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Questions and Answers Regarding the Increase in Funding For the Denver Employees Retirement Plan

Q:  What are the intended percentage-of-pay contribution rates to DERP for the City and the employees in 2015?

A:  The City-paid contribution will increase from the current level of 11.2% of pay to 11.5% of pay.  The employee-paid contribution will increase from the current level of 7.3% of pay to 8.0% of pay.  Subject to City Council approval, these increases will take effect the first full pay period in January 2015.

Q:  What will the increase in the employee contribution cost the average employee?

A:  For an employee earning $60,000 annually, approximately $16 per pay period.

Q:  Why is an increase in the percentage-of-pay contribution rates necessary again?

A:  After DERP experienced very large losses in the value of invested assets during the global financial crisis in 2008, the effective implementation dates of the necessary contribution rate increases were delayed in each of the next four years.  This created a gap of approximately $15 million in funding that DERP never received.  The contribution increases (from the City and employees) that will take effect in 2015 are intended to gradually backfill that funding gap, providing DERP with all of the payroll contribution dollars as calculated by the Plan’s actuaries each year after the financial crisis. 

Q:  Why will the increase be split on a 70/30 basis between the employees and the City?

A:  The 70/30 split is how the enacted increases from 2009-2012 were divided between the employees and the City, meaning that each will now contribute what they would have, had the timing lag not occurred.

Q:  Is this increase necessary in any way as a result of DERP’s recent investment performance?

A:   Absolutely not.  DERP’s investment returns have been excellent.  In fact, for the most recent 12-month period, DERP’s investment return was 19.14% net of all fees.   Our results exceeded the portfolio returns of 94% of public pension plans around the country.

Q: If the investment returns are so strong, why not use excess returns to cover the funding gap, and not increase the contribution rate?

A:  There are no “excess” returns.  Although DERP has had strong investment performance over the past several years, DERP’s funded position, its assets divided by its liabilities, is currently 76.4%.  “Funded position” is the best measure of a pension plan’s current preparedness to pay all future obligations. The value of DERP’s assets has, over the past six years, fluctuated with investment markets.  In contrast, the amount of DERP’s liabilities over that same period has increased, growing larger every year as employees continue to earn additional service credit.   Therefore, all investment earnings are already included in DERP’s asset base.

Q: Will the employees’ percentage-of-pay contributions ever go down?

A:  There are numerous factors that the actuaries consider when calculating contribution levels.  If investment markets stay favorable, and employee turnover trends continue, then percentage-of-pay contributions could remain level over the next several years and then begin to slowly decrease.

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