Comprehensive Annual Financial Report
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2009 Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2009 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 government functions. (Indiana Code Sections 5-10.3-2-1(b) and 5-10.2-2-1). 2009 ComprehensiveComprehensive Annual Annual Financial Financial Report For the Fiscal Year Ended June 30, 2009 The Public Employees’ Retirement Fund is a discretely presented component unit of the state of Indiana. 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 • Defined Contribution Plan • Defined Benefit Plan State Employees’ Death Benefit Fund Public Safety Officers’ Special Death Benefit Fund Pension Relief Fund Prepared By Public Employees’ Retirement Fund • 143 West Market Street Indianapolis, IN 46204 • Toll-free: (888) 526-1687 www.perf.in.gov • [email protected] Table of Contents 2009 Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2009 Introductory Section Investment Section 4 Letter of Transmittal 74 Report on Investment Activity 8 Public Pension Coordinating Council — 76 Outline of Investment Policies Public Pension Standards Award 78 Investment Highlights 9 Government Finance Officers Association — 83 List of Largest Assets Held Certificate of Achievement for Excellence in 84 Schedule of Commission Fees Financial Reporting 85 Investment Professionals 10 Administrative Organization Fund Highlights 12 Public Employees’ Retirement Fund Actuarial Section 14 1977 Police Officers’ and Firefighters’ Pension 92 Actuary’s Certification Letter and Disability Fund 94 Summary of Actuarial Assumptions and Methods 16 Judges’ Retirement System 97 Reconciliation of Changes in Unfunded Actuarial 18 State Excise Police, Gaming Agent, Gaming Accrued Liabilities Control Officer and Conservation 98 Solvency Test Enforcement Officers’ Retirement Plan 100 Schedules of Active Member Valuation Data 20 Prosecuting Attorneys’ Retirement Fund 101 Schedules of Retirants and Beneficiaries 22 Legislators’ Retirement System — Defined Benefit Plan Statistical Section 105 Summary of Statistical Section Financial Section 106 Schedule of Additions by Source 27 Independent Auditors’ Report 108 Schedule of Deductions by Type 28 Management’s Discussion & Analysis 110 Schedule of Benefit Deductions by Type 112 Schedule of Benefit Recipients by Type of Financial Statements Benefit Option 34 Statement of Fiduciary Net Assets 113 Schedule of Average Benefit Payments 36 Statement of Changes in Fiduciary Net Assets 118 Schedule of Average Death Benefit Payments 38 Notes to the Financial Statements 119 Schedule of Changes in Net Assets Required Supplementary Information 120 Schedule of Participating Employers 66 Schedule of Funding Progress 67 Schedule of Employer Contributions Other Supplementary Information 68 Administrative Expenses 69 Investment Expenses 72 Contractual and Professional Services Expenses Comprehensive Annual Financial Report Introductory Section 4 Letter of Transmittal 8 PPCC Public Pension Standards Award 9 GFOA Certificate of Achievement 10 Administrative Organization 12 Fund Highlights 9 Public Employees’ Retirement Fund Letter of Transmittal Terren B. Magid Executive Director December 2009 Dear Board Members: ith the global economy experiencing the deepest crisis in decades, PERF, along with all institutional investors, experienced one of its most challenging years ever. Notwithstanding the unprecedented disruption in the financial markets, I’m pleased to report that the Indiana Public Employees’ Retirement Fund (PERF) remains in solid financial condition, despite the global recession. Our funded status remains Wsound and we received an unqualified audit report from the Indiana State Board of Accounts (SBoA) including, for the first time in memory, zero findings. These accomplishments are a testimony to our commitment to accountable, prudent management which I believe you will find reflected in the pages of this Comprehensive Annual Financial Report for the fiscal year ended June 30, 2009. Financial Management: PERF management and staff are very proud to have received an unqualified audit opinion for fiscal year 2009, our fourth consecutive clean opinion. This result is affirmation of PERF’s continuing commitment to accurately and completely represent the financial condition of this organization. It is also the product of PERF’s ongoing focus on effective processes and controls and strong desire to provide its members and employers with the integrity and transparency they deserve in the management of their pension systems. Even in these challenging economic times, members and employers should take great confidence in PERF’s ability to prudently manage the funds with accountability. We are equally proud to have received no audit findings for the first time anyone at PERF or the SBoA can remember. In fiscal year 2004 PERF received a qualified audit opinion with 30 specific findings regarding areas of needed improvement. Diligent and persistent efforts to turn around PERF’s performance resulted in a reduced number of findings each year since 2004 culminating in zero findings in fiscal year 2009. Again, the steady progress toward this result is a testament to the sound financial processes and controls to which the PERF management and staff have been firmly committed these last four years. Five-year Process & Systems Strategic Plan: Fund management continues on our path of improvement with our focus squarely on our mission of Excellence in Customer Service. PERF has embarked on year three of the five-year process and systems strategic plan it started in 2007. When completed, PERF will operate using a state-of-the-art financial system; a more user friendly, web-based tool to transact business with our sponsoring employers; and a more efficient and intuitive benefits administration system. Moreover, PERF plans to offer its members daily valuation and investment election changes for the ASA accounts in 2010. In short, PERF’s services offerings will be more aligned with the types of offerings participants have come to expect from leading 21st century financial services companies, while being more efficient and cost effective. Market Performance: Without question, the 2009 fiscal year presented significant challenges to pension funds throughout the world. Indiana PERF was no exception. Investments at the fund performed better than the market during an extremely challenging year. In a global recession that saw Standard & Poor’s 500 Index drop 26.2 percent in the year, PERF’s Indiana 143 West Market Street < Indianapolis, Indiana 46204 4 www.perf.in.gov < (888) 526-1687 4 Public Employees’ Retirement Fund 2009 Comprehensive Annual Financial Report Letter of Transmittal investment loss was 20.6 percent. However, from January through June of 2009, PERF’s investment return of 6.1 percent was nearly twice the broader stock market growth as measured by a 3.2 percent gain in the S&P 500. Solid Funding: PERF funds reached an aggregate funded status of 99.6 percent at the July 1, 2008 start of the fund’s 2009 fiscal year. Nationally, state pension plans were funded at about 77 percent according to the 2009 Wilshire Report on State Retirement Systems. We are pleased with this overall funded status and continue to work to achieve and maintain full funding. While the full short-term impact of the global recession on funded status is not fully reflected in this annual report, it will continue to be reflected gradually in reports in the coming years. eW are confident that our long-term approach to prudent investment management will allow us to maintain a solid funded ratio over the decades to come. Customer Service: The PERF team remains unrelenting its commitment to continually improve customer service. During the fiscal year, we learned that our customer service scores had improved by more than 30 percent since 2004, placing PERF among the top pension plans according to national research. This is the conclusion of a report by CEM Benchmarking, a Toronto-based international pension benchmarking company. The report reflects in-depth research comparing PERF with 39 leading U.S. pension funds. In 2004, PERF scored seven out of 100 in its ability to process new retirements, according to CEM. In 2008, this improved dramatically to a score of 82, with 98 percent of new retirements processed on a timely basis. Accountability and National Excellence: Following this letter you’ll see a Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association (GFOA), and an Achievement Award from the Public Pension Coordinating Council (PPCC). The GFOA certification for PERF’s 2008 annual report marks the third straight year that a PERF annual report has achieved this recognition. The PPCC award recognizes PERF’s excellence in meeting professional standards for plan design and administration. This recognition rates PERF’s system management and administration among an exclusive handful of public retirement systems in the nation and also marks the third consecutive year we have achieved this