Final Actuarial Audit Reports Submitted by Gabriel Roeder Smith & Co. – Experience Study Discussion through June 30, 2013 without Appendices (2015)

EXECUTIVE SUMMARY

Gabriel, Roeder, Smith & Company (GRS) was retained by the Comptroller to serve as Independent Actuary under Section 96 of the New York City Charter and provide other services related to the review of the funding of the following five actuarial pension funds (collectively NYCRS or the Systems):

• New York City Employees’ Retirement System (NYCERS);
• Teachers’ Retirement System of the City of New York (TRS);
• Board of Education Retirement System of the City of New York (BERS);
• New York City Police Pension Fund (POLICE); and
• New York Fire Department Pension Fund (FIRE).

GRS was required to conduct two consecutive biennial actuarial engagements, encompassing the following:

• Biennial Contribution Audits of the computed employer contributions for each System in NYCRS for fiscal years 2012 and 2014 (including an audit of actuarial accrued liabilities and actuarial valuation of assets);
• Biennial Experience Studies for the periods ending June 30, 2011 and June 30, 2013, for each System in NYCRS;
• Two Administrative Reviews of the data gathering and maintenance practices of the Office of the Actuary (OA) and each System in NYCRS (one review corresponding with each Contribution Audit); and
• Two Independent Actuarial Statements (one for each engagement); GRS, as the independent actuarial auditor, will submit a statement that will briefly describe the scope of the entire engagement, will review the entire engagement and comment on the financial condition and financing progress and policies of each System, and certify that the Systems are being funded on a sound actuarial, financial, and legal basis.

This report constitutes the deliverable with respect to the Experience Study for the second engagement. The purpose of this study is to:

• Update the Experience Study database with membership data as of June 30, 2012 and June 30, 2013;
• Mature the database with status changes;
• Review actual experience for the four-year period ending June 30, 2013 and compare with assumed experience;
• Review actual experience for the ten-year period ending June 30, 2013 and compare with assumed experience; and
• Indicate areas where experience deviated from current assumptions to an extent the Actuary can investigate and modify the current assumption, if appropriate.

Specific detail on each System is provided throughout the report. In general, we have the following initial comments:

• We find the current inflation, wage inflation and investment return assumption reasonable. However, we recommend the OA consider lowering the investment return assumption based on the current market expectations and investment policies of the Systems.
• Longevity continues to improve for the NYCRS plans and the country as a whole. The experience for NYCRS has outpaced the current assumptions and thus the post-retirement mortality assumptions needs to be updated for new information and expectations. This is the most material finding from this report.

ORGANIZATION OF REPORT

Section II contains documentation on our processes and procedures. Section III contains an analysis on the economic assumptions, including inflation, wage inflation, and investment return. Section IV contains an aggregate analysis on post-retirement mortality. Section V contains five subsections for a summary of the results for each System, including an illustrative impact on the costs and liabilities if the proposed recommendations were adopted. Finally, Section VI provides the reconciled data for each group for each assumption by age and/or service compared to the current assumptions.

This study was conducted in accordance with generally accepted actuarial principles and practices, and with the Actuarial Standards of Practice issued by the Actuarial Standards Board. The undersigned all have extensive experience providing actuarial and consulting services to large public retirement systems. Joseph Newton and Danny White are Members of the American Academy of Actuaries (M.A.A.A.) and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained herein. We wish to thank the Office of the Actuary (“OA”) for their assistance in providing data and support information for this study.

Respectfully Submitted,

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Kenneth G. Alberts Project Manager and Contribution Audit Director

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Joseph P. Newton, F.S.A., E.A., M.A.A.A. Alternate Project Manager and Experience Study Director

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Danny White, F.S.A., E.A., M.A.A.A. Date Experience Study Director

Date 10/23/2015