NEW YORK STATE and LOCAL RETIREMENT SYSTEM Basic Financial Statements and Supplementary Information March 31, 2017 (With Independent Auditors’ Report Thereon)
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NEW YORK STATE AND LOCAL RETIREMENT SYSTEM Basic Financial Statements and Supplementary Information March 31, 2017 (With Independent Auditors’ Report Thereon) NEW YORK STATE AND LOCAL RETIREMENT SYSTEM Table of Contents Page(s) Independent Auditors’ Report 1–2 Management’s Discussion and Analysis (Unaudited) 3–8 Basic Financial Statements: Combining Basic Statement of Fiduciary Net Position 9 Combining Basic Statement of Changes in Fiduciary Net Position 10 Notes to Basic Financial Statements 11–35 Required Supplementary Information (Unaudited) Schedule 1 – Schedule of Changes in the Employers’ Net Pension Liability and Related Ratios 36–37 Schedule 2 – Schedule of Employer Contributions 38 Schedule 3 – Schedule of Investment Returns 39 Notes to Required Supplementary Information 40 Other Supplementary Information Schedule 4 – Schedule of Administrative Expenses 41 Schedule 5 – Schedule of Investment Expenses 42 Schedule 6 – Schedule of Consulting Fees 43 Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 44–45 KPMG LLP 515 Broadway Albany, NY 12207-2974 Independent Auditors’ Report The Trustee New York State and Local Retirement System: Report on the Financial Statements We have audited the accompanying combining statement of fiduciary net position of the New York State and Local Retirement System (the System) as of March 31, 2017, the related combining statement of changes in fiduciary net position for the year then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly in all material respects, the fiduciary net position of the System as of March 31, 2017, and the changes in fiduciary net position for the year then ended, in accordance with U.S. generally accepted accounting principles. KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Emphasis of Matter Adoption of New Accounting Pronouncement As discussed in note 2(g) to the basic financial statements, in 2017, the System adopted Governmental Accounting Standards Board Statement No. 72, Fair Value Measurement and Application. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information U.S. generally accepted accounting principles require that the management’s discussion and analysis and required supplementary information as listed in the accompanying table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Supplementary Information Our audit was conducted for the purpose of forming an opinion on the System’s basic financial statements. The accompanying other supplementary information as listed in the accompanying table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other supplementary information is fairly stated in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated July 21, 2017 on our consideration of the System’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the System’s internal control over financial reporting and compliance. July 21, 2017 2 NEW YORK STATE AND LOCAL RETIREMENT SYSTEM Management’s Discussion and Analysis March 31, 2017 (Unaudited) The following overview of the financial activity of the New York State and Local Retirement System (the System) for the fiscal year ended March 31, 2017 is intended to provide the reader with an analysis of the System’s overall financial position. The System is comprised of the New York State and Local Employees’ Retirement System (ERS) and the New York State and Local Police and Fire Retirement System (PFRS). This management’s discussion and analysis should be read in conjunction with the basic financial statements of the System, which follow. Financial Highlights The fiduciary net position of the System held in trust to pay pension benefits was $197.60 billion as of March 31, 2017. This amount reflects an increase of $13.96 billion from the prior fiscal year. This change is primarily the result of the net appreciation of the fair value of the investment portfolio. Investment appreciation (depreciation) for the fiscal years ended March 31, 2017 and 2016 is $16.92 billion and $(3.93) billion, respectively. The System’s investments reported a positive money-weighted rate of return, net of investment expense, of 11.40 percent for the fiscal year ended March 31, 2017 and a positive money-weighted rate of return, net of investment expense, of 0.03 percent for the fiscal year ended March 31, 2016. Retirement and death benefits paid during fiscal year 2017 to 452,455 annuitants totaled $11.45 billion, as compared to $10.91 billion paid to 440,943 annuitants for fiscal year 2016. The increase is primarily due to the number of new retirees. Contributions from employers decreased to $4.79 billion for the fiscal year ended March 31, 2017, from $5.14 billion for the fiscal year ended March