956 $250 copay $15 copay for Urgent Care $5 copay for Live Health Online $3,726,852 Urgent/Emergency Room: Actives: $15/$35 copay Pre 1999 retirees: $5 $3,220,000 ($984,028) Utilization Management PT/OT medical necessity review Covered 100% ($1,294,734) Covered 100% with unique arrangement through OrthoNet (Consultative Only) ($1,504,630) $3,683,994 $2,799,921 $5,677,083 $151,389 ($1,300,000) $4,281,225 $8,680,556 $231,481 ($984,027.78) $3,698,978 $7,500,000 $200,000 ($1,294,734) $2,799,920.85 $5,677,083.33 $151,388.89 ($1,504,630) $3,683,994 $7,469,618 $199,190 ($1,300,000) ─ Same benefit structure ─ Same utilization in future period ─ Analysis excludes cases for single evaluation sessions $15 Copay $4,281,225 $8,680,556 $231,481 ─PCPs: ● Baseline Tier 1 Percentage: 76% of episodes ● Baseline Tier 2 Percentage: 24% of episodes Shift between Tier 1 and Tier 2 is estimated at 15% but cost savings is offset by reduced member liability, resulting in a negative benefit. $200,000 $7,500,000 $3,698,978 $6,867,000 $6,867,000.00 $9,035,250 $9,035,250 $10,500,000 $10,500,000 $0 na $23,217,000.00 $23,217,000 $30,547,750 $30,547,750 $35,500,000 $61,432,838 $35,500,000 na $93,934,002 $80,631,019 $9,156,000 na $0 $12,047,000 na $52,276,837.51 $93,934,002 $14,000,000 na ($98,100.00) na na $68,783,209 $52,178,737.51 $0 ($129,075) $61,432,838 $79,934,002 $68,654,134 $80,631,019 na ($150,000) $0 $79,784,002 na $7,469,618 PCP Tiering: ─ Tier 1 (cost/quality): $0 copay ─ Tier 2 (cost/quality): $15 copay Implement full utilization management on Physical Therapy/Occupational Therapy (PT/OT) services (Orthonet) (based upon medical necessity criteria) PCP & Specialist Tiering based on Quality & Cost Unique State built Tiered PCP & Specialty network where cost and quality determine the tier. The following PCP Specialties can be tiered: • Advanced Practice Nurse • Family practice • General practitioner • Internal Medicine • Pediatrics ● 100% coverage for designed reference labs, diagnostic X-ray ─ Benefit will have member cost savings depending on the centers and high cost imaging Site of Service where certain lab and x-ray services are ● 80% coverage for other In-network labs, diagnostic X-ray centers performed. and high cost imaging ─ Lab services performed at an independent lab and ● 60% out of network designated freestanding are covered at 100%. ─ Services performed at an outpatient hospital facility or out-of-network have higher cost-shares. ─ Projected shift: 30% Baseline Tier 1 Percentage: 61.5% Baseline Tier 2 Percentage: 38.5% Percent of Tier 2 Projected to Shift: 15% ─ 20% redirection. Assumes active employer engagement with member communication plan ─ Program incentives and savings per procedure are outlined on Attachment A ─ Savings are net of member incentives and administrative fees. Administrative fees equal to a percentage of the savings. - Actual active/<65 retiree split not yet available so savings based on an assumption that total dollars are split 70% active and 30% <65 retirees. (Savings estimate to be adjusted when actual split available.) Specialist Tiering: ─ Tier 1 (cost/quality): $0 copay ─ Tier 2 (cost/quality): $15 copay 100% - $0 copay **Benefit incentive linked to procedures and physicians Assumes generic tiering threshold set at $50 $15 Copay N/A Increase Co-pays for all Non-HEP drugs to: $5 Gen Tier 1, $10 Gen Tier 2, $25 Preffered, $40 Non-preffered - PCP & Specialist Tiering based on Quality & Cost Unique State built Tiered PCP & Specialty network where cost and quality determine the tier. The following non-PCP Specialties can be tiered: • Allergy & Immunology • Cardiology • Endocrinology • ENT • Gastroenterology • OBGYN • Ophthalmology • Ortho/Surgery • Rheumatology • Urology co-pays are $5, $20, $35 for retail acute drugs and $5, $10, $25 for non-HEP Maintenance drugs Adoption of the CVS standard formulary with modifications to the appeal process Site of Service: Diagnostic X-ray, High Cost Imaging and Lab Increased co-pays for non-HEP drugs Open formulary Not a benefit change Member incentive based program (SmartShopper) for the following services: • Colonoscopy • Hip Surgery • Knee Surgery • Knee Replacement • Spinal Surgery • Shoulder Surgery • Hysterectomy/Hysteroscopy • Sigmoidoscopy • Upper GI Adopting the CVS Standard Formulary Not a benefit change 1 Assumed better improved pricing in 2018 resulting from going to RFP for the Active and Pre-65 Retiree population. Savings based upon proposed pricing improvements provided by CVS as a result of Medicare Advantage RFP. Not a benefit change Total Savings Estimated Anthem Implementation Costs2 Estimated Net Savings Anthem Notes: 1. Estimated savings are based on the pre-implementation baseline period. Year 2 estimated savings are not incremental to the year 1 savings. Please note that the savings are based on the number of covered lives. If the number of covered lives fluctuates (e.g., the State reduces its work force or the number of under 65 retirees aging out into Medicare exceeds the number of new under 65 retirees) the savings would be different. 2. With the exception of SmartShopperand Orthonet, current estimated Anthem implementation costs are $150,000 for both actives and retirees and apply in year 1 only. Costs to the State will be a direct pass through subject to a cap of $300,000. The State will pay the lesser of Anthem's actual costs or $300,000. Anthem will invoice the State monthly. For SmartShopper, administrative costs apply in all years of the contract and will be based on a percentage of the savings. The estimated savings for SmartShopper are net of these costs so no additional costs are shown. Program savings are based on the level of member communication, education, and engagement. For Orthonet, the administrative costs are $0.28 pmpm in year 1 and year 2and the savings quoted is net of this expense. This pmpm will be added to the Anthem admin fee. The estimated savings for Orthonet are net of these costs so no additional costs are shown. 3. Anthem can implement all benefits except SmartShopper as of the first of the month following 45 day notice from the State. For example, if Anthem receives notice on June 29, 2017, Anthem can implement this benefit change on September 1, 2017. This timeline assumes the benefits as presented by Anthem to the State. Additional time may be required if the State makes any changes to the benefits (e.g., in connection with the tiered benefit, the State requests modification to the listing of PCPs or Specialists contained in Tier 1). 4. All savings assume 12 months of savings and woudl require adjustment for any mid fiscal year implmentation. Calculation Notes: 1. The savings estimates provided by Anthem for the proposed benefit changes to the medical plan have been reviewed by the Segal and determined to be reasonable. 2. The savings estimates provided by Anthem are included in the "Gross Savings - Anthem Only" column and include only the impact on the Anthem population. The savings are adjusted to incorporate the impact of applying the changes to the Oxford population in the "Gross Savings Total Population Column". 3. Savings are then adjusted to reflect the amount of the savings that will accrue the General Fund by multiplying the "Gross Svigns total Population" calculation by 65.4%. 4. Pharmacy copay savings were provided by Segal and represent the aggregate savings for the Active population (Anthem and Oxford). The copay savings assume a differential in generic copays set at a threshold of $50. 5. The savings associated witht he adoption of the standard fromulary was calculated by Segal. The gross savings calculated by Segal was adjusted to remove the savings that will flow to Partnership groups to establish the gross savings applicable to the state employee active plan. The savings where then adjusted to reflect the amount of the savings that will accrue the General Fund by multiplying the "Gross Svigns total Population" calculation by 65.4%. Actives Page 3 Date to Operational (Year 1)3 First of the month following 45 day notice from the State. For example, if Anthem receives notice on June 29, 2017, Anthem can implement this benefit change on September 1, 2017. First of the month following 45 day notice from the State. See above example. First of the month following 45 day notice from the State. See above example. First of the month following 45 day notice from the State. See above example. First of the month following 45 day notice from the State. See above example. First of the month following 90 day notice from the State. 45 day notice 45 day notice July 1st 2018 Anthem BCBS Confidential and Proprietary Do Not Distribute State of CT Requested Medical Benefit Changes and Estimated Savings 6/5/2017 Estimated Savings- FY 18 Gross Savings - Anthem Only Estimated Savings- FY 19 Gross Savings Total Population/(cost) $5,448,354 $113,507 GF Savings - Adjusted for % of Retirees for which new plan applies/ (cost) $1,036,282.72 $4,598,100 $3,904,846 $1,323,190.71 $874,563.48 $0.00 $6,956,800 $0 $20,530,095 $416,056.07 na $2,187,454 $376,408.50 $7,907,147 $1,927,147 $100,000 $4,800,000 $297,931.28 GF Savings - Adjusted for % of Retirees for which new plan applies/ (cost) $446,011.79 $1,566,402 ($64,767.67) $5,448,354 $1,380,000 ($340,522) Gross Savings Total Population/(cost) $128,228.39 ($300,000) $4,800,000 $1,566,402 ($27,875.74) Gross Savings - Anthem Only $1,380,000 ($340,522) Assumptions ─Mandatory change ─57% of ER visit = potentially avoidable ─10% shift to UC ─Limited shift to LHOL ─Non shifting population incurs higher cost share ($300,000) Proposed Benefit $250 copay $15 copay for Urgent Care $5 copay for Live Health Online ─ Same benefit structure ─ Same utilization in future period ─ Analysis excludes cases for single evaluation sessions Current Benefit Urgent/Emergency Room: Actives: $15/$35 copay Pre 1999 retirees: $5 Utilization Management PT/OT medical necessity review Covered 100% Benefit Description Create financial incentive to utilize urgent care over ER Covered 100% with unique arrangement through OrthoNet (Consultative Only) Anthem Estimate Implement full utilization management on Physical Therapy/Occupational Therapy (PT/OT) services (Orthonet) (based upon medical necessity criteria) ─PCPs: ● Baseline Tier 1 Percentage: 76% of episodes ● Baseline Tier 2 Percentage: 24% of episodes $0.00 $113,507 $0 $179,068.81 $21,589.22 PCP Tiering: ─ Tier 1 (cost/quality): $0 copay ─ Tier 2 (cost/quality): $15 copay $100,000 $2,187,454 $4,598,100 $1,680,629 $569,495.80 na $6,956,800 na $20,530,095 $7,907,147 $3,904,846 $7,907,147 $8,975,195 $1,680,629 $7,907,147 $1,927,147 $9,291.91 $15 Copay Shift between Tier 1 and Tier 2 is estimated at 15% but cost savings is offset by reduced member liability, resulting in a negative benefit. Baseline Tier 1 Percentage: 61.5% Baseline Tier 2 Percentage: 38.5% Percent of Tier 2 Projected to Shift: 15% ● 100% coverage for designed reference labs, diagnostic X-ray centers and high cost imaging ● 80% coverage for other In-network labs, diagnostic X-ray centers and high cost imaging ● 60% out of network ─ Benefit will have member cost savings depending on the Site of Service where certain lab and x-ray services are performed. ─ Lab services performed at an independent lab and designated freestanding are covered at 100%. ─ Services performed at an outpatient hospital facility or out-of-network have higher cost-shares. ─ Projected shift: 30% Specialist Tiering: ─ Tier 1 (cost/quality): $0 copay ─ Tier 2 (cost/quality): $15 copay PCP & Specialist Tiering based on Quality & Cost Unique State built Tiered PCP & Specialty network where cost and quality determine the tier. The following PCP Specialties can be tiered: • Advanced Practice Nurse • Family practice • General practitioner • Internal Medicine • Pediatrics 100% - $0 copay PCP & Specialist Tiering based on Quality & Cost $15 Copay Unique State built Tiered PCP & Specialty network where cost and quality determine the tier. The following non-PCP Specialties can be tiered: • Allergy & Immunology • Cardiology • Endocrinology • ENT • Gastroenterology • OBGYN • Ophthalmology • Ortho/Surgery • Rheumatology • Urology Site of Service: Diagnostic X-ray, High Cost Imaging and Lab **Benefit incentive linked to procedures and physicians Increase Co-pays for all Non-HEP drugs to: $5 Gen Tier 1, $10 Gen Assumes generic tiering threshold set at $50 Tier 2, $25 Preffered, $40 Non-preffered - ─ 20% redirection. Assumes active employer engagement with member communication plan ─ Program incentives and savings per procedure are outlined on Attachment A ─ Savings are net of member incentives and administrative fees. Administrative fees equal to a percentage of the savings. - Actual active/<65 retiree split not yet available so savings based on an assumption that total dollars are split 70% active and 30% <65 retirees. (Savings estimate to be adjusted when actual split available.) co-pays are $5, $20, $35 for retail acute drugs and $5, $10, $25 for non-HEP Maintenance drugs Adoption of the CVS standard formulary with modifications to the appeal process Member incentive based program (SmartShopper) for the following N/A services: • Colonoscopy • Hip Surgery • Knee Surgery • Knee Replacement • Spinal Surgery • Shoulder Surgery • Hysterectomy/Hysteroscopy • Sigmoidoscopy • Upper GI Increased co-pays for non-HEP drugs Open formulary 1 Adopting the CVS Standard Formulary Total Savings Estimated Anthem Implementation Costs2 Estimated Net Savings Notes: 1. Estimated savings are based on the pre-implementation baseline period. Year 2 estimated savings are not incremental to the year 1 savings. Please note that the savings are based on the number of covered lives. If the number of covered lives fluctuates (e.g., the State reduces its work force or the number of under 65 retirees aging out into Medicare exceeds the number of new under 65 retirees) the savings would be different. 2. With the exception of SmartShopperand Orthonet, current estimated Anthem implementation costs are $150,000 for both actives and retirees and apply in year 1 only. Costs to the State will be a direct pass through subject to a cap of $300,000. (For this sheet, Anthem administrative expenses are shown as $0 as the estimated expnses are captured on the Actives sheet.) The State will pay the lesser of Anthem's actual costs or $300,000. Anthem will invoice the State monthly. For SmartShopper, administrative costs apply in all years of the contract and will be based on a percentage of the savings. The estimated savings for SmartShopper are net of these costs so no additional costs are shown. Program savings are based on the level of member communication, education, and engagement. For Orthonet, the administrative costs are $0.28 pmpm in year 1 and year 2and the savings quoted is net of this expense. This pmpm will be added to the Anthem admin fee. The estimated savings for Orthonet are net of these costs so no additional costs are shown. 3. Anthem can implement all benefits except SmartShopper as of the first of the month following 45 day notice from the State. For example, if Anthem receives notice on June 29, 2017, Anthem can implement this benefit change on September 1, 2017. This timeline assumes the benefits as presented by Anthem to the State. Additional time may be required if the State makes any changes to the benefits (e.g., in connection with the tiered benefit, the State requests modification to the listing of PCPs or Specialists contained in Tier 1). 4. All savings assume 12 months of savings and woudl require adjustment for any mid fiscal year implmentation. Calculation Notes: 1. The savings estimates provided by Anthem for the proposed benefit changes to the medical plan have been reviewed by the Segal and determined to be reasonable. 2. The savings estimates provided by Anthem are included in the "Gross Savings - Anthem Only" column and include only the impact on the Anthem population. The savings are adjusted to incorporate the impact of applying the changes to the Oxford population in the "Gross Savings Total Population Column". 3. For all items savings are then adjusted to relect the percentage of the pre-65 retiree population that is projected to be subject to the new provisions, which includes 3/4 of the projected retirees in FY 18 due to the 10/2/17 start implementation date. For FY 19 the 3/4 of projected retirees from FY 18 are added to the projected retirees in FY 19. 4. Savings are then adjusted to reflect the amount of the savings that will accrue the General Fund by multiplying the "Gross Savigns total Population" calculation by 65.4%. 5. ER savings were calculated by multiplying the active Anthem calculated savings by the percentage of ER costs associated with Pre-65 retirees in comparison to actives approximately 30%. 5. Pharmacy copay savings were provided by Segal and represent the aggregate savings for the Active population (Anthem and Oxford). The copay savings assume a differential in generic copays set at a threshold of $50. 6. The savings associated witht he adoption of the standard fromulary was calculated by Segal. The gross savings calculated by Segal was adjusted to remove the savings that will flow to Partnership groups to establish the gross savings applicable to the state employee active plan. The savings where then adjusted to reflect the amount of the savings that will accrue the General Fund by multiplying the "Gross Svigns total Population" calculation by 65.4%. 7. Retiree health care expenditures are not distributed across funds. Employer share is approximately 99.5% Page 4 NonMedicareRetirees Date to Operational (Year 1)3 First of the month following 45 day notice from the State. For example, if Anthem receives notice on June 29, 2017, Anthem can implement this benefit change on September 1, 2017. First of the month following 45 day notice from the State. See above example. First of the month following 45 day notice from the State. See above example. First of the month following 45 day notice from the State. See above example. First of the month following 90 day notice from the State. 5/15/17: Pending further analysis Segal Estimate Medicare Advantage - Medical Medical Advantage - Part_D Total FY 18 Gross Savings General Fund $ 10,300,000 $ 10,860,000 $ 52,400,000 $ 52,400,000 $ 62,700,000 $ 63,260,000 Page 5 FY 19 Gross Savings General Fund $ 75,200,000 $ 75,840,000 $ 54,700,000 $ 54,700,000 $ 129,900,000 $ 130,540,000 Sega! Censu?i?g 30 Waterside Drive Suite 300 Farmington, CT 86032-3069 880.878.3000 unwasegalcocom MEMORANDUM To: Thomas C. Woodru?, Director, Healthcare Policy Bene?t Services Of?ce of the State Comptroller, State of Connecticut From: Daniel J. Rhodes, FSA, Date: May 31,2017 Re: Impact of Medicare Advantage Plan on OPEB Liability As you requested, we have estimated the impact on the State?s Other Post?Employment Bene?t (OPEB) liabilities resulting from implementing a Medicare Advantage plan for the State?s Medicare?eligible retirees. As previously reported, the State?s actuarial accrued liability (AAL) for OPEB as of June 30, 2015, was approximately $19.1 billion. That liability was projected to increase to $20.9 billion as of June 30, 2017, based on our prior valuation. Implementing the Medicare Advantage with Prescription Drug plan rates, as proposed by UnitedHealthcare (UHC) in their ?nal price proposal, would decrease the OPEB liability to $15.6 billion, a reduction of $5.3 billion or 25%. Calculations are based on an average premium rate, effective January 1, 2018, for current retirees of $826 per year for the medical portion of the MA-PD, and $2,747 per year for the prescription portion. Future retirees were valued with the post-2011 plan rates of $713 per year for medical and $2,018 for prescription drug. The calculations account for the rate guarantees proposed by UHC for 2019, and assume costs beyond that point increase with our standard trend assumptions from our valuation report. The calculations do not re?ect any of the proposed changes in the tentative agreement for non? Medicare retirees. Because these changes only affect future non-Medicare retirees, the impact of these changes is relatively small compared to that of the MA-PD. Except for the. assumptions speci?cally discussed above, the actuarial methods and assumptions for this analysis are based on the draft State of Connecticut Other Post-Employment Bene?ts Program Actuarial Valuation as of June 30, 2015 published August 24, 2016. This calculation does not incorporate any changes that will be required under Governmental Accounting Standards Board (GASB) Statements 74 and 75, such as the change in required actuarial cost method, or any changes in the discount rate used to calculate the liabilities. Bene?ts, Compensation and HR Consulting. Member of The Segal Group. Of?ces throughout the United States and Canada Page 6 Page 2 This actuarial work was prepared under the supervision of Daniel J. Rhodes, FSA, who meets the quali?cations of the American Academy of Actuaries to render the actuarial opinions contained herein. We are available to answer questions about these results. cc: Margaret Haerin Joshua Wojcik Theresa DeMattie Page 7 FY 2018 1,473 67% 486 243 243 95,000 23,089,275 21,011,240 Attrition Savings Projection Retirements % Refilled New Vacancies Timing Cumulative Savings per vacancy Annual Savings GF Portion (91%) FY 2019 1,569 90% 157 321 565 95,000 53,631,300 48,804,483 FY 2020 1,524 100% 78 643 98,325 63,221,992 57,532,012 FY 2021 1,728 100% 643 101,766 65,434,761 59,545,633 FY 2022 1,944 100% 643 104,311 67,070,630 61,034,274 FY 2023 1,597 100% 643 106,918 68,747,396 62,560,131 FY 2024 1,551 100% 643 109,591 70,466,081 64,124,134 FY 2025 1,634 100% 643 112,331 72,227,733 65,727,237 FY 2026 1,678 100% 643 115,139 74,033,427 67,370,418 FY 2027 1,660 100% 643 118,018 75,884,262 69,054,679 Page 8 FY 2028 1,660 100% 643 120,968 77,781,369 70,781,046 FY 2029 1,660 100% 643 123,992 79,725,903 72,550,572 FY 2030 1,660 100% 643 127,092 81,719,051 74,364,336 FY 2031 1,660 100% 643 130,270 83,762,027 76,223,444 FY 2032 1,660 100% 643 133,526 85,856,077 78,129,030 FY 2033 1,660 100% 643 136,864 88,002,479 80,082,256 FY 2034 1,660 100% 643 140,286 90,202,541 82,084,313 FY 2035 1,660 100% 643 143,793 92,457,605 84,136,420 FY 2036 1,660 100% 643 147,388 94,769,045 86,239,831 FY 2037 1,660 100% 643 151,073 97,138,271 88,395,827 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 FY 2036 FY 2037 5.0 5.0 6.7 6.9 7.1 7.3 7.5 7.7 7.8 8.0 8.2 8.4 8.7 8.9 9.1 9.3 9.6 9.8 10.0 10.3 0.0 0.0 0.3 0.5 0.8 1.1 1.3 1.6 1.9 2.2 2.5 2.9 3.2 3.5 3.9 4.2 4.6 4.9 5.3 5.7 5.0 5.0 7.0 7.5 7.9 8.3 8.8 9.3 9.8 10.3 10.8 11.3 11.8 12.4 13.0 13.5 14.1 14.7 15.4 16.0 Alternative Retirement Program - Savings Estimate Savings: Existing Employees New Employees Assumptions: Existing Employees - FY18 state share decreases to 7.25% and then FY 20 decreases to 7%. Assumes wage increase of 3.5% in FYs 20 & 21, then 2.5% thereafter New Employees - FYs 18 & 19 assume attrition then in FY20 and thereafter 200 new employees per year with average salary of $85,000 increasing by 2.5% per year with savings based on 6.5% state share vs. 8%, Page 9 Comparison of Estimated Employer Contributions under December 2016 and May 2017 SEBAC agreements vs. Old Plan @ 6.9% R.O.R. Amounts in $Thousands Fiscal Year 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 Old Plan 2,220,450 2,322,499 2,422,971 2,542,647 2,660,310 2,765,233 2,874,272 2,991,909 3,115,372 3,248,134 3,392,920 3,555,131 3,748,665 4,008,592 4,480,529 991,947 437,818 450,447 463,855 477,520 492,667 509,944 528,853 548,226 567,335 584,664 604,327 624,273 644,068 664,485 12/2016 Agreement 1,648,407 1,808,051 1,983,533 2,171,097 2,351,459 2,508,559 2,523,536 2,525,848 2,528,301 2,531,022 2,533,376 2,536,640 2,538,531 2,541,955 2,546,023 2,069,773 2,034,326 2,038,993 2,047,774 2,056,607 2,065,463 2,074,638 2,083,784 2,092,698 2,101,330 2,109,576 2,095,090 2,067,951 2,027,961 1,996,102 Page 10 Projected Savings (205,297) (233,514) (258,818) (263,510) (282,890) (299,978) (305,286) (311,575) (318,666) (326,109) (333,746) (341,926) (350,036) (359,015) (368,650) (379,027) (389,963) (401,742) (414,157) (426,918) (440,108) (453,841) (467,678) (481,565) (495,493) (509,344) (508,819) (518,549) (529,293) (538,791) 5/2017 Agreement 1,443,110 1,574,537 1,724,715 1,907,587 2,068,569 2,208,581 2,218,250 2,214,273 2,209,635 2,204,913 2,199,630 2,194,714 2,188,495 2,182,940 2,177,373 1,690,746 1,644,363 1,637,251 1,633,617 1,629,689 1,625,355 1,620,797 1,616,106 1,611,133 1,605,837 1,600,232 1,586,271 1,549,402 1,498,668 1,457,311 $5,000,000 $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 2015 2020 2025 (in Thousands) 2030 12/2016 Agreement 5/2017 Agreement 2035 Projected SERS Contributions Old Plan Page 11 2040 2045 2050 CT SERS Projection of Members Total Headcounts 2021 2022 10 7 439 321 4,683 4,275 2,170 2,128 2,753 3,320 10,055 10,051 Active Members Tier I Hazardous Tier II - Haz Tier IIA - Haz Tier III - Haz Tier IV - Haz Subtotal Hazardous 2016 35 1,512 5,957 2,551 0 10,055 2017 27 1,229 5,810 2,433 583 10,082 2018 20 924 5,660 2,344 1,141 10,089 2019 16 726 5,372 2,276 1,688 10,078 2020 12 567 5,125 2,217 2,212 10,133 Tier IB Tier IC Tier II - Non Tier IIA - Non Tier III - Non Tier IV - Non Subtotal Non Hazardous 1,428 45 11,204 16,063 11,224 0 39,964 1,230 39 10,515 15,235 9,586 3,332 39,937 1,058 33 9,838 14,469 8,595 5,936 39,929 899 29 9,161 13,728 7,954 8,168 39,939 761 24 8,474 13,016 7,479 10,130 39,884 644 20 7,791 12,305 7,089 12,116 39,965 Total 50,019 50,019 50,018 50,017 50,017 2016 0 0 0 0 0 0 2017 8 271 44 1 0 324 2018 6 297 57 0 0 360 2019 4 191 202 0 0 397 Tier IB Tier IC Tier II - Non Tier IIA - Non Tier III - Non Tier IV - Non Non Hazardous 0 0 0 0 0 0 0 184 6 498 304 95 0 1,087 160 5 514 348 86 0 1,113 Total 0 1,411 1,473 Emerging Retirees Each Year Tier I Hazardous Tier II - Haz Tier IIA - Haz Tier III - Haz Tier IV - Haz Hazardous Total Eligible 2023 6 249 3,899 2,089 3,834 10,077 2024 6 193 3,613 2,052 4,332 10,196 2025 5 147 3,282 2,017 4,833 10,284 2026 3 112 2,925 1,985 5,331 10,356 2027 2 84 2,545 1,954 5,822 10,407 524 16 6,990 11,521 6,733 14,184 39,968 441 13 6,337 10,872 6,397 15,881 39,941 367 11 5,691 10,234 6,044 17,474 39,821 306 9 5,061 9,603 5,670 19,086 39,735 254 8 4,452 8,989 5,294 20,669 39,666 208 6 3,876 8,389 4,939 22,193 39,611 50,020 50,019 50,018 50,017 50,019 50,022 50,018 2020 4 154 172 1 0 331 2021 2 124 375 0 0 501 2022 2 115 348 1 0 466 2023 1 69 320 0 0 390 2024 1 54 235 1 0 291 2025 1 44 285 0 0 330 2026 2 35 319 1 0 357 2027 1 26 347 1 0 375 150 4 537 398 83 0 1,172 131 4 567 411 80 0 1,193 111 5 582 452 77 0 1,227 116 3 713 556 90 0 1,478 78 3 580 440 106 0 1,207 70 2 584 448 156 0 1,260 58 1 579 459 207 0 1,304 49 2 566 459 245 0 1,321 43 1 540 460 241 0 1,285 1,569 1,524 1,728 1,944 1,597 1,551 1,634 1,678 1,660 6/30/2016 pct retiring Hazardous Tier I Tier II/IIA Tier III 6/30/2022 1276 1187 1649 193 25.4% 16.0% 48.6% 49.2% 3899 1464 6919 680 61% 60% 85% 75% 2017 8.3% 13.0% 11.6% 14.0% 2018 17.5% 24.2% 24.0% 26.6% 2019 27.7% 34.8% 37.6% 38.8% 2020 36.2% 44.0% 51.7% 50.6% 2021 49.1% 51.9% 66.6% 61.9% 2022 61.0% 60.0% 85.0% 75.1% 2016 1,508 12,716 22,020 13,775 0 2017 1,296 11,744 21,045 12,019 3,915 2018 1,111 10,762 20,129 10,939 7,077 2019 944 9,887 19,100 10,230 9,856 2020 797 9,041 18,141 9,696 12,342 2021 674 8,230 16,988 9,259 14,869 2022 547 7,311 15,796 8,861 17,504 2023 460 6,586 14,771 8,486 19,715 2024 384 5,884 13,847 8,096 21,806 2025 320 5,208 12,885 7,687 23,919 2026 265 4,564 11,914 7,279 26,000 2027 216 3,960 10,934 6,893 28,015 2016 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2017 29.6% 15.0% 15.4% 4.7% 22.1% 2.0% 0.8% 1.0% 0.0% 0.0% 0.0% 2.8% 2018 30.0% 15.1% 15.2% 5.2% 32.1% 2.4% 1.0% 1.0% 0.0% 0.0% 0.0% 2.9% 2019 25.0% 16.7% 13.8% 5.9% 26.3% 2.9% 3.8% 1.0% 0.0% 0.0% 0.0% 3.1% 2020 33.3% 17.2% 16.7% 6.7% 27.2% 3.2% 3.4% 1.1% 0.0% 0.0% 0.0% 3.0% 2021 20.0% 17.2% 25.0% 7.5% 28.2% 3.7% 8.0% 1.1% 0.0% 0.0% 0.0% 3.5% 2022 28.6% 22.1% 18.8% 10.2% 35.8% 4.8% 8.1% 1.3% 0.0% 0.0% 0.0% 3.9% 2023 16.7% 17.7% 23.1% 9.2% 27.7% 4.0% 8.2% 1.7% 0.0% 0.0% 0.0% 3.2% 2024 16.7% 19.1% 18.2% 10.3% 28.0% 4.4% 6.5% 2.6% 0.0% 0.0% 0.0% 3.1% 2025 20.0% 19.0% 11.1% 11.4% 29.9% 4.8% 8.7% 3.7% 0.0% 0.0% 0.0% 3.3% 2026 66.7% 19.3% 25.0% 12.7% 31.3% 5.1% 10.9% 4.6% 0.1% 0.0% 0.0% 3.4% 2027 50.0% 20.7% 16.7% 13.9% 31.0% 5.5% 13.6% 4.9% 0.1% 0.0% 0.0% 3.3% Cumulative Percent of 2022 Eligibles retiring by year Hazardous Tier I Tier II/IIA Tier III Tier I total Tier II total Tier IIA total Tier III total Tier IV total Retirement Rates Tier I Hazardous Tier IB Tier IC Tier II - Non Tier II - Haz Tier IIA - Non Tier IIA - Haz Tier III - Non Tier III - Haz Tier IV - Non Tier IV - Haz Total 0.0% Page 12 SERS Membership Projection by Tier 60,000 50,000 40,000 30,000 20,000 10,000 0 2016 2017 2018 2019 Tier I total 2020 Tier II total 2021 2022 2023 Tier IIA total 2024 Tier III total 2025 2026 2027 Tier IV total Source: Cavanaugh Macdonald Consulting LLC SERS Hazardous Duty Membership Projection by Tier 12,000 10,000 8,000 6,000 4,000 2,000 0 2016 2017 2018 2019 Tier I Hazardous 2020 2021 Tier II - Haz 2022 Tier IIA - Haz 2023 2024 Tier III - Haz 2025 2026 Tier IV - Haz Source: Cavanaugh Macdonald Consulting LLC SERS Non-Hazardous Duty Membership Projection by Tier 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2016 2017 2018 Tier IB 2019 Tier IC 2020 2021 Tier II - Non 2022 2023 Tier IIA - Non Source: Cavanaugh Macdonald Consulting LLC Page 13 2024 2025 Tier III - Non 2026 2027 Tier IV - Non June 5, 2017 Ms. Brenda Halpin, Director State of Connecticut Office of the State Comptroller Retirement Services Division 55 Elm Street Hartford, CT 06106 Dear Ms. Halpin: Enclosed is the revised "Connecticut State Employees Retirement System Report of the Actuary on the Valuation Prepared as of June 30, 2016". Please let us know if there are any questions concerning the report. Sincerely yours, John J. Garrett, ASA, FCA, MAAA Principal and Consulting Actuary Edward J. Koebel, FCA, MAAA, EA Principal and Consulting Actuary JJG/EAK:kc Enc. S:\2016\Connecticut SERS\Pension\Valuation\CT SERS 6-30-2016 Valuation Report.doc Page 14 CONNECTICUT STATE EMPLOYEES RETIREMENT SYSTEM REPORT OF THE ACTUARY ON THE VALUATION PREPARED AS OF JUNE 30, 2016 Page 15 June 5, 2017 State of Connecticut State Employees Retirement Commission 55 Elm Street Hartford, CT 06106 Members of the Commission: Connecticut General Statutes Section 5-155a governs the operation of the Connecticut State Employees Retirement System (SERS). The actuary makes periodic valuations of the contingent assets and liabilities of the Retirement System at the direction of the Commission. We are pleased to submit the revised report giving the results of the actuarial valuation of the Retirement System prepared as of June 30, 2016. This revision is necessary to incorporate the recent Framework Document between the State and SEBAC and reflect the resulting changes to the required funding for the upcoming biennium. The purpose of the report is to provide a measure of the funded status of SERS as of June 30, 2016 and to recommend rates of actuarially determined contribution amounts for the fiscal year ending June 20, 2018 and June 30, 2019. The report indicates that annual actuarially determined employer contribution amount of $1,443,110,000 for the fiscal year ending June 30, 2018 and $1,574,537,000 for the fiscal year ending June 30, 2019 is necessary to meet the funding objectives of the System. Since the previous valuation, the actuarial assumptions and methods have been changed to reflect the latest experience investigation for the five-year period ending June 30, 2015 and the December 8, 2016 Memorandum of Understanding (MOU) agreement between the State and the State Employees Bargaining Agent Coalition (SEBAC). In addition, this revised report reflects the May 22, 2017 Framework Document between the State and SEBAC in regards to the plan provision and assumption changes for current members of SERS. In order for the changes to be in effect, the parties must sign a Tentative Agreement, which the Union membership must ratify, and which is also conditioned on Legislative approval. The Commission would then consider this valuation for adoption. In preparing the valuation, the actuary relied on data provided by the Comptroller’s Office. While not verifying data at the source, the actuary performed tests for consistency and reasonableness. The System is funded on an actuarial reserve basis. The actuarial assumptions recommended by the actuary and adopted by the Commission are reasonably related to the experience under the System and to reasonable expectations of anticipated experience under the System. The funding objective of the System is that contribution amounts will be sufficient to fully fund the liabilities of System over a reasonable funding period. The funding method determines the unfunded actuarial accrued liability (UAAL) as the excess of actuarial accrued liability over the actuarial value of assets. Page 16 Members of the Commission June 5, 2017 Page 2 In accordance with the MOU agreement dated December 8, 2016, the UAAL as of June 30, 2016 was allocated into two bases. This first base is the portion of the current UAAL attributable to the plan as of 1984 (called the Statutory UAAL base) and the second base is the remainder of the UAAL (called the Transitional UAAL base). The Statutory UAAL base is amortized over the closed 40-year period beginning 1992 while the Transitional UAAL base is amortized over a closed 30-year period beginning in 2016. Amortization payments determined in this valuation are expected to be contributed in the biennium beginning July 1, 2018. To appropriately determine the required funding with the scheduled timing of payments, we have rolled the UAAL bases forward to June 30, 2017 and June 30, 2018 to calculate amortization payments to be made for the respective 2018 and 2019 fiscal years. This is to certify that the valuation was prepared in accordance with principles of practice prescribed by the Actuarial Standards Board, and that the actuarial calculations were performed by qualified actuaries in accordance with accepted actuarial procedures, based on the current provisions of the retirement system and on actuarial assumptions that are internally consistent and reasonably based on the actual experience of the System. Future actuarial results may differ significantly from the current results presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan’s funded status); and changes in plan provisions or applicable law. Since the potential impact of such factors is outside the scope of a normal actuarial valuation, an analysis of the range of results is not presented herein. The actuarial computations presented in this report are for purposes of determining the recommended funding amounts for the System. Use of these computations for purposes other than meeting these requirements may not be appropriate. The undersigned meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. Sincerely yours, John J. Garrett, ASA, FCA, MAAA Principal and Consulting Actuary Edward J. Koebel, FCA, MAAA, EA Principal and Consulting Actuary JJG/EJK:kc Page 17 TABLE OF CONTENTS Section Item Page No. I Summary of Principal Results 1 II Membership 6 III Assets 8 IV Comments on Valuation 8 V Contributions Payable by Employers 11 VI Accounting Information 13 VII Experience 15 A Results of Valuation 16 B Development of Actuarial Value of Assets 17 C Summary of Receipts and Disbursements 18 D Outline of Actuarial Assumptions and Methods 19 E Actuarial Cost Method 24 F Summary of Main Plan Provisions as Interpreted for Valuation Purposes 25 G Tables of Membership Data 32 H Analysis of Financial Experience 45 I Actuarial Surplus Test 46 J Projection of Unfunded Accrued Liability 48 Schedule Page 18 CONNECTICUT STATE EMPLOYEES RETIREMENT SYSTEM REPORT OF THE ACTUARY ON THE REVISED VALUATION PREPARED AS OF JUNE 30, 2016 SECTION I - SUMMARY OF PRINCIPAL RESULTS 1. For convenience of reference, the principal results of the current and preceding valuations are summarized below: Valuation Date June 30, 2016 June 30, 2014 Number of active members Annual compensation as of Valuation Date 50,019 $ 3,720,751,429 49,976 $ 3,487,576,617 Retired members and beneficiaries: Number Annual allowances 48,191 $ 1,745,785,103 45,803 $ 1,576,606,022 1,412 $ 20,316,080 1,457 $ 20,956,362 Market Value $ 10,636,702,645 $ 10,472,567,077 Actuarial Value $ 11,922,965,860 $ 10,584,795,257 $ 20,387,369,150 $ 14,920,814,520 25.2 17.0 Funded Ratio based on Actuarial Assets 36.9% 41.5% Funded Ratio based on Market Assets 32.9% 41.1% Deferred Vested Members: Number Annual allowances Assets: Unfunded actuarial accrued liability Single Equivalent Amortization period (years) Actuarially Determined Employer Contribution (ADEC): 2. For Fiscal Year Ending June 30, 2016 $1,514,467,000 For Fiscal Year Ending June 30, 2017 $1,569,142,000 For Fiscal Year Ending June 30, 2018 $1,443,110,000 For Fiscal Year Ending June 30, 2019 $1,574,537,000 All amounts shown that are prior to June 30, 2010 were developed and/or reported by the prior actuarial firm. The results of the valuation are given in Schedule A. Page 1 Page 19 3. Comments on the valuation results are given in Section IV, comments on the experience and actuarial gains and losses during the valuation year are given in Section VII and the rates of contribution payable by employers are given in Section V. 4. Schedule B of this report presents the development of the actuarial value of assets. 5. Schedule D details the actuarial assumptions and methods employed. Since the last valuation, changes to the demographic assumptions include changes to the rates of withdraws, disability retirement, service retirement and mortality. The analysis and basis for these changes are included in the latest Experience Investigation for the five-year period ending June 30, 2015. Further, economic assumptions (assumed rates of inflation and investment return), the actuarial cost method, and the UAAL amortization methodology were changed in accordance with the Memorandum of Agreement (MOU) between the State and SEBAC effective December 8, 2016. In addition, several assumptions were revised after the State and SEBAC came to an agreement effective May 22, 2017 for new plan structure. The following changes were made to assumptions: a. Three-Year Wage Freeze: We have assumed the rate of across-the-board (wage inflation) is 0% for years beginning July 1, 2016, 2017 and 2018 for each active member. We also reduced promotions and merit salary increases by one-half the rate of increase for the three-year period. b. COLA: We have assumed the rate of increase due to the COLA provisions for those retiring on and after July 1, 2022 is 1.95% annually. We assumed the moratorium COLA provision to provide a partial COLA in higher CPI increase environment during the moratorium will result in the first COLA being 0.15% larger (2.10%). c. We have assumed that the assumed rates of retirements will increase by 20% of current assumed rates in the year before July 1, 2022 to reflect the potential behavior of future eligible members to avoid the July 1, 2022 COLA change and moratorium. 6. Schedule F gives a summary of the benefit and contribution provisions of the plan. The following changes were made to the plan provisions since the last valuation: a. A 3-year freeze on all salary increases for fiscal years ending 2017, 2018 and 2019. Page 2 Page 20 b. The annual COLA for those retiring on or after July 1, 2022 is based on the annual rate of increase in CPI-W from 0.0% to 2.0%, plus 60% of the annual rate of increase in CPI-W from 3.33% to 6.0%, plus 75% of the annual rate of increase in CPI-W above 6.0% and with a cap on the COLA rate of 7.5%. c. A COLA moratorium for those retiring on or after July 1, 2022 for the first 30 months of retirement benefits. If rate of increase in CPI-W exceeds an annualized rate of 5.5% during the initial 18 month period of receiving retirement benefits, the COLA provided beginning with the 31st monthly benefit includes an additional adjustment based on the annual COLA rate as determined above using the annualized rate over the 18 month period. The COLA rate applied is reduced by 2.5% and then multiplied by 1.5 to reflect the 18 month period. d. Increase to all non-Tier IV members’ contribution rates by 1.5% of compensation effective July 1, 2017 and an additional 0.5% of compensation effective July 1, 2019. e. In years where employer contribution increase due to poor asset returns, half the increase is applied to Tier IV member contribution rate of up to 2% in total. f. Tier IV Hybrid Plan Structure for All New Hires (Non-Hazardous and Hazardous) after July 1, 2017: i. Non-Hazardous has same retirement eligibility as Tier III ii. Non-hazardous benefit multiplier is 1.30% with no breakpoint iii. Hazardous duty requires 25 years of service to retire iv. Employees contribute 3% more than Tier III employees into the DB Plan. v. Employers contribute 1% and employees must contribute at least 1% to DC portion of Hybrid Plan. 7. The Governmental Accounting Standards Board issued Statement No. 67 (GASB 67) in June 2012 and is effective for plan years beginning after June 15, 2013. GASB 67 replaced GASB 25 for plans and a separate GASB 67 report will be prepared for the Commission. We have provided some supplemental disclosure information and tables in Section VI. 8. As shown in the Summary of Principal Results, the funding ratio is the ratio of the actuarial value of assets to the accrued liability. The funded ratio is an indication of progress in funding the Page 3 Page 21 promised benefits using a long-term, stable funding approach. Since the ratio is less than 100%, there is a need for contributions in addition to the plan’s normal cost. The funded ratio based on the market value of assets is also provided for informational purposes. Page 4 Page 22 53,196 50,064 47,778 47,868 49,976 50,019 2008 2010 2011 2012 2014 2016 3,720,751 3,487,577 3,354,682 3,210,666 3,295,666 $3,497,445 Payroll ($ thousands) 74,387 69,785 70,082 67,200 65,829 $65,746 Average Salary 6.6 (0.4) 4.3 2.1 0.1 4.1 % increase from previous valuation *All amounts prior to 2010 reported by prior actuarial firm. Number Valuation Date June 30 Active Members 48,191 45,803 43,887 44,051 41,782 38,093 Number Page 23 1.0 1.1 1.1 1.1 1.2 1.4 Active/ Retired Ratio 1,745,785 1,576,606 1,424,477 1,391,091 1,264,025 $1,047,479 Annual Benefits ($ thousands) Retired Lives Comparative Schedule* Connecticut State Employees Retirement System 46.9 45.2 42.5 43.3 38.4 29.9% Benefits as % of Payroll 32,310,335 25,505,610 23,018,752 21,216,725 21,054,197 $19,243,343 Accrued Liability Page 5 11,922,966 10,584,795 9,744,986 10,122,765 9,349,605 $9,990,247 Valuation Assets Valuation Results ($ thousands) UAAL 20,387,369 14,920,815 13,273,766 11,003,960 11,704,592 $9,253,126 SECTION II - MEMBERSHIP Data regarding the membership of the System for use as a basis for the valuation were furnished by the Comptroller’s office. The following tables summarize the membership of the Retirement System as of June 30, 2016 upon which the valuation was based. Detailed tabulations of the data are given in Schedule G. Active Members Group Averages Group Tier I – Hazardous Number Payroll Salary Age* Service* 35 $3,867,315 $110,495 58.7 31.9 Tier I – Plan B 1,428 140,292,521 98,244 59.5 34.6 Tier I – Plan C 45 4,067,185 90,382 61.1 34.4 1,512 153,262,541 101,364 51.0 22.5 11,204 995,351,864 88,839 54.9 24.9 5,957 489,700,682 82,206 44.0 12.5 16,063 1,141,771,811 71,081 48.4 11.3 Tier III – Hazardous 2,551 156,526,887 61,359 34.4 2.5 Tier III – Hybrid Plan 2,087 187,238,827 89,717 50.4 12.7 Tier III – Others 9,137 448,671,796 49,105 38.7 2.3 50,019 $3,720,751,429 $74,387 47.3 13.5 Tier II – Hazardous Tier II – Others Tier IIA – Hazardous Tier IIA – Others Total *Years Of the 50,019 active members, 36,320 are vested and 13,699 are non-vested. Page 6 Page 24 Retired Lives Group Averages Type of Benefit Payment Retired – Pre 1980 No. Annual Benefits Benefit Age* 966 $17,718,533 $18,342 89.8 Retired – 1980 - 1997 12,048 393,601,362 32,669 81.1 Retired – 1997 - 2011 24,358 944,154,694 38,762 68.1 Retired – 2011+ 10,819 390,310,514 36,076 61.0 Total 48,191 $1,745,785,103 $36,226 70.2 *Years This valuation also includes 1,412 deferred vested members with estimated annual benefits of $20,316,080. Page 7 Page 25 SECTION III - ASSETS 1. As of June 30, 2016, the total market value of assets amounted to $10,636,702,645 as reported by the Comptroller’s Office. This amount includes $15,989,968 of receivables as of the valuation date. The estimated investment return for the two plan years since the last valuation were 3.43% and (0.16%), respectively. Schedule C shows receipts and disbursements of the System for the two years preceding the valuation date and a reconciliation of the fund balances at market value. 2. The actuarial value of assets used for the current valuation was $11,922,965,860. The estimated investment return for the two plan years on an actuarial value of assets basis was 8.46% and 5.30%, respectively, which can be compared to the investment return assumed over the two-year period of 8.00% (the change in assumed investment rate of return applies to year following June 30, 2016). Schedule B shows the development of the actuarial value of assets as of June 30, 2016. 3. Schedule C shows receipts and disbursements of the System for the two years preceding the valuation date and a reconciliation of the fund balances at market value. SECTION IV – COMMENTS ON VALUATION 1. Schedule A of this report outlines the results of the valuation of the Retirement System as of June 30, 2016. The valuation was prepared in accordance with the actuarial assumptions and methods set forth in Schedule D and the actuarial cost method which is described in Schedule E. 2. The valuation shows that the System has a total actuarial accrued liability of $32,310,335,010, of which $22,931,601,402 is for the benefits payable on account of present retired members, beneficiaries of deceased members, and inactive members entitled to deferred vested benefits, and $9,378,733,608 is for the benefits expected to be payable on account of present active members, based on service to the valuation date. Against these liabilities, the System has total present assets for valuation purposes of $11,922,965,860 as of June 30, 2016. When this amount is deducted from Page 8 Page 26 the actuarial accrued liability of $32,310,335,010, there remains $20,387,369,150 as the unfunded actuarial accrued liability (UAAL). 3. The December 8, 2016 Memorandum of Agreement (MOU) between the State and SEBAC contains several changes to the funding methods and assumptions used in developing valuation results. First, the actuarial cost method utilized in the valuation is the Entry Age Normal cost method. This cost method is used to determine the annual normal cost contribution for active members as well as the determination of the unfunded actuarial accrued liability. Second, the amortization of the UAAL is reset to separately amortize the portion attributable to the unfunded liability as of 1984 (Statutory UAAL base) over the period ending June 30, 2032 and the remaining UAAL (Transitional UAAL base) which is funded over a 30-year period ending June 30, 2047. Future actuarial gains and losses will be amortized over closed 25-year periods beginning the year each separate base is established. The December 8, 2016 MOU also changed the amortization method from a level percentage of payroll amortization method to a level dollar method to be phased in over a 5 year period. Finally, on May 22, 2017, the State and SEBAC produced a Framework Document that made changes to the plan structure for current and future members of SERS. The plan and assumption changes were summarized on page 2 and 3. All of these changes, in addition to the change in the assumed rate of inflation (from 2.75% to 2.50%) and the change in the assumed rate of investment return (from 8.00% to 6.90%) are expected to markedly enhance the stability of valuation results in future years. . 4. The employer’s contributions to the System consist of normal cost contributions and accrued liability contributions. The normal cost, now determined using the Entry Age Normal cost method, represents the ultimate cost of the benefits and the accrued liability contribution is an addition (reduction in case of a surplus) due to the amortization of the unfunded accrued liability. The projection of valuation results indicates that annual employer normal cost contributions at the amount of $262,733,000 for the 2018 fiscal year are required to provide the currently accruing benefits of the System. Page 9 Page 27 5. The following table provides the roll forward of the UAAL bases to June 30, 2017 and June 30, 2018 and the derivation of the amortization amounts required in accordance with the MOU and Framework Agreement ($ in thousands). UAAL Bases Statutory Base 1. UAAL as of June 30, 2016 2. Actual Payment for FYE 2017 3. Interest on Amounts [(1) x .069 + (2) x .0345] 4. Expected Asset (Gain)/Loss Recognition for 2017 5. Total $4,138,969 $16,248,400 $20,387,369 (375,871) (913,174) (1,289,045) 272,621 1,089,635 1,362,256 0 108,194 108,194 Expected UAAL as of June 30, 2017 (1+2+3+4) 4,035,719 16,533,055 20,568,774 6. Amortization Payment for FYE 2018 (333,558) (846,819)1 (1,180,377) 7. Interest on Amounts [(5) x .069 + (6) x .0345] 266,957 1,111,566 1,378,523 8. Expected Asset (Gain)/Loss Recognition for 2018 0 149,139 149,139 9. Expected UAAL as of June 30, 2018 (5+6+7+8) 3,969,118 16,946,941 20,916,059 (362,941) (965,891)2 (1,328,832) 10. Amortization Payment for FYE 2019 1. 2. 6. Transitional Base Includes $6,686,000 for the amortization of the 2017 expected asset loss. Includes $7,398,000 for the amortization of the 2017 expected asset loss and $9,925,000 for the amortization of the 2018 expected asset loss. As shown in the table above, we have determined that an amortization payment of $1,180,377,000 is required in the fiscal year ending June 30, 2018 and an amortization payment of $1,328,832,000 is required in the fiscal year ending June 30, 2019 to amortize the unfunded accrued liability for the respective fiscal years in accordance with the MOU and the Framework Document. 7. Schedule J of this report shows the amortization schedule for the total UAAL. Page 10 Page 28 SECTION V – CONTRIBUTIONS PAYABLE BY EMPLOYER The following table shows the actuarially determined contribution payable by the employer as determined from the present valuation for the 2017/2018 fiscal year and the 2018/2019 fiscal year. Contribution for Fiscal Year Ending June 30, 2018 Fiscal Year Ending June 30, 2019 A. Normal Cost: Service retirement benefits Disability benefits Survivor benefits Total Normal Cost $378,975,000 2,025,000 20,610,000 $401,610,000 $363,035,000 1,963,000 19,252,000 $384,250,000 B. Less Member Contributions (138,877,000) (138,545,000) C. Employer Normal Cost $262,733,000 $245,705,000 D. Unfunded Actuarial Accrued Liabilities 1,180,377,000 1,328,832,000 $1,443,110,000 $1,574,537,000 E. Total (C. + D.) Page 11 Page 29 The following table shows a breakdown by group of the employer normal cost amount with interest to the middle of the 2017/2018 fiscal year and rate as determined in the valuation as of June 30, 2016. Group Normal Cost Tier I – Hazardous Normal Rate $675,195 22.52% Tier I – Plan B 10,388,234 8.36% Tier I – Plan C 59,181 1.82% Tier II – Hazardous 23,602,751 18.48% Tier II – Others 58,339,773 6.14% Tier IIA – Hazardous 69,904,811 14.14% Tier IIA – Others 55,973,359 5.00% Tier III – Hazardous 15,479,691 9.57% Tier III – Hybrid Plan 9,179,224 4.92% 19,130,429 4.04% 262,732,648 7.28% Tier III – Others Total Page 12 Page 30 SECTION VI – ACCOUNTING INFORMATION 1. Governmental Accounting Standards Board (GASB) issued Statements No. 67 and 68 which replaced Statements No. 25 and 27 for plan years beginning after June 15, 2013. The information required under the new GASB Statements will be issued in separate reports. The following is a distribution of the number of employees by type of membership: NUMBER OF ACTIVE AND RETIRED MEMBERS AS OF JUNE 30, 2016 GROUP NUMBER Retirees and beneficiaries currently receiving benefits 48,191 Terminated employees entitled to benefits but not yet receiving benefits 1,412 Active plan members 50,019 Total 99,622 2. Another such item is the schedule of funding progress as shown below. SCHEDULE OF FUNDING PROGRESS (Dollar amounts in thousands) Actuarial Valuation Date Actuarial Value of Assets (a) 6/30/2008 6/30/2010 6/30/2011 6/30/2012 6/30/2014 $9,990,247 9,349,605 10,122,765 9,744,986 10,584,795 6/30/2016 11,922,966 Actuarial Accrued Liability (AAL) - PUC (b) Unfunded AAL (UAAL) (b–a) Funded Ratio (a/b) Covered Payroll (c) $19,243,373 21,054,197 21,126,725 23,018,752 25,505,610 $9,253,126 11,704,592 11,003,960 13,273,766 14,920,815 51.9% 44.4 47.9 42.3 41.5 $3,497,445 3,295,666 3,210,666 3,354,682 3,487,577 32,310,335 20,387,369 36.9 3,720,751 UAAL as a Percentage of Covered Payroll ((b–a)/c) 264.6% 355.2 342.7 395.7 427.8 547.9 All figures prior to 6/30/2010 were reported by the prior actuarial firm. Page 13 Page 31 3. 4. The following shows the schedule of employer contributions (all dollar amounts are in thousands). Fiscal Year Ending June 30 Valuation Date Ending June 30 2014 2015 2016 2017 2018 2019 2012 2012 2014 2014 2016 2016 Annual Required Contribution $ 1,268,935 1,379,189 1,514,467 1,569,142 1,443,110 1,574,537 Actual Contribution $ Percentage Contributed 1,268,890 1,371,651 1,501,805 N/A N/A N/A 100.0% 99.5% 99.2% N/A N/A N/A The information presented in the required supplementary schedules was determined as part of the actuarial valuation at June 30, 2016. Additional information as of the latest actuarial valuation follows. Valuation date 6/30/2016 Actuarial cost method Entry Age Normal Amortization method Level percent of payroll, closed 5 year phase into level dollar Remaining amortization period 25.1 years Asset valuation method 5-year smoothed actuarial value Actuarial assumptions: Investment rate of return* 6.90% Projected salary increases* 3.50% - 19.50% Cost-of-living adjustments 1.95% - 3.25% Social Security Wage Base 3.50% *Includes inflation at 2.50% Page 14 Page 32 SECTION VII – EXPERIENCE Actual experience will never (except by coincidence) coincide exactly with assumed experience. It is assumed that gains and losses will be in balance over a period of years, but sizable year to year fluctuations are common. Detail on the derivation of the experience gain/(loss) for the two year period ended June 30, 2016 is shown below. Schedule H provides detailed gain/(loss) by source. $ Millions (1) UAAL* as of June 30, 2014 $ 14,920.8 (2) Total Normal cost from 2014 valuation (3) Actual Employer and Employee contributions 1,565.1 (4) Interest accrual: [[(1) +(2)] x .08] - [(3) x .0392] 1,160.7 (5) Expected UAAL as of June 30, 2015: (1) + (2) – (3) + (4) (6) Total Normal cost for 2015 fiscal year (7) Actual Employer and Employee contributions 1,652.8 (8) Interest accrual: [[(5) + (6)] x .08] - [(7) x .0392] 1,154.7 (9) Expected UAAL as of June 30, 2016: (5) + (6) - (7) + (8) (10) MOU/Assumption Changes (11) Framework Changes (12) Expected UAAL as of June 30, 2016: (9) + (10) + (11) $ 19,358.2 (13) Actual UAAL as of June 30, 2016 $ 20,387.4 (14) Gain/(loss): (12) – (13) (See Schedule H) $ (1,029.2) (15) Gain/(loss) as percent of actuarial accrued liabilities at June 30, 2014 ($25,505.6) 355.9 $ 14,872.3 371.7 $ 14,745.9 5,918.7 (1,306.4) (4.0)% *Unfunded actuarial accrued liability. Actuarial Gain/(Loss) as a % of Beginning Accrued Liabilities Valuation Date June 30 2012 (4.2)% 2014 (5.8)% 2016 (4.0)% Page 15 Page 33 SCHEDULE A RESULTS OF VALUATION PREPARED AS OF JUNE 30, 2016 JUNE 30, 2016 1. JUNE 30, 2014 ACTUARIAL ACCRUED LIABILITY Present value of prospective benefits payable in respect of: (a) Present active members - Tier I – Hazardous Duty $ 34,072,996 $ 49,210,224 - Tier I – Plan B 1,014,122,784 1,173,883,113 - Tier I – Plan C 27,450,256 37,753,401 - Tier II – Hazardous Duty 1,090,001,648 1,188,010,935 - Tier II – All Others 3,393,530,559 2,715,215,560 - Tier IIA – Hazardous Duty 1,681,131,552 912,871,620 - Tier IIA – All Others 1,605,639,996 1,057,034,112 65,732,535 9,671,840 - Tier III – Hybrid Plan 358,214,031 204,950,079 - Tier III – All Others 108,837,251 27,212,681 $ 9,378,733,608 $ 7,375,813,565 266,708,800 225,853,075 22,664,892,602 17,903,943,137 (d) Total actuarial accrued liability [1(a) + 1(b) + 1(c)] $32,310,335,010 $ 25,505,609,777 2. ACTUARIAL VALUE OF ASSETS $ 11,922,965,860 $ 10,584,795,257 3. UNFUNDED ACTUARIAL ACCRUED LIABILITY [1(d) – 2] $ 20,387,369,150 $ 14,920,814,520 - Tier III – Hazardous Duty - Total actives (b) Present inactive members and members entitled to deferred vested benefits: (c) Present annuitants and beneficiaries Note: the June 30, 2016 valuation results reflect all changes to the plan provisions, methods and assumptions, including the decrease in the investment rate of return assumption from 8.00% to 6.90%. Page 16 Page 34 SCHEDULE B DEVELOPMENT OF ACTUARIAL VALUE OF ASSETS June 30, 2016 June 30, 2015 June 30, 2014 $11,389,603,128 $10,584,795,257 $9,784,500,362 (2) Market Value End of Year** 10,636,702,645 10,737,492,074 10,472,567,077 (3) Market Value Beginning of Year 10,737,492,074 10,472,567,077 9,182,442,986 (a) Contributions** 1,652,823,497 1,565,148,396 1,419,894,684 (b) Disbursements (1,736,278,654) (1,657,588,460) (1,570,558,006) (83,455,157) (92,440,064) (150,663,322) (17,334,272) 357,365,061 1,440,787,413 8.00% 8.00% 8.00% 907,190,445 842,839,661 776,485,566 (924,524,717) (485,474,600) 664,301,847 (184,904,943) (97,094,920) 132,860,369 40,945,727 (182,178,789) (97,094,920) 132,860,369 40,945,727 (182,178,789) 159,875,887 132,860,369 40,945,727 (182,178,789) 159,875,887 22,969,457 (290,372,556) 54,408,274 174,472,651 (7) Preliminary Actuarial Value End of Year: (1) + (4)(c) + (5)(c) + (6)(f) 11,922,965,860 11,389,603,128 10,584,795,257 (8) Final Actuarial Value End of Year Using 20% Corridor: Greater of [(7) and .8 x (2)], but no more than 1.2 x (2) 11,922,965,860 11,389,603,128 10,584,795,257 $(1,286,263,215) $(652,111,054) $(112,228,180) 5.30% 8.46% 9.73% (1) Actuarial Value Beginning of Year* (4) Cash Flow (c) Net: (4)(a) + (4)(b) (5) Investment Income (a) Market Total: (2) – (3) – (4)(c) (b) Assumed Rate (c) Amount for Immediate Recognition: [(1) x (5)(b)] + [(4)(c) less Receivable**] x (5)(b) x 0.5 (d) Amount for Phased-In Recognition: (5)(a) – (5)(c) (6) Phased-In Recognition of Investment Income (a) (b) (c) (d) (e) Current Year: (5)(d) x 0.20 First Prior Year Second Prior Year Third Prior Year Fourth Prior Year (f) Total Recognized Investment Gain (9) Difference Between Market & Actuarial Values: (2) – (8) (10) Rate of Return on Preliminary Actuarial Value * Before corridor constraints, if applicable. ** Includes receivables of: $15,989,968 at 6/30/2016, $6,158,929 at 6/30/2015 and $6,198,255 at 6/30/2014. Page 17 Page 35 SCHEDULE C SUMMARY OF RECEIPTS AND DISBURSEMENTS (Market Value) YEAR ENDING June 30, 2016 June 30, 2015 June 30, 2014 $ 135,028,539 1,218,966,824 282,838,166 $ 187,338,535 1,101,007,100 270,643,832 $ 144,806,616 1,024,371,178 244,518,635 $ 1,636,833,529 $ 1,558,989,467 $ 1,413,696,429 15,989,968 6,158,929 6,198,255 (17,334,272) 357,365,061 1,440,787,413 $ 1,635,489,225 $ 1,922,513,457 $ 2,860,682,097 $ 1,729,181,426 $ 1,650,464,672 $ 1,563,029,412 7,097,228 7,123,788 7,528,594 TOTAL $ 1,736,278,654 $ 1,657,588,460 $ 1,570,558,006 Excess of Receipts over Disbursements $ (100,789,429) $ 264,924,997 $ 1,290,124,091 $ 10,737,492,074 $ 10,472,567,077 $ 9,182,442,986 (100,789,429) 264,924,997 1,290,124,091 $ 10,636,702,645 $ 10,737,492,074 $ 10,472,567,077 ( 0.16)% 3.43% 15.82% Receipts for the Year Contributions: Members State Federal (Net of Transfers) Subtotal Amount Receivable Investment Earnings (net of expenses) TOTAL Disbursements for the Year Benefit Payments Refunds to Members Reconciliation of Asset Balances Asset Balance as of the Beginning of Year Excess of Receipts over Disbursements Asset Balance as of the End of Year Rate of Return Page 18 Page 36 SCHEDULE D OUTLINE OF ACTUARIAL ASSUMPTIONS AND METHODS Adopted or reaffirmed by the Commission for the June 30, 2016 and later valuations. VALUATION INTEREST RATE: 6.90% per annum, compounded annually, net of expenses. SALARY INCREASES: From the Framework Document between the State and SEBAC, we have assumed the rate of wage inflation is 0.00% for fiscal years ending June 30, 2017, 2018 and 2019 for each active member. In addition, we have reduced the rate of increase by one half due to promotion and merit over this same three-year period. Once this three-year period is complete, the assumptions for salary increases are as follows: Years of Service 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15+ Rate* 9.50% 19.50% 9.50% 5.75% 5.50% 5.25% 5.00% 5.00% 5.00% 5.00% 4.50% 4.50% 4.50% 4.50% 4.50% 3.50% *includes Wage Inflation of 3.50% COST OF LIVING ADJUSTMENTS (COLA): Group Pre July 1, 1980 Retirees July 1, 1980 – June 30, 1997 Retirees July 1, 1997 – October 1, 2011 Retirees Post October 1, 2011 Retirees Post July 1, 2022 Retirees Rate 3.25% 3.00% 2.60% 2.25% 1.95% We have also assumed a COLA moratorium for those retiring on or after July 1, 2022 for the first 30 months of retirement. We assume the first COLA received is increased by 0.15% to reflect the possible additional COLA in the event the annualized rate of increase in the CPI-W is greater than 5.5% during the first 18 months of retirement. Page 19 Page 37 SOCIAL SECURITY WAGE BASE INCREASES: 3.50% per annum. PAYROLL GROWTH ASSUMPTION: 3.50% per annum. SEPARATIONS BEFORE SERVICE RETIREMENT: Representative values of the assumed annual rates of separation before service retirement are as follows: WITHDRAWAL Annual Rates of Withdrawal Years of Service Age 20 25 30 35 40 45 50 55+ 20 25 30 35 40 45 50 55+ 20 25 30 35 40 45 50 55+ 20 25 30 35 40 45 50 55+ 0 6.00% 6.00 6.00 6.00 8.75 8.75 8.75 8.75 10.00% 10.00 12.00 12.00 12.00 12.00 12.00 12.00 45.0% 30.0 22.0 20.0 20.0 22.0 22.0 25.0 45.0% 25.0 20.0 18.0 18.0 18.0 18.0 18.0 1 2 3 4 5 6-9 10+ Hazardous Males 2.75% 3.00% 2.75 3.00 2.75 3.00 2.00 3.00 2.00 3.50 2.00 3.50 2.00 3.50 2.00 3.50 2.00% 2.00 2.00 2.00 2.50 2.50 2.50 2.50 1.25% 1.25 1.25 1.25 1.25 1.25 1.25 1.25 1.25% 1.25 1.25 1.25 1.25 1.25 1.25 1.25 10.00% 10.00 6.00 5.00 5.00 5.00 8.00 8.00 Hazardous Females 3.00% 2.50% 5.00% 3.00 2.50 5.00 3.00 2.50 5.00 4.00 2.50 6.00 4.00 2.00 6.00 4.00 2.00 5.00 4.00 2.00 5.00 4.00 2.00 5.00 3.50% 3.50 3.50 3.50 3.50 3.50 3.50 3.50 2.50% 2.50 2.50 2.50 2.50 2.50 2.50 2.50 1.25% 1.25 1.25 1.25 1.25 1.25 1.25 1.25 40.0% 28.0 20.0 15.0 15.0 12.0 12.0 19.0 Nonhazardous Males 20.0% 20.0% 40.0% 7.0 10.0 19.0 6.0 9.0 14.0 6.0 8.0 14.0 6.0 8.0 10.0 6.0 8.0 10.0 5.0 8.0 10.0 4.0 8.0 10.0 10.0% 10.0 7.0 4.0 4.0 4.0 4.0 4.0 6.0% 6.0 4.5 4.0 4.0 4.0 4.0 3.5 5.0% 5.0 5.0 3.0 2.5 2.0 2.0 2.0 45.0% 23.0 19.0 13.0 13.0 13.0 13.0 13.0 Nonhazardous Females 8.0% 20.0% 45.0% 8.0 12.0 15.0 7.0 9.0 12.0 6.0 8.0 11.0 5.5 8.0 10.0 5.5 6.0 10.0 5.5 6.0 10.0 5.5 6.0 10.0 10.0% 10.0 6.0 5.0 4.0 4.0 4.0 4.0 6.0% 6.0 5.0 4.0 3.5 3.0 3.0 3.0 4.0% 4.0 4.0 3.0 2.5 2.5 2.0 2.0 3.00% 3.00 3.00 3.00 3.00 4.00 5.50 6.00 6.00% 6.00 4.00 4.00 4.00 4.00 4.00 4.00 Page 20 Page 38 DISABILITY Annual Rates of Disability Age Hazardous Non-Hazardous 30 0.05% 0.04% 35 0.12 0.05 40 0.18 0.10 45 0.35 0.12 50 0.40 0.20 55 0.50 0.40 60 0.65 0.50 65 0.80 0.60 70 1.35 0.60 RETIREMENT: The assumed annual rates of retirement are shown below. Annual Rates of Retirement Age 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60-64 65-69 70-79 80 Hazardous Tier I, II & IIA First All Year Years Eligible After 50% 30 30 30 30 40 40 40 40 40 40 40 40 40 40 40 40 40 40 40 50 50 100 100 50% 40 35 30 25 25 25 25 15 15 20 20 20 25 25 25 25 15 25 20 30 50 30 100 Tier III 20% 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 100 Page 21 Page 39 Age 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 Early 6.0% 6.0 6.0 6.0 6.0 Tier I First Year 28.0% 10.0 10.0 10.0 10.0 12.5 15.0 10.0 35.0 45.0 65.0 65.0 65.0 65.0 65.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Annual Rates of Retirement Nonhazardous Tier II & IIA Other First Other Early Years Year Years 15.0% 12.5 10.0 10.0 12.5 12.5 20.0 15.0 10.0 15.0 20.0 22.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 100.0 4.5% 4.0 4.0 4.0 4.0 4.0 4.0 13.5% 15.0 15.0 15.0 15.0 25.0 25.0 25.0 25.0 25.0 50.0 50.0 50.0 50.0 50.0 100.0 100.0 100.0 100.0 100.0 100.0 13.0% 24.0 15.0 15.0 15.0 21.0 24.0 18.0 18.0 20.0 24.0 22.0 22.0 22.0 22.0 25.0 22.0 25.0 22.0 100.0 Early 5.0% 7.0 9.0 10.0 12.0 12.0 12.0 Tier III First Year Other Years 32.0% 30.0 28.0 25.0 25.0 25.0 25.0 50.0 50.0 50.0 50.0 50.0 100.0 100.0 100.0 100.0 100.0 100.0 30.0% 25.0 35.0 35.0 35.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 100.0 We have assumed that the assumed rate of retirement will increase by 20% of the current assumed rates in the year before July 1, 2022 to reflect the potential behavior of future eligible members to avoid the July 1, 2022 COLA change and moratorium. Page 22 Page 40 DEATHS AFTER RETIREMENT: The RP-2014 White Collar Mortality Table projected to 2020 by Scale BB at 100% for males and 95% for females is used for the period after retirement and for dependent beneficiaries. Representative values of the assumed annual rates of mortality are as follows: Age 40 45 50 55 60 Males 0.043% 0.067 0.272 0.384 0.501 Females 0.031% 0.052 0.194 0.250 0.348 Age Males 65 70 75 80 85 0.705% 1.133 1.943 3.407 6.247 Females 0.579% 0.933 1.553 2.688 4.826 In our opinion, the projection of the mortality rates with Scale BB provide a sufficient margin in the assumed rates of mortality to allow for additional improvement in mortality experience. The RP-2014 Disabled Retiree Mortality Table at 65% for males and 85% for females is used for the period after disability. ASSET METHOD: Actuarial Value, as developed in Schedule B. The actuarial value of assets recognizes a portion of the difference between the market value of assets and the expected value of assets, based on the assumed valuation rate of return. The amount recognized each year is 1/5 of the difference between market value and expected actuarial value. In addition, the actuarial value of assets cannot be less than 80% or more than 120% of the market value of assets. VALUATION METHOD: Entry Age Normal cost method. See Schedule E for a brief description of this method. IMPACT OF LONGLEY DECISION: Benefits for members retiring from service on or after the Longley decision date are assumed to increase by 0.084% as a result of the revised treatment of longevity pay. Retroactive application of Longley has been reflected in this valuation to the extent impacted retiree benefits have been recalculated. SPOUSES: For members who have elected spouse coverage, husbands are assumed to be three years older than their wives. PERCENT MARRIED: 80% of active members are assumed to be married with an average of two children who are on average age 12. OTHER ASSUMPTIONS: 20% of Pre-Retirement deaths are assumed to be service related, 50% of Tier I Hazardous Employees are assumed to be State Police, To take into account State Police Supplemental Benefits and the offset of Workers Compensation, Social Security, and Non-Rehabilitation Earnings, the following minimum and maximum benefits as a percent of salary are assumed for disability benefits: Minimum 60% 40% Tier I State Police All Other Members Maximum 80% 60% Page 23 Page 41 SCHEDULE E ACTUARIAL COST METHOD The valuation is prepared on projected benefit basis, under which the present value of each member's expected benefits at retirement or death is determined, based on age, service and sex and using the interest rate assumed to be earned in the future (6.90% per annum). The calculations take into account the probability of a member's death or termination of employment prior to becoming eligible for a benefit, as well as the possibility of his terminating with a service, disability or survivor's benefit. Future salary increases are also anticipated. The present value of the expected benefits payable on account of the active members is added to the present value of the expected future payments to retired members, beneficiaries and members entitled to deferred vested benefits to obtain the present value of all expected benefits payable from the System on account of the present group of members and beneficiaries. The employer contributions required to support the benefits of SERS are determined following a level funding approach, and consist of a normal cost contribution and an unfunded actuarial accrued liability contribution. The normal contribution is determined using the "entry age normal" method. Under this method, a calculation is made for pension benefits to determine the uniform and constant percentage rate of employer contribution which, if applied to the compensation of the average new member during the entire period of his anticipated covered service, would be required in addition to the contributions of the member to meet the cost of all benefits payable on his behalf. The unfunded actuarial accrued liability is determined by subtracting the actuarial value of assets from the actuarial accrued liability. The UAAL is amortized according to the MOU between the State and SEBAC which established separate UAAL bases. Each base is rolled forward to the beginning of the fiscal year for which the amortization payment is applicable. The amortization amounts are adjusted with interest to the middle of the applicable fiscal year. The employer required contribution amount is the sum of the normal cost contribution and the UAAL amortization payment. Page 24 Page 42 SCHEDULE F SUMMARY OF MAIN SYSTEM PROVISIONS AS INTERPRETED FOR VALUATION PURPOSES The Connecticut State Employees Retirement System (CT SERS) is a defined benefit pension plan established by the Connecticut General Assembly for the purpose of providing retirement allowances and other benefits for State employees in Connecticut, and their survivors and other beneficiaries. Eligibility Requirements Tier I All State Employees, Elected Officials and their Appointees hired prior to July 1, 1984. Those employees hired between July 1, 1982 and January 1, 1984 could elect to move to Tier II. Tier II All State Employees, Elected Officials and their Appointees hired on or after July 1, 1984. Tier IIA All State Employees, Elected Officials and their Appointees hired on or after July 1, 1997. Tier III All State Employees, Elected Officials and their Appointees hired on or after July 1, 2011. Tier IV All State Employees, Elected Officials and their Appointees hired on or after July 1, 2017. Final Average Earnings (FAE) Tier I, II, and IIA Average Salary of the three highest paid years of service. Effective January 1, 1986, no one year’s earnings can be greater than 130% of the average of the two preceding years in calculating the Final Average Earnings. Tier III and IV Average Salary of the five highest paid years of service. No one year’s earnings can be greater than 130% of the average of the two preceding years in calculating the Final Average Earnings. Normal Retirement Benefit Eligibility Tier I Hazardous – 20 years of credited service. Tier I Plans B and C – Earliest of age 55 with 25 years of service, age 60 with 10 years of service, or age 70 with 5 years of service. Tier II Hazardous – 20 years of credited service. Page 25 Page 43 Tier II and IIA – For those who will be eligible for retirement on or before July 1, 2022, the earliest of age 62 with 10 years of vesting service (effective July 1, 1992), age 60 with 25 years of vesting service, age 70 with 5 years of vesting service, or age 62 with 5 years of actual state service for terminations on or after July 1, 1997. For those who will not be eligible for retirement on or before July 1, 2022, the earliest of age 65 with 10 years of vesting service, age 63 with 25 years of vesting service, age 70 with 5 years of vesting service. Tier III Hazardous – Earlier of Age 50 and 20 years of benefit service or 25 years of benefit service. Tier III and IV – Age 63 and 25 years of benefit service or Age 65 and 10 years of benefit service. Tier IV Hazardous – 25 years of benefit service. Benefit Tier I Hazardous – 50% of FAE plus 2% for each year of service in excess of 20. Tier I Plan B – 2% of FAE times years of service up to age 65. Thereafter, 1% of FAE up to $4,800, plus 2% of FAE in excess of $4,800 times years of service. At age 70, greater of 1.25% of FAE up to $4,800 plus 2.5% of FAE in excess of $4,800 times years of service (maximum 20 years) or 1.0% of FAE up to $4,800 plus 2% of FAE in excess of $4,800 times year of service. Minimum benefit with 25 years is $833.34 per month. Tier I Plan C – 2% of FAE times years of service. At age 70, greater of 2.5% of FAE times years of service (maximum 20 years) or 2.0% of FAE times years of service. Minimum benefit with 25 years is $833.34 per month. Tier II,IIA, III and IV Hazardous – 2.5% of FAE times years of service up to 20 years plus 2.0% of FAE times years of service in excess of 20 years, if any. Minimum benefit with 25 years is $360 per month. Tier II, IIA and III All Others – 1.40% of FAE plus 0.433% of FAE in excess of year’s breakpoint*, times years of service from October 1, 1982 up to 35 years plus 1.625% of FAE times years of service in excess of 35 years, if any. Minimum benefit with 25 years if $360 per month. * $10,700 increased by 6% each year after 1982, rounded to nearest $100 but not greater than Social Security Covered Compensation. Page 26 Page 44 Tier IV All Others – 1.30% of FAE times years of service. Minimum benefit with 25 years if $360 per month. Early Retirement Benefit Eligibility Hazardous – None. Tier I – Age 55 with 10 years of service. Tier II and IIA – Age 55 with 10 years of service. Tier III and IV – Age 58 with 10 years of service. Benefit Tier I – Benefit is Normal Retirement Benefit reduced for retirement prior to age 60 with less than 25 years of service. Tier II, IIA, III and IV – Benefit is Normal Retirement Benefit reduced 0.25% (effective July 1, 1991) for each month prior to age 60 if at least 25 years of service or age 62 if at least 10 but less than 25 years of service. For those who retire on or after October 2, 2011 but prior to meeting the age and service requirements for a normal retirement, will be subject to a benefit reduced by 0.50% for each month prior to Normal Retirement. Disability Retirement Benefit Tier I For non-service disabilities occurring prior to age 60 with at least 5 years of service, benefit is 3% of FAE times years of service; maximum benefit is 1.667% of FAE times year of service projected to age 65. For service disabilities occurring prior to age 60, benefit is 1.667% of Salary times years of service projected to age 65 (maximum 30 years). Exception: State Police benefit is equal to the normal retirement benefit if more than 20 years of service. State Police also receives an additional benefit of $360 per month plus $300 to spouse plus $300 to a surviving dependent child. Tier II, IIA, III and IV Prior to age 65 for service related disability or at any age with at least 10 years of service, benefit is 1.333% of FAE plus 0.50% of FAE in excess of the year’s breakpoint, times service projected to age 65 (maximum 30 years). Page 27 Page 45 Deferred Vested Retirement Benefit Eligibility Tier I - 10 years of service. Tier II and IIA – Effective July 1, 1997, 5 years of actual state service, 10 years of vesting service, or age 70 with 5 years of service. Tier III and IV – 10 years of benefit service. Benefit Tier I – Benefit is payable at Normal Retirement Age or an Early Retirement Benefit is payable at age 55. Tier II and IIA – Benefit is payable at Normal Retirement Age or an Early Retirement Benefit is payable at age 55. Tier III and IV – Benefit is payable at Normal Retirement Age or an Early Retirement Benefit is payable at age 58. Pre-Retirement Spouse’s Benefit Tier I State Police – Survivor benefits to spouse of $670 per month plus $300 to a surviving dependent child. If eligible for early or normal retirement, 50% of the average of the Life Benefit and the 50% Joint & Survivor Benefit the member would have received. If not eligible for retirement but with 25 years of service, the same benefit calculated as though age 55 using service and earnings at death. If not eligible for retirement, return of contributions (5% interest). Tier II, IIA, III and IV If eligible for early or normal retirement, 50% of the 50% Joint & Survivor Benefit the member would have received. If not eligible for retirement but with 25 years of service, the same benefit calculated as though age 55 using service and earnings at death. If not eligible for retirement, return of contributions (5% interest). Tiers I, II, IIA, III and IV If death is due to employment and there are dependent children under age 18, spouse will be paid $100,000 in 10 annual installments while living and not remarried. In addition, $50 per month will be paid to each child while under age 18. If death is due to employment and there are no dependent children under age 18, spouse will be paid $50,000 in not less than 10 annual installments. Page 28 Page 46 Payment Options 50% or 100% Joint and Survivor (Normal Form if married). Straight life annuity (Normal Form if not married). 10 or 20 year certain and life annuity. Cost of Living Adjustments (COLA) Annual adjustments each July 1 of up to 5% for retirements prior to July 1, 1980; 3% for retirements after July 1, 1980. For members (and beneficiaries) not covered by Social Security and age 62 and over, the maximum increase is 6%. For employees retiring after June 30, 1999, the annual adjustment will be 60% of the increase in CPI up to 6% and 75% of the increase in the CPI over 6%. This adjustment will be no less than 2.5% and no greater than 6%. Employees retiring between July 1, 1997 and June 30, 1999 made an irrevocable choice between the above formula and a fixed 3% annual adjustment. An employee from Tier IIA must have at least 10 years of actual state service or directly make the transition into retirement in order to be eligible for annual adjustments. For employees retiring on or after October 2, 2011, the minimum COLA shall be 2.0% and the maximum COLA shall be 7.5%. For employees retiring on or after July 1, 2022, the annual rate of increase will be the CPI-W from 0.00% to 2.00%, plus 60% of the annual rate of increase in CPI-W from 3.33% to 6.00%, plus 75% of the annual rate of increase in CPI-W above 6.00%, with a cap on the COLA rate of 7.50%. In addition, a COLA moratorium for those retiring on or after July 1, 2022 will be on the first 30 months of retirement. If rate of increase in CPI-W exceeds an annualized rate of 5.5% during the initial 18 month period of receiving retirement benefits, the COLA provided beginning with the 31st monthly benefit includes an additional adjustment based on the annual COLA rate as determined above using the annualized rate over the 18 month period. The COLA rate applied would but reduced by 2.5% and then multiplied by 1.5 to reflect the 18 month period. Page 29 Page 47 Member Contributions* Tier I – Hazardous 4% of earnings up to Social Security Taxable Wage Base plus 5% of earnings above that level. Tier I – Plan B 2% of earnings up to Social Security Taxable Wage Base plus 5% of earnings above that level. Tier I – Plan C 5% of earnings. Tier II – Hazardous 4% of earnings. Tier II – All Others None. Tier IIA & III – Hazardous 5% of earnings. Tier IIA & III – All Others 2% of earnings. Tier IV – Hazardous 8% of earnings. Tier IV – All Others 5% of earnings. * Increased for anyone electing to maintain retirement eligibility. In addition, there will be an increase to all non-Tier IV members contribution rates by 1.5% of earnings effective July 1, 2017 and an additional 0.5% of earnings effective July 1, 2019. In years where asset losses require further increases in contributions, Tier IV employees’ contributions may increase by half the necessary increase in rates (up to 2.0%). Finally, all Tier IV employees must contribute 1% to the Defined Contributions (DC) portion of the Hybrid Plan and may elect additional contribution of up to 3% of salary to the DC portion. Page 30 Page 48 Hybrid Defined Benefit/Defined Contribution Plan for Employees of Higher Learning Individuals hired on or after July 1, 2011 otherwise eligible for the Alternate Retirement Plan (“ARP”) shall be eligible to be members of the new Hybrid Plan in addition to their existing choices. Individuals who are currently members of the ARP shall be eligible to join the Hybrid Plan on a one time option at the full actuarial cost. The Hybrid Plan shall have defined benefits identical to Tier II/IIA and Tier III for individuals hired on or after July 1, 2011, but shall require employee contributions 3% higher than the contribution required from the Applicable Tier II/IIA/III Plan. An employee shall have the option, upon leaving state service, of accepting the defined benefit amount, or electing to receive a return of his/her contributions to the Hybrid Plan, plus a 5% employer match, plus 4% interest (“cash out option”). In the event the employee elects the cash out option, he/she shall permanently waive any entitlement they may have to health insurance as a retired state employee unless they convert the cash out option to a periodic payment as would be required under the current ARP Plan. Page 31 Page 49 SCHEDULE G TABLES OF MEMBERSHIP DATA STATUS RECONCILIATION OF ACTIVE MEMBERS Total As of June 30, 2014 49,976 Retirements (3,665) Disability (291) Terminated Vested (95) Terminated Non-Vested (33) Deaths (74) Rehires 645 New Participants 6,864 Refunds (3,308) As of June 30, 2016 50,019 STATUS RECONCILIATION OF INACTIVE MEMBERS Retirees As of June 30, 2014 Disability Survivor 37,158 4,092 185 (9) Disability (3) 3 Survivors (403) (41) 444 (75) (7) (11) (3) (2) Retirements Deaths with no Survivors Rehires 4,553 Deferred Vested 1,457 47,260 (176) 0 0 0 (1) (94) (15) (20) Refunds 0 Certain Period Ended Data Corrections From Active As of June 30, 2016 Total (7) (7) (1,337) (95) (258) 52 (1,638) 3,665 291 51 95 4,102 39,187 4,232 4,772 1,412 49,603 Page 32 Page 50 SCHEDULE G (Continued) TIER I – HAZARDOUS DUTY The Number and Average Annual Compensation of Active Employees By Age and Service as of June 30, 2016 Age 0 to 4 5 to 9 Years of Service 10 to 15 to 20 to 14 19 24 Total 25 to 30 30 & Up No. Under 25 Payroll $ 0 25 to 29 0 30 to 34 0 35 to 39 0 40 to 44 0 45 to 49 0 50 to 54 1 3 4 372,790 11 17 1,759,003 60 to 64 13 13 1,617,275 65 to 69 1 1 118,247 28 35 55 to 59 1 3 1 1 70 & Up Total 1 Average Age: Average Service: 58.7 31.9 Average Salary: $110,495 4 1 1 $ 3,867,315 Page 33 Page 51 SCHEDULE G (Continued) TIER I – PLAN B The Number and Average Annual Compensation of Active Employees By Age and Service as of June 30, 2016 Age 0 to 4 5 to 9 Years of Service 10 to 15 to 20 to 14 19 24 Total 25 to 30 30 & Up No. Under 25 Payroll $ 0 25 to 29 0 30 to 34 0 35 to 39 0 40 to 44 0 45 to 49 0 50 to 54 1 3 3 6 8 5 202 228 19,198,519 55 to 59 2 6 6 15 11 18 537 595 54,922,664 60 to 64 1 5 4 9 13 13 353 398 41,276,362 1 1 2 3 5 122 134 15,305,215 70 73 9,589,761 1,284 1,428 $ 140,292,521 65 to 69 70 & Up 1 1 1 Total 5 16 15 Average Age: Average Service: 59.5 34.6 Average Salary: $98,244 32 35 41 Page 34 Page 52 SCHEDULE G (Continued) TIER I – PLAN C The Number and Average Annual Compensation of Active Employees By Age and Service as of June 30, 2016 Age 0 to 4 5 to 9 Years of Service 10 to 15 to 20 to 14 19 24 Total 25 to 30 30 & Up No. Under 25 Payroll $ 0 25 to 29 0 30 to 34 0 35 to 39 0 40 to 44 0 45 to 49 0 50 to 54 55 to 59 1 60 to 64 65 to 69 1 1 70 & Up Total 1 1 1 Average Age: Average Service: 61.1 34.4 Average Salary: $90,382 1 1 1 1 8 8 741,694 13 14 1,162,566 9 11 1,053,124 6 7 551,963 4 5 557,838 40 45 $ 4,067,185 Page 35 Page 53 SCHEDULE G (Continued) TIER II – HAZARDOUS DUTY The Number and Average Annual Compensation of Active Employees By Age and Service as of June 30, 2016 Age 0 to 4 5 to 9 Years of Service 10 to 15 to 20 to 14 19 24 Total 25 to 30 30 & Up No. Payroll Under 25 $ 0 25 to 29 0 30 to 34 0 35 to 39 2 6 8 667,248 161 15,829,465 40 to 44 1 1 4 90 63 2 45 to 49 5 3 9 127 337 64 4 549 55,951,249 50 to 54 2 3 8 68 188 142 19 430 45,071,640 55 to 59 2 7 32 89 46 29 205 20,090,596 60 to 64 1 22 48 22 14 107 10,373,088 65 to 69 12 14 9 5 40 4,207,198 70 & Up 3 5 4 12 1,072,057 360 744 289 1,512 $ 153,262,541 Total 11 7 Average Age: Average Service: 51.0 22.5 Average Salary: $101,364 30 71 Page 36 Page 54 SCHEDULE G (Continued) TIER II – ALL OTHERS The Number and Average Annual Compensation of Active Employees By Age and Service as of June 30, 2016 Age 0 to 4 5 to 9 Years of Service 10 to 15 to 20 to 14 19 24 Total 25 to 30 30 & Up No. Under 25 Payroll $ 0 25 to 29 0 30 to 34 0 35 to 39 1 1 8 14 1 40 to 44 7 8 18 115 149 3 45 to 49 41 35 60 253 946 540 50 to 54 44 56 80 253 872 55 to 59 29 44 76 177 60 to 64 22 27 51 65 to 69 11 13 70 & Up 6 161 Total 25 1,734,561 300 24,569,272 39 1,914 165,537,180 1,547 634 3,486 312,135,229 727 1,218 751 3,022 272,530,964 138 465 652 348 1,703 154,062,902 22 40 170 199 106 561 49,933,159 5 7 23 62 65 25 193 14,848,597 189 322 1,013 3,392 4,224 1,903 11,204 $ 995,351,864 Average Age: Average Service: 54.9 24.9 Average Salary: $88,839 Page 37 Page 55 SCHEDULE G (Continued) TIER IIA – HAZARDOUS DUTY The Number and Average Annual Compensation of Active Employees By Age and Service as of June 30, 2016 Age 0 to 4 5 to 9 Years of Service 10 to 15 to 20 to 14 19 24 Under 25 1 25 to 29 10 56 2 30 to 34 21 629 127 1 35 to 39 24 493 515 166 1 40 to 44 7 315 407 549 51 45 to 49 8 242 314 519 50 to 54 7 155 220 55 to 59 1 99 60 to 64 1 Total 25 to 30 30 & Up No. Payroll 1 $ 56,317 68 4,406,410 778 56,600,756 1,199 94,377,198 1 1,330 115,091,374 40 2 1,125 96,835,384 281 16 1 680 56,966,848 142 191 7 8 448 38,162,788 34 58 106 1 3 204 17,054,442 65 to 69 5 30 45 5 85 7,289,222 70 & Up 2 5 30 2 39 2,859,943 2,030 1,820 1,888 123 Total 80 Average Age: Average Service: 44.0 12.5 Average Salary: $82,206 15 1 1 5,957 $ 489,700,682 Page 38 Page 56 SCHEDULE G (Continued) TIER IIA – ALL OTHERS The Number and Average Annual Compensation of Active Employees By Age and Service as of June 30, 2016 Age 0 to 4 5 to 9 Years of Service 10 to 15 to 20 to 14 19 24 Under 25 18 2 25 to 29 81 155 7 30 to 34 128 915 217 6 35 to 39 124 966 775 196 40 to 44 92 842 796 45 to 49 89 859 50 to 54 101 55 to 59 Total 25 to 30 30 & Up No. 20 Payroll $ 268,190 243 12,540,189 1,266 79,369,221 1 2,062 142,186,300 776 5 2,511 185,360,057 835 836 7 4 2,630 194,160,857 792 815 788 7 4 2,507 183,080,846 100 740 726 724 10 3 2,303 168,620,263 60 to 64 70 501 547 463 14 1,596 117,158,089 65 to 69 48 189 242 187 5 671 46,159,364 70 & Up 56 74 65 56 3 254 12,868,435 Total 907 6,035 5,025 4,032 52 16,063 $ 1,141,771,811 Average Age: Average Service: 48.4 11.3 Average Salary: $71,081 1 11 1 Page 39 Page 57 SCHEDULE G (Continued) TIER III – HAZARDOUS DUTY The Number and Average Annual Compensation of Active Employees By Age and Service as of June 30, 2016 0 to 4 Age 5 to 9 Years of Service 10 to 15 to 20 to 14 19 24 Under 25 90 25 to 29 783 17 30 to 34 657 17 2 35 to 39 402 13 4 40 to 44 195 6 45 to 49 158 5 50 to 54 112 55 to 59 48 60 to 64 26 65 to 69 70 & Up Total Total 25 to 30 30 & Up No. Payroll 90 $ 4,498,608 800 47,096,659 677 41,949,985 419 25,953,792 201 12,606,332 168 10,727,961 114 7,856,772 48 3,138,128 28 1,922,009 3 3 517,254 3 3 259,387 2,551 $ 156,526,887 2,477 4 1 1 1 1 59 Average Age: Average Service: 34.4 2.5 Average Salary: $61,359 1 1 10 1 3 1 Page 40 Page 58 SCHEDULE G (Continued) TIER III – HYBRID PLAN The Number and Average Annual Compensation of Active Employees By Age and Service as of June 30, 2016 Age 0 to 4 5 to 9 Years of Service 10 to 15 to 20 to 14 19 24 Total 25 to 30 30 & Up No. Payroll Under 25 17 17 25 to 29 86 86 4,504,099 30 to 34 124 9 2 135 7,281,495 35 to 39 122 23 16 3 164 10,550,526 40 to 44 98 34 39 29 4 204 15,647,042 45 to 49 102 31 73 62 19 12 1 300 27,003,456 50 to 54 57 26 67 75 37 26 12 300 27,907,979 55 to 59 56 38 81 88 62 44 25 394 38,911,004 60 to 64 28 13 56 76 59 53 24 309 33,251,200 65 to 69 11 8 31 18 18 30 27 143 17,776,128 70 & Up 4 1 5 6 5 6 8 35 3,791,227 705 183 370 357 204 171 97 2,087 Total Average Age: Average Service: 50.4 12.7 Average Salary: $89,717 $ $ 614,671 187,238,827 Page 41 Page 59 SCHEDULE G (Continued) TIER III – ALL OTHERS The Number and Average Annual Compensation of Active Employees By Age and Service as of June 30, 2016 0 to 4 Age 5 to 9 Years of Service 10 to 15 to 20 to 14 19 24 Total 25 to 30 30 & Up No. Payroll Under 25 921 6 927 25 to 29 1,552 4 1,556 70,131,138 30 to 34 1,578 10 1 1,589 83,271,627 35 to 39 1,184 8 5 1,197 68,909,620 40 to 44 930 7 3 942 54,857,538 45 to 49 938 10 7 50 to 54 826 5 6 55 to 59 565 5 3 60 to 64 340 7 65 to 69 141 70 & Up 57 2 9,032 64 Total 2 2 1 2 959 53,609,357 1 1 841 45,905,126 1 574 31,616,481 1 350 16,684,887 142 6,339,608 1 60 2,068,460 6 9,137 1 Average Age: Average Service: 38.7 2.3 Average Salary: $49,105 5 15,277,954 2 1 26 $ 4 $ 448,671,796 Page 42 Page 60 SCHEDULE G (Continued) NUMBER OF RETIRED MEMBERS AND THEIR BENEFITS BY AGE Age Number Total Annual Benefits Under 50 1,239 50 – 54 1,862 88,515,722 47,538 55 – 59 3,812 154,180,789 40,446 60 – 64 6,856 284,115,686 41,440 65 – 69 8,886 344,567,896 38,776 70 – 74 7,585 282,108,260 37,193 75 – 79 5,089 179,244,473 35,222 80 – 84 3,761 125,471,368 33,361 85 – 89 2,645 82,549,702 31,210 90 – 94 1,268 33,216,343 26,196 416 10,332,057 24,837 43,419 $ 1,639,895,309 95 & Over Total $ 55,593,013 Average Annual Benefits $ $ 44,869 37,769 NUMBER OF BENEFICIARIES AND THEIR BENEFITS BY AGE Age Number Total Annual Benefits Under 50 301 50 – 54 114 2,560,844 22,464 55 – 59 206 5,336,544 25,906 60 – 64 327 8,761,878 26,795 65 – 69 480 12,464,556 25,968 70 – 74 610 14,633,490 23,989 75 – 79 700 15,499,467 22,142 80 – 84 748 15,620,978 20,884 85 – 89 700 13,639,725 19,485 90 – 94 446 8,831,009 19,800 95 & Over 140 2,284,325 16,317 Total 4,772 $ $ 6,256,978 Average Annual Benefits 105,889,794 $ $ 20,787 22,190 Page 43 Page 61 SCHEDULE G (Continued) NUMBER OF DEFERRED VESTED MEMBERS AND THEIR BENEFITS BY AGE Age Number Total Annual Benefits Under 50 493 50 – 54 535 9,027,565 16,874 55 – 59 249 3,655,870 14,682 60 – 64 108 1,232,114 11,408 65 – 69 20 201,705 10,085 70 – 74 6 57,475 9,579 75 – 79 1 11,808 11,808 80 – 84 0 0 0 85 – 89 0 0 0 90 – 94 0 0 0 95 & Over 0 0 0 Total 1,412 $ $ 6,129,543 Average Annual Benefits 20,316,080 $ 12,4331 $ 14,388 Page 44 Page 62 SCHEDULE H ANALYSIS OF FINANCIAL EXPERIENCE Gains & Losses in Accrued Liabilities Resulting from Difference Between Assumed Experience & Actual Experience ($ Millions) $ Gain (or Loss) For Two Year Period Ending 6/30/2016 Type of Activity Age & Service Retirements. If members retire at older ages, there is a gain. If younger ages, a loss. $ (343.3) Disability Retirements. If disability claims are less than assumed, there is a gain. If more claims, a loss. (55.8) Death-in Service Benefits. If survivor claims are less than assumed, there is a gain. If more claims, there is a loss. (24.9) Withdrawal From Employment. If more liabilities are released by withdrawals than assumed, there is a gain. If smaller releases, a loss. (1.8) Pay Increases. If there are smaller pay increases than assumed, there is a gain. If greater increases, a loss. (203.3) New Members. Additional unfunded accrued liability will produce a loss. (282.8) Investment Income. If there is a greater investment income than assumed, there is a gain. If less income, a loss. (232.5) Death After Retirement. If retirants live longer than assumed, there is a loss. If not as long, a gain. (65.9) Other. Miscellaneous gains and losses resulting from changes in valuation software, data adjustments, timing of financial transactions, etc. 181.1 Gain (or Loss) During Year From Financial Experience Non-Recurring Items. Adjustments for plan amendments, assumption changes, or method changes. Composite Gain (or Loss) During Year $ (1,029.2) (4,612.3) $ (5,641.5) Page 45 Page 63 SCHEDULE I ACTUARIAL SURPLUS TEST Section 5-162(h) of the General Statutes of Connecticut provides that the Retirement Commission may grant additional Cost-of-Living Adjustments (COLAs) for retired members if an actuarial surplus exists. An actuarial surplus is deemed to exist if three criteria are met. I. Investment Income: The actual rate of return for the Fiscal Year ending on the valuation date must exceed the actuarial interest rate assumption. Market Value of Assets on June 30, 2015: (A) $10,737,492,074 Market Value of Assets on June 30, 2016: (B) $10,636,702,645 Investment Income for FY 2015-2016: (I) Actual Rate of Return for FY 2015-2016: 2I / (A + B – I) Actuarial Interest Rate Assumption: $(17,334,272) ( 0.16)% 8.00% Actual return of (0.16)% is less than the assumed 8.00%, so the first criterion is not met. II. Assets vs. Liabilities: Market value of assets must exceed 50% of specified liabilities. Market Value of Assets on June 30, 2016: $10,636,702,645 Specified Liabilities on June 30, 2016: Liability for Retired Members Liability for Terminated Vested Members Liability for Member Contributions with Interest Total $22,664,892,602 $266,708,800 $1,091,811,686 $24,023,413,088 50% of Specified Liabilities $12,011,706,544 Market Value does not exceed 50% of specified liabilities so the second criterion is not met. III. Unfunded Liability: Actual unfunded liability must be less than the projected unfunded liability five years from the determination date. Actual Unfunded Liability on June 30, 2016: Projected Unfunded Liability on June 30, 2021 (see next page): $20,387,369,150 $8,804,428,000 Actual Unfunded Liability is not less than Projected Unfunded Liability so the third criterion is not met and therefore, no actuarial surplus exists. Page 46 Page 64 SCHEDULE I (continued) ACTUARIAL SURPLUS TEST PROJECTION OF UNFUNDED LIABILITY Section 5-162-h(b)(2) of the General Statutes of Connecticut specifies the means of calculating the Projected Unfunded Liability used in the third criterion of the Actuarial Surplus Test. The projection reflects the actual unfunded liability as of December 31, 1983 adjusted for changes in actuarial assumptions and cost methods through the determination date. No provision is made in the Statute for reflecting the impact of plan changes. The projection below reflects the following changes: data correction (June 30, 1987); change in actuarial assumptions (June 30, 1987); change in actuarial cost method (June 30, 1988); change in actuarial assumptions - interest rate only (June 30, 1989); change in actuarial cost method – amortization period only (June 30, 1992); change in actuarial assumptions (June 30, 1993); change in actuarial cost method – level percent amortization (June 30, 1997); change in actuarial methods and assumptions (June 30, 2000); change in actuarial assumptions (June 30, 2004); change in actuarial assumptions (June 30, 2008); change in actuarial assumptions (June 30, 2012) change in actuarial assumptions (June 30, 2016). Year 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ($000) June 30 Unfunded Liability $2,524,556 1,954,257 1,432,333 1,939,758 1,930,524 1,920,505 1,794,192 1,787,586 1,780,419 1,772,643 1,764,205 1,835,087 1,907,249 2,222,296 2,291,494 Year ($000) June 30 Unfunded Liability 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $2,360,589 2,429,273 2,502,591 2,569,504 2,634,814 2,698,021 2,823,251 2,861,884 2,895,933 2,924,709 4,160,465 4,172,971 4,174,465 4,163,616 10,057,733 Year 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 ($000) June 30 Unfunded Liability $9,951,987 9,659,917 9,424,079 9,140,386 8,804,428 8,411,458 7,956,355 7,433,609 6,837,282 6,160,985 5,397,841 4,540,451 3,580,857 2,510,500 1,320,178 0 Page 47 Page 65 SCHEDULE J PROJECTION OF UNFUNDED ACCRUED LIABILITY Valuation Year 2016 Unfunded Accrued Liability ($ in thousands) $ 20,387,369 Amortization Payment ($ in thousands) $ 1,289,045 2017 20,568,774 1,180,377 2018 20,916,059 1,328,832 2019 21,266,590 1,488,666 2020 21,378,865 1,641,447 2021 21,155,930 1,774,968 2022 20,779,484 1,895,021 2023 20,252,870 1,895,021 2024 19,689,918 1,895,021 2025 19,088,124 1,895,021 2026 18,444,805 1,895,021 2027 17,757,097 1,895,021 2028 17,021,938 1,895,021 2029 16,236,052 1,895,021 2030 15,395,941 1,895,021 2031 14,497,861 1,895,021 2032 13,537,814 1,436,465 2033 12,985,897 1,436,465 2034 12,395,901 1,436,465 2035 11,765,195 1,436,465 2036 11,090,971 1,436,465 2037 10,370,225 1,436,465 2038 9,599,747 1,436,465 2039 8,776,107 1,436,465 2040 7,895,635 1,436,465 2041 6,954,411 1,436,465 2042 5,948,242 1,427,078 2043 4,882,351 1,414,407 2044 3,756,023 1,390,832 2045 2,576,392 1,375,545 2046 1,331,168 1,375,545 2047 0 Page 48 Page 66