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Submission for informational purposes of the Comprehensive Annual Financial Reports (CAFR) regarding the financial activities of the City of Fresno Retirement Systems for the Fiscal Year ending June 30, 2015
Recommended Action
The Retirement Boards have reviewed and approved the attached Comprehensive Annual Financial Reports for the fiscal year ended June 30, 2015 and recommend that the City Council receive and accept the reports for informational purposes.
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The Retirement Boards are proud to submit their June 30, 2015 Comprehensive Annual Financial Reports (“CAFR”) to the City Council for informational purposes to keep the City Council informed and provide knowledge of the Retirement Systems’ activities from the past fiscal year.
CAFR Information
At their January 19, 2016 Retirement Board meeting, the Boards approved the attached Comprehensive Annual Financial Reports (“CAFR”) for the fiscal year ended June 30, 2015. At that meeting, the Boards directed the Retirement Administrator to submit each CAFR to the City Council, Mayor and City Manager and to keep the City informed on the activities of the Retirement Systems.
The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Fresno Retirement Systems for each of their Comprehensive Annual Financial Reports for the fiscal year ended June 30, 2014. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. These reports must satisfy both generally accepted accounting principles and applicable legal requirements.
The two City of Fresno Retirement Boards, which oversee the administration of the Retirement Systems and combined investments of $2.5 billion as of June 30, 2015, respectfully submit the results of their fiscal year 2015 investment earnings and the funding status of the Systems.
The Comprehensive Annual Financial Reports ("CAFR") of the City of Fresno Retirement Systems for the years ended June 30, 2015 and 2014 are submitted herewith. Information contained in these reports is designed to provide a complete and accurate review of the year's operations. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, rests with the management of the Systems. For a general overview of the Systems’ finances, please refer to Management's Discussion and Analysis letter in the Financial Section of the reports.
In addition to the information in the CAFR reports, I have prepared the attached schedule of summary information on the City’s Retirement Systems. These documents are intended to provide Council members with an overview of the Systems. For a summary of major initiatives of the retirement plans, see pages iv, v and vi in the Introductory Section of the attached Financial Reports.
The Financial Reports were prepared as of June 30, 2015, and consist of six sections:
1. The Introductory Section describes the Systems’ management and organizational structure, a summary of the plan provisions and a listing of the professional services providers; and
2. The Financial Section contains the general purpose financial statements of the Systems and the Independent Auditor’s Opinion Letter; and
3. The Investment Section includes a letter from the Systems’ investment consultant, NEPC, recapping the fiscal year investment results and activities, along with performance and asset allocation information; and
4. The Actuarial Section includes the certification letter produced by the independent actuary, The Segal Company, along with supporting schedules and information; and
5. The Statistical Section which includes trend information and graphs; and
6. The Compliance Section which includes the Independent Auditor’s Internal Control Letter.
For the year ended June 30, 2015, the Boards implemented all applicable new Government Accounting Standards Board (GASB) pronouncements in the fiscal years ended June 30, 2015 and 2014, as required by each statement. GASB Statement No. 67, Financial Reporting for Defined Benefit Pension Plans and Note Disclosure for Defined Contribution Plans (replacing GASB Statement No. 25 Financial Reporting for Pension Plans and GASB Statement No. 50, Pension Disclosures). GASB Statement No. 67 addresses accounting and financial reporting requirements for pension plans requiring changes in presentation of the financial statements, notes to the financial statements, and required supplementary information. Significant changes include an actuarial calculation of total and net pension liability. It also includes comprehensive footnote disclosure regarding the pension liability, the sensitivity of the net pension liability to the discount rate, and increased investment activity disclosures. The implementation of GASB No. 67 did not significantly impact the accounting for accounts receivable and investment balances. The total pension liability, determined in accordance with GASB No. 67, is presented in Note 4 and in the Required Supplementary Information beginning on pages 49 of the Employees CAFR and page 50 of the Fire and Police CAFR.
GASB Statement No. 68, Accounting and Financial Reporting for Pensions (revises and establishes new financial reporting requirements for most governments that provide their employees with pension benefits, replacing Statement No. 27 for Employer reporting. This Statement is effective for financial statement periods beginning after June 15, 2014 and will be implemented by the City of Fresno for its June 30, 2015 fiscal year-end.
System’s Funding Status
As the two highest funded Public Retirement Systems (City of Fresno Fire and Police Retirement System 119.6% and the City of Fresno Employees Retirement System 109.2% as of June 30, 2015 on an actuarial basis and if measured on a market value of assets basis the City of Fresno Fire and Police Retirement System 122.8% and the City of Fresno Employees Retirement System 112.2%) in the State of California, the Systems have continued to achieve favourable investment returns for the Systems when compared to other institutional investors.
Retirement Board Adopted City Actuarial Rates for Fiscal Year 2017
Additionally, the Retirement Boards at their Board meeting December 9, 2015, adopted the following City Normal Pension Contribution rates for Fiscal Year 2017:
CAFR Current Adopted
System FY 2015 FY 2016 FY2017
Employees Retirement System 11.65% 12.04% 12.77%
Actual/Est. City Normal Contributions $13,167 $13,754 $14,586
Fire and Police System (Blended Tiers) 20.83% 20.14% 19.02%
Actual/Est. City Normal Contributions $20,803 $19,905 $18,802
City of Fresno Employees Retirement System
The net City contribution rate of 12.77% for the Employees System is an increase of .73% over the current fiscal year 2016 net rate of 12.04%. This increase is the net result of (i) no longer phasing in the impact on contributions from the 2013 changes in actuarial assumptions, and (ii) the difference between the actual and the estimated 2014/2015 plan year contributions.
The projected increase in dollars is approximately $832,000 for fiscal year 2017. The fiscal year 2016 contribution increase of 0.73% in the Employees System will be spread across the various Enterprise Funds, Internal Service Funds and to the General Fund.
City of Fresno Fire and Police System
The blended Fire and Police System rate of 19.02% for fiscal year 2017 is a decrease of 1.12% from the current fiscal year 2016 City contribution rate of 20.14% and will temporarily decrease the City’s required payments to the Fire and Police System by approximately $1,103,000 from the prior fiscal year estimated contributions. Due to the current surplus funding status, the City of Fresno’s contribution rate of 19.02% is net of 4.01% in surplus credits which amount to almost $4 million per year in City contribution savings.
We want to strongly caution the City of Fresno that these offsets/savings in City contributions are most likely short-term or temporary in nature given the current low investment return environment and will probably decline and be eliminated over a few years. We suggest that City Management carefully consider the impact of losing the $4 million in credits to contribution that will have a direct effect to the General Fund over the next few years.
The net decrease in the City’s cost are primarily a result of the difference between the actual and the estimated 2014/2015 plan year contributions after taking into account surplus available as of June 30, 2015.
Investment Return Information
For the fiscal year ended June 30, 2015, our investment activities returned gross of fees 3.30 percent; for the past five years our gross of fees return was 11.03 percent annualized and 6.90 percent annualized over the prior ten years as of June 30, 2015.
Due to the extreme volatility in the various economies of the world and the global financial markets over the past twenty to twenty-five years it is of utmost importance to examine the System’s investment returns with a long-term view rather than a short-term focus which tends to distort the perception of how well the investments have actually performed. As an example, you cannot isolate the high returns during the Tech Bubble in the 1990’s without including the Tech Bubble corrections in the early 2000’s. The intermediate term (five, ten, and fifteen-year) performance rates demonstrate the extreme volatility of the markets; while the historical long-term performance rates of returns demonstrate that despite the short and intermediate term volatility the System has been able to meet or exceed its actuarial assumed rate of return of 7.50 percent over long periods. As of June 30, 2015, the System’s 30-year annualized return is 9.50 percent and its 20-year annualized return is 8.40 percent.
These investment returns have been achieved by the Boards on a risk controlled basis without the use of higher risk investment vehicles such as hedge funds and private equity.
System Membership Activity
Membership activity in the Retirement Systems during the fiscal year resulted in a total net addition of 20 members, with Active membership increasing slightly despite the addition of 166 new members in the Employees Retirement System and 53 new members in the Fire and Police Retirement System for the one-year period ended June 30, 2015. The number of retirees has also increased modestly with the Systems’ adding a net total of 69 retirees for a total combined retired membership of 2,781 at June 30, 2015.
Employees Retirement System
Active Vested Active/ Retirees/
Non-DROP DROP Terminated Vested Beneficiaries
Members Members Members Total Total Total
As of June 30, 2014 1,512 347 243 2,102 1,749 3,851
New Members 166 0 0 166 0 166
Terminations with Vested Rights (42) 0 47 5 0 5
Contributions Refunds (32) 0 (11) (43) 0 (43)
DROP Entry (57) 57 0 0 0 0
Retirements (31) (38) (8) (77) 77 0
New Disabilities 0 0 0 0 0 0
Return to Work 12 0 (7) 5 (5) 0
Died with or without Beneficiary (4) (2) (1) (7) (31) (38)
As of June 30, 2015 1,524 364 263 2,151 1,790 3,941
Fire and Police Retirement System
Active Vested Active/ Retirees/
Non-DROP DROP Terminated Vested Beneficiaries
Members Members Members Total Total Total
As of June 30, 2014 872 126 69 1,067 978 2,045
New Members 53 0 0 53 0 53
Terminations with Vested Rights (17) 0 24 7 0 7
Contributions Refunds (3) 0 (4) (7) 0 (7)
DROP Entry (13) 13 0 0 0 0
Retirements (4) (23) 0 (27) 27 0
New Disabilities (6) (2) (2) (10) 10 0
Return to Work 0 0 0 0 (0) 0
Died with or without Beneficiary (2) (1) 0 (3) (10) (13)
As of June 30, 2015 880 113 87 1,080 1,005 2,085