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HomeMy WebLinkAboutMaryland-National Capital Park & Planning Comm Employees' Retirement System - Public Financial Report Popular Annual Financial Report For the Fiscal Year Ended June 30, 2021 EMPLOYEES’ RETIREMENT SYSTEM The Maryland-National Capital Park and Planning Commission 1 Table of Contents A Letter to Our Members 2 Board of Trustees 3 & ERS Staff Member Services 4 & Resources Membership 5 Funding Summary 6 Summary Statements 7 & Net Position Growth Financial Summary 8-10 Asset Allocation 11 Investment Performance 12-13 This Popular Annual Financial Report summarizes the Maryland-National Capital Park and Planning Commission (“Commission”) Employees’ Retirement System’s (ERS) more detailed 2021 Annual Comprehensive Financial Report (ACFR) which is prepared in conformity with generally accepted accounting principles. The ACFR provides in-depth information about the financial, investment, and actuarial aspects of the ERS. The ACFR is available online at https://www.mncppc.org/DocumentCenter/View/19014/Annual-Comprehensive-Financial-Report_Final or at the ERS office. About the Employees’ Retirement System The Commission is a body corporate of the State of Maryland, established by the Maryland General Assembly in 1927. To provide its employees with financial security at retirement, on July 1, 1972 the Commission established the ERS, a single employer defined pension plan, in accordance with a Trust Agreement between the Commission and the ERS Board of Trustees (the “Board”). The Trust Agreement sets forth the powers, duties, and liabilities of the Board as they administer the Trust Fund from which members of the ERS receive retirement benefits. The Commission retains the power to amend or terminate the ERS but may not alter the powers of the Board without its consent. The ERS consists of five defined benefit pension plans sponsored by the Commission for its employees. Three of the Plans, A, B, and D are closed, and two Plans, C and E, are open for park police and general employees, respectively. The ERS provides normal and early retirement benefits, spouse and children survivor benefits, active member death benefits, and post-retirement death benefits for its members. The administrative operations of the ERS are the responsibility of the administrator and the staff who are employed by the Board. POPULAR ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2021 MISSION To prudently manage, protect, diversify, and administer the Fund for the sole benefit of its members and beneficiaries and to ensure sufficient assets are available to pay the promised benefits. CORE VALUES Quality Customer Service Accountability and Transparency Professionalism and Respect Trustworthiness and Stewardship 2 To Our Members, Retirees and Beneficiaries: We are pleased to present the 2021 Popular Annual Financial Report (“Annual Report”) for the Maryland-National Capital Park and Planning Commission (“Commission”) Employees’ Retirement System (ERS). This Annual Report summarizes the more detailed Annual Comprehensive Financial Report (ACFR) which is available on the ERS Website, https://www.mncppc.org/DocumentCenter/View/19014/Annual-Comprehensive-Financial-Report_Final. More important, this report provides key statistics to help you understand the financial health of the ERS. For a second year, the COVID-19 pandemic continued to disrupt the economy, creating challenges, as well as opportunities, for pension plans. The Board of Trustees (“Board”) met this challenge by staying informed and making strategic changes, where warranted, to ensure the continued growth and diversification of the portfolio. To that end, the Board selected HarbourVest Credit Opportunities Fund II, LP to manage a $52.5 million allocation to private credit; approved a transition from the Loomis Sayles Full Discretion Trust to the Loomis Sayles US High Yield Bond Trust; and approved a third private equity commitment of $45 million to Wilshire Private Markets. The ERS portfolio performed considerably well following the market volatility experienced during the shutdown in 2020. Portfolio performance for the one-year ending June 30, 2021 was 21.5% versus 20.4% for the policy index. Returns for the 3-years, 5-years, and 10-years ending June 30, 2021 were 9.6%, 10.3%, and 8.0% respectively, versus the policy index of 9.8%, 10.3%, and 8.0% respectively. Strong equity markets combined with a maturing private equity portfolio contributed to returns during these longer time periods. While pleased with recent performance, the Board approved a reduction in the investment return assumption from 6.85% to 6.80% for Fiscal Year 2021, determining that the reduction was not only consistent with continued trends across the U.S., but prudent given the uncertainty of the financial markets caused by the ongoing pandemic. The Board remains committed to improving and maintaining the strength of the ERS to ensure assets are available to pay the promised benefits to our members. We thank our committed Board members and consultants who diligently safeguard the assets of the ERS. We also thank our dedicated staff who have been working tirelessly for our members throughout the protracted pandemic. Finally, we thank our members for your continued patience and understanding as we all continue to navigate these challenging times. Warmest Regards, Elizabeth M. Hewlett Andrea L. Rose Chairman, Board of Trustees Administrator Elizabeth M. Hewlett Chairman GROWTH & PROTECTION FOR THE FUTURE Andrea L. Rose Administrator A LETTER TO OUR MEMBERS 3 The Board is charged with the fiduciary responsibility for administering the benefits for the sole benefit of the members and beneficiaries of the ERS. The Board prudently invests the assets and manages the ERS with the objective of ensuring that sufficient assets will be available to fund the benefits when due. The Board consists of 11 appointed and elected members. Trustees serve for three-year terms. Generally, the Board meets on the first Tuesday of every month, except August. Board meetings are open to all members and the public. The administrative operations of the ERS are the responsibility of the administrator and staff employed by the Board. Current events and announcements regarding the ERS are posted on the ERS’ website and in the Commission’s monthly newsletter, Update. The Board of Trustees ERS Staff (as of June 30, 2021) Andrea L. Rose Administrator Vacant Senior Administrative Specialist Member Relations Team Antonia L. Lanier Member Relations Manager Lisa D. Butler Senior Retirement Benefits Analyst Annette E. Silvestri Retirement Benefits Analyst Christopher Baysmore Member Relations Assistant Technical Services Sheila S. Joynes Accounting Manager Charles M. Curtis, Jr. Accountant Ann L. McCosby IT Systems Manager Elizabeth M. Hewlett, Chairman Prince George’s County Commissioner Term expires: 6/30/2022 Gerald R. Cichy, Vice Chairman Montgomery County Commissioner Term expires: 6/30/2023 Asuntha Chiang-Smith Executive Director Ex-Officio Howard Brown FOP Represented Trustee Term expires: 6/30/2022 Melissa D. Ford Prince George’s County Open Trustee Term expires: 6/30/2024 Pamela F. Gogol Montgomery County Public Member Term expires: 6/30/2023 Amy Millar MCGEO Represented Trustee Term expires: 6/30/2022 Sheila Morgan-Johnson Prince George’s County Public Member Term expires: 6/30/2023 Caroline McCarthy Montgomery County Open Trustee Term expires: 6/30/2024 Elaine A. Stookey Bi-County Open Trustee Term expires: 6/30/2023 Joseph C. Zimmerman, CPA Secretary-Treasurer Ex-Officio BOARD OF TRUSTEES & ERS STAFF 4 The ERS is the Commission’s primary retirement plan for its employees. The ERS is a defined benefit plan which means the benefit paid at retirement is a guaranteed benefit, based on salary and credited service. The benefits are not determined by employee contributions or investment earnings. Detailed information regarding membership and retirement benefits can be found in the Summary Plan Description (SPD). SPDs are available for each plan and provide a detailed look at the benefit formula, eligibility requirements, contributions, credited service, and death benefits. SPDs can be found on the ERS’ website http://ers.mncppc.org, along with other valuable information. The ERS provides the resources below to help members plan for a secure retirement. • Onsite Workshops • One-on-One and Retirement Counseling • Annual Benefit Statement • Popular Annual Financial Report • Annual Comprehensive Financial Report • Summary Plan Description • Plan Document • Articles published in the Commission’s Update Newsletter - ERS Lifetimes • Retirement Benefit Estimate The Member Relations Team is available by email or phone to answer retirement related questions or by appointment for a retirement counseling session. Due to the COVID-19 pandemic some services have been temporarily suspended while others have been modified to ensure the health and safety of staff and members. Information can also be accessed via the ERS’ website, http://ers.mncppc.org. QUESTIONS? CONTACT US. Employees’ Retirement System The Maryland-National Capital Park and Planning Commission 6611 Kenilworth Avenue, Suite 100 Riverdale, Maryland 20737 Telephone: 301-454-1415 Fax: 301-454-1420 Email: contactERS@mncppc.org Visit us on the web at http://ers.mncppc.org MEMBER SERVICES & RESOURCES Office Hours Monday-Friday 8:00 a.m. to 5:00 p.m. 5 Total Membership as of July 1, 2020 2019 & CHANGE Total Membership 4,592 4,429 3.7 Active 2,225 2,123 4.8 Retirees, Beneficiaries, and Disabled 1,687 1,645 2.6 Inactive Non-Vested 449 426 5.4 Inactive Vested 231 235 (1.7) Active Members 2,225 2,123 4.8 Average Age 47.06 47.24 (0.4) Average Years of Service 11.07 11.5 (3.7) Average Annual Salary $77,477 $75,469 2.7 Active Members Eligible for Normal Retirement within the Next 5 Years 662 673 (1.6) Number Receiving Benefits 1,662 1,609 3.3 Average Monthly Benefit $2,800 $2,779 0.8 Average Final Average Salary $67,638 $66,940 1.0 Average Years of Service 22.2 22.1 0.5 Membership by Plan as of July 1, 2020 Plan A Plan B Plan C Plan D Plan E Total Membership 279 2,786 339 109 1,079 Active - 1,068 214 2 941 Retirees, Beneficiaries, and Disabled 279 1,220 82 104 2 Inactive Non-Vested - 281 30 2 136 Inactive Vested - 217 13 1 - as of July 1, 2020 YEARS OF CREDITED SERVICE 0-5 6-10 11-15 16-20 21-25 26-30 >30 Total Number Receiving Benefits 60 188 201 218 298 373 324 1,662 Average Monthly Benefit $528 $745 $1,176 $1,746 $2,886 $3,834 $4,861 $2,800 Average Final Salary $49,999 $50,670 $56,197 $61,745 $71,161 $75,005 $81,015 $67,638 Average Years of Service 4.0 8.1 13.0 18.0 23.1 28.8 33.7 22.2 Average Monthly Benefit Payment MEMBERSHIP 6 The funded ratio is a measure of a plan’s health and is a gauge of progress in accumulating assets to pay the promised benefits. The funded ratio can change annually based on changes in liabilities, investment returns, actuarial assumptions, employee demographics, and more. Analysis of the trend overtime indicates whether the ERS is becoming stronger or weaker. The upwards trend since 2011 is a positive sign. The ERS’ ability to provide benefits is strong and secure because the Commission has consistently funded the plan in both the good and bad years. Valuation of Assets to Liabilities as of July 1, ($millions) Actuarial Value of Assets Actuarial Accrued Liability % equals Funded Ratio $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 $1,100 $1,200 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 1The actuarial value of assets is determined by a smoothing formula to eliminate short-term market fluctuations and will differ from the fair value of assets. Schedule of Funding Progress Actuarial Valuation Date July 1 Actuarial Value of Assets (a) Actuarial Accrued Liability (b) Actuarial Accrued Unfunded Liability (b) - (a) Funded Ratio % (a) / (b) 2011 659,362,107 761,343,000 101,980,893 86.61 2012 660,231,611 802,077,365 141,845,754 82.32 2013 690,539,998 831,199,592 140,659,594 83.08 2014 766,531,514 879,190,389 112,658,875 87.19 2015 830,052,104 887,487,374 57,435,270 93.53 2016 856,279,531 949,298,226 93,018,695 90.20 2017 899,336,519 991,624,737 92,288,218 90.69 2018 943,070,635 993,322,340 50,251,705 94.94 2019 968,142,434 1,043,820,211 75,677,777 92.75 2020 995,043,914 1,091,238,867 96,194,953 91.18 FUNDING SUMMARY 86.6% 82.3% 83.1% 87.2% 93.5% 90.2% 90.7% 94.9% 92.7% 91.2% 7 Summary Statements of Fiduciary Net Position June 30, 2021 and 2020 The Summary Statements of Fiduciary Net Position are a snapshot of what the ERS owned (assets) and what the ERS owed (liabilities), and the difference (net position) which represents the funds available to pay retirement benefits. 2021 2020 Amount of Change ASSETS Investments, at fair value $ 1,110,049,746 $ 956,821,830 $ 153,227,916 Receivables 729,520 848,865 (119,345) Securities lending collateral 39,501,241 29,250,404 10,250,837 Other assets 837,640 244,848 592,792 TOTAL ASSETS 1,151,118,147 987,165,947 163,952,200 LIABILITIES Payables and accrued liabilities 2,840,042 14,644,031 (11,803,989) Payable for securities lending collateral 40,556,217 29,933,326 10,622,891 TOTAL LIABILITIES 43,396,259 44,577,357 (1,181,098) NET POSITION $ 1,107,721,888 $ 942,588,590 $ 165,133,298 Summary Statements of Changes in Fiduciary Net Position For the Years Ended June 30, 2021 and 2020 The Summary Statements of Changes in Fiduciary Net Position are a summary of the flow of money in (additions) and out (deductions) of the ERS. 2021 2020 Amount of Change ADDITIONS Employee Contributions $ 8,084,657 $ 7,796,708 $ 287,949 Employer Contributions 22,312,947 19,244,687 3,068,260 Net investment gain 194,757,724 10,900,156 183,857,568 TOTAL ADDITIONS 225,155,328 37,941,551 187,213,777 DEDUCTIONS Benefit payments 57,659,732 55,067,853 2,591,879 Refunds of contributions 378,267 579,629 (201,362) Administrative expenses 1,984,031 1,722,361 261,670 TOTAL DEDUCTIONS 60,022,030 57,369,843 2,652,187 INCREASE/ DECREASE IN NET POSITION 165,133,298 (19,428,292) 184,561,590 NET POSITION BEGINNING OF YEAR 942,588,590 962,016,882 (19,428,292) END OF YEAR $ 1,107,721,888 $ 942,588,590 $ 165,133,298 SUMMARY STATEMENTS 8 Net Position Growth As of June 30, ($millions) The amount accumulated to pay retirement benefits increased by 165.1 million, or 17.5%, from $942.6 million in 2020 to $1.11 billion in 2021 primarily due to a $183.9 million increase in investment gains. $630.2 $694.0 $796.1 $792.0 $776.3 $868.2 $920.8 $962.0 $942.6 $1107.7 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Employer and employee contributions as well as income from investments provide the reserves needed to pay retirement benefits, refund contributions, and administer the ERS. Additions For Fiscal Years Ended June 30 ($thousands) 2021202020192018201720162015201420132012 Employer Contributions $22,313$19,245$24,792$24,822$20,268$27,191$28,150$28,750$23,806$32,182 Employee Contributions $8,084$7,797$7,541$7,201$6,751$6,418$6,340$5,414$5,355$4,396 Investment Income*$194,758$10,900$62,439$70,471$111,662$(4,851)$3,340$107,898$72,802$14,100 Total Additions $225,155$37,942$94,772$102,494$138,681$28,758$37,830$142,062$101,963$50,678 $(10,000) $40,000 $90,000 $140,000 $190,000 $240,000 *Net of Fees For fiscal year 2021, additions totaled $225.2 million, an increase of $187.2 million, or 493.4%, from the prior year. During 2021 and 2020 the employer contributions were $22.3 million and $19.2 million, respectively. Employee contributions increased, by $287,949, or 3.7%, mainly due to a 4.8% increase in active members. Investment income increased $183.9 million due to investment gains. FINANCIAL SUMMARY 9 Additions by Source For Fiscal Year Ended June 30, 2021 Employee Contributions Employer Contributions Investment Income The ERS was created for the principle purpose of providing retirement annuities and survivor benefits to qualified members and their beneficiaries. The cost of such programs includes recurring benefit payments, refunds of contributions to terminated employees, and the cost of administering the ERS. Deductions For Fiscal Years Ended June 30 ($thousands) 2021202020192018201720162015201420132012 Benefit Payments $57,660$55,068$51,057$47,628$44,628$42,258$39,992$38,170$36,263$33,833 Refunds $378$580$745$460$561$461$391$237$369$317 Administrative Expenses $1,984$1,722$1,704$1,811$1,675$1,696$1,587$1,487$1,565$1,453 Total Deductions $60,022$57,370$53,506$49,899$46,864$44,415$41,970$39,894$38,197$35,603 $(10,000) $- $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 For fiscal year 2021, deductions totaled $60.0 million, an increase of $2.7 million, or 4.6% from the prior year. As expected, the benefit payments to retirees and beneficiaries were the primary deduction in 2021, totaling $57.7 million. The increase in benefits from 2020 reflects the 3.3% increase in retired members and beneficiaries and a 1.8% cost-of-living adjustment effective July 1, 2020. Payments to members withdrawing contributions totaled $378,267 with the remaining $2.0 million accounting for administrative expenses. FINANCIAL SUMMARY 3.6% from employee contributions 9.9% from employer contributions 86.5% from investment income 10 Deductions by Source (in thousands) For Fiscal Year Ended June 30, 2021 Benefit Payments Refunds of Contributions Administrative Expenses Benefit Payments by Type (in thousands) For Fiscal Year Ended June 30, 2021 Retirees Survivors Disability Benefits* *Disability retirement benefits were prospectively discontinued on August 1, 1982 96.1% of deductions were for benefit payments 0.6% of deductions were for refunds of contributions 3.3% of deductions were for administrative expenses $52,052 was paid to retirees $5,525 was paid to survivors $83 was paid for disability benefits FINANCIAL SUMMARY 11 . The Board oversees the ERS through a carefully planned and diversified investment portfolio. The Statement of Investment Policy outlines the ERS’ long-term objectives and investment diversification. A portfolio should be diversified at two levels: between asset classes and within asset classes. This diversification is called asset allocation. Asset allocation involves dividing the portfolio among different asset classes such as equities, fixed income, and real assets. The goal is to balance the risk and return of the portfolio by including asset classes that move up and down under different market conditions. Diversification within each asset class is accomplished using multiple investment managers. Each manager has a set of guidelines which outline the manager’s mission, objectives, benchmarks, authorized investments and restrictions. Annually, the Board reviews each manager’s performance against these guidelines. Please refer to the Investment Manager Matrix on page 57 of the Annual Comprehensive Financial Report. A new asset allocation policy was approved in July 2019 to add a dedicated allocation to emerging market debt and to reduce U.S. and International Equities. This new policy was fully implemented in fiscal year 2020. Actual Asset Allocation vs. Target Policy 15.0% 15.0% 10.0% 7.5% 35.5% 15.0% 2.0% 0.0% 15.6% 14.9% 8.1% 10.0% 33.7% 14.6% 2.2% 0.8% U.S. EquitiesRange 10-20% International EquitiesRange 10-20% Global Minimum VolatilityRange 5-15% Private Equities Range 0-10% Fixed IncomeRange 30-41% Private Real AssetsRange 5-20% Public Real Assets 0-10% Cash Target Actual ASSET ALLOCATION 12 Investment returns are reported net of investment expenses, on an average annualized basis. The total fund is measured against a policy benchmark and asset classes are measured against a relevant broad market benchmark. Benchmarks are standards used to measure investment performance. The investment portfolio was valued at $1.11 billion as of June 30, 2021. Total Fund vs. Benchmark As of June 30, 2021 8.2% 21.5% 9.6%10.3% 7.8%6.4% 20.4% 9.8%9.5% 7.9% 0% 5% 10% 15% 20% 25% YTD One-Year Three-Years Five-Years Inception (9/30/1989) Total Fund Benchmark For the one-year ending June 30, 2021, the total fund returned of 21.5% compared to the policy benchmark return of 20.4% and the assumed rate of return of 6.80%. Over the past one-year period all asset classes posted positive returns, which attributed to strong absolute investment performance. For the three-years, five-years, and since inception periods ending June 30, 2021, total portfolio returns were 9.6%, 10.3%, and 7.8%, respectively. Strong U.S. and Non-U.S. equity markets combined with a maturing private equity portfolio contributed to longer-term performance. Total Fund vs. Benchmark and Investment Return Assumption For Fiscal Years Ended June 30 This chart shows returns compared to the policy benchmark and investment return assumption for the last 5 years. 14.7% 7.9%7.0% 1.9% 21.5% 11.3% 7.2%6.8% 2.1% 20.4% 7.0%6.95%6.9%6.85%6.80% -3% 2% 7% 12% 17% 22% 27% 2017 2018 2019 2020 2021 Total Fund Benchmark Investment Return Assumption INVESTMENT PERFORMANCE 13 One-Year Returns vs. Benchmark by Asset Class As of June 30, 2021 Individual asset classes generated the following performance for the one-year ending June 30, 2021: 45.5% 43.4% 19.8% 26.8% 10.4% 6.5% 33.2% 44.2% 35.7% 19.4% 43.4% 2.6% 10.7% 33.2% 0% 10% 20% 30% 40% 50% U.S. Equity International Equity Global Equity Private Equity Fixed Income Private Real Assets Public Real AssetsOne-Year Returns Benchmark Market Value by Asset Class As of June 30, 2021 U.S. Equity, $173,402 International Equity, $165,628 Global Equity, $89,854 Private Equity, $111,253 Fixed Income, $373,546 Private Real Assets, $161,949 Public Real Assets, $24,839 Cash, $9,096 INVESTMENT PERFORMANCE 14 The ERS received the Award for Outstanding Achievement in Popular Annual Financial Reporting from the Government Finance Officers Association for its 2020 Popular Annual Financial Report. This marks the 11th consecutive year the +ERS has received this award. This Popular Annual Financial Report (“Annual Report”) is for informational purposes only and provides general information designed to educate employees and retirees about the Maryland-National Capital Park and Planning Commission (“Commission”) Employees’ Retirement System (ERS). The information found in this Annual Report should not serve as the sole or primary basis for making decisions regarding the financial, investment or funding status of the ERS. To the extent any term or figure in this Annual Report varies from the Plan Document or other governing documents, those pertinent documents will control, and the information provided in this Annual Report will not. The Plan Document and other governing documents, policies, and procedures may be modified or amended from time to time consistent with law and those amendments likewise will control. More generally, in all circumstances the governing documents, policies, and procedures, as amended from time to time, will control over any information provided by the ERS, the Commission or any agent or employee of the ERS or the Commission. Awards for Excellence For the last 16 years, the ERS earned the Public Pension Coordinating Council’s award for Funding and Administration. The Public Pension Standards are intended to reflect minimum expectations for public retirement system management, administration, and funding. The Standards serve as a benchmark by which all public defined benefit plans should be measured.