State of Oklahoma Uniform Retirement System for Justices and Judges : actuarial valuation report as of ...

              State of Oklahoma
Uniform Retirement System For
Justices & Judges
Actuarial Valuation Report
As of July 1, 2011
October 14, 2011
Board of Trustees
Oklahoma Public Employees Retirement System
5801 N. Broadway Extension, Suite 400
P.O. Box 53007
Oklahoma City, OK 73152-3007
Members of the Board:
In this report are submitted the results of the annual valuation of the assets and liabilities of the Uniform
Retirement System for Justices and Judges (URSJJ), prepared as of July 1, 2011.
The purpose of this report is to provide a summary of the funded status of the System as of July 1, 2011, to
provide the Annual Required Contribution (ARC) and the accounting information under Governmental
Accounting Standards Board Statements No. 25 and 27 (GASB 25 and 27). While not verifying the data at
source, the actuary performed tests for consistency and reasonability.
The promised benefits of the System are included in the actuarially calculated contribution rates which are
developed using the Entry Age Normal cost method. A five-year market related value of assets is used for
actuarial valuation purposes. Gains and losses are reflected in the unfunded actuarial accrued liability
(UAAL) that is being amortized by regular annual contributions as a level percentage of payroll, on the
assumption that payroll will increase by 4.00% annually. Since the previous valuation, the salary increase
assumption and payroll growth assumption have been revised due to findings of the three-year experience
investigation for the period ending June 30, 2010. The assumptions recommended by the actuary and
adopted by the Board are, in the aggregate, reasonably related to the experience under the Fund and to
reasonable expectations of anticipated experience under the Fund and meet the parameters for the
disclosures under GASB 25 and 27.
Also, since the last valuation, the plan provisions of the System have been amended by House Bill 2132.
Under this legislation, COLAs are removed from the definition of “non-fiscal retirement bills” in the
Oklahoma Pension Legislation Actuarial Analysis Act (“OPLAAA”). The effect of these amendments
makes any COLA bill subject to all of the requirements of OPLAAA including the requirement that such
bills provide adequate funding to pay the cost. Therefore, as of July 1, 2011, liabilities have been calculated
without considering future COLAs, and the COLA reserve has been removed.
In addition, there were several bills passed by the 2011 Oklahoma Legislature that will impact only future
URSJJ members or otherwise have no fiscal impact on the current valuation. These are discussed in more
detail on page one of the Executive Summary.
Off
Cavanaugh Macdonald
C O N S U L T I N G, L L C
The experience and dedication you deserve
3906 Raynor Pkwy, Suite 106, Bellevue, NE 68123
Phone (402) 905-4461 • Fax (402) 905-4464
www.CavMacConsulting.com
Offices in Englewood, CO • Kennesaw, GA • Bellevue, NE • Hilton Head Island, SC
October 14, 2011
OPERS Board
Page 2
We have prepared the Schedule of Funding Progress and Trend Information shown in the financial section
of the Comprehensive Annual Financial Report. All historical information that references a valuation date
prior to July 1, 2010 was prepared by the previous actuarial firm.
This is to certify that the independent consulting actuaries are members of the American Academy of
Actuaries and have experience in performing valuations for public retirement systems, 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. Because the potential impact of such factors is
outside the scope of a normal annual actuarial valuation, an analysis of the range of results is not
presented herein.
We have also reviewed the supplemental medical benefits provided by the System under Section 401(h)
of the Internal Revenue Code and have determined that these benefits are subordinate to the retirement
benefits as required.
In our opinion, in order for the System to operate in an actuarially-sound manner, contributions equal to the
ARC are necessary. Alternatively, a schedule of increasing contribution rates, such as currently exists for
URSJJ, may also be sufficient to systematically fund the System on an actuarially sound basis, depending
upon the growth in the System liabilities during the period while the statutory rate is still below the ARC. In
order to evaluate the long term funding impact of the current increasing statutory contribution rate for
URSJJ, we performed a projection of contributions, benefit payments, assets, and actuarial liabilities into the
future using standard actuarial methods. This estimated projection of funded status indicated that the current
statutory contribution rates will result in the URSJJ being 100% funded in 2027, provided all assumptions
are met in the future. Once this valuation is accepted by the Board, Cavanaugh Macdonald will be
performing projections that use more sophisticated actuarial modeling techniques. The results of that
modeling may vary from the preliminary estimates we made in preparing this report; however, we expect
that the general result of the adequacy of the current increasing statutory rates will be confirmed.
October 14, 2011
OPERS Board
Page 3
The Table of Contents, which immediately follows, outlines the material contained in the report.
Respectfully submitted,
Alisa Bennett, FSA, EA, FCA, MAAA Patrice Beckham, FSA, EA, FCA, MAAA
Principal and Consulting Actuary Consulting Actuary
Brent Banister, PhD, FSA, EA, FCA, MAAA
Senior Actuary
TABLE OF CONTENTS`
Page
Executive Summary ........................................................................................................................................ 1
Section 1 Summary of Results........................................................................................................................ 9
Section 2 Assets ............................................................................................................................................ 10
Section 3 System Liabilities .......................................................................................................................... 14
Section 4 Employer Contributions .............................................................................................................. 18
Section 5 Accounting and Other Information……………��…………………………….. ....................... 24
Appendix A Summary of System Provisions .............................................................................................. 31
Appendix B Actuarial Assumptions and Methods ..................................................................................... 35
Appendix C Data .......................................................................................................................................... 39
Appendix D Glossary of Terms.................................................................................................................... 43
Addendum .............................................................................................................................................. 45
EXECUTIVE SUMMARY
1
OVERVIEW
The Uniform Retirement System for Justices and Judges (URSJJ) provides retirement benefits for all Justices
and Judges of the Oklahoma Supreme Court, Court of Criminal Appeals, Workers’ Compensation Court,
Court of Appeals, and District Courts. URSJJ is administered by the Oklahoma Public Employees Retirement
System and its Board of Trustees.
This report presents the results of the July 1, 2011 actuarial valuation for the System. The primary purposes
of performing an actuarial valuation are to:
• Determine the employer contribution rate required to fund the System on an actuarial basis;
• Evaluate the sufficiency of the statutory contribution rate;
• Disclose asset and liability measures as of the valuation date;
• Determine the experience of the System since the last valuation date; and
• Analyze and report on trends in System contributions, assets, and liabilities.
Since the previous valuation, the salary increase assumption and the payroll increase assumption have been
revised due to the findings of the three- year experience investigation for the period ending June 30, 2010.
Also, since the last valuation, the plan provisions of the System have been amended by House Bill 2132.
Under this legislation, COLAs are removed from the definition of “non-fiscal retirement bills” in the
Oklahoma Pension Legislation Actuarial Analysis Act (“OPLAAA”). The effect of these amendments makes
any COLA bill subject to all of the requirements of OPLAAA including the requirement that such bills
provide adequate funding to pay the cost. Therefore, as of July 1, 2011, liabilities have been calculated
without considering future COLAs, and the COLA reserve has been removed. This change lowered the
unfunded actuarial accrued liability by $52 million.
There were several additional bills passed by the 2011 Oklahoma Legislature and signed by the Governor that
will impact only future URSJJ members or that otherwise have no fiscal impact on the current valuation.
They include:
• HB1010 - Retirement Eligibility
The retirement age for judges taking office on or after January 1, 2012 increases from the current age
65 to age 67 with eight years of service. In addition, the current Rule of 80 or age 60 changes to age
62 with 10 or more years of service.
• SB782 - OPLAAA Date Change
Amends 62 O.S. § 3109 to move the deadline for completion of an actuarial investigation from
November 1 to December 1. The final bill deletes the requirement that the state pension systems
submit reports annually to the Pension Commission using standard actuarial assumptions.
The valuation results provide a snapshot view of the System’s financial condition on July 1, 2011. The
unfunded actuarial accrued liability for the System decreased by $44 million due to various factors, the largest
being the elimination of the COLA assumption and the COLA Reserve. A detailed analysis of the change in
the unfunded actuarial accrued liability from July 1, 2010 to July 1, 2011 is shown on page 5.
EXECUTIVE SUMMARY
2
The highlights of the valuation are shown below:
Actuarial Valuation Date
Funded Status $(millions) July 1, 2011 July, 1 2010
Actuarial Accrued Liability $246.8 $282.8
Actuarial Value of Assets $237.6 $230.0
Unfunded Actuarial Accrued Liability $ 9.2 $ 52.8
Funded Ratio (Actuarial Value) 96.3% 81.3%
Market Value of Assets $248.2 $211.2
Funded Ratio (Market Value) 100.6% 74.7%
There was a liability gain of $3.3 million, which resulted in an actuarial accrued liability that was lower than
expected (1.3% of expected liability). The components of this net liability gain are identified later in this
section.
The net return on the market value of assets was 21.4% for the year ended June 30, 2011. The actuarial value
of assets is determined using a method to smooth gains and losses in order to develop more stable
contribution rates. The return on the actuarial value of assets was approximately 6.6% which resulted in an
actuarial loss of $1.8 million.
The actuarial contribution rate for the employer decreased from 2010 to 2011:
Actuarial Valuation Date
Contribution Rate July 1, 2011 July 1, 2010
Normal Cost 26.56% 31.66%
Amortization of UAAL 2.17% 11.61%
Budgeted Expenses 0.63% 0.47%
Actuarial Contribution Rate 29.36% 43.74%
Less Estimated Member Contribution Rate 8.00% 8.00%
Employer Actuarial Contribution Rate 21.36% 35.74%
Less State Statutory Contribution Rate 11.50% 10.00%
Contribution Shortfall 9.86% 25.74%
The contribution shortfall is considerably smaller than last year as a result of House Bill 2132, which resulted
in the elimination of the COLA assumption and reserve, although it is still nearly 10% of payroll. The
contribution shortfall means that the System is not currently contributing at a contribution rate adequate to
meet the goal of amortizing the unfunded actuarial accrued liability by 2027. However, the statutory
contribution rate is scheduled to increase each year and reach an ultimate rate of 22% in FY2019. In order to
evaluate the long term funding impact of the current increasing statutory contribution rate for URSJJ, we
performed a projection of contributions, benefit payments, assets, and actuarial liabilities into the future using
standard actuarial methods. This estimated projection of funded status indicated that the current statutory
contribution rates will result in the URSJJ being 100% funded in 2027, provided all assumptions are met in
the future. Once this valuation is accepted by the Board, Cavanaugh Macdonald will be performing
projections that use more sophisticated actuarial modeling techniques. The results of that modeling may vary
from the preliminary estimates we made in preparing this report; however, we expect that the general result of
the adequacy of the current increasing statutory rates will be confirmed.
EXECUTIVE SUMMARY
3
EXPERIENCE
July 1, 2010 to July 1, 2011
In many respects, an actuarial valuation can be thought of as an inventory process. The inventory is taken as
of the actuarial valuation date, which for this valuation is July 1, 2011. On that date, the assets available for
the payment of benefits are appraised. The assets are compared with the liabilities of the System, which are
generally in excess of the assets. The actuarial process leads to a method of determining the contributions
needed by members and employers in the future to balance the System assets and liabilities.
Changes in the System’s assets and liabilities impacted the change in the actuarial contribution rates between
July 1, 2010 and July 1, 2011. Each component is examined in the following discussion.
ASSETS
As of July 1, 2011, the System had total funds when measured on a market value basis of $248.2 million.
This was an increase of $37.0 million from the July 1, 2010 figure of $211.2 billion. The market value of
assets is not used directly in the calculation of the actuarial contribution rate. An asset valuation method,
which smoothes the effect of market fluctuations, is used to determine the value of assets used in the
valuation, called the “actuarial value of assets”. Differences between the actual return on the market value of
assets and the assumed return on the actuarial value of assets are phased in over a five-year period. The
resulting value must be no less than 80% of the market value and no more than 120% of market value,
referred to as “the corridor”. See Table 3 for the detailed development of the actuarial value of assets as of
July 1, 2011.
The actuarial value of assets as of July 1, 2011 was $237.6 million. The annualized dollar-weighted rate of
return for FY2011, measured on the actuarial value of assets, was approximately 6.6%, which produced an
actuarial loss of $1.8 million. Measured on the market value of assets, the rate of return was 21.4%, net of
investment expenses.
The components of the change in the market and actuarial value of assets for the System are set forth
below:
Market Value Actuarial Value
$(millions) $(millions)
Net Assets, July 1, 2010 211 230
· Employer and Member Contributions 6 6
· Benefit Payments and Expenses (13) (13)
· Investment Income/(Loss) 44 15
Preliminary Value July 1, 2011 248 238
Application of Corridor N/A N/A
Final Net Assets, July 1, 2011 248 238
Estimated Rate of Return 21.4% 6.6%
Due to the use of an asset smoothing method, there is about $10 million of deferred investment gain that
has not yet been recognized. This deferred investment experience will be reflected in the actuarial value of
assets over the next few years.
EXECUTIVE SUMMARY
4
Due to actual investment experience
lower than the assumed rate of return
for much of the last decade, the
actuarial value of assets has been
higher than the market value in most
years.
Rates of return on the market value of
assets are very volatile. The return on
the actuarial value of assets illustrates
the advantage of using an asset
smoothing method.
SYSTEM LIABILITIES
The actuarial accrued liability is that portion of the present value of future benefits that will not be paid by
future normal costs. The difference between this liability and the asset value at the same date is referred to
as the unfunded actuarial accrued liability (UAAL). The UAAL will be reduced if the employer’s
contributions exceed the employer’s normal cost for the year, after allowing for interest on the previous
years’ unfunded actuarial accrued liability. Benefit improvements, experience gains/losses, and changes in
the actuarial assumptions and methods will also impact the total actuarial accrued liability and the unfunded
portion thereof.
The unfunded actuarial accrued liability as of July 1, 2011 is:
Actuarial Accrued Liability $246,792,232
Actuarial Value of Assets 237,626,663
Unfunded Actuarial Accrued Liability $ 9,165,569
See Table 5 for the detailed development of the Actuarial Accrued Liability and Table 8 for the calculation
of the Unfunded Actuarial Accrued Liability.
0
50
100
150
200
250
300
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$ Millions
As of 7/1
System Assets
Market Value of Assets Actuarial Value of Assets
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Annual return
Year End 6/30
Rates of Return
Market Value Actuarial Value Expected
EXECUTIVE SUMMARY
5
Other factors influencing the UAAL from year to year include actual experience versus that expected based
on the actuarial assumptions (both asset and liability), changes in the actuarial assumptions, procedures or
methods and changes in benefit provisions. The actual experience measured in this valuation is that which
occurred during the plan year ending June 30, 2011. There was an experience loss on the actuarial value of
assets and an experience gain on liabilities. In addition, there were changes in the actuarial assumptions
and methods as a result of the Experience Study and legislation passed in 2011. The net result was a $43.6
million decrease in the UAAL.
Between July 1, 2010 and July 1, 2011 the change in the unfunded actuarial accrued liability for the
System was as follows (in millions):
$millions
Unfunded Actuarial Accrued Liability, July 1, 2010 $52.8
· effect of contributions less than actuarial rate 9.7
· expected increase due to amortization method (0.1)
· investment experience 1.8
· liability experience1 (3.3)
· other experience 0.0
· change in actuarial assumptions (0.8)
· elimination of COLA assumption/reserve (50.8)
Unfunded Actuarial Accrued Liability, July 1, 2011* 9.2
1 Liability gain is about 1.3% of total actuarial accrued liability
* Numbers may not add up due to rounding
The liability gain for the System can be allocated to the actual experience related to each actuarial
assumption as follows:
Impact of AAL % of Expected
Liability Source $(millions) Liability
Salary Increases (4.08) (1.63)
Mortality (0.16) (0.06)
Termination of Employment (0.11) (0.04)
Retirements 0.30 0.12
Disability (0.26) (0.10)
New Entrants and Rehires 1.00 0.40
Miscellaneous/Data Changes 0.00 0.00
Total (Gain)/Loss* (3.30) (1.32)
*Numbers may not add up due to rounding
A detailed summary of the change in the UAAL is shown in Table 10.
An evaluation of the unfunded actuarial accrued liability on a pure dollar basis may not provide a complete
analysis because only the difference between the assets and liabilities (which are both very large numbers)
is reflected. Another way to evaluate the unfunded actuarial accrued liability and the progress made in its
funding is to track the funded status, which is the ratio of the actuarial value of assets to the actuarial
accrued liability. The funded status information, on both an actuarial and market value basis, is shown in
the following table (in $millions).
EXECUTIVE SUMMARY
6
7/1/07 7/1/08 7/1/09 7/1/10 7/1/11
Using Actuarial Value of Assets:
Funded Ratio 98.9% 96.4% 84.8% 81.3% 96.3%
Unfunded Actuarial Accrued Liability (UAAL) $2 $9 $40 $53 $9
Using Market Value of Assets:
Funded Ratio 105.8% 92.6% 70.6% 74.7% 100.6%
Unfunded Actuarial Accrued Liability (UAAL) ($13) $18 $77 $72 ($1)
Until recently, the funded ratio has been
above or near 100%, but has been steadily
declining. Several factors have
contributed to the decline in the funded
ratio, including: changes in the benefit
provisions, contributions less than the
actuarial rate, changes in actuarial
assumptions, demographic experience,
and investment experience. The increase
in 2011 was due to the elimination of the
COLA assumption as a result of
legislation (HB 2132).
CONTRIBUTION RATES
The funding objective of the System is to pay the normal cost rate plus an amount that will pay off the
unfunded actuarial accrued liability over a closed 20-year period commencing July 1, 2007.
Under the Entry Age Normal cost method, the actuarial contribution rate consists of:
• A “normal cost” for the portion of projected liabilities allocated by the actuarial cost method to
service of members during the year following the valuation date;
• An “unfunded actuarial accrued liability contribution” for the excess of the portion of projected
liabilities allocated to service to date over the actuarial value of assets.
Contributions to the System are made by the members and their employers. Members pay 8.0% of
compensation. The employer rate is currently 11.5% and is scheduled to increase each year until it reaches
22.0% for the fiscal year ending June 30, 2019. If all assumptions are met in future years, preliminary
projections (described earlier) indicate that the plan’s funded ratio will decline slightly, but eventually reach
100%.
The following graph shows the total required employer contribution compared to the amount actually
received each year. The actuarial contribution rate, as set out in the funding policy, is equal to the System’s
normal cost, budgeted expenses, and an amortization of the unfunded actuarial accrued liability over a 20-
year closed period beginning July 1, 2007. As of July 1, 2011, 16 years remain in the amortization period.
148.2% 139.9% 121.0% 108.7% 102.5% 98.9% 96.4% 84.8% 81.3% 96.3%
.06% .05% .04% .03% .02% .01% .0% .01%-
70%
80%
90%
100%
110%
120%
130%
140%
150%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
As of 7/1
Funded Ratio
EXECUTIVE SUMMARY
7
0
2
4
6
8
10
12
14
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
$ Millions
As of 7/1
Employer Contribution Comparison
Required Contribution Actual Contribution
MEMBER INFORMATION
The number of active members included in the valuation stayed level at 271 in the 2011 valuation. The
retired member count increased by 25 and the average retirement benefit amount increased. There were
235 retirees and beneficiaries in the 2011 valuation, with an average benefit of $5,015 per month. This
represents about a 7.0% increase in the average monthly benefit from the previous year.
The number of active members has
been fairly stable over this time period.
The number of retirees has increased
slightly, which is expected in an
ongoing retirement system.
The average benefit for retirees has
climbed steadily over the past 10 years
as new retirees leave with higher
salaries and, therefore, higher benefits
than those already retired. In addition,
effective July 1, 2004, the maximum
benefit was increased from 72.5% to
100% of pay. Ad hoc COLAs granted
by the Legislature have also increased
the average benefit during this period.
0
100
200
300
400
500
600
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
As of 7/1
System Membership
Actives Deferred Vesteds Retirees
0
10
20
30
40
50
60
70
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Annual Benefit
($thousands)
Year End 6/30
Average Benefit for Members in Pay
EXECUTIVE SUMMARY
8
General Comments
The rate of return on the market value of assets for FY 2011 was over 21%. As a result, the market value
of assets is now greater than the actuarial value of assets. In the absence of new losses in future years, the
smoothing method is projected to start recognizing net gains in 2012.
The funded ratio of the System improved dramatically (from 81% to 96%) due to the impact of House Bill
2132 which removed COLAs from the definition of “non-fiscal retirement bills” under the Oklahoma
Pension Legislation Actuarial Analysis Act (OPLAAA). As a result, the 2% annual COLA assumption was
removed and the COLA reserve was eliminated. This had a dramatic impact on the System’s funding and
resulted in a decrease in the UAL of $52 million and an increase in the funded ratio of 16%.
The statutory employer contribution rate of 11.5% is lower than the actuarial contribution rate shown in this
report by nearly 10%. However, the current contribution shortfall is considerably smaller than last year as a
result of House Bill 2132 discussed above. The contribution shortfall means that the System is not currently
contributing at the level contribution rate to meet the goal of amortizing the unfunded actuarial accrued
liability by 2027, although the statutory contribution rate is scheduled to increase each year and reach an
ultimate rate of 22% in FY2019 In order to evaluate the long term funding impact of the current increasing
statutory contribution rate for URSJJ, we performed a projection of contributions, benefit payments, assets,
and actuarial liabilities into the future using standard actuarial methods. This estimated projection of funded
status indicated that the current statutory contribution rates will result in the URSJJ being 100% funded in
2027, provided all assumptions are met in the future. Once this valuation is accepted by the Board,
Cavanaugh Macdonald will be performing projections that use more sophisticated actuarial modeling
techniques. The results of that modeling may vary from the preliminary estimates we made in preparing this
report; however, we expect that the general result of the adequacy of the current increasing statutory rates will
be confirmed.
SECTION 1 – SUMMARY OF RESULTS
9
For convenience of reference, the principal results of the valuation and a comparison with the preceding year's
results are summarized below.
7/1/2011 7/1/2010 %
Valuation Valuation Change
1. PARTICIPANT DATA
Number of:
Active Members 271 271 0.0
Retired and Disabled Members and Beneficiaries 235 210 11.9
Inactive Members 13 12 8.3
Total members 519 493 5.3
Projected Annual Salaries of Active Members $ 34,700,819 $ 35,023,262 (0.9)
Annual Retirement Payments for Retired Members $ 14,143,833 $ 11,801,981 19.8
and Beneficiaries
2. ASSETS AND LIABILITIES
Total Actuarial Accrued Liability $ 246,792,232 $ 282,765,405 (12.7)
Market Value of Assets $ 248,189,010 $ 211,180,555 17.5
Actuarial Value of Assets $ 237,626,663 $ 230,010,299 3.3
Unfunded Actuarial Accrued Liability $ 9,165,569 $ 52,755,106 (82.6)
Funded Ratio 96.3% 81.3% 18.4
3. EMPLOYER CONTRIBUTION RATES AS A
PERCENT OF PAYROLL
Normal Cost Rate 26.56% 31.66%
Amortization of Unfunded Actuarial Accrued Liability 2.17% 11.61%
Budgeted Expenses 0.63% 0.47%
Total Actuarial Required Contribution Rate 29.36% 43.74%
Less Member Contribution Rate 8.00% 8.00%
Employer Actuarial Required Contribution Rate 21.36% 35.74%
Less Statutory State Employer contribution Rate 11.50% 10.00%
Contribution Shortfall 9.86% 25.74%
.
SECTION 2 - ASSETS
10
Market Value of Assets
The current market value represents the "snapshot" or "cash-out" value of System assets as of the valuation
date. In addition, market values of assets provide a basis for measuring investment performance from time
to time. At July 1, 2011 the market value of assets for the System was $248 million. Table 1 is a
comparison, at market values, of System assets as of July 1, 2011, and July 1, 2010, in total and by
investment category. Table 2 summarizes the change in the market value of assets from July 1, 2010 to
June 30, 2011.
Actuarial Value of Assets
Neither the market value of assets, representing a "cash-out" value of System assets, nor the book value of
assets, representing the cost of investments, may be the best measure of the System's ongoing ability to
meet its obligations.
To arrive at a suitable value for the actuarial valuation, a technique for determining the actuarial value of
assets is used, which dampens swings in the market value while still indirectly recognizing market values.
The actuarial value of assets is based on a five-year moving average of expected and actual market values
determined as follows:
• at the beginning of each fiscal year, a preliminary expected actuarial asset value is calculated as the
sum of the previous year’s actuarial value increased with a year’s interest at the System’s valuation
rate plus net cash flow adjusted for interest (at the same rate) to the end of the previous fiscal year;
• the expected actuarial asset value is set equal to the preliminary expected actuarial value plus the
unrecognized investment gains and losses as of the beginning of the previous fiscal year;
• the difference between the expected actuarial asset value and the market value is the investment
gain or loss for the previous fiscal year;
• the (final) actuarial asset value is the preliminary value plus 20% of the investment gains and losses
for each of the five previous fiscal years, but in no case more than 120% of the market value or less
than 80% of the market value.
Table 3 shows the development of the actuarial value of assets (AVA) as of the valuation date.
SECTION 2 - ASSETS
11
Uniform Retirement System For Justices & Judges
Table 1
Analysis of Net Assets at Market Value
June 30, 2011 June 30, 2010
Amount % of Amount % of
$(millions) Total $(millions) Total
Cash & Equivalents $ 5.0 2.0% $ 3.0 1.4%
Short-term Investments 0.8 0.3% 1.5 0.7%
Government Obligations 53.1 20.7% 48.4 22.4%
Corporate Bonds 31.4 12.3% 33.5 15.5%
Domestic Equity 104.7 40.9% 83.2 38.4%
International Equity 60.9 23.8% 46.8 21.6%
Subtotal $ 255.9 100.0% $ 216.4 100.0%
Net receivables/(payables) (7.7) (5.2)
Net Assets $ 248.2 $ 211.2
SECTION 2 - ASSETS
12
Uniform Retirement System For Justices & Judges
Table 2
Statement of Changes in Net Assets
Fiscal Year Ended June 30
2011 2010
1. Market Value of Net Assets at Beginning of Year $ 211,180,555 $ 184,646,816
2. Contributions
a. Members $ 2,667,908 $ 2,599,341
b. Participating Court Employers 3,193,277 8,704,232
c. Total Contributions (2a) + (2b) $ 5,861,185 $ 11,303,573
3. Net Investment Income
a. Net appreciation (depreciation) in fair value of investments $ 42,148,970 $ 24,390,695
b. Interest 2,534,867 2,832,603
c. Securities lending activities 29,456 32,665
d. Total investment income/(loss) $ 44,713,293 $ 27,255,963
(3a) + (3b) + (3c)
e. Investment expenses (157,258) (139,481)
f. Net investment income/(loss) (3d) + (3e) 44,556,035 27,116,482
g. Total additions/(subtractions) (2c) + (3f) $ 50,417,220 $ 38,420,055
4. Deductions
a. Retirement, death, and survivor benefits $ 13,117,911 $ 11,705,265
b. Refunds and withdrawals 172,089 66,389
c. Administrative expenses 118,765 114,662
d. Total deductions (4a) + (4b) + (4c) $ 13,408,765 $ 11,886,316
5. Net Change in Assets (3g) - (4d) 37,008,455 26,533,739
6. Market Value of Net Assets at End of Year $ 248,189,010 $ 211,180,555
(1) + (5)
SECTION 2 - ASSETS
13
Uniform Retirement System For Justices & Judges
Table 3
Determination of Actuarial Value of Assets
Schedule of Asset Gains/(Losses)
Recognized in Recognized in Recognized in
Year End Original Amount Prior Years This Year Future Years
2007 $ 16,819,375 $ 13,455,500 $ 3,363,875 $ 0
2008 (24,818,650) (14,891,190) (4,963,730) (4,963,730)
2009 (53,183,041) (21,273,216) (10,636,608) (21,273,217)
2010 24,554,582 4,910,916 4,910,916 14,732,750
2011 27,583,180 0 5,516,636 22,066,544
Total $ (9,044,554) $ (17,797,990) $ (1,808,911) $ 10,562,347
Development of Actuarial Value of Assets
1. Actuarial Value as of July 1, 2010 $ 230,010,299
2. Contributions
a. Member $ 2,667,908
b. Employer 3,193,277
c. Total (a) + (b) $ 5,861,185
3. Decreases during year
a. Benefit payments $ (13,117,911)
b. Refunds and withdrawals (172,089)
c. Administrative expenses (118,765)
d. Total (a) + (b) + (c) $ (13,408,765)
4. Expected return at 7.5% on:
a. Item 1 $ 17,250,772
b. Item 2 (one-half year) 215,821
c. Item 3 (one-half year) (493,738)
d. Total (a) + (b) + (c) $ 16,972,855
5. Expected actuarial value as of June 30, 2011 (1) + (2c) + (3d) + (4d) $ 239,435,574
6. Unrecognized asset gain/(loss) as of June 30, 2011 $ (18,829,744)
7. Expected actuarial value as of June 30, 2011 plus previous year's $ 220,605,830
unrecognized gain/(loss) (5) + (6)
8. Market Value as of June 30, 2011 $ 248,189,010
9. Year end 2011 asset gain/(loss) (8) - (7) $ 27,583,180
10. Asset gain/(loss) to be recognized as of June 30, 2011 $ (1,808,911)
11. Initial Actuarial Value as of June 30, 2011 (5) + (10) $ 237,626,663
12. Constraining values:
a. 80% of market value (8) x 0.8 $ 198,551,208
b. 120% of market value (8) x 1.2 $ 297,826,812
13. Actuarial Value as of June 30, 2011 $ 237,626,663
(11), but not less than (12a), nor greater than (12b)
SECTION 3 – SYSTEM LIABILITIES
14
In the previous section, an actuarial valuation was compared with an inventory process, and an analysis
was given of the inventory of assets of the System as of the valuation date, July 1, 2011. In this section,
the discussion will focus on the commitments of the System, which are referred to as its liabilities.
Table 4 contains the actuarial present value of all future benefits (PVFB) for contributing members,
inactive members, retirees and their beneficiaries.
The liabilities summarized in Table 4 include the actuarial present value of all future benefits expected to
be paid with respect to each member. For an active member, this value includes measures of both
benefits already earned and future benefits expected to be earned. For all members, active and retired, the
value includes benefits earnable and payable for the rest of their lives and, if an optional benefit is chosen,
for the lives of the surviving beneficiaries.
The actuarial assumptions used to determine liabilities are based on the results of an experience study
based on the three-year period ended June 30, 2010. This valuation (July 1, 2011) is the first to use the
set of assumptions, as shown in Appendix C. The salary increase assumption and the payroll growth
assumption were changed as a result of the Experience Study. The liabilities reflect the benefit structure
in place as of July 1, 2011.
Actuarial Liabilities
A fundamental principle in financing the liabilities of a retirement program is that the cost of its benefits
should be related to the period in which benefits are earned, rather than to the period of benefit
distribution. An actuarial cost method is a mathematical technique that allocates the present value of
future benefits into annual costs. In order to do this allocation, it is necessary for the funding method to
“break down” the present value of future benefits into two components:
(1) that which is attributable to the past; and
(2) that which is attributable to the future.
Actuarial terminology calls the part attributable to the past the “past service liability” or the “actuarial
accrued liability”. The portion allocated to the future is known as the present value of future normal
costs, with the specific piece of it allocated to the current year being called the “normal cost”. Table 5
contains the calculation of actuarial liabilities for all groups.
Prior to the July 1, 2011 valuation, the System used an assumption of a 2% annual COLA each year in
developing liabilities and contribution rates even though the System did not have an automatic COLA
provision. Ad hoc COLAs had historically been granted by the Legislature every other year so in order to
avoid actuarial gains in the year in which a COLA is not granted and an actuarial loss in the years in
which a COLA is granted, the System’s liabilities included a “COLA Reserve”. The COLA Reserve was
included in the actuarial accrued liability to account for expected cost of living adjustments to the benefits
of retired participants that had not been granted by the valuation date. The 2011 Legislature passed
House Bill 2132 which removed future COLAs from the definition of a “non-fiscal retirement bill” under
the Oklahoma Pension Legislation Actuarial Analysis Act (OPLAAA). As a result, any COLA granted
by the Legislature must provide adequate funding to pay for the cost of the benefits. As a result, the
liabilities of the System in this valuation have been calculated without an assumption of future COLAs
and the COLA Reserve has been eliminated.
SECTION 3 – SYSTEM LIABILITIES
15
Uniform Retirement System For Justices & Judges
Table 4
Present Value of Future Benefits
Total
1. Active Employees
a. Retirement Benefit $ 169,229,787
b. Withdrawal Benefit 7,299,196
c. Pre-Retirement Death Benefit 3,595,893
d. Return of Member Contributions 394,528
e. Supplemental Medical Benefit 1,605,519
f. Subtotal $ 182,124,923
2. Inactive Nonvested Members $ 396,667
3. Inactive Vested Members $ 3,729,476
4. Disabled Members $ 1,140,680
5. Retirees $ 115,330,424
6. Beneficiaries $ 12,331,038
7. Supplemental Medical Benefit for Retirees
and Inactive Vested Members $ 1,407,967
8. COLA Reserve 0
9. Total PVFB $ 316,461,175
SECTION 3 – SYSTEM LIABILITIES
. 16
Uniform Retirement System For Justices & Judges
Table 5
Actuarial Accrued Liability
Total
1. Present Value of Future Benefits for Active Members
a. Retirement Benefit $ 169,229,787
b. Withdrawal Benefit 7,299,196
c. Pre-Retirement Death Benefit 3,595,893
d. Return of Member Contributions 394,528
e. Supplemental Medical Benefit 1,605,519
f. Subtotal $ 182,124,923
2. Present Value of Future Normal Costs for Active Members
a. Retirement Benefit $ 61,307,820
b. Withdrawal Benefit 5,568,229
c. Pre-Retirement Death Benefit 1,497,798
d. Return of Member Contributions 664,796
e. Supplemental Medical Benefit 630,300
f. Subtotal $ 69,668,943
3. Present Value of Future Benefits for Inactive Members 134,336,252
4. Total Actuarial Accrued Liability (1f) - (2f) + (3) $ 246,792,232
SECTION 3 – SYSTEM LIABILITIES
17
Uniform Retirement System For Justices & Judges
Table 6
Development of COLA Reserve
1. Reserve as of July 1, 2010 $ 5,934,168
2. Interest at 7.5% 445,063
3. Reserve increment 2,576,043
4. Expected reserve as of July 1, 2011 $ 8,955,274
(1) + (2) + (3)
5. Change in law (House Bill 2132) (8,955,274)
6. Actual reserve as of July 1, 2011 $ 0
(4) - (5), but not less than $0
SECTION 4 – EMPLOYER CONTRIBUTIONS
18
In the previous two sections, attention has been focused on the assets and the liabilities of the System. A
comparison of Tables 3 and 4 indicates that there is a shortfall in current actuarial assets needed to meet
the present value of all future benefits for current members and beneficiaries.
In an active system, there will always be a difference between the assets and the present value of all future
benefits. An actuarial valuation determines a schedule of future contributions that will provide for this
funding in an orderly fashion.
The method used to determine the incidence of the contributions in various years is called the actuarial
cost method. Under an actuarial cost method, the contributions required to meet the difference between
current assets and current liabilities are allocated each year between two elements: (1) the normal cost and
(2) the payment on the unfunded actuarial accrued liability.
The term “fully funded” is often applied to a system in which contributions at the normal cost rate are
sufficient to pay for the benefits of existing employees as well as for those of new employees. More often
than not, systems are not fully funded, either because of past benefit improvements that have not been
completely funded and/or because of actuarial deficiencies that have occurred because experience has not
been as favorable as anticipated under the actuarial assumptions. Under these circumstances, an unfunded
actuarial accrued liability (UAAL) exists.
Description of Rate Components
The actuarial cost method used by the System is the traditional Entry Age Normal (EAN) – level percent
of pay cost method. Under the EAN cost method, the actuarial present value of each member’s projected
benefit is allocated on a level basis over the member’s compensation between the entry age of the
member and the assumed exit ages. The portion of the actuarial present value allocated to the valuation
year is called the normal cost. The actuarial present value of benefits allocated to prior years of service is
called the actuarial accrued liability. The unfunded actuarial accrued liability represents the difference
between the actuarial accrued liability and the actuarial value of assets as of the valuation date. The
unfunded actuarial accrued liability is calculated each year and reflects experience gains/losses.
Effective with the July 1, 2008 valuation, the UAAL is amortized as a level percent of payroll over a
closed 20-year period commencing July 1, 2007. Prior to 2008, the unfunded actuarial accrued liability
was amortized as a level dollar amount over a 40-year period from July 1, 1987. Given a stable active
workforce, the level percent of payroll amortization method is expected to produce a payment stream that
is constant as a percent of covered payroll.
Contribution Rate Summary
The normal cost rate is developed in Table 7. Table 8 develops the contribution rate for amortization of
the unfunded actuarial accrued liability. Table 9 develops the total actuarial contribution rate.
SECTION 4 – EMPLOYER CONTRIBUTIONS
19
Uniform Retirement System For Justices & Judges
Table 7
Normal Cost Contribution Rates
As Percentages of Salary
Total % of Pay
1. Normal Cost
a. Retirement Benefit $ 8,185,878 23.58%
b. Withdrawal Benefit 641,477 1.85%
c. Pre-Retirement Death Benefit 199,613 0.58%
d. Return of Member Contributions 92,714 0.27%
e. Supplemental Medical Benefit 98,303 0.28%
f. Total $ 9,217,985 26.56%
2. Estimated Payroll for the Year $ 34,700,819
3. Normal Cost Rate (1f)/(2) 26.56%
SECTION 4 – EMPLOYER CONTRIBUTIONS
20
Uniform Retirement System For Justices & Judges
Table 8
Unfunded Actuarial Accrued Liability Contribution Rate
1. Actuarial Present Value of Future Benefits $ 316,461,175
2. Actuarial Present Value of Future Normal Costs 69,668,943
3. Actuarial Accrued Liability (1) - (2) $ 246,792,232
4. Actuarial Value of Assets 237,626,663
5. Unfunded Actuarial Accrued Liability (UAAL) $ 9,165,569
(3) - (4)
6. Amortization of UAAL over 20 years $ 752,512
from July 1, 2007 (assumed mid-year) *
7. Total Estimated Payroll for Year Ending June 30, 2012 $ 34,700,819
8. Amortization as a Percent of Payroll 2.17%
*The UAAL is amortized as a level percent of payroll, assuming payroll increases 4.0% per year
SECTION 4 – EMPLOYER CONTRIBUTIONS
. 21
Uniform Retirement System For Justices & Judges
Table 9
Actuarial Contribution Rate
July 1
2011 2010
1. Total Normal cost Rate 26.56% 31.66%
2. Amortization of UAAL1 2.17% 11.61%
3. Budgeted Expenses2 0.63% 0.47%
4. Total Actuarial Contribution Rate 29.36% 43.74%
(1) + (2) + (3)
5. Member Contribution Rate 8.00% 8.00%
6. Employer Actuarial Contribution Rate 21.36% 35.74%
(4) - (5)
1 Amortization of UAAL is a level percent of payroll
2 Provided by the system
SECTION 4 – EMPLOYER CONTRIBUTIONS
22
Uniform Retirement System For Justices & Judges
Table 10
Calculation of Actuarial Gain/(Loss)
1. Expected actuarial accrued liability
a. Actuarial accrued liability at July 1, 2010 $ 282,765,405
b. Normal cost at July 1, 2010 11,090,075
c. Benefit payments for fiscal year ending June 30, 2011 (13,290,000)
d. Interest on (a), (b), and (c) 21,126,400
e. Change in assumptions (759,201)
f. Change in COLA assumption/reserve (House Bill 2132) (50,838,197)
g. Expected actuarial accrued liability as of July 1, 2011 $ 250,094,482
(a) + (b) + (c) + (d) + (e) + (f)
2. Actuarial accrued liability at July 1, 2011 $ 246,792,232
3. Actuarial accrued liability gain/(loss) (1g) - (2) $ 3,302,250
4. Expected actuarial value of assets
a. Actuarial value of assets at July 1, 2010 $ 230,010,299
b. Contributions for fiscal year ending June 30, 2011 5,861,185
c. Benefit payments and administrative expenses for (13,408,765)
fiscal year ending June 30, 2011
d. Interest on (a), (b), and (c) 16,972,855
e. Expected actuarial value of assets as of July 1, 2011 $ 239,435,574
(a) + (b) + (c) + (d)
5. Actuarial value of assets at July 1, 2011 $ 237,626,663
6. Actuarial value of assets gain/(loss) (5) - (4e) $ (1,808,911)
7. Net actuarial gain/(loss) (3) + (6) $ 1,493,339
SECTION 4 – EMPLOYER CONTRIBUTIONS
23
Uniform Retirement System For Justices & Judges
Table 11
Summary of Contribution Requirements
Actuarial Valuation as of
Percent
July 1, 2011 July 1, 2010 Change
1. Expected annual payroll $ 34,700,819 $ 35,023,262 (0.92%)
2. Total normal cost $ 9,217,985 $ 11,090,075 (16.88%)
3. Unfunded actuarial accrued liability $ 9,165,569 $ 52,755,106 (82.63%)
4. Amortization of unfunded actuarial $ 752,512 $ 4,067,042 (81.50%)
accrued liability over 20 years
from July 1, 2007*
5. Budgeted expenses (provided $ 218,301 $ 163,298 33.68%
by the System)
6. Total required contribution $ 10,188,798 $ 15,320,415 (33.50%)
(2) + (4) + (5)
7. Estimated member contributions $ 2,776,066 $ 2,801,861 (0.92%)
8. Required employer contribution $ 7,412,732 $ 12,518,554 (40.79%)
(6) - (7)
9. Previous year's actual contribution
a. Member $ 2,667,908 $ 2,599,341 2.64%
b. Employer 3,193,277 8,704,232 (63.31%)
c. Total $ 5,861,185 $ 11,303,573 (48.15%)
*Amortization of UAAL is a level percent of payroll.
SECTION 5 – ACCOUNTING AND OTHER INFORMATION
24
Uniform Retirement System For Justices & Judges
Governmental Accounting Standards Board Statement No. 25, Financial Reporting for Defined Benefit
Pension Plans as amended by GASB 50, (referred to as GASB 25), establishes financial reporting
standards for defined benefit pension plans. In addition to the two required statements regarding plan
assets, the statement requires two schedules and accompanying notes disclosing information relative to
the funded status of the Plan and historical contribution patterns.
• The Schedule of Funding Progress provides information about whether the financial strength of
the Plan is improving or deteriorating over time.
• The Schedule of Employer Contributions provides historical information about the annual
required contribution (ARC) and the percentage of the ARC that was actually contributed.
In addition to information required by GASB, we also provide an exhibit showing the present value of
accumulated benefits under FASB Statement No. 35 and an exhibit showing the expected benefit
payments for the System.
SECTION 5 – ACCOUNTING AND OTHER INFORMATION
25
Uniform Retirement System For Justices & Judges
Table 12
Accounting Information for GASB 25
Schedule of Funding Progress
Actuarial Actuarial Actuarial Accrued Unfunded Funded Covered UAAL as a Percent of
Valuation Value of Assets Liability (AAL) AAL (UAAL) Ratio Payroll Covered Payroll
Date (a) (b) (b)-(a) (a)/(b) (c) ((b) - (a))/(c)
7/1/2006 $210,376,209 $205,302,048 ($5,074,161) 102.5% $27,488,381 (18.5%)
7/1/2007 224,577,704 227,062,193 2,484,489 98.9% 32,191,938 7.7%
7/1/2008 235,297,077 244,062,321 8,765,244 96.4% 32,389,296 27.1%
7/1/2009 221,576,179 261,396,022 39,819,843 84.8% 33,579,668 118.6%
7/1/2010 230,010,299 282,765,405 52,755,106 81.3% 35,023,262 150.6%
7/1/2011 237,626,663 246,792,232 9,165,569 96.3% 34,700,819 26.4%
Valuation Date July 1, 2011
Actuarial Cost Method Entry Age Normal
Amortization Method Level Percent of Pay, Closed
Remaining Amortization Period 16 Years
Asset Valuation Method 5 Year Moving Average (see
Appendix C)
Actuarial Assumptions:
Investment Rate of Return 7.5%
Projected Salary Increases 5.25%
Cost of Living Adjustment 0%
SECTION 5 – ACCOUNTING AND OTHER INFORMATION
26
Uniform Retirement System For Justices & Judges
Table 13
Accounting Information for GASB 25
Schedule of Employer Contributions
For Fiscal Year Ended June 30
Year Annual Required Percentage
End Contribution Contributed
2006 $ 4,441,184 17.8%
2007 5,936,316 20.6%
2008 7,615,245 22.2%
2009 8,169,214 27.5%
2010 10,778,833 80.8%
2011 12,518,554 25.5%
SECTION 5 – ACCOUNTING AND OTHER INFORMATION
27
Uniform Retirement System For Justices & Judges
Table 13a
Accounting Information for GASB 27
Fiscal Year End
June 30, 2012 June 30, 2011
Annual Required Contribution $ 7,412,732 $ 12,518,554
Interest on Net Pension Obligation 1,326,455 628,375
Adjustment to Annual Required Contribution (1,452,063) (645,910)
Annual Pension Cost $ 7,287,124 $ 12,501,019
Actual Contribution * 3,193,277
Increase in Net Pension Obligation * 9,307,742
Beginning of Year Net Pension Obligation $ 17,686,073 $ 8,378,331
End of Year Net Pension Obligation * 17,686,073
Interest Rate 7.50% 7.50%
Amortization Period 16 17
Amortization Factor 12.1800 12.9714
* Not available until the end of the fiscal year
SECTION 5 – ACCOUNTING AND OTHER INFORMATION
28
Uniform Retirement System For Justices & Judges
Table 14
Actuarial Present Value of Accumulated Benefits
The actuarial present value of vested and nonvested accumulated System benefits is computed on an
ongoing System basis in order to provide information on benefit liabilities calculated in accordance with
Financial Accounting Standards Board Statement No. 35. In this calculation, a determination is made of
all benefits earned by current participants as of the valuation date; the actuarial present value is then
computed using demographic assumptions and an assumed interest rate. Assumptions regarding future
salary and accrual of future benefit service are not necessary for this purpose.
July 1
2011 2010
Vested benefits
Active members $ 76,544,706 $ 85,624,735
Vested terminated members 3,729,476 3,227,083
Unclaimed contributions 396,667 521,580
Retirees and beneficiaries 128,802,142 108,836,054
Supplemental medical insurance premiums 2,516,060 2,445,328
Total vested benefits $ 211,989,051 $ 200,654,780
Nonvested benefits for active members $ 9,901,904 $ 9,191,445
Total accumulated benefits $ 221,890,955 $ 209,846,225
Market value of assets available for benefits $ 248,189,010 $ 211,180,555
Funded ratio 111.9% 100.6%
Number of members
Vested members
Active members 146 157
Vested terminated members 13 12
Retirees and beneficiaries 235 210
Total vested members 394 379
Nonvested active members 125 114
Total members 519 493
SECTION 5 – ACCOUNTING AND OTHER INFORMATION
29
Uniform Retirement System For Justices & Judges
Table 14 (continued)
Actuarial Present Value of Accumulated Benefits
A statement of changes in the actuarial present value of accumulated System benefits follows. This
statement shows the effect of certain events on the actuarial present value shown on the previous page.
Present value of accrued benefit as of July 1, 2010 $ 209,846,225
Increase/(decrease) during the year attributable to:
Benefits accrued and (gains)/losses 10,085,628
Increase due to interest 15,249,102
Benefits paid (13,290,000)
Plan provision change 0
Net increase/(decrease) $ 12,044,730
Present value of accrued benefit as of July 1, 2011 $ 221,890,955
SECTION 5 – ACCOUNTING AND OTHER INFORMATION
30
Uniform Retirement System For Justices & Judges
Table 15
Projected Benefit Payments
The table below shows estimated benefits expected to be paid over the next ten years, based on the
assumptions used in the valuation. The “Actives” column shows benefits expected to be paid to members
currently active on July 1, 2011. The “Retirees” column shows benefits expected to be paid to all other
members. This includes those who, as of July 1, 2011, are receiving benefit payments or who terminated
employment and are entitled to a deferred vested benefit.
Retirement, Survivor and Withdrawal Benefits
Year Ending
June 30 Actives Retirees Total
2012 $ 1,445,000 $ 14,044,000 $ 15,489,000
2013 2,646,000 13,751,000 16,397,000
2014 3,798,000 13,566,000 17,364,000
2015 5,188,000 13,275,000 18,463,000
2016 6,689,000 12,977,000 19,666,000
2017 8,192,000 12,614,000 20,806,000
2018 9,555,000 12,265,000 21,820,000
2019 10,976,000 11,888,000 22,864,000
2020 12,493,000 11,570,000 24,063,000
2021 13,900,000 11,234,000 25,134,000
Supplemental Medical Premium Benefits
Year Ending
June 30 Actives Retirees Total
2012 $ 17,000 $ 167,000 $ 184,000
2013 33,000 161,000 194,000
2014 48,000 157,000 205,000
2015 64,000 152,000 216,000
2016 83,000 145,000 228,000
2017 98,000 139,000 237,000
2018 112,000 133,000 245,000
2019 126,000 127,000 253,000
2020 139,000 123,000 262,000
2021 150,000 119,000 269,000
APPENDIX A – SUMMARY OF SYSTEM PROVISIONS
31
State of Oklahoma
Uniform Retirement System of Justices & Judges
Following is a summary of the major System provisions used to determine the System’s financial
position as of July 1, 2011.
Effective date and authority Laws 1968, c. 128
The System is provided for under Chapter 16, Sections
1101-1112 of Title 20 of the Oklahoma Statutes.
Administration The State Judicial Retirement Fund is administered by the
Board of Trustees of the Oklahoma Public Employees
Retirement System. The Board acts as the fiduciary for
investment and administration of the System.
Employees included All justices and judges of the Supreme Court, Court of
Criminal Appeals, Workers Compensation Court, Courts of
Appeals or District Court who serve in the State of
Oklahoma participate in the Uniform Retirement System for
Justices and Judges.
Member contributions Before September 1, 2005, basic member contributions
equal 5% of salary, while married members could have
elected an 8% contribution rate in order to provide survivor
coverage. After September 1, 2005, the member
contribution rate for all members is 8% of salary.
Employer contributions Before July 1, 1997, the fund received an amount equal to
10% of the Court Fund receipts. After July 1, 1997,
employer contributions were based on members’ salaries
and a yearly schedule and, effective January 1 2001, were
changed to 2% of the member’s salary. Effective for the
fiscal years ending June 30, 2006, employer contributions
increased to 3.0% of the member’s salary and will increase
annually up to 22.0% for fiscal years ending June 30, 2019,
and thereafter.
Service considered Any justice or judge who becomes a member of the System
when first eligible will receive credit for all years of service
with the Supreme Court, Court of Criminal Appeals,
Workers' Compensation Court, Court of Appeals, or
District Court within the State of Oklahoma.
APPENDIX A – SUMMARY OF SYSTEM PROVISIONS
32
Oklahoma
Uniform Retirement System of Justices & Judges
Compensation considered Salary received by the justice or judge while serving in the
referenced courts.
Final average salary The average monthly salary received during the thirty-six
highest months of active service as a Justice or Judge.
Eligibility for benefits A justice or judge must complete eight years of service to
be eligible for any benefit from the System. A member
who leaves the System, for any reason, prior to the
completion of eight years of service in entitled only to a
return of his/her accumulated contributions without interest.
Normal retirement A member who completes eight years of service and attains
age 65, or completes ten (10) years of service and attains
age 60, or completes eight (8) years of service and whose
sum of years of service and age equals or exceeds 80, may
begin receiving retirement benefits at his/her request. For
judges taking office after January 2012, retirement age is
age 67 with eight (8) years of service or age 62 with ten
(10) years of service.
The benefit, payable monthly for the life of the member, is
equal to 4% of average monthly salary multiplied by the
number of years in service. In no event, however, will the
benefit exceed 100% of final average salary.
Disability retirement A member who completes fifteen years of service, attains
age 55, and is ordered to retire by reason of disability is
eligible for disability retirement benefits. The benefit,
payable for life, is calculated in the same manner as a
normal retirement benefit.
Survivor coverage The spouse of a deceased active member who had met
normal or vested retirement provisions may elect a spouse’s
benefit. The spouse’s benefit is the benefit that would have
been paid if the member had retired and elected the reduced
benefit with the joint and 100% survivor option (Option B),
APPENDIX A – SUMMARY OF SYSTEM PROVISIONS
33
State of Oklahoma
Uniform Retirement System of Justices & Judges
Survivor coverage or a 50% unreduced benefit for certain married participants
(continued) making 8% of pay contributions prior to September 1, 2005.
Spouses of members who made the voluntary contributions
prior to July 1, 1999 and die or retire after July 1, 1999 may
receive up to 65% of the unreduced benefit. If the member
has ten years of service and the death is determined to be
employment related, this benefit is payable immediately to
the spouse. Otherwise, the benefit is payable to the spouse
on the date the deceased member would have been eligible.
This benefit is payable only to the surviving spouse of a
member and they must be married 90 days prior to the
member’s termination of employment as a Justice or Judge.
Optional forms of The Maximum Benefit is an unreduced single life annuity
retirement benefits with a guaranteed refund of the contribution accumulation.
Three other types of benefit payments are available to
retiring members:
Option A – A reduced benefit with Joint and 50% Survivor
annuity and a return to the unreduced amount if the joint
annuitant dies.
Option B – A reduced benefit with Joint and 100% Survivor
annuity and a return to the unreduced amount if the joint
annuitant dies.
Original Surviving Spouse Plan – An unreduced benefit
with Joint and 50% Survivor annuity available only to
members who made additional voluntary survivor benefit
contributions of 3% of salary prior to September 1, 2005.
Spouses of members who made the voluntary contributions
prior to July 1, 1999 and die or retire after July 1, 1999 may
receive up to 65% of the unreduced benefit.
For married members, spousal consent is required for any
option other than Option A.
Postretirement death benefit Upon the death of any retired member, a $5,000 lump-sum
death benefit will be paid to the member’s beneficiary. If
there is no beneficiary, then the benefit will be paid to the
estate.
APPENDIX A – SUMMARY OF SYSTEM PROVISIONS
34
State of Oklahoma
Uniform Retirement System of Justices & Judges
Minimum benefits In no event will a member, or the estate of a member
receive an amount or amounts less than the member’s
accumulated contributions without interest.
If a former member is not eligible for any other benefit
from the System, the member will receive a transfer of
these contributions. Similarly, if a member dies while
having no spousal coverage, or upon the death of a spouse
receiving survivor benefits, the member’s beneficiary will
receive the excess of the accumulated contributions over all
benefits received by either the member, or the member and
spouse combined.
Supplemental medical The System contributes the lesser of $105 per month or the
insurance Medicare Supplement Premium to the Oklahoma State and
Education Employee’s Group Health Insurance Program for
members receiving retirement benefits.
Expenses The expenses of administering the System are paid from the
retirement trust fund.
APPENDIX B – ACTUARIAL ASSUMPTIONS AND METHODS
35
State of Oklahoma
Uniform Retirement System of Justices & Judges
Entry age Actuarial Cost Method
Liabilities and contributions shown in this report are computed using the individual Entry Age Level
Percent of Pay actuarial cost. Sometimes called the “funding method,” this is a particular technique used
by actuaries for establishing the amount of the annual actuarial cost of pension benefits, or normal cost,
and the related unfunded actuarial accrued liability. Ordinarily the annual contribution to the System is
comprised of (1) the normal cost and (2) an amortization payment on the unfunded actuarial accrued
liability.
Under the Entry Age Actuarial Cost method, the Normal Cost is computed as the level percentage of pay
which, if paid from the earliest time each member would have been eligible to join the System if it then
existed (thus, entry age) until his retirement or termination, would accumulate with interest at the rate
assumed in the valuation to a fund sufficient to pay all benefits under the System.
The Actuarial Accrued Liability under this method, at any point in time, is the theoretical amount of the
fund that would have accumulated had annual contributions equal to the normal cost been made in prior
years (it does not represent the liability for benefits accrued to the valuation date). The Unfunded
Actuarial Accrued Liability is the excess of the actuarial accrued liability over the actuarial value of
System assets actually on hand on the valuation date.
Under this method, experience gains or losses, i.e. decreases or increases in actuarial accrued liabilities
attributable to deviations in experience from the actuarial assumptions, adjust the unfunded actuarial
accrued liability.
Asset Valuation Method
The actuarial value of assets is based on a five-year moving average of expected and actual market values
determined as follows:
• at the beginning of each fiscal year, a preliminary expected actuarial asset value is calculated as
the sum of the previous year’s actuarial value increased with a year’s interest at the System
valuation rate plus net cash flow adjusted for interest (at the same rate) to the end of the previous
fiscal year;
• the expected actuarial asset value is set equal to the preliminary expected actuarial value plus the
unrecognized investment gains and losses as of the beginning of the previous fiscal year;
• the difference between the expected actuarial asset value and the market value is the investment
gain or loss for the previous fiscal year;
APPENDIX B – ACTUARIAL ASSUMPTIONS AND METHODS
36
State of Oklahoma
Uniform Retirement System of Justices & Judges
• the (final) actuarial asset value is the preliminary value plus 20% of the investment gains and
losses for each of the five previous fiscal years, but in no case more than 120% of the market
value or less than 80% of the market value.
Amortization Method
The Unfunded Actuarial Accrued Liability is amortized as a level percentage of payroll over a 20-year
period commencing July 1, 2007. Given a stable active workforce, this amortization method is expected
to produce a payment stream that remains level as a percent of covered payroll.
Valuation Procedures
The actuarial accrued liability held for nonvested, inactive members who have a break in service, or for
nonvested members who have quit or been terminated, even if a break in service has not occurred as of
the valuation date, is equal to the amount of the individual’s unclaimed contributions.
The wages used in the projection of benefits and liabilities are actual earnings for the year ending June 30,
2011 increased by the salary scale to develop expected earnings for the current valuation year. Earnings
are annualized for members with less than twelve months of reported earnings.
In computing accrued benefits, average earnings are determined using actual pay history provided for
valuation purposes.
The calculations for the required employer contribution are determined as of mid-year. This is a
reasonable estimate since contributions are made on a monthly basis throughout the year.
We did not value the 415 limit for active participants. The impact was assumed to be de minimus.
The compensation limitation under IRC Section 401(a)(17) is considered in this valuation.
Liability is included for members who appear to be deferred vested, but who are not in the vested data
provided. An estimated benefit was calculated based on pay and service reported for prior valuations. A
corrected benefit and status will be provided by the System when the actual benefit and status have been
finalized.
Members who are contributing to the System, but have not yet filled out an enrollment application, are
included as active members. Where data elements are missing, reasonable estimates are used. Service is
estimated based on hours worked. Age is based on average entry age for other members. Gender is
assigned in proportion to the overall group.
APPENDIX B – ACTUARIAL ASSUMPTIONS AND METHODS
37
State of Oklahoma
Uniform Retirement System of Justices & Judges
Economic Assumptions
Investment Return: 7.5% net of investment expenses per annum, compounded
annually
Salary Increases: 5.25% per year
Payroll Growth: 4.0% per year
Ad hoc benefit increase assumption:
Monthly benefits
Medical supplement
2% per year
No increases assumed
Projection of 410(a)(17) compensation limit Projected with inflation at 3.0%
Demographic Assumptions
Retirement age:
Active members
Annual Rates of Retirement
Attained Age Per 100 Eligible Members
Below 62 10
62 - 65 25
66 – 67 10
68 - 69 30
70 20
71 - 74 10
75+ 100
APPENDIX B – ACTUARIAL ASSUMPTIONS AND METHODS
38
State of Oklahoma
Uniform Retirement System of Justices & Judges
Deferred vested members Participants with deferred benefits are assumed to
commence benefits on a date provided by URSJJ. Actives
expected to terminate with a vested benefit are expected to
commence benefits at age 60.
Mortality Rates:
Active Participants and
nondisabled pensioners
RP-2000 Combined Active/Retired Healthy Mortality
Table projected to 2010 using Scale AA, setback 1 year.
Disabled pensioners RP-2000 Combined Active/Retired Healthy Mortality
Table projected to 2010 using Scale AA set forward 14
years.
Separation Rates:
Separation for all reasons other
than death
2% for all years of service.
Disability Rates: 0%
Marital Status:
Age difference
Percentage married
Males are assumed to be four years older than spouses.
85%
Other Assumptions:
Provisions for expenses Administrative expenses, as budgeted for the Oklahoma
Uniform Retirement System for Justices and Judges.
Form of payment Active members who were contributing 8% of pay as of
August 31, 2005, are assumed to retire with an unreduced
benefit payable as a 50% Joint and Survivor annuity. All
other members are assumed to retire with a life-only
annuity.
APPENDIX C – DATA
39
Uniform Retirement System For Justices & Judges
Actuarial Valuation as of
7/1/2011 7/1/2010 % Change
1. Active members
a. Number 271 271 0.0%
b. Annual compensation $ 34,700,819 $ 35,023,262 (0.9%)
c. Average annual compensation $ 128,047 $ 129,237 (0.9%)
d. Average age 56 57 (1.9%)
e. Average service 11 12 (9.8%)
2. Accumulated member contributions
a. Active members $ 20,060,127 $ 20,976,808 (4.4%)
b. Unclaimed contribution amounts $ 396,667 $ 521,580 (23.9%)
c. Total $ 20,456,794 $ 21,498,388 (4.8%)
3. Vested terminated members
a. Number 13 12 8.3%
b. Annual deferred benefits $ 548,663 $ 485,361 13.0%
c. Average annual deferred benefit $ 42,205 $ 40,447 4.3%
d. Annual supplemental medical $ 16,380 $ 15,120 8.3%
insurance premiums
4. Retired members
a. Number 177 157 12.7%
b. Annual retirement benefits $ 12,372,729 $ 10,484,788 18.0%
c. Average annual retirement benefit $ 69,902 $ 66,782 4.7%
d. Annual supplemental medical $ 165,060 $ 146,160 12.9%
insurance premiums
5. Beneficiaries
a. Number 56 51 9.8%
b. Annual retirement benefits $ 1,539,200 $ 1,201,241 28.1%
c. Average annual retirement benefit $ 27,486 $ 23,554 16.7%
6. Disabled members
a. Number 2 2 0.0%
b. Annual retirement benefits $ 115,952 $ 115,952 0.0%
c. Average annual retirement benefit $ 57,976 $ 57,976 0.0%
d. Annual supplemental medical $ 2,520 $ 2,520 0.0%
insurance premiums
7. Total members included in valuation 519 493 5.3%
APPENDIX C – DATA
40
Uniform Retirement System For Justices & Judges
Receiving Benefits
Active Vested Disability Benefici- Total
Members Terminated Retirees Retirees aries Members
As of July 1, 2010 271 12 157 2 51 493
Age retirements (26) (1) 27 0 0 0
Disability retirements 0 0 0 0 0 0
Deaths without payments
continuing
(1) 0 (1) 0 (2) (4)
Deaths with payments continuing 0 0 (6) 0 7 1
Nonvested terminations/refund (1) 0 0 0 0 (1)
of contributions
Vested terminations (2) 2 0 0 0 0
Transfers 0 0 0 0 0 0
Data adjustments 0 0 0 0 0 0
Rehires 2 0 0 0 0 2
New entrants during the year 28 0 0 0 0 28
Net change 0 1 20 0 5 26
As of July 1, 2011 271 13 177 2 56 519
APPENDIX C – DATA
41
Uniform Retirement System For Justices & Judges
Vested
Active Retired Terminated Total
Records submitted on data file 271 397 13 681
Remove deceased retirees 0 (162) 0 (162)
Remove unusable data 0 0 0 0
Remove those with another status 0 0 0 0
Add those with no application 0 0 0 0
Add assumed vesteds 0 0 0 0
Total valued 271 235 13 519
APPENDIX C – DATA
42
Uniform Retirement System For Justices & Judges
Retirees, Beneficiaries, & Disableds
Number Annual Benefits
Age Male Female Total Male Female Total
Under 50 0 1 1 $ 0 $ 58,689 $ 58,689
50-55 0 0 0 0 0 0
55-60 6 3 9 649,825 192,704 842,530
60-65 26 9 35 2,118,617 579,016 2,697,633
65-70 33 14 47 2,611,968 867,027 3,478,995
70-75 37 6 43 2,312,444 236,573 2,549,018
75-80 19 7 26 1,166,425 175,425 1,341,850
80-85 24 8 32 1,370,423 201,226 1,571,649
85-90 16 11 27 1,064,188 260,169 1,324,357
90-95 2 8 10 97,069 109,619 206,688
95-100 0 3 3 0 45,236 45,236
Over 100 0 2 2 0 27,188 27,188
Total 163 72 235 $ 11,390,960 $ 2,752,873 $ 14,143,833
0
10
20
30
40
50
Under
50
50-55 55-60 60-65 65-70 70-75 75-80 80-85 85-90 90-95 95-100 Over
100
Age Distribution
0
20,000
40,000
60,000
80,000
100,000
Under
50
50-55 55-60 60-65 65-70 70-75 75-80 80-85 85-90 90-95 95-100 Over
100
Benefits Distribution
APPENDIX D – GLOSSARY
43
State of Oklahoma
Uniform Retirement System of Justices & Judges
Accrued Benefit
The amount of an individual's benefit (whether or not vested) as of a specific date, determined in accordance
with the terms of a pension plan and based on compensation and service to that date.
Actuarial Accrued Liability
That portion, as determined by a particular Actuarial Cost Method, of the Actuarial Present Value of pension
plan benefits and expenses which is not provided for by future Normal Costs.
Actuarial Assumptions
Assumptions as to the occurrence of future events affecting pension costs, such as: mortality, withdrawal,
disablement, and retirement; changes in compensation, rates of investment earnings, and asset appreciation or
depreciation; procedures used to determine the Actuarial Value of Assets; and other relevant items.
Actuarial Cost Method
A procedure for determining the Actuarial Present Value of pension plan benefits and expenses and for
developing an actuarially equivalent allocation of such value to time periods, usually in the form of a Normal
Cost and an Actuarial Accrued Liability.
Actuarial Gain (Loss)
A measure of the difference between actual experience and that expected based upon a set of Actuarial
Assumptions during the period between two Actuarial Valuation dates, as determined in accordance with a
particular Actuarial Cost Method.
Actuarial Present Value
The value of an amount or series of amounts payable or receivable at various times, determined as of a given
date by the application of a particular set of Actuarial Assumptions.
Actuarial Valuation
The determination, as of a valuation date, of the Normal Cost, Actuarial Accrued Liability, Actuarial Value of
Assets, and related Actuarial Present Values for a pension plan.
Actuarial Value of Assets
The value of cash, investments and other property belonging to a pension plan, as used by the actuary for the
purpose of an Actuarial Valuation.
APPENDIX D – GLOSSARY
44
Actuarially Equivalent
Of equal Actuarial Present Value, determined as of a given date with each value based on the same set of
Actuarial Assumptions.
Amortization Payment
That portion of the pension plan contribution which is designed to pay interest on and to amortize the Unfunded
Actuarial Accrued Liability.
Deferred Vested Participant
A vested member who has terminated employment prior to early or normal retirement age who does not
withdraw his or her contributions and is, therefore, due a retirement benefit at a later date.
Entry Age Actuarial Cost Method
A method under which the Actuarial Present Value of the Projected Benefits of each individual included in an
Actuarial Valuation is allocated on a level basis over the earnings of the individual between entry age and
assumed exit ages. The portion of this Actuarial Present Value allocated to a valuation year is called the Normal
Cost. The portion of this Actuarial Present Value not provided for at a valuation date by the Actuarial Present
Value of future Normal Costs is called the Actuarial Accrued Liability.
Market Value of Assets
The fair value of cash, investments and other property belonging to a pension plan that could be acquired by
exchanging them on the open market.
Normal Cost
That portion of the Actuarial Present Value of pension plan benefits and expenses which is allocated to a
valuation year by the Actuarial Cost Method Projected Benefits
Projected Benefits
Those pension plan benefit amounts which are expected to be paid at various future times under a particular set
of Actuarial Assumptions, taking into account such items as the effect of advancement in age and past and
anticipated future compensation and service credits.
Unaccrued Benefit
The excess of an individual's Projected Benefits over the Accrued Benefits as of a specified date.
Unfunded Actuarial Accrued Liability
The excess of the Actuarial Accrued Liability over the Actuarial Value of Assets.
Withdrawal Liability
The liability due to an active member terminating employment with a deferred vested benefit.