SAN DIEGO CITY EMPLOYEES RETIREMENT SYSTEM

Transcription

1 SAN DIEGO CITY EMPLOYEES RETIREMENT SYSTEM POPULAR ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2015 A DEFINED BENEFIT PENSION PLAN TRUST FOR EMPLOYEES OF THE CITY OF SAN DIEGO, THE SAN DIEGO UNIFIED PORT DISTRICT AND THE SAN DIEGO COUNTY REGIONAL AIRPORT AUTHORITY. A FIDUCIARY COMPONENT UNIT OF THE CITY OF SAN DIEGO

2 INTRODUCTION SDCERS is pleased to present the fiscal year 2015 Popular Annual Financial Report (PAFR) to members from our three plan sponsors the City of San Diego, the San Diego Unified Port District and the San Diego County Regional Airport Authority. The information provided in this PAFR is a snapshot of the detailed information contained in the Comprehensive Annual Financial Report (CAFR). The PAFR provides a concise summary of SDCERS financial health, investment performance and key accomplishments throughout the fiscal year. For more in-depth information, we encourage you to read the CAFR by visiting and clicking on the Publications tab. SDCERS reported a 3.3% investment return (net of fees) for FY 2015, which met our policy benchmark for the year but fell short of the system s actuarially assumed 7.25% return. Longer-term results remain strong; annualized returns were 11.0% over the past three years, 11.4% over the past five years, and 7.0% over the past 10 years, which is in the top 12% for public pension plans. The long-term focus is key, as our goal is to ensure we continue to have sufficient assets to pay benefits not only for our current retirees, but for our active members when they retire, too. SDCERS engages an independent actuary to conduct annual actuarial valuations. The June 30, 2014 actuarial valuations, the most recent available, show that the City s plan is 74.2% funded, the Unified Port District s plan is 76.9% funded and the Airport Authority s plan is 95.9% funded. All three plan sponsors paid 100% of their Actuarially Determined Contributions in FY 2015, continuing their strong commitment to adequately funding plan benefits. Proposition B, approved by the City of San Diego voters in 2012, closed the defined benefit retirement plan to City employees hired after the effective date, other than for sworn police officers. On December 29, 2015, the California Public Employment Relations Board issued a ruling finding the City failed to meet and confer with the unions before the Prop B ballot measure went to the voters. At the time of this publication, Proposition B is still the law pending any further appeals by the City or its labor unions before the court. SDCERS will continue to monitor developments on the issue and work with the City on the outcome of any court proceedings. I would like to express my thanks to the Board of Administration, Audit Committee and SDCERS staff who work steadfastly in the best interest of our plan sponsors and members. This year s accomplishments would not be possible without their commitment and leadership. Their dedication ensures our plan sponsors, members and the citizens of San Diego are wellserved. SDCERS looks forward to continuing its mission to deliver accurate and timely retirement benefits to its members based on a disciplined investment strategy in the coming year. Sincerely, Mark A. Hovey Chief Executive Officer 1

3 ACTUAL ASSET ALLOCATION As of June 30, 2015 GROWTH OF INVESTMENTS, AT FAIR VALUE For Ten Years Ended June 30, 2015 Domestic Equity 26.5% International Equity 16.2 Global Equity 4.8 Emerging Market Equity 0.9 Domestic Fixed Income 22.8 Emerging Market Debt 4.3 Real Estate 10.0 Private Equity and Infrastructure 10.6 Opportunity Fund 2.6 Cash 1.3 Total 100.0% $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1, HISTORICAL INVESTMENT PERFORMANCE Periods Ending June 30th 25.00% 24.2% 15.00% 12.8% 16.5% 13.4% 13.6% 16.8% 5.00% 0.9% 3.3% -5.00% -4.7% % -19.1% % SDCERS Current Assumption Rate is 7.25% Total Fund* * Total Fund returns are shown net of investment management fees beginning FY Returns prior to FY 2011 are gross of investment management fees. INVESTMENTS SDCERS investment team, working with BlackRock, reviewed SDCERS Rebalancing Model. The Rebalancing Model is a tool that is used to ensure compliance with SDCERS target allocation. The Model triggers sales of assets that have risen in price and buys of assets that have fallen in price. It was determined that the current Model is not only cost-effective but also efficient and that no changes were necessary. The investment team completed a search for general investment consulting services. Staff participated in the review of responses to the Request for Proposal and in-house presentations. Aon Hewitt, the incumbent, was unanimously rehired by the Board of Trustees based upon the strong relationship and the good work that they had already accomplished. 2 The investment team, with Aon Hewitt, continued to evaluate potential new ideas for the Opportunity Fund. The goal of the Opportunity Fund is to invest in strategies that may generate potential strong returns and/or provide additional diversification. Staff and Consultant continue to look at strategies that may be a good fit for SDCERS portfolio.

4 FINANCIALS STATEMENT OF PLAN NET POSITION As of June 30 (Dollars in Thousands) FUNDED RATIO AND UNFUNDED ACTUARIAL LIABILITY (UAL) As of June 30 Plan Sponsor City of San Diego Unified Port District Airport Authority City of San Diego Unified Port District Airport Authority Total Total Total Cash & Cash Equivalents $108,844 $13,986 $17,922 $140,752 $240,528 $237,090 Receivables 143,416 8,491 2, ,852 63, ,194 Investments, at Fair Value 6,434, , ,813 6,923,351 6,680,200 5,780,277 Securities Lending Cash Collateral 192,680 11,192 4, , , ,851 Capital Assets and Prepaid Expenses 6, ,927 6,954 5,030 TOTAL ASSETS $6,886,286 $398,649 $148,892 $7,433,827 $7,189,695 $6,427,442 Current Liabilities 316,612 17,648 6, , , ,766 DROP Liabilities ,931 Securities Lending Obligations 192,961 11,207 4, , , ,363 TOTAL LIABILITIES $509,573 $28,855 $10,376 $548,804 $417,603 $1,105,060 PLAN NET POSITION $6,376,713 $369,794 $138,516 $6,885,023 $6,772,092 $5,322,382 This table depicts a summary presentation of the assets and liabilities of SDCERS and reflects the resources available to pay benefits to members and beneficiaries at the end of the fiscal year. The Statement of Plan Net Position is presented with a more detailed analysis in SDCERS' Comprehensive Annual Financial Report (CAFR). STATEMENT OF CHANGES IN PLAN NET POSITION For the years ended June 30 (Dollars in Thousands) City of San Diego Unified Port District Airport Authority Total Total Total Plan Sponsor Contributions $265,660 $14,321 $3,823 $283,804 $294,888 $246,943 Member Contributions and Other Contributions 56,643 3,624 2,836 63,103 69,998 74,600 DROP - Contributions 4, ,130 5,066 0 Net Investment Earnings 207,653 12,064 4, ,107 1,007, ,478 TOTAL ADDITIONS $534,756 $30,260 $11,128 $576,144 $1,376,963 $1,037,021 Benefit Payments 402,242 21,191 2, , , ,060 Refunds of Member Contributions 4, ,725 2,742 4,064 Administrative Expenses 8, ,716 11,528 12,979 DROP Interest Expense 22, ,017 22,446 26,044 TOTAL DEDUCTIONS $437,931 $22,467 $2,815 $463,213 $418,184 $425,147 CHANGES IN PLAN NET POSITION 96,825 7,793 8, , , ,874 NET POSITION AT JULY 1* 6,279, , ,203 6,772,092 5,813,313 4,710,508 NET POSITION AT JUNE 30 $6,376,713 $369,794 $138,516 $6,885,023 $6,772,092 $5,322,382 This table reflects the financial activity of SDCERS for the fiscal year and presents information to illustrate how SDCERS' fiduciary net position changes as a result of this activity. Contributions from both Sponsors and Members, and Net Investment Earnings are the main additions to the pension system. The payment of retirement benefits accounts for the majority of deductions from the trust funds. This is a summarized version of the data presented and analyzed in SDCERS' CAFR. *Beginning Net Position for the City, Port and Airport at July 1, 2013 was restated due to the implementation of GASB Statement No. 67. Funded Ratio 74.2% 70.4% 68.6% 68.5% 67.1% UAL (billions) $2.0 $2.2 $2.3 $2.2 $2.2 Funded Ratio 76.9% 73.7% 72.7% 73.1% 75.3% UAL (millions) $100.0 $107.7 $104.2 $95.5 $76.7 Funded Ratio 95.9% 93.4% 98.5% 102.7% 96.0% UAL (millions) $5.3 $7.6 $1.4 $(2.3) $3.0 The chart summarizes key information from the most current independent actuarial valuation performed for SDCERS. The Funded Ratio is the relative percentage of actuarial assets to actuarial liabilities. The UAL (Unfunded Actuarial Liability) is the difference in dollars between actuarial assets and actuarial liabilities. Data for FY 2014 is the most recent available from SDCERS actuary. Agency funds that do not represent the assets of SDCERS are excluded from the financial summary. 3

5 SELECTED ACCOMPLISHMENTS INVESTMENT ACHIEVEMENTS AND RECOGNITION In April 2015, SDCERS won the Investor Intelligence Award for excellence in private equity. The Investor Intelligence Awards recognize the most outstanding and innovative public pension plans in North America. SDCERS award was voted on by approximately 800 peers and institutional investment firms and is a great honor for the system. Again in June 2015, SDCERS was recognized by PitchBook (a private markets database aggregator), who reported that StepStone s Atlantic Fund and Grosvenor s Pacific Fund (SDCERS two private equity funds) were the two top funds with a vintage year of 2009, when SDCERS private equity program began. SEMINARS, OUTREACH AND IMPROVED COMMUNICATION SDCERS is always looking to improve communications to members. Member Services scheduled and presented at least two seminars per month beginning January Seminars were geared toward an overview of the retirement process. Staff developed a tool with the new pension operating system to automate tracking of seminar attendance, which averages full capacity. SDCERS has also improved accessibility to Board meetings. Members can view videos of Board meetings on the SDCERS YouTube Channel, which can be viewed from any web browser. IMPROVEMENTS TO WEBSITE AND MEMBER PORTAL To gauge the success of the newly designed website introduced in the summer of 2014, a member survey was conducted and initial results were analyzed by SDCERS staff in January The website experience includes a Member Portal where members can access their personal information. Generally, the survey revealed members were pleased with the website redesign and with the ability to navigate through the website to find the information sought. Member suggestions to improve the Portal login process were addressed. Member Services continues to monitor website survey results to identify areas of improvement. BY THE NUMBERS SDCERS Call Center answered more than 37,000 calls, and the average member waited less than 35 seconds to speak to a helpful representative. 25% of all calls to SDCERS are answered by the informative introductory message, which is also repeated through web and social media communications. Since the inception of the new Member Portal a year ago, 47% of SDCERS members have registered to access their account information online. 55% of routine member transactions for address updates, tax withholding changes, and beneficiary updates are handled on the site, a more efficient and faster process than submitting paper forms. SDCERS counselors conducted 1,747 individual counseling sessions covering topics such as the Deferred Retirement Option Plan (DROP), service retirement, purchase of service credit, termination and disability. In addition to counseling sessions, 28 educational seminars were offered to expand SDCERS outreach and ensure members are properly informed. SDCERS MEMBERSHIP AS OF JUNE 30, 2015 CITY OF SAN DIEGO Active & Inactive Members: 9,948 Retired Members & DROP Participants: 9,103 UNIFIED PORT DISTRICT Active & Inactive Members: 660 Retired Members & DROP Participants: 537 AIRPORT AUTHORITY Active & Inactive Members: 468 Retired Members & DROP Participants: 76 TOTAL SDCERS MEMBERSHIP 20,792 4

6 401 West A Street, Suite 400 San Diego, CA This Popular Annual Financial Report (PAFR) is a summary depiction of SDCERS audited financial statements and other information contained in SDCERS Comprehensive Annual Financial Report (CAFR). The complete audited financial statements and pertinent notes to the financial statements can be found in SDCERS 2015 CAFR. SDCERS PAFR provides summary financial information and does not conform to Generally Accepted Accounting Principles (GAAP); the SDCERS CAFR conforms to GAAP and provides a comprehensive overview of the System s financial and operating results. SDCERS CAFR is available for review at within the Publications section or at the SDCERS office. facebook.com/sandiegocity- linkedin.com/company/sdcers