Horizon News. The Employees Retirement System Annual Popular Report for fiscal year ending June 30, Refund of Contributions when you leave

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1 VOLUME 19 SPRING 2017 Horizon News A Newsletter for Active and Retired Members of the City of Baltimore Employees Retirement System This issue: The Employees Retirement System Annual Popular Report for fiscal year ending June 30, 2016 Refund of Contributions when you leave Changes to Surviving Spouse Benefits Mission Statement: The System is committed to protecting and prudently investing member assets and providing accurate and timely retirement benefits with quality service to members and beneficiaries.

2 Dear Active Members, Retirees and Beneficiaries, Happy Spring! I m delighted to greet you with great news: The ERS finished fiscal year 2016 with an excellent return of 3.2%, representing top quartile performance. This return on investments placed ERS in the 6th percentile of the Public Pension Fund index. operation activities. The Plan s long term performance is also top quartile, and outperformed the actuarial rate of assumption. As you can imagine, there are strong headwinds in the markets that impact our ability to generate higher returns while managing risk. Read the Annual Popular Report for the fiscal year, starting on page two, for a summary of the Fund s 2016 investment and In response to one of the most frequently asked questions about refund of contributions, on page 5, we have provided you with the necessary steps to facilitate the refund of contribution if you terminate your employment with the City prior to vesting. Have you seen your most recent Retirement Benefits Statement? Want to estimate your ERS retirement benefits? Visit the ERS Member Self-Service (MSS) web portal at On behalf of the Board of Trustees, I would like to thank you for the enduring confidence that you have placed in us. We work hard on your behalf to service your retirement needs. We also invest wisely and prudently to secure your pension for the long term. That leads me to ask you, how are we doing? Please let us know. If you have any questions or feedback to share, please contact us. We always love to hear from you! Sincerely, Roselyn Spencer, Executive Director TABLE OF CONTENTS Annual popular report for fiscal year ending Refund of contributions Setting your power of attorney...6 Food for thought Retiree COLA...7 CHANGES TO SURVIVING SPOUSE BENEFITS: Widowhood certification Thinking about remarrying? Previously under prior City pension law a surviving spouse would be eligible for a death benefit payable for life, provided that he/she did not remarry. An annual, notarized certification was required to confirm nonmarriage status. Recently, an amendment was made to the law pertaining to surviving spouse death benefits that would allow a surviving spouse to remarry after age 70 and keep their benefit. To remain eligible for the benefit, surviving spouses cannot remarry before age 70 and must notify ERS immediately if they do. ERS is required to monitor the status of surviving spouses through the Widowhood Certification letter. Annually, surviving spouses are required to complete and return the widowhood certification letter. After age 70, the annual proof of status is no longer required. Please feel free to contact ERS with any questions or for further information. 1

3 ANNUAL POPULAR REPORT FOR FISCAL YEAR ENDING JUNE 30, 2016 ABOUT THE PLAN The Employees Retirement System of the City of Baltimore (ERS) is a cost-sharing multiple employer defined benefit local government retirement plan (the Plan). Established January 1, 1926, the Plan covers City employees and some members of the Baltimore City Public School System. ERS is a component unit of the City of Baltimore and is included in the City s financial report as a Public Employees Retirement System. Membership in ERS at June 30, 2016, consisted of 8,274 actives, 9,007 retirees and beneficiaries, and 1,018 non-active members (those not yet receiving benefits, but no longer working for the City). ERS is divided into three membership classes: Class A and Class C are closed to new members; whereas Class D is currently available to new hires. INVESTMENT RETURNS ERS had top quartile performance of 3.2% on its investment for the fiscal year ended June 30, In comparison to its peers, ERS outperformed 94% of its peers by finishing in the 6th percentile in the Public Pension Fund Index. ERS also outperformed its established investment policy benchmark of 1.80% for the fiscal year. The Policy Benchmark is based on the return of a hypothetical portfolio that includes allocations to major indexes. Although the one year performance trails the actuary assumption of 7.50%, the Fund s long-term perfor- mance has remained strong and in the top quartile with returns of 7.7% for the three year, and 7.6% for the 5 year. Bear in mind that the ERS investment objective is designed for the long term, to ensure that sufficient funds are available to meet the Plan s long-term obligations. This objective is manifested in the current target asset allocation, which is broadly diversified to grow the fund with measured risks. In terms of what impacted returns during the fiscal year, two major factors stand out. Heightened investor s sensitivity as a result of BREXIT (the British election to withdraw from the European Union), and anxiety over the US election outcomes significantly affected annual performances all around. Investment activities in fixed income, private equity, and real estate contributed to the strong performance, while hedge funds and international equity detracted. 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% MAJOR INITIATIVES There were two major undertakings during the fiscal year; an asset liability study that resulted in the adoption of a new asset allocation policy; and legislative mandates that among other things resulted in lowering the actuarial rate of assumption from 7.5% to 7.0%. This was due to recognition of the current low return environment which is predicted to be around for some time, and other micro factors making it difficult to achieve the higher assumption rate on investments, without assuming higher risk levels. FUNDING RATIO: HOLDING STEADY ERS funded ratio, based on actuarial value of assets, was at 71.2%, down 0.5% over the previous year. While the goal is to reach 100% funding, the Board is confident that the Plan is sustainable and able to meet all retirement needs when they are due, given that our members will retire at different times over the years. CITY OF BALTIMORE RETIREMENT SYSTEM RETURNS AS OF JUNE 30, % 0.9% 7.7% 6.5% 7.6% 1 YR 3 YR 5 YR ERS MEDIAN PUBLIC PENSION PLAN 6.5% 2

4 ANNUAL POPULAR REPORT FOR FIDUCIARY NET POSITION Total net assets for the fiscal year were $1.517 billion, a slight decrease from the previous fiscal year. Net assets provide a snapshot of the financial position of the Plan as compared to the previous fiscal year. The total net position represents funds available to meet ongoing obligations to participants and their beneficiaries. The asset allocation graph on page 4, presents how the plan assets were actually diversified into all major assets classes. CHANGES IN FIDUCIARY NET POSITION The plan s funding objective is to meet long-term benefits obligation through contributions and investment income. This is evident in the changes in fiduciary net position consisting of additions and deductions. Total revenue for the year was $127.7 million representing a decrease of $43.0 million from fiscal year Securities lending revenues and member contributions increased while investment income and employer contributions were down for the period. Revenue includes employer contributions, member contributions, investment and security lending earnings. Deductions increased slightly, due to retirement allowances and refund of members contributions. The net decrease between fiscal year 2015 and 2016 was $48.0 million. $ Million Investment at fair value Other assets 2,000 1,500 1, FIDUCIARY NET POSITION Total assets Total net position Total liabilities Additions Employer Contributions Members Contributions Net investment Income Net Security Lending Income Total Additions Deductions Retirement Allowances Administrative Expenses Death Benefits Lump Sum Cash Payments Refund of Members Contribution Total Deductions Net Increases/(Decreases) FIDUCIARY NET POSITION $1,216 FY 2012 $1,325 FY 2013 FY 2014 FY 2015 FY 2016 Fiscal Year Fiscal Year Increase/ Percent (Decrease) Change $ 1,529,231,600 $ 1,531,009,786 $ (1,778,186) -0.1% 136,079, ,522,308 12,556, % 1,665,310,709 1,654,532,094 10,778, % 148,378, ,597,828 25,780, % $ 1,516,932,382 $1,531,934,266 $(15,001,884) -1.0% CHANGES IN FIDUCIARY NET POSITION Fiscal Year Fiscal Year Increase/ $1,499 Fiscal Year $1,532 $1, (Decrease) $ 77,100,573 $ 97,170,796 $ (20,070,223) 10,350,709 6,728,131 3,622,578 39,903,958 66,609,808 (26,705,850) 356, , , ,711, ,716,967 (43,005,643) $ 138,184,417 $ 133,129,502 $ 5,054,915 3,515,492 3,748,434 (232,942) 652, ,540 (290,797) 124, ,608 (860) 235,808 72, , ,713, ,019,092 4,694,116 $ (15,001,884) $ 32,697,875 $ (47,699,759) 3

5 FISCAL YEAR ENDING JUNE 30, 2016 CITY OF BALTIMORE RETIREMENT SYSTEM RETURNS AS OF JUNE 30, % 8.0% 6.0% 7.7% 7.6% 4.0% 2.0% 3.2% 0.0% -2.0% -4.0% 1 Year 3 Year 5 Year 1st Quartile 2nd Quartile 3rd Quartile 4th Quartile ERS 1st Quartile 2nd Quartile Median 3rd Quartile 4th Quartile ERS # of Portfolios 1 Year 3 Year 5 Year 3.2% 1.8% 0.9% -0.3% -2.3% 8.0% 7.2% 6.5% 5.7% 4.1% 8.0% 7.2% 6.5% 5.8% 4.4% 3.2% % % 246 ACTUAL ASSET ALLOCATION US Fixed Income 27% International Equity 14% Private Equity 7% Real Estate 10% Hedge Funds 5% US Equity 37% AWARDS For the 33rd consecutive year, the Government Finance Officers Association of the United States and Canada has awarded the Certificate of Achievement to the ERS for Excellence in Financial Reporting for its Comprehensive Annual Financial Report for the fiscal year ending June 30, FOR MORE INFORMATION... This newsletter provides an overview of the ERS finances. All information shared here is believed to be accurate in all material aspects and is intended to fairly present the financial position and results of the ERS operations. If you would like the full and complete details, please visit the ERS website at to download a copy of the 2016 ERS Comprehensive Annual Financial Report. 4

6 Refund of contributions and qualifying criteria We hope that you will stay happily employed with us for a long time. If you happen to leave your job with the City before you are vested in your retirement plan, you will be eligible for a refund of the contributions you made to the plan plus interest, or earnings/losses, depending on your plan. Take a look at the following chart to find out what refund you would receive: Your retirement plan Your contributions to the plan When you re Vested What you ll receive if you leave the City before you re vested Class C hired before July 1, % of your pay After 10 years of ERS membership* A full refund of your contributions, plus 3% interest Class D, Hybrid hired on or after July 1, % of your pay After 10 years of ERS membership* A full refund of your contributions, plus 3% interest RSP, Non-Hybrid 5% of your pay After 5 years of City service A full refund of your contributions, plus any investment earnings or losses Deferred Compensation Plan (457) Participant driven Immediate A full refund of your contributions, plus any investment earnings or losses *Class C and D members generally become vested after 11 years of employment, as there is a one-year waiting period to become an ERS member. Classes C and D are classes of ERS, which is a defined benefit plan. If you leave employment with the City before you are vested, you will receive your refund as follows: ERS Classes C and D: 1. First, the City Central Payroll Division will process your final pay and other leave payments. A termination report is then sent to the ERS. 2. After that, ERS will send you a letter with information about your membership service credits, your rollover options, and a Refund of Employee Contributions (REC) form. 3. Upon receipt of your completed REC form and any required documents by the ERS, you ll receive your refund check in the mail within days. Retirement Savings Plan (RSP) 1. You should contact the RSP Office at (410) for the Request for Withdrawal form. 2. The ERS/RSP office will you the refund form. 3. Upon receipt of your completed refund form, your refund check will be processed and sent within 2-3 weeks. Deferred Compensation/457 Plan: Contact the RSP office to help you navigate further. 5 continued on next page.

7 Setting your power of attorney Financial decisions can be tough to make for yourself as it is, but what happens if you are not physically or mentally able to make these important judgment calls? Situations such as temporarily being out of the country, to being incapacitated due to a medical procedure, et. cetera, can cause financial matters to become time consuming, expensive, and troublesome. If you have not set a power of attorney to act on your behalf, a court may need to appoint someone for you, and you may not have any say in it. The decision of whom you will designate as your power of attorney is very important, as you must trust them with making the right decisions with your property, including your ERS benefits. To establish your power of attorney, select the Power of Attorney Designation form on our website, at: You are also able to limit the powers your designated authority will be able to have by submitting a Maryland Statutory Form Limited Power of Attorney, which can be found at: Statute_Web/get/ pdf Once you have completed your power of attorney, you must submit it to the ERS office, where it will be reviewed for legal sufficiency. Deferred Compensation Plan continued. There are very few benefits offered to non-vested employees after they leave the City. One that is frequently overlooked is the option of leaving your 457 account with the City when you leave. You will continue to receive quarterly statements, and be able to make investment option changes. By doing this you can avoid potential tax consequences or the temptation of spending monies intended for your retirement savings. There is no major paperwork required for this option, only that you should always keep your home or mailing address updated with the City Retirement office. During our working years, the food that we chose to eat may have been out of convenience. From running from place to place to keeping up with the kids, grabbing a quick and easy meal may have been more important than focusing on what effect our choices may have had on us. But now as retirees, we may find ourselves with more time to think about what we eat. As we age, it is more important to make healthy decisions. Food can have a big impact on our bodies, even on our brains! Did you know that with the right foods, you can help improve your memory and possibly ward off Alzheimer s? Older adults should make sure to include leafy green vegetables in their diet and avoid saturated and trans fats. Foods including fish, vegetables, nuts, whole grains, beans, and even dark chocolate have all been found to promote brain health. Take a look at these types of foods and how they can promote a healthier brain. Next time you are putting together you grocery list, make sure you are including some or all of these items: Leafy greens Helps control inflammation Beets, tomatoes, avocados Helps to increase blood flow to the brain, promoting learning and memory retention Nuts and pomegranates Helps minimize plaque in the brain Fish, blueberries, grapes, and dark chocolate Helps support and trigger the growth of neurons If you have any questions regarding your retirement savings, please call the ERS office. 6

8 HORIZON NEWS 7 East Redwood Street, 13th Floor Baltimore, MD PRSRT STD U.S POSTAGE PAID Baltimore, md permit no Office hours: Monday through Friday 8:30 a.m. to 4:30 p.m. Phone: Outside of Baltimore Fax: Website: horizon@bcers.org Administration Roselyn H. Spencer Executive Director ERS Board of Trustees Deborah F. Moore-Carter Chair of the Board City of Baltimore Labor Commissioner Elected by Active Members Joan M. Pratt, CPA Vice Chair Ex-officio Member City of Baltimore Comptroller Henry Raymond Trustee Ex-officio Member City of Baltimore Finance Director Jerome L. Sanders Chair Investment Committee LVI Power, LLC Appointed by the Mayor Doris Y. Brightful Retired Vice Chair Investment Committee Appointed by the Mayor Dorothy L. Bryant Phlebotomist City of Baltimore Health Department Elected by Active Members Gary Gilkey Chief of Labor & Employment City of Baltimore Department of Law Elected by Active Members Rosemary H. Atkinson Retired City of Baltimore HOPE VI Community Builder Elected by Retired Members Reminder: SET YOUR BENEFICIARY If you are an active member, it is important that you and your beneficiaries on file with both ERS and the Department of Human Resources (DHR). Call DHR (410) and ERS if you are unsure whether you have designated a beneficiary or need to do so RETIREE COLA If you retired prior to July 1, 2015, you may have noticed an increase in your monthly benefit payment starting at the beginning of the year. On the first business day of every calendar year, ERS provides a Cost-of- Living Adjustment (COLA) increase for retirees and beneficiaries. To be eligible for this increase, you must complete a full fiscal year of receiving benefits. Retirees and beneficiaries under the age of 65 received a 1.5% increase annually, while those age 65 and over received a 2.0% increase.