June 30,1996
(Amounts in thousands unless otherwise stated)

Note 9

RETIREMENT SYSTEMS

The State of Connecticut sponsors five defined benefit public employee retirement systems (PERS) and one defined contribution pension plan. In addition, the State is the administrator and custodian of the assets for the Connecticut Municipal Employees Retirement System and the Connecticut Probate Judges and Employees' Retirement System as described in Note 10. The State s responsibility with respect to these systems is purely administrative and custodial in nature and no financial liability lies with the State. Therefore, limited GAAP pension disclosures have been disclosed for these two systems. The defined benefit pension plans are included in the State s financial statements as pension trust funds while the defined contribution pension plan is not included in the financial statements as it is not considered to be part of the State s reporting entity.

Plan Descriptions
State Employees' Retirement System (SERS) is the administrator of a single-employer defined benefit PERS established in 1939 and governed by Sections 5-152 to 5-192 of the General Statutes. Substantially all of the State's full time employees who are not eligible for another State sponsored plan are covered by the SERS. Employees are covered under two tiers: a) Tier I covers participants hired prior to January 1, 1984; b) Tier II covers employees hired on or after January 1, 1984, plus employees hired between July 1, 1982 and January 1, 1984, who elected Tier II. The SERS provides retirement benefits as well as death and disability benefits. Tier I participants who retire at or after age 55 with 25 years of credited service or who retire at or after age 60 with 10 years of credited service or who retire at age 70 are entitled to an annual retirement benefit equal to 2% of their final average earnings for each year of credited service, reduced for retirement prior to age 65 with less than 25 years of credited service. Final average earnings represent average annual salary received during three years of highest salary. Participants may choose early retirement at or after age 55 and the completion of 10 years of credited service and receive a reduced retirement benefit. Retirement benefits vest 100% at 10 years of credited service. Tier II participants who retire at or after age 62 with 10 years of credited service or who retire at age 60 with 25 years of service or at age 70 with 5 years of credited service or hazardous duty members who retire after 20 years of credited service are entitled to an annual retirement benefit equal to 1 and 1/3% of their final average earnings plus 1/2% of final average earnings in excess of the year's breakpoint, for each year of credited service. Hazardous duty members are entitled to an annual retirement benefit equal to 2 and 1.2% of their final average earnings times years of service in excess of 20 years, for each year of credited service. Participants may choose early retirement at or after age 55 and the completion of 10 years of credited service and receive a reduced benefit. Retirement benefits vest 100% at 10 years of credited service or at 5 years of credited service if age 70. Tier I participants are required to contribute (depending on plan) either 2% f earnings to the SERS. Tier II participants are not required to make contributions determined in accordance with statutes. The payroll for employees covered by the SERS for the year ended June 30, 1996, was $2,272.5 million while the State's total payroll was $2,524.3 million.

Teachers' Retirement System (TRS) is the administrator of a single-employer defined benefit PERS, with the State acting as a nonemployer contributor, established in 1917 and governed by Sections 10-183mm of the General Statutes. Any teacher, principal, superintendent or supervisor engaged in service of public schools in Connecticut is covered by the TRS, as are professional employees of State schools of higher education if they choose to be covered. The TRS provides retirement benefits as well as death and disability benefits. Participants who retire on or after age 60 with 20 years of credited service in Connecticut or who retire before age 60 with 35 years of credited service (including at least 25 years of service in Connecticut) are entitled to an annual retirement benefit equal to 2% of their average annual salary, for each year of credited service (maximum percent is 75%) plus any additional amounts derived from 6% and voluntary contributions by the teacher. Average annual salary represents average annual salary received during three years of highest salary.

Participants may choose early retirement at any age after the completion of 25 years of credited service (including 20 years of service in Connecticut) or at or after age 55 and the completion of 20 years of credited service (including 15 years of service in Connecticut with the last 5 years in Connecticut) and receive a reduced retirement benefit. Retirement benefits vest 100% at 10 years of credited service. Participants are required to contribute 7% of their annual salary to the TRS. Contributions are refunded to participants who leave the TRS based on years of credited service as follows: a) with less than 5 years of credited service, 5% contributions with interest and b) with 5 or more years of credited service, 5% contributions with interest and 1% contributions without interest. The State funds the balance of the liability for benefits with annual contributions determined in accordance with statutes. The payroll for employees covered by the TRS for the year ended June 30, 1996, was $2,152.2 million. The total employer's current-year payroll would represent the total payroll of all 169 towns and cities plus 19 regional school districts in Connecticut and this information is not available.

Judicial Retirement System (JRS) is the administrator of a single-employer defined benefit PERS established in 1981 and governed by Sections 51-49 to 51-51 of the General Statutes. Any appointed judge or compensation commissioner in the State is covered by the JRS. The JRS provides retirement benefits as well as death and disability benefits. Participants who retire at or after age 65 with 10 years of credited service or who retire before age 65 with 20 years of credited service are entitled to an annual retirement benefit equal to 66.67% of final compensation. Final compensation is the participant's basic salary plus longevity payments based on years of service. Participants who retire at or after age 65 with less than 10 years of credited service receive a reduced retirement benefit. Mandatory retirement is at age 70. Retirement benefits vest at 10 years of credited service as follows: a) participants hired before 1981 - 50% of the retirement benefit at 10 years increasing to 100% after 15 years; b) participants hired after 1980 - 100% of the retirement benefit multiplied by a ratio of service at termination to service at the earliest retirement age. Participants are required to contribute 5% of their annual compensation to the JRS. If a participant withdraws from the JRS prior to reaching benefit eligibility, contributions without interest are refunded. The State funds the balance of the liability for benefits with annual contributions determined in accordance with statutes. The payroll for employees covered by the JRS for the year ended June 30, 1996, was $19.0 million, while the State's total payroll was $2,524.3 million.

The following table summarizes membership by plans:

Funding Status and Progress
The amounts shown as "pension benefit obligation" is a standardized disclosure measure of the present value of pension benefits, adjusted for the effects of projected salary increases and step-rate benefits, estimated to be payable in the future as a result of employees service to date. This measure is the actuarial present value of credited projected benefits and is intended to help users assess the State's PERS funding status on a going-concern basis, assess progress made in accumulating sufficient assets to pay benefits when due, and make comparisons among PERS. The measure is independent of the actuarial cost methods used to determine contributions to the PERS.

The pension benefit obligations were computed as part of the actuarial valuations performed as of July 1, 1995 for SERS and TRS, and as of October 1, 1995, for JRS. Significant actuarial assumptions used in the valuation include (a) rates of return on investment of present and future assets of 8.5% per year, (b) projected salary increases of 5.5% per year to 8.0% per year, (c) cost of living increases of 3% per year to 5.5% per year.

The total unfunded pension benefit obligation (PBO) applicable to each retirement system is as follows: (amounts expressed in millions)

Public Act 92-205 significantly changed certain provisions of TRS. Teachers who retire on or after September 1, 1992 will no longer be guaranteed a cost of living adjustment of between 3% and 5%. Cost of living adjustments for such teachers will be paid from an excess earnings account and will depend on the rate of investment return for the TRS and on the balance available in the account. Secondly, effective July 1, 1992, the rate of teacher's contributions increased from 6% to 7% of annual salary. These provisions had the effect of reducing the unfunded actuarial accrued liability by almost $1.4 billion dollars. No other changes in actuarial assumptions or benefit pensions that would significantly effect the valuation of the PBO occurred during 1992, 1993, 1994, and 1995.

Contributions Required and Contributions Made
The PERS funding policies have been established by statutes. These statutes require that annual contributions, determined on an actuarial basis, be made into the PERS in order to fund the normal cost and the amortization of the unfunded actuarial accrued liability. They also require employee contributions based on fixed percentages ranging from 2% to 7% applied to an employee's annual compensation. The required annual contributions are determined by using the following actuarial funding methods: a) projected unit credit - used by the SERS and the JRS and b) entry age - used by the TRS. The unfunded actuarial accrued liability is being amortized over a 40 year period by all three PERS.

The actuarial computation of the pension contribution requirements for the JRS for 1996 was the same as the actual contribution. The actuarial computation of the pension contribution requirements for the SERS, including Federal reimbursements, was $501.1 million, however, a collectively negotiated agreement (SEBAC III) reduced the actual contributions by $166 million . The actuarial computation of the full pension contribution requirement for the TRS for 1996 was $164.7 million; however, only $140 million was actually contributed reflecting a reduction of $24.7 million by the legislature to the State's TRS appropriation.

Contributions actually made and actuarial contribution requirements applicable to each PERS were as follows:

Significant actuarial assumptions used to compute contribution requirements were the same as those used to compute the pension benefit obligation.

Trend Information
Historical trend information is presented in order for a reader to assess the progress made in accumulating sufficient assets to pay pension benefits as they become payable.

Analysis of fund progress and ten-year historical trend information is disclosed on pages 78-82 of the State s comprehensive annual report.

In accordance with GAAP, employers contributing to public employee retirement systems must present three-year historical trend information. This information consists of:

• Net assets available for benefits, expressed as percentages of the pension obligation applicable to the entity s employees. Analysis of this percentage over time indicates whether the retirement system is becoming financially stronger or weaker.
• Unfunded pension benefit obligation, expressed as percentages of annual covered payroll. Showing unfunded pension benefit obligation as a percentage of annual covered payroll approximately adjusts for the effects of inflation for analytical purposes.
• Employer contributions expressed as percentages of annual covered payroll (contributions were made in accordance with actuarial requirements only for the JRS during the years 1994, 1995, and 1996).

The following table presents the required three-year trend information:

Other

The Connecticut Alternate Retirement Program (CARP) is a defined contribution plan for unclassified employees and is governed by Section 5-156 of the General Statutes. Unclassified employees at any of the units of the Connecticut State System of higher education are eligible under state law to participate. The State is the only nonemployee contributor to the pension plan. As of June 30, 1996, the pension plan s current membership consisted of 4,600 employees.

A defined contribution pension plan provides pension benefits in return for services rendered, provides an individual account for each participant, and specifies how contributions to the individual s account are to be determined instead of specifying the amount of benefits the individual is to receive. Under a defined contribution pension plan, the benefits a participant will receive depend solely on the amount contributed to the participant s account, the returns earned on investments of those contributions, and forfeitures of other participants benefits that may be allocated to such participant s account. Members rights in the pension benefits provided under this program vest immediately. An employee that leaves State service is entitled to his or her contributions and the State s contributions. Each employee must contribute 5% of his or her gross earnings to the pension plan. The State is required to contribute an amount equal to 8% of the employees gross earnings. The covered payroll for employees covered by CARP was $232.8 million while the State s total payroll was $2,524.3 million.

During the year the State s required and actual contributions amounted to $18.6 million, which was 8% of the current-year CARP covered payroll. Employees required and actual contributions amounted to $11.6 million which was 5% of the current-year CARP covered payroll.

No pension provision changes occurred during the year that affected the required contributions to be made by the State or its employees.

CARP held no securities of the State or other related parties during the year or as of the close of the fiscal year.

State's Attorney and Public Defenders' Retirement Systems are single employer defined benefit PERS governed by Sections 51-287 and 51-295 respectively, of the General Statutes. The system covers certain state's attorneys and public defenders who contribute 5% of their salaries toward their retirement. Members of this system have a vested right to receive retirement benefits on a reduced actuarial basis after 10 years of service credit. Any state's attorney or public defender who has attained the age of 65 and who has 10 or more years shall receive a retirement salary annually. Retirement salaries are based on (1) 1 and 1/2% of their annual salary, for those who have completed 10 or more but less than 15 years of service, (2) 3% of their annual salary for those who have completed 15 or more but less than 20 years of service, (3) 4 and 1/2% of their annual salary, for those who have completed 20 or more but less than 25 years of service, (4) 6% of their annual salary for those who have completed 25 or more years of service.

As of June 30, 1996, the State's Attorney Retirement System's membership stood at six active members, with thirteen retirees and five widow(ers) receiving benefits, while the Public Defenders' System had one active member, four retirees, and one widow(er) receiving benefits. Total combined assets of both plans stood at $590 thousand with $34 thousand being contributed by active employees.

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