MINUTES APPROVAL OF MINUTES. Trustee Antonio Vasquez presented the Minutes from the Administration Committee meeting of March 12, 2015.

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1 MINUTES Meeting of the Administration Committee of the Board of Trustees of the State Universities Retirement System 9:00 a.m., Friday, June 12, 2015 The Northern Trust 50 South LaSalle Street, Global Conference Center Chicago, Illinois The following Trustees were present: Mr. Antonio Vasquez, Chair; Ms. Lindsay Anderson, Ms. Jacqueline Berger, Mr. Dennis Cullen, Dr. John Engstrom, Mr. Richard Figueroa, Mr. Paul R. T. Johnson Jr., Mr. Craig McCrohon, Ms. Dorinda Miller and Mr. Mitchell Vogel. Others present: Mr. W. Bryan Lewis, Executive Director; Mr. Andrew Matthews, Chief Operating Officer; Mr. Daniel Allen, Chief Investment Officer; Mr. Albert Lee, Interim General Counsel; Mr. Steve Hayward, Director of Internal Audit; Ms. Phyllis Walker, Chief Financial Officer; Ms. Brenda Dunn, Director of Human Resources; Ms. Lori Kern, Executive Assistant; Ms. Mary Pat Burns of Burke, Burns & Pinelli; Ms. Patti Somerville- Koulouris of the Northern Trust Company; Mr. Aaron Ammons of Service Employees International Union; Ms. Caitlyn McEllis of the Senate President s Office. Administration Committee roll call attendance was taken. Trustee Berger, present; Trustee Engstrom, present; Trustee Figueroa, absent; Trustee Miller, present; Trustee Vasquez, present. Trustee Lindsay Anderson joined the meeting at 9:10 a.m. Trustee Richard Figueroa joined the meeting at 9:13 a.m. APPROVAL OF MINUTES Trustee Antonio Vasquez presented the Minutes from the Administration Committee meeting of March 12, Trustee Dorinda Miller moved that: The Minutes from the March 12, 2015 Administration Committee Meeting be approved as presented.

2 Trustee John Engstrom seconded and the motion carried with all Trustees present voting in favor. Trustee Vasquez then presented the closed session Minutes from the March 12, 2015 Administration Committee. Trustee Mitchell Vogel moved that: The closed session minutes from March 12, 2015, Administration Committee meeting be approved and remain closed. Trustee Engstrom seconded and the motion carried with all Trustees present voting in favor. CHAIRPERSON S REPORT Trustee Vasquez provided a brief overview of the agenda noting that the committee will be considering conducting an actuarial audit provider search and the Fiscal Year 2016 budget. RECOMMENDATION TO APPROVE ACTUARIAL AUDIT Ms. Phyllis Walker discussed the request to conduct an actuarial audit provider search and stated that one of the Board s fiduciary responsibilities is to try to mitigate the risk in the actuarial valuation process. Ms. Walker stated that an actuarial audit is a review by an independent actuary of our current actuarial valuation process. The purpose of the audit is to make sure that the actuarial valuation is correctly performed and the assumptions are reasonable. The Governmental Financial Officers Association (GFOA) recommends that as industry best practice, pension funds conduct audits of the actuarial valuation process by an independent actuary every five years. Ms. Walker recounted that in the December 2014 report from the State Actuary, Cheiron, they recommended that the Board undertake a full-scope audit. Ms. Walker informed the committee that an audit of SURS actuarial services was last performed in 2012, and it was a limited scope audit. Ms. Walker remarked that there has been potential legislation introduced that would require the systems to conduct a full scope audit, thus thinks the timing is appropriate to review the current actuarial processes. Ms. Walker further discussed the proposed timeline for the search and asked the Board to consider the staff recommendation that an actuarial audit provider search be conducted. Trustee Vogel moved: That a search for an actuarial audit provider be conducted. Trustee Miller seconded and the motion carried with all Trustees present voting in favor.

3 A copy of staff memorandum, entitled Recommendation to Conduct Actuarial Audit Provider Search is incorporated as part of these Minutes as Exhibit 1. A copy of GFOA Best Practice is incorporated as part of these Minutes as Exhibit 2. A copy of GRS Memorandum entitled The Role of Actuarial Audits in Performing Due Diligence is incorporated as part of these Minutes as Exhibit 3. REVIEW AMENDMENTS TO STAFF TRAVEL POLICY This agenda item has been tabled at this time. Mr. Lewis indicated that staff is in the process of updating multiple policies and they would like the opportunity to conduct further research of best practices for state pension plans, before presenting to the Board for consideration. ORGANIZATIONAL REVIEW (PLANNING) Mr. Lewis presented the organization s performance and accomplishments for FY15. Mr. Lewis highlighted some of the major accomplishments over the past year within each area of the organization. Trustee Miller commended the SURS Staff noting that she had received a compliment from an individual who had recently retired from the System and he informed her that the staff at SURS was very professional. Ms. Lewis reported that in working with the Investment team and the TOIGO Foundation, a summer internship program has been established and interns were expected to start soon. Ms. Lewis commented that as we think about and look at the demographics of the organization as a whole, it has become evident that we have to think about succession planning and focus on creating a pipeline of talent throughout the entire organization. This internship is one way to do this. Mr. Lewis remarked that we have recently posted positions for a new General Counsel and Compliance and Corporate Governance Officer and look forward to filling these positions. A copy of staff memorandum, entitled State Universities Retirement System Fiscal Year 2015 Accomplishments is incorporated as part of these Minutes as Exhibit 4. Trustee Vasquez noted that in light of the conversation and the fact that the Committee will be discussing personnel and budgetary issues, the discussion should take place in closed session. Trustee Vasquez moved that the Committee go into closed session under the Open Meetings Act to discuss employee matters, pursuant to 2(c)(1). Trustee Vogel seconded and the motion carried in a roll call vote: Trustee Berger - Aye Trustee Engstrom - Aye Trustee Figueroa - Aye Trustee Miller - Aye Trustee Vasquez - Aye CLOSED SESSION

4 RETURN TO OPEN SESSION Upon motion by Trustee Berger that was seconded by Trustee Figueroa and carried, the Administration Committee resumed its meeting in open session. RECESS In light of the fact that the meeting was running behind, it was suggested that the Administration Committee recess and move to the Board meeting in order to allow for the Board to conduct a scheduled phone call with a recently nominated active annuitant for the vacant Trustee position. Trustee Vogel moved: That the Administration Committee recess. Trustee Craig McCrohon seconded and the motion passed with all Trustees present voting in favor. The Administration committee recessed at 10:40 a.m. Trustee Lindsay Anderson moved: RECONVENE That the Administration Committee Reconvene. Trustee John Engstrom seconded and the motion passed with all Trustees present voting in favor. The Administration Committee then reconvened at 10:47 a.m. CONSIDERATION RECOMMENDATIONS FOR FY 2016 COMPENSATION ADJUSTMENTS Trustee Vasquez moved: That moving the salary range minimums and maximums by 1.7% be approved. That $98,000 be approved for funding of the performance recognition, star awards, and Employee of the Year. That $30,000 be approved for funding of promotions and reclassifications. That an increase of one FTE be approved for Fiscal Year Trustee Miller seconded and the motion carried with all Trustees present voting in favor.

5 Trustee Jacqueline Berger moved: That a merit increase in salary and wages of 2% be approved for those staff fully meeting job expectations. Trustee Dennis Cullen seconded and was followed by a roll call vote: The motion failed. Trustee Vogel moved: Trustee Anderson - Yes Trustee Berger - Yes Trustee Cullen - Yes Trustee Engstrom - No Trustee Figueroa - No Trustee Johnson - Yes Trustee McCrohon - No Trustee Miller - No Trustee Vasquez - No Trustee Vogel - No That a merit increase in salary and wages of 3% be approved for those staff fully meeting job expectations. Trustee Miller seconded and was followed by a roll call vote: The motion carried. Trustee Anderson - No Trustee Berger - No Trustee Cullen - No Trustee Engstrom - Yes Trustee Figueroa - Yes Trustee Johnson - Yes Trustee McCrohon - Yes Trustee Miller - Yes Trustee Vasquez - Yes Trustee Vogel - Yes FISCAL YEAR 2016 ADMINISTRATIVE EXPENSE AND FY 2016 CAPITAL EXPENDITURE BUDGET Ms. Walker provided a recap of the projected Fiscal Year 2015 budget reporting that we will be under budget. Ms. Walker remarked that the two main drivers for being under budget are

6 that the insurance premiums from CMS were lower than what was budgeted as were the salary expenses due to vacancies and turnover this past year. Ms. Walker then presented the proposed Administrative Expense and Capital Budget for Fiscal Year The total administrative expense budget is $19,520,474 which is an increase of 3.4% from the prior year s budget and 8.9% over the prior year s projected actual budget. This total cost includes the defined benefit plan, the defined contribution plan, and the investment administrative plan; however, it doesn t include the investment management fees. The personnel expenses make up about 68% of the budget; therefore, a majority of the Fiscal Year 2016 increase is related to that. Some other areas of the budget that Ms. Walker highlighted were the auditing services which increased by approximately $54,000 due to contracting with external auditors to perform the census data testing. She also remarked that the actuarial costs are increasing due to an actuarial audit, an economic study, stress test, and an IRS 415 tool, all of which are included in this year s budget. Ms. Walker stated that as the focus continues to remain on all public entities, SURS will continue to be committed to thoughtfully examining all areas of operation to maintain a conservative and prudent spending approach. Ms. Walker then asked for the Committee to consider approving the Fiscal Year 2016 Administrative Expense Budget. Trustee Vogel moved: That the Fiscal Year 2016 Administrative Expense Budget be approved as presented. Trustee Engstrom seconded and the motion carried with all Trustees present voting in favor. Ms. Walker presented the proposed Fiscal Year 2016 Capital Expenditure Budget. Ms. Walker stated that most of these projects were presented at the March 2015 meeting which includes some large projects such as: Network Backbone Upgrade, Workflow Project and Building Modification Project. Trustee Cullen asked if we had a cost for the other phases of the Network Backbone Upgrade. Mr. Andrew Matthews remarked that the numbers are still somewhat rough; however, from what they are seeing this phase will be the largest expense. He further remarked that the project is very heavily front-loaded and the cost is expected to decrease with each phases moving forward. With there being no further discussion, Ms. Walker asked the Committee to consider approving the Fiscal Year 2016 Capital Expenditure Budget. Trustee Engstrom moved: That the Fiscal Year 2016 Capital Expenditure Budget be approved as presented. Trustee Miller seconded and the motion carried with all Trustees present voting in favor.

7 Copies of staff memorandum, entitled Administrative Expense and Capital Budget Fiscal Year 2016 and SURS Fiscal Year 2016 Administrative Expense and Capital Budget presentation are incorporated as part of these Minutes as Exhibit 5 and Exhibit 6. Ms. Walker provided an update on the planned Economic Assumption Study and SURS Implementation of Governmental Accounting Standards Board (GASB) Statement Number 68. Copies of staff memorandums entitled Update on Planned Economic Assumption Study and Update on SURS Implementation of Governmental Accounting Standards Board (GASB) Statement Number 68 are incorporated as part of these Minutes as Exhibit 7 and Exhibit 8. INFORMATIONAL ITEMS NOT REQUIRING COMMITTEE ACTION The following items were provided for reference and are incorporated as a part of these Minutes: 1. Exhibit 9 - Fiscal Years Summary Work Plan Administration Committee Schedule PUBLIC COMMENT There were no public comments presented to the Administration Committee. Since there was no further business before the Committee, Trustee Vogel moved that the meeting be adjourned. The motion was seconded by Trustee Craig McCrohon and carried with all Trustees present voting in favor. Respectfully submitted, WBL:lk Mr. W. Bryan Lewis Secretary, Board of Trustees

8 Exhibit 1 State Universities Retirement System of Illinois Serving Illinois Community Colleges and Universities 1901 Fox Drive Champaign, IL (217) (217) (FAX) To: Administration Committee From: Phyllis L. Walker and Daniel L. Allen Date: June 1, 2015 Re: Recommendation to Conduct Actuarial Audit Provider Search An audit of the actuarial services provided for SURS was last conducted in 2012 by Gabriel, Roeder, Smith & Company (GRS). The Governmental Financial Officers Association (GFOA) recommends that pension funds conduct audits of the actuarial valuation process by an independent actuarial firm on a regular basis. Industry best practice guidelines recommend such audits be conducted every five years. In addition, the December 19, 2014 report of the State Actuary, Cheiron, included a recommendation that the Board periodically undertake a full scope actuarial audit. Definition of Desired Outputs The output of an actuarial audit by the selected candidate includes a review and scrutiny of the current actuary s work. This ensures the actuarial valuation and other actuarial processes are performed accurately with the methods and assumptions utilized being reasonable and prudent. The Request for Proposal (RFP) will include a full scope review. Expectations of Search Outputs The following risk factors should be considered in the evaluation of the study: Risk that actuarial assumptions do not adequately predict the experience of the plan; Risk that actuarial assumptions are made on erroneous/inaccurate data; Risk that external pressure is exerted to modify assumptions and that the assumptions do not reflect the actual experience of the plan; Risk that actuarial models have not been properly updated to reflect changes in benefit formulas; Risk that programming does not correctly analyze benefits; Risk that the underlying data used in the valuation is not reflective of the actual membership of SURS. Proposed Timeline Staff has targeted the RFP to be released on November 2, The audit results are scheduled to be presented at the June 2016 Administration Committee meeting..

9 Exhibit 1 Planned Timeline of Events Output Date Release request for proposal to interested firm (Post on web site and state publication) November 2, 2015 Proposer s conference November 16, 2015 Deadline for clarification (questions and requests for additional information) November 23, 2015 Deadline for delivery of proposals November 30, 2015 Staff recommendation of candidate to the Board December 2015 Sharing of fiscal year 2014 actuarial valuation data January 2016 Draft report to SURS April 2016 Final report to SURS May 2016 Presentation to Board June 2016 Quiet Period Policy The Quiet Period Policy, as stated in Section VIII of the SURS Investment Policy, will be in effect during the search process. The Policy is intended to establish guidelines by which Board Members and Staff will communicate with potential service providers during the search process. The objectives of the policy are to ensure that prospective service providers competing to become employed by SURS have equal access to information regarding the search parameters; communications related to the selection are consistent and accurate; and the process of selecting service providers is efficient, diligent, and fair. The search process will comply with Illinois Public Act Recommendation To ensure that SURS mitigates actuarial risk factors and complies with industry best practices, staff recommends an actuarial audit be conducted. In addition, as potential legislative initiatives are being evaluated, staff believes the timing is appropriate to review the current actuarial processes. The project has been identified in the 2016 fiscal year budget. The estimated average cost of a full scope actuarial audit ranges from $60,000 - $80,000. Staff Recommendation: That a search for an actuarial audit provider be conducted.

10 Exhibit 2 GFOA Best Practice Actuarial Audits Background. Due diligence requires that pension plan fiduciaries and plan sponsors exercise prudence in selecting service providers such as actuaries, and monitor the quality of their work. An actuarial audit is a valuable tool for monitoring the quality of actuarial services performed on behalf of the pension plan. An actuarial audit involves engaging the services of an outside actuary (reviewing actuary) to scrutinize the work of the plan s consulting actuary.1 Actuarial audits are helpful for several reasons: They enhance the credibility of the actuarial valuation process by providing independent assurance that it was performed in accordance with actuarial standards of practice; They increase public trust in how the pension plan is being governed; They help plan fiduciaries to assess whether the pension plan is meeting its funding objectives; They can lead to the remediation of errors that might otherwise go undiscovered; and They can provide recommendations for improving the actuarial valuation process, including how information is presented in the actuarial valuation report and in other communications. Actuarial audits are not all the same. Various levels of actuarial audits are distinguished from one another by the types of services performed by the reviewing actuary. 1. In a level one, or full-scope, actuarial audit, the reviewing actuary fully replicates the original actuarial valuation, based on the same census data, assumptions, and actuarial methods used by the plan s consulting actuary. In addition, the reviewing actuary examines the consulting actuary s methods and assumptions for reasonableness and internal consistency. 2. In a level two actuarial audit, the reviewing actuary does not fully replicate the consulting actuary s valuation, but instead uses a sampling of the plan s participant data to test the results of the valuation. The reviewing actuary also examines the consulting actuary s methods and assumptions for reasonableness and internal consistency. 3. In a level three actuarial audit, the reviewing actuary examines the consulting actuary s methods and assumptions for reasonableness and internal consistency, but does not perform actuarial calculations. Recommendation. The GFOA recommends that public pension plan fiduciaries:

11 Exhibit 2 1. Gain an understanding of the types of actuarial audits; 2. Provide for actuarial audits at least once every five years2 and when a red flag appears, such as a. Significant and unanticipated changes in asset or liability trends or funded ratio b. Computed contribution rates change without adequate explanation. c. The actuarial methods and assumptions used are not consistent with those approved by the plan s board d. The actuarial methods and assumptions are not consistent with plan objectives 3. Determine the level of actuarial audit most appropriate to their circumstance. Often when a new consulting actuary is engaged the new consulting actuary performs a full replication of the previous actuarial valuation to establish a baseline. This practice, when feasible,3 is highly encouraged. NOTES: 1. When procuring services for a reviewing actuary, plan fiduciaries and plan sponsors are encouraged to use the same RFP process as for a consulting actuary. Recommendations for procuring these services can be found in the GFOA best practice, Procuring Actuarial Services (CORBA 2012). 2. This recommendation is designed to ensure that more than one actuary has performed or replicated the actuarial valuation during any five-year period. Therefore, an actuarial audit would not be necessary if the consulting actuary had changed during that time. 3. A full replication may not be practical, for example, for an agent multiple-employer plan. Approved by the GFOA s Executive Board, May, 2014.

12 Exhibit 3 January 2008 The Role of Actuarial Audits in Performing Due Diligence Public sector retirement plans (and retiree health plans) are receiving a great deal of attention these days. Some important reasons include: Various corporate scandals and their impact on public plan investments. Some plans have lost hundreds of millions of dollars due to fraudulent financial reporting by the corporations whose shares they own. The end of the 1990 s great bull market caused a decline in plan assets and funded ratios and in some cases led to large contribution rate increases in public sector plans. The first wave of Baby Boom retirees began occurring in about By this time, older boomers are either retired or close to it. This will increase negative cash flows in public sector plans. Plan trustees work with retained advisors to manage risks. The primary risk is that the assets of the system will not support the liabilities without a large increase in the employer or employee contribution rate. Public pension (and retiree health) plans commonly use a number of tools to monitor and manage this risk, including: Actuarial audits Actuarial experience studies Gain/Loss analyses Asset/Liability studies Asset allocation models This article discusses actuarial audits as a due diligence tool for plan trustees. High quality actuarial work can do much to ensure the longterm soundness of a pension plan. Similarly, low quality actuarial work, left undiscovered, can undermine a plan s financial security in a fairly short time. Cost, Projected Unit Credit, Aggre- gate, etc.). The Purpose of an Audit An audit s main purpose is to verify that the actuarial work is accurate and the advice given is sound. Actuarial audits provide assurance to plan trustees and other interested parties that the financial condition of the plan, as stated by the actuary, is accurate. In some plans, audits are performed on a regular basis. In others they are performed when danger signs in the financial structure of the plan appear. Examples of danger signs include: An unexpected decline in assets resulting from payouts exceeding contributions and investment return; Retired life liabilities being less than fully funded with no significant progress toward full funding; Tax caps and reductions in state and federal revenue sharing have put tremendous pressure on local governmental budgets. Benefit structures such as Deferred Retirement Option Plans (DROPs) are difficult to understand and to explain to the public and have become subject to increasing scrutiny. With the increased focus on public plans there is a heightened awareness of the need for due diligence on the part of trustees in performing their fiduciary duties. Trustees have a duty to select plan service providers prudently, and once selected, to monitor the quality of their work regularly. What is an Actuarial Audit? An actuarial audit is the scrutiny of one actuary s work by another actuary to ensure that actuarial valuations are performed correctly and that the methods and assumptions used are reasonable. An actuarial audit usually includes a critique of the plan actuary s judgment concerning the plan s exposure to risk. Such a critique should be made in light of the financial objectives of the plan. For example, if the financial objective of the system is to establish a contribution rate that is expected to remain approximately level as a percent of member payroll from generation to generation, the audit might include a discussion of the characteristics of the actuarial valuation method (Entry Age Normal A protracted period of decline in the funded ratio or increases in computed contribution rates without adequate explanation; and, An inconsistent relationship among the various valuation assumptions (sometimes difficult for an untrained person to notice). Benefits of an Audit The outcome of the actuarial audit reveals whether procedures are technically sound and if plan objectives are being met. Equally important, this type of review helps to generate a sense of security among those concerned with plan financing. The value of such knowledge may make the cost of the audit incidental. The dialogue generated by the audit process usually has educational value. The basic funding principle of 2008 Gabriel Roeder Smith & Company 1

13 Exhibit 3 paying for a benefit when it is earned may be easy to grasp. The implementation of the concept is often confusing, particularly if the plan includes a DROP or other complicated feature. The proper use of good advisors provides a chance to get a good look at the forest rather than getting lost among the trees of technicalities. If the advice a plan has been receiv- ing is inaccurate or inappropriate, the actuarial audit should bring this to light so that remedial action can be initiated. Finally, we all benefit from someone looking over our shoulder occasionally. The mere possibility that a fellow practitioner may analyze an actuary s work can result in additional care being taken in the valuation process. Types of Audits There are a variety of levels of actu- arial audit. These are described below on a scale of one through four (one being the most comprehensive and four being the least). Level One A Level One audit is a complete ac- tuarial valuation of the plan based on the same census data, assumptions and actuarial methods used by the plan s actuary. The goal is to replicate the results of the most recent valuation. This is sometimes called a replication audit. Generally, there is some testing of plan experience as part of the review and there is dialogue among the retirement plan representatives, the retained actuary, and the reviewing actuary. A detailed report and presentation of the findings in a meeting with plan representatives is standard. Level Two A Level Two audit includes a review of the actuarial reports of the plan and a test of the valuation results using a mathematical model of plan activity or sampling (as opposed to performing a complete replication of the retained actuary s valuation of the plan). As in a Level One audit, there is dialogue with the plan s actuary and plan representatives. A detailed report and presentation of the findings would be included. An auditing actuarial firm with broad public plan experience and technical capability can usually verify the retained actuary s previous results reasonably well with a Level Two audit. If results cannot be verified or explained, it may be necessary to expand the scope of the audit to Level One. This would be recommended before any action is taken as a result of the audit. Level Three A Level Three audit includes a re- view of the previous actuarial valuation reports, dialogue with the retained actuary and plan representatives and presentation of a report. At this level, there are no independent calculations. This approach may lead to savings of time and money, but the results will usually have less value. A Level Three audit may be of interest to smaller plans with limited budgets. Sometimes a plan can benefit by listening to the views of another trained actuary with different experiences and viewpoints than the retained actuary. Level Four A Level Four audit includes only a review of the most recent available actuarial report and a disclosure of the findings in letter format. The scope of levels three and four are so narrow that the term audit may be misleading. The term review would be more appropriate in these cases. Alternatives Why not just change actuaries every 2 or 3 years and get the benefit of a variety of viewpoints over a long span of years? There are a small number of public employee plans doing this. However, public plans today often have very complex provisions. Lack of continuity of advisors can result in less understanding of the financial position of the plan, lower quality actuarial work, and higher fees. There also may be a tendency to overemphasize small differences in approach that are not material to the long term well-being of the plan and its participants. Continuity and consistency are important to a client who is interested in obtaining the highest quality actuarial work. The best consulting advice (which may be requested on a daily basis during a period of stress or change) depends on the consultant s knowledge of the system s history and trends. The same is true for the annual valuation work and related activities. But, continuity and consistency are not substitutes for alternate actuarial viewpoints or a check on actuarial calculations and advice by an unbiased peer professional. Public plan boards that have regular annual valuations along with good communication with their advisors may feel little need for another opinion. But how many of us would seek a second medical opinion if we had to make an important medical decision for a person who could not speak for himself or herself? In situations like that, the physician may recommend a second opinion. This is actually the position in which most public pension boards and actuaries find themselves. They must make decisions and provide advice for the good of the plan participants, who may have no voice in the decisions other than that of the trustees Gabriel Roeder Smith & Company 2

14 Exhibit 3 Guidelines Our experience as a firm is considerable and was developed over time by serving as both auditing actuary and audited actuary. The following guidelines have been developed as a result of this experience. In the absence of danger signals or special circumstances, actuarial audits should be scheduled on a periodic basis. The Government Finance Officers Association recommends actuarial audits at least once every 10 years. Many larger plans have a policy of having an actuarial audit every 5 years, and a few have an audit more frequently. There are a few plans that have an auditing actuary on retainer and have annual audits. Of course, any time unexplained danger signals or apparent discrepancies in methods or assumptions appear, or if major plan changes involving significant costs are about to be made, the time is right. The auditing actuary is typically selected through the competitive bidding process (the use of a request for proposal, RFP, is common). The auditing actuary should have experience with the type of plan being audited. Fees for an actuarial audit can vary widely depending on the complexity of the plan, and the extent of the audit. A Level One audit could cost more than the retained actuary charges for the valuation. A Level Four audit could cost as little as a few thousand dollars. But if a plan has liabilities of, say $1 billion, and a 5% mistake is found, the value of that mistake would be $50 million! Contents of an Audit Report Generally in actuarial work, there is no unique, correct answer; rather there is a range of reasonableness. In light of this, one might wonder what constitutes an actuarial mistake. There are two basic types: The first type of actuarial mistake includes actuarial results that are outside of the bounds of reasonableness. The second type of mistake includes actuarial results that are within a range of reasonableness but contain minor math errors, show poor judgment, or are based on false premises or bad data. The second type of mistake is more common than the first. An actuarial valuation is a complex undertaking involving many assumptions and calculations. No two actuaries will ever agree precisely on the results of an actuarial valuation and many valuations have at least a small amount of the second type of mistake described above. If overall, the reviewer thinks the plan has been getting good advice, this should be stated as part of the findings. Indeed, this should be stated first (if it is true). The reviewing actuary should then provide criticisms and suggestions in order of relative importance and should explain the difference between matters, if any, that he or she thinks are large and those that are more minor judgment items. Without this sort of classification, the audit results may cause unnecessary confusion. At some point, depending upon the type of audit being done, the auditing actuary should provide a comparison of the retained actuary s mathematical results with those of the auditing actuary. The comparison should discuss whether or not differences between the two sets of calculations are within reasonable bounds. It should also provide commentary on the assumptions and methods that the retained actuary uses. Finally, the auditing actuary should make general suggestions for improving the retained actuary s work product and providing more clear explanations of actuarial work to the trustees. The end result should be that every one involved is glad that the audit was done. Follow Up If areas of concern are discovered during the audit, the reviewing and retained actuary should ideally work together to resolve any concerns. If errors are found, these should be corrected in a professional manner. The next audit should verify that corrections have been made. From our perspective, the goal is sound financial management of public employee plans. It is in everyone s best interest to ensure that a plan s actuarial work is sound. One Towne Square, Suite 800 Southfield, Michigan Phone Gabriel Roeder Smith & Company 3

15 Exhibit 4 State Universities Retirement System Fiscal Year 2015 Accomplishments Financial Finance Received the entire appropriation for Fiscal Year and 83% or $ 1,276,513,079 of the year to date 2015 certification of $ 1.54 billion. Completed the Fiscal Year 2014 Comprehensive Annual Financial Report (CAFR) and CAFR Summary. Implemented GASB 67. Implemented EFT (electronic funds transfer) for all staff reimbursements, investment managers, select trustees and the City Colleges of Chicago. Facilitated the completion of the Self-Managed Plan (SMP) Disability Study and the actuarial experience study. Staff supported the financial reporting implementation of the SMP Spark system. Initiated the development and implementation of the procurement area on the SURS website. Participated in LEAN training. Investment Preparation of the Fiscal Year 2015 Investment Plan which was approved by the SURS Board in September Began implementation of the outcomes from the asset/liability study approved by the Board at the June 2014 meeting. The study has resulted in proposed asset allocation modifications identified to reduce the overall risk of the SURS Investment Portfolio. Conducted planning, scheduling and facilitation of the Trustee Educational events conducted on September 15, 2014 and February 6, 2015 at Northern Trust. Organized activities for the Diversity Day Trustee Educational Workshop event. Continue to develop human capital of the Investment Team. Shane Willoughby and Alex Ramos joined SURS during the past year from other organizations. Completed a comprehensive search process to identify fixed income emerging market debt investment managers for SURS. Completed a comprehensive search process resulting in a commitment of $90 million to Franklin Real Asset Advisors with the mandate of identifying minority-, female- and persons with disability-owned real estate funds, as modeled in the real estate funding plan. Completed a comprehensive search process resulting in a commitment of $105 million for investments in non-core real estate funds, as modeled in the real estate funding plan. Implemented private equity commitments of $250 million in domestic and global strategies, as modeled in the multi-year private equity funding plan. Continued ongoing efforts of increasing diversity of the SURS Investment Program, which includes the development of the summer internship program partnering with the Toigo Foundation. Review and monitor of the SURS Investment Policies, which were presented and approved by the Board. Participated in LEAN training.

16 Exhibit 4 Customer Service Member Services Prepared 10,465 calculations: o 3,591 refunds o 3,254 retirements o 2,038 service credit purchases o 1,074 deaths o 508 disabilities Mailed 528,533 pieces of correspondence. Scanned 108,658 incoming documents. Received 4,099 web forms (e-forms). Presented SURS 101 Training for new staff. Implemented Annuitant Return to Work process including employer reporting and billing. Processed over 34,000 changes to annuitants insurance premiums on (4) occasions including refunding over $24 million in premiums as a result of the Kanerva vs. Weems decision. Guided first project through the Project Management Office. Redesigned Member Benefit Summary Statements and developed an on-line summary screen which will provide up-to-date information. As a result of this enhancement, paper statements were only sent to participants without a valid on file. In 2013, paper statements were mailed to 122,705 participants. In 2014, only 48,842 paper statements were sent. Verified and validated Board Election Petitions. Participated in LEAN training. Outreach Achieved high overall satisfaction ratings for Outreach services. o 98% satisfaction rating for counseling services o 98% satisfaction rating for reception services o 92% satisfaction rating for call center services Answered 115,500 telephone calls. Responded to 5,200 member webmails & 2,200 employer s. Visited 98 employer campuses. Conducted 3,870 individual counseling appointments. Held 44 group presentations. Participated in 20 benefits fairs. Prepared 960 written estimates. Conducted 17 seminars/workshops. o 2 Post Retirement seminars o 10 defined-benefit Retirement seminars o 2 defined-contribution Retirement seminars o 3 employer seminars o 2 employer workshops Partnered with U of I Extension to offer 4 Retirement Transition workshops.

17 Exhibit 4 Conducted 57 webinars. o 12 Plan Choice - Tier II o 4 Understanding Your SURS Benefits -Tier I o 4 Navigating the Self-Managed Plan o 37 employer training sessions Implemented new Money Purchase factors in SURS online estimator and began member education on factor change. Participated in building requirements and testing the new online scheduling system. Participated in development and training for a new targeted blast system. Hired and trained a second Employer Representative. Participated in testing and introduction of the new Employer Website. Completed setup of lobby kiosk for member use. Launched 2015 Board election by creating materials, responding to media and overseeing member communication. Communicated with membership and press regarding pension reform legislation, insurance refunds, Medicare Advantage and other hot topics. Launched SURS Facebook page & entrance into social media. Sent 768,500 s to members via targeted blasts o Experienced increased participation in educational events as a direct result of blast initiatives. Received 1,141,886 website hits. Produced bi-annual Advocate newsletter. Created new Procurement page on website and revised multiple pages and content. Completed SURS website member survey. Completed SMP member survey. Implemented electronic Unified SMP statements. Participated in development and testing for SMP data transmission system SPARK. Participated in development and testing for new electronic enrollment process allowing SMP members to choose fund allocations online. Negotiated lower recordkeeping fees from both SMP providers Enhanced SMP Provider communications by increasing targeted educational materials to membership. Participated in kick-off of the SMP Provider Search and issuance of RFP. Participated in LEAN training. Human Capital Human Resources Reviewed, updated, and presented Human Resources Policies and Procedures to Executive Leadership Team. Worked with The Hollins Group Inc. to successfully hire a new Executive Director and Chief Operating Officer. Hired 15 new employees that included 10 Caucasian, 2 African American, 1 Asian and 1 Latino. Worked with University of Illinois Business Innovation Services to provide LEAN training to all staff.

18 Exhibit 4 Hosted an outstanding Benefits Fair with new venders and 6 different presentations for staff to choose from. Administered over 30 Civil Service exams. Worked with the Investment Team and the TOIGO Foundation to create a summer intern program. Participated in LEAN training. Technology Application Development Evaluated, selected and implemented a Board Portal solution for use by the Board and staff from ipads, eliminating the production, mailing and delays of large board books. Implemented a new Benefit Summary Statement of balances only and mailing them only to members without addresses. Created the programs, processes and calculations to refund State Health Insurance Premium withholding, which was found unconstitutional by Illinois Supreme Court. Implemented SPARK standard data layouts with the SMP providers and a new streamlined plan election process. Implemented a new method for developing Targeted Campaigns to the membership. Developed an integrated self-service Counseling Appointment Scheduling capability with a cloud-based scheduling system and the SURS Member website. Hired a new web specialist. Technical Support and Building Operations Upgraded the Create-a-Check software. Installed and tested a new 90 page-per-minute computer room printer. Built a Business Continuity Intranet site and began the transition for each Business Unit to maintain its own recovery plan. Reestablished an IT Steering Committee to provide direction to the IT efforts. Upgraded the File Transfer server to a new version. Finished all Windows XP upgrades. Completed work on responses to the CliftonLarsonAllen General Controls Review. Transition to the Emergency Notification System is complete. The Computer Room equipment was rearranged in preparation for the air conditioning installation. During this period, the Data Center, including our internet presence, was off line. Installed a network TAP monitoring tool. Completed Lobby Kiosk for members. Completed Boiler installation. Completed Building air pressure balancing. Created Intranet Information page for building projects. Completed risk assessment for all IT assets. Installed new Panic Button software for counselors and the front desk. Forwarded IT Risk Management Assessment to senior management for approval. Implemented new HelpDesk software.

19 Exhibit 4 Added export features to our Project Tracking System. Completed parking lot repairs. Replaced lights in the parking lot with brighter, longer lasting and more energy efficient fixtures. Installed new telephones in the Naperville office that are integrated with our phone system in Champaign, allowing staff in Naperville to more efficiently communicate with staff in Champaign and take advantage of less costly long distance charges. Installed a new version of Timberline for accounting applications. Installed new document scanners for the Image Department. Performed annual External penetration test and web application assessment. Updated websites for potential Drupal exploit. Received validation from website vendor that SURS website had not been compromised. Performed an organization-wide table top business continuity exercise for the first time. after reorganizing the disaster recovery plans. Received positive preliminary results from the latest network penetration test. Successfully upgraded our SPAM and anti-virus filtering service to retain 58 days of e- mail. Performed a network assessment and created a corresponding roadmap for the future. Successfully tested our new SURS Alert notification system. Completed security updates for the SURS static web site. Completed staff testing of ipad deployment for board materials. Completed operating system upgrades for the Development and Test environments for the AS/400. Completed operating system upgrades for the Production environment. Completed development of a physical security policy. Completed planning for upgrading our network infrastructure. Hired an IT Technical Associate for the Technical Support staff. Attended LEAN training. Installed as new version of our telephone system call accounting software. Upgraded the operating system on the Static and Development web sites. Completed search for new backup software. Added audio to existing video recording capabilities in the Training Room. Adapted the SURS emergency response system to be utilized for emergency contacts for Human Resources. Began upgrading Unidesk virtual desktop software. Completed work on development of a KTM (image scanning software) implementation plan. The IT Security Handbook was approved by Human Resources. Completed the IT Annual Security Report. Risk Management Audit Expected completion of all mandatory audits in yearly audit plan.

20 Exhibit 4 Started contracted employer audit program to test census data at selected employers each year. This process included issuing an RFP, evaluating firms and negotiating contract. Completed annual mandated educational requirements. Participated in detailed strategic planning, succession planning, disaster recovery planning, 1099R distribution code and finding lost annuitant projects. Reviewed controls and assisted in Board election conducted in May. Attended LEAN Training Legal/Legislative Presented the staff position in fifteen (15) Claims Panel hearings. Drafted, and filed with the Executive Committee, five (5) Staff Responses to Statements of Exceptions. Drafted, and filed with the Claims Panel, seven (7) Staff Responses to Statements of Claim. Received favorable IRS Determination Letters with respect to the SURS DB and DC plans. Drafted, and obtained Board and Joint Committee on Administrative Rules (JCAR) approval, of administrative rules concerning the commingling of disability funds between the SURS DB and SMP plans, and DB plan benefit limits as mandated by the IRS Determination Letters. Drafted, and had introduced in the Illinois General Assembly, the 2015 SURS Technical Corrections bill (SB 777). Finalized the establishment of a protocol for the collection of overpayments and submitted five (5) collection cases to the Illinois Attorney General s office for processing. Continued work on the Compliance Project Tracking Tool website and completed training Marilyn Branson to assume the duties of Compliance Officer with respect to the website. Renewed SURS trademark registrations with the United States Patent and Trademark Office (USPTO). Drafted a Mobile Devices (I-Pad) Policy for trustees and staff. Reviewed and drafted changes to the SURS Procurement Policy document. Participated in the drafting of the SMP Request for Proposal materials. Provided assistance to Member Services in responding to employer inquiries concerning PA (Return to Work/Affected Annuitants). Continued weekly conference calls with the Illinois Attorney General s office concerning the status of the PA (Pension Reform) litigation. Completed the coordination of multiple responses to requests made by the Attorney General s office concerning background information to be used in the litigation defense of PA (Pension Reform). Published an article in the October 2014 issue of the National Association of Public Pension Attorneys (NAPPA) Report on the Illinois Supreme Court decision in Kanerva v. Weems. Participated in a panel discussion concerning pension reform at the annual IIT-Chicago Kent College of Law Conference on Public Sector Labor Law.

21 Exhibit 4 Attended the annual NAPPA (National Association of Public Pension Attorneys) Winter Seminar in Tempe, AZ. Attended LEAN Training. Completed the following compliance related activities: o Completed daily monitoring of the investment guideline exception reports. o Tracked filings for class actions with upcoming deadlines. o Prepared and filed the annual reports required by PA (Iran) and PA (Sudan/Illinois Finance Entity). o Completed quarterly reviews of the Investments section of the SURS website. o Completed the annual report regarding Economic Opportunity Investments required by PA o Completed review of the investment managers annual Sudan certificates. o Completed monthly distribution of the Iran list and related tasks. o Submitted co-filing (with NYC pension funds) to American Express and Charles Schwab concerning EEO-1 shareholder proposals. o Submitted co-filing (with NYC pension funds) to Omnicom Group concerning EEO-1 shareholder proposals. Received and processed: o 75 Freedom of Information Act requests o 165 QILDRO/Calculation Orders o 91 Small Estate Affidavits o 60 Subpoenas/Authorization Requests

22 Exhibit 5 State Universities Retirement System of Illinois Serving Illinois Community Colleges and Universities 1901 Fox Drive Champaign, IL (217) (217) (FAX) To: Administration Committee From: Phyllis L. Walker Date: June 1, 2015 Re: Administrative Expense and Capital Budget Fiscal Year 2016 Overview Annually, the administrative expense and capital budget is submitted for approval. The administrative expense budget covers all operational costs of the Defined Benefit, the Self-Managed Plan (SMP), and the investment personnel services. The total proposed Fiscal Year 2016 administrative budget is $19,520,474 or 8.9% over the Fiscal Year 2015 projected actual budget of $17,871,638. The capital budget includes major initiatives, services, and purchases. The total proposed Fiscal Year 2016 capital budget is $902,000 or 67.3% increase compared to the Fiscal Year 2015 projected actual budget of $539,127. Recommendation SURS staff recommends: That the Fiscal Year 2016 Administrative Expense Budget be approved as presented. That the Fiscal Year 2016 Capital Expenditure Budget be approved as presented.

23 Exhibit 6 State Universities Retirement System Fiscal Year 2016 Administrative Expense and Capital Budget June 12, 2015 The Northern Trust 50 South LaSalle Street Global Conference Center Chicago, Illinois Administration Committee State Universities Retirement System of Illinois 1901 Fox Drive, P.O. Box 2710 Champaign, IL 61820

24 Exhibit 6 State Universities Retirement System Fiscal Year 2016 Administrative Expense Budget TABLE OF CONTENTS Budget Message... 3 Fiscal Year 2016 Operating Budget... 4 Administrative Budget by Category... 5 Administrative Budget... 6 Self-Managed Plan Budget Investment Administrative Expense Summary Capital Budget Capital Budget Detail... 19

25 Exhibit 6 State Universities Retirement System June 12, 2015 To: Administration Committee of the Board of Trustees of the State Universities Retirement System (SURS) From: Phyllis L. Walker, Chief Financial Officer Re: Fiscal Year 2016 SURS Administrative and Capital Budget I am pleased to submit for your review and approval the Administrative Operating Expense and Capital Budget for the State Universities Retirement System (SURS) for the Fiscal Year 2016, which begins July 1, 2015, and ends June 30, The budget reflects the staff s commitment to provide services and programs in alignment with the SURS Strategic Plan. The proposed Fiscal Year 2016 administrative budget of $19,520,474 is 3.4% over the prior year s budget and 8.9% over the prior year s projected actual budget. Personnel Services & Benefits costs are up 1.7% over the prior year s budget and 9.2% over the projected actual budget. Non-personnel costs are up 7.7% over the prior year s budget and 8.1% over the projected actual budget. The capital budget is 42.3% over the prior year s budget and 67.3% over the projected actual budget. The capital budget includes several building projects and a network backbone upgrade. In response to the System s emphasis of organizational readiness, the budget reflects an additional position in the Call Center. This position will assist us in maintaining a trained staff during staff turnover. The insurance premiums are prescribed by the Department of Central Management Services. This expense is currently not within our control. For Fiscal Year 2016 we are proposing a 5% increase over the Fiscal Year 2015 projected actual (12.3% over the projected actual budget includes the impact of new and mid-year filled positions). I would like to express my gratitude to Gayle Jannusch, Lou Ann Fillingham and the departmental management team for their valuable contribution to this budget process. Sincerely, Phyllis L. Walker Chief Financial Officer

26 Exhibit 6 SURS FISCAL YEAR 2016 CONSOLIDATED ADMINISTRATIVE BUDGET $ Increase % Increase $ Increase % Increase FY 2015 Full Year FY 2016 from Prior from Prior from Proj from Proj Budget by Expense Item Budget Actual Projected Budget Yr Budget Yr Budget Actual Actual Personnel Services 7,837,653 7,521,987 8,105, , % 583, % Extra Help 4, (4,000) % - 0.0% Insurance 2,581,115 2,158,872 2,424,575 (156,540) -6.1% 265, % Pension 895, , ,589 87, % 129, % Payroll Tax 110, , , % 5, % Subtotal-Personnel Services & Benefits 11,428,448 10,640,185 11,624, , % 984, % Statistical & Tabulation Applications 103, , ,709 75, % 48, % Operations 582, , ,195 33, % 116, % Recruitment and Relocation 1,000 81,781 10,500 9, % (71,281) -87.2% Medical/Disability Program 10,000 8,888 10, % 1, % Auditing and Management Services 34,825 34,825 88,694 53, % 53, % Professional & Technical 247, , ,620 18, % (23,918) -8.2% Actuarial Services 244, , ,000 39, % 60, % Legal Fees 145, , ,000 39, % (44,688) -19.5% Postage 386, , ,024 (73,624) -19.0% (76,836) -19.7% Copying, Photographic & Printing 34,444 26,364 29,020 (5,424) -15.7% 2, % Surety Bond & Insurance 291, , ,500 (11,820) -4.1% 17, % Freight & Express Mail 14,100 13,751 13,600 (500) -3.5% (151) -1.1% EDP Equipment Repairs & Maintenance 72,240 84,547 84,547 12, % - 0.0% Office Rental 30,036 28,796 30, % 1, % Office Equipment Repairs & Maintenance 7,700 10,278 8, % (1,978) -19.2% Equipment Rental-Telephone 135, , ,460 (24,420) -18.0% 11, % Subscriptions & Information Services 29,883 25,981 29,254 (629) -2.1% 3, % Office & Library Supplies 63,816 55,570 59,035 (4,781) -7.5% 3, % Meeting Expenses 4,330 2,137 4,118 (212) -4.9% 1, % Printing Supplies 49,200 44,172 48,900 (300) -0.6% 4, % EDP Supplies 60,000 60,000 70,000 10, % 10, % EDP Operating Equipment 32,700 34,711 34,100 1, % (611) -1.8% Registration & Conference Expenses 21,684 13,389 33,145 11, % 19, % Employee Training Programs 53,375 32,049 33,875 (19,500) -36.5% 1, % Employer Training Programs 950 3,774 1, % (2,734) 0.0% Board Travel 28,000 21,669 25,000 (3,000) -10.7% 3, % Board Meeting 13,100 11,991 11,530 (1,570) -12.0% (461) -3.8% Association Fees 25,222 25,761 26, % % Employee Tuition 11,325 7,308 14,107 2, % 6, % Travel 95,580 74,356 94,297 (1,283) -1.3% 19, % Building & Grounds Maintenance 122, , ,535 74, % 78, % Utilities 106,080 99, ,700 (2,380) -2.2% 4, % Subtotal - Non-personnel Costs 3,059,643 3,046,822 3,294, , % 248, % TOTAL-Defined Benefit Plan 14,488,091 13,687,007 14,919, , % 1,232, % Depreciation 436, , ,219 73, % 56, % TOTAL DEFINED BENEFIT EXPENSES 14,924,590 14,140,607 15,429, , % 1,288, % Investment Administrative 3,476,338 3,267,242 3,602, , % 335, % Self-Managed Plan Administrative 486, , ,530 2, % 24, % GRAND TOTAL ADMINISTRATIVE 18,887,112 17,871,638 19,520, , % 1,592, % Capital Budget 634, , , , % 362, % GRAND TOTAL 19,521,112 18,410,765 20,422, , % 1,955, % *Self-Managed Plan Administrative Expenses Fiscal Year 2016 Budget - $488,530 (Detailed analysis can be found on page 15). **Investment Total Administrative Fiscal Year 2016 Budget of $3,602,495 consists of Personnel Expenses of $1,287,475 (Personnel Summary located on page 17) and Non-Personnel Expenses of $2,315,020 approved in the Investment Committee meeting.

27 Exhibit 6 State Universities Retirement System Fiscal Year 2016 Administrative Expense Budget ADMINISTRATIVE BUDGET BY CATEGORY FY 2016 DEFINED BENEFIT EXPENSE BY CATEGORY Personnel Services Systems Professional/Technical Other Communications Board/Staff Development FY 2015 FY 2015 FY 2016 FY 2016 BUDGET INC/(DEC) FROM: Projected Budget Budget FY 2015 Budget FY 2015 Proj Actual Actual $ % $ % Personnel Services $ 10,640,185 $ 11,428,448 $ 11,624,333 $ 195, % $ 984, % Systems 810, , , , % 173, % Professional/Technical 867, , , , % (23,966) -2.8% Communications 610, , ,504 (104,518) -15.7% (49,175) -8.1% Board/Staff Development 142, , ,068 (9,648) -5.0% 41, % Other 615, , ,960 55, % 105, % Total Admininstrative DB 13,687,007 14,488,091 14,919, , % 1,232, % Depreciation 453, , ,219 73, % 56, % Total Expenses $ 14,140,607 $ 14,924,590 $ 15,429,449 $ 504, % $ 1,288, % OVERVIEW: The total budgeted expenses, including depreciation, increased by approximately $1,288,842, or 9.1% from the projected actual for Fiscal Year The depreciation increased by $56,619 and the operational expenses increased by $1,232,223. More detailed analysis of each expense category can be found in the following pages.

28 Exhibit 6 State Universities Retirement System Fiscal Year 2016 Administrative Expense Budget FY 2015 FY 2015 FY 2016 FY 2016 BUDGET INC/(DEC) FROM: Projected Budget Budget FY 2015 Budget FY 2015 Proj Actual Actual $ % $ % Salaries and Wages $ 7,521,987 $ 7,837,653 $ 8,105,949 $ 268, % $ 583, % Extra Help - 4,000 - (4,000) % % Insurance 2,158,872 2,581,115 2,424,575 (156,540) -6.1% 265, % Pension 854, , ,589 87, % 129, % Payroll Tax 104, , , % 5, % Total Expenses $ 10,640,185 $ 11,428,448 $ 11,624,333 $ 195, % $ 984, % OVERVIEW: Salaries and benefits increased from Fiscal Year 2015 projected actual levels by $984,148 or 9.2%. Salaries and Wages Increase/(Decrease) from FY 2015 projected actual: Base salary 3.0% $ 255,090 FY 15 budgeted open positions delayed filling 309,847 FY 16 hires at less than FY 15 projected actual (retirements) (142,630) FY 15 change in salary due to promotions or other reclassifications 49,155 New position 32,000 Superior Performance increase 30,500 FY 16 Reclassifications 30,000 Change in compensated absences 20,000 Total Salaries and Wages Increase $ 583,962 Insurance $ 265,703 Pension (employer normal rate increased from 11.71% of payroll to 12.69%) $ 129,007 Payroll Tax $ 5,476 Total Salaries and Benefits Expense increase $ 984,148 Salaries and Benefits FY FY 2016 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $ * 2016** Pension, Payroll Taxes and Insurance Salaries *2015 trojected Actual **2016 Budgeted

29 Exhibit 6 State Universities Retirement System Fiscal Year 2016 Administrative Expense Budget INSURANCE SURS is required by statute (State Employees Group Insurance Act; 5 ILCS 375/1) to participate in the Central Management Service (CMS) group health insurance plan for staff insurance coverage. For Fiscal Year 2016, we are budgeting a 5% increase over the Fiscal Year 2015 projected actual. 3,000,000 SURS Insurance Expense History 2,500,000 2,000,000 In Thousands 1,500,000 1,000, , Fiscal Year SUMMARY OF BUDGETED POSITIONS Inc from Approved Positions FY 2015 FY 2015 FY 2016 FY 15 by Cost Center: Budget Actual (Yr end) Budget Budget Explanation Administration Human Resources Legal Internal Audit Member Services & Support transferred 1 FTE from Finance: added new position (Team Leader) Member Services Outreach transferred 1 Systems-Applications FTE; added 1 new FTE (Call Ctr staff) Building Services Systems- Applications (1.00) transferred 1 Systems-Applications FTE to Mbr Svc Outreach Systems- Operations Finance (1.00) transferred 1 FTE to Member Services & Support Subtotal Self-Managed Plan Investments Total

30 Exhibit 6 State Universities Retirement System Fiscal Year 2016 Administrative Expense Budget SYSTEMS EXPENSES FY 2015 FY 2015 FY 2016 FY 2016 BUDGET INC/(DEC) FROM: Projected Budget Budget FY 2015 Budget FY 2015 Proj Actual Actual $ % $ % Information Technology Applications $ 131,547 $ 103,725 $ 179,709 $ 75, % $ 48, % Operations 500, , ,195 33, % 116, % EDP Equipm't Repairs & Maint 84,547 72,240 84,547 12, % - 0.0% EDP Operating Equipment 34,711 32,700 34,100 1, % (611) -1.8% EDP Supplies 60,000 60,000 70,000 10, % 10, % Total Expenses $ 810,805 $ 851,395 $ 984,551 $ 133, % $ 173, % SIGNIFICANT CHANGES FROM FY 2015 PROJECTED ACTUAL TO FY 2016 BUDGET: Information Technology The increase of information applications expense of $48,162 or 36.6% reflects the plan to conduct a technology roadmap study during Fiscal Year The study will assist staff in defining the functionality needed to replace the current SURS Pension Administration system, reviewing vendor software solution capabilities and custom development options. The increase of information operations expense of $116,195 or 23.2% is due to the plans for several projects (Hosted web managed services, Mobile Device Management and Call Center Roadmap). EDP Supplies The increase of EDP Supplies expense of $10,000 or 16.7% is anticipated increase in cost of annual supplies.

31 Exhibit 6 State Universities Retirement System Fiscal Year 2016 Administrative Expense Budget PROFESSIONAL & TECHNICAL SERVICES FY 2015 FY 2015 FY 2016 FY 2016 BUDGET INC/(DEC) FROM: Projected Budget Budget FY 2015 Budget FY 2015 Proj Actual Actual $ % $ % Medical /Disability Program $ 8,888 $ 10,000 $ 10,000 $ - 0.0% $ 1, % Auditing & Management 34,825 34,825 88,694 53, % 53, % Professional & Technical Governmental Relations 103,598 52, ,000 49, % (1,598) -1.5% Banking/ACH Fees 78,305 81,665 78,680 (2,985) -3.7% % Board Election Services 34,935 33,100 - (33,100) % (34,935) % Other 73,700 80,550 85,940 5, % 12, % Recruitment and Relocation 81,781 1,000 10,500 9, % (71,281) -87.2% Actuarial Consultant 223, , ,000 39, % 60, % Legal Consultant General 3,036 20,000 5,000 (15,000) -75.0% 1, % Litigation 62,681 30,000 40,000 10, % (22,681) -36.2% Benefits 50,058 40,000 55,000 15, % 4, % Board Legal Counsel 112,913 55,000 84,000 29, % (28,913) -25.6% Total Expenses $ 867,780 $ 682,740 $ 843,814 $ 161, % $ (23,966) -2.8% SIGNIFICANT CHANGES FROM FY 2015 PROJECTED ACTUAL TO FY 2016 BUDGET: Auditing & Management The increase of $53,869 or 154.7% is due to contracting external auditors to perform data census testing of SURS employers. Professional Services The Fiscal Year 2015 Board Election Services of $34,935 is cost of an external service to manage the trustee election. There will not be a trustee election in Fiscal Year Recruitment and Relocation The Fiscal Year 2015 Recruitment and Relocation expense of $81,781 is primarily due to the executive search. The decrease of $71,281 or 87.3% reflects the expectation that this expense will be lower. Actuarial Consultant The Fiscal Year 2016 expense increase of $60,940 or 27.3% for actuarial consultant services is due to plans to conduct an actuarial audit, annual economic study, stress test and anticipation that there will be more cost studies requested for pension reform. Legal Consultant The decrease of the total Legal Consultant expense of $44,688 or 19.5% reflects the anticipation that services for outside counsel will be lower.

32 Exhibit 6 State Universities Retirement System Fiscal Year 2016 Administrative Expense Budget COMMUNICATIONS FY 2015 FY 2015 FY 2016 FY 2016 BUDGET INC/(DEC) FROM: Projected Budget Budget FY 2015 Budget FY 2015 Proj Actual Actual $ % $ % Postage $ 321,962 $ 319,623 $ 313,024 $ (6,599) -2.1% $ (8,938) -2.8% Copying, Photographic, & Printing 26,364 34,444 29,020 (5,424) -15.7% 2, % Board Elections 67,898 67,025 - (67,025) % (67,898) % Telephone Services 100, , ,460 (24,420) -18.0% 11, % Printing Supplies 44,172 49,200 48,900 (300) -0.6% 4, % Travel- Counseling and Other 50,000 59,850 59,100 (750) -1.3% 9, % Business Total Expenses $ 610,679 $ 666,022 $ 561,504 $ (104,518) -15.7% $ (49,175) -8.1% SIGNIFICANT CHANGES FROM FY 2015 PROJECTED ACTUAL TO FY 2016 BUDGET: Postage The decrease of postage expense of $8,938 or 2.8% is due to anticipation of distributing more communications via electronic mail. Board Elections The Fiscal Year 2015 Board Elections of $67,898 is the cost of postage for the trustee election. The 100% decrease is due to there not being a trustee election in Fiscal Year Telephone Services The increase of telephone services of $11,177 or 11.1% is due to anticipated higher cost of service. Travel-Counseling and Other Business The increase of travel (SURS counseling and other business) of $9,100 or 18.2% is due to anticipated increase travel of administrative staff and counselors.

33 Exhibit 6 State Universities Retirement System Fiscal Year 2015 Administrative Expense Budget BOARD AND STAFF DEVELOPMENT FY 2015 FY 2015 FY 2016 FY 2016 BUDGET INC/(DEC) FROM: Projected Budget Budget FY 2015 Budget FY 2015 Proj Actual Actual $ % $ % Employee Training, Educational $ 51,349 $ 80,339 $ 72,178 $ (8,161) -10.2% $ 20, % Conferences and Employer Meetings Board Conference & Travel 21,669 28,000 25,000 (3,000) -10.7% 3, % Board Meetings 11,991 13,100 11,530 (1,570) -12.0% (461) -3.8% Association Fees 25,761 25,222 26, % % Employee Tuition 7,308 11,325 14,107 2, % 6, % Travel- Conference Related 24,356 35,730 35,197 (533) -1.5% 10, % Total Expenses $ 142,434 $ 193,716 $ 184,068 $ (9,648) -5.0% $ 41, % SIGNIFICANT CHANGES FROM FY 2015 PROJECTED ACTUAL TO FY 2016 BUDGET: Employee Training, Educational Conferences, and Employer Meetings This expense increase of $20,829 or 40.6% is due to planned staff training/conference registration in information technology departmentd (applications and operations) and in other areas. Employee Tuition SURS provides reimbursement to employees for classes and degree programs that are work-related. The level of expense budgeted each year depends upon the educational plan communicated to the director. The Fiscal Year 2016 shows an increase of $6,799 or 93.0% is for staff tuition. Travel - Conference Related The increase of Travel Conference Related expense of 10,841 or 44.5% is related to the increase in planned employee training, educational conferences and employer meetings increase.

34 Exhibit 6 State Universities Retirement System Fiscal Year 2016 Administrative Expense Budget OTHER EXPENSES FY 2015 FY 2015 FY 2016 FY 2016 BUDGET INC/(DEC) FROM: Projected Budget Budget FY 2015 Budget FY 2015 Proj Actual Actual $ % $ % Surety Bond & Insurance $ 261,744 $ 291,320 $ 279,500 $ (11,820) -4.1% $ 17, % Freight, Express & Drayage 13,751 14,100 13,600 (500) -3.5% (151) -1.1% Office Rental 28,796 30,036 30, % 1, % Office Equipment Repairs & Maint 10,278 7,700 8, % (1,978) -19.2% Subscriptions & Info Services 25,981 29,883 29,254 (629) -2.1% 3, % Office & Library Supplies 55,570 63,816 59,035 (4,781) -7.5% 3, % Building & Grounds Maintenance 119, , ,535 74, % 78, % Utilities 99, , ,700 (2,380) -2.2% 4, % Total Expenses $ 615,124 $ 665,770 $ 720,960 $ 55, % $ 105, % SIGNIFICANT CHANGES FROM FY 2015 PROJECTED ACTUAL TO FY 2016 BUDGET: Surety Bond & Insurance The increase of $17,756 or 6.8% reflects the anticipation of an increase in fiduciary insurance and standard increase of commercial and crime insurance policies. Buildings & Grounds Maintenance The increase of $78,220 or 65.6% reflects the anticipation of remodeling of storage and other areas into office spaces to accommodate staff growth.

35 Exhibit 6 State Universities Retirement System Fiscal Year 2016 Administrative Expense Budget SELF-MANAGED PLAN EXPENSES FY 2015 FY 2015 FY 2016 FY 2016 BUDGET INC/(DEC) FROM: Projected Budget Budget FY 2015 Budget FY 2015 Proj Actual Actual $ % $ % Salaries and Wages $ 279,430 $ 281,530 $ 287,814 $ 6, % $ 8, % Insurance 89,652 96,190 83,786 (12,404) -12.9% (5,866) -6.5% Pension 31,960 30,681 35,552 4, % 3, % Payroll Tax 3,738 3,771 3, % % Investment Consulting & Other 46,500 51,500 51, % 5, % Postage 8,175 18,377 18,266 (111) -0.6% 10, % Copying, Photographic, Printing % - 0.0% Printing Supplies 1,929 1,565 1, % (217) -11.2% Member Programs/Association Dues 991 1,120 1,000 (120) -10.7% 9 0.9% Employee Tuition % - 0.0% Travel 1,414 1,450 5,050 3, % 3, % Total Expenses $ 463,789 $ 486,184 $ 488,530 $ 2, % $ 24, % SIGNIFICANT CHANGES FROM FY 2015 PROJECTED ACTUAL TO FY 2016 BUDGET: Salaries and Wages The increase of $8,384 or 3.0% is based on the approved cost-of-living salary increases for SURS staff. Insurance The decrease of $5,866 or 6.5% is based on the projected actual Fiscal Year 2015 employer insurance premiums being less than budgeted. Postage The increase of $10,091 or 123.4% reflects an increase in average postage costs and additional mailing for the SMP plan.

36 Exhibit 6 State Universities Retirement System Fiscal Year 2016 Administrative Expense Budget FY 2016 SELF MANAGED PLAN EXPENSE BY CATEGORY Personnel Services (84.1%) Consulting Services (10.5%) Postage (3.7%) Printing Supplies (0.35%) Member Programs/Association Dues (0.2%) Travel (1.1%) Active SURS Participants as of April 30, % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 5,872 11,116 8,793 19, , ,202 8,732 5,109 16,850 0 Traditional Portable SMP Default No Election Academic Police/FF Staff Unknown