Actuarial Information

Funding

System income comes from three sources: employer contributions, member contributions and investment income. The funding cycle is as follows: Each year school districts make contributions on behalf of all active System members. These contributions are made in accordance with the actuarially determined employer contribution rate (ECR). In addition, certain members are required by law to make member contributions. The System invests the employer and member contributions throughout a member’s career and accumulates the assets necessary to provide a fully funded benefit in retirement. This method of funding is called advance funding.

Since advance funding allows the investment of contributions over a member’s lifetime, the System has the opportunity to generate income from these investments. This income can fund a large portion of the pension and may help substantially reduce school district costs for retirement benefits.

If advance funding were not used, the entire pension would have to be paid directly from employer and member contributions, without the benefit of investment income. Employer contributions would not begin until a member retires and would often continue for many years in retirement. With this type of funding, known as pay-as-you-go funding, employer costs would be substantially higher.

For example, during the 2005-06 school year, using advance funding, the System had an annual required employer contribution of approximately $1.0 billion, based on an employer contribution rate of 7.97% of pay. If pay-as-you-go funding had been used during 2005-06 instead, the System would have had to collect about $4.4 billion in employer contributions.

Advance funding, as opposed to pay-as-you-go funding, should continue to provide substantial savings for school districts and the state’s taxpayers in years to come because of the following advantages:

• Investment Income — The System is able to collect and invest money, with the investment income used to reduce employer costs.

• Level Contributions — Advance funding allows for a more level contribution pattern and makes budget planning easier.

• Generational Equity — Under advance funding, each generation of taxpayers pays only for the benefits earned by its public employees as they work. If benefits were funded as they became due (pay-as-you-go funding), those paying taxes at the time of a member’s retirement would be required to pay for the entire benefit.

• Strong Portfolio — NYSTRS is one of the 10-largest public retirement funds in the country and is consistently among the best performers. A sound asset allocation policy within a diversified portfolio protects the total fund and allows the System to weather turbulent markets. Asset allocations and total portfolio construction are reviewed annually and adjusted accordingly.

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Employer Contribution Rate

The employer contribution rate (ECR), which is the same for all tiers, is expressed as a uniform percentage of member payroll and is set more than a year in advance of its collection. The rate is adopted annually by the Retirement Board at its July meeting, but the contributions associated with that rate will not be collected for another 14-16 months, which allows employers time to budget accordingly. Except in the case of a few employers required to pay directly, payments are deducted from State Aid apportioned during September, October and November of each school year.

The ECR is determined annually by the System’s actuarial valuation of its assets and liabilities. This valuation encompasses estimates of future salaries and projected benefit payments for all members. The projections are based upon current member data as well as the following actuarial assumptions regarding future events:

• Rate of return on assets;

• Rate of salary growth;

• Mortality rates for active, retired and disabled members; and,

• Rates of retirement, disability and withdrawal.

Even with the enactment of several substantial benefit improvements over the past 25 years, the ECR has been in single digits since the late 1980s. For six fiscal years, 1997-2003, the ECR was less than 2% of member salaries, with three of these fiscal years having an ECR of less than 1% of salaries. The substantial decline in the ECR was primarily the result of unexpectedly high rates of investment return.

However, rates of return in the capital markets were unfavorable (and consistently negative) in the first few years of the new millennium. Although the assets of the Retirement System are prudently diversified and the asset valuation method employed by our actuaries helps dampen the impact of market volatility, the poor return of the capital markets required a considerable increase in the ECR.

Following are the employer contribution rates over the last 20 years.

The actuarial assumptions, methods and procedures used by the System’s actuary to calculate employer contributions are reviewed annually by outside independent auditors. All have been found to be reasonable and appropriate, and in compliance with generally accepted actuarial principles and practices.

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Investments

The Retirement System’s assets are invested in the most prudent manner possible in order to achieve optimum long-term total returns with an appropriate level of risk. The allocation of assets within the portfolio, as well as the fund’s overall structure, are continuously reviewed and adjusted to achieve these goals.

The System’s long-term investment approach helps it tolerate the short-term volatility of the capital markets. This strategy also enables the payment of promised benefits to members and their beneficiaries at the lowest appropriate cost to participating employers and their taxpayers, while providing members with the greatest benefit security. In many cases, especially for new teachers, benefit payments will not commence until 30 to 40 years after a member joined the System.

As of June 30, 2007, the Retirement System’s net assets available for pension benefits were $104.9 billion. NYSTRS staff and external investment managers, following the policies adopted by the Retirement Board, are responsible for the daily investment decisions. The Investment Advisory Committee and the Real Estate Advisory Committee – established by the Retirement Board – advise the Board and staff on investment objectives, economic trends and investment opportunities. The performance of each external investment manager is carefully monitored by both staff and the System’s investment consultants to ensure compliance with NYSTRS’ investment policies and objectives.

The long-term objective of the investment policy is to achieve returns that exceed those of comparable asset class benchmarks, but are, in aggregate, not less than the actuarial assumption, which is currently 8% per annum. Additionally, each external investment manager is expected to outperform, over a market cycle, the appropriate benchmark.

Asset Allocation

The most significant contributor to long-term investment performance is the allocation of assets to each of the various asset classes, such as equities, fixed income and real estate. The allocation process helps control risk and sets policy guidelines to diversify the Retirement System’s assets. The asset allocation policy, adopted by the Retirement Board, establishes ranges for each asset class target allocation. The Retirement Board, with the assistance of staff and an external consultant, annually reviews the asset allocation policy, taking into consideration recent and historical investment experience, as well as the System’s long-term expectations for the capital markets. Refer to the Investments section of the System's Annual Report for the asset allocation targets and ranges. You can access the Annual Report on the Publications page at www.nystrs.org or request a copy by calling (800) 782-0289.

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The Investment Portfolio

NYSTRS’ investment portfolio is comprised of several components.

The domestic equity portfolio is both passively and actively managed in an effort to maximize investment returns at appropriate levels of risk while minimizing expenses. Approximately 97% is managed passively by staff with the remaining 3% actively managed by two external managers.

The Retirement System’s international equities are generally managed by external managers, with one internally managed fund. The external accounts are managed in commingled funds.

The System’s real estate and mortgage portfolios continue to be positively impacted by demand from investors looking for a stable yield and the possibility of upside potential. Economic growth and continued job formation have also had a positive effect on the portfolio.

Private equity investments are generally limited partnerships in which the Retirement System, as a limited partner, commits a fixed amount that the general partner will invest over several years. The partnership structure may cover periods of 10 years or more, and is intended to achieve higher long-term returns than those available through marketable securities.

There are two objectives of the Retirement System’s domestic fixed income portfolio. The first is to generate cash flow to contribute toward the payment of the System’s approximately $400 million monthly retirement payroll. The second is to provide stability to the System’s total investment portfolio through diversification.

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Member Statistics

Number of Active Members by Tier

Distribution of Retired Members
and Beneficiaries by Tier as of June 30, 2007

*Also includes vested retirees.
** Those receiving an Article 14 (Tier 3) benefit. The remainder are receiving an Article 15 (Tier 4) benefit. Tier 3 members receive the better of the two benefits.

Distribution of Active Members by
Age — June 30, 2006

Distribution of Active Members by Service — June 30, 2006

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Member Benefits

Tier of membership, service credit, age, earnings and health are factors that determine the benefits members are eligible for while working and in retirement. Most members will receive a service retirement benefit. All members with five or more years of credited New York State service are vested and are entitled to a retirement benefit payable at age 55, if they have not transferred or withdrawn their NYSTRS membership.

A member who becomes disabled and cannot continue to work may qualify for a disability retirement benefit. When a member dies prior to collecting a retirement benefit, a death benefit will be paid to a beneficiary if eligibility requirements are met.

Eligibility requirements and calculations for each type of benefit differ by tier. An overview of each follows.

Service Retirement Benefit

Under all tiers, members may retire and receive a service retirement benefit at age 55 if credited with at least five years of New York State service. Retirement is possible with fewer years of service under certain circumstances. The eligibility requirements by tier are as follows:

Tier 1 — A member is eligible to retire as early as age 55 without reduction in benefit with 20 years of New York State service credit. The pension for 20 years of New York State credit after July 1, 1959 is 40% of final average salary. Generally, the maximum pension payable (with two years of credit under the Benefit Enhancement law, a description of which follows) is 79% of final average salary.
Tier 2 — A member may retire as early as age 55 without reduction in benefit with 30 years of credit. (There also is no reduction if retirement occurs at age 62 or older with at least 20 years of service.) The pension for 30 years of credit is 60% of final average salary. The maximum pension payable under Tier 2 (with two years of credit under the Benefit Enhancement law) is 79% of final average salary.
Tiers 3 and 4 — A member is eligible to retire as early as age 55 without reduction in benefit with 30 years of service. (There also is no reduction if retirement occurs at age 62 or older.) The pension for 30 years of service is 60% of final average salary. For members retiring under Tier 4, each year beyond 30 years adds 1 1/2% to your pension factor, and there is no maximum pension.

Pension Calculation

A pension is the retirement benefit determined by the following formula:

Pension Factor — A percent based on a member’s service credit. The percentage increases with additional service in most cases. (See calculations below.)
Age Factor — A reduction in the pension factor for Tier 2, 3 and 4 members who retire earlier than age 62 with less than 30 years of service credit.
Final Average Salary (FAS) — Typically, the average of a member’s highest three consecutive years of salary earned, with certain exclusions. Tier 1 members are eligible for a five-year FAS if it provides a greater benefit than the three-year calculation. In addition, Tier 1 members with a date of membership prior to June 17, 1971 are generally eligible for a five-year calculation without the three-year exclusions.

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Disability Retirement Benefit

Generally, all members who are credited with at least 10 years of New York State service (five years for Tier 3 members) who become disabled as defined by applicable statute are eligible for a disability retirement benefit from the Retirement System. The disability benefit is generally one-third of a member's final average salary. However, the benefit may be more or less depending on the member's age and service credit. For Tier 3 and 4 members who become disabled as a result of an accident sustained in the performance of their teaching duties, the five-year or 10-year eligibility requirement is waived.

Disability benefits are subject to the review and approval of the System’s Medical and Retirement boards.

In-Service Death Benefit

If a member dies before retirement, any monies the member paid into the System, plus interest, are payable to the designated beneficiary. In addition, an employer-funded death benefit is payable if the member dies prior to retirement and meets certain eligibility requirements.

Tier 1 — Generally, the amount of coverage under the employer-provided death benefit starts at $20,000 and gradually increases to three times the member’s last 12 months of earnings when the member is credited with 36 or more years of NYS service. If a member dies in service while eligible for retirement without a benefit reduction, the death benefit is usually substantially higher.
Tiers 2, 3 and 4 — All members are covered by the Paragraph 2 Death Benefit, unless they selected Paragraph 1 and it is greater than Paragraph 2. Members joining after January 1, 2001 are automatically covered by the Paragraph 2 benefit.

Paragraph 1 — One-twelfth of the member’s last 12 months of regular compensation for each year of credited NYS service to a maximum of three times such earnings with 36 or more years of NYS service.

Paragraph 2 — One year’s salary after a year of member service, increasing each year to a maximum of three years’ salary after three or more years of member service. This benefit declines after age 60.

Under Paragraph 2, if eligibility requirements are met, there is also a survivor benefit if death occurs after retirement, regardless of the benefit payment choice made at retirement.

Vested Death Benefit

Members who have at least 10 years of service credit but are not eligible for the in-service death benefit are covered until retirement by a vested death benefit. It would be equal to one-half of the active member death benefit that would have been paid if the member had died on the last day of creditable service.

Accidental Death Benefit

An accidental death benefit is payable in the form of a pension to eligible surviving family of Tier 3 and 4 members who die as the result of an accident sustained in the performance of their teaching duties. It would be paid in lieu of an in-service death benefit.

Accelerated Death Benefit

A member who qualifies for disability retirement and has either a terminal illness or one requiring extraordinary care can elect to receive a one-time only payment in lieu of both a monthly retirement benefit and a death benefit paid to a beneficiary.

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Additional Benefit Information

Member Contributions

Tier 3 and 4 members are required by law to contribute 3% of salary until they have 10 years of membership or are credited with 10 years of service, whichever occurs first. Tier 1 and 2 members are not required to contribute.

Tier 1 and 2 members who made voluntary contributions, transferred contributions from another public retirement system or purchased prior service credit may withdraw those funds (and interest earned) at retirement, or receive an annuity throughout retirement in addition to the employer-funded pension described earlier. Required contributions made by Tier 3 and 4 members are combined with employer contributions and investment returns to fund the pension.

Loans

Eligible members who have made member contributions may borrow from those funds.

Reinstatement

NYSTRS members with a previous membership in any New York State public retirement system are eligible for reinstatement to an earlier date of membership. Reinstatement is irrevocable.

Transfer and Prior Service

Some members are eligible to transfer membership from another New York State public retirement system or claim credit for public service prior to their date of membership in NYSTRS.

Military Service Credit

Eligible members may purchase credit for designated periods of active military service prior to NYSTRS membership. Members may also be eligible for credit if military service interrupts teaching service.

Retirement Options

At the time of retirement, a member may elect either the Maximum retirement benefit with no protection for a beneficiary, or one of several actuarially equivalent options (including lump sum, lifetime survivor, guarantee period or alternative) providing financial protection for a beneficiary or beneficiaries.

Cost-of-Living Adjustment (COLA)

All retirees will receive an automatic, annual cost-of-living adjustment (COLA) when they meet the eligibility requirements. The annual adjustment, applied to the first $18,000 of the pension, will be a minimum of 1% and a maximum of 3% based on 50% of the March-to-March increase in the Consumer Price Index (CPI).

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System Information and Services

Benefit Profile

A summary of membership, and projections of current and future benefits. Mailed to active members annually.

Retired Member Profile

A summary of benefits, including payment choice and net monthly amount. Mailed to retired members or their beneficiaries annually.

Consultations

Individual meetings with System information representatives, in person or through computer-based video conferencing, are available at locations throughout the state. Consultation schedules are posted in school buildings and on the Consultations page of our Web site.

Preretirement Planning Seminars

These day-long programs target members age 45 and older who are five to 10 years from retirement. The seminars cover a variety of retirement-related topics. Schedules are posted in school buildings and on the Consultations page of our Web site.

Group Benefits Presentations

Upon request, NYSTRS representatives will come to your school and give a tailored benefits presentation to a group of members. Typical topics include new member orientation, mid-career retirement planning, and an overview of System benefits for all tiers. School districts, individual schools, delegates, or groups of members can arrange these presentations by calling (800) 348-7298, Ext. 2914.

Web Site

NYSTRS' Web site at www.nystrs.org is the quickest and easiest way to get updated information on legislation and news related to benefits. Members can access their personal membership information and view their Benefit Profile online; find and print System publications and forms; and use the pension calculator to project future benefits.

Hotline

System forms and publications, and up-to-date recorded messages regarding legislation and other pertinent topics are available on the 24-hour Hotline at (800) 782-0289 or (518) 447-2636 from the Albany area.

800 Phone Service

Call the System during posted business hours at (800) 348-7298 or (518) 447-2900 from the Albany area.

Member Newsletters

The newsletters Your Source (for active members) and Resource (for retirees) contain pertinent benefit and retirement information. Each is published three times annually.

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Publications

Your First Look at NYSTRS
A pamphlet for new or prospective members outlining NYSTRS’ benefits.

Active Members’ Handbook
An overview of NYSTRS’ benefit structure, addressing most questions members have about membership.

NYSTRS and You
An information kit mailed annually to recently vested members.

Looking to the Future
A guide to NYSTRS services and publications at each stage of a member’s career.

You Deserve the Credit
A look at various types of service credit that members may be eligible to claim.

If You Are No Longer Able to Work
A summary of NYSTRS benefits that may be available to members who must stop working due to a serious illness or injury.  

Maximum or an Option: Choosing a Benefit Payment Right for You
An explanation of the benefit payment choices members have at retirement. 

Countdown to Retirement
A look at the steps a member should take in the year leading up to retirement.  

The Path to Retirement: Understanding the Retirement Process
A guide for new NYSTRS retirees that explains how the System processes retirement applications.

Discovering Retirement
A guide to the opportunities and challenges that new retirees face.

Working in Retirement
A look at earnings limits and their effect on NYSTRS' retirement benefits.

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