• Georgia State Employees’ Pension and Savings Plan (GSEPS) – The creation of this hybrid plan for state employees has allowed the state to reduce its pension costs and mitigate its pension liability risk. GSEPS has decreased pension costs by approximately $71 million since its inception in 2009. However, GSEPS provides a nominal retirement benefit for the majority of its members, and its benefits are generally lower than those provided by TRS, ORP, and hybrid retirement plans in other states. Creation of GSEPS was a reform of the Employee Retirement System (ERS) plan that was open to employees prior to 2009.

• Teachers Retirement System (TRS) – The defined benefit plan that covers teachers and many USG employees has required large increases in employer contributions in recent years. DOAA identified a number of options that could decrease employer contributions and risk while continuing to provide a defined benefit plan. Potential modifications include adjustments to COLAs, interest crediting rate, and benefits for new hires. Modifications to the COLA could decrease employer contributions by $17 million to $700 million annually while continuing to offer a defined benefit plan to its members. There have been no modifications to TRS to improve financial sustainability in recent years.

• Optional Retirement Plan (ORP) – Some USG employees are given the option to participate in this defined contribution plan rather than TRS. Comparison studies have found that ORP employer contribution rates are higher than similar plans offered by other higher education institutions. We estimate that USG could lower its employer contribution rate from 9.24% to 8% (which is above the average 7.83% of public institutions in other states) and save over $16 million annually. In addition, implementing a vesting schedule for ORP would also reduce the plan’s costs. 

• COLAs – Of the changes we considered, COLA adjustments have the greatest potential to reduce employer contributions while maintaining an adequate benefit. Modifications to the COLA could include changing the COLA rates and establishing a minimum age at which COLAs can begin as has been done in other states. In 21 of the last 26 years, the TRS COLA given to retirees has outpaced inflation. An independent actuarial analysis found that various options for modifying the COLA could result in employer contribution reductions ranging from $17 to $700 million annually.

• Interest rates – The interest credited on employee contributions could be more closely aligned with market interest rates. An independent actuarial analysis projected a $13 million annual reduction in costs by reducing the interest rate on employee contributions from 4.5% to 2%. Final average salary – Changing the final average salary calculation from the highest consecutive 24 months’ salary to the highest consecutive 60 months’ salary could result in further cost reduction. For example, we estimated that this change would have saved $50 million annually if it had been applied to the most recent five years of retirees.

• Minimum retirement age – An independent actuarial analysis projected that changing the minimum retirement age for those with less than 30 years of service from 60 to 62 for new hires would reduce employer contributions by $48 million annually.