OHIO PUBLIC EMPLOYEES RETIREMENT SYSTEM 277 EAST TOWN STREET, COLUMBUS, OH PERS (7377)

Transcription

1 OHIO PUBLIC EMPLOYEES RETIREMENT SYSTEM 277 EAST TOWN STREET, COLUMBUS, OH PERS (7377) MEMORANDUM DATE: April 27, 2006 TO: FROM: OPERS Retirement Board Members Karen. Carraher, Director Finance Charlene Powell, Interim Assistant Director Accounting & Budgeting RE: V. Discussion Items: F. External Audit Report Purpose To provide a forum for the external auditors to discuss, with the OPERS Board, their findings with relation to the audit of the financial statements of the System for the year ended December 31, 2005 and to discuss matters of regulatory compliance and internal controls. Background The audit firm KPMG, in accordance with the terms of a five-year contract with the Auditor of State, has recently concluded their annual contractual audit of the financial statements of OPERS. At the conclusion of each annual audit, KPMG provides to the full Board (and later to the Audit Committee) an opinion on whether or not the System s financial statements present fairly, in all material respects, the financial position of the System and the changes in fiduciary net assets, in accordance with generally accepted accounting principles. In addition to expressing an opinion on the financial statements auditors are required to provide: A report on compliance with certain provisions of laws, regulations and contracts. Recommendations concerning certain matters related to OPERS internal controls and management s responses thereto as well as observations and recommendations on other matters. Any noted instances of material weakness in internal controls. Other matters that may be of interest to the Board in fulfilling its obligation to oversee the financial reporting and disclosure process for which management of OPERS is responsible.

2 Issues The Comprehensive Annual Financial Report (CAFR), which includes the Independent Auditor s Opinion and financial statements for the year ending December 31, 2005, will be delivered to the Board under separate cover. The Independent Auditor s Opinion provides that the financial statements of OPERS (the Statement of Fiduciary Net Assets and the Statement of Changes in Fiduciary Net Assets) are presented fairly, in all material respects, in conformity with generally accepted accounting principles. We have included a copy of the OPERS Financial Overview presentation with this material. Also included is a copy of the KPMG audit presentation and related exhibits, which are: Report on Financial Statements and Schedules Report on Compliance and Internal Control Engagement Letter Management Representation Letter The Report on Compliance and Internal Control disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards nor any instances of material weaknesses in internal controls. Additionally, KPMG noted no Management Letter Comments this year. Next Steps Representatives of KPMG will be present at the May board meeting to present this information to the Board meeting and Audit Committee.

3 Financial Presentation OPERS Board May 17, 2006 Karen Carraher, Director Finance Charlene Powell, Interim Assistant Director Accounting and Budgeting

4 Objectives Provide an overview of both the financial position and changes in financial position. Highlight various actuarial information that is critical in light of the Board s fiduciary responsibilities. Provide full Board an opportunity to hear from and ask questions of the auditors. 2

5 Review of Plans Traditional Plan Defined Benefit Pension Plan Combined Plan Member Defined Contribution Plan Employer Defined Benefit Pension Post Employment Health Care [IRC 401(h)] Funds set aside in a trust for members of the Traditional and Combined Plans Member Directed Defined Contribution Plan VEBA - Health Care for Member Directed Plan 3

6 Financial Statements Combining Statements of Fiduciary Net Assets Combining Statements of Changes in Fiduciary Net Assets 4

7 Statement of Fiduciary Net Assets Displays assets and liabilities as of a point in time (year-end) Identifies assets and liabilities out by plan Discloses net assets available to pay benefits 5

8 Net Assets By Plan 2005 & 2004 In Billions In Millions $70 $60 $50 $58 $54 $80 $70 $60 $72 $55 $40 $30 $20 $10 $0 Traditional $12 $12 Health Care $50 $40 $30 $20 $10 $0 $43 $34 $15 $8 Combined Member Directed VEBA

9 Statement of Change in Fiduciary Net Assets Explains the change in Net Assets from year to year. Provides information on annual revenues and expenses by Plan. 7

10 Analysis of Increase in Net Assets Expenses (benefit payments, refunds and administrative expenses) exceed annual contributions by approximately $1.3 billion. Annual increases in net assets come from investment earnings. Total investment return for 2005 was 9.0%, exceeding the actuarial funding requirement. 8

11 Revenues By Plan 2005 & 2004 In Billions In Billions $4.86 $5.89 $10 $8 $6 $4 Investment Income Employers $0.87 $1.30 $2 $1 Investment Income $2 $0 Members $0 Employers Traditional Plan Post Employment Health Care 9

12 Revenues By Plan 2005 & 2004 In Millions In Millions $5.42 $15.64 $ $4.28 $12.17 $ $40 $35 $30 $25 $20 $15 $10 $5 $0 Investment Income Employers Members $4.08 $12.43 $ $3.42 $10.05 $ $35 $30 $25 $20 $15 $10 $5 $0 Investment Income Employers Members Combined Plan Member Directed 10

13 Revenues By Plan 2005 & 2004 In Millions $1.04 $0.72 $10 $8 $6 Investment Income $ $ $4 $2 $0 Employers VEBA 11

14 Expenses By Plan 2005 & 2004 In Billions In Billions $3.0 $2.9 $1.1 $0.22 $2.68 $0.21 $2.45 $2.8 $2.7 $2.6 $2.5 $2.4 $2.3 Admin. Exp. Refunds Benefits $1.09 $0.96 $1.1 $1.0 $1.0 $0.9 Admin. Exp. Benefits $ $0.9 Traditional Health Care 12

15 Expenses By Plan 2005 & 2004 In Millions In Millions $7.0 $8.0 $4.43 $ $5.03 $ $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 Admin. Exp. Refunds $4.13 $ $4.90 $ $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 Admin. Exp. Refunds Combined Member Directed 13

16 In Millions Expenses By Plan 2005 & 2004 $1.6 $1.4 $1.2 $0.85 $1.48 $1.0 $0.8 $0.6 $0.4 Admin. Exp. Benefits $ $0.0 VEBA 14

17 Total System ~ Revenues vs. Expenses for 2005 & 2004 Revenues Expenses In Billions In Billions $12 $4.5 $10 $4.0 $5.74 $7.19 $8 $6 $4 Investment Income Employer Contributions $2.68 $2.45 $3.5 $3.0 $2.5 $2.0 $1.5 Pension Benefits Health Care Benefits Refunds $1.65 $ $1.61 $ $2 $0 Member Contributions $ $ $1.0 $0.5 $0.0 Administrative Expense 15

18 Required Supplementary Information Schedule of Administrative Expenses Schedule of Funding Progress Schedule of Employer Contributions 16

19 Administrative Expenses Actual Budget Actual Personnel Services $ 43,715,440 $ 45,229,075 $ 41,957,856 Professional Services 10,420,056 10,367,350 10,734,598 Banking Fees & Financial Services 8,417,980 7,228,680 8,894,754 Printing and Postage 2,476,861 2,929,775 2,769,757 Information Technology 3,036,941 3,250,965 2,459,854 Training & Travel Expenses 1,594,384 2,795,664 1,684,151 Office Equipment, Supplies & Other 1,566,935 1,432,526 1,569,160 Facility Expenses 4,396,108 4,765,965 4,445,371 Subtotal $ 75,624,705 $ 78,000,000 $ 74,515,501 Depreciation 9,230,512 10,749,800 10,614,014 Total Administrative Expenses $ 84,855,217 $ 88,749,800 $ 85,129,515 17

20 Schedule of Funding Progress Pension asset and liabilities. GASB 43 ramifications. Tremendously important document. 18

21 (Dollar Amounts in Millions) Schedule of Funding Progress Unfunded UAAL as a Actuarial Actuarial Ratio of Active % of Active Valuation Accrued Valuation Accrued Assets Member Member Year Liabilities (AAL) Assets * Liabilities (UAAL) to AAL Payroll Payroll 1999 $43,070 $43,060 $10 100% % 2000 $46,347 $46,844 ($497) ** 101% (5)% 2001 $47,492 $48,748 ($1256) ** 103% (12)% 2002 $50,872 $43,706 $7,166 86% % 2003 $54,774 $46,746 $8,028 85% % 2004 $57,604 $50,452 $7,152 88% % * Does not include assets set aside to pay health care benefits ** Valuation assets were in excess of AAL 19

22 Accrued Liabilities ($ in millions) Aggregate Accrued Liabilities for Portions of Accrued (1) (2) (3) Liabilities Covered by Active Retirees Active Members Reported Assets Valuation Member and (Employer- Valuation Year Contributions Beneficiaries Finance Portion) Assets * (1) (2) (3) 1999 $6,945 $17,050 $19,076 $43, % 100% 100% 2000 $7,448 $18,017 $20,882 $46, % 100% 102% 2001 $7,991 $19,087 $20,414 $48, % 100% 106% 2002 $8,514 $21,205 $21,153 $43, % 100% 66% 2003 $8,897 $23,728 $22,148 $46, % 100% 64% 2004 $9,340 $25,698 $22,536 $50, % 100% 68% * Does not include assets set aside to pay health care benefits 20

23 Membership Statistics Change Active Members Traditional Plan 371, , Combined Plan 5, Member-Directed Plan 5, Total Active Members 381, , Inactive Members Traditional Plan 326, ,480 14,048 Combined Plan Member-Directed Plan Total Inactive Members 327, ,248 14,616 Retirees/Beneficiaries Traditional Plan 151, , Total Members/Retirees 861, ,290 25,745 21

24 Traditional Plan ~ Member Trends % Change Number of Benefit Recipients 151, , % Average Benefit Payment $17,654 $16, % Active (Contributing) Members 371, , % Traditional Plan Net Assets $57,662,214,741 $53,554,315, % 22

25 REPORT FROM THE EXTERNAL AUDITORS 23