HomeMy WebLinkAboutSacramento County Employees' Retirement System - Public Financial Report2021
POPULAR ANNUALFINANCIAL REPORT
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
Sacramento, California
Sacramento County Employees’ Retirement System
TABLE OF CONTENTS AWARD: GFOA CERTIFICATE
Government Finance Officers Association
Award for Outstanding Achievement in Popular Annual Financial Reporting
Presented to
Sacramento County Employees
Retirement System
California
For its Annual Financial Report
for the Fiscal Year Ended 2020
Executive Director/CEO
Message from the
Chief Executive Officer . . . . . . . . 3
Financial Summary . . . . . . . . . .4
Funding Ratios . . . . . . . . . . . . .8
Investments . . . . . . . . . . . . . . .9
Members . . . . . . . . . . . . . . . . 11
SCERS Popular Annual Financial Report 2021 | 3
MESSAGE FROM THE CHIEF EXECUTIVE OFFICER
As Chief Executive Officer, I am pleased to issue the Popular Annual Financial Report
(PAFR) on behalf of the Sacramento County Employees’ Retirement System (SCERS
or the System). The PAFR provides insight into the organization’s services, financial
results, investments, and membership information. The financial data presented in
the PAFR is derived from SCERS’ Annual Comprehensive Financial Report (ACFR) as of
and for the fiscal years ended June 30, 2021 and 2020 and is presented in conformity
with Generally Accepted Accounting Principles. The ACFR provides more detailed
information and is available on SCERS’ website at www.scers.org.
SCERS remains focused on maintaining a sustainable pension program for the long term. At June 30, 2021,
SCERS was 96.8% funded at the fair value of assets totaling $12.5 billion, and the total pension liability
totaling $13 billion. The funded status represents the percentage of future pension benefits covered by the
System’s assets. In general terms, this funded ratio means that as of June 30, 2021, SCERS had approximately
97 cents available for each dollar of anticipated future liability.
For the fiscal year ended June 30, 2021, SCERS’ investments generated a 27.7% net return, or $2,969 million of
net investment income and administrative expenses totaled $9.2 million for the fiscal year. To our members,
this continued growth and cost containment allow SCERS to put more of its assets to work for you while
providing more efficient customer service.
The SCERS’ portfolio experienced a massive rally across almost all asset classes and segments, as the
financial markets and broader economy experienced a quicker than expected recovery from the depths of
the pandemic, and much quicker than the recovery from the pandemic itself.
During the fiscal year, SCERS also conducted an asset liability modeling study that resulted in modest
revisions to the strategic asset allocation, and which was approved by the SCERS Board in August 2021.
The revised asset allocation maintains a risk-balanced approach that emphasizes having enough return-
generating assets to drive performance toward the actuarial rate of return, while also maintaining enough
uncorrelated/diversifying, cash-flowing, and inflation-sensitive assets to reduce downside risk.
Respectfully submitted,
Eric Stern
Chief Executive Officer
4 | SCERS Popular Annual Financial Report 2021
FINANCIAL SUMMARY
(Dollar Amounts Expressed in Millions)
Net position restricted for pension benefits (net position) represents the accumulation of assets that exceed
liabilities, which are available to meet SCERS’ obligations to plan participants and beneficiaries.
The following table presents the statement of fiduciary net position:
STATEMENT OF FIDUCIARY NET POSITION
As of June 30
2021 2020
Increase/
(Decrease)% Change
Assets
Cash and short-term investments $436 .2 $420 .4 $15 .8 3 .8%
Receivables 255 .1 161 .7 93 .4 57 .8
Investments 12,346 .8 9,573 .0 2,773 .8 29 .0
Securities lending collateral 400 .3 215 .2 185 .1 86 .0
Other assets 0 .4 0 .4 - -
Capital assets, net 13 .9 10 .6 3 .3 31 .1
Total assets 13,452 .7 10,381 .3 3,071 .4 29 .6
Liabilities
Other liabilities 37 .2 14 .5 22 .7 156 .6
Investment purchases and other 459 .1 176 .3 282 .8 160 .4
Securities lending obligation 392 .3 211 .1 181 .2 85 .8
Total liabilities 888 .6 401 .9 486 .7 121 .1
Net position restricted for pension benefits $12,564.1 $9,979.4 $2,584.7 25.9%
As of June 30, 2021, the net position restricted for pension benefits totaled $12,564.1 million, which
represented an increase of $2,584.7 million, or 25.9%, from the $9,979.4 million in net position as of
June 30, 2020. The increase in net position was primarily due to investment earnings offset to some degree
by the benefits and expenses paid during the year exceeding the contributions received.
The following table presents a reserve summary for the fiscal years ended June 30, 2021 and 2020:
2021 2020
Member reserve $1,010 .3 $984 .5
Employer reserve 3,108 .9 3,093 .0
Retiree and death benefit reserves 6,486 .1 6,008 .3
Contingency reserve 324 .2 144 .0
Total allocated reserves and designations 10,929 .5 10,229 .8
Market stabilization reserve 1,634 .6 (250 .4)
Net position restricted for pension benefits $12,564.1 $9,979.4
FINANCIAL SUMMARY
(Dollar Amounts Expressed in Millions)
SCERS Popular Annual Financial Report 2021 | 5
FINANCIAL SUMMARY (CONTINUED)
(Dollar Amounts Expressed in Millions)
The following table presents the statement of changes in fiduciary net position:
STATEMENT OF CHANGES IN FIDUCIARY NET POSITION
For the Fiscal Years Ended June 30
2021 2020
Increase/
(Decrease)% Change
Additions
Member contributions $120 .6 $126 .4 ($5 .8)(4 .6)%
Employer contributions 295 .3 276 .2 19 .1 6 .9
Investment income 2,969 .0 371 .6 2,597 .4 699 .0
Net securities lending income 1 .4 1 .2 0 .2 16 .7
Investment fees and expenses (217 .1)(71 .4) 145 .7 204 .1
Other income 3 .1 2 .9 0 .2 6 .9
Health Premiums Collected from Members and
Employers 32 .4 0 .0 32 .4 N/A
Total additions 3,204 .7 706 .9 2,497 .8 353 .3
Deductions
Benefits paid 575 .3 537 .7 37 .6 7 .0
Withdrawal of contributions 3 .1 3 .0 0 .1 3 .3
Administrative expenses 9 .2 8 .5 0 .7 8 .2
Health Premiums Remitted to Health Carriers 32 .4 - 32 .4 N/A
Total deductions 620 .0 549 .2 70 .8 12 .9
Increase in net position 2,584 .7 157 .7 2,427 .0 1,539 .0
Net position, beginning 9,979 .4 9,821 .7 157 .7 1 .6
Net position, ending $12,564.1 $9,979.4 $2,584.7 25.9%
FINANCIAL SUMMARY (CONTINUED)
(Dollar Amounts Expressed in Millions)
6 | SCERS Popular Annual Financial Report 2021
Member Contributions
Employer Contributions
Net Investment Income /(Loss)
Health Premiums Collected
Pension Benefits
Administrative Expenses
Withdrawals
Health Premiums Remitted
The largest source of income is from investment earnings. Historically, more than 60 percent of retirement
benefits have been funded by investment earnings. Annually SCERS establishes the contributions at
actuarially-determined rates, expressed as percentages of covered payroll, that together with investment
earnings are sufficient to accumulate adequate assets to pay benefits when due. The required member and
employer contribution rates vary depending on the member’s plan, tier, employer, and bargaining unit.
Additions by SourceFiscal Year Ended June 30, 2021
For fiscal year 2020-21, 86.0% of revenues
were from investment income,
9.2% were from employer contributions,
3.8% were from member contributions, and
1% were from health premiums collected.
Deductions by Type
Fiscal Year Ended June 30, 2021
For fiscal year 2020-21, 92.8% of the total
expenses were related to benefit payments,
1.5% were related to administrative expenses,
0.5% were member contribution refunds, and
5.2% were health premiums remitted.
FINANCIAL SUMMARY (CONTINUED)
(Dollar Amounts Expressed in Millions)
SCERS Popular Annual Financial Report 2021 | 7
FINANCIAL SUMMARY (CONTINUED)
(Dollar Amounts Expressed in Millions)
SCERS' expenses include service and disability retirement benefits, death benefits, refunds to members, and
the cost to administer the System. Total expenses for the fiscal year ended 2020-21 equaled $620 million, or
12.9% increase compared to the prior year.
Investment Income/(Loss), Contributions, and Pension Benefits Fiscal Years Ended June 30
Since fiscal year 2011-12, benefit payments have been higher than the total member and employer
contributions, and the gap between benefit payments and contributions continued to widen. This is
partly due to the shift in population of active and retired members, a dynamic that is common in mature
retirement systems. Active members increased slightly from 12,155 in fiscal year 2011-12 to 12,500 in
fiscal year 2020-21, while the number of retired members increased from 9,239 to 13,051 during the same
period.
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Net Investment Income/(Loss)($3.4)$785.5 $1,107.2 $158.2 $(72.4)$1,048.9 $844.5 $675.8 $304.3 $2,756.4
Total Contributions $244.8 $257.9 $268.1 $291.1 $286.5 $293.4 $298.4 $407.4 $402.6 $415.9
Pension Benefits $298.8 $320.8 $344.9 $372.4 $403.3 $429.8 $465.3 $502.9 $537.7 $575.3
($300.0)
($100.0)
$100.0
$300.0
$500.0
$700.0
$900.0
$1,100.0
$1,300.0
$1,500.0
$1,700.0
$1,900.0
$2,100.0
$2,300.0
$2,500.0
$2,700.0
$2,900.0
8 | SCERS Popular Annual Financial Report 2021
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Actuarial Value of Assets Actuarial Accrued Liability Market Value of Assets
FUNDING RATIOS
(Dollar Amounts Expressed in Millions)
FUNDED STATUS
SCERS’ funded status is a key indicator of its financial health. It reflects the percentage of promised
benefits that SCERS has assets to pay all current and projected future benefits (Actuarial Accrued Liability
or AAL) as of a specific date in time.
SCERS’ overall funding objective is to meet long-term promised benefits by maintaining a well-funded
plan through a combination of investment returns and member and employer contributions, which are
both minimized and maintained as level as possible for each generation of active members. SCERS retains
an independent actuarial firm to perform an annual actuarial valuation to determine the funded status
of the System. One purpose of the valuation is to determine the future contributions that will be needed
from the members and participating employers to pay all expected future benefits. To help reduce
year-to-year volatility in employer contribution rates due to fluctuations in investment performance,
SCERS employs a smoothing approach, which recognizes any fair value of investment returns that are
above or below the assumed investment rate of return over a seven-year period. This not only stabilizes
contribution rates, but also improves the ability of an employer to plan for possible future increases or
decreases in pension costs.
One approach to determine funded status is based on actuarial value of assets (AVA). Under this approach,
the independent actuary determines the actuarial value of SCERS’ assets using a smoothing technique
that recognizes investment gains and losses over a seven-year period. On an AVA basis, the funded ratio
increased from 80.6% in 2020 to 82.1% as of June 30, 2021. Another approach to determine funded status
is based on the fair value of assets (MVA). On a MVA basis, the funded ratio increased from 78.6% in 2020 to
96.8% as of June 30, 2021.
As of June 30
Total Pension Liability
Actuarial Value of Assets (AVA)
Funded Ratio on an AVA Basis
Market Value of Assets (MVA)
Funded Ratio on an MVA Basis
2021 $12,985 .5 $10,929 .5 82 .1%$12,564 .1 96 .8%
2020 12,693 .6 10,229 .8 80 .6 9,979 .4 78 .6%
Funded Status
As of June 30
SCERS Popular Annual Financial Report 2021 | 9
INVESTMENTS
ASSET ALLOCATION
SCERS’ investment program is structured around a strategic asset allocation model established by SCERS’
Board of Retirement with the assistance of SCERS’ investment staff, general investment consultant,
alternative assets consultant, and real estate consultant. The objective of the asset allocation model is to
ensure the diversification of investments in a manner that generates a desired rate of investment return
with an acceptable level of investment risk. Below are SCERS’ target and actual asset allocations as of
June 30, 2021.
Target Asset Allocation
As of June 30, 2021
Actual Asset Allocation
As of June 30, 2021
Fixed Income20.0%
Real Assets7.0%
Real Estate7.0%
Absolute Return10.0%
Private Credit4.0%Private Equity9.0%
Cash
1.0%
US Equity20.0%
International Equity20.0%
Liquid Real Return2.0%
Target Asset Allocation
As of June 30, 2021
Fixed Income19.0%
Real Assets7.5%
Real Estate6.9%
Absolute Return8.7%
Private Credit2.1%Private Equity12.8%
Cash0.8%
Equity42.2%
Actual Asset Allocation
As of June 30, 2021
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
SCERS 0.2%12.8%16.6%2.5%-0.6%13.7%10.1%7.2%2.9%27.9%
Benchmark 1 1.5%10.9%15.6%3.2%1.5%11.7%8.2%6.3%1.5%24.4%
10 | SCERS Popular Annual Financial Report 2021
INVESTMENTS (CONTINUED)
INVESTMENT PERFORMANCE
SCERS' assets under management was at $12.4 billion as of June 30, 2021. For the fiscal year ended
June 30, 2021, the total fund return, gross of fees was 27.9%, as shown below. The total fund return for
fiscal year June 30, 2021, net of fees, of 27.7% was 3.3% higher than the return of the investment policy
benchmark of 24.4% and exceeded SCERS’ 6.75% actuarial rate of return. During fiscal year 2020-21,
investments with the strongest returns came from the Private Equity, Domestic Equity, and International
Equity asset classes. The fiscal year return represents a remarkable rebound from the COVID-19 related
market volatility during SCERS’ last fiscal year. Below is SCERS’ total portfolio actual return compared to
benchmarks for the past 10 years.
Total Portfolio Returns and Benchmarks
Fiscal Years Ended June 30
1 From 7/1/2019 to 6/30/2021, the Policy Index benchmark consists of 10% BBgBarc Aggregate, 5% BBgBarc US Treasury, 1% ICE
BofA ML High Yield II, 2 .5% Cambridge Associates Private Energy 1 Qtr Lag, 3 .2% Cambridge Associates Private Infrastructure
1 Qtr Lag, 2 .4% FTSE WGBI exUS Unhedged, 1% Credit Suisse Leverage Loans, 4% Credit Suisse Leverage Loans +2% 1 Qtr Lag,
0 .6% JPM GBI EM Diversified, 3% HFRI FoF Composite Index + 1%, 7% HFRI FoF Conservative Index, 20% MSCI ACWI ex US, 4 .6%
NFI-ODCE, 2 .5% NFI-ODCE net +1% 1Q Lag, 0 .7% NCREIF Farmland 1 Qtr Lag, 0 .7% NCREIF Timberland Index Lagged, 20% Russell
3000, 9% Thomson Reuters C|A All PE 1 Qtr Lag, 0 .2% Bloomberg Roll Select Commodity Total Return, 0 .2% Bloomberg Barclays
U .S . Floating Rate Note <5 Yr, 0 .2% S&P Global LargeMidCap Commodity and Resources, 0 .5% S&P Global Infrastructure Index -
Net of Tax on Dividend, 0 .6% Bloomberg Barclays U .S . Government Inflation-Linked 1-10 Yrs, 0 .3% FTSE EPRA Nareit Developed
Liquid Index, and 1% ICE LIBOR Spot/Next Overnight USD .
From 7/1/2017 to 6/30/2019, the Policy Index benchmark consists of 10% BBgBarc Aggregate, 5% BBgBarc US Treasury, 1%
ICE BofA ML High Yield II, 2% Bloomberg Commodity, 2 .5% Cambridge Associates Private Energy 1 Qtr Lag, 3 .2% Cambridge
Associates Private Infrastructure 1 Qtr Lag, 2 .4% FTSE WBGI ex US Unhedged, 1% Credit Suisse Leverage Loans, 4% Credit Suisse
Leverage Loans +2%, 0 .6% JPM GBI EM Diversified, 3% HFRI FoF Composite Index + 1%, 7% HFRI FoF Conservative Index, 20%
MSCI ACWI ex US, 4 .6% NFI-ODCE, 2 .5% NFI-ODCE net +1% 1Q Lag, 0 .7% NCREIF Farmland 1 Qtr Lag, 0 .7% Timberland Index
Lagged, 21% Russell 3000, and 9% Thomson Reuters C|A All PE 1 Qtr Lag .
From 4/1/2017 to 6/30/2017, the Policy Index benchmark consists of 10% 91-day UST Bill +5% (AR), 10% BBgBarc Aggregate, 5% BBgBarc US Treasury, 1% ICE BofA ML High Yield II, 2% Bloomberg Commodity, 2 .4% FTSE WGBI ex US Unhedged, 7% CPI-U +5% (PRA), 1% Credit Suisse Leverage Loans, 4% Credit Suisse Leverage Loans +2%, 0 .6% JPM GBI EM Diversified, 20% MSCI ACWI ex US, 7% NCREIF, 21% Russell 3000, and 9% Thomson Reuters C|A All PE 1 Qtr Lag .
From 1/1/2014 to 3/31/2017, the Policy Index benchmark consists of 10% 91-day UST Bill +5% (AR), 15% BBgBarc Aggregate, 1% ICE BofA ML High Yield II, 2 .4% FTSE WGBI ex US Unhedged, 15% CPI-U +5% (PRA), 1% Credit Suisse Leverage Loans, 0 .6% JPM GBI EM Diversified, 22 .5% MSCI ACWI ex U .S ., 10% Russell 1000 +3% 12QL (PE), and 22 .5% Russell 3000 .
SCERS Popular Annual Financial Report 2021 | 11
SYSTEM MEMBERSHIP
SCERS’ active members include permanent full-time and part-time employees of the County of Sacramento
(and its Elected Officials); Superior Court of California (County of Sacramento); and nine Special Districts.
As of June 30, 2021, SCERS had 12,500 active members, 13,051 retired members and 4,054 terminated
members.
Membership
As of June 30, 2021
Membership
As of Fiscal Years Ended June 30
Active
Retiree/Beneficiary
Terminated
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Active 12,155 12,026 12,049 12,072 12,393 12,587 12,677 12,678 12,650 12,500
Retiree/Beneficiary 9,239 9,634 10,049 10,541 10,960 11,396 11,883 12,381 12,732 13,051
Terminated 2,851 3,249 3,201 3,261 3,301 3,425 3,509 3,602 3,791 4,054
MEMBERS
12 | SCERS Popular Annual Financial Report 2021
ACTIVE MEMBERS
Active Members
As of June 30 2021 2020
Average Age 45.6 45.7
Average Years of Service 11.8 11.9
Average Annual Salary $86,557 $84,625
Active Members 12,500 12,650
Distribution of Active Members
By Age
As of June 30, 2021
• The youngest member was 19 .5 years old .• The oldest member was 87 .1 years old .
Distribution of Active Members
By Years of Service
As of June 30, 2021
• The member with the longest service had 48 .9 years of service .
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Under 30 30 - 34 35 - 39 40 - 44 45 - 49 50 - 54 55 - 59 60 - 64 65 - 69 70 +
1,061
1,497 1,594
1,813
1,948
1,749
1,516
936
312
74
Nu
m
b
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r
o
f
A
c
t
i
v
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M
e
m
b
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r
s
Age
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0-4 5-9 10-14 15 - 19 20 - 24 25 - 29 30 - 34 35 - 39 40 +
3,928
2,301
1,534
2,150
1,575
601
321
75 15
Nu
m
b
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A
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M
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Years of Service
MEMBERS (CONTINUED)
Age
Nu
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b
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f
A
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M
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Nu
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Years of Service
SCERS Popular Annual Financial Report 2021 | 13
BENEFIT RECIPIENTS
Benefit Recipients
As of June 30 2021 2020
Average Age 70.2 70.1
Average Years of Service 19.5 19.5
Average Monthly Benefit $3,768 $3,658
Total Benefit Recipients 13,051 12,732
Distribution of Benefit Recipients
By Age
As of June 30, 2021
• The oldest benefit recipient was 105 .5 years old .
0
500
1000
1500
2000
2500
3000
Under 45 45 - 49 50 - 54 55 - 59 60 - 64 65 - 69 70 - 74 75 - 79 80 - 84 85 - 89 90 +
46 66
532
1,120
1,911
2,506
2,759
1,957
1,106
631
417
Nu
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R
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Age
MEMBERS (CONTINUED)
Nu
m
b
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f
R
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p
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t
s
Type of Retirement
As of June 30 2021 2020
Service 10,599 10,313
Disability 704 699
Beneficiaries 1,748 1,720
Total 13,051 12,732
Age
14 | SCERS Popular Annual Financial Report 2021
Distribution of Benefit Recipients
By Average Monthly Benefit Payments and Years of Service
As of June 30, 2021
• The longest benefit payment to a retiree with continuance survivor was 59 .7 years .• 64% of retired members had 15 or more years of service .• The lowest monthly benefit payment to a recipient was $3 and the highest was $21,830 .
0
500
1,000
1,500
2,000
2,500
0-5 5-10 10-15 15-20 20-25 25-30 30+
$656
$1,320
$1,876
$2,767 $4,189 $6,122 $6,971
Nu
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Years of Service and Average Monthly Benefit Payments
MEMBERS (CONTINUED)
Years of Service and Average Monthly Benefit Payments
Nu
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SACRAMENTO COUNTY
EMPLOYEES’ RETIREMENT SYSTEM
980 9th Street, Suite 1900
Sacramento, CA 95814
www.SCERS.org
Rev 02-2022