STATE UNIVERSITIES RETIREMENT SYSTEM OF ILLINOIS REQUEST FOR PROPOSALS FOR ACTUARIAL CONSULTANT SERVICES I. RFP SUMMARY STATEMENT The State Universities Retirement System (SURS) of Illinois requests proposals from qualified actuarial consulting firms interested in providing a range of actuarial services while functioning as actuarial advisor to the SURS Board of Trustees and the Executive Director of the system. The goal of this RFP is to evaluate and select an actuarial firm that will serve as consulting actuary to the SURS Board of Trustees and Executive Director of SURS for a five year period commencing July 1, 2008, and ending June 30, 2013. II. BACKGROUND INFORMATION Agency Description SURS is a cost-sharing, multiple-employer, public employee retirement system, serving the retirement needs of personnel employed by the public institutions of higher education in Illinois. The membership of the system is roughly 200,000 members, including approximately 43,000 benefit recipients, 82,000 active members, and 75,000 inactive members. SURS administers both a defined benefit plan and a defined contribution plan. The defined benefit pension trust fund has assets of approximately $16 billion. The defined contribution plan has accounts with assets of approximately $650 million. SURS is administered by an Executive Director who is responsible to a policy setting ninemember Board of Trustees. The agency employs approximately 120 employees. SURS is created by and subject to the Illinois Pension Code (Illinois Compiled Statutes, Chapter 40, Articles 1, 1A, 15, 20 and 22) and other state and federal laws. SURS latest Comprehensive Annual Financial Report and other information about SURS may be obtained on its website at www.surs.org. For additional information about SURS, its financial and benefit structures, please refer to the Comprehensive Annual Financial Report ended June 30, 2007, at the Investments tab on the SURS homepage.
III. SCOPE OF SERVICES Contract Services and Deliverables The consulting actuary shall perform tasks which include, but shall not be limited to, the following: A. General Duties Load and reconcile all the data in the SURS database. The primary computer system supporting SURS business applications is an IBM I-Series mid-range computer. SURS will furnish the consulting actuary with all data and statistical information deemed necessary to perform specified contract services, provided the data is available in the records and files of the system. This data will be reported to the actuary via file transfer protocol. Treat all member information as confidential. Seek written consent prior to public release of information resulting from the engagement. With respect to any publicity given to the actuarial services provided under terms of the resulting contract, the consulting actuary shall identify SURS as the sponsoring agency and shall not release any information without prior approval of the Executive Director of the system or appointed designee. This information includes, but is not limited to, press releases, research, and reports. (iv) SURS expects the consulting actuary to route all requests, reports and other communication in connection with this contract through the Executive Director of the system or appointed designee. (v) All work product to be signed by consulting actuary. (vi) Perform all services within the scope of the contract under the direct supervision of a qualified actuary. An approved actuary must be regularly engaged in the business of providing actuarial services and have at least 10 years experience with major public employee retirement systems and designation as a Fellow in the Society of Actuaries. SURS reserves the right to reject the firm s choice of a consulting actuary and may terminate the contract if a consulting actuary acceptable to the SURS Board of Trustees cannot be made available by the firm. B. Consultation and Advisory Services Provide actuarial consultation and advisory services. These services may be delivered in meetings or by telephone calls and written correspondence, as requested by SURS. SURS expects these services may include public testimony to committees, boards, commissions, and legislators on any technical, policy, legal or administrative problems arising during the course of operation of the system. The consulting actuary should be 2
readily accessible to SURS Executive Director by telephone within one working day and be available for meetings within five working days of a request. SURS expects the consulting actuary to attend a minimum of two Board of Trustees meetings per contract year in Chicago or Champaign, Illinois, including one meeting to review the annual actuarial valuation. SURS also expects the consulting actuary to be available for educational discussions with the Board of Trustees and/or SURS employees. The consulting actuary must have the ability to discuss actuarial theory and other matters in plain English. Prepare various actuarial operating tables and factors. From time to time, these tables and factors may be required for operation of the system. These tools include, but are not limited to, mortality tables, option tables for annuitants, present value factors, and survivor benefit factors. Prepare actuarial cost estimates of proposed legislation. The consulting actuary shall provide timely financial impact estimates of planned statutory amendments as requested by SURS Executive Director. SURS expects the consulting actuary to prepare an average of six estimates per contract year (fee for analyses in excess of six will be negotiated separately). The majority of these pricing requests will occur during the legislative audit session and will require the actuary s response within three working days or sooner. (iv) Recommend possible improvements in SURS financing and benefit structure. Provide advice with respect to the actuarial funding methods, assumptions and techniques. Throughout the duration of the contract, the consulting actuary will inform SURS of any new developments in the retirement industry and their effect on the financing and benefit structure of a retirement system. The consulting actuary should keep the Board of Trustees and the Executive Director of the System apprised of current trends and advancements within the actuarial profession. (v) Assist SURS staff in review of valuations and drafting new legislation or proposed changes to existing retirement laws which govern the system. Furthermore, the consulting actuary should assist SURS in developing strategies for resolving any policy or administrative problems associated with implementing new legislation. (vi) Keep SURS informed of any new developments or changes in federal legislation and/or tax regulations regarding financing, benefits, vesting, fiduciary responsibility or disclosure. SURS also expects the consulting actuary to assist SURS in implementing federal law appropriately. C. Valuation Services Perform annual actuarial valuations for the system. The resulting valuation reports must contain a) a detailed explanation of any significant changes in actuarial losses or gains because of deviations from expected experience; and b) projections for required contributions, assets and liabilities for a period of fifty years into the future. 3
Complete, by mid-october each year, the self-managed plan disability and defined benefit plan actuarial valuation for the fiscal year ended June 30 so the Board of Trustees may certify the actuarially determined employer contribution rate for the upcoming fiscal year. Preparation of experience studies (every 5 years). (iv) Preparation of actuarial summary statement for the comprehensive annual financial report (CAFR). (v) Provide asset/liability modeling. (vi) Provide sensitivity analysis regarding actuarial assumption factors. (vii) Provide any special actuarial studies requested by SURS (the fee for which shall be separately negotiated). IV. MINIMUM ELIGIBILITY REQUIREMENTS AND RFP PROCESS A. Minimum Eligibility Requirements The actuarial consulting firm must be regularly established in the industry of providing actuarial consulting services, financially responsible and have experienced personnel able to provide the required services. SURS may request information substantiating the above requirements. Failure to provide this information may result in a responder s proposal being declared non-responsive. The individual(s) assigned to SURS as lead consultant(s) must have a minimum of five years professional experience in the actuarial consulting field. All actuaries shall be enrolled actuaries and shall be members of the American Academy of Actuaries or the Society of Actuaries. The actuarial consulting firm must have been in business for a minimum of five years. The firm must have provided actuarial services to other public retirement systems or corporate pension plans which are approximately the size or complexity of SURS. The firm must be able to maintain a data processing interface with the retirement system s custodian by tape, disk, on-line connection or by other electronic means. The firm must not seek to unreasonably limit their liability for negligence or breach of fiduciary duty. 4
B. Schedule The following schedule may be changed if necessary. If the schedule changes, affected responders will be notified by mail. In no event will the dates listed below be changed to earlier dates. RFP issuance on: January 29, 2008 Written questions from potential responders must be received by: February 11, 2008 Answers to written questions will be disseminated on: February 14, 2008 Proposals due: February 22, 2008 Finalist(s) notified: February 28, 2008 Finalists presentations: March 14, 2008 Preliminary decision announced: March 15, 2008 Contract negotiation begin: March 18, 2008 Contract award by: March 31, 2008 C. Submission of Questions In order to clarify any issues in this Request for Proposals, the System will respond only to questions that are presented in writing via e-mail to lkern@surs.org. All questions concerning this RFP must be received by February 11, 2008. These questions will be consolidated into a single Q&A document. The Q&A document will be posted to the website (www.surs.org) on or around February 14, 2008 without divulging the source of any query. D. Proposal Submission In order to be considered for selection, proposals must be received via e-mail in Adobe Acrobat format by Ms. Lori Kern at lkern@surs.org no later than 4:30 p.m., Central Time Zone, on February 22, 2008. Please reference the Actuarial Consultant Services RFP in the e-mail subject line of your proposal. An e-mail confirmation will be sent confirming receipt of the proposal. All material submitted in response to the RFP will become property of SURS. Proposals will be confidential during the selection process. Upon completion of the selection process, all responses, including that of the firms selected, will be a matter of public information and will be open to public inspection in accordance with the State of Illinois Freedom of Information Act (FOIA). 5
E. Rights Reserved This RFP does not obligate SURS to complete the RFP process. SURS reserves the right without prejudice to reject any or all proposals submitted. SURS reserves the right to award all, part, or none of this contract if deemed appropriate and desirable by SURS. SURS also reserves the right to remove one or more of the services from consideration for this contract should the evaluation show that it is in SURS best interest to do so. SURS also may, at its discretion, issue a separate contract for any service or groups of services included in this RFP. SURS may negotiate additional provisions to the contract awarded under this RFP. SURS reserves the right to waive or permit cure of nonmaterial variances in a proposal provided, however, such waiver will be based on SURS best interest. Nonmaterial variances include, but are not limited to, the following: minor informalities that do not affect responsiveness, variances that are merely a matter of form or format, variances that do not change the relative standing of other bidders, variances that do not prejudice other bidders, variances that do not change the meaning or scope of the RFP, or variances that do not reflect a material change in the services. Failure to meet the minimum requirements or provide the required information shall not be considered a nonmaterial variation that SURS can waive or permit cure. In the event SURS waives or permits cure of nonmaterial variances, such a waiver or cure will not modify the RFP requirements or excuse the bidder from full compliance with RFP specifications or other RFP requirements if the responder is awarded a contract. The determination of whether a particular matter constitutes a material or nonmaterial variation from the RFP is within the sole discretion of SURS. SURS reserves the right to amend any segment of the RFP prior to the announcement of selected firms. In case of such amendment, all qualified responders will be afforded the opportunity to revise their proposals to accommodate the RFP amendment. There is no express or implied obligation for SURS to reimburse for any expenses incurred in preparing proposals or other actions taken in response to this request. F. Specific Proposal Contents Any firm responding to this RFP must submit its proposal via e-mail in one electronic document. A specific outline must be followed in order to facilitate SURS review and evaluation of the responses received. A response to this RFP must include the following sections in the order listed: 1. Transmittal Letter 2. Expressed Understanding of the Services Required 3. Responses to Attached Appendices (within length limitations noted) 6
G. Ex-parte Communications Public Act 93-617, which became effective December 9, 2003, brought about new Illinois ethics procedures. All ex parte communications concerning investment, rulemaking or quasi-adjudicatory matters pending before the State agency must be documented and some must be reported. An ex parte communication is any written or oral communication by any person that imparts or requests material information or makes a material argument regarding potential action concerning an investment, a rulemaking process, or a quasi-adjudicatory matter. An ex parte communication does not include statements publicly made in a public forum or communications among employees of the State agency. An ex parte communication from an interested party or his or her official representative or attorney to an employee or the agency must be memorialized and made a part of the record. An interested party is a person or entity whose rights, privileges, or interests are the subject of or are directly affected by an investment, regulatory or quasi-adjudicatory matter. An ex parte communication other than that just described must be reported by the staff member or Trustee immediately to the agency s Ethics Officer. The communication must be memorialized and made a part of the record. The communication must be filed with the Executive Ethics Commission, accompanied by a memorandum from the ethics officer. H. Quiet Period Policy The SURS Board of Trustees has established guidelines by which Board Members and staff will communicate with prospective service providers during a search process. The Policy is attached as Exhibit A. V. SELECTION PROCESS The selection process under this RFP will be as follows: A. Non-Qualifying Proposals The Evaluation Team (the Executive Director, Associate Executive Director, Chief Investment Officer, General Counsel, Chief Financial Officer, and Director of Applications Development & Research) will evaluate each Proposal to determine if it was submitted in accordance with the requirements set forth in this RFP. All non-qualifying proposals will be rejected at this time and the rejected proposing firms so notified.
B. Selection of Finalists The remaining Proposals will be evaluated by the Evaluation Team. Responders may be invited to participate in a due diligence interview with the Evaluation Team. Based on the information provided in response to this criteria and information gained by due diligence, the Evaluation Team may determine two or more firms to appear before the SURS Board of Trustees to present on a selected firm s capabilities. The final determination will be made by the SURS Board of Trustees with the assistance of the Evaluation Team. The criteria used in evaluating the proposals will include, but is not limited to, the following: Quality, conciseness, clarity and completeness of the proposal, including a demonstrated understanding of SURS needs relative to the actuarial services referred to in this RFP. Relevant experience of the team identified and the firm as it relates primarily to actuarial services for pension funds. Suitability, appropriateness and specificity of the proposal s description of the services to be provided. (iv) Fee proposals.
Appendix A: Questionnaire A. Background of the consulting firm (2 page maximum): (iv) (v) (vi) Briefly describe your firm s background, history, and ownership structure, including any parent, affiliated or subsidiary company, and any business partners. Describe the services your firm provides and give the percentage of revenue derived from actuarial services. Provide an organizational chart of your firm and describe the relationship between each component and your actuarial consulting group. Within the past three years, have there been any significant developments in your organization such as changes in ownership, restructuring, or personnel reorganizations? Describe anticipated future significant changes in your organization in the next five years? Give the address of your corporate office and indicate which office(s) will service SURS. Identify any actuarial services you are unable to perform. B. Consultants (1 page maximum): How many actuarial consultants does your firm have? Discuss the ways you manage growth, including any limits to the client/consultant ratio. C. Standards of conduct (2 page maximum): Does your firm have a written code of conduct or a set of standards for professional behavior? If so, a) please attach the code or standards (does not count against the page limit), and b) how are they monitored and enforced? How are consultant s recommendations to clients reviewed and monitored by your organization? Does your firm adhere to a level of consistency in consultant recommendations? Within the last five years, has your organization or an officer or principal been involved in litigation or other legal proceedings relating to your actuarial services assignments? If so, please provide an explanation and indicate the current status or disposition.
(iv) Has your firm ever been censured by any regulatory body? If so, please describe the situation. D. Conflicts of Interest (3 page limit): (iv) (v) Are there any potential conflict of interest issues your firm would have in servicing SURS? If so, describe them. How does your firm identify and manage conflicts of interest? Have you or anyone in your firm provided in an amount greater than $25.00 any gifts, travel and room expenses, entertainment or meals to any SURS Board Member or staff during the past 12 months? If yes, please describe the amount of the expense and what it was for. Have you or anyone in your firm paid any fees, commissions, or payments of any type to any third party (non-employee) in connection with this RFP? If so, please identify the recipient and the amount paid. List and describe any professional relationship you have with the SURS plan sponsor, any employers who pay into SURS or legislative oversight bodies during the past three years. E. Consulting Team (2 page maximum): Please provide contact information for each consultant that will be assigned to SURS in a grid similar to this. Name Address Business Phone Business Fax Email Address (iv) (v) Please describe the role of each consultant for this assignment. Please describe your team s experience with similar work performed for other public retirement systems or corporate pension, particularly using projected unit credit valuation methodologies. State whether the individuals assigned to the work have any responsibilities other than providing actuarial services, and if so, specify such responsibilities. Describe your firm s backup procedures in the event that key personnel in this assignment should leave the firm. 1
(vi) Describe how your firm controls the cost of services rendered for a client. F. Actuarial Valuations (5 page maximum): (iv) (v) (vi) (vii) Is your firm capable of performing actuarial valuations for a system the size of SURS? Describe the approach you would follow to conduct an actuarial valuation of the SURS pension plan. Describe your approach to measuring funding status and funding progress in order to facilitate the assessment of trends over several actuarial valuations with respect to the overall solvency of SURS. Describe your approach to assessing the current mandatory provisions of the statutes relating to the actuarial valuations and recommending appropriate changes in these requirements. Discuss the theory and methodology for the actuarial assumptions your firm employs. How do you develop asset class assumptions? Describe your firm s approach to providing recommendations regarding the amortization of unfunded liabilities. Describe your approach to the development and maintenance of valuation software. (viii) Describe the capabilities of your valuation system(s) and your computer hardware support. (ix) Describe the tools, resources, and training you can make available to the SURS staff so that they can model various scenarios. G. Actuarial policies (1 page maximum): Describe your approach to the analysis of applicable legal parameters/restrictions under which SURS must operate. Describe your process for maintaining a continuous review of actuarial policies. H. Reporting (1 page maximum): What period of time is required to prepare reports after fiscal year end (June 30)? By when is raw data needed from SURS in order to prepare reports in that timeframe? 11
Give a brief overview of the hardware and software systems used in the production of actuarial reports. I. Unique qualifications (2 page maximum): Describe how your actuarial consulting work is distinguished from that of your competitors. Describe any services of your organization that may not be offered by other consultants. Does your firm offer training of plan fiduciaries (trustees and some staff)? If so, describe the type of training available and the qualifications of the individuals assigned to conduct the training. J. Insurance and liability (2 page maximum): (iv) Do you, without exception, require a limitation on liability in your contract? If so, what is that required limitation? If not, will you waive a limitation on liability in your contract with SURS? Please describe the levels of coverage for errors and omissions insurance and any fiduciary or professional liability insurance your firm carries. Is the coverage on a per client basis, or is the dollar figure applied to the firm as a whole? List the insurance carriers. Describe your quality assurance procedures. Describe your firm s disaster recovery plan as it relates to the equipment, software, and data tapes and personnel that would be used in providing the services required by SURS. K. Subcontracting (1 page maximum): Does your firm anticipate using the services of a subcontractor in fulfilling this contract? Describe what portions of the project might be assigned to the subcontractor. L. Fees (1 page maximum): Please list your total annual fees for general duties, valuations, consultation and advisory services as detailed in this RFP to be performed during the five year contract period. There will be no additional reimbursement for travel, communicating costs, computer charges, and other expenses incidental to the 12
contract. The total fee must be all-inclusive, no additional amounts will be allowed. Please give hourly rates of compensation and estimated hours for each anticipated project or task for the purpose of illustrating how the annual fee was determined. M. Previous Clients Please provide three references who are clients for whom work similar to that requested in this RFP has been performed. Please list public sector clients who have terminated your actuarial relationship during the past three years and their reasons for doing so. Please include their names, titles and telephone numbers. Appendix B. Biographies Please include biographies for all consultants listed in your proposal. Indicate what year each consultant joined your firm and describe his or her position, current responsibilities, areas of expertise, experience, education, professional designations and memberships, and relevant publications and presentations. Appendix C. Annual Financial Report Please attach your firm s current Annual Financial Report. Appendix D. Sample Contract or Agreement Please attach a sample contract or agreement your firm uses for actuarial services. Appendix E. Other Information (2 page maximum) Please describe areas or processes, not included in the scope of this engagement that your firm may examine in order to provide more complete and thorough services. Provide any additional information that you believe to be relevant to the RFP and your capability to provide the services requested. 13