COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended December 31, 2012 Prepared by: The Finance Division of the Orange County Employees Retirement System Issued by: Steve Delaney, Chief Executive Officer Orange County Employees Retirement System 2223 East Wellington Avenue, Suite 100 Santa Ana, Ca 92701-3161 714.558.6200 Toll Free: 888.570.6277 www.ocers.org Images courtesy of: OC Parks Pamla Eisenberg/Richard Nixon Presidential Library & Museum Huell Howser Productions Robert Kinsler/OCERS Jake Bowman Graphic Design: Spencer Lewis Marketing Group Table of Contents Section I - Introductory Schedule of Investment Expenses ................81 Letter of Transmittal ...........................3 Investment Summary .........................81 Members of the Board of Retirement ..............7 Schedule of Largest Equity Holdings .............82 Organization of OCERS .......................8 Schedule of Largest Fixed Income Holdings ........82 Administrative Organization Chart ..............10 List of Investment Managers ...................83 List of Professional Consultants .................11 Certificate of Achievement for Excellence in Financial Reporting ......................12 Section IV – Actuarial Actuary’s Certification Letter ...................87 History of Unfunded Actuarial Accrued Liability ....90 Section II - Financial History of Employer Contribution Rates ..........91 Independent Auditor’s Report ..................15 Summary of Active Membership ................94 Management’s Discussion and Analysis ...........18 Summary of Retired Membership ................95 Development of Actuarial and Valuation Basic Financial Statements Value of Assets. .96 Statement of Fiduciary Net Position ..............30 Short-Term Solvency Test ......................97 Statement of Changes in Fiduciary Net Position .....31 Actuarial Methods and Assumptions .............98 Notes to the Basic Financial Statements ...........32 Summary of Major Plan Provisions .............106 Required Supplementary Information Experience Analysis .........................115 Schedule of Funding Progress – Actuarial Certification .......................116 Pension Plan .............................59 Schedule of Employer Contributions – Pension Plan .............................59 Section V – Statistical Schedule of Funding Progress – Statistical Section Review .....................121 OPEB County of Orange. .60 Schedule of Changes Schedule of Employer Contributions – in Fiduciary Net Position ..................122 OPEB County of Orange. .60 Schedule and Graph Schedule of Funding Progress – of Fiduciary Revenues by Source .............123 OPEB Orange County Fire Authority ..........61 Schedule and Graph Schedule of Employer Contributions – of Expenses by Type ......................124 OPEB Orange County Fire Authority ..........61 Schedule and Graph Significant Factors Affecting Trends of Benefit Expenses by Type ................125 in Actuarial Information ....................62 Schedule and Graph Other Supplemental Information of Average Monthly Pension Check . 126 Schedule of Administrative Expenses .............67 Schedule of Average Pension Benefit Payment by Years of Service .................127 Schedule of Investment Expenses ................68 Schedule of Pension Benefit Recipients Schedule of Payments for by Type of Benefit ........................128 Professional Services. .69 Schedule of Pension Benefit Recipients Statement of Changes in Assets and by Option Selected. .129 Liabilities - OPEB Agency Fund ..............70 Schedule and Graph of Pension Benefit Recipients. .130 Section III - Investment Schedule of Average Retirement Age ............131 Investment Consultant’s Statement. 73 Schedule of Average Years of Service at Retirement ..131 Investment Returns ..........................75 Schedule of Beneficiaries Receiving a Pension ......131 Statement of Investment Objectives and Policies ....76 Schedule of Active and Deferred Members ........131 Asset Diversification ..........................77 Schedule of Participating Employers - Pension Plan ............................132 Growth of System Net Assets at Fair Value .........78 History of Actuarial Assumption Rate ...........133 Historical Asset Allocation .....................78 History of Performance .......................79 Schedule of Commissions ......................80 Section VI – Glossary Commission Recapture Program ................80 Glossary of Terms ..........................137 Mission San Juan Capistrano, California San Juan Capistrano Section I - Introductory Mission San Juan Capistrano Mission San Juan Capistrano has been the home to many people for over 230 years of history. Its history consists of memories and stories of its past inhabitants and present visitors. It is a place of historical, cultural, and religious significance, as well as a place of inspiration and education. The story begins in 1775, when Mission San Juan Capistrano was first founded by Father Lasuen, on October 30th. But just a few weeks after the party of padres and soldiers arrived, they received word of the revolt occurring in San Diego. The founding padres and soldiers decided to leave San Juan Capistrano and go back to San Diego to help there. Once things had settled in San Diego, Father Serra personally led a party to re- found Mission San Juan Capistrano on All Saints Day, November 1, 1776. Fun Fact The American Cliff Swallow is a migratory bird that spends its winters in Goya, Argentina but makes the 6,000-mile trek north to the warmer climate of San Juan Capistrano in the springtime. Letter of Transmittal Serving the Active and June 4, 2013 Retired Members of: City of San Juan Capistrano Board of Retirement Orange County Employees Retirement System County of Orange 2223 East Wellington Avenue, Suite 100 Santa Ana, Ca 92701 Orange County Cemetery District Dear Board Members, Orange County Children & It is with great pleasure that we submit the Comprehensive Annual Financial Report Families Commision (CAFR) of the Orange County Employees Retirement System (OCERS or System) as of and for the year ended December 31, 2012, the System’s 68th year of operation. Orange County Department of Education (closed to new members) OCERS OCERS is a public retirement system that provides service retirement, disability, Orange County Employees death and survivor benefits, administered in accordance with the County Employees Retirement System Retirement Law of 1937 (Government Code Section 31450, et seq.), to its members. There are 20 systems in counties across the State of California regulated by the Orange County Fire County Employees Retirement Law of 1937. These systems have provided secure Authority retirement income that has supported the state’s economy for sixty-eight years. Orange County In-Home Pursuant to certain provisions of the County Employees Retirement Law, OCERS Supportive Services Public is an independent district within the County of Orange, with a separate operating Authority budget and professional staff. The California Constitution gives the Board of Retirement plenary authority over the administration of the system, which includes Orange County Local administering plan benefits and managing the System’s assets. The Board of Retirement Agency Formation and OCERS’ staff members are committed to act for the exclusive benefit of the plan Commission and its participants, manage the assets of the plan prudently and administer benefits with impartiality. To fulfill this mandate, OCERS employs a skilled professional Orange County Public Law staff and independent consultants that operate under a robust system of governance, Library operational and fiduciary policies and procedures. Orange County Sanitation Currently, OCERS’ participating agencies include the County of Orange, one city, District ten active special districts, two special districts with active employees that are closed to new members and one special district with deferred members. Orange County We are fortunate to be associated with a county that has so much to offer those that Transportation Authority choose to live, work and play here. As such, we have chosen the theme for this year’s CAFR to be “Orange County Gold,” paying homage to some of the many historical Superior Court of California, wonders of Orange County. The man who inspired this theme, Huell Howser, was a County of Orange big fan of Orange County and featured many of our County’s treasures in his iconic series, California Gold. Sadly, Mr. Howser passed away in 2012 and as a tribute to his Transportation Corridor passion for finding the hidden treasures of California, we have “hidden” his image in Agencies one of the Orange County wonders highlighted in this CAFR. UCI Medical Center and Campus (closed to new members) Introductory 3 Letter of Transmittal (Continued) Management Responsibility of Financial Reporting OCERS’ management is responsible for the complete and fair presentation of the financial information in accordance with generally accepted accounting principles (GAAP) in the United States. To the best of our knowledge, the enclosed data is accurate in all material respects and is reported in a manner designed to fairly present the financial position and operating results of OCERS. OCERS’ Mission Statement and Objectives The role of OCERS is to provide secure retirement and disability benefits, quality information concerning those benefits, and prompt, professional and courteous service that meets the highest standards of excellence. In carrying