2011 COMPREHENSIVE ANNUAL Fl NANCIAL REPORT For the Fiscal Year Ended June 30, 2011 The Public Employees' Retirement Fund is a discretely presented component unit of the state of Indiana. PERF is a trust and an independent body, corporate and politic. The fund is not a department or agency of the state of Indiana, but is an independent instrumentality exercising essential governmental functions. (Indiana (ode Sections S-10.3-2- 1(b) and S-10.2-2-1). 2011 COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2011 The Public Employees' Retirement Fund is a disaetely presented component unit of the state of Indiana. Public Employees' Retirement Fund J1977 Police Officers' and Firefighters' Pension and Disability Fund I Judges' Retirement System State Excise Police, Gaming Agent, Gaming Control Officer, and Conservation Enforcement Officers' Retirement Plan Prosecuting Attorneys' Retirement Fund Jlegislators' Retirement System: Defined Contribution Plan and Defined Benefit Plan State Employees' Death Benefit Fund 1 Public Safety Officers' Special Death Benefit Fund 1 Pension Relief Fund Prepared By Public Employees ' Retirement Fund I One North Capitol, Suite 001Jindianapolis, IN 46204 Toll-free: (888) 526-1687 I ww1v.inprs.in.gov I [email protected] PUBLIC EMPLOYEES' RETIREMENT FUND 2011 COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2011 TABLE OF CONTENTS INTRODUCTORY SECTION Other Supplementary Information 06 letter of Transmittal 80 Administrative Expenses 12 Government Finance Officers Association­ 81 Investment Expenses Certificate of Achievement 82 Contractual and Professional Services Expenses 13 Public Pension Coordinating Council ­ Public Pension Standards Award INVESTMENT SECTION 14 Administrative Organization 84 Report on Investment Activity 87 Outline of Investment Policies Fund Highlights 89 Investment Highlights 16 Public Employees' Retirement Fund 97 list of largest Assets Held 18 1977 Police Officers' and Firefighters' 98 Schedule of Fees and Commissions Pension and Disability Fund 99 Investment Professionals 20 Judges' Retirement System 22 State Excise Police, Gaming Agent, ACTUARIAL SECTION Gaming Control Officer, and Conservation 107 Actuary's Certification Letter Enforcement Officers' Retirement Plan 109 Summary of Actuarial Assumptions and Methods 24 Prosecuting Attorneys' Retirement Fund 113 Reconciliation of Changes in Unfunded 26 legislators' Retirement System - Actuarial Accrued liabilities Defined Benefit Plan 114 Solvency Te st 115 Schedules of Active Member Valuation Data FINANCIAL SECTION 116 Schedules of Retirants and Beneficiaries 31 Independent Auditor 's Report 32 Management's Discussion and Analysis STATISTICAL SECTION 120 Summary of Statistical Section Financial Statements 121 Schedule of Changes In Net Assets 38 Statement of Fiduciary Net Assets 122 Schedule of Additions by Source 40 Statement of Changes In Fiduciary 124 Schedule of Deductions by Type Net Assets 126 Schedule of Benefit Deductions by Type 42 Notes to the Financial Statements 128 Schedule of Benefit Recipients by Type of Benefit Option Required Supplemental Schedules 129 Schedu le of Average Benefit Payments 78 Schedule of Funding Progress 133 Schedule of Average Death Benefit Payments 79 Schedule of Employer Contributions 134 Schedule of Participating Employers PUBLIC EMPLOYEES' RETIREMENT FUND 2011 COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2011 INTRODUCTORY SECTION 06 Letter of Transmittal 12 GFOA Certificate of Achievement 13 PPCC Public Pension Standards Award 14 Administrative Organization 16 Fund Highlights Letter of Transmittal Steve Russo Executive Director December 20,2011 Dear Board Members: It is with pleasure that we present the Comprehensive Annual Financial Report (CAFR) of the Indiana Public Employees' Retirement Fund (PERF) for the fiscal year ended June 30,2011. About the Indiana Public Employees' Retirement Fund (PERF) As of June 30, 2011, PERF was responsible for the investment of approximately $16.6 billion in net assets. In total, PERF paid $734 million in monthly retirement, disability and survivor benefits to approximately 71 ,000 benefit recipients, served approximately 164,000 members actively employed in public service and worked in partnership with approximately 1,300 participating employers statewide. PERF also maintains accounts for approximately 104,000 inactive members for a total membership of approximately 339,000. PERF received $705 million in employer and employee contributions. Details about the demographics of PERF members and employers can be found in the Statistical Section of this report. This report provides detailed information on the performance of all retirement plans administered by PERF, including: • Public Employees' Retirement Fund • 1977 Police Officers' and Firefighters' Pension and Disability Fund • Judges' Retirement System • State Excise Police, Gaming Agent, Gaming Control Officer, and Conservation Enforcement Officers' Retirement Plan • Prosecuting Attorneys' Retirement Fund • legislators' Retirement System 6 One North Capitol. Suite 001 I Indianapolis. IN 46204 I www.inprs.in.gov I 1888) 526-1687 PUBLI C EMPLO YEES ' RETI REid £NT FUND INTRODUCTORYLetter of Transmittal, continued SECTION PERF also administers two special death benefit funds for public safety officers and state employees who die in the line of duty. In addition, PERF manages the Pension Relief Fund, which was created by the Indiana General Assembly to address the unfunded pension obligations of the police officers’ and firefighters’ pension systems of Indiana’s cities and towns. PERF is not responsible for the administration of those local pension funds, which have been closed to new membership since the creation of the 1977 Police Officers’ and Firefighters’ Pension and Disability Fund. However, PERF makes disbursements from funds provided by the General Assembly to the local police and firefighter units throughout the state that are still obliged to pay benefits under those former plans. Since its establishment, the laws governing the administration of PERF-administered funds have changed and expanded in response to the needs of our members, employers, and citizens. A public referendum held in 1996 approved an amendment to the Indiana Constitution to allow the funds to invest in equities. Since that time, PERF has been able to diversify its asset classes and grow its asset base. In 2000, legislation established that PERF would no longer be a state agency but an “independent body corporate and politic”, meaning it is not a department or agency of the State, but is an independent instrument exercising essential government functions. By Executive Order of the Governor, PERF is under the jurisdiction of the State Ethics Commission. Indiana Code established a six-member Board of Trustees to oversee PERF. Five trustees were appointed by the governor. The sixth member of the Board was required to be a director of the budget agency or the director’s designee. In 2010, the General Assembly passed legislation requiring the boards of PERF and the Indiana State Teachers’ Retirement Fund (TRF) to jointly appoint a common executive director and to cooperate to the extent practical and feasible in the investing of fund assets. In May 2010, the PERF and TRF Boards jointly appointed a common executive director to carry out the policies set by the Boards and to administer the Funds on a daily basis. During fiscal year 2011, a single common organization was implemented to most efficiently serve the needs of both PERF and TRF. In 2011, additional legislation was passed that created the Indiana Public Retirement System (INPRS), effective July 1, 2011. This legislation established a single common nine-member board to oversee the pre-existing funds previously administered by separate boards of PERF and TRF. While each of the existing PERF-administered funds remain separate and distinct, this year marks the end of a separate CAFR for PERF. Next year will be the inaugural year of a consolidated CAFR for all funds now administered by INPRS. Benefit Plan and Other Legislative Changes during Fiscal Year 2011 Several changes took effect during fiscal year 2011: < PERF One-time Check – Effective upon passage, in lieu of a Cost of Living Adjustment (COLA), the General Assembly provided a one-time check to members who retired before January 1, 2010. The amount of the one-time check ranged from $125 to $400 depending upon a member’s years of service and was to be paid to members no later than October 1, 2010. < PERF Beneficiaries – Effective July 1, 2010, permits a PERF member to allocate his or her benefit shares by percentages to more than one beneficiary. < PERF Appeal Rights – Effective July 1, 2010, provides that a PERF member may appeal his or her retirement or disability 7 retirement benefit up to six years after his or her retirement effective date. INTRODUCTORYLetter of Transmittal, continued SECTION < Five Star Mortgages – Effective July 1, 2010, provides that PERF may offer Five Star Mortgages as an investment option to members. < 1977 Police Officers’ and Firefighters’ Pension and Disability Fund (1977 Fund) Partial Lump Sum Distribution - Effective July 1, 2010, provides that, before July 1, 2010, an active member of the 1977 Fund who is eligible to receive an unreduced retirement benefit may elect at retirement to receive a partial lump sum distribution equal to the member’s monthly benefit times the member’s years of creditable service