New York State Teachers’ Retirement System Guided by Values. Committed to Integrity. Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2015 New York State Teachers’ Retirement System Mission: To provide our members with a secure pension Vision: To be the model for pension fund excellence and exceptional customer service Values: Integrity Excellence Respect Resourcefulness Diversity Diligence Balance Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2015 Table of Contents Table of Contents Introduction Financial Investments Page Page Page 7 ......Board of Trustees 23.......Independent Auditors’ Report 67....... Report on Investment Activity 8.......Organizational Structure 25.......Management’s Discussion 74....... Diversification of Investments 9.......Executive Staff and Analysis 75....... Asset Allocation 10.......Letter of Transmittal 75....... Annual Performance History 14.......President’s Message Basic Financial Statements 76....... Investment Performance Results 15.......Summary of Benefits 30....... - Statements of Fiduciary 77....... Manager Investment Net Position Performance Results 31....... - Statements of Changes 81....... Domestic Equity Distribution in Fiduciary Net Position 81....... Domestic Equity Externally 32....... - Notes to Financial Statements Managed Style Distribution 82....... Domestic Equity Holdings Required Supplementary Information by Industry Distribution 82....... Ten Largest Equity Holdings 52.......Schedule of Changes in the 83....... Domestic Fixed Income School Districts’ Net Sector Distribution Pension Liability (Asset) 83....... Ten Largest Fixed 53.......Schedule of the School Income Holdings Districts’ Net Pension 84....... Domestic Fixed Income Liability (Asset) Quality Distribution 54.......Schedule of the School 84....... Domestic Fixed Income Districts’ Contributions Average Maturity 56.......Notes to Required 84....... Short-Term Supplementary Information Sector Distribution 57.......Schedule of Investment Returns 85....... Private Equity Net Asset 58.......Schedule of NYSTRS’ Value by Investment Type Proportionate Share of the 85....... Private Equity Net Asset Net Pension Liability (ERS) Value by Geography 60.......Schedule of NYSTRS’ 86....... International Equity Contributions to ERS Style Distribution 62.......Other Post-Employment 86....... International Equity Benefit Schedule of Exposure Distribution Funding Progress 87....... Real Estate Equity by Other Supplemental Schedules Property Type 87....... Real Estate Debt by 63.......Schedules of Property Type Administrative Expenses 88....... Breakdown of Real Estate 64.......Schedule of Investment Expenses Equity Portfolio 88....... Breakdown of Real Estate Debt Portfolio 89....... Geographic Distribution of the Real Estate Equity Portfolio 89.......Geographic Distribution of of the Real Estate Debt Portfolio 90.......Corporate Governance 90.......Securities Lending Program 91.......Schedule of Investment Fees and Expenses 92.......Investment Advisory Committee 92.......External Investment Managers 95.......Real Estate Advisory Committee 95.......Master Custodian 95.......Investment Consultants 96.......Real Estate Advisors 2 NYS Teachers’ Retirement System NYSTRS.org Table of Contents Table of Contents Actuarial Statistical Page Page 99 ....Actuarial Certification Letter Demographic & Economic Information 101.....Summary of Actuarial 109..... Number of Active Members Methods and Assumptions and Retired Members 102.....Actuarial Present Value of 110..... Distribution of Active Members Future Benefits by Age and Years of Service Funding Progress 110..... Distribution of Active Members by Age 103..... - Funding Progress 111..... Distribution of Active - Analysis of Funding Progress Members by Service - Percent Funded 112..... Active Members and 104.....Solvency Test Annuitants 1922-2015 104.....Analysis of Financial Experience 113..... Number of Active 105.....History of Member Members by Tier Payroll and the Employer 114..... Retirement Statistics Contribution Rate 116..... Retirement Benefit Options 105.....Schedule of Retired and Percent of Election Members and Beneficiaries 116..... Retired Members’ Added to and Removed Characteristics by from the Benefit Payroll Year of Retirement 106.....Independent Actuarial Review 117..... Distribution of Benefits Paid by County 118..... Distribution of Retired Members and Beneficiaries by Tier 118..... Retired Members — Remaining Purchasing Power Through 2015 119..... Retired Members and Beneficiaries With Monthly Benefits by Decade of Retirement 119..... Distribution of the Annual Benefit of All Retired Members 120..... Distribution of Monthly COLA Increase Commencing September 2015 120..... Distribution of Cumulative Monthly COLA Commencing September 2015 Financial Trends Information 122..... Changes in Fiduciary Net Position 124..... Benefits and Return of Contributions by Type Operating Information 127..... Average Benefit Payments 128..... Retired Members and Beneficiaries by ypeT of Benefit 130..... Principal Participating Employers 3 NYS Teachers’ Retirement System NYSTRS.orgNYSTRS.org Achievements GFOA Award PPCC Award PP C C Public Pension Coordinating Council Public Pension Standards Award For Funding and Administration 2014 Presented to New York State Teachers’ Retirement System In recognition of meeting professional standards for plan funding 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) Alan H. Winkle Program Administrator 4 NYS Teachers’ Retirement System NYSTRS.org Introduction INTRODUCTION Approximately 426,000 educators are covered by NYSTRS, including nearly 268,000 active members and more than 158,000 retired members and beneficiaries. NYSTRS serves 822 employers, including public school districts, BOCES, institutions of higher education and charter schools that elect to participate. A 10 - member Board representing various constituents — including school teachers, administrators and boards — governs the System. Introduction Page 7 ......... Board of Trustees 8......... Organizational Structure 9......... Executive Staff 10......... Letter of Transmittal 14......... President’s Message 15......... Summary of Benefits Introduction Introduction Board of Trustees R. Michael Kraus David P. Keefe President Vice President EAST AURORA HEMPSTEAD Insurance Executive Retired Teacher Member Elected by Board of Regents Elected by NYSTRS Retirees First Elected 1992 First Elected 2004 Jolene T. DiBrango Michael J. Masse PITTSFORD FAYETTEVILLE Teacher Member Bank Executive Elected by Delegates Elected by Board of Regents First Elected 2014 First Elected 2009 Paul J. Farfaglia Dr. L. Oliver Robinson JORDAN-ELBRIDGE CLIFTON PARK Teacher Member Administrator Elected by Delegates Appointed by First Elected 2009 Commissioner of Education First Elected 2010 Dr. Phyllis S. Harrington Nicholas Smirensky OCEANSIDE DELMAR Administrator State Comptroller’s Appointed by Representative Commissioner of Education First Appointed 2007 First Appointed 2010 Daniel J. Hogarty Jr. Timothy M. Southerton TROY SAYVILLE Bank Executive Teacher Member Elected by Board of Regents Elected by Delegates First Elected 2005 First Elected 2011 7 NYS Teachers’ Retirement System NYSTRS.org Introduction Introduction Organizational Structure Actuary y Actuarial Valuations y Fiscal Notes Fixed Income y Long/Short-Term Fixed Income Securities Retirement Board Human Resources R. Michael Kraus, President y Contract Negotiations y Labor Relations y Personnel Classification and Recruitment y Staff Training Legal Internal Audit Member Relations y Customer Service y Assurance Services y Contract Review y Info. & Communication Center y Consulting Services y Legislation y Member & Employer Services y Litigation y Member Benefits y Domestic Relations y Public Information Orders Operations y Corporate Governance y Facility Services y Finance y Information Services Executive Director & y Investment Analytics y Chief Investment Officer Investment Operations Thomas K. Lee Private Equity y Private Equity Investments Public Equity Risk Management y Domestic & International y Enterprise and Investment Risk Equity Management Management Assessment Real Estate y Equity Acquisition y Mortgage Origination & Servicing y Property Management 8 NYS Teachers’ Retirement System NYSTRS.org Introduction Introduction Executive Staff Thomas K. Lee Executive Director & Chief Investment Officer Beth M. Sheila O. Bonacquist Gardella Director of Director of Human Member Resources Relations David C. Frederick W. Joseph J. Gillan Herrmann Managing Managing Indelicato Jr. Director of Director of General Real Estate Public Equities Counsel Noreen Kenneth R. Kevin J. Jones Kasper Schaefer Director Director of Managing of Risk Internal Director of Management Audit Operations John W. Michael A. Virtanen Wolfe Jr. Richard A. Managing Managing Young Director of Director of Actuary Private Equity Fixed Income 9 NYS Teachers’ Retirement System NYSTRS.org Introduction Introduction Letter of Transmittal New York State Teachers’ Retirement System RETIREMENT BOARD 10 Corporate Woods Drive R. Michael Kraus East Aurora President Albany, NY 12211-2395 David P. Keefe Hempstead (800) 348-7298 or (518) 447-2900 Vice President Jolene T. DiBrango Pittsford NYSTRS.org Paul J.