Annual report

              OKLAHOMA POLICE PENSION AND
RETIREMENT SYSTEM
30TH
ANNUAL REPORT
FISCAL YEAR 2011
1001 N.W. 63rd Street, Suite 305
Oklahoma City, OK 73116-7335
(405) 840-3555
(800) 347-6552
Fax (405) 840-8465
1
EXECUTIVE DIRECTOR’S LETTER
Dear Member:
The Board of Trustees is pleased to submit the 30th Annual Report of the Oklahoma Police Pension and Retirement System for the year ended June 30, 2011. This report is furnished in accordance with Section 50-105.4 of Title 11 of the Oklahoma Statutes.
The purpose of this report is to provide comprehensive information about the retirement plan including audited financial statements, actuarial information, historical and statistical data on active members, annuitants and benefit payments.
The Oklahoma Police Pension and Retirement System’s fiscal year end actuary and audit reports have been completed respectively by Buck Consultants, Inc., and Finley & Cook, PLLC. Both reports are available for review at the office of the Oklahoma Police Pension and Retirement System and on our website at www.opprs.ok.gov.
Respectfully,
Steven K. Snyder
Executive Director
This publication, printed by Central Printing, is issued by the Oklahoma Police Pension and Retirement System as authorized by Steven K. Snyder, Executive Director. Three hundred copies have been prepared at a cost of $249.00. Copies have been deposited with the Publications Clearinghouse of the Oklahoma Department of Libraries. 2
INTRODUCTION
The Oklahoma Police Pension and Retirement System was established January 1, 1981, to provide pension and other specified benefits for members who are qualified police officers and/or their beneficiaries of the participating municipalities.
The mission of the System is to provide secure retirement benefits for members and their beneficiaries.
The Oklahoma Police Pension and Retirement Board is comprised of thirteen (13) members. Seven Board members are elected by members of the System (six are active police officers, and one is a retired member). One Board member is appointed by the Governor, one by the Speaker of the House, one by the President Pro Tempore of the Senate and one by the President of the Oklahoma Municipal League. The two remaining Board members are the State Insurance Commissioner or the Commissioner’s designee and the Director of State Finance or the Director’s designee.
The System provides retirement benefits to all retirees. The four primary sources of revenue for the System are contributions from active members, member municipalities, dedicated revenue and investment income. In order to fulfill their fiduciary responsibilities, the Board retains an actuary to prepare an annual valuation. This report is submitted to the Governor and the Legislature. The Board also retains investment managers to ensure that the assets of the fund are being adequately invested at all times. Performance measurement is provided by an investment consulting firm. This firm compares the management of funds and the investment rate of return of the System against similar funds and trusts.
The agency maintains records pertaining to active members, retirees and beneficiaries. The agency also monitors the investments of the System. 3
FINLEY & COOK, PLLC
Certified Public Accountants
We have audited the accompanying statements of plan net assets of the Oklahoma Police Pension and Retirement Plan (the “Plan”), administered by the Oklahoma Police Pension and Retirement System, which is a part of the State of Oklahoma financial reporting entity, as of June 30, 2011 and 2010, and the related statements of changes in plan net assets for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets of the Plan as of June 30, 2011 and 2010, and the changes in the net assets of the Plan for the years then ended in conformity with accounting principles generally accepted in the United States.
In accordance with Government Auditing Standards, we have also issued a report dated September 19, 2011, on our consideration of the Plan’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
Accounting principles generally accepted in the United States require that the management’s discussion and analysis on pages I–1 through I–4 and the schedule of funding progress and the schedule of contributions from the employer and other contributing entities on pages 44–46 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Finley & Cook, PLLC
September 19, 2011 4
FINANCIAL HIGHLIGHTS
Selected Financial Information at Fair Market Value
Year Ended June 30
2011 2010
(Amounts in Thousands)
Net Assets $1,800,742 $1,548,827
Net Investment (Loss) Income 282,305 163,058
Total Contributions 75,980 74,158
Total Revenues 358,285 237,216
Retirement and Other Benefits 104,658 108,147
Administrative Expenses 1,712 1,708
Total Expenses 106,370 109,855
Fund Balance (Decrease) Increase 251,915 127,361
Selected Investment Information
Year Ended June 30
2011 2010
(Amounts in Thousands)
US Government Securities $ 14,121 $ 28,338
Domestic Corporate Bonds 229,068 200,803
International Corporate Bonds 101,435 84,656
Domestic Stocks 533,850 418,316
International Stocks 185,952 145,685
Equity—real estate investment trusts 5,231 3,469
Alternative Investments 656,715 606,918
Real Estate Fund 41,517 34,372
Real Estate – Columbus Square 3,700 3,475
Total Investment Portfolio $ 1,771,589 $ 1,526,032
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BUCK CONSULTANTS, INC.
Actuary’s Certification
We have prepared an actuarial valuation of the Oklahoma Police Pension and Retirement System as of July 1, 2011, for the plan year ending June 30, 2011. The results of the valuation are set forth in this report, which reflects the provisions of the System as amended and effective on July 1, 2011.
The valuation is based on employee and financial data which were provided by the Oklahoma Police Pension and Retirement System and the independent auditor, respectively, and which are summarized in this report.
Any changes in actuarial methods, assumptions and benefit provisions since the last valuation of the System as of July 1, 2010 are summarized on page 3 and the financial impact, if any, are incorporated in this report.
Actuarial Certification
The Board selected the assumptions used for the results in this report. I believe that these
assumptions are reasonable and comply with the requirements of GASB 25. I prepared this report's exhibits in accordance with the requirements of these standards.
I am an Enrolled Actuary, a Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries. I meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained in this report. This report has been prepared in accordance with all applicable Actuarial Standards of Practice, and I am available to answer questions about it.
September 20, 2011
R. Ryan Falls, F.S.A., E.A., M.A.A.A.
MEMBER HIGHLIGHTS
RETIREES AND AVERAGE BENEFITS
2011 2010
Retired Members 2,292 2,241
Average Annual Benefit $30,217 $30,728
Beneficiaries 631 616
Average Annual Benefit $25,469 $25,739
Disabled Members 137 136
Average Annual Benefit $17,198 $17,343
Deferred Option Plan Members 50 50
Average Annual Benefit $37,438 $38,078
Vested Terminated Members 124 111
Average Annual Deferred Benefit $15,332 $14,153
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SELECTED ACTUARIAL INFORMATION
Actuarial Valuation as of July 1
GASB No. 25 Funded Status ($000,000)
2011 2010
Actuarial Accrued Liability $1,960.0 $2,341.6
Actuarial Value of Asset 1,822.7 1,754.4
Unfunded Liability 137.3 587.2
Funded Ratio 93.0% 74.9%
Ten-Year Projected Cash Flow
(Retirement Benefit Payments)
Fiscal year
Ending Actives Retirees (1) Total
06/30/2012 66,747,335 95,712,534 162,459,869
06/30/2013 46,137,767 90,650,686 136,788,453
06/30/2014 48,394,301 90,018,537 138,412,838
06/30/2015 57,241,693 90,776,286 148,017,979
06/30/2016 62,676,226 89,095,854 151,772,080
06/30/2017 61,159,334 89,564,070 150,723,404
06/30/2018 68,696,649 86,171,367 154,868,016
06/30/2019 74,388,044 85,129,825 159,517,869
06/30/2020 85,116,724 83,912,003 169,028,727
06/30/2021 92,112,808 82,646,807 174,759,615
(1) Includes Deferred Option Plan Members, Disabled Members, Beneficiaries and Terminated Vested Members.
Contribution Requirement Summary
Year ended June 30
2011 2010
Unfunded Accrued Liability $137,274,006 $587,247,152
Amortization of Unfunded
Accrued Liability 25,013,281 96,761,553
Normal Cost 56,906,021 66,973,924
Budgeted Exp. 3,145,550 3,047,344
Required Contribution 85,064,852 166,782,821
Est. Employee Contribution 20,319,196 19,966,614
Est. Municipality Contribution:
Active Members 33,018,693 32,445,748
DOP Members 456,901 478,016
Actual State Contribution
Previous Year 24,645,000 22,292,000
Total Contribution 78,439,790 75,182,378 7
POLICE PENSION AND RETIREMENT SYSTEM
BOARD OF TRUSTEES
CHAIRMAN, Charles Kerr
VICE CHAIRMAN, Tom Custer
State Board District 1 Tom Custer, Edmond
State Board District 2 Craig Akard, Lawton
State Board District 3 Rick Smith, Broken Arrow
State Board District 4 Jim Keesee, Norman
State Board District 5 Jeff R. Cealka, Tulsa
State Board District 6 Randy Scott, Oklahoma City
State Board District 7 W. B. Smith, Retired
Governor Appointee Andy McPherson
Speaker of the House Appointee Charles Kerr
Senate President Pro Tempore Appointee Susan Knight
Oklahoma Municipal League Appointee Tony Davenport
State Insurance Commissioner John Doak
Frank Stone, Designee
Director of State Finance Preston L. Doerflinger
Brandy Manek, Designee
STAFF
Steven K. Snyder, Executive Director
Judy Cong, Comptroller
Dusty Brassfield, Pension Administration Officer
Marla Hensley, Administrative Officer
Debra Kearns, IT/Pension Operations Administrator
Darcie Gordon, Administrative Assistant
Elizabeth Moore, Accountant
Katie Luttrell, Pension Analyst
Sean Ruark, Pension Analyst
Andrea Houston, Pension Analyst
Nancy Nethercutt, Customer Assistance Representative
PROFESSIONAL SERVICE PROVIDERS
BNY MELLON
Buck Consultants
Master Custodian
Actuarial Consultant
Asset Consulting Group
Finley & Cook, PLLC
Investment Consultant
Independent Auditor
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INVESTMENT MANAGERS
DOMESTIC EQUITY MANAGERS
Attalus Capital Management – Long/Short Equity
Boston Partners Asset Management – Small-Mid Capitalization Value
Grosvenor Capital Management, LP – Long/Short Equity
William Blair and Company – Small Capitalization Growth
Mellon Capital Management – Large Capitalization Core Index
INTERNATIONAL EQUITY MANAGERS
Artio Global Management, LLC (Formerly Julius Baer)
Mondrian Investment Partners Limited
DOMESTIC FIXED INCOME MANAGERS
Oaktree Capital Management – Enhanced Fixed Income
Agincourt Capital Management – Core Fixed Income
GLOBAL FIXED INCOME MANAGER
Loomis Sayles & Company, LP – Global Fixed income
REAL ASSETS MANAGERS
Columbus Square – Real Estate
J.P. Morgan Asset Management Inc. – Core Real Estate
Mount Lucas Management Corporation – Managed Futures
SPECIAL STRATEGY MANAGERS
Accel Europe, LP – European Venture Capital
Arsenal Capital Partners Fund I & II, LP – Small/Mid Market Buyout
Calera Capital III & IV – Mid Market Buyout
FirstMark Capital Management Fund II, III & IV, LP – Early & Late Stage Venture Capital
Hicks, Muse, Tate & Furst Equity Fund V, LP – Large Market Buyout
HM Sector Performance Fund – Large Market Buyout
Knightsbridge Advisers Inc. Fund VI – Venture Capital Fund of Funds
Levine Leichtman Capital Partners III & IV, LP – Mid Market Structured Equity
Lexington Capital Partners VI-B, LP – Secondary Interests in Private Equity
Lightspeed Venture VI, LP – Early Stage Venture Capital
Marathon Fund IV & V, LP – Mid Market Buyout
Newstone Capital Partners I & II, LP – Mezzanine Debt
Oaktree Capital Mgmt. Partners Fund II, III, IV, V, VI, VII, VIIb, and VIII, LP – Distressed Debt
Overseas Cap Partners, Inc. (Formerly BBT) – Multi Strategy
Pacific Alternative Asset Mgmt. Co., Newport Mesa, LLC – Low Volatility Hedge Fund of Funds
Siguler Guff & Company I, II & III, LLC – Distressed Debt
Sun Capital Partners Group, Inc. Fund V – Control Buyout
TCW/Crescent Mezzanine Partners Fund III, IV & V, LP – Mezzanine Debt
Thompson Street Capital Partners Fund II – Small/Mid Market Buyout
Venture Lending & Leasing Fund III, LLC – Venture Debt
Weathergage Venture Capital I & II, LP – Venture Capital Fund of Funds
Warburg Pincus Private Equity X, LP – Diversified Private Equity
Weiss, Peck & Greer Investments Fund V, LP – Early Stage Venture Capital 9
LEGISLATION
The following Legislation passed during the 1st Session of the 53rd Legislature (2011) amended statutes pertaining to the Oklahoma Police Pension and Retirement System:
SB 347 – Requiring the forfeiture of retirement benefits for certain municipal officers or employees convicted of certain crimes
SB 577 – Makes technical corrections to bring the Oklahoma Police Pension & Retirement
System into compliance with IRS Laws & Regulations
HB 2132 – Eliminates 2% Cost of Living Assumption (COLA). Requires concurrent funding for any additional pension benefits.