State Universities Retirement System of Illinois (IL SURS)

Transcription

1 State Universities Retirement System of Illinois (IL SURS) Asset Liability Study April, 2014 Doug Moseley, Partner Kristin Finney-Cooke, CAIA, Sr. Consultant Kevin Leonard, Partner Timothy F. McCusker, CFA, CAIA, FSA, Chief Investment Officer

2 Contents Page Executive Summary 2 Overview 4 Plan Forecasts 9 Asset Mix Discussion 16 Scenario Analysis 25 Conclusions 31 Appendix

3 Executive Summary 2

4 Executive Summary This asset liability study for the State Universities Retirement System of Illinois (IL SURS) is undertaken to: Review the projected financial status of the pension plan over the next several years Assess the appropriateness of the current asset allocation relative to the expected progress of liabilities and cash flows Statutory contributions are in place to ensure assets reach a level of 90% of the accrued liability by 2045 Plan is forecasted to approach 50% funded over the next 8-10 years Major risks to the level of statutory contributions are asset performance and assumed rates of return A large drawdown would push the level of contributions drastically higher Persistent actual performance higher or lower than assumed rates will impact the level of contributions We have profiled two proposed asset allocations Both expected to improve the portfolio s risk/return profile Diversify away from equities and into relatively uncorrelated asset classes Maintain a similar growth profile while enhancing downside protection 3

5 Overview 4

6 Key Areas to Examine with the Asset-Liability Study Key Economic Conditions & Drivers Level of economic growth (globally & by region) Expectation of inflation (short- and long-term) Central Bank actions & impact Market Conditions & Opportunities Assumptions for return & risk for individual asset classes Level of compensation provided to investors for taking different levels of risk Changes to fundamental outlook or expectations Liability structure & plan liquidity Expected plan cash flows Impact on time-horizon Potential for future changes to funding policies Discussion of implementation considerations Active vs. passive Ability to identify opportunities for MWDBE firms Manager guideline issues 6 5

7 Key Questions to Answer with the Asset-Liability Study Balance of Total Portfolio Risk & Return Total equity ratio Appropriate use of illiquid alternative assets Private Equity Real Estate Infrastructure Use of economic and other risk hedging Inflation risk Currency risk Asset Class Exposures New asset classes that should be considered Emerging Markets Debt Commodities Hedged or Absolute-return strategies Implementation considerations that may impact ability to invest Capacity Liquidity needs Potential impact of investment policies on liabilities & cash flows Sensitivity of plan sponsor to funded status volatility Ability of the plan to absorb asset losses 7 6

8 Timeline for the Asset-Liability Study Process & Decision-Making February 2014 Board Meeting Review NEPC 2014 capital markets assumptions Review mean-variance & risk budgeting analysis Discuss preliminary recommendations March 2014 Board Meeting Additional Board education on new asset classes or strategies under consideration Overlay manager RFP finals presentations 2013 Performance review April 2014 Board Meeting Additional Board education on new asset classes or strategies under consideration Review deterministic forecasting for selected mixes Review scenario analysis for selected mixes Discuss and approve policy targets June 2014 Board Meeting Additional Board education on new asset classes or strategies under consideration Review updated liquidity analysis Follow-up discussion of proposed policy targets (if not approved in April) Discussion of FY 2015 Investment Plan Other scheduled items 8 7

9 Recommended 2014 Asset Allocation (Combined Policy Mixes) Strategic Policy Target Mix A (Combination) Mix B (Combination) Cash 0% 0% 0% Total Equity 60% 50% 48% Total Fixed Income 23% 26% 28% Total Alternatives 17% 22% 22% Total Commodities 0% 2% 2% 5-7 Yr. Expected Return 6.6% 6.5% 6.4% Standard Dev. 12.7% 11.8% 11.7% 30 Yr. Expected Return 7.9% 7.8% 7.7% Sharpe Ratio A combined allocation of EMD, Hedged Equity, and Commodities results in a well diversified portfolio While the 5-7 yr. expected return for each portfolio is slightly less than the policy target, the stnd. Deviation of these portfolios are significantly lower By introducing asset classes that are either hedged or relatively uncorrelated to equities, IL SURS will benefit from a higher sharpe ratio Risk Budgeting Current Target Mix A Mix B Treas Credit MBS EMD Lg Cap Sm/Mid Cap Int'l Emerg PE RE HF Opp Fund Commod *The above returns incorporate only the Beta of each asset class and does not incorporate any alpha generated within the portfolio **The Current Allocation is as of Sept. 30th 2013 and based on the Callan Board Report ***The Opportunity fund is modeled as Hedge Fund Credit (5.0% 5-7 yr. return and 8.0% stnd. deviation) 8

10 Plan Forecasts 9

11 Deterministic Projection Assumptions On the following pages we show deterministic projections of the Plan NEPC 2014 Base Case assumptions for the Proposed Targets used for future investment returns Actual asset return used through February, year NEPC assumptions used through fiscal year end % expected return thereafter Liability calculations based on June 30, 2013 actuarial reports NEPC projected accrued liability and asset values according to System s actuarial assumptions and methods Expected contributions Employer contributions are assumed to be the required statutory contribution (defined as the level percentage of payroll required such that the assets reach 90% accrued actuarial liability by 2045) Employee contributions are assumed to be 8% of DB payroll each year NEPC projected GASB required contributions IL Pension Reform will likely result in future adjustments to contributions Other assumptions Discount rate is assumed to remain at 7.75% in all future years Projected values used for normal cost, expenses, and total payroll were provided by the actuary Projected benefit payments were provided by the actuary No assumed benefit changes, and workforce remains at current levels 11 10

12 Expected Return Critically Important and Powerful Expected return and liability discount rate are closely linked for public pension plans Corporate plans face more stringent regulations Lower discount rates Shorter amortization for unfunded liabilities Going-concern of government entities has historically provided comfort in public plans taking longer term approach Market environment has led to downward trend in EROAs for public pensions NEPC recognizes the importance of expected return setting and puts appropriate rigor and review into our assumption setting process Headline assumptions are 5-7 year projections Reflects a full market cycle Appropriate for annual AA analysis 30-year assumptions are developed for pension plans and other clients focused on the long-term Same methodology but longer time horizon Results in moderately higher returns Expected returns are forward-looking NOT historical backtesting Forward-looking analysis is based on current market pricing and a building blocks approach Return = yield + price change (valuation, defaults) Key economic observations (inflation, real growth) Structural themes Assumptions prepared by Asset Allocation Committee and reviewed and approved by Partners Research Committee Assumptions updated annually Same assumptions used for all clients Public Fund EROAs 2014 NEPC Assumptions Source: NASRA Source: NEPC 11

13 Deterministic Projections Funded Status Retirement Plan Funded Status 7/1/2012 7/1/2013 7/1/2014 Results Results Estimate 1. Actuarial Value of Assets $13,950 $14,263 $15, Actuarial Accrued Liability $33,170 $34,373 $35, Funded Ratio (1 divided by 2) 42.1% 41.5% 44.0% Note: Liability and Asset values after 2013 were estimated by NEPC 12

14 Deterministic Projections Funded Status Through

15 Deterministic Projections Cash flows 15 14

16 Projections Summary In current low return environment, the Fund will be challenged to meet expected return Expected returns over the 5-7 year horizon expected to fall short of 7.75% Current fiscal year returns are tracking modestly higher than the plan s assumed rate of return This initial outperformance, if maintained, could lead to a slightly lower level of statutory contributions Over the long term, a 7.75% EROA is achievable Along with consistent contributions, this should lead to a methodical increase in the funded ratio This is contingent on maintaining statutory contributions and asset performance has a significant impact on the level of required contributions Higher (lower) asset returns will drive statutory contributions lower (higher) Given current funding levels, volatility must be managed within the context of desired growth A significant asset drawdown can cripple the ability of assets to keep up with liabilities and drive statutory contributions to challenging levels 15

17 SURS Asset Allocation Discussion & Recommendation 16

18 NEPC 2014 General Actions for Clients Remain disciplined and rebalance after strong market run Resist the temptation to chase returns focus on your goals and objectives A balanced allocation through the taper allows assessment of opportunities afterward Much more difficult to time a move away from risky assets Take gains in US equities, allocating to underperforming asset classes US equity risk premium has decreased, as recent performance suppresses future returns In the short-term, US stocks could outperform further due to continued monetary support With improvement off low levels, Europe is positioned for some outperformance Maintain long-term commitment to emerging markets In the short-term, emerging world faces distinctive conditions in each country Long-term secular outlook of stronger growth and continued development remains in place Use active management to navigate potential macroeconomic and currency issues Assess credit exposure and consider a more dynamic approach Narrow spreads and constrained liquidity expose investors to potential downside risks Though spreads are tight, overall rates appear more attractive after increase in yields Strategic exposure to interest rates remains an important element of diversification Employ private markets to boost return outlook European illiquid opportunities from debt to real estate remain compelling Senior lending continues to offer attractive yields, though pricing has compressed Consider increasing strategic inflation hedging through private strategies Inflation is a developing concern but expectations for liquid real assets remain muted 17

19 NEPC 2014 Focused Actions for Public Funds Reassess current and future liquidity needs Determine the ability to pursue additional returns by locking-up capital in private markets/alternative investments Alpha generation opportunities often higher in alternatives Consider strategies that replace traditional bank activities, such as direct lending to mediumsized companies and real estate lending Maintain diversification across and within asset classes. Rebalance rebalance rebalance Review rebalancing thresholds established in the Investment Policy Statement relative to actual allocations Rebalancing policies provide a risk control feature, as well as an opportunity for enhanced returns Rising rate environment should spur investors to continue reviewing the role of core US and non-us fixed income While rates have risen, forecasted returns remain below most assumed rates of return Rebalance to target with high yield and bank loans Consider allocations to global multi-sector and unconstrained bond funds Do not neglect the risk of economic inflation in the portfolio Despite tapering, Fed policy remains accommodative US improvements in economic and financial conditions could increase risks of economic inflation Risk parity, real assets, and private market strategies can be considered as tools to address inflation risk and extend diversification of a portfolio 18

20 Observations Current portfolio has broad exposure to both traditional, publicmarkets and alternative assets Equity allocation diversified across US, non-us; developed and emerging markets Core and Core plus fixed income mandates provide some exposure to high yield and non-us fixed income TIPS positioned as economic hedge against future inflation Private equity and real estate provide additional diversification and sources of higher expected return NEPC believes that by utilizing additional asset classes, IL SURS can lower its projected risk level in the Policy portfolio while not giving up significant return NEPC recommends that IL SURS consider reducing the equity risk in the overall investment program in favor of the following: Emerging Markets Debt Hedge equities / Hedge Funds More real asset protection (commodities) 19

21 Recommended 2014 Asset Allocation (Combined Policy Mixes) Current Allocation Strategic Policy Target Mix A (Combination) Mix B (Combination) Cash 0% 0% 0% 0% U.S. Equities 34% 31% 23% 22% Non U.S. Equities 21% 21% 19% 18% Global Equity 9% 8% 8% 8% Total Equity 63% 60% 50% 48% Core Bonds 19% 19% 19% 19% EMD Blend 0% 0% 3% 5% TIPS 4% 4% 4% 4% Total Fixed Income 23% 23% 26% 28% Private Equity 7% 6% 6% 6% Real Estate (Core) 6% 10% 10% 10% Hedged Equity 0% 0% 5% 5% Opportunity Fund*** 1% 1% 1% 1% Total Alternatives 14% 17% 22% 22% Commodities 0% 0% 2% 2% Total Other 0% 0% 2% 2% A combined allocation of EMD, Hedged Equity, and Commodities results in a well diversified portfolio While the 5-7 yr. expected return for each portfolio is slightly less than the policy target, the stnd. Deviation of these portfolios are significantly lower By introducing asset classes that are either hedged or relatively uncorrelated to equities, IL SURS will benefit from a higher sharpe ratio 5-7 Yr. Expected Return 6.5% 6.6% 6.5% 6.4% Standard Dev. 13.1% 12.7% 11.8% 11.7% 30 Yr. Expected Return 7.9% 7.9% 7.8% 7.7% Sharpe Ratio *The above returns incorporate only the Beta of each asset class and does not incorporate any alpha generated within the portfolio **The Current Allocation is as of Sept. 30th 2013 and based on the Callan Board Report ***The Opportunity fund is modeled as Hedge Fund Credit (5.0% 5-7 yr. return and 8.0% stnd. deviation) 20

22 Risk Budgeting Risk Budgeting examines the sources of portfolio risk 21

23 Liquidity Profile of Current and Proposed Asset Allocations 0% Current Target Mix A Mix B 10% 20% 30% 40% Daily or weekly liquidity Daily or weekly liquidity Daily or weekly liquidity 50% 60% 70% 80% Quarterly or annual liquidity Quarterly or annual liquidity 90% Illiquid Illiquid Illiquid 100% 22

24 Recommendation & Next Steps Focus on Policy Mixes A & B Reduce overall expected risk while maintaining target level of expected return Expected return using 30-year assumptions falls in % range with no manager alpha assumed Shift equity risk in favor of additional diversification New target to EMD (3 or 5%) Shift of long-only equity exposure to Hedged equity (5%) New target to Commodities (2%) Both mixes result in lower projected probability of 10% or 15% loss over 1- or 3-year period Maintain existing Policy allocations to Core Fixed, TIPS, Real Estate and Private Equity It will likely take another months to build up the real estate allocation to the 10% level Potentially consider increasing private equity target by 1% in 2015 Initiate public RFP for EMD products in 2Q to get implementation started Conduct additional Board educational sessions on Hedge Equity & Commodity strategy implementation options Hedge Fund-of-Funds Long/short focused equity strategies Defensive equity & options based strategies Enhanced index vs. active commodity product options 23

25 Scenario Analysis 24

26 Scenario Analysis NEPC Scenario Analysis allows plan sponsors to test the viability of asset mixes under multiple economic scenarios Allows better understanding of risk exposures under contrasting inflation and economic growth regimes Can understand the effect on both assets and liabilities (funded status) Growth Expansion Recession Base Case Overextension Stagflation Inflation 25

27 Scenario Analysis Current Target Allocation Funded Ratio Statutory Contributions Statutory Contributions (% Total Payroll) 26

28 Scenario Analysis Proposed Mixes (Funded Ratio) Mix A Mix B Change From Current Target Change From Current Target 27

29 Scenario Analysis Proposed Mixes (Statutory Contributions % Total Payroll) Mix A Mix B Change From Current Target Change From Current Target 28

30 Scenario Analysis Proposed Mixes (Statutory Contributions) Mix A Mix B Change From Current Target Change From Current Target 29

31 Conclusions 30

32 Summary of Pros and Cons Identified in ALM Study Focus Pros Cons EROA Targets Asset Allocation Asset Allocation Changes Forecasted to be achievable over 30 year horizon Broader diversification leads to a better risk balance at lower levels of total asset risk Increase in EMD, hedged equity, and commodities potentially delivers uncorrelated returns Challenged in medium-term (5-7 year horizon) Addition of new asset classes suggested for further efficiency improvement require education and implementation Decrease in total equities exposes plan to underperformance in cyclically strong equity markets Funded Status Projections Cashflows/Liquidity Consistent contributions should lead to a methodical increase in the funded ratio Funds expected to have adequate liquidity to meet benefit obligations large liquid asset base available from which to draw funds Asset performance has a significant impact on the level of required contributions Net cash outflows expected investment gains needed to offset outflows A significant asset drawdown could drive statutory contributions to challenging levels 31

33 Summary and Recommendations We recommend a 10-12% reduction in equities and reallocating across EMD, hedged equity, and commodities Common themes across scenarios for the proposed mixes Similar performance in different economic scenarios as the current target allocation Reduction in equities helps to lower total risk but also takes away some of the upside participation in rising markets Diversifying into alternative asset classes/strategies with lower correlations to equities helps to reduce total risk while maintaining some upside potential Less dispersion in projections for funded ratio and contributions Slightly lower level of contributions in down market scenarios and vice versa for up market scenarios (shown as % payroll in table below) Current Target Mix A Mix B Base case 33.35% 33.45% 33.48% Stagflation 39.98% 39.56% 39.46% Recession 44.00% 43.32% 43.09% Expansion 24.90% 25.99% 26.23% Overextension 30.65% 31.06% 31.21% A more efficient portfolio will help to reduce the risks associated with failing to achieve the assumed rate of return 32

34 Appendix 33

35 Additional Scenario Analysis Assumptions Base Case No volatility Asset returns over 5-year period in line with NEPC Year Assumptions CPI at 2.75% per year Expansion Economy is growing by a strong, but seemingly sustainable level Bond yields are stable, inflation is manageable, equities and other high volatility asset classes perform quite well in this environment Historical example: CPI stays low ( % per year) US Large cap equities time-series: 10%, 17%, 28%, 12%, 10% 34

36 Additional Scenario Analysis Assumptions Overextension Economy is growing at a rapid pace, inflation increases significantly booming times but at the cost of future growth Bond yields move higher as a result of inflation; high yield does well with confidence in the economy Equities, real estate, and commodities fuel rapid expansion Historical example: Vietnam War era ( ) CPI gradually increases to 11% by fifth year US Large cap equities time-series: 12%, 16%, 0%, 12%, 16% Stagflation Two problems (1) the economy is not growing, (2) inflation has skyrocketed Inflation is sticky once it gets high, it stays high for several years Fed has limited options to kick-start economy because easing only promotes further inflation Equities sag; bonds lose real value; real assets such as TIPS perform well on a relative basis because they are linked to inflation Historical example: flat stock market and double digit inflation of the mid-1970s CPI gradually increases to 7.25% by fifth year US Large cap equities time-series: -8%, -15%, 0%, 9%, 12% 35

37 Additional Scenario Analysis Assumptions Recession Economy stalls there is a flight to quality as investors lose confidence Equity markets fall Bond yields fall Interest-sensitive securities (bonds, especially long duration bonds) will perform well in this environment Historical example: early 1990s CPI stays low ( % per year) US Large cap equities time-series: -8%, -18%, -8%, 4%, -10% 36

38 Risk Budgeting Risk budgeting considers the portfolio from a total risk perspective rather than total return Determines the contribution to overall portfolio risk by each asset class in the portfolio, based on volatility and correlation assumptions Shows the benefit of diversification within a portfolio Risk exposures in relation to allocation size 37

39 Foundations of Asset-Liability Study Understand and define objectives Fund long-term benefit obligations Define liquidity requirements Incorporate other investment constraints Use forward-looking, fundamental based assumptions for all forecasting Realistic outlook for plan changes over intermediate and long-term Identify opportunities for enhancing portfolio structure Apply multiple perspectives/tools to build robust, objective driven asset allocation solutions Mean-variance optimization Risk budgeting Deterministic forecasting Scenario analysis 39 38

40 Plan Linkages Employees Employers Retirees Contributions Benefit Payments Assets Asset specific risks Manager structure Rebalancing Asset-Liability risks Inflation Economic Growth Interest Rates Liabilities Liability specific risks Demographics Benefit Changes 39

41 Elements of Asset-Liability Study Risk-return Analysis Seeking highest possible expected return for each given level of volatility Model inputs are static Expected return, volatility, correlation, constraints A useful but limited tool for asset allocation Risk-return plots are useful snapshot comparisons of various alternative mixes Risk Budgeting Considers the portfolio from a total risk perspective rather than total return Determines the contribution to risk from each asset class based on: Standard deviation (volatility) Correlations Highlights benefits of diversification and risk balance Both total risk and distribution of risk across asset classes can be compared across mixes 40

42 Elements of Asset-Liability Study (cont.) Deterministic Forecasting Provides baseline projections of assets and liabilities Assumes all economic and population assumptions are realized at expectations Expected portfolio returns Expected liability growth Expected contributions Useful for planning but does not capture variability of outcomes or risk of not reaching objectives Scenario Analysis Tests the viability of alternative asset mixes under multiple economic scenarios Allows better understanding of risk exposures under contrasting inflation and economic growth regimes Can understand the effect on both assets and liabilities Can reveals risk tolerance under various economic environments 41

43 NEPC 2014 Assumptions 5-7 Year Returns Asset Class Change Cash 0.75% 1.50% 0.75% Treasuries 1.00% 2.00% 1.00% IG Corp Credit 3.00% 3.50% 0.50% MBS 2.50% 2.25% -0.25% Core Bonds* 2.04% 2.53% 0.49% TIPS 1.50% 2.50% 1.00% High-Yield Bonds 5.00% 4.50% -0.50% Bank Loans 5.00% 5.00% Global Bonds (Unhedged) 0.75% 1.25% 0.50% Global Bonds (Hedged) 0.93% 1.38% 0.45% EMD External 4.00% 5.00% 1.00% EMD Local Currency 5.00% 5.75% 0.75% Large Cap Equities 6.75% 6.25% -0.50% Small/Mid Cap Equities 7.00% 6.25% -0.75% Int'l Equities (Unhedged) 7.75% 7.25% -0.50% Int'l Equities (Hedged) 8.00% 7.50% -0.50% Emerging Int'l Equities 9.75% 9.50% -0.25% Private Equity 9.00% 8.75% -0.25% Private Debt 8.50% 8.00% -0.50% Private Real Assets 8.00% 7.75% -0.25% Real Estate (Core) 6.00% 6.25% 0.25% Commodities 5.00% 5.00% Hedge Funds n/a 5.50% 30 Year Returns Asset Class Change Cash 3.00% 3.75% 0.75% Treasuries 3.00% 4.00% 1.00% Credit 4.25% 5.25% 1.00% MBS 4.50% 4.25% -0.25% Core Bonds* 3.84% 4.46% 0.62% TIPS 3.25% 4.50% 1.25% High-Yield Bonds 5.25% 6.00% 0.75% Bank Loans 5.50% 6.25% 0.75% Global Bonds (Unhedged) 2.50% 3.00% 0.50% Global Bonds (Hedged) 2.67% 3.13% 0.46% EMD External 6.00% 7.00% 1.00% EMD Local Currency 6.25% 7.25% 1.00% Large Cap Equities 8.00% 7.75% -0.25% Small/Mid Cap Equities 8.25% 8.00% -0.25% Int'l Equities (Unhedged) 8.25% 8.25% Int'l Equities (Hedged) 8.50% 8.48% -0.02% Emerging Int'l Equities 9.50% 9.50% Private Equity 10.00% 9.75% -0.25% Private Debt 8.00% 8.25% 0.25% Private Real Assets 8.00% 7.75% -0.25% Real Estate (Core) 6.00% 6.50% 0.50% Commodities 5.50% 6.00% 0.50% Hedge Funds n/a 7.00% Return assumptions are geometric. * Core Bonds assumption based on market weighted blend of components of Aggregate Index (Treasuries, IG Corp Credit, and MBS). 42

44 NEPC 2014 Assumptions Volatility Asset Class Change Cash 1.00% 1.00% Treasuries 6.00% 6.00% IG Corp Credit 7.50% 7.50% MBS 7.00% 7.00% Core Bonds* 6.31% 6.32% 0.01% TIPS 7.50% 7.50% High-Yield Bonds 13.00% 13.00% Bank Loans 6.50% 8.00% 1.50% Global Bonds (Unhedged) 9.00% 8.50% -0.50% Global Bonds (Hedged) 5.00% 5.00% EMD External 12.00% 12.00% EMD Local Currency 14.00% 15.00% 1.00% Large Cap Equities 18.00% 17.50% -0.50% Small/Mid Cap Equities 21.00% 21.00% Int'l Equities (Unhedged) 21.00% 20.50% -0.50% Int'l Equities (Hedged) 19.00% 18.50% -0.50% Emerging Int'l Equities 26.00% 26.00% Private Equity 27.00% 27.00% Private Debt 19.00% 19.00% Private Real Assets 24.00% 23.00% -1.00% Real Estate (Core) 17.00% 17.00% Commodities 18.00% 18.00% Hedge Funds n/a 9.00% Volatility defined as standard deviation of investment returns. * Core Bonds assumption based on market weighted blend of components of Aggregate Index (Treasuries, IG Corp Credit, and MBS). 43

45 NEPC 2014 Assumptions Correlations IG Corp Credit MBS TIPS High- Yield Bonds Global Bonds (Unhedged) Global Bonds (Hedged) EMD (External) EMD (Local Currency) Large Cap Equities Small/Mid Cap Equities Int'l Equities (Unhedged) Asset Class Cash Treasuries Commodities Cash 1.00 Treasuries IG Corp Credit MBS TIPS High-Yield Bonds Global Bonds (Unhedged) Global Bonds (Hedged) EMD (External) EMD (Local Currency) Large Cap Equities Small/Mid Cap Equities Int'l Equities (Unhedged) Int'l Equities (Hedged) Emerging Int'l Equities Private Equity Private Debt Private Real Assets Real Estate (Core) Commodities Hedge Funds Int'l Equities (Hedged) Emerging Int'l Equities Private Equity Private Debt Private Real Assets Real Estate (Core) Hedge Funds 44

46 Disclosures NEPC, LLC is an investment consulting firm. We provide asset-liability studies for certain clients but we do not provide actuarial services. Any projections of funded status or contributions contained in this report should not be used for budgeting purposes. We recommend contacting the plan s actuary to obtain budgeting estimates. The goal of this report is to provide a basis for substantiating asset allocation recommendations. The projection of liabilities in this report uses standard actuarial projection methods and does not rely on actual participant data. Asset and liability information was received from the plan s actuary, and other projection assumptions are stated in the report. Assets are projected using a methodology chosen by the client. Gains and losses are estimated through investment returns generated by applying NEPC s 5-7 year asset class assumptions and scenario assumptions for the current year. This report is based on forward-looking assumptions, which are subject to change. This report may contain confidential or proprietary information and may not be copied or redistributed. 45