HomeMy WebLinkAboutEmployees' Retirement System of the City of Norfolk - Public Financial ReportPopular Annual Financial Report
City of Norfolk Employees’ Retfrement System
For The Fiscal Year Ending June 30, 2021
Norfolk, Virginia
Norfolk Employees’ Retfrement System
810 Union Street, Suite 309 Norfolk, VA 23510 www.norfolk.gov/retfrement (757) 664-4738
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● Message To Our Readers
● System History
● Financial Statements
● Expenses
● Membership Snapshot
● Closure of NERS
● Funded Status
● Investments
● System Membership
● Contributfons
● Benefits and Services
● Contactfng NERS
This Popular Annual Financial Report (PAFR) is derived from informatfon contained in
the Norfolk Employees’ Retfrement System's (NERS or the System) fiscal year 2021
Annual Comprehensive Financial Report (ACFR). The ACFR was prepared in accordance
with Generally Accepted Accountfng Principles (GAAP), but the PAFR includes only
selected informatfon from the ACFR. The PAFR has been email blasted through a press
release and is available on our website at www.norfolk.gov/retfrement. For a detailed
copy of our ACFR, please visit our website at www.norfolk.gov/retfrement.
2020 Award for Outstanding Achievement — For the first tfme, NERS submitted and
received the GFOA Award for Outstanding Achievement in Popular Annual Financial
Reportfng (PAFR) for its fiscal year ended June 30, 2020. This award is a prestfgious
natfonal award recognizing conformance with the highest standards of creatfvity,
presentatfon, understandability and reader appeal for preparatfon of governmental
popular reports.
RESPONSIBLE FINANCIAL REPORTING
WHAT IS INSIDE
Norfolk Employees’ Retfrement System
810 Union Street, Suite 309 Norfolk, VA 23510 www.norfolk.gov/retfrement (757) 664-4738
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The Norfolk Employees’ Retfrement System (NERS) contfnues to honor its members’
public service by delivering secure retfrement benefits to its members. The retfrement
staff is dedicated to serving all of our actfve members, retfrees, and beneficiaries
through sound financial stewardship and superior customer service.
We would like to extend our thanks to the Board of Trustees, who work diligently to
keep NERS fiscally strong. This vigilance means NERS will also contfnue to serve as an
economic driver through retfree spending, as a recruitment tool for a quality public
workforce, and in helping our retfrees maintain financial self-sufficiency as they grow
older.
Following a comprehensive review of NERS, City Council adopted a resolutfon on May
11, 2021, statfng the City's intent to reform its pension system by closing the NERS
defined benefit plan to new enrollees (both general and sworn public safety
employees) and requiring partfcipatfon in the Virginia Retfrement System (VRS)
effectfve January 1, 2022. For a period of one year, the City will allow currently
employed NERS members the ability to select partfcipatfon in VRS or to remain in NERS.
In the coming year, NERS will mark a historic milestone: January 1, 2022, is our 80th
anniversary. This significant milestone is a chance to reflect on the importance of our
mission and the positfve impact the System has had on generatfons of Norfolk
employees, as well as to prepare for the future legacy of NERS and the delivery of
services to members.
Sincerely,
Norfolk Employees’ Retirement System
MESSAGE TO OUR READERS
Norfolk Employees’ Retfrement System
810 Union Street, Suite 309 Norfolk, VA 23510 www.norfolk.gov/retfrement (757) 664-4738
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The System operates a defined benefit pension plan
(the Plan) that was established by Sectfon 37 of the
Code of the City of Norfolk, Virginia (the Code), and
began operatfons as of January 1, 1942. Sectfon 37 of
the Code, as amended from tfme to tfme, also
establishes the City of Norfolk’s obligatfon to contribute
to the System. A single fund is used for all partfcipants,
and there is no segregatfon of assets for individual
classes of employees or for City and employee
contributfons.
Defined benefit plans provide recipients a retfrement
income for as long as they live. This differs from defined
contributfon plans, such as 401(k)s, where a recipient
can outlive accumulated savings.
NERS is funded through a combinatfon of member
contributfons, employer (City of Norfolk) contributfons
and investment earnings. Effectfve January 8, 2015, all
System members pay contributfons of five (5) percent of
earnable compensatfon, except for City Council
members hired before October 5, 2010. Upon vestfng,
member contributfons become an asset of the System
to be used to pay benefits under the System. In the
event of death or departure prior to vestfng, member
contributfons, including accrued interest, shall be
refunded. Interest accrued at the rate of 0.38 percent
during the fiscal year ended June 30, 2021.
SYSTEM HISTORY
Norfolk Employees’ Retfrement System
810 Union Street, Suite 309 Norfolk, VA 23510 www.norfolk.gov/retfrement (757) 664-4738
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FINANCIAL STATEMENTS
NERS management is responsible for the preparatfon and fair presentatfon of the
financial statements. CliftonLarsonAllen LLP performed an independent audit of such
financial statements and expressed an unmodified opinion thereon.
The statement of fiduciary net positfon presents the System’s assets and liabilitfes
and the net positfon restricted for pensions at June 30, 2021. The assets comprise
cash and cash equivalents, receivables, mainly from investments sold and the fair
value of investments. Liabilitfes are comprised of payables, which are mainly for
management fees and administratfve expenses.
System assets were greater than liabilitfes by $1.389 billion in fiscal year 2021 as
compared to $1.044 billion in 2020, which is identffied in the Summary of Plan
Fiduciary Net Positfon table below. Total System assets are held in trust to pay future
benefits.
The System’s funding objectfve is to meet long-term benefit obligatfons through
contributfons and investment income. The net positfon as a percentage of the total
pension liability was 90.6 percent and 77.4 percent, at June 30, 2021 and June 30,
2020, respectfvely.
Employees' Retirement System of the City of Norfolk
Summary of Plan Fiduciary Net Position
For the Fiscal Years Ended June 30, 2021 and 2020
2021 2020 %
In ‘000 $ In ‘000 $ Variance
ASSETS
Cash and cash equivalents $37,958 $5,972 535.6%
Receivables 43,015 73,573 -41.5%
Investments 1,406,545 1,101,052 27.7%
Total Assets 1,487,518 1,180,597 26.0%
LIABILITIES
Accounts payable and accrued expenses 2,112 2,284 -7.5%
Due to brokers for securitfes purchased 96,537 134,223 -28.1%
Total Liabilities 98,649 136,507 -27.7%
Plan Net Position Restricted for Pensions $1,388,869 $1,044,090 33.0%
Norfolk Employees’ Retfrement System
810 Union Street, Suite 309 Norfolk, VA 23510 www.norfolk.gov/retfrement (757) 664-4738
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Total additfons increased over the prior year by $387 million or approximately 710
percent. The increase was intensified by the significant growth of investment
income and a nearly additfonal $120 million contributed by the City of Norfolk from
the proceeds generated by the issuance of General Obligatfon Bonds.
Total deductfons increased over the prior year by $1.6 million or approximately 1.7
percent. The increase primarily reflects a rise in benefit payments.
FINANCIAL STATEMENTS
EXTRA EXPLANATIONS:
Plan Net Position: Reflects the balance of resources available to pay benefits at the end of the fiscal year.
Changes in Plan Net Position: Reflects the changes in resources available to pay benefits during the fiscal
year.
Employees' Retirement System of the City of Norfolk
Summary of Changes in Plan Fiduciary Net Position
For the Fiscal Years Ended June 30, 2021 and 2020
2021 2020 %
In ‘000 $ In ‘000 $ Variance
ADDITIONS
Investment Income, net $270,352 $5,736 4,613.2%
Employer Contributfons 160,252 38,494 316.3%
Employee Contributfons 9,712 9,838 -1.3%
Other Income 655 372 76.1%
Total Additions 440,971 54,440 710.0%
DEDUCTIONS
Benefit Payments 94,649 93,078 1.7%
Refunds of Contributfons 923 920 0.3%
Administratfve Expenses 620 600 3.3%
Total Deductions 96,192 94,598 1.7%
Net Increase (Decrease) $344,779 ($40,158) 958.6%
Plan Net Position Restricted for Pensions
Beginning of the Year $1,044,090 $1,084,248 -3.7%
End of the Year $1,388,869 $1,044,090 33.0%
Norfolk Employees’ Retfrement System
810 Union Street, Suite 309 Norfolk, VA 23510 www.norfolk.gov/retfrement (757) 664-4738
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FINANCIAL STATEMENTS
Fiduciary Net Position for the Past Five Years
(As of June 30)
(in ‘000 $)
Income
(As of June 30, 2021)
(in ‘000 $)
Funded Ratio
(As of June 30, 2021)
Norfolk Employees’ Retfrement System
810 Union Street, Suite 309 Norfolk, VA 23510 www.norfolk.gov/retfrement (757) 664-4738
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EXPENSES
Administrative Expenses
(As of June 30, 2021)
(in ‘000 $)
Pension Benefit Expenses
(As of June 30, 2021)
(in ‘000 $)
Norfolk Employees’ Retfrement System
810 Union Street, Suite 309 Norfolk, VA 23510 www.norfolk.gov/retfrement (757) 664-4738
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Following a comprehensive review of the current pension landscape and available
optfons to ensure the long-term financial health and sustainability of both the City and
NERS, on May 13, 2021, City Council enacted an ordinance closing NERS as of January
1, 2022. As of that date, all new hires, both general and sworn public safety
employees, will partfcipate in VRS. It is expected that required contributfons to NERS
will grow over the next ten years or less by between $5 and $10 million, as a result of
the closure of NERS to new hires. Actual cost estfmates will not be known untfl the
next valuatfon report and will be subject to change based on actual System experience.
Membership in NERS is mandatory for all full-tfme
employees. NERS serves nearly 9,500 actfve and
retfred members, including beneficiaries. The types of
employees covered by the System consists of retfrees
and beneficiaries, vested former members entftled to
but not yet receiving benefits, and actfve plan
members. On June 30, 2021, the membership
consisted of 4,272 retfrees and beneficiaries, 3,741
actfve members and 1,440 vested former members.
MEMBERSHIP SNAPSHOT
CLOSURE OF NERS
Plan Membership
For the Fiscal Years Ended June 30, 2021 and 2020
2021 2020
Retfrees and Beneficiaries Receiving Benefits 4,272 4,212
Vested Former Members Entftled to but Not Receiving Benefits 1,440 1,364
Actfve Plan Members 3,741 4,171
Total 9,453 9,747
Norfolk Employees’ Retfrement System
810 Union Street, Suite 309 Norfolk, VA 23510 www.norfolk.gov/retfrement (757) 664-4738
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FUNDED STATUS
One measure of a pension fund’s health is its funded status. To determine the funded status,
we compare the assets available to the benefits we must pay. One factor to keep in mind is
that all benefits the System is obligated to pay are not due and payable immediately. The
amount contributed to the System is a percentage of the salaries earned by members. Using
this methodology, members and employers each pay for retfrement service accrued by actfve
members in any given year. To ensure responsible financing of benefits, NERS is constantly
evaluatfng the System’s assets relatfve to the value of the System’s liabilitfes. The System
receives an annual actuarial valuatfon indicatfng the contributfon rates required to fund the
System on an actuarial basis, and the City makes the contributfons in accordance with that
report.
The System’s funding is depicted in the graphic below with fiscal year 2021 informatfon.
$270.4 million (25.95%)
$160.2 million*
$10.4 million
$0.6 million $95.6 million
Actuarial Liability
$1,431.5 mil
Actuarial Value of
Assets
$1,297.1 mil
Market Value of
Assets
$1,388.9 mil
*Includes $119.6 million from proceeds generated by the City’s issuance of General Obligatfon Bonds
Norfolk Employees’ Retfrement System
810 Union Street, Suite 309 Norfolk, VA 23510 www.norfolk.gov/retfrement (757) 664-4738
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INVESTMENTS
Investment Summary (in '000 $)
Total Equity $ 779,941
Fixed Income 428,087
Real Estate 81,595
Master Limited Partnerships 100,706
Cash and Equivalents* 7
*excludes cash held by managers
Total $1,390,336
(Expressed in ‘000s)
Investment Summary
(As of June 30, 2021)
Asset Allocation Mix
(As of June 30, 2021)
The NERS investment program utflizes a prudent and diversified strategy to generate
long-term returns for members and beneficiaries, while also seeking to minimize
investment risk. The well-diversified investment portiolio that the System has
developed helps to strengthen control over both financial risk and better financial
returns.
The most significant factor influencing the risks and returns of the System’s investment
strategy is asset allocatfon. This is why the System strives for a diverse investment
portiolio. To establish the best long-term asset allocatfon strategy, the Board evaluates
risk and return for each major asset type, seen below. The Board routfnely reviews
market expectatfons and adjusts the allocatfon of assets accordingly, to create a well-
balanced portiolio that creates a stable foundatfon for the System. This ensures that
NERS investments are steady in the face of market volatflity and consistent with the
long-term financial targets.
The following charts show the asset allocatfon mix as of June 30, 2021.
Total Equity
56% Fixed Income
31%
Real Estate
6%
MLPs
7%
Cash
0%
Norfolk Employees’ Retfrement System
810 Union Street, Suite 309 Norfolk, VA 23510 www.norfolk.gov/retfrement (757) 664-4738
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INVESTMENTS
Fiscal year 2021 experienced significant positfve performance across the global markets
considering improving economic conditfons. The U.S. economy contfnues to recover as
widespread vaccine distributfon has resulted in the reopening of many state and local
economies. The recent rise in demand for goods and services has resulted in strong
inflatfonary pressures.
The U.S. labor market contfnues to recover as evidenced by the decline in the
unemployment rate. Recently, several states have moved to reduce or eliminate
additfonal unemployment benefits to incentfvize people to return to work. Overall,
wage growth has shown signs of acceleratfng as employers struggle to fill job openings.
Despite leaving interest rates unchanged at their most recent meetfng, the Federal
Reserve did change the language of its statement suggestfng that interest rates may rise
sooner than antfcipated.
The investment return results of each year are important to contfnue to provide
sufficient income for benefit payments. Consider that NERS must provide
approximately $8 million in benefit payments each month. If investment income
cannot cover the benefit payments, NERS must use assets to pay benefits. This sell-off
of assets limits future investment income and erodes the financial foundatfon. Years of
strong investment returns will strengthen the foundatfon — by making assets available
for investment.
This chart illustrates NERS’
portiolio performance over the
last five fiscal years. The
System’s fiscal year 2021 rate
of return is 25.85 percent
versus the long-term actuarial
objectfve of 7.0 percent.
Norfolk Employees’ Retfrement System
810 Union Street, Suite 309 Norfolk, VA 23510 www.norfolk.gov/retfrement (757) 664-4738
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SYSTEM MEMBERSHIP
The System is the administrator of a single-employer,
contributory, defined benefit plan that covers substantfally
all employees of the City of Norfolk, Virginia, excluding the
School Board and the Constftutfonal Officer employees
who are covered by the Virginia Retfrement System.
Active
Membership
by Type
(As of June 30, 2021)
Years of
Service at
Retirement
(As of June 30, 2021)
2021 2020
Retfrees and Beneficiaries 4,272 4,212
Vested Former Members 1,440 1,364
Actfve Plan Members 3,741 4,171
Total Plan Membership 9,453 9,747
Plan Membership (As of June 30)
Norfolk Employees’ Retfrement System
810 Union Street, Suite 309 Norfolk, VA 23510 www.norfolk.gov/retfrement (757) 664-4738
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BENEFITS AND SERVICES
Members are vested after five (5) years of service and are eligible for benefits at the
early or normal service retfrement date.
Normal service retfrement and early service retfrement benefits are available to
members who attain the age and/or service requirements.
The System provides retfrement benefits, as well as death and disability benefits.
Benefit Statements are provided to all actfve members on an annual basis.
Counseling is provided to all System partfcipants.
Presentatfons to introduce NERS to new employees are conducted during new
employee orientatfons.
CONTRIBUTIONS
Many factors influence the amount of the City’s required contributfon to NERS,
including, without limitatfon, inflatfonary factors, changes in statutory provisions of
NERS, changes in the level of benefits provided or the contributfon rates of the City,
increase or decrease in the number of covered employees, changes in actuarial
assumptfons or methods, and differences between actual and antfcipated investment
experience of NERS. Shown below are historical contributfons.
Total Annual Contributions (in ‘000 $)
Fiscal Year Employer Contributions Employee Contributions Total Annual
Contribution
2017 $33,457 $9,450 $42,907
2018 $35,494 $9,668 $45,162
2019 $37,079 $9,673 $46,752
2020 $38,494 $9,838 $48,332
2021 $160,252 $9,712 $169,964
Norfolk Employees’ Retfrement System
810 Union Street, Suite 309 Norfolk, VA 23510 www.norfolk.gov/retfrement (757) 664-4738
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CONTACTING NERS
The City of Norfolk Employees’ Retfrement System’s PAFR for fiscal year 2021 offers a
summary of informatfon presented in the fiscal year 2021 ACFR. The fiscal year 2021
ACFR provides detailed informatfon regarding the System’s investment performance
and funding, as well as detailed demographic informatfon for System members and
employees.
Please visit the City's website at www.norfolk.gov/retfrement to view the fiscal year
2021 ACFR for the City of Norfolk Employees’ Retfrement System. Comments,
questfons, or concerns? Please contact our office. We welcome all feedback.
Contacting the Retirement Office
Address: 810 Union Street, Suite 309 Norfolk, Virginia 23510
Office Hours: 8:30 AM – 5:00 PM Monday – Friday
Phone: (757) 664-4738 Fax: (757) 664-4098
Email: retfrement@norfolk.gov