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Home My WebLink AboutEducational Employees' Supplementary Retirement System of Fairfax County - Public Financial ReportFOR THE FISCAL YEAR ENDED JUNE 30, 2021 A COMPONENT UNIT OF FAIRFAX COUNTY PUBLIC SCHOOLS FAIRFAX, VIRGINIA ERFC Offering Support Through the Seasons of Your Career POPULAR ANNUAL FINANCIAL REPORT 2 3 THE YEAR IN REVIEW Eli Martinez, Executive Director and Chief Investment Officer I am pleased to submit the Popular Annual Financial Report (PAFR) for the Educational Employees’ Supplementary Retirement System of Fairfax County (ERFC) for the fiscal year 2021. The ERFC management holds responsibility for the financial information presented in this report. I extend my sincere thanks to the Board of Trustees, the ERFC staff and all ERFC members for their continued support. ADMINISTRATION UPDATES ERFC continued implementation of process enhancements that will result in improved efficiencies, cost savings, and member service. ERFC remained focused on improving operational excellence by adopting a Lean Six Sigma mindset—which gives our staff the framework to continue to pursue peer leadership in providing professional and personalized service to our members. Quality and efficiency improvements over the nextdecade will allow us to continue to focus on servicing and educating all segments of our population. Communication activities successfully adapted to respond to the challenges of working remotely. Thanks to new technologies, we offered 17 live online retirement information sessions and created a new set of paperwork tutorials and a video about Health Benefits in Retirement in collaboration with FCPS Human Resources. We also completed a redesign of the ERFC intranet. ERFC continued to promote ERFCDirect, and 30,772 active and retired members now use the online service, up from 28,963 a year ago. The Fund completed its search for a discretionary private markets consultant, which will ultimately lead to an estimated $23 million in net present value (NPV) savings through restructuring of the private markets program. STRATEGIC PLAN AND OPERATIONAL UPDATES ERFC concluded its 2018-2021 Strategic Plan, which focused on sustainability, marketing, messaging, and education. Over that three-year period ERFC improved its sustainability by increasing its funding ratio, achieving top quartile one-year returns while reducing risks, and reducing investment management and administrative costs to the Plan. On the marketing front, we created a plan to help raise awareness and educate our membership— which will be implemented over the course of the next three years. Messaging to our membership also improved via our progress in simplifying communications and creating media content that is available 24/7 to our members. Despite the national pandemic, ERFC was able to effectively reach, educate, and improve services to its membership. With the conclusion of the 2018-2021 Strategic Plan, the Board adopted the 2022-2024 Strategic Plan that revolves around sustainability, engagement, education, and operational excellence. PLAN FINANCIAL CONDITION There’s no doubt that 2020 was a challenging and historic year, nonetheless, the ERFC Fund earned a 26.8% net of fees return on investments in fiscal year 2021—placing the fund in the top 48th percentile of public pension funds within THE YEAR IN REVIEW 76.6% FUNDED RATIO 26.8% FUND AFTER-FEES RETURN ON INVESTMENTS 3 THE YEAR IN REVIEW the Investment Metrics Public Plan Universe >$1B in assets. For the fiscal year, ERFC outperformed its policy index by 4.8%, largely driven by outperformance in international and emerging market equities. Investments in fixed income, multi-asset class solutions (MACS) and private markets were also additive. ERFC’s independent actuary reported that the System’s funding ratio increased from 74.5% to 76.6% for the valuation period ending December 31, 2020. This increase is due to favorable investment performance in 2020 and favorable demographic experience. The recommended employer contribution rate was 6.44% of payroll, unchanged from fiscal year 2020. For fiscal year 2022, the contribution rate will increase to 6.70%. The presentation of the PAFR is consistent with GAAP. To obtain additional detail regarding the fund, please refer to the 2021 Annual Comprehensive Financial Report (ACFR) at https://www.fcps.edu/sites/default/ files/media/forms/ERFC-Annual-Report- ACFR-2021.pdf. INVESTMENT ACTIVITY ERFC’s return of 26.8% net of fees for FY 2021 outperformed the benchmark index return of 22%, and the Investment Metrics Public Plan Universe >$1B in assets universe for the fiscal year with the median fund returning 26.5%. On an intermediate basis, the Fund ranked in the top 24th percentile of public pension funds within the Investment Metrics Public Plan Universe >$1B in assets over the last 3-year period ending FY 2021. The Fund’s longer-term performance remained strong as well; the 10- year return of 8.1% exceeded the policy index return of 7.6% and exceeded the Fund’s long- term target return of 7.25%. AWARDS The System proudly announces that the GFOA of the United States and Canada awarded ERFC the Certificate of Achievement for Excellence in Financial Reporting for its FY 2020 ACFR. This is the 24th consecutive year ERFC has earned the award. The GFOA certification remains valid for a period of one year and requires, at minimum, that each ACFR satisfy both generally accepted accounting principles and legal requirements. The GFOA also recognized ERFC with an Award for Outstanding Achievement in Popular Financial Reporting for its FY2020 Popular Annual Financial Report (PAFR). This is the second year ERFC has earned the award. The Public Pension Coordinating Council also honored ERFC recently, granting the System the Public Pension Standards’ 2021 Award. ERFC earned the award in recognition for meeting or exceeding professional standards for plan design and administration, as set forth in the Public Pension Standards. PROFESSIONAL SERVICES The ERFC Board of Trustees appoints professional services to provide aid in the efficient management of the System. Segal Marco Advisors provides general investment consulting services, Meketa Investment Group provides discretionary private markets consulting services, and AON/Retirement and Investment provides actuarial services. In accordance with county code, the Fairfax County Board of Supervisors appointed Cherry Bekaert LLP, Certified Public Accountants, Richmond, Virginia, to audit the System’s financial statements. 40,617 ACTIVE AND RETIREE MEMBERSHIP $3.3B TOTAL FUND VALUE 4 5 ERFC MISSION AND PRINCIPLES MISSION The mission of the Educational Employees’ Supplementary Retirement System of Fairfax County (ERFC) is to enhance the financial security of our members through prudent financial stewardship of a defined benefit plan while providing outstanding retirement services and education. VISION To be the leader among peers providing professional and personalized service to our members and beneficiaries to support their efforts to achieve financial independence. VALUES ACCOUNTABILITY We always operate with transparency and a commitment to think strategically while fulfilling fiduciary obligations. CUSTOMER SERVICE We always respond promptly with quality as we strive to exceed the expectations of our members and their beneficiaries. OPEN COMMUNICATION We always provide timely and pertinent information that improves processes, removes barriers and establishes accountabilities. INTEGRITY We conduct operations by adhering to the highest standards of ethical conduct, striving for accuracy, efficiency and effectiveness. CONTINUOUS EDUCATION Through ongoing education efforts, we enable ERFC employees to continuously improve the service and value they provide to our members; Board of Trustees to more effectively guide and inform ERFC strategy; and our members to better understand and make the most of their ERFC benefits. 5 BOARD MEMBERS KIMBERLY ADAMS CHAIRPERSON/TRUSTEE ELECTED MEMBER KATHIE PFEFFER-HAHN VICE CHAIRPERSON/TRUSTEE ELECTED MEMBER LEIGH BURDEN TREASURER/TRUSTEE APPOINTED MEMBER MARTY K. SMITH TRUSTEE APPOINTED MEMBER ERIC EICHELBERGER TRUSTEE ELECTED MEMBER ADAM MCCONAGHA TRUSTEE APPOINTED MEMBER SCAN THE QR CODE TO ACCESS ERFC’S ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR) FOR THE FISCAL YEAR ENDED JUNE 30, 2021 THE EDUCATIONAL EMPLOYEES’ SUPPLEMENTARY RETIREMENT SYSTEM OF FAIRFAX COUNTY A COMPONENT UNIT OF FAIRFAX COUNTY PUBLIC SCHOOLS FAIRFAX, VIRGINIA ERFC Offering Support Through the Seasons of Your Career ANNUAL COMPREHENSIVE FINANCIAL REPORT 6 7 MEMBERSHIP AS OF DECEMBER 31, 2020 TOTAL ERFC MEMBERSHIP 12,84212,842 Retirees and Beneficiaries 5,4155,415 Deferred Vested Members Deferred Vested Members 22,36022,360 Active MembersActive Members MEMBER CONTRIBUTION RATE FCPS EMPLOYER CONTRIBUTION RATE 6.44% 1973 1988 2001 FCPS & FEA ESTABLISHED ERFC ALTERED PLAN: RESPONSE TO VRS CHANGES ESTABLISHED ERFC 2001 TIER 1 PLAN 1,7501,750 2001 Retirees2001 Retirees11,09211,092 Legacy Retirees 7 70% OF RETIREE BENEFITS PAID TO VIRGINIA RESIDENTS 42% OF RETIREE BENEFITS PAID TO FAIRFAX COUNTY RESIDENTS RETIREMENT ELIGIBILITY AGE 65 AGE 55 AGE 60 ANY AGE SS AGE RULE OF 90 UNREDUCED $ YEARS WORKED REDUCED $ AGE 55 AGE 45 Rule of 90 is years worked + age = 90. LEGACY 300510152025 YEARS WORKED TIER 1 TIER 2 300510152025 LEGACY YEARS 2011 2017 IMPLEMENTED ERFCDIRECT ESTABLISHED ERFC 2001 TIER 2 PLAN 48 8 9 ACHIEVEMENTS Government Finance Officers Association Award for Outstanding Achievement in Popular Annual Financial Reporting Presented to The Educational Employees Supplementary Retirement System of Fairfax County Virginia For its Annual Financial Report for the Fiscal Year Ended June 30, 2020 Executive Director/CEO CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to ERFC for its Popular Annual Financial Report for the fiscal year ended June 30, 2020. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized Annual Comprehensive Financial Report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. ACTIVE MEMBER SALARIES^ $ THOUSANDS ACTIVE MEMBER AGES# 9 MEMBERS AS OF DECEMBER 31, 2020 ACTIVE MEMBER SALARIES^ $ THOUSANDS ACTIVE MEMBER AGES# ACTIVE MEMBER YEARS OF SERVICE* * Average Service = 9.8 years ^ Average Annual Pay = $73,053 # Average Age = 44.4 years | Total Active Members = 22,360 30 & up25-2920-2415-1910-145-90-4 176 665 1,873 406 2,714 185 3,261 88 5,248 15 7,729 $70 +$60-69$50-59<$50 2,941 9,294 103 3,262 53 3,000 311 3,396 ER F C ER F C 2 0 0 1 60+50s40s30s<30 781 1,5191,644 3,911 982 4,829 1 5,696 2,997 10 11 BENEFITS PAID AS OF JUNE 30 $ MILLIONS Full Service 65% 8,349 Disability 1% 181 Beneficiary Survivor 1% 75 Reduced Service 33% 4,237 RETIREES AND BENEFICIARIES BY TYPE OF BENEFIT BEING PAID TOTAL12,842 '21 '20 '19 '18 '17 '16 '15 '14 '13 '12 Fi s c a l Y e a r $ 162.1 $ 177.4 $ 181.6 $ 187.6 $155.0 $160.1 $ 161.3 $ 165.7 $ 168.8 $ 173.1 MEMBERS AS OF DECEMBER 31, 2020 11 CALENDAR YEAR '20'19'18'17'16'15'14'13'12'11 $ 2 , 4 6 6 , 0 0 4 , 0 0 0 $ 3 , 3 3 4 , 1 1 4 , 0 0 0 $ 2 , 5 8 2 , 5 8 2 , 0 0 0 $ 3 , 4 6 8 , 1 5 0 , 0 0 0 $ 1 , 8 6 6 , 9 5 2 , 0 0 0 $ 2 , 4 7 0 , 9 6 4 , 0 0 0 $ 1 , 9 3 5 , 2 9 2 , 0 0 0 $ 2 , 5 6 6 , 1 2 8 , 0 0 0 $ 2 , 0 2 9 , 0 0 5 , 0 0 0 $ 2 , 6 4 5 , 5 0 0 , 0 0 0 $ 2 , 1 2 3 , 9 1 0 , 0 0 0 $ 2 , 7 3 3 , 8 4 5 , 0 0 0 $ 2 , 1 8 8 , 0 3 7 , 0 0 0 $ 2 , 8 8 0 , 7 0 3 , 0 0 0 $ 2 , 2 7 9 , 7 4 1 , 0 0 0 $3 , 0 3 2 , 5 0 3 , 0 0 0 74% 75%76% 75% 77%78% 76% 75% FUNDING PROGRESS $ 2 , 3 9 8 , 6 6 8 , 0 0 0 $3 , 1 6 7 , 9 4 1 , 0 0 0 76% $ 2 , 7 8 6 , 2 9 7 , 0 0 0 $ 3 , 6 3 5 , 2 4 4 , 0 0 0 76% FUNDING FUNDING PROGRESS VALUE OF ASSETS ACCRUED LIABILITIES SUMMARY OF FIDUCIARY NET POSITIONAS OF JUNE 30 2021 2020 VARIANCE ASSETS Total cash and investments $ 3,430,488,099 $ 2,796,033,651 $ 634,454,448 Total receivables 42,178,337 14,052,270 28,126,067 Other assets 40,854 33,468 7,386 TOTAL ASSETS 3,472,707,290 2,810,119,389 662,587,901 LIABILITIES Capital leases 26,426 8,782 17,644 Accounts payable 2,339,106 1,843,713 495,393 Securities purchased 51,085,575 88,500,826 (37,415,251) Securities lending collateral 147,105,099 126,382,893 20,722,206 TOTAL LIABILITIES 200,556,206 216,736,214 (16,180,008) TOTAL NET POSITION RESTRICTED FOR PENSIONS $ 3,272,151,084 $ 2,593,383,175 $ 678,767,909 12 13 TOTAL CONTRIBUTIONS EMPLOYER CONTRIBUTIONS EMPLOYEE CONTRIBUTIONS 68% 32% FUNDING SUMMARY OF CHANGES IN FIDUCIARY NET POSITIONAS OF JUNE 30 2021 2020 VARIANCE ADDITIONS Contributions Employer $ 104,784,310 $ 104,741,255 $ 43,055Member 48,934,340 49,095,601 (161,261) Net investment income 720,738,680 108,472,534 612,266,146 TOTAL ADDITIONS 874,457,330 262,309,390 612,147,940 DEDUCTIONS Benefits 187,660,019 181,587,150 6,072,869 Refunds 3,605,963 4,399,346 (793,383) Admin. Expenses 4,423,439 4,381,191 42,248 TOTAL DEDUCTIONS 195,689,421 190,367,687 5,321,734 NET INCREASE IN NET POSITION $ 678,767,909 $ 71,941,703 $ 606,826,206 $117M $123M $135M $143M $154M FY 1 6 FY 1 7 FY 1 8 FY 1 9 FY 2 1 $153M FY 2 0 13 TOTAL DEDUCTIONS ADMINISTRATIVE EXPENSES 2%REFUNDS 2% BENEFITS 96% ASSETS Cash, stocks, bonds and equity are examples of financial assets. ERFC practices prudent management to maintain adequate funding and ensure the financial integrity of the system. ACCRUED LIABILITY Measures, in today’s dollars, the difference in the value of benefits and future normal costs to provide those benefits. ERFC’s commitment to excellence in funding has resulted in financial strength that provides a solid basis for the future. DIVERSIFICATION The process of spreading money among different securities, industries, sectors and strategies within a number of asset classes. ERFC’s goal is to achieve the highest possible investment return at the lowest possible risk. FIDUCIARY Acts solely in the interest of members and beneficiaries for the exclusive purpose of providing benefits to them, and paying reasonable expenses to administer the system. ERFC operates with transparency and a commitment to think strategically while fulfilling its fiduciary obligations. $174M $177M $182M $186M $196M FY 1 6 FY 1 7 FY 1 8 FY 1 9 FY 2 0 FY 2 1 $190M 14 15 INVESTMENTS FOR THE PERIODS ENDING JUNE 30, 2021 ASSET ALLOCATION Assigning specific percentages of investments to different asset classes according to financial goals, risk tolerance and investment time horizon. ERFC enhances the financial security of its members through responsible financial stewardship. BENCHMARK A standard against which the performance of an investment can be measured. Over the long term, ERFC has exceeded its policy benchmark. ERFC TOTAL FUND GROWTH — VALUATION ASSETS SINCE INCEPTION(AS REFLECTED IN THE DECEMBER 31, 2020 ACTUARIAL VALUATION) HEDGE FUNDS - OPPORTUNISTIC 5% EMERGING MARKET DEBT 2% DOMESTIC FIXED INCOME 21% HEDGE FUNDS - OPPORTUNISTIC 6% EMERGING MARKET DEBT 3% DOMESTIC FIXED INCOME 20% 20 2 0 20 1 5 20 1 0 20 0 5 20 0 0 19 9 5 19 9 0 19 8 5 19 8 0 19 7 5 $500 MILLION $1 BILLION $2 BILLION $3 BILLION 15 ERFC TOTAL FUND GROWTH — VALUATION ASSETS SINCE INCEPTION(AS REFLECTED IN THE DECEMBER 31, 2020 ACTUARIAL VALUATION) STRATEGIC TARGET ALLOCATION ACTUAL ASSET ALLOCATION GLOBAL EQUITY 5% EMERGING MARKET EQUITY 5% INTERNATIONAL EQUITY 10% DOMESTIC EQUITY 24% PRIVATE EQUITY 7% INFRASTRUCTURE 4% HEDGE FUNDS - OPPORTUNISTIC 5% REAL ESTATE 9% MULTI-ASSET CLASS SOLUTIONS (MACS) 4% EMERGING MARKET DEBT 2% DOMESTIC FIXED INCOME 21% PRIVATE DEBT 4% GLOBAL EQUITY 5% EMERGING MARKET EQUITY 6% INTERNATIONAL EQUITY 9% DOMESTIC EQUITY 25% PRIVATE EQUITY 7% HEDGE FUNDS - OPPORTUNISTIC 6% REAL ESTATE 5% MULTI-ASSET CLASS SOLUTIONS (MACS) 9% EMERGING MARKET DEBT 3% DOMESTIC FIXED INCOME 20% PRIVATE DEBT 1% 16 17 11.6%10.6%10.6% 26.8% 22.0% 26.5% 11.0% 9.8%10.5% 8.1%7.6%8.1% TOTAL FUND(AFTER FEES) PERFORMANCE FOR THE PERIODS ENDING JUNE 30, 2021 TO T A L F U N D BE N C H M A R K * PU B L I C F U N D S * * * 16% Russell 1000 Index, 7% Russell 2000 Index, 9% MSCI AC World ex USA (Net), 5% MSCI EM (net), 5% MSCI World (Net), 14% BB U.S. Aggregate, 8% BB U.S. Credit Index, 3% JPM GBI-EM Global Diversified TR, 4% BB U.S. TIPS, 5.8% MSCI AC World Index (Net), 3.2% BB U.S. Aggregate, 4% HFRI Fund of Funds Composite Index, 6% NCREIF - ODCE NET, 1% CPI + 4 %, 1% BB U.S. Corp High Yield + 150 bps, 6% ThomsonOne All Regions PE , 2% 90 Day U.S. Treasury Bill ** Investment Metrics Public Plan Universe > $1B 26.5% 22.0% 26.8% POLICY INDEX PUBLIC FUNDS** 1 YEAR 3 YEARS 5 YEARS 10 YEARS 17 40.9% 50.7% 11.3% 19.4% 13.0% 18.1% 45.7%44.2% 17.2%18.7%17.9%17.9% 13.7%14.7% DOMESTIC EQUITY(NET OF FEES) RU S S E L L 3 0 0 0 I N D E X DO M E S T I C E Q U I T Y INTERNATIONAL EQUITY (NET OF FEES) GLOBAL EQUITY(NET OF FEES)EMERGING MARKET EQUITY(NET OF FEES) EM E R G I N G M A R K E T E Q U I T Y MS C I E M E R G I N G M A R K E T I N D E X ( N E T ) 42.6% 35.7% 13.0% 11.1% 7.6% 5.4% 9.4% 14.0% IN T E R N A T I O N A L E Q U A L I T Y MS C I A C W I E X U S I N D E X ( N E T ) 39.3%38.8% GL O B A L E Q U I T Y MS C I A C W I I N D E X ( N E T ) 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 1 YEAR 18 19 6.6% 8.5% 4.1% 5.0% 3.2% 4.2% 3.9% -0.3% 5.9% 4.5%4.2% 3.4% 5.3% 3.0% Note: All investment performance figures were calculated using time-weighted rate of return based on market values. Custom benchmark members have changed over time. *** 65% MSCI (NET) / 35% BB Aggregate ^ 100% NCREIF ODCE REAL ESTATE(NET OF FEES) PERFORMANCE FOR THE PERIODS ENDING JUNE 30, 2021 DOMESTIC FIXED INCOME(NET OF FEES)EMERGING MARKET FIXED INCOME(NET OF FEES) MULTI-ASSET CLASS SOLUTIONS(NET OF FEES) FI X E D I N C O M E EM E R G I N G M A R K E T F I X E D I N C O M E JP M G B I E M L O C A L D E B T I N D E X 22.1% 15.4% 9.5%8.9%9.0% 8.0% 6.3%6.0% MU L T I - A S S E T C L A S S S O L U T I O N S BE N C H M A R K * * * 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS BL O O M B E R G B A R C L A Y S A G G R E G A T E I N D E X 7.0%7.1% 5.6%5.8% 8.2%8.1% 6.0%5.8% RE A L E S T A T E BE N C H M A R K ^ THROUGH EVERY SEASON, ERFC IS THE RETIREMENT PEACE OF MIND YOU CAN COUNT ON FOR THE FISCAL YEAR ENDED JUNE 30, 2021 THE EDUCATIONAL EMPLOYEES’ SUPPLEMENTARY RETIREMENT SYSTEM OF FAIRFAX COUNTY A COMPONENT UNIT OF FAIRFAX COUNTY PUBLIC SCHOOLS FAIRFAX, VIRGINIA CALL 703-426-3900 1-844-758-3793 FAX 703-426-3984 EMAIL erfcoffice@fcps.edu WEB www.fcps.edu/erfc www.fcps.edu/erfcdirect LOCATION 8001 Forbes Place, Suite 300 Springfield, VA 22151-2205 Office Hours M-F 8 AM—4:30 PM KNOW YOUR PLAN OTHER RESOURCES DO IT YOURSELF WITH ERFCDIRECT 24/7 • Run retirement benefit estimates • Keep your personal information up-to-date • Check your member statement annually • and much more... www.fcps.edu/erfcdirect FCPS HUMAN RESOURCES Search Human Resources on fcps.edu 571-423-3000 | 804-649-8059 FCPS EMPLOYEE ASSISTANCE PROGRAM (EAP) Financial Specialist Services Search EAP on fcps.edu 855-355-9097 VRS www.varetire.org 888-827-3847 | 800-333-1633 SOCIAL SECURITY www.ssa.gov 800-772-1213 MEDICARE www.medicare.gov 800-633-4227