LGERS action could save counties $5 million

The Local Government Employees’ Retirement System (LGERS) Board of Trustees met Jan. 19 to set the annual retirement contribution (ARC), death benefit plan and law enforcement officer rates for Fiscal Year 2013. Representing the county employer interest are Guilford County Commissioner Kay Cashion and Vance County Manager Jerry Ayscue.

The LGERS Board affirmed their October 2011 action to set the 2013 employer ARC at 6.74 percent of payroll, lowering the 2012 ARC of 6.88 percent by 14 basis points. While the LGERS pool is still recovering from 2008 investment losses, an updated calculation of the other demographic assumptions embedded in the ARC, particularly salary levels, enabled the 2013 reduction.

In other good news for counties, the LGERS Board also voted to provide a temporary holiday for the death benefit rate paid by local government employers over and above the ARC. An actuarial examination of the death benefit plan showed a significant surplus, exempting local governments from paying the death benefit in its entirety, albeit temporarily. What’s more, those local units participating in the plan the longest will be provided the longest holiday period, bringing the greatest relief to counties. Units who have participated for at least 20 years will enjoy a three-year holiday, 10-20 year participants will enjoy a two-year holiday, and units participating less than 10 years will receive a one-year holiday.

The death benefit is an optional program for general local government employees, and most counties opt to provide the benefit. The percentage of payroll to fund the death benefit ranges from roughly 6 basis points to 15 basis points based on the individual units’ general employee demographics. By law, the death benefit plan must be provided to all law enforcement officers at a 14 basis point annual cost. All told, we estimate that counties will save $5 million or more over the three-year holiday.

Speaking of law enforcement officers, the LGERS Board of Trustees adopted the actuary’s recommendation for the 2013 LEO ARC at 7.22 percent, which is also a reduction of 14 basis points. It maintained the court cost offset of minus 45 basis points, and with the LEO death benefit holiday, the 2013 LEO rate is set at 6.77 percent.

The Board also confirmed its October 2011 action to use 4 additional basis points to relieve those fast-growing units that have overpaid unfunded liabilities. The old methodology of setting a constant percent of salary for 24 years to amortize unfunded liabilities has resulted in a number of cities, with rapidly growing employee counts and therefore rapidly growing payrolls, overpaying significantly their actuarial unfunded liability. The 4 basis points will cover roughly 50 other units with stagnant or declining payrolls that could not repay the unfunded liabilities within the statutory 24-year amortization period. The LGERS Board has directed that the Retirement Division seek legislative change to prevent the underpaying of unfunded liabilities for future participants.

Finally, in looking out in the horizon, the division’s actuarial firm is considering the impacts of the 2011 investment gains on future ARC rates. With an initial estimate of 2.5 percent versus the 7.25 percent annual gain assumption, the 2014 rate could approach 7.5 percent. Let’s hope that the recent stock market rally continues.

For more information, contact NCACC Intergovernmental Relations Director Rebecca Troutman at rebecca.troutman@ncacc.org or (919) 715-4360.