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HomeMy WebLinkAboutMissouri Dept. of Transportation & Highway Patrol Employees' Retirement System - Public Financial Reportwww.mpers.orgwww.mpers.org MPERS FYI 2021 MPERS FYI Popular Annual Financial Report for the Fiscal Year Ended June 30, 2021 Missouri Department of Transportation and Highway Patrol Employees’ Retirement System A Component Unit of the State of Missouri Dependability Under Adversity 2 www.mpers.orgMPERS FYI 2021 This For Your Information (FYI) brochure is prepared to provide a reader-friendly summary of MPERS’ information, which members and other stakeholders may find useful. For additional or more detailed information, please refer to our Annual Comprehensive Financial Report (Annual Report), available on our website at www.mpers.org. MPERS’ membership is comprised of benefit-eligible employees (actives) of the Missouri Department of Transportation (MoDOT), the Missouri State Highway Patrol (MSHP or Patrol), and MPERS, in addition to all benefit recipients (retirees, survivors, etc.). The System administers retirement, survivor, and disability benefits in accordance with Chapter 104 of the Missouri Revised Statutes. MPERS operates as a 401(a) tax qualified defined benefit plan. Benefits are based upon a formula that is set by law. The theme of the 2021 Annual Report, as well as the For Your Information (FYI) brochure, is “Dependability Under Adversity.” During the past year, and perhaps more than ever, it has been critically important for individuals to have confidence in their financial interests. During what has been, and continues to be, an adverse life experience, MPERS has seamlessly distributed benefit payments each month. In addition, we have taken advantage of extraordinary financial markets and realized one of, if not the single largest annual returns in the organization’s history. This return rates favorably against almost any reasonable metric. Dependability through adversity is an important objective of the MPERS team. MPERS’ members have come to expect prompt, courteous, personalized, and professional service; timely payments made in compliance with the law; accurate and transparent communications; and relevant information and education. We are proud to report that we were able to provide uninterrupted service to our members and stakeholders over the past year. MPERS’ funding objective is to meet current and future benefit obligations for retirees and beneficiaries. Benefits are funded by investment earnings and payroll contributions. The funding should remain approximately level from generation to generation. During the fiscal year ending June 30, 2021, the funded status of MPERS, which covers 18,660 participants, increased by 1.77% to 62.41%. As of June 30, 2021, MPERS’ investment portfolio had a fair value of $3 billion, representing a return of 30.80% for the fiscal year. Relative to MPERS’ peer group (the InvestorForce Public Fund Universe) the 30.80% return for Fiscal Year 2021 ranked MPERS in the 9th percentile. The trailing three- and five-year performance of 11.63% and 11.10%, respectively, ranks MPERS in the 50% and 47%, respectively, of the peer group. The trailing 10-year performance of 9.59% ranks MPERS in the top 14% of the peer group. We express our gratitude to the Board, the staff, the consultants, and the many people who have worked so diligently to ensure the continued successful operation of MPERS. The steady, monthly benefit payments offered by defined benefit plans like MPERS, provide peace of mind and security for retirees and their families. For over 60 years, MPERS has provided a foundation for financial security to plan participants through the delivery of quality benefits, exceptional member service, and professional plan administration. Sincerely, A Message from the Director Scott Simon Executive Director Scott Simon MPERS’ Executive Director 3www.mpers.orgwww.mpers.org MPERS FYI 2021 About MPERS MPERS operates under the direction and control of an 11-member Board of Trustees. The Board of Trustees has the ultimate fiduciary responsibility for the System and those covered by the System. Fiduciary duty is a legal relationship of trust between parties, where one party is acting for the benefit of another. Fiduciaries of pension funds have strict standards imposed upon them by law. The Board’s primary fiduciary responsibilities are the duty of loyalty, the duty of prudence, and the duty of care. In addition to administrative rules, the Board adopted governance policies that set forth the expectations the Board has for itself and formalize the way the Board conducts business. The policies are intended to help the Board meet its fiduciary responsibilities. The governance policies set forth the structure, manner, and process by which the Board exercises its authority and control. As of June 30, 2021, the Board consisted of the following members: W. Dustin Boatwright Commission Member MO Highways & Transportation Commission Lt. Colonel Eric Olson Board Chair Superintendent of MSHP Ex Officio Member Todd Tyler Board Vice Chair MoDOT Employee Representative Senator Mike Bernskoetter State Senator Gregg Smith Commission Member MO Highways & Transportation Commission Patrick McKenna Director of MoDOT Ex-Officio Member William “Bill” Seibert MSHP Retiree Representative Robert “Bob” Brinkman Commission Member MO Highways & Transportation Commission Lt. Matt Broniec MSHP Employee Representative Sue Cox MoDOT Retiree Representative Representative Barry Hovis State Representative The lighthouse has long been a beacon of hope and guidance for sailors in the midst of unsettled and foggy seas. Consistently serving as a dependable source of guidance during uncertain times. Contents About MPERS .......................... ......................................................................................................................3 Financial ..................................... ......................................................................................................................4 Investments ............................. ......................................................................................................................5 Funding ...................................... ......................................................................................................................6 Funding ...................................... ......................................................................................................................7 Benefits ...................................... ......................................................................................................................8 Membership ............................. ......................................................................................................................9 Retiree Location .........................................................................................................................................10 4 MPERS FYI 2021 www.mpers.org As of As of % Change June 30, 2021 June 30, 2020 2021 / 2020 Assets Cash and Receivables $ 27,488,024 $ 19,630,328 40.0 Investments 3,002,537,498 2,352,666,839 27.6 Invested Securities Lending Collateral 117,448,756 108,567,739 8.2 Capital Assets 383,217 321,676 19.1 Total Assets 3,147,857,495 2,481,186,582 26.9 Deferred Outflows of Resources 361,851 31,054 1,065.2 Liabilities Accounts Payable 19,344,757 2,868,289 574.4 OPEB Obligation 2,019,603 1,552,393 30.1 Securities Lending Collateral 122,747,636 114,948,267 6.8 Total Liabilities 144,111,996 119,368,949 20.7 Deferred Inflows of Resources 182,122 248,799 -26.8 Net Position $ 3,003,925,228 $ 2,361,599,888 27.2 Financial Financial statements report information using accounting methods similar to those used by private sector companies. The net position reported below is an indicator of the System’s financial standing at the end of the fiscal year. For more financial information, refer to the Annual Comprehensive Financial Report at www. mpers.org. Assets and Liabilites The Summarized Comparative Statements of Fiduciary Net Position includes all of the System’s assets and liabilities, with the difference between the two reported as net position. Income and Expenses The Summarized Comparative Statements of Changes in Fiduciary Net Position accounts for all the current year’s additions (income) and deductions (expenses), regardless of when cash is received or paid. As of As of % Change June 30, 2021 June 30, 2020 2021 / 2020 Contributions $ 217,389,127 $ 220,902,777 -1.6 Net Investment Income (Loss) 699,644,251 (10,673,270) 6,655.1 Other Income 286 5,412 -94.7 Total Additions 917,033,664 210,234,919 336.2 Benefits 270,122,851 267,605,833 0.9 Administrative Expenses 4,585,473 4,291,028 6.9 Total Deductions 274,708,324 271,896,861 1.0 Net Increase (Decrease) 642,325,340 (61,661,942) 1,141.7 Net Position—Beginning 2,361,599,888 2,423,261,830 -2.5 Net Position—Ending $ 3,003,925,228 $ 2,361,599,888 27.2 The 2021 fiscal year began during the midst of a pandemic. It was a time of uncertainty. Many found themselves asking, “Will I be okay financially after the pandemic is over?” 5www.mpers.orgwww.mpers.org MPERS FYI 2020 Investments Investment Policy The primary objective of MPERS is to provide active and retired employees with adequate retirement benefits. The investment portfolio is constructed to generate a total return that, when added to employer contributions, is sufficient to meet the benefit obligations. Following prudent standards for preservation of capital, the goal is to achieve the highest possible rate of return consistent with the plan’s tolerance for risk as determined by the Board in its role as fiduciary. Investment Performance MPERS’ investment portfolio generated a 30.8% return for the year, net of all management fees and based on time-weighted rates of return and market valuations. As of June 30, 2021, MPERS’ investment portfolio had a total fair value of $3.0 billion, representing an increase of $642 million from June 30, 2020. For MPERS’ stakeholders, the answer was a resounding “yes.” During the pandemic, investment staff carefully monitored assets within established investment policy. The policy, combined with staff dilligence, led to a remarkable 30.8% return for the 2021 fiscal year, helping to strengthen the long-term sustainability of the System. Asset Allocation MPERS’ investment consultant completes an asset/liability study every five years to determine whether or not changes are needed to the asset allocation. The asset allocation is reviewed annually by the Board. FY 2021 FY 2020 FY 2019 Asset Value $3.0 billion $2.3 billion $2.4 billion 1-Year Return 30.80% -0.46% 6.84% Policy Benchmark 23.47% 4.03% 8.80% 3-Year Return 11.63% 5.18% 9.15% Policy Benchmark 11.79% 6.81% 9.13% 5-Year Return 11.10% 5.51% 6.97% Policy Benchmark 10.79% 6.60% 6.85% 10-Year Return 9.59% 8.80% 10.19% Policy Benchmark 8.79% 8.18% 9.22% 6 www.mpers.orgMPERS FYI 2021 Funding Pension Plan Funding MPERS’ funding objective is to meet current and future benefit obligations of retirees and beneficiaries through contributions and investment earnings. Each year, an actuary calculates the liability associated with the benefits, determines the funded status, and recommends the contribution rate necessary to fund the System in accordance with the Board- approved funding policies. The contribution rate is based on a number of factors, including the current level of benefits, the number of participants, current and future pay levels, members’ age and average life expectancy, expected earnings on investments, and the plan’s unfunded liability. The investment portfolio is constructed to generate income that, when added to employer contributions, is sufficient to meet benefit obligations and expenses. Permanent and Temporary Funding Policies In an effort to address the System’s underfunded status, the Board has adopted policies intended to improve MPERS’ funded status over time. The unfunded actuarial accrued liabilities are amortized as follows: Permanent Policy: In September 2006, the Board adopted a policy where the total contribution is based on normal cost plus a 29-year amortization of unfunded liabilities. The amortization period began July 1, 2007. Temporary Accelerated Policy: In September 2009, after the market downturn, the Board adopted a policy where the total contribution is based on normal cost plus a 15-year amortization period for unfunded retiree liabilities and a 30-year amortization period for other unfunded liabilities. Both amortization periods started July 1, 2010. The temporary accelerated policy will remain in effect until the retiree liability becomes 100% funded or the permanent policy produces a higher contribution rate. MPERS’ operations continued seamlessly throughout the pandemic. Benefit payments were accurate, paid on time, and distributed every month. Permanent Policy 15 years Temporary Policy (retirees) 4 years Temporary Policy (other) 19 years Permanent and Temporary Funding Policies Remaining as of July 1, 2021 Contributions + Investment Income vs. Benefit Payments + Expenses (additions)(deductions) 7www.mpers.orgwww.mpers.org MPERS FYI 2021 Funding Contribution Rates When the plan was created in 1955, both employees and employers paid contributions equal to four percent of the employee’s first $7,500 of salary. In 1976, legislation was passed which made the System non-contributory and all contributions, plus interest, were refunded to members. From then until 2011, the cost of the plan was funded solely by employer contributions and investment income. In 2010, legislation was passed that created the contributory 2011 Tier. Employees hired for the first time in a benefit-eligible position on or after January 1, 2011, contribute 4 percent of their salary to help fund their retirement benefits. The Board sets the contribution rate, as a percentage of payroll, based on actuarial recommendations. FY 2021 Employer Contribution Rates MoDOT & Civilian Patrol Uniformed Patrol Normal Cost of Benefit 9.25% 17.23% Catch Up Payment on the Unfunded Liabilities* 47.06% 39.73% Administrative Expenses 1.22% 1.22% Subtotal 57.53% 58.18% Disability Insurance Premium 0.47% 0.47% Total Employer Contribution Rate 58.00% 58.65% *Catch up payments are extra contributions made over a set period of time to improve the funded status of the System. History of MPERS’ Funded Status Funded Status Calculation MPERS’ funding objective is to meet future benefit obligations of retirees and beneficiaries through investment earnings and payroll contributions. During the fiscal year ending June 30, 2021, the funded status increased by 1.77% to 62.41%. The current funded status can be calculated by dividing the the current actuarial value of assets by the total actuarial accrued liability (what is needed to fund future benefits). Current Actuarial Total Actuarial Current Value of Assets Accrued Liability Funded Status $2,711,272,503 ÷ $4,344,072,912 = 62.41% 8 www.mpers.orgMPERS FYI 2021 Benefits Retirement Plans To participate in MPERS, an employee must be employed in a benefit-eligible position for the Missouri Department of Transportation (MoDOT), the Missouri State Highway Patrol (MSHP), or the MoDOT & Patrol Employees’ Retirement System (MPERS). A benefit-eligible position requires the performance of duties during at least 1,040 hours per year (half-time or greater). Based on hire date, members participate in one of three plans. Ensuring continuous monthly benefit payments has always been MPERS’ top priority. During a time of uncertainty, turmoil, and adversity, our benefit recipients could always rely on receipt of those payments. MPERS exemplified dependibility under adversity. The Closed Plan was the original plan for benefit-eligible employees hired prior to July 1, 2000. At retirement, these members may elect to retire under the Closed Plan or the Year 2000 Plan. Closed Plan (non-contributory) Benefit-eligible employees hired for the first time on or after July 1, 2000, but prior to January 1, 2011, are members of the Year 2000 Plan. Year 2000 Plan (non-contributory) A contributory tier was added to the Year 2000 Plan for benefit-eligible employees hired for the first time on or after January 1, 2011. Employee and the employer make monthly contributions to fund the retirement of 2011 Tier members. 2011 Tier (contributory) Benefit Formula Benefits are calculated using a formula that is set by law. The benefit formula includes final average pay, credited service, and a multiplier set by law. Steps of a Defined Benefit Retirement Plan Final Average Pay X Credited Service X Multiplier = Monthly Base Benefit The average of the highest 36 consecutive months of pay. Years and months of service worked, purchased, and/or transferred. A percentage set by law. Paid for the lifetime of the benefit recipient and/or eligible spouse. 9www.mpers.orgwww.mpers.org MPERS FYI 2021 Membership During the 2021 fiscal year, MPERS’ overall membership decreased by 22. Retired members and their beneficiaries increased by 65, active members decreased by 141, and terminated-vested members increased by 54. Active members include active employees who work in a benefit-eligible position at MoDOT or MSHP. Once an active member has five years of credited service, they are considered vested and are eligible to receive a retirement benefit at a future date. Terminated-vested members are those who left employment at MoDOT or MSHP after being vested, but prior to reaching retirement eligiblity. Once certain age and service requirements are met, these individuals will be eligible to begin collecting retirement benefits. MPERS provides long-term disability and work-related disability benefits for active employees of MoDOT and MSHP. Non-Uniformed Civilian MoDOT & Uniformed Grand Patrol MPERS Patrol Total Active Members Closed Plan 212 1,130 408 1,750 Year 2000 Plan 355 1,446 360 2,161 Year 2000 Plan - 2011 Tier 500 2,355 428 3,283 Total Active Members 1,067 4,931 1,196 7,194 Retirees and Beneficiaries Closed Plan 490 3,318 1,044 4,852 Year 2000 Plan 638 3,759 10 4,407 Year 2000 Plan - 2011 Tier 10 22 0 32 Total Regular Pensioners 1,138 7,099 1,054 9,291 Disability Pensioners 12 110 6 128 Terminated Vested Members 264 1,712 177 2,153 Total 2,481 13,852 2,433 18,766 Membership as of June 30, 2021 Total Benefits Paid $270,122,851 New Retiree Averages Final Average Pay $4,080 Years of service 22 2021 Retirees MoDOT 236 Uniformed MSHP 49 Civilian MSHP 50 MPERS 11 MSHP 2,192 MoDOT 7,088 Benefit Recipients as of June 30, 2021 10 www.mpers.orgMPERS FYI 2021 Retiree Location This map represents the demographic distribution of retirees by state and country for the year ended June 30, 2021.