1. finance
2. personal finance
3. financial planning
4. retirement and pension

What is PEBA?
Is it pronounced?
+
Or is it pronounced?
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PEBA Creation
• 9-4-10 (A) – Created the South Carolina Public
Employee Benefit Authority (PEBA), effective
July 1, 2012
• 9-4-10(H) – Incorporated the S.C. Retirement
Systems and the Employee Insurance Program
(EIP) into a free-standing state agency known
as PEBA
Prior Governance
• Before PEBA, both the Retirement Systems
and EIP were divisions of the SC Budget and
Control Board
• The Budget and Control Board consists of: the
Governor; Chair of Senate Finance; Chair of
House Ways and Means; Comptroller; and
State Treasurer
PEBA Governance
• Governing body of authority is PEBA Board of
Directors
• Eleven board members appointed by Governor (3),
President Pro Tempore of the Senate (2), Chairman
of Senate Finance (2), Speaker of the House (2), and
Chairman of House Ways and Means (2)
• Members serve two-year terms at pleasure of
appointing authority
PEBA Board Qualifications
•
•
•
•
One active or retired member of PORS
One retired member of SCRS
One active member of SCRS
One active member of SCRS who is employed by a public
school district
• Seven non-representative members that cannot be a
member of one of the groups above – Must be a lawyer,
CPA, CFP, have experience with pensions/insurance, etc.
Representative Members
Board Member
Appointing Authority
Represents
Leon Lott
President Pro Tempore of
Senate
Active or Retired PORS
member
Frank Fusco
Chairman of Senate Finance Retired SCRS Member
Peggy Boykin
Speaker of the House
State Employee – Active
SCRS
Stacy Kubu
Chairman of House Ways
and Means
School District EmployeeActive SCRS
Non-representative Members
Board Member
Appointing Authority
Arthur M. Bjontegard, Jr. (Chairman)
Governor
Stephen Heisler
Governor
Steve A. Matthews
Governor
John A. Sowards
President Pro Tempore of the Senate
Joe W. “Rocky” Pearce, Jr.
Chairman of Senate Finance
David J. Tigges
Speaker of the House of Representatives
Audie Penn
Chairman of House Ways and Means
PEBA Board Compensation
• Each board member receives $12,000 per year
salary for serving plus expenses
• Membership on the board does not make the
member eligible to participate in the
Retirement Systems or the State Health Plan
• Salary is not earnable compensation for
Retirement Systems purposes
Authority of PEBA Board
• Administer retirement systems, insurance programs,
State ORP, S.C. Deferred Compensation Program
(1/1/2014)
• Make policy determinations for insurance programs
and retirement systems; however, must be approved
by SC Budget and Control Board
Executive Director
• Executive Director of PEBA is currently
appointed by the Governor, Chairman of
House Ways and Means, and Chairman of
Senate Finance
• Effective January 1, 2014, the PEBA Board
appoints the Executive Director
• Current Interim Executive Director is David K.
Avant
Internal Structure of PEBA
• To realize efficiencies, common components of EIP and
the Retirement Systems have been combined. These
include:
– Call Center
– Customer Service Intake
– Administration
– Legal
– IT
– Communications
PEBA Impact
• For Employees and Employers– Should provide a
one-stop approach to dealing with benefits
• Provides a dedicated governing body that interested
stakeholders can express their concerns to regarding
retirement/insurance issues
• Should be material cost savings in regard to
administration of the plans from consolidation of
duplicative functions
State Health Plan (SHP)
• The State Health plan is self-insured, but
contracts with BCBSSC to administer the
payment of healthcare claims and Express
Scripts (may change pending results of RFP) to
administer the pharmaceutical claims.
• PEBA also contracts with vendors to provide
other services such as: vision, optional life
insurance, long-term disability, etc.
SHP Demographic Data
Subscribers
Covered Lives
State Agencies
57,222
106,019
Schools
80,291
159,986
Local/Other
38,378
71,437
Retirees
79,418 (73% Medicare elig) 108,725
Total
255,309
446,167
16
SHP Statistics
• The State Health Plan currently covers 680
public employers comprised of:
– 110 State Agencies (33% of active subscribers)
– 96 School Districts (46% of active subscribers)
– 474 Others (cities, counties, etc.) (21%)
Total SHP Claims
Total $ (Billions)
$2.5
$2.0
$1.5
$1.0
$1.1
$1.2
$1.3
$1.4
$1.5
$1.6
$1.8
$2.0
$0.5
$0.0
2007
2008
2009
2010
2011
2012
2013
2014
What is driving the increase??
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Leverage
Inflation/Mix
Utilization
Medical
Pharmacy
Budget Proviso
• 105.7. (PEBA: FY 2014 State Health Plan) Of the funds authorized
for the State Health Plan in Plan Year 2014 pursuant to Section 111-710(A)(2) of the 1976 Code, an employer premium increase of
6.8% and a subscriber premium increase of 0% for each tier
(subscriber, subscriber/spouse, subscriber/children, full family) will
result for the standard State Health Plan in Plan Year 2014. Copayment increases for participants of the State Health Plan in Plan
Year 2014 shall not exceed 20%. Notwithstanding the foregoing,
pursuant to Section 1-11-710(A)(3), the Public Employee Benefit
Authority may adjust the plan, benefits, or contributions of the
State Health Plan during Plan Year 2014 to ensure the fiscal
stability of the Plan.
20
Monthly Premiums
Employee
2013 Employer
2014 Employer
Employee
$97.68
$310.52
$331.64
Employee/Spouse
$253.36
$615.08
$656.92
Employee/Children
$143.86
$476.60
$509.02
Full Family
$306.56
$770.12
$822.50
21
Benefit Changes
Current
20% Increase
Member Impact*
Deductible
$350/$700
$420/$840
253,832
Coinsurance max
$2000/$4000
$2400/$4800
23,018
Physician co-pay
$10
$12
373,198
Emergency room
co-pay
$125
$150
58,589
Outpatient Hospital
co-pay
$75
$90
199,738
Pharmacy co-pay
$9/$30/$50
$9/$36/$60
340,670
*Medicare eligible retirees with the Medicare Supplement are not impacted by these
changes unless they utilize non-generic drugs.
22
BlueChoice Premiums 2014
Employee
Employer
Total
Employee
$345.41
$331.64
$677.05
Employee/Spouse
$921.83
$656.92
$1,578.75
Employee/Children
$602.19
$509.02
$1,111.21
Full Family
$1290.59
$822.50
$2,113.09
Affordable Care Act
• Currently, and for plan year 2014, the SHP
will be a “grandfathered plan” as allowed
under the ACA.
• As a grandfathered plan, most ACA
provisions, such as required preventive care,
do not apply to SHP.
Some ACA Provisions Apply to
Grandfathered Plans
• No pre-existing condition exclusion for
participants under age 19
• No lifetime maximum limits
• Coverage required for dependents up to age
26.
• These three elements have been in the SHP
since January 1, 2011
New ACA Requirements for
Grandfathered Plans in 2014
• No pre-existing condition exclusion for
participants age 19 or older
• Participating employers must offer coverage
to all full-time employees, including
nonpermanent full-time employees (Delayed
until 1/1/2015)
2014 Annual ACA Fees Payable by
Grandfathered Plans
• Patient-Centered Outcomes Research
Institute (sometimes referred to as “PCORI
fees” or Comparative Effectiveness Research
“CER fees”) $400,000
• Required Contributions Toward Reinsurance
Payments -- $25 million
The Future of the SHP
• Do we stay grandfathered or become ACA
compliant?
• How do we deal with the continually
escalating cost of health care?
• OPEB liability and GASB?
The Future of the SHP
• PEBA is currently developing pilots in several
areas to attempt to reduce costs and/or
improve the quality of health care
– PCMH
– ACO
– Value based health care
– Enhanced wellness programs
SC Retirement Systems
• The Retirement Systems covers 807 public employers
• It covers approximately 215,000 active members in
five defined benefit plans with an additional 20,000
active employees in the State ORP.
• Forty-four percent of members are School District
employees, 28 percent are State Employees and 28
percent are Other
Retirement Membership
• As of June 30, 2012, there are 141,681 retirees
and beneficiaries receiving benefits
• Plus, 160,000 inactive accounts
• Total membership including active members is
approximately
570,000
Investment returns
The Retirement Systems pays out in excess of $1 B
dollars more each year in benefits than it receives
in contributions
• One-year investment return of 10 percent
• Three-year annualized 9 percent, 5 year
annualized 4 percent, 10 year annualized 5
percent
• We assume we will make 7.5 percent per year
SCRS
Net Unfunded Liability on a Market Value Basis
$22,000
$18,000
$ in millions
$14,000
$10,000
$6,000
$2,000
Fiscal Year
-$2,000
Funding
Period:
(Years)
1999
2
2000
2001
2002
2003
16
18
21
25
2004
2005
2006
2007
2008
27
30
30
29
29
2009
2010
2011
2012
30
30
25
29
Other
Assumption Changes
Liability Experience
Non-COLA Benefits
COLA Benefits
Investment Gains/Losses - Recognized
Investment Gains/Losses - Deferred
Net Unfunded Liability
Funded Status
•
•
•
•
•
•
Funded status of SCRS = 64.7 percent
Funded status of PORS = 71.1 percent
UAAL for SCRS = $13.9 billion
UAAL for PORS = $1.55 billion
Funding Period for SCRS = 29 years
Funding Period for PORS = 30 years
Retirement Reform
•
•
•
•
•
New class of membership
Increased contributions
Return-to-work earnings limitation
TERI phase-out
Changed service purchase costs
Retirement Reform (cont.)
• Changed Post-Retirement Benefit Adjustments
• Overtime must be mandatory (SCRS)
• Disability retirement changes (January 1,
2014)
• No interest on inactive accounts
• GARS changes
Class Three Membership
• For Employees – Class Three Membership applies to
employees whose initial effective date of
membership in SCRS or PORS is on or after July 1,
2012
• For Employers – Seemingly straightforward, but in
some cases, determining initial effective date of
membership may be difficult
– Employers may have difficulty determining membership
class for a new hire – can verify through EES
Differences from Class Two Membership
•
•
•
•
Eight years to vest for a benefit
Satisfy the Rule of 90 (SCRS) or at age 60
PORS – 27 years of service or at age 55
No annual leave or sick leave included in benefit
formula
• 20-quarter AFC calculation
• TERI is not available to Class Three members
Contribution Rate Increases
• As spelled out in 9-1-1085, SCRS rates will be:
Fiscal Year
Employee
Employer
2014
7.50%
10.60%
2015
8.00%
10.90%
Contribution Rate Increases
• As spelled out in 9-11-225, PORS rates will be:
Fiscal Year
Employee
Employer
2014
7.84%
12.84%
2015
8.41%
13.41%
Cost Sharing
• Both SCRS and PORS statutes contain language
requiring any increase in contribution rates to
be shared by both members and employers
• SCRS differential between employee and
employer contributions must remain at 2.9
percent (FY 2015 and after)
• PORS differential must remain at 5 percent
Return-to-Work Provisions
• For members (with several exceptions) who
retired on or after 1/2/13
– Member must take 30-day break in service
– Member has a $10,000 per calendar year earnings
limit from covered employment
Exceptions to Earnings Limit
• Member retired or entered TERI before 1/2/13
• Member was age 62 (SCRS) or age 57 (PORS) at retirement
– Members who aren’t exempt initially are not released from this
restriction when they reach age 62 (SCRS) or age 57 (PORS)
• Member is in a public office by appointment of Governor
with Senate confirmation, by appointment or election by
General Assembly, or by election of qualified electors of
applicable jurisdiction
• 9-1-1795 exempts critical needs teachers from earnings
limit
TERI Changes
• TERI not available to Class Three members
• TERI closes to Class Two members 6/30/18
• Members entering TERI after 7/1/13 will be required
to end TERI on 6/30/18
– Examples
• Member enters TERI 7/1/14 –can participate in TERI for
maximum of 48 months, not 60
• Member enters TERI 7/1/15 – can participate in TERI for
maximum of 36 months, not 60
Post-TERI RTW
• TERI participants are considered “retired” once they
enter TERI program, so a member who enters TERI
before 1/2/13 can return to work after ending TERI
with no earnings limit
• Someone entering TERI 1/2/13 and after will be
subject to earnings limit when he ends TERI (unless
he meets one of the exceptions)
Changes to Service Purchase
• Effective 1/2/13 for SCRS and PORS
– Actuarially neutral cost based on member’s age,
service credit, and career highest FY salary
– Cost will not be less than 35 percent for nonqualified and 16 percent for all other service types
– Does not apply to withdrawal service, transfers,
and supplemental service types
Post-Retirement Benefit Adjustments
• Formerly called cost-of-living adjustments or
COLAs
• Previously, there was a 1 percent automatic
COLA in SCRS and an ad-hoc COLA in PORS
• Beginning 7/1/12, benefit adjustment for both
SCRS and PORS is 1 percent or $500 per year,
whichever is less
Mandatory Overtime (SCRS Only)
• 9-1-10(8)(b) “For work performed by a
member after December 31, 2012, earnable
compensation does not include any overtime
pay not mandated by the employer.”
Current Disability Retirement (SCRS)
• Eligibility for disability retirement currently
determined based on occupational or jobspecific criteria
• Benefit amount currently calculated as if
member had earned service credit until age
65, less actuarial value of contributions that
would have been made plus interest
Disability after Reform (SCRS)
• Beginning 1/1/14, member must qualify for
Social Security disability to qualify for SCRS
disability benefits – member must provide a
copy of the SSA award notice within one year
from member’s last date of employment
• Member must annually prove he is still eligible
for and receiving SSA disability to continue
receiving SCRS disability benefit
No Interest on Inactive Accounts
• Previously, both active and inactive accounts
received interest at 4 percent on June 30 of each
year based on previous June 30 balance
• Beginning June 30, 2013, any account that is
“inactive” will no longer receive interest
• An account is considered inactive when no
contributions have been made to the account in
the preceding 12 months and no other active,
correlated system and State ORP account exists
GASB
• Governmental Accounting Standards Board
• New Pension Accounting Standards 67 and 68
• GASB 67, “Financial Reporting for Pension
Plans,” governs how pension plans report and
is effective for plan year ending June 30, 2014.
GASB 68
• GASB 68, “Accounting and Financial Reporting
for Pensions,” is effective for employer fiscal
years ending June 30, 2015, and after
• This standard makes drastic and material
changes to the way employers account for
pensions in their financial statements
GASB 68 Cont.
• Previously, the UAAL of the pension fund was
reported in the notes to the Retirement Systems’
financial statements
• Employers reported only the actual contributions
made to the pension plan as an expense
• GASB 68 requires each employer participating in
the Retirement Systems to recognize a
“proportionate share” of the net pension liability
in its financial statements
Proportionate Share?
• Proportionate share is that portion of the total
pension liability attributable to that employer
• Example: Actuarial Liability $39 billion
Less: market value of assets
Equals Net Pension Liability
$22 billion
$17 billion
Proportionate Share?
• $17 billion in Net Pension Liability is allocated
to each employer proportionately using SCRS
covered payroll of $7 billion dollars per year
• So, each employer gets a liability of:
2.4 times its annual payroll
Pension Liability
• Not only is the proportionate share of pension
liability huge, it will also be an extremely
volatile number
• Pension expense now no longer represents
what you pay in retirement contributions each
year, it will be the difference in NPL from year
to year
More GASB
• GASB has indicated that it is currently working
on standards that will also require the
unfunded liability due to OPEB to be reported
on an employer’s financial statements.
• The current OPEB liability of the SHP is $10B,
so if it works like GASB 67/68 then each
covered employer would have to recognize a
portion of this liability
Questions
Contact Information
Travis Turner, CPA, CISA
Chief of Staff
S.C. Public Employee Benefit Authority
803-737-7751
[email protected]