Popular Annual Financial Report Fiscal year Ended June 30, Public Employees Retirement Association

Transcription

1 Popular Annual Financial Report Fiscal year Ended June 30, 2018 Public Employees Retirement Association

2 2019 PAFR INVESTED IN TOMORROW 2 New Mexico PERA Popular Annual Financial Report 2018

3 Message from the PERA Board Chair and the Executive Director We are pleased to present the Public Employees Retirement Association of New Mexico (PERA) Popular Annual Financial Report (PAFR) for the year ending June 30, The information provided in this PAFR is a read-friendly summary of the detailed information contained in PERA s FY18 Comprehensive Annual Financial Report (CAFR). Unlike PERA's CAFR, the PAFR is not presented in a manner which conforms to generally accepted accounting principles (GAAP). PERA s CAFR is available at For the fourth year, PERA had a clean audit/cafr with no findings. Throughout the past year, the PERA Board of Trustees has made changes to its governance structure over investments and adopted investment strategies to improve the overall risk diversification of the PERA Fund. The Board's new governance structure and policies establish clear roles for making investment decisions for the Fund and stresses the Board's fiduciary authority in oversight and monitoring of investments. This is a best practice for large public pension plans nationally. In 2018 the PERA Board lowered its assumed actuarial discount rate to 7.25% which was implemented for the June 30, 2018 actuarial valuations. The new assumption is in line with capital market forecasts and reflects a more realistic and prudent expectation of the investment horizon. FY18 was a respectable investment year for PERA. PERA s investment portfolio produced a total return, gross of expenses, of 6.90% for the year ending June 30, While less than the assumed actuarial investment return rate of 7.25%, the result was a net investment gain of $1.0 billion to the PERA Fund. PERA continues to be an important driver in New Mexico's economy. In FY18, PERA paid out more than $1.2 billion in benefits to our retirees and beneficiaries. PERA retirement benefits represent a steady stream of revenue in every county in New Mexico. In addition, PERA retirement benefit plans are an important recruiting tool for state and local entities in hiring and retaining long term employees. While the PERA Board acknowledges that we face headwinds in paying down our unfunded liabilities, the Board is committed to addressing these challenges in a fair and equitable manner that preserves the PERA base benefit for current and future retirees. PERA looks forward to continuing its mission of providing a stable lifetime benefit to members through leadership, integrity and quality customer service. Sincerely, James Maxon Board Chair Wayne Propst Executive Director New Mexico PERA Popular Annual Financial Report

4 Financial Summary Summary Comparative Combined Statement of Fiduciary Net Position Includes all PERA defined benefit funds -PERA, Judicial, Magistrate, and Volunteer Firefighters' Fund. The Comparative Combined Statement of Fiduciary Net Position is a summary of the net assets available to pay future benefit payments and gives a snapshot at a particular point in time. As of June 30, 2018 As of June 30, 2017 Total Assets $ 16,874,499,550 $ 16,225,929,132 Total Liabilities (1,471,306,362) (1,238,769,135) Fiduciary Net Position $ 15,403,193,188 $ 14,987,159,997 Summary Comparative Combined Statement of Changes in Fiduciary Net Position Includes all PERA defined benefit funds -PERA, Judicial, Magistrate, and Volunteer Firefighters' Fund. The Comparative Combined Statement of Changes in Fiduciary Net Position for the defined benefit funds shows the inflows and outflows during the year. During FY18 additions decreased from FY17 by $(503,994,062) primarily due to a decrease in net investment income. Deductions increased by $56,500,721 primarily due to an increase in benefit payments for the year. As of June 30, 2018 As of June 30, 2017 Total Additions Employer Contributions $ 326,204,624 $ 339,029,889 Member Contributions 275,840, ,178,121 Service Credit Purchased 9,219,622 7,889,996 Investment Income 1,016,914,049 1,519,742,650 Other Income 2,124, ,803 Total Additions $ 1,630,302,396 $ 2,134,296,459 Deductions Benefit Payments 1,150,272,487 1,100,911,464 Refunds to Terminated Employees 50,351,647 44,406,982 Administrative Expenses 12,826,548 11,631,511 Total Deductions 1,213,450,682 1,156,949,957 Change in Fiduciary Net Position 416,851, ,346,502 Fiduciary Net Position - Beginning of Year 14,987,159,997 14,003,678,124 Prior Period Adjustment (818,523) 6,135,371 Fiduciary Net Position - End of Year 15,403,193,188 14,987,159,997 4 New Mexico PERA Popular Annual Financial Report 2018

5 Deferred Compensation PERA s SmartSave Plan: A Personal Retirement Savings for Members PERA offers its members a voluntary, supplemental 457b retirement savings vehicle called the PERA SmartSave Deferred Compensation Plan. This Plan is intended to complement the mandatory PERA defined benefit plan. There are approximately 60,000 employees who are eligible to participate in the Plan from state and local government employers, as well as public school employers. The PERA SmartSave Plan s investment structure is four-tiered, consisting of: a suite of custom target date funds, passive and active funds, and additional funds that offer enhanced diversification. The Plan also offers qualified participants a self-directed brokerage option where participants can invest in funds outside of the fund lineup. In FY18, approximately $300 million was invested in mutual funds, $160 million was invested in custom target date funds, $130 million was invested in the New Mexico Stable Value Fund and $6 million was invested in the self-directed brokerage option. There are approximately 22,000 participants with an account balance in SmartSave; 14,000 are actively contributing to the Plan and account for approximately $40 million in contributions for FY18. The following is the financial picture for the program. SUMMARY COMPARATIVE COMBINED STATEMENT OF CHANGES IN FIDUCIARY NET POSITION for DEFERRED COMPENSATION The Comparative Combined Statement of Changes in Fiduciary Net Position for the deferred compensation plan shows the inflows and outflows during the year. Additions: As of June 30, 2018 As of June 30, 2017 Contributions $ 40,031,630 $ 47,752,984 Net Investment Income 47,480,071 58,957,369 of Fair Value of Investments - - Other Income 81,999 61,045 Total Additions 87,593, ,771,398 Deductions: Benefit Payments 48,221,377 39,510,967 Life Insurance Premiums 33,880 42,094 Administrative Expenses 1,317,225 1,164,518 Total Deductions 49,572,482 40,717,579 Change in Fiduciary Net Position $ 38,021,218 $ 66,053,819 SUMMARY COMPARATIVE COMBINED STATEMENT OF FIDUCIARY NET POSITION The Comparative Combined Statement of Fiduciary Net Position for the deferred compensation plan is a summary of the net assets available at a particular point in time. Assets: Receivables $ 13,288,115 $ 12,178,289 Investments 593,620, ,654,494 Total Assets 606,908, ,832,783 Total Liabilities 10,491 - Net Position Held in Trust $ 606,898,064 $ 568,832,783 For more information on the PERA SmartSave Deferred Compensation Plan, visit New Mexico PERA Popular Annual Financial Report

6 Membership Summary About Your Retirement Plan PERA is a cost-sharing, multiple employer defined benefit pension plan. PERA provides retirement benefits for state employees, municipal and county employees, fire and police, legislators, judges, magistrates and volunteer firefighters and offers 31 different types of coverages within the PERA Plan. We serve more than 100,000 members and about 343 employers and 326 volunteer fire departments. A Representation of You When we combine all of you together, we get this picture of age, service and income State General State Police/ Corrections Municipal General Municipal Police Municipal Fire Judicial Magistrate VFF Legis lative TOTAL Total Membership 45,649 4,008 43,721 8,029 4, , ,411 Active 19,114 1,928 21,511 3,748 2, , ,859 Inactive 7, , ,363 Retirees 18,770 1,553 13,515 3,598 1, , ,189 Active Members Average Age Average Service Average Salary $ 47,113 $44,708 $41,914 $55,202 $55,090 $126,539 $89,997 N/A N/A 65,795 All Retirees Average Age Average Annual Benefit $ 28,180 32,114 25,973 39,082 41,415 58,706 35,946 1,716 9,945 30,342 The best way to predict tomorrow is to build it today. 6 New Mexico PERA Popular Annual Financial Report 2018

7 Investment Summary INVESTMENT INCOME Investment portfolio income is a significant source of revenue to PERA. The Investment Committee, a standing committee of the Board, is responsible for assisting the Board in overseeing PERA s investment program. The total defined benefit fund had a rate of return of 6.90% net of fees for the year ending June 30, The net investment income for the FY18 was $1.02 billion. Investment Income PERA Fund Judicial Fund Magistrate Fund Volunteer Firefighters Fund Interest 137,920, , , , ,686,405 Dividends 161,066, , , , ,093,188 Net Appreciation in Fair Value of Inv. 694,887,277 4,159,105 1,494,703 3,110, ,651,634 Other Investment Income 68,554, , , ,625 69,416,956 Net Securities Lending Income 2,932,523 17,440 6,232 13,231 2,969,426 Other Investment Expenses (61,134,203) (363,479) (129,988) (275,890) (61,903,560) Net Investment Income 1,004,226,606 6,019,595 2,155,790 4,512,058 1,016,914,049 Total PERA manages the Fund in a manner that reflects its unique liabilities and funding sources, incorporates accepted investment theory, and targets growth and returns appropriate to prudent levels of risk based on reliable empirical data. Comparison of New Mexico PERA Fund Investment Return (annualized) Where PERA funds are invested Global Equity - Public equity securities, and private equity partnerships 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% PERA Return Benchmark Return 2018 Three-year Five-year Risk Reduction & Mitigation - Cash, and domestic fixed income Real Assets -Investments in real estate, energy and commodities Credit Oriented Fixed Income - high yield/bank loans, emerging market debt and mezzanine debt 0% 10% 20% 30% 40% 50% New Mexico PERA Popular Annual Financial Report

8 Actuarial Summary ACTUARIAL VALUATION FUNDING Funding a retirement program is a long-term commitment and it is important to remember that all member benefits are not payable and due at the same time. The basic funding objective of PERA is to establish and receive member contributions that, expressed as a percentage of active member payroll, will remain relatively stable over time and when combined with present assets and future investment earnings, will be sufficient to meet all future benefit obligations of PERA. In order to measure progress towards this objective and to help the PERA Board assess the health of the system, PERA s actuaries perform an actuarial valuation each year. These valuations illustrate each Funds assets as a percentage of liabilities. They also project whether the promised benefits exceed current assets resulting in an unfunded liability. Additional information related to the amortization period for unfunded liabilities can be found in PERA's CAFR in the actuarial section. The table below shows the funded status and the summarized results of the actuarial valuation for funding purposes as of June 30, 2018 and June 30, For the Fiscal Year Ended June 30th ALL PERA DIVISIONS COMBINED FUNDED STATUS of NEW MEXICO PERA 8 New Mexico PERA Popular Annual Financial Report (1) 2017(2) 2018(1) 2017(2) MUNICIPAL FIRE DIVISION Actuarial Accrued Liability $21.3 billion $20.2 billion Actuarial Accrued Liability $1.62 billion $1.52 billion Assets Held to Pay Those Liabilities $15.2 billion $15.1 billion Assets Held to Pay Those Liabilities $977 million $961 million Unfunded Actuarial Accrued Liability $6.1 billion $5.1 billion Unfunded Actuarial Accrued Liability $645 million $553 million Funded Ratio 71.6% 74.9% Funded Ratio 60.2% 63.5% STATE GENERAL DIVISION JUDICIAL FUND Actuarial Accrued Liability $9.20 billion $8.81 billion Actuarial Accrued Liability $163 million $149 million Assets Held to Pay Those Liabilities $5.80 billion $5.83 billion Assets Held to Pay Those Liabilities $92.1 million $92.1 million Unfunded Actuarial Accrued Liability $3.40 billion $2.98 billion Unfunded Actuarial Accrued Liability $71.4 million $57.3 million Funded Ratio 63.1% 66.2% Funded Ratio 56.3% 61.7% STATE POLICE/CORRECTIONS DIVISIONS MAGISTRATE FUND Actuarial Accrued Liability $946 million $910 million Actuarial Accrued Liability $58.1 million $54.1 million Assets Held to Pay Those Liabilities $1.23 billion $1.20 billion Assets Held to Pay Those Liabilities $32.3 million $33.2 million Unfunded Actuarial Accrued Asset ($286 million) ($286 million) Unfunded Actuarial Accrued Liability $25.8 million $20.9 million Funded Ratio 130.2% 131.5% Funded Ratio 55.6% 61.3% MUNICIPAL GENERAL DIVISION VOLUNTEER FIREFIGHTERS' FUND Actuarial Accrued Liability $6.80 billion $6.4 billion Actuarial Accrued Liability $49.2 million $46.4 million Assets Held to Pay Those Liabilities $5.20 billon $5.10 billon Assets Held to Pay Those Liabilities $69.6 million $68.0 million Unfunded Actuarial Accrued Liability $1.60 billon $1.29 billon Unfunded Actuarial Accrued Asset ($20.4 million) ($21.6 million) Funded Ratio 76.3% 79.9% Funded Ratio 141.5% 146.6% MUNICIPAL POLICE DIVISION LEGISLATIVE FUND Actuarial Accrued Liability $2.75 billion $2.56 billion Actuarial Accrued Liability $31.0 million $28.1 million Assets Held to Pay Those Liabilities $2.06 billon $2.03 billon Assets Held to Pay Those Liabilities $42.6 million $42.5 million Unfunded Actuarial Accrued Liability $692 millon $535 millon Unfunded Actuarial Accrued Asset ($11.6 million) ($14.4 million) Funded Ratio 74.8% 79.1% Funded Ratio 137.7% 151.4% (1) Based upon an assumed rate of return on investment of 7.25 percent continuously. (2) Based upon an assumed rate of return on investment of 7.25 percent for the first 9 years and 7.75% thereafter.

9 Actuarial Summary ACTUARIAL VALUATION FINANCIAL REPORTING The actuarial valuation performed for financial reporting purposes is prepared in accordance with governmental accounting standards which became effective for PERA for the year ended June 30, The governmental accounting standards pertain to how public pension plans report their liabilities in their financial statements. The liabilities and other pension-related amounts calculated under this standard are required to be reported by PERA-affiliated employers who provide pensions to their employees as part of an employment benefit package. The present value amount is the main factor used in calculating the liability or asset. The net pension liability equals the present value of the projected benefit payments to current active and inactive employees attributable to past periods of service less the amount of the pension plan s net position. The tables contain a summary of the results of the actuarial valuation for financial reporting purposes. COMPONENTS OF NET PENSION LIABILITY For the Fiscal Year Ended June 30 ALL PERA DIVISIONS * 2018(1) 2017(2) Total Pension Liability $21.4 billion $20.0 billion Plan Net Position $15.2 billion $14.8 billion Net Pension Liability $6.2 billion $5.2 billion JUDICIAL FUND 71.13% 73.74% Total Pension Liability $176 million $176 million Plan Net Position $91.3 million $89.6 million Net Pension Liability $84.5 million $86.6 million MAGISTRATE FUND 51.95% 50.83% Total Pension Liability $69.1 million $65.6 million Plan Net Position $32.1 million $32.2 million Net Pension Liability $37.0 million $33.4 million VOLUNTEER FIREFIGHTERS' FUND 46.45% 49.10% Total Pension Liability $50.8 million $48.5 million Plan Net Position $69.3 million $66.40 million Net Pension Asset ($18.5 million) ($17.9 million) % % (1) Based upon an assumed rate of return on investment of 7.25 percent continuously. (2) Based upon an assumed rate of return on investment of 7.25 percent for the first 9 years and 7.75% thereafter. * Includes the Legislative Fund. New Mexico PERA Popular Annual Financial Report

10 Economic Impact PERA s Economic Impact New Mexico PERA has a large impact on the state's economy by providing pension benefits to 40,000 current retirees. In FY18 PERA paid $1.2 billion in pension benefits, and of that $1.1 billion was paid to retirees living in New Mexico. PERA retirement benefits represent a steady stream of income in every county in New Mexico. San Juan Rio Arriba Taos Colfax Union McKinley Catron Cibola Sandoval Santa Fe Bernalillo Valencia Socorro Los Alamos Torrance Mora Harding San Miguel Quay Guadalupe Curry De Baca Roosevelt Lincoln Grant Luna Sierra Dona Ana Otero Chaves Eddy Lea Hidalgo $0 - $5,000,000 $5,000,000 - $10,000,000 $10,000,000 - $50,000,000 $50,000,000 - $100,000,000 Over $100,000, New Mexico PERA Popular Annual Financial Report 2018

11 Meet the Board 2018 PERA Board of Trustees Back Row from left: Loretta Naranjo Lopez, Claudia Armijo, Dan Mayfield, John Melia, Dan Esquibel, Natalie Cordova, Patricia French Front Row from left: Maggie Toulouse Oliver, James Maxon, Jackie Kohlasch Not pictured: Cathy Townes and Tim Eichenberg Jackie Kohlasch, Chair, State Member PERA Board of Trustees Lawrence Davis, Municipal Member John Melia, Vice-Chair, Municipal Member Claudia Armijo, State Member Stephen Neel, State Member Patricia French, Municipal Member Loretta Naranjo Lopez, Retiree Member Dan Mayfield, Retiree Member Maggie Toulouse Oliver, Ex-Officio Secretary of State Tim Eichenberg, Ex-Officio State Treasurer New Mexico PERA Popular Annual Financial Report

12 Toll Free (800) Website: Santa Fe Office 33 Plaza La Prensa Santa Fe, NM Voice Fax Albuquerque Office 2500 Louisiana Blvd. NE, Suite 400 Albuquerque, NM Voice Fax Our Job is Your Retirement 12 New Mexico PERA Popular Annual Financial Report 2018