Board of Education Retirement System of the City of New York A Fiduciary Fund of the City of New York Comprehensive Annual Financial Report of the Qualified Pension Plan and the Tax Deferred Annuity Program For the Years Ended June 30, 2020 and June 30, 2019 This page is intentionally left blank Board of Education Retirement System of the City of New York A Fiduciary Fund of the City of New York Comprehensive Annual Financial Report of the Qualified Pension Plan and the Tax Deferred Annuity Program For the Fiscal Years Ended June 30, 2020 and June 30, 2019 Prepared by Sanford R. Rich, Executive Director Chithra Subramaniam, Acting Director of Fiscal Operations State of New York Comprehensive Annual Financial Report PAGE INTRODUCTORY SECTION 1 • Letter of Transmittal 3 • Board of Trustees 9 • Organization Chart 10 • Consulting and Professional Services 11 • Certificate of Achievement for Excellence in Financial Reporting 12 FINANCIAL SECTION 13 • INDEPENDENT AUDITORS’ REPORT 15 • MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) 18 • COMBINING FINANCIAL STATEMENTS • Combining Statements of Fiduciary Net Position 25 • Combining Statements of Changes in Fiduciary Net Position 27 • Notes to Combining Financial Statements 29 • REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) • Schedule 1 - Changes in Employers’ Net Pension Liability & Related Ratios 57 • Schedule 2 - Employers’ Contributions 58 • Schedule 3 - Investment Returns 61 • ADDITIONAL SUPPLEMENTARY INFORMATION • Schedule 4 - Schedule of Investment Expenses 62 • Schedule 5 - Schedule of Administrative Expenses 66 • Schedule 6 - Schedule of Direct Payments to Consultants 67 INVESTMENT SECTION 69 • Report on Investment Activity 72 • Schedule of Investment Returns (Fixed) 77 • Asset Allocation (Fixed) 78 • Largest Equity Holdings (Fixed) 80 • Largest Bond Holdings (Fixed) 81 • Schedule of Investment Management Fees (Fixed) 82 • Schedule of Payments of Commissions to Brokers (Fixed) 85 • Investment Summary (Fixed and Variable) 89 ACTUARIAL SECTION 91 • Actuary’s Certification Letter 93 • Summary of Actuarial Assumptions and Methods 97 TABLE OF CONTENTS TABLE • Schedule of Active Member Valuation Data 108 • Summary of Plan Membership 109 • Schedule of Retirees and Beneficiaries 110 • Schedule of Statutory vs. Actuarial Contributions 111 • Funded Status based on Entry Age Normal Cost Method 112 • Comparative Summary of Accrued Liabilities Funded by Actuarial Value of Assets 113 • Summary of Plan Provisions - Contributions 115 STATISTICAL SECTION 117 • Introduction 119 • Schedule of Revenue by Source 120 • Schedule of Expenses by Type 122 • Schedule of Refunds by Type 124 • Schedule of Changes in Net Position 126 • Schedule of Benefit Expenses by Type 130 • Schedule of Retired Members by Type of Benefit 131 • Schedule of Active Members by Age and Service 134 • Schedule of Annual Average Benefit Payment Amounts 137 • Schedule of Participating Employers 138 New York City Board of Education Retirement System This page is intentionally left blank NEW YORK CITY BOARD OF EDUCATION RETIREMENT SYSTEM A FIDUCIARY FUND OF THE CITY OF NEW YORK COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE QUALIFIED PENSION PLAN AND THE TAX DEFERRED ANNUITY PROGRAM INTRODUCTORY SECTION PART I FOR THE YEARS ENDED JUNE 30, 2020 AND JUNE 30, 2019 1 This page is intentionally left blank 2 BOARD OF EDUCATION RETIREMENT SYSTEM OF THE CITY OF NEW YORK 65 COURT STREET – 16th FLOOR BROOKLYN, NEW YORK 11201- 4965 SANFORD R. RICH EXECUTIVE DIRECTOR 929-305-3800 DANIEL D. MILLER OUTSIDE NEW YORK STATE DEPUTY EXECUTIVE DIRECTOR 1-800-843-5575 December 22, 2020 Board of Trustees Board of Education Retirement System City of New York 65 Court Street, 16th Floor Brooklyn, NY 11201 Ladies and Gentlemen: I am pleased to present the Comprehensive Annual Financial Report (“CAFR”) of the New York City Board of Education Retirement System (“BERS”, “Funds”, the “Plan” or the “System”) for the fiscal years ended June 30, 2020 and June 30, 2019. BERS administers the BERS Qualified Pension Plan (the “QPP”) and the BERS Tax Deferred Annuity Program (the “TDA Program”). The QPP is a cost sharing, multiple employer Public Employee Retirement System (“PERS”) that was created on August 31st, 1921. The QPP provides pension benefits to non-pedagogical employees of the Department of Education, certain other specific schools, school crossing guards employed by the New York City Police Department, and certain employees of the New York City School Construction Authority. The QPP combines features of a defined benefit pension plan with those of a defined contribution plan and functions in accordance with existing State statutes and City laws. The TDA Program became operational on February 1st, 1970 and is administered pursuant to the Internal Revenue Code Section 403(b) and existing State statutes and City laws. Certain members of the QPP have the option to participate in the TDA Program, which provides a means of deferring income tax payments on their voluntary tax-deferred contributions until the period after retirement or upon withdrawal of contributions. Contributions to the TDA Program are made by the members only. The TDA Program is maintained as a separate plan. The responsibility for the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with BERS. All disclosures necessary to enable the reader to gain an understanding of the system's financial activities have been included. Analysis of the changes that affected BERS fiduciary net position is presented in the Management’s Discussion and Analysis section of this report. MAJOR LEGAL INITIATIVES - July 1, 2018 through June 30, 2020 Chapter 266 of 2018 Extends the time for members or eligible beneficiaries to file a Notice of Participation in World Trade Center Rescue, Recovery, and Cleanup Operations to September 11, 2022. This law takes effect immediately and is deemed to have been in full force and effect on and after September 11, 2001. 3 Chapter 59 of 2019 Revises the composition of the Board of Education of the City of New York, and hence the BERS Board of Trustees, to include one additional mayoral appointee and one member to be elected by community district education council presidents. This provision takes effect on July 1, 2020. Chapter 589 of the Laws of 2019 Increases the amount of money a retiree may earn in a position of public service in the year 2020 and thereafter to, $35,000 from $30,000. Chapter 76 of the Laws of 2019 Extends for two fiscal years, until June 30, 2021, the 7% rate of interest used by the Chief Actuary for BERS in valuing the retirement system liabilities for the purpose of computing the amount of employer contributions. The bill also extends for two fiscal years the rate of interest to be paid into certain constituent funds of the City retirement systems and the 8.25% per annum rate to be credited on AMCs and ITHP reserves for Tier 1 and Tier 2 members. Chapter 89 of the Laws of 2020 Provides death benefits to statutory beneficiaries of members whose death was a result of or was contributed to by COVID-19. This law provides an Accidental Death Benefit to the eligible beneficiaries of a member or a retiree who retired after March 1, 2020, where such member reported for work outside their home and contracted COVID-19 within 45 days after reporting for work, and whose death was caused by COVID-19 or where COVID-19 contributed to such member’s death. Amounts payable are reduced by payments of any ordinary death benefits or option benefit paid to another statutory beneficiary. FUNDING The financial objective of the QPP is to fund members’ retirement benefits during their active service. The Employer contributes amounts that, together with member contributions and investment income, would ultimately be sufficient to accumulate assets to pay benefits when due. The Office of the Actuary establishes employer contribution rates which, expressed as a percentage of annualized covered payroll, remain approximately level from year to year. An adequate funding level provides assurance and security for payment of future benefits. In fiscal year 2020, BERS sought to maintain a level of funding within the established guidelines of the Government Accounting Standards Board (“GASB”). As per GASB 67, a defined benefit pension plan is required to report fiduciary net position as a percentage of plan’s total pension liability. As of June 30th, 2020, the QPP’s fiduciary net position represents 94.92% of the total pension liability. The funded status of the QPP is expressed by the relationship of assets to liabilities. The ratio of actuarial value of assets to the Entry Age Actuarial Accrued liability, stands at 76.6% as of June 30th, 2018. Funding status has been discussed in detail in the actuarial section of this report. Funding Sources The chart below summarizes the contribution funding sources for fiscal year 2020 for the QPP. Funds Pe rcentage C ontribution (in thousands) MeC mber ontributions 7.39% $ 49,766 EmployC er ontributions 38. 26% $257,503 Netm Invest ent Income 54. 35% $365,767 Total 100.00% $673,036 4 Member contributions, 7.39% Net investment income, 54.35% Employer contributions, 38.26% Member contributions Employer contributions Net investment income Contributions to the TDA program are made on a voluntarily basis by certain eligible members of the QPP. TDA members who elect to participate in a fixed return fund investment program accounts are credited with the statutory annual rate of interest, currently 7% for members represented by the United Federation of Teachers and 8.25% for all other members. Members can also elect to participate in a variable return fund program. INVESTMENTS Investment Summary The System’s assets are invested in two investment programs. These are the fixed return fund, which is managed by BERS, and the variable return fund, consisting primarily of equity securities, which is managed by the Teachers’ Retirement System (“TRS”). The Board of Education Retirement System Total Fund from the fixed return program returned 5.72%, net of management fees, for the fiscal year ending June 2020, compared to 4.29% for the Board of Education Policy Benchmark, against which it is measured.