New York State Teachers’ Retirement System Comprehensive Annual Financial Report 2009 Cultivating Economic Stability Fiscal Year Ended for New York and Its Educators June 30, 2009 2009 Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2009 Prepared by NYSTRS Staff Mission: To provide the membership with timely service and This report is dedicated to accurate benefit payments; the memory of long time to assure the funding of these Board Member Iris Wolfson, who was instrumental in benefits by utilizing proper ensuring the roots of this actuarial techniques and pension fund are strong. maximizing investment returns. New York State Teachers’ Retirement System 10 Corporate Woods Drive Albany, NY 12211-2395 www.nystrs.org Table of Contents Introduction Actuarial 7 Board of Trustees 79 Actuarial Certification Letter 8 Executive Staff 80 Summary of Actuarial Methods 10 Letter of Transmittal and Assumptions 14 President’s Message 81 The Actuary’s Valuation Balance Sheet 15 Summary of Benefits 81 Comparison of Assets and Liabilities 82 Funding Progress Financial 82 - Analysis of Funding Progress 21 Independent Auditor’s Report 82 - Percent Funded 22 Management’s Discussion and Analysis 83 - Solvency Test 28 Basic Financial Statements 83 Analysis of Financial Experience 28 - Statements of Plan Net Assets 84 History of Member Payroll and the 29 - Statements of Changes in Plan Net Assets Employer Contribution Rate 30 - Notes to Financial Statements 84 Schedule of Retired Members 47 Required Supplementary Information and Beneficiaries ddedA to and 49 Other Supplemental Schedules Removed from the Benefit Payroll 85 Independent Actuarial Review Investments 53 Report on Investment Activity Statistical 58 Diversification of Investments 89 Number of Active and Retired Members 59 Asset Allocation 90 Distribution of Active Members 59 Annual Performance History by Age and Years of Service 60 Investment Performance Results 92 Members and Annuitants 1922-2009 61 Manager Investment Performance Results 92 Number of Active Members by Tier 64 Domestic Equity Distribution 93 Retirement Benefit Options and Table 64 Domestic Equity Externally Managed Percent of Election Style Distribution 93 Retired Members’ Characteristics of 65 Domestic Equity Holdings by by Year of Retirement Contents Industry Distribution 94 Retirement Statistics 65 Ten Largest Domestic Equity Holdings 96 Retired Members by Type of Benefit 66 Domestic Fixed Income Sector Distribution 98 Distribution of Benefits Paid by County 66 Ten Largest Domestic Fixed Income Holdings 99 Average Benefit Payments 67 Domestic Fixed Income Quality Distribution 100 Distribution of Retired Members and 67 Domestic Fixed Income Average Maturity Beneficiaries yb Tier 67 Short-term Sector Distribution 100 Retired Members - Remaining Purchasing 68 International Equity Style Distribution Power Through 2009 68 International Equity Exposure Distribution 101 Number of Retired Members and Monthly 69 Real Estate as a Percentage of Benefits by Decade of Retirement NYSTRS Total Net Assets 101 Distribution of the Annual Benefit of All 69 Breakdown of Real Estate Equity Portfolio Retired Members with 20 or More Years 69 Breakdown of Mortgage Portfolio of Total Service 70 Geographic Distribution of the 102 Distribution of Monthly COLA Increase Real Estate Equity Portfolio Commencing September 2009 70 Geographic Distribution of the 102 Distribution of Cumulative Monthly COLA Mortgage Portfolio Commencing September 2009 71 Corporate Governance (Including 104 Changes in Net Assets Management and Shareholder Proposals) 104 Benefits and Return of Contributions by Type 71 Securities Lending Program 106 Principal Participating Employers 72 Schedule of Investment Fees and Expenses 108 Participating Employers 73 Investment Advisory Committee 73 External Investment Managers 75 Real Estate Advisory Committee 76 Real Estate Advisors 2 76 Investment Consultants NYS Teachers’ Retirement System Achievements & Recognition PP C C Public Pension Coordinating Council Public Pension Standards 2008 Award Presented to New York State Teachers’ Retirement System In recognition of meeting professional standards for plan design and administration as set forth in the Public Pension Standards. Presented by the Public Pension Coordinating Council, a confederation of National Association of State Retirement Administrators (NASRA) National Conference on Public Employee Retirement Systems (NCPERS) National Council on Teacher Retirement (NCTR) 3 Alan H. Winkle Program Administrator www.nystrs.org Achievements & Recognition (continued) 4 NYS Teachers’ Retirement System Introduction IntroductionIntroduction 2009 Section 2009 “Don’t judge each day by the harvest you reap, but by the seeds you plant.” Robert Louis Stevenson Introduction 2009 7 Board of Trustees 8 Executive Staff 10 Letter of Transmittal 14 President’s Message 15 Summary of Benefits Board of Trustees Introduction Board of Trustees R. Michael Iris Kraus Wolfson President Vice President Insurance Executive Public Accountant Elected by Elected by Board of Regents Board of Regents First Elected 1992 First Elected 1992 East Aurora Westbury James N. Michael R. R. Michael Kraus Iris Wolfson Baldwin Corn Administrator Teacher Member President Vice President Appointed by Elected by Commissioner Delegates of Education First Elected 1991 First Appointed 2009 Barneveld North Greenbush Paul J. Daniel J. Farfaglia Hogarty Jr. Teacher Member Bank Executive Elected by Elected by Delegates Board of Regents First Elected 2009 First Elected 2005 Liverpool Troy James N. Baldwin Michael R. Corn Paul J. Farfaglia Rosemary F. David P. Jones Keefe Administrator Retired Appointed by Teacher Member Commissioner Elected by of Education NYSTRS Retirees First Appointed 2006 First Elected 2004 Sayville Hempstead Sheila J. Nicholas Salenger Smirensky Teacher Member State Comptroller’s Elected by Representative Delegates First Appointed 2007 First Elected 1989 Delmar Daniel J. Hogarty Jr. Rosemary F. Jones David P. Keefe Niskayuna 7 www.nystrs.orgwww.nystrs.org Sheila J. Salenger Nicholas Smirensky Executive Staff Thomas K. Lee Executive Director Introduction Sheila O. Lawrence A. William S. Wayne Gardella Johansen O’Brien Schneider Director of Member Managing Director Director of General Counsel Relations of External Asset Administration Management Lillyn L. John W. Michael A. Richard A. Teh Virtanen Wolfe Jr. Young Managing Director Managing Director Managing Director Actuary of Quantitative of Real Estate of Fixed Income Strategies 8 NYS Teachers’ Retirement System Organizational Structure Introduction Retirement Board of Trustees Executive Director General Counsel Actuary Director Director of of Member Administration Relations Managing Managing Managing Managing Director of Director of Director of Director of External Asset Fixed Income Quantitative Real Estate Management Strategies 9 www.nystrs.org Letter of Transmittal TRUSTEES New York State Teachers’ Retirement System R. Michael Kraus East Aurora 1 President 0 Corporate Woods Drive Iris Wolfson Westbury Albany, NY 12211-2395 Vice President James N. Baldwin North Greenbush (800) 356-3128 or (518) 447-2666 (Albany-area calls) Michael R. Corn Barneveld Paul J. Farfaglia Liverpool Web Site: www.nystrs.org Daniel J. Hogarty Jr. Troy Rosemary F. Jones Sayville Thomas K. Lee, Executive Director David P. Keefe Hempstead Sheila J. Salenger Niskayuna Nicholas Smirensky Delmar October 16, 2009 The retirement fund is one of the 25 largest in the world, based on portfolio size and total membership. Trustees of the Retirement System Board: NYSTRS is also consistently among the top perform- ing public pension funds, particularly within the On behalf of the staff of our system, I present you teacher retirement system universe. This success is with the Comprehensive Annual Financial Report due primarily to the knowledge and commitment of the New York State Teachers’ Retirement System exhibited by members of the Board and System staff. (NYSTRS) for the fiscal year ending June 30, 2009. Collectively, we are focused on protecting the long- This report complies with all legal requirements term security of the fund while providing exception- governing the preparation and contents of annual al customer service in all aspects of our operation. reports. Introduction Awards History and Overview The System’s commitment to providing superior NYSTRS, created in 1921 by an act of the state Leg- service to all is evidenced by the recognition consis- islature, administers the fund from which most New tently received from various professional organiza- York State public school teachers and administrators tions. Within the past year alone, honors received receive retirement and ancillary benefits. The fund is included: backed by the full faith and credit of New York State. A summary of NYSTRS benefits is provided on pages A Certificate of Achievement for Excellence in 15-18 of this report. Financial Reporting, awarded by the Government Finance Officers Association of the United States and The System is governed by a 10-member Board of Canada (GFOA). Given in recognition of the System’s Trustees, which sets policy and oversees operations 2008 Comprehensive Annual Financial Report, the consistent with applicable law. A staff of approxi- award certifies that the report was prepared in con- mately 400 is responsible for the day-to-day admin- formance with the highest standards for preparation istration. NYSTRS serves 825 employers – including of state and local government financial