2016 budget book - Ohio Police & Fire Pension Fund · the proposed Total Plan Assets and Annual...

2016

SECURING THE FUTUREFOR OHIO’S POLICE & FIREFIGHTERS

ANNUAL BUDGET JANUARY 1 THROUGH DECEMBER 31, 2016

ANNUAL BUDGET

THE OHIO POLICE & FIRE PENSION FUND

Annual Budget for Fiscal Year 2016Ohio Police & Fire Pension Fund

140 East Town Street • Columbus, Ohio 43215www.op–f.org • 888–864-8363

Prepared through the combined eff orts of the OP&F staff .

OP&F • page v

Annual Budget for Fiscal Year 2016 • TABLE OF CONTENTS

Executive SummaryDistinguished Budget Presentation Award 2014 ....................... viOP&F Mission, Vision and Core Values ..................................viBudget Message Letter from Executive Director ........................ 1

Budget Policy and TrendsOP&F Overview ................................................................................ 6Fund Policy ......................................................................................... 7Benefi t Funding Policy ..................................................................... 8Funding Administration .................................................................. 9Long-term Objectives .....................................................................10Reserve and Fund Balances ............................................................12Debt Obligations .............................................................................14Budget Financial Categories ..........................................................14Additions to Total Plan Assets ......................................................14Deductions from Total Plan Assets ..............................................17Budget Management and Other Planning Processes ...............18Budget Structure ..............................................................................21Budget Production, Preparation and Adoption ........................22Budget Oversight .............................................................................23Overview of Budget Process ..........................................................24Reserve and Fund Balances ............................................................25Funding Structure ............................................................................26

Total Plan Assets BudgetProjected Changes in Total Plan Assets Budget ........................28Total Plan Assets Budget Review ..................................................29Plan Additions ..................................................................................29Plan Deductions ...............................................................................32Statement of Changes in Total Net Plan Assets ........................34Total Plan Assets Budget Revenues by Category ......................36Total Plan Assets Budget Expenses by Category .......................36Employer and Member Contributions vs. Benefi ts Paid Chart ..36

Capital Outlay BudgetCapital Outlay Budget by Category ............................................38Capital Outlay Budget ....................................................................39Purpose of Separate Capital Budget ............................................39Priorities for 2016 ............................................................................39Depreciation Methods, Estimated Useful Lifes and Salvage Values..................................................................40Status of Capital Projects, New Initiatives for 2016 .................40Status of Capital Projects, Review of 2015 Initiatives..............44

Administrative Operating BudgetOP&F Organizational Chart ........................................................50Total Administrative Operating Budget .....................................51Total Administrative Operating Budget Review .......................52Budget Summary ..............................................................................54Operating Budget Highligts ..........................................................55Initiative Highlights ........................................................................55Personnel Highlights .......................................................................55Executive Summary of OP&F Budget ........................................56Administrative Operating Budget and Actual Comparison .....56Administrative Operating Summary Totals by Department .....56Personnel Position Changes ..........................................................56Position Summary by Department ...............................................56

Departmental Review TabsAdministration Department .........................................................58Finance Department .......................................................................64Busines and Technology Solutions Department .......................70Investment Department .................................................................76Member Services Department ......................................................86Board of Trustees .............................................................................92

Supplemental and Glossary of TermsActive and Retired Member Statistics. ........................................96Average Benefi t Payments ..............................................................97Revenues by Source .........................................................................97Expenses by Type .............................................................................98Number of Employer Units ...........................................................98Short-Term Solvency test ...............................................................99Contribution and Actuarial Interest Rate History .................100Demographics and Economic Impact .......................................101Glossary of Terms.. .........................................................................102

Table of Contents

OP&F • page vi

EXECUTIVE SUMMARY • Annual Budget for Fiscal Year 2016

Distinguished Budget Presentation Award 2015

OP&F’s Mission, Vision and Core Values

MissionSecuring the future for Ohio’s police and fi refi ghters.

VisionTh e Ohio Police & Fire Pension Fund will continue to be a leader and model among retirement systems, providing peace of mind to our members and a level of service that exceeds expectations.

Core ValuesPrudenceOP&F will make prudent decisions while delivering our benefi t services, selecting our investment strategies and executing our operational practices.

IntegrityTh e integrity of our organization is based on accuracy, credibility and ethical conduct at all times.

EmpathyOP&F will respond in an appropriate and timely manner with respect and honesty to all inquiries from every audience.

Th e Government Finance Offi cers Association of the United States and Canada (GFOA) presented a Distinguished Budget Presentation Award to Ohio Police & Fire Pension Fund (OP&F), for its annual budget for the fi scal year beginning January 1, 2015. In order to receive this award, a governmental unit must publish a budget document that meets program criteria as a policy document, as an operational guide, as a fi nancial plan and as a communications device.

Th is award is valid for a period of one year only. OP&F believes our current budget continues to conform to program requirements, and we are submitting it to GFOA to determine its eligibility for another award.

OP&F • page 1

Annual Budget for Fiscal Year 2016 • EXECUTIVE SUMMARY

Budget Message Letter from the Executive Director

November 18, 2015

Trustees of the Ohio Police & Fire Pension Fund (OP&F), I am pleased to submit for your review and approval the proposed Total Plan Assets and Annual Administrative Operating Budget for fi scal year 2016, along with the Capital Outlay Budget covering fi scal years 2016-2018.

As expected, our long-term funding outlook took a signifi cant step forward in 2015, as we have reached a funding period of 30-years and are now in compliance with Ohio law. Our investments appear headed toward another positive year of returns; however, we are likely to fall short of our assumed rate of return.

As in past years, we remain committed to a fi scally responsible budgeting approach. Our process examines each line item throughout the organization’s budget and scrutinizes expenses throughout our operation. It is important that our members and the Ohio’s elected offi cials are aware of these responsible and conservative spending practices.

Th e Administrative Operating Budget for 2016 is $66.0 million, which represents an increase of 0.8 percent from 2015. Th is includes routine operating costs and direct paid investment costs. Fortunately, we continue to benefi t from a steadily improving economy and generally positive investment environment.

Signifi cant decreases in the 2016 budget include the Total Investment Services line item, (down 0.8 percent, or $351,675), Actuarial Services (13.5 percent reduction, or $60,000) and Disability Medical Services (11.3 percent reduction, or $75,600).

Notable increases in the budget include money budgeted for Ohio Retirement Study Council (up $100,000 or 188.7 percent, primarily due to an actuarial audit that is scheduled), and the Health Care Consulting line item (up $225,000 or 900.0 percent due to the hiring of new consultants for long-range health care planning). Additionally, the Salary and Wages line item increased by 6.7 percent for 2016, or $605,910.

Other categories showing a noteworthy change from last year’s budget are the Other Professional Services line item (down 18.9 percent, or $59,800); Total Legal Services (down 7.8 percent, or $32,500); and Employee Training (down 14.8 percent, or $19,000).

OP&F’s 2016 operating costs are budgeted for $22.8 million, representing an increase of 4.2 percent from 2016. While containing costs as much as possible, the increase allows us to again improve services to our members and support OP&F’s commitment to its mission, vision and core values.

Based on trends observed in recent years and using an actuarial investment rate of return of 8.25 percent, OP&F is budgeting net assets to increase approximately $459.4 million in 2016. Our Capital Outlay Budget is $4.6 million for the three-year cycle from 2016-2018.

140 East Town Street / Columbus, Ohio 43215–5164 / Tel. (614) 228–2975 / www.op–f.org

OP&F • page 2


OP&F continues to see an increase in size of benefi ts paid out over the amount of contributions received. Changes resulting from 2012’s pension reform legislation have helped stem this trend, and will continue to do so over the long-term. As has been the trend, investment income is depended on to balance these payments versus receipts and is budgeted at $1.2 billion in 2016.

In 2016, OP&F is anticipating a 0.7 percent increase in total contributions over the 2015 actual forecast. Additionally, OP&F is anticipating benefi t payments of $1.4 billion versus the $760 million in contribution receipts.

A REVIEW OF 2015As described within this budget, OP&F again had several signifi cant accomplishments in 2015:

Comprehensive Compensation StudyIt is OP&F’s goal to complete a comprehensive compensation study about every fi ve years. With the last compensation for non-management staff occurring in 2010 and in 2011 for exempt staff , a study was completed during the 3rd quarter of 2015. Th is was a review of all benchmark positions and slotting for positions where relevant data is not available in the market. Th e vendor benchmarked jobs against Ohio retirement systems, other relevant public employers, private employers for extremely common jobs (accountant, business analyst, customer service, etc), and nationally for some of the executive-level jobs. Th e study determined that OP&F’s compensation structure and pay rates generally have kept up with the market.

Website search capabilityIn an eff ort to make the OP&F website more user-friendly, this initiative proposed to add search capabilities to op-f.org. Th e new capability allows users to type into a search box on any page on the website in order to locate information or fi les on a specifi c subject. With the expansion of the website to include a large number of documents, reports, forms and publications, this feature is needed to better manage the use of the site. Th e search capabilities are expected to be fi nalized on the website during the fourth quarter of 2015.

Restructure Reporting Lines of Customer Service GroupMember Services grew in 2015 by merging the Customer Service unit into the Member Services Department. As expected, alignment of these teams brought added effi ciency and expertise, improved communication and the streamlining of work. It also increased the headcount by eleven when Customer Service moved from the Administration team to the Member Services team.

Business and Technology Solutions initiativesTh e Business and Technology Solutions Department purchased and installed several tools that will enable OP&F to better manage the confi guration and monitoring of its internal systems.

Using the security assessment completed in 2014 as a guide, the Business and Technology Solutions Department spent considerable time and resources in 2015 to close gaps identifi ed in the assessment. A re-assessment of OP&F’s security was completed during the fourth quarter of 2015.

MS DynamicsTh e fi rst phase of the MS Dynamics AX (a replacement of the current fi nancial systems program) will be completed prior to the end of the year. MS Dynamics is scheduled to become the system of record in January 2016 aft er parallel testing is completed in December.

Budget Message Letter from the Executive Director

OP&F • page 3

Annual Budget for Fiscal Year 2016 • EXECUTIVE SUMMARY

LOOKING AHEAD TO 2016OP&F continues to strive to become the most effi cient and dynamic organization possible. In 2016 we will once again undertake a series of initiatives designed to position OP&F for future growth. Examples of 2016 initiatives are:

Health Care Consulting ServicesIn 2015, OP&F began the RFP process to identify a vendor who will assist OP&F in evaluating and selecting the best options available in the health care marketplace in light of the Patient Protection and Aff ordable Care Act of 2010. Th is project will continue into 2016 to help OP&F research and identify the best possible health care plan options for OP&F retirees, members’ dependents, survivors and employees. An amount of $250,000 has been budgeted for the overall project.

Member Services Position UpgradesTh e Senior Benefi t Calculations Specialist in the Member Services Department is recommended for a profi ciency promotion to Auditor. Th is change will raise the Auditor count to three in support of the new team structure. Th e promotion follows a natural growth path for the senior position and recognizes the employee for taking on more leadership assignments along with additional functions that have been delegated.

One of the Benefi t Calculators is recommended for a profi ciency promotion to include a senior designation. Th is will maintain two seniors within the new team structure. Th e promotion follows a natural growth path for the position and recognizes the quality of work performed by the employee along with the new higher level functions that will be delegated from others within the group.

OP&F is currently projecting a 2.85 percent return in 2015, below our 8.25 percent target return. We remain committed to sound investment principles and our team of consultants and staff continue to provide the Board with investment strategies and options in the best interests of our membership. Th e portfolio value currently stands at approximately $14.2 billion.

As was the case last year, this budget refl ects another full year of impact of the contribution and benefi t changes made in pension reform legislation. Th ese changes were well thought-out by fi rst the Board of Trustees and also by the Ohio General Assembly in craft ing Senate Bill 340 in 2012. Th e changes bring long-term fi nancial stability to OP&F, including achieving the state’s 30-year funding requirement.

Th e annual pension actuarial valuation completed by Buck Consultants, shows that our funding ratio as of January 1, 2015, is 70.8 percent based on the actuarial value of assets, an improvement over the 66.7 percent from the previous valuation. Additionally, the valuation shows a signifi cant improvement in OP&F’s funding period. Investment returns and the eff ect of pension reform legislation have moved the funding period from 33 years to 30 years, which is the level required by the state. Th e report confi rms that we continue to be able to meet our current and future pension obligations.

OP&F • page 4


2016 ADMINISTRATIVE OPERATING BUDGETTh e proposed budget for 2016 is $66.0 million, which represents 0.42 percent of OP&F’s projected assets of $15.7 billion as of Dec. 31, 2016. As described below, this is a 0.8 percent increase overall from OP&F’s revised 2015 budget.

Operating Costs $22,791,768 4.2% increase from 2015Investment Management 43,179,802 0.4% decrease from 2015

TOTAL BUDGET $65,971,570 0.8% INCREASE FROM 2015

Budgeted Head Count and Organizational ChangesWe continue to organize OP&F’s departmental structure to increase effi ciency and streamline operations. Other signifi cant highlights of our operating budget are as follows:

• Since a formal budget process was put in place in 1998, OP&F has not exceeded its annual budget in actual spending, with the exception of investment management fees during 2010 which was driven by market increases.

• Th e full-time headcount is 145 for 2016, up two net positions from 143 in 2015. Th is includes one position in the investment department and one position in the Employer Servicing Group of the Finance Department. In 2016, investment management fees are budgeted at $43.2 million, representing a 0.8 percent decrease from 2015. Th e decrease is attributable to lower than budgeted investment returns.

In closing, I wish to express my gratitude to the department directors and their staff s for their eff orts in preparing this budget. It is a team eff ort and has resulted in a budget that I believe will serve as an eff ective fi nancial and management guide for the coming year. I welcome the opportunity to address any questions that you may have regarding this document.

Respectfully submitted,

John J. Gallagher, Jr.Executive Director

Respec y

John J. Gallagher, Jr.

OP&F • page 5

Annual Budget for Fiscal Year 2016 • BUDGET POLICY AND TRENDS

Budget Policy and TrendsAnnual Budget for Fiscal year 2016

140 East Town Street • Columbus, Ohio 43215www.op–f.org

OP&F • page 6

BUDGET POLICY AND TRENDS • Annual Budget for Fiscal Year 2016

OP&F Overview

OP&F is a cost sharing multiple-employer public employee retirement system, providing pension and disability benefi ts, and an optional health care plan to qualifi ed participants. In addition, survivor and death benefi ts and an optional health care plan are provided to qualifi ed spouses, children, and dependent parents. OP&F is designed to provide an adequate retirement income to participants and their benefi ciaries when they need it most—when they stop working, become disabled or in the event of death.

Th e Ohio General Assembly (OGA) created OP&F in 1965, to replace 454 separate local police and fi refi ghter’s relief and pension funds, many of which were close to fi nancial insolvency. Th e statewide fund began operating Jan. 1, 1967, when the local pension funds transferred their assets and liabilities to OP&F. Assets transferred to OP&F were about $75 million, with accrued liabilities at just under $500 million.

Since then, OP&F has grown to become the 122nd largest pension plan in the United States (Pensions & Investments, Feb. 8, 2016), with approximately $13.8 billion in assets under management at the end of Dec. 2015. OP&F covers police and fi re employers in Ohio cities, villages and townships. Total membership is more than 55,000 individuals, including both active employees and OP&F pensioners and their survivors.

Membership in OP&F is mandatory under Ohio law for all full-time police offi cers and fi refi ghters in Ohio. Th ere are 911 active participating employers representing 27,602 current active members and 27,963 retirees and benefi ciaries.

GovernanceTh e Board of Trustees is the governing body of the organization and is responsible for the administration, control and management of OP&F including, but not limited to:

• adopting administrative rules and policies for the operation of the fund;

• approving and disapproving disability grants; • approving and disapproving the appointment of

external investment managers;• adopting an annual administrative budget;• reviewing annual actuarial reports and the fi nancial

audit; and • administering and determining the plan design and

level of benefi ts for the OP&F–sponsored health care program.

Ohio law provides for the OP&F Board of Trustees to consist of nine members, including six employee members elected to four–year terms by their respective member groups:

• Two representatives of police departments;• Two representatives of fi re departments;• One retired fi refi ghter; and• One retired police offi cer.

Th e Board also has an additional three members with professional investment experience:

• One appointed by the Governor;• One by the Treasurer of State; and• One appointed jointly by the Senate President and

Speaker of the House.

Although OP&F remains an independent organization, the ORSC provides legislative oversight on behalf of the OGA. Th e ORSC assists the state legislature, governor, and other public offi cials in the formation of sound public pension policy. Th e ORSC provides legislative oversight to each of Ohio’s fi ve public retirement systems: OP&F, the Ohio Public Employees Retirement System, the State Teachers Retirement System of Ohio, the School Employees Retirement System of Ohio and the Ohio Highway Patrol Retirement System.

Ohio’s fi ve public retirement systems Active Retirees and Net Assets *

Retirement System Members Benefi ciaries (in millions)

Ohio Public Employees Retirement System (OPERS) 346,509 203,112 $ 91,243.90 State Teacher’s Retirement System of Ohio (STRS) 164,925 158,116 74,827.12 Ohio Police & Fire Pension Fund (OP&F) 27,602 27,963 13,453.45

School Employees Retirement System of Ohio (SERS) 122,855 74,372 13,205.70 Ohio Highway Patrol Retirement System (OHPRS) 1,622 1,567 848.61 TOTALS: 663,513 465,130 $ 193,578.78

*STRS and SERS based on fi scal year ending 06/30/14, remaining are calendar year ending 12/31/15. OPERS, OP&F, and OHPRS based on fi scal year ending 12/31/14.

OP&F • page 7


OP&F is a separate fi nancial reporting entity in accordance with criteria established by Governmental Accounting Standards Board (GASB) Statement No. 14 Th e Financial Reporting Entity. Th is statement was issued by the GASB to establish standards for defi ning and reporting on the fi nancial reporting entity. Th e concept underlying the defi nition of the fi nancial reporting entity is that elected offi cials are accountable to their constituents for their actions. Fiscally independent governments have the ability to complete certain essential fi scal events without substantive approval by a primary government. Th is includes determining its annual budget without another government’s having the authority to approve and modify that budget.

Because OP&F is legally separate, a voting majority of the governing board is not appointed by the State of Ohio, and it is fi scally independent of other state and local governments, OP&F does not employ governmental fund accounting when preparing the annual budget and does not have a legally adopted budget. Th e Board of Trustees, who monitors and sets spending levels each fi scal year approve OP&F’s budget. OP&F does not operate under a balanced budget approach and pays the costs of administering the plan by a transfer from the guarantee fund each year. Th is transfer occurs fi rst from investment income and then from pension reserves when necessary.

OP&F’s budget, consistent with its accounting policies, is constructed on an accrual basis, and utilizes a January through December fi scal year. Th e accrual basis recognizes all revenues when earned and expenses in the period in which they are incurred. Th is budget is targeted to meet our actuarial rate of return-on-investments of 8.25 percent and our legal requirement under ORC Section 742.16 of achieving a pension fund actuarial amortization period of 30 years or less by December 2006, and every year thereaft er. If the amortization period is not met, then a plan must be approved and submitted to the General Assembly outlining how to achieve the required funding levels. Th is plan could include changes to mandated or discretionary benefi ts and will be submitted each year until the legal level is achieved. It is also driven by requirements set forth by other governing statutes and OP&F organizational goals and objectives.

OP&F’s Fund Balance or Total Plan Assets is the amount of net assets available to provide statutory and discretionary benefi ts as of the fi nancial statement date. Th e Fund Balance includes the value of assets and is reduced by liabilities. Total Net Plan Assets at the end of the year

2016 are projected to be $14.7 billion versus $14.2 billion, or a 3.2 percent increase over the 2015 forecast, with net income of $459.4 million budgeted for 2016.

OP&F also has a separate Capital Outlay Budget used to segregate capital purchases and details of that budget are contained in the Capital section. Comparative information for prior capital purchases has been adjusted to refl ect this change as these items were previously included in the Administrative Operating Budget.

Th e Ohio Revised Code (ORC) contains the laws of Ohio, which are enacted by the Ohio General Assembly. OP&F’s governing laws outline the basis for which the fi nancial policies related to the contributions, benefi t eligibility and benefi t calculations are based.

Th e Board of Trustees is the governing body that is responsible for the administration, control and management of the organization. Th ey are responsible for administering the laws, appointing professional staff , and adopting annual spending budgets.

Within the framework of the administering the laws, OP&F must also maintain the fi nancial reporting requirements set forth by the ORSC, maintain a comprehensive investment policy, and maintain other fi nancial policies and goals to help administer the fund.

Included in the other fi nancial policies and goals are the following:

• Mission, Vision and Core Values• Benefi t Funding Policy & Administration Guide• Reserve and Fund Balances• Long-Term Goals & Objectives• Strategic Planning• Annual Budgets

OP&F’s 3-year Strategic Plan and Mission, Vision, and Core Values are all linked to the Benefi t Funding Policy & Administration Guide to help provide guidance for our future budget requirements and long-term requirements of the fund.

Th e Benefi t Funding Policy & Administration Guide includes high-level fi nancial, retirement, and fi nancial policies as well as an overview of the administration activities that go along with managing those policies. Th e policy is outlined beginning on the next page.

Fund Policy

OP&F • page 8


Benefi t Funding PolicyPurposeTh is document establishes the goals, objectives, and protocols for the Ohio Police and Fire Pension Fund (OP&F) under the direction of the Board of Trustees (Board) to outline established benefi t funding guidelines.

Th e purpose of this Policy is to:

• Provide an understanding of the benefi t funding goals and objectives;

• Provide a brief summary of acceptable benefi t funding levels; and

• Articulate OP&F’s requirements on providing statutory and discretionary benefi ts.

Th e execution of this Policy shall be accomplished in a manner that fulfi lls the statutory requirements outlined in Chapter 742 of the Ohio Revised Code and justly represents the entire membership body.

Th is Policy will be actively managed as part of the decision-making process related to fi nances, benefi ts, reserve fund balances, accounting, revenues and expenses to ensure that this policy remains comprehensive and sound. All Policy statements are on a combined basis representing police offi cers’ and fi refi ghters’, mutually inclusive. Th is Policy will complement other OP&F policies.

Goals and objectivesFinancial OP&F has established the following goals, while not all-inclusive, related to fi nancial requirements of funding benefi ts:

• Continue our path toward reducing our funding amortization period and enhancing our funding Policy;

• Continue to pay all benefi ts and expense obligations when due;

• Continue to improve OP&F’s funded status with regard to the accumulated benefi t obligation;

• Control administrative costs and manage assets prudently to maximize the investment rate of return;

• Control spending through the administrative operating budget;

• Establish a plan to maintain a 30-year or less amortization period; and

• Preserve a discretionary health care option for eligible members.

Retirement Benefi tsStatutory benefi ts will be considered suffi ciently funded if the:

• Amortization period of the Unfunded Actuarial Accrued Liability is 30 years or less in the year of the actuarial valuation: and

• Th e Actuarial Accrued Liability funded status of the assets is at a percentage deemed prudent by the Board or is greater than or equal to 95 percent; and

• All actuarially determined, deferred investment gains and losses are fully smoothed into the actuarial value of assets in the year of the actuarial valuation. Th is means the calculations will be done both based on the Actuarial Value of Assets and the Market Value of Assets.

If all the above conditions are not met, the Board will monitor all fi nancial components to determine if changes in plan provisions should be considered. In addition, when Section 1 above alone is not met, the Board must approve a written plan to achieve compliance and submit that plan to the General Assembly as required.

If all of the above conditions are met, the Board may then consider recommending to the General Assembly benefi t enhancements and/or contribution reductions or make contribution allocation changes. Th is would be done based on Board priorities.

Prior to any recommendations for benefi t changes being presented to the General Assembly, an actuarial analysis and a full understanding of the short-term and long-term fi nancial eff ects on the change will be completed by the actuary. In addition, recommended benefi t changes will be submitted to the General Assembly not later than sixty days from the date of introducing the legislation for changes as required by law.

Health Care Benefi tsHealth care benefi ts are not statutorily mandated; however, the goal of the Board is to provide access to these benefi ts to both current and future members and survivors and their eligible dependents, according to the terms of the Health Care Plan. Th e funding goal for the Section 115 Health Care Trust Fund, which is not considered to be pre-funded, will be suffi ciently funded if:

• It is forecasted to be solvent for at least a fi ft een-year future projection period (which means that the current balance can sustain the aggregate of the next fi ft een years of projected net cash fl ows as determined by the actuary).

OP&F • page 9


Th ere are no requirements to fund future projected health care benefi ts at any set level; rather, these costs must be measured and disclosed as required as long as health care plan benefi ts are off ered.

Funding AdministrationTTh is summary will provide an overview related to the following stakeholder/individuals to pursue action on the following items, which is not all-inclusive. Th e division of responsibilities and action of these items helps to ensure the eff ective execution of the Policy.

Th e Ohio General Assembly• Establish contribution rates for active members and

employers to ensure funding adequacy levels are maintained as appropriate;

• Set Cost of Living Adjustment (COLA) percentages; • Perform contribution rate adequacy studies on an

annual basis; • Perform an independent fi duciary audit on request or

at least once every ten years;• Review 30-year Funding Plans (if applicable); and• Review OP&F Annual Budget.

Th e Board• Set the actuarial valuation interest rate percentage;• Authorize investment transactions as a fi duciary,

based on the prudent person standards and Board established guidelines;

• Work with Investment Consultants’ to conduct an asset liability valuation study and investment structure reviews;

• Target the highest level of investment return within an acceptable framework of risk and return expectations;

• Set the interest rates on various benefi t transactions;• Report every two years to the General Assembly on

the condition of the retirement system;• Establish the amount of OP&F’s health care subsidy

on an annual basis, consistent with OP&F’s health care funding policy;

• Establish the percentage of employer contributions allocated to the health care accounts;

• Make recommendations to the General Assembly related to contribution rates to assist in funding objectives and requirements;

• Establish Board Committees and OP&F staff action items and guidelines to execute the benefi t funding plan;

• Establish the rate at which Medicare Part B will be reimbursed; and

• Maintain comparable prescription drug program within federal guidelines to maintain eligibility for the Medicare Part D subsidy.

Professional Services (Consultants, Custodians, Counsel, Actuaries & Auditors)OP&F either retains the service of or has appointed qualifi ed outside organizations to perform professional services on behalf of the Board in specialized areas as listed below.

• Perform an independent external fi nancial statement audit on an annual basis and issue an opinion, which will be incorporated within the Comprehensive Annual Financial Report (Currently selected by the Auditor of State);

• Perform an actuarial valuation of the assets, liabilities and funding requirements on an annual basis and submit the report to the General Assembly (Th is is conducted by our current actuary);

• Review actuarial assumptions on a quinquennial, every fi ve years basis (Th is is conducted by our current actuary);

• Perform an actuarial cost and fi nancial impact analysis on potential legislation and plan provision changes (Th is is conducted by our current actuary);

• Conduct a cost neutrality study for DROP at least every fi ve years to determine the status of the program and recommend changes to the Board as necessary (Th is is conducted by our current actuary);

• Perform an actuarial audit at least once every 10 years (Th is is performed by outside actuary);

• Perform asset liability valuation study and investment structure review every 3-5 years or as needed (Th is is completed by current investment consultant); and

• Implement new accounting standards as required.

OP&F Staff – Action Items• Implement the Board approved asset liability

valuation study and investment structure review recommendations;

• Provide an adequate cash management function to ensure funds are available to pay benefi ts and operating costs when due;

• Prepare an annual health care report;• Prepare reports on disability experience, ethics and

other areas as required to monitor events;

OP&F • page 10


• Manage transaction fl ows among the established reserve and trust funds;

• Allocate administration expenses to the health care trust fund each year in accordance with Government Accounting Standards Board pronouncements;

• Request state subsidy payments in accordance with requirements;

• Seek out cost saving eff orts related to health care costs and behaviors;

• Make plan provision recommendations; and• Ensure appropriate internal controls and accounting

and fi nancial reporting on all fund balances and fi nancial transactions.

OP&F Staff - Compliance and Monitoring FunctionsTh e following functions, while not all-inclusive, will be monitored in connection with the goals and objectives of the Benefi t Funding Policy.

• Monitor the costs of the administrative operating and capital budget;

• Monitor all revenue sources and monies due and payable to ensure receipts are made;

• Monitor and maintain appropriate levels of administrative insurance;

• Investment income to the health care funds will be on a prorated basis at a rate equal to the actual return on investments;

• Maintain a segregated Internal Revenue Service (IRS) Code Section 401(h) account for Medicare Part B reimbursements;

• Maintain a segregated IRS Code Section 115 trust for accrual of health care fund fi nancial activities;

• Ensure Medicare Part D subsidies are credited to the Section 115 health care trust;

• Ensure revenues and expenses are projected based on objective forecasting assumptions each year as part of the budget process to monitor anticipated changes;

• Ensure proper levels and types of collateral are maintained on all loaned investment securities;

• Safeguard all assets on deposit with the named custodial agent;

• Continue to seek alternative vehicles for medical/prescription savings needs;

• Ensure proper agency administration of the State of Ohio Public Safety Offi cers Death Benefi t Fund in accordance with statute;

• Remain compliant with the IRS for qualifi ed plan status;

• Comply with court orders and applicable statutory provisions on member and survivor benefi ts; and

• Maintain all accounting and fi nancial reporting systems in conformity with Generally Accepted Accounting Principles.

Long-term objectivesTh e key long-term objectives for OP&F have been established in conjunction with a comprehensive review of the current and projected fi nancial requirements. In addition, the Board of Trustees and OP&F senior staff members participate in off -site retreats annually to review prior year achievements and highlights and to set organizational goals for future periods. Th ese goals are used to develop the Total Plan Assets Budget items and to ensure that OP&F incorporates input from staff and members into the annual planning process.

1. Objective: Continue our path toward reducing our funding amortization period and enhancing our funding policy;Meeting the objective:Staff , consultants and the Board of Trustees again put together a funding plan aimed at meeting the thirty-year amortization requirement. Th is is in addition to the Sept. 2012 legislative changes. Th e additional pension legislative changes include additional member contribution increases, reducing the health care allocation of employer payroll, further reducing cost-of-living adjustments and equalizing employer contributions between the police and fi re divisions.

In addition to legislative changes, the Board of Trustees continually works on making changes to discretionary health care benefi ts, administrative costs, investment strategies and other parts of the funding plan that can be accomplished without legislative actions. Careful consideration is put into each item prior to adopting changes to ensure a well balanced approach is taken to protect the long-term funding goals. Th ey also approve every fi ve years the actuarial consultants comprehensive experience study looking at trends in several categories, including membership, health care and funding sources. Th is study was completed in the fall of 2012 to cover the experience for calendar years 2007-2011. Th ere were eight recommended changes, all of which were approved by the Board of Trustees.

Th ese changes included:

• An increase in withdrawal rates to refl ect experience;

OP&F • page 11


• An increase and a decrease in disability retirements based on age groups;

• A reduced retirement rate of service retirees due to the DROP experience and 90 percent of eligible members electing to enter the program;

• Updated mortality tables for pre and post-retirement;• Decrease to 75 percent the assumed married

members;• An adjustment in the percentage of joint and survivor

elections;• A reduction in salary increase assumptions to refl ect

experience; and• A reduction to refl ect experience in the payroll

growth assumption.

As of Jan.1, 2015 (the most recent actuarial valuation) OP&F’s funding level is 70.8 percent. Th e previous year’s funding ratio was 66.7 percent. Th e valuation resulted in a 30 year amortization period compared to the 33 year amortization period last year. Th is is the fi rst time in quite a while that the funding period falls within the 30 year requirement. Th e legislation has had a positive impact on the long-term funding level and OP&F will continue to monitor this going forward to prevent for the need to make major changes to benefi ts or contributions in the near future.

Th e DROP cost neutrality was also performed as part of the study and it confi rms that the program does not result in additional annual costs and continues to increase the amount of time members remain on the job. Th e program extends the careers of members over two years and OP&F does not incur health care costs while members are in the program.

2. Objective: Continue to pay all benefi t and expense obligations when due;Meeting the objective:OP&F is fully able to meet all of its obligations while adjustments are made to ensure long-term fund soundness. Th e State of Ohio requires that the public pension systems must be able to pay off unfunded accrued liabilities in a 30-year period. If a system is not able to meet this requirement, the state requires that each system have a plan in place to fall within the 30-year period. While OP&F met this requirement in the late 1990s, stock market performance drove the funding period above 30 years to infi nity. Legislation passed in the fall of 2012 has paved the way for additional revenues and reduces benefi ts to greatly assist in the amortization period. Our plan to meet this requirement is mentioned in objective #1 and will be combined with a variety of other cost saving strategies and cash fl ow management.

To meet daily, weekly and monthly obligations, the OP&F Investment Department coordinates with the Finance Department to assure that a cash allocation is available.

3. Objective: Continue to improve the funded status with regard to the accumulated benefi t obligation;Meeting the objective:Th ere was an increase in the funded status of the plan last year by 6.1 percent and reduction of 3 years on the amortization period, both improvements to funding. Funding also refl ects the Board of Trustees desire to preserve discretionary health care benefi ts and that rate was maintained at .5 percent allocation of contributions to the health care reserves. OP&F’s funding level was 70.8 percent with a 30 year amortization period as of Jan. 1, 2015. Th e portfolio is projected to end 2016 with a net plan asset value of $14.7 billion.

4. Objective: Control administrative costs and manage the assets prudently to maximize the investment rate of return;Meeting the objective:Fiscal responsibility drives the annual budget process at OP&F, with the goal of reducing administrative expenses whenever possible. Th is is done with a consistent approach to the annual budget process and with Executive Director’s involvement with the process. Each area is required to meet with the Executive Director and explain all budget details.

With increased focus on all public retirement systems, we want our membership and the general public to be aware of our conservative spending practices. Th e 2016 administrative operating budget for OP&F was up .8 percent from the previous year which includes a 4.4 percent increase in operating cost and a .8 percent decrease in investment management fees paid directly through the budget.

OP&F must also present the annual budget to the ORSC for examination and questions. OP&F again presented the budget as requested.

Additionally, the Board, staff and consultants regularly examine investment strategies and develop asset allocation models that will help to maximize potential investment returns. OP&F has a stringent Investment Policy that has been adopted by the Board that helps ensure staff has direction and guidance for making prudent decisions on all investment matters.

OP&F • page 12


5. Objective: Control spending through the Administrative Operating Budget;Meeting the objective:OP&F’s budget process is a bottom-up execution with Senior Management and the Board of Trustees review and ultimate approval. Since a formal budget process was put into place at OP&F in 1998, the Fund has never exceeded its annual operating portion of the budget in actual spending with the exception of management fees in 2010. Positive returns lift ed our asset levels and required additional fees be paid by contract. Baseline spending is recalculated each year to eliminate carryovers, non-essential spending and one-time costs. New initiatives are also carefully scrutinized to ensure that their undertakings are both necessary and achievable.

Other controls in place include a central purchasing unit that researches contracts, and extends bids for goods and services.

6. Objective: Establish and maintain a 30-year or less amortization period on pension assets;Meeting the objective:Ohio law requires OP&F to establish and maintain the industry standard 30-year or less amortization period. With that, many repeated eff orts have been undertaken to develop plans that will help achieve this legal requirement as mentioned in #1 and #2 above. Eff orts will continue with our oversight board and our Board of Trustees to manage this requirement. Please visit our web site at www.op-f.org for more information and news about our funding activities.

7. Objective: Preserve a discretionary health care option for eligible members;Meeting the objective:Th e Board of Trustees has established a 15-year solvency goal for the health care program and will continue all eff orts to maintain this coverage.

Th e Board of Trustees approved modest increases to premiums for retirees and survivors in order to help maintain the solvency.

Th e Board of Trustees also adopted an Internal Revenue Code Section 115 Health Care Trust in 2006 to ensure the non-taxable status of the benefi ts currently being off ered to our members will continue into the foreseeable future.

Reserve and Fund BalancesOP&F’s budget is prepared on a combined police and fi re basis. Th e state statute requires that several reserve funds be maintained annually for tracking fund activities for both police and fi re. OP&F budgets for the revenue and expense activities that fl ow through these accounts. OP&F does not budget for the annual funding balance transfers that occur due to active and retired membership transitions. Additionally, OP&F does not prepare a budget for the Death Benefi t Agency Fund.

Each year-end the reserve funds are managed and allocations are done to refl ect the revenue and expense activities and funding balance transfers due to changes in membership status from active to retired.

Th e Guarantee Fund and Expense Fund is always zero at the end of each year as they are used to fund the Pension Reserve Fund from investment gains and losses and to account for the Administrative Operating Expenses. Th e reserve funds are described below. Please see the back of this section for charts outlining the reserve fund activities.

Police Offi cers’ and Firefi ghters’ Contribution Funds (members’ contributions) Th is fund is credited with the contributions deducted from the salaries of members of police and fi re departments and paid into OP&F, as provided by section 742.31 of the ORC, and that percentage of the employers’ accrued liability that is attributable to deductions previously made from the salaries of members of the police and fi re departments who are still in the active service at the time that portion of the employers’ accrued liability is paid. Upon retirement the accumulated contributions of a member of a police and fi re departments shall be transferred at the member’s retirement from the police and fi re offi cers’ contribution fund to the police and fi re offi cers’ pension reserve fund.

Police Offi cers’ and Firefi ghters’ Employers’ Contribution Fund (employers’ contributions) Th is fund is credited with the employer share contributions received from the police and fi re offi cer employers, as provided by section 742.33 of the ORC, and that percentage of the employers’ accrued liability that is attributable to the employers’ liability for prior service of members of the police and fi re department who are still in the active service at the time that portion of the employers’ accrued liability is paid, and that portion of

OP&F • page 13


the state contribution allocated to such fund, as provided by section 742.36 of the ORC. Members of a police and fi re department retiring in the future or their qualifi ed benefi ciaries shall be paid from the reserves for such pensions and other benefi ts transferred to the police and fi re offi cers’ pension reserve fund.

Guarantee Fund Fund from which interest is transferred and credited on the amounts in the funds described in divisions (C), (D), (E), and (F) of this section, and is a contingent fund from which the special requirements of said funds may be paid by transfer from this fund. All income derived from the investment of funds by the board of trustees of OP&F as trustee under section 742.11 of the ORC, together with all gift s and bequests or the income there from, shall be paid into this fund.

Any defi cit occurring in any other fund that will not be covered by payments to that fund, as otherwise provided by sections 742.01 to 742.61 of the ORC, shall be paid

by transfers of amounts from the guarantee fund to such fund or funds. Should the amount in the guarantee fund be insuffi cient at any time to meet the amounts payable there from, the amount of such defi ciency, with regular interest, shall be paid by an additional employer rate of current contribution as determined by the actuary and shall be approved by the board of trustees of OP&F, and the amount of such additional employer contribution shall be credited to the guarantee fund.

Th e board may accept gift s and bequests. Any funds that may come into the possession of the board in this manner, or any other funds whose disposition is not otherwise provided for, shall be credited to the guarantee fund.

Expense Fund Fund from which shall be paid the expenses for the administration and management of OP&F, as provided by sections 742.01 to 742.61 of the ORC and to which shall be credited from the guarantee fund an amount suffi cient to pay the expenses of operation.

Health Death Reserve

Budget Category or Pension Care Benefi t Fund

Agency Classifi cation Fund Fund Fund Budgeted

Revenues

Employer contributions — Employers’ Cont.Member contributions — — Members’ Cont.Health care contributions — — Pension ReserveInvestment income — GuaranteeInterest on employers’ liability — — Employers’ Cont.Other income — — GuaranteeExpenses

Pension benefi ts — — PensionDrop benefi ts — — PensionHealth care benefi ts — — PensionAdministrative expenses — ExpenseDepreciation expense—capital — — ExpenseRefunds — — Members’ Cont.Other expense — — GuaranteeBalance sheet Asset — — N/ALiability — — N/A

Budget Category–to–Fund Allocation

2015 2014

Reserve Fund Fund Balance Fund Balance

Members’ Contribution $2,757,444,524 $2,620,686,820Employers’ Contribution $2,876,849,153 2,792,074,991Pension Reserve $9,530,939,844 8,805,630,250Guarantee — —Expense — —Death Benefi t — — TOTAL $15,165,233,821 $14,218,408,061

OP&F • page 14


Death Benefi t Agency Fund Th is is an agency fund, which is fully funded by the State of Ohio. Th is fund is part of our Total Plan Assets only to segregate funds reserved for payments of death benefi ts to families of local police and fi re offi cers that have been killed in the line of duty or have died as a result of previous on-the-job injuries. OP&F is required to request these funds from the State on an annual basis. For more information please see the supplemental section of this book. Th is fund is not budgeted.

Pension Reserve Fund Th e Pension Fund maintains the majority of all income and expenses budgeted and accounted for in OP&F’s Total Plan Assets Budget. Th is balance represents funds available to pay pensions obligations and administer the Fund into the future. Th is fund is comprised of all the member contributions, employer contributions, guarantee fund and expense fund.

Health Care Stabilization FundTh is is a discretionary fund and is part of the Pension Reserve Fund. OP&F segregates this fund to put some funding aside to pay for future health care costs. It is part of the Total Plan Assets Budget for monitoring the balance available for post employment health care benefi ts for members and is used to accumulate expected health care contributions and expenses. While all contributions for health care premiums and all health care expenses are recorded to this category, only a portion of employer contributions, the related share of investment income and a portion of administrative costs are allocated to this fund.

Debt ObligationsOP&F does not have any debt obligations or issuances of any type outstanding. No budget for interest or debt service is included. OP&F is not governed by any legal debt limits.

Budget Financial CategoriesBudget categories, as summarized in the Total Plan Assets Budget, include all the major revenue and expense categories of OP&F and are budgeted based on a variety of methods, depending on the category. A more detailed analysis of the budgeting logic used for the fi nancial categories is available in the total plan assets section of this book.

Additions to Total Plan AssetsAdditions to Total Plan Assets include employer and member contributions, health care contributions for members with coverage, investment income, interest on employers’ liability and other income.

Revenue Categories (additional information on revenue calculations can be found in the Total Plan Assets section of this book)

OP&F relies on combined employer and member contributions for 35 percent of all revenue categories. Th ese revenues are generated based on the Total Annual Payroll of our membership. Th is payroll number is the aggregate amount of all members’ anticipated salary for the year and is used to calculate the contributions due OP&F on a monthly and quarterly basis, member contributions and employer contributions respectively, based on the current rates in eff ect. OP&F currently has 27,602 active members contributing to the Fund along with 911 employers. Please see the supplemental section of this book for more active member valuation data.

Total Annual Payroll is projected based on actual experiences and assumptions set forth in our most recent actuarial valuation. Our actuary has included projected salary increases of 4.25 percent-11 percent, depending on age and service and 3.0 percent cost-of-living adjustments for all of our existing members as well as a 1.0 percent increase in the number of members covered. Membership counts are higher by 151 members than the previous year and salary increases are less than expected.

Employer ContributionsEmployer contribution rates, which have not changed since 1986, are set a 19.5 percent and 24 percent, for

OP&F • page 15


police and fi re, respectively. Employer contributions to the Fund are budgeted based on the total annual payroll of $2,007 million, multiplied by the respective employer contribution rate or 21.61 percent on a blended basis, which equates to the $433.7 million budget. OP&F is anticipating a .3 percent decrease in the amount of dollar contributions from the previous year, there is a .3 percent of the decrease in the total annual payroll and the .3 percent is based on the reduced annual payroll. OP&F is forecasting actual contributions in this category for 2015 at approximately $439.9 million.

While the new pension legislation did not increase the amount of employer contributions as a percentage of total annual payroll, the legislation did include OP&F’s long-time desire to collect the employer contributions on a monthly basis, rather than the current quarterly basis. Th is will accelerate the cash fl ow and in turn will also help assist in the overall funding goals.

Th e employer contributions line also includes purchased service credits made by employers on behalf of members, penalties and interest charged to employers for late submissions of contributions and other minor amounts from related activities.

Employer contributions currently represent 22.2 percent of all of OP&F current sources of revenues. A full detailed listing of employer contribution rates from 1967 until present can be found in the Supplemental Section of this book.

Member Contributions Member contribution rates increased to 12.25 percent during 2015. Th is is the last legislative increase scheduled to occur. Pension reform allowed for this rate increase by .75 percent each year for three years for all active members of the Fund. Member contributions to the Fund are budgeted based on the

total annual payroll of $2,007 million, multiplied by the estimated contribution rate of 12.25 percent. Th is amounts to approximately $248.8 million.

OP&F estimates an increase of 3.1 percent over the 2015 budget and the 2015 forecast actual. Th is is the fi rst year at the full 12.25 percent member contribution which makes up the increase from the previous year budget. Th is increase occurred even though the annual payroll is expected to decrease 0.3 percent.

A full detailed listing of member rates from 1967 until present can be found in the Supplemental Section of this book.

Health Care Contributions to OP&F for health care coverage is collected from eligible retired members, survivors and benefi ciaries. Rates at which these individuals are required to pay are set by the Health Care Committee and require Board of Trustee approval. Th ese costs represent the amount of money OP&F charges our retired membership and their benefi ciaries or dependents for their monthly

2016 Total Plan Assets Budget 2016 Percent of Percent change 2015 2014

Revenue Category Budget Totals Budget from 2015 Budget Budget Total Budget Total

Employer Contributions $433,754,162 22.2% –0.3% $434,980,040 $430,420,388Member Contributions 248,781,004 12.7% 3.1% 241,298,601 204,338,584 State of Ohio - Subsidies 430,000 0.0% –8.5% 470,000 580,657 Health Care Contributions 77,495,130 4.0% 4.0% 74,537,302 69,492,323 Investment Income 1,171,500,000 59.9% –2.3% 1,199,550,000 1,136,400,000 Interest on Employers’ Liability 1,020,000 0.1% 0.0% 1,020,000 1,092,000 Other Income 21,900,000 1.1% 9.5% 20,000,000 20,691,100 Total Plan Additions $1,954,880,296 100.0% 0.8% $1,971,855,943 $1,863,015,052

Total Annual Payroll, Active Members, 2006–2016 ($ in Millions)

20162006 2007 2008 2009 2010 2011 2012

$1,895

$1,913 $2,013 $2,007

$1,684$1,756

20152013

$1,783$1,831

$1,901

$2,500

$2,400

$2,300

$2,200

$2,100

$2,000

$1,900

$1,800

$1,700

$1,600

$1,500

$1,869

2014

$1,897

As displayed on the graph above, OP&F anticipates Total Annual Payroll of $2,007 billion in 2016

OP&F • page 16


health insurance premiums. Co-payments and deductibles are paid by the covered member and are not paid by OP&F as part of plan design.

Total budgeted contributions for health care are expected to increase next year by approximately 4 percent from 2015 levels. OP&F anticipates this increase due to increases in covered lives and an increase in contributions from covered benefi t recipients. Th e Board of Trustees, as always, looks at changes to prolong the solvency of the health care stabilization fund for fi ft een or more years.

• In 2016, the projected ending balance of the fund is $907.2 million or 8.9 percent decrease from the 2015 budget. Th is decrease is due to reduction of the amount of employer payroll allocated to the fund. Th e amount allocated to health care remained at .5 percent in 2015. Healthcare costs continue to increase with the contribution level remaining reasonably fl at. Reducing this major infl ow to the health care stabilization fund will have a negative impact on the balance in the fund over the coming years. OP&F is still projecting positive market returns in 2016 and overall revenues to the fund being less than costs. Health care is not a guaranteed benefi t and is funded on a pay-as-you-go-basis. OP&F dramatically restructured our current health care plan in an eff ort to maintain the stabilization fund for a fi ft een-year solvency period. Annually, OP&F will make plan changes and request OP&F benefi t recipients to choose benefi t options and monitor the cost sharing ratios between OP&F and our benefi t recipients.

• OP&F decreased the allocation to 0.5 percent from

2.85 percent of employer contributions to this fund. As always OP&F is required to fund mandated pension and Medicare Part B reimbursement benefi ts as a priority, so this allocation can potentially change each year, depending on our funding status.

• Investment income is allocated based on the actual rate of return on investments achieved by the Fund and the balance in the stabilization fund. In 2015, our estimated rate of return is 0.07 percent and the stabilization fund is projected to be impacted with positive income of $28.9 million for the year.

Investment Income Investment income represents 60 percent of our anticipated revenues. Included are positive earnings related to dividends, interest, rental income, currency contracts, securities lending income and realized and unrealized gains and losses on the investment portfolio. Th ere is a projected increase in the 2016 budget related to gains and losses on investment income year to year due to the fact that the market value of assets is higher due to returns in 2015 and 2014. Currently our actuarial investment return is 8.25 percent based on our current asset allocation and market valuation and that will be our budget target as well. Th is will assist us in determining if we are below or above our target at any point throughout the year. Estimated investment income is expected to increase by that same rate 8.25 percent in the fi scal year 2016 over 2015 for budget purposes. OP&F expects to experience a 0.07 percent return in 2015, however, this budget was based on a 2.85 percent return due to the timing of the overall budget production and adoption versus getting the fi nal returns from our investment consultant in the 1st quarter of 2015.

Inv

est

me

nt

Inco

me

(tho

usan

ds)

–$2,000,000

–$1,000,000

0

$1,000,000

$2,000,000

$3,000,000

–$3,000,000

–$4,000,0002012 2014 2015 20162006 2007 20092008 2010 2011 2013

Re

turn

on

In

ve

stm

en

t

–20%

–10%

0%

10%

20%

30%

–30%

–40%

Investment rate of return

Actual income Budget income

7.65%16.15% 10.5%

–28.10%

20.73% 15.83%

2.60%12.75% 16.00%

0.07%

2006–2016 Investment Income Budget to Actual Comparison (in thousands)

OP&F • page 17


Interest on Employers’ Liability

In 1967 all of the local police and fi re pension funds were merged together to form OP&F. At that time, an actuarial analysis was performed to determine the diff erence between pension liabilities and the assets being transferred to OP&F as a result of the merger. Th is shortfall of assets compared to liabilities is referred to as the Employers’ Accrued Liability. Th is unfunded liability is being paid to OP&F over a 65-year period at an interest rate of 4.25 percent. Th e budgeted amount represents the expected receipts of interest in 2016, based on the ending 2015 balances. Local governments began repayments in 1969 and payments are scheduled to continue until the year 2035. Th e outstanding balance at December 31, 2015 was $23.8 million.

Other Income Th is category represents rebates and recoveries received for vendor contract compliance issues, member transfers in interest and contributions and miscellaneous income.

Deductions from Total Plan AssetsDeductions from Total Plan Assets for 2015 include expenses related to pension benefi ts, health care benefi ts for members with coverage, administrative costs, depreciation expense, member refunds and other expense.

Pensions and DROPConsistent with OP&F’s mission, this category represents the largest single expense for OP&F. Payments for pension benefi ts including; retirement, disability and survivor benefi ts account for 65 percent of all expenses this budget year. Plan benefi ts are established under Chapter 742 of the ORC. Th e budgeted amount is based on the actuarial projections and assumptions by staff on new retirements and members exiting the DROP program. Th e estimated $973.8 million in pension benefi t payouts for 2016 includes a 2.4 percent increase in the expectation for members exiting the DROP program, 0 percent increase for new retirees, survivors and benefi ciaries due to over budgeting in 2015. Additionally, OP&F estimates that $218.1 million will be withdrawn from the accounts of our DROP program.

Health Care OP&F off ers an excellent health care coverage for eligible retired members, survivors and benefi ciaries. Th is category encompasses all costs to OP&F for prescriptions, medical coverage and Med B participant reimbursements. Th e cost of these benefi ts are expected to increase by 6.1 percent over last year, based on 2015 experience levels, DROP retirees,

requirements under the new federal law and the most recent actuarial estimates of health care cost trends for OP&F.

Administration Th is category represents the portion of the Total Plan Assets Budget referred to as the Administrative Operating Budget and encompasses all of OP&F’s operating and administrative activities. Th is includes personnel services, work environment, investment management fees, professional services, personnel recruitment, training and travel, legal and building operating expenses. OP&F has an annual budget process to determine the levels at which spending will occur and what new goals will be accomplished each year. Please see the detailed Executive Director’s message and in the Administrative Operating Budget sections of this book. Th is section also contains detailed budget to actual comparisons for each category.

Depreciation Th is expense represents the annual depreciation OP&F assumes on previously capitalized goods and services. Assets are depreciated over their useful life using the straight-line method. Capital items are purchased through OP&F’s new Capital Outlay Budget. Items costing $5,000 or more or having an estimated useful life of one or more years or a part of a large project will be budgeted to the capital accounts and depreciated over the expected useful life. An decrease of 8.5 percent refl ects the fact that OP&F has started to fully expense dollars as allocated in the budget as items are used to their full expected life. Capital project spending priorities for building and computer related items have caused shift s in the amounts expected to be depreciated.

Refunds Th ere are a variety of member refunds, transfers and eligible rollovers of contributions that occur throughout the year from OP&F upon member separation of employment or legislative actions. A historical analysis is used to budget for these occurrences. Refunds are paid to former OP&F members upon request or as part of death payouts, when no survivors are eligible for benefi ts. OP&F anticipated refunds to remain fl at during the coming year. OP&F is also required to record an estimate each year in this category for non-active, non-vested employee members who are eligible to refund their contributions, but have elected not to do so at this time.

Other Expense Th is category represents refunds to employers for payroll reporting errors, miscellaneous pension expense and write-off s for uncollectible pension overpayments.

OP&F • page 18


Budget Management and Other Planning ProcessesTh e budget management role at OP&F is vital in preparing, controlling, communicating and monitoring all stages of the budget process. Th is role is currently assigned to the Controller of the Finance Department.

As a member of the Finance Department, this role was designed to add consistency and accountability to the process and to allow a central point of contact for all related budgeting issues. Preparing fi nancial reports, providing variance analysis, determining budget category methodology, monitoring additions/deductions and establishing and monitoring goals are the primary focuses of this role.

Additionally, the Controller works with the Executive Director and Deputy Executive Director to gather information from a variety of other planning processes that go on throughout the year to ensure their inclusion in the budget is determined. Th ree of the major planning processes are listed below:

Annual Board Retreat At this retreat, the Board of Trustees hears from the senior management the activities accomplished during the year and future activities that are planning to be undertaken in the departmental areas. In turn, the Executive Director works with the Trustees to determine the annual priorities.

Board of Trustee Committee Meetings OP&F has various committees that meet each month to handle detailed aspects of matters that require Board approval. Oft en times during these meetings, Board members and staff express desirable and required budget undertakings for the next budget cycle. Th e Executive Director gathers this information and ensures that the items are incorporated into the budget.

Strategic PlanningTh e strategic plan was designed to connect internal and external goals and approaches that will drive our strategies in the future. It was developed by an internal professional team with a wide variety of knowledge and experience. Th is team was charged with identifying the critical success factors required, and then target the approaches necessary to accomplish each goal. Any budgetary needs are reviewed each year and incorporated into the next budget process. Please visit our web site at www.op-f.org for full details under the OP&F reports section of the Information Center.

Seven critical success factors identifi ed by the team:

1. Establish and maintain a 30-year funding period for pension benefi ts;

2. Preserve a discretionary health care option for eligible members;

3. Enhance service and education levels to OP&F membership;

4. Enhance service and education levels to OP&F employers;

5. Improve organizational eff ectiveness and effi ciencies;

6. Advocate and manage external change to assist OP&F in achieving its long-term objectives; and

7. Accelerate employer payments and improve employer reporting compliance.

Goals and ApproachesTh e following section will detail the goals and approaches associated with each critical success factor.

1. Establish and maintain a 30-year funding period for pension benefi tsA primary objective for OP&F is to establish and maintain a maximum 30-year amortization period for unfunded actuarial accrued pension liability.

2016 Total Plan Assets Budget 2016 Percent of Percent change 2015 2014

Expense Category Budget Totals Budget from 2015 Budget Budget Total Budget Total

Pension Benefi ts $973,805,832 65.1% 1.8% $956,547,845 $934,383,067DROP Benefi ts & Interest 218,122,954 14.6% –1.3% 220,943,827 241,114,512 Health Care Benefi ts 223,799,930 15.0% 3.9% 215,346,106 219,162,921 Administrative Expenses 65,971,570 4.4% 0.8% 65,427,264 62,474,058 Depreciation Expense 1,610,000 0.1% –10.6% 1,800,000 1,600,000 Refunds 12,033,000 0.8% -0.8% 12,127,000 18,652,680 Other Expenses 100,000 0.0% 0.0% 100,000 50,000 Total Plan Deductions $1,495,443,286 100.0% 1.6% $1,472,292,042 $1,477,437,238

OP&F • page 19


Goals:

• Achieving a steadily increasing funding ratio and identify and understand temporary and permanent changes in the funding ratio at the time of each actuarial valuation;

• Targeting the highest investment return feasible within acceptable risk tolerances and given a low return environment;

• Ensuring that actuarial valuation assumptions are reliable and accurate; assumptions should add stability to the valuation process;

• Evaluating pension plan provisions;• Evaluating Deferred Retirement Option Plan

(DROP) provisions.

Strategic approaches:

• Work for legislation to meet the 30 year amortization requirement (increase in member contributions, increase the minimum retirement age, reduce COLA availability, increase the years used for fi nal average salary, change DROP interest, contributions and minimum requirements, and balance discretionary health care solvency and contributions with pension contributions);

• Work with OP&F’s actuarial consultant to study payroll growth rate, valuation interest rate and mortality rate assumptions to ensure they refl ect current economic environment and adopt changes as necessary;

• Analyze changes in funding ratio and determine temporary and permanent impacts each year;

• Conduct a cost neutrality study of the DROP program;

• Implement changes as recommended by the asset and liability study and the investment structure review;

• Amend the benefi t funding policy;• Review the interest rate paid to accounts in DROP;• Incorporate recommendations from Contribution

Rate Adequacy study;• Examine Cost of Living Adjustment (COLA)

formula;• Examine the re-employed retiree benefi t calculation

against other plan provision off erings;• Review joint and survivor annuity options available

and recommend for changes;• Implement portable alpha strategies within the

investment portfolio;• Explore new value-added investment strategies.

2. Preserve a discretionary health care option for eligible membersGoals:

• Redesign the sponsored health care plan to streamline benefi t off erings and reduce internal administration;

• Maintain a minimum projected 15-year solvency period for the health care stabilization fund without jeopardizing the pension funding status;


• Evaluate and model scenarios for health care plan provision changes;

• Eliminate the use of HMO providers;• Review subsidy levels each year and adjust

accordingly;• Examine eligibility requirements for participation;• Establish a retiree medical trust program, and propose

appropriate legislation;• Propose legislation to cap the Medicare B

reimbursements;• Examine using contributing versus paid-time for time

eligibility requirements;• Amend the Board of Trustee’s Health Care Funding

Policy.

3. Enhance Service & Education Levels to our MembershipGoals:

• Enhance service and communication levels to OP&F membership;

• Enhance benefi t formulas where feasible and aff ordable;

• Enhance education opportunities available for OP&F members;

• Improve OP&F’s understanding of occupational diseases and management of related illnesses;

• Refi ne training programs and resources for OP&F staff .


• Establish metrics on responding to member inquiries; • Use technology to increase the levels of service

and communication to both our active and retired membership;

• Conduct a customer satisfaction survey. Analyze results and work to strengthen areas indicated as weak or missing;

OP&F • page 20


• Study pension benefi t formulas and analyze opportunities for improved plan provisions;

• Employ the member education group to educate the membership;

• Create informational videos to assist in areas of education;

• Explore alternative methods of education such as mid-career seminars;

• Analyze member inquiries on a quarterly basis to determine if any issues exist or improvements in communication or education levels are warranted;

• Conduct a cancer research project and implement recommended education, communication, and other corrective actions as deemed appropriate;

• Provide consistent training sessions and follow-up training as needed;

• Complete a member forms and correspondence review.

4. Enhance Service and Education Levels to our EmployersGoals:

• Enhance service levels to OP&F employers;• Enhance education opportunities available for OP&F

employers.


• Establish an education certifi cation program;• Employ the employer education group to educate our

employers on compliance and reducing penalties;• Update the employer education manual and

distribute to employers;• Establish metrics on responding to employer

inquiries;• Analyze employer inquiries on a quarterly basis to

determine any improvement in communication or education levels;

• Conduct an employer satisfaction survey. Analyze results and work to strengthen areas indicated as weak or missing;

• Use technology to increase the amount of data exchanged with employers;

• Complete an employer forms and correspondence review.

5. Improve Organizational Eff ectiveness & Effi cienciesGoals:

• Control the cost of the administrative operating expenses;

• Integrate the annual budget process with the long-term objectives;

• Reengineer processes to achieve effi ciencies;• Maintain qualifi ed staff .


• Continue to monitor method used to ensure control of administrative operating expenses;

• Implement audit recommendations;• Review organizational structure annually for

necessary realignment;• Maintain industry-leading technology for staff ;• Continue to perform bottom-up budget analysis

when creating the fund budgets;• Continue to perform work group process studies to

identify operating improvements;• Perform annual critical job audits on positions

identifi ed annually by department directors;• Analysis of career ladders and grade changes;• Review organizational processes to evaluate areas for

effi ciencies and enhance communication within the fund;

• Continue to evaluate employee benefi ts to assist in maintaining qualifi ed staff while meeting fund objectives.

6. Advocate and Manage External Change to assist OP&F in achieving its Long-Term ObjectivesGoals:

• Remain active in Social Security reform debate and potential impacts;

• Implement new legislation to ensure compliance;• Monitor employer budgets for changes;• Understand workers compensation off set;• Protect assets against infl ationary changes;• Understand OP&F membership.


• Propose legislation to change ORC 742.16 to add a projection period to the 30-year amortization requirement that will minimize plan provision changes due to market volatility;

OP&F • page 21


• Keep current on all pending and new legislation to ensure compliance can occur when enacted;

• Attend local, regional and state group meetings related to member topics;

• Implement global infl ation protected securities mandate;

• Explore real asset investments;• Seek employer and/or monitor employer fi nancial

status.

7. Accelerate Employer Payments and Improve Employer Reporting ComplianceGoals:

• Accelerate payments due from employers;• Ensure member and employer contribution reporting

and payments are on time and accurate according to OP&F reporting requirements.


• Propose legislation to make employer share contributions due monthly along with the member share contributions;

• Escalate problem employers;• Certify employers with past due balances through an

effi cient and consistent process with the county of residence;

• Increase participation in the Automated Clearing House program for employer payments;

• Increase participation in the electronic reporting of member contribution payroll reports;

• Provide employers with a Web-based contribution reporting and payment system;

• Require employers to report using the standard OP&F approved reporting forms;

• Improve the internal process for posting payrolls to the reporting system;

• Study the need for employer billing;• Establish and implement an Employer Advisory

Group (EAG) with active employers;• Establish a ruling and appeals committee for past due

contribution reporting and payment penalties.

Budget StructureOP&F has three distinct budgets

1. Total Plan Assets Budget,

2. Administrative Operating Budget and

3. Capital Outlay Budget.

Th e Executive Director, Deputy Executive Director and Controller are responsible for preparing the all budgets. Th e basis of budgeting each of the budget expense line items and plan assets categories is the combination of the analysis set forth in the asset allocation, fi nancial forecast study, historical experience, operating needs and goals established internally and externally. OP&F uses external specialized consultants and actuaries to prepare studies that analyze trends, growth rates and legislation consistent with OP&F operations in order to predict plan additions and deductions.

Th e annual Administrative Operating Budget is one piece of the Total Plan Assets Budget, which is the responsibility of each individual Department Director. Each Department Director is responsible for preparing their departmental budget based on the goals set forth for the coming fi scal year and must be done following a prescribed format. Th e individual department budgets are then combined to create the Administrative Operating Budget. Th is should include baseline or continuation budget items and initiatives. Th e Capital Outlay Budget is prepared with the combined eff orts of the information systems and project management staff that survey and assess capital needs and priorities.

Baseline or Continuation Items OP&F starts the Administrative Operating Budget with a budget based on continuation of current levels of staffi ng and services. Th is continuation budget contains no consultant contracts excluding those with on-going retainer relationship (auditing, actuarial, legislative relations, legal and investments). It does contain the fi rst seven months actual expenses incurred by OP&F by department and category and in addition to the remaining fi ve months of the prior year budgeted expenses. An adjustment is then made for non-recurring items or one-time expenses from last year’s budget.

InitiativesInitiatives represent resources other than those currently utilized in the continuation budget that will be required to

OP&F • page 22


either address the current workload placed upon OP&F, begin to put into place the groundwork for easing future workloads or for improving future service or statutory deliverables.

Each Department Director is required to assess departmental needs, which are linked to OP&F’s short-term and long-term goals. Th is planning stage is converted into initiatives during the budget process, allocating time, money and resources to achieve the overall goal.

Initiatives must be fully justifi ed when presented to the Executive Director and must align with the overall direction of OP&F. Initiatives are then presented to their respective committee for approval before inclusion in the overall annual budget.

Capital OutlayCapital expenditures for OP&F are included in the separate Capital Outlay Budget and include purchases of computer hardware and soft ware, projects, furniture, equipment, building improvements and other related items. Items costing $5,000 or greater or have an estimated useful life in excess of one year will be budgeted to the capital accounts and depreciated on a straight-line basis. Major capital projects are also capitalized and typically involve soft ware and hardware initiatives.

Th e purchase of a capital item is recorded directly to the asset account and then to the fi xed asset system so that tracking and depreciation can begin. Th is will allow OP&F to periodically expense the cost of these items over their useful life as part of the depreciation expense line item. Th e straight-line method is used for all assets. Asset useful lives range from 3 to 10 years for offi ce furniture, computers and equipment. Th e Fund uses 40 years for building and improvements. Th ese assets are also tracked in detail in the Fixed Asset Accounting System for inventory and depreciation purposes. For more details on the capital planning please see the Capital Outlay Budget section of this book.

Budget production, preperation and adoptionIn late July, individual and group meetings will occur between the Executive Director, Board Trustees, Department Directors, Controller and Budget Assistants to communicate linkages in the budget across departments and establish broad goals for measuring the results. During these meetings the Executive Director will establish budget directives for all departments. Th ese directives summarize the initial goals of the operating budget so that the individual departments have a uniform starting point.

Th e fi rst budget request will include three parts 1) current operating needs 2) proposed initiatives that address our highest priority goals and objectives and 3) an examination of the current baseline needs.

In early August, the Controller will communicate to the Department Directors their baseline budget for the year, the prescribed format and the deadline for submitting their portion of the budget. Th e Deputy Executive Director and Human Resource Manager will also make salary budget guideline recommendations to the Administration Committee. Th is includes estimated number of new hires and a salary increase assumption.

In September, department directors formulate individual department budgets for submission to the various Board Committees. Prior to the committee presentations, each Department Director will present their proposed budget to the Executive Director and Deputy Executive Director. Th e Controller and Deputy Executive Director present the Total Plan Assets Budget to the Executive Director.

During these meetings, each department presents their requests to the Executive Management team and gives any additional information necessary to justify increases or planned initiatives. A thorough review is done on each baseline adjustment made by the departments versus the baseline prepared by the Finance Department.

Once all departmental meetings are complete, each directive is reviewed to determine if they were accomplished, next decisions are made by the Executive Director as to which items will be included in the proposed budget. Th is information is then formally communicated to the individual departments.

Th en in October, all departmental budgets will be presented to the various committees for their input and approval. Committee members are given a chance to hear the proposed budget and make recommendations for change or to approve or disapprove the budget. Once approved, the budget moves

OP&F • page 23


to the Finance Committee. If the committee disapproves a particular department budget item, then a special meeting will be held in an eff ort to achieve a consensus between the Committee and the Executive Director.

In November, once the individual department budgets are combined, the Finance Committee members then review the entire Total Plan Assets Budget, which includes the Administrative Operating Budget approved by the various committees. Th e Finance Committee then recommends that the package be presented to the entire Board of Trustees for approval. Th e Finance Committee is comprised of three Trustee members, the Executive Director and the Deputy Executive Director.

In December, the fi nal total combined budget is presented to the Board of Trustees for approval. Once the budget is approved, it is then communicated to all stakeholders and monitored through normal operations.

Budget distributionTh e approved budget will be submitted to all Department Directors, Budget Assistants, the Ohio Retirement Study Council and other interested parties as requested, similar to that of the Comprehensive Annual Financial Report.

Budget amendmentsTh e approved budget can be amended in two ways:

1. Budget TransfersBudget transfers are usually related to the Administrative Operating Budget and are due to necessary changes in allocation of expense account line items, departmental transfers, change in concept or period changes due to project or initiatives timing. Budget transfers do not result in a dollar increase or decrease from the approved budget, rather they are movements between budget categories already approved. Transfers between diff erent account line items need the Executive Directors signature. Budget transfers between OP&F’s three separate budgets do not occur. All transfers require the signature of the Department Directors, Deputy Executive Director and Controller.

2. Budget Changes Budget changes are also related to the Administrative Operating Budget. When the budget is approved, fi nal details of a major project may not be available for submission. Because of this, a project would then be submitted through the normal approval channels at a later time. Changes usually result in a dollar increase in the approved budget. Th ese material changes are taken back to the Finance Committee for approval.

Budget oversightTh e Controller and Departmental Budget Assistants will analyze budget-to-actual administrative operating expenses and total plan assets on an as needed basis.

Departmental Budget Assistants will fi rst analyze variances in the administrative budget on a year-to-date plan level and determine all categories that are less than 80 percent or greater than 120 percent of the budget and diff er by more than $1,000 for materiality purposes. Th en each operating initiative will be analyzed. Initiatives must be monitored regularly to ensure completion of planned items.

Once these determinations are made, the Departmental Budget Assistants will be responsible for determining the reasons for the variances for their respective areas and work with their respective area to determine the reasons and need for additional money for the remainder of the year. If there are areas under budget in a particular area, then a determination is made as to what is not getting accomplished to ensure goals are being accomplished.

OP&F has a procurement system, which serves as an additional control to isolate budget variances prior to the department approving the expenditure. Th is procurement system has a zero tolerance between the individual department request and the approval of expenditures. When the department requests an item to be purchased or a service to be rendered, they must enter a requisition into the procurement system based on the budget category line item and the department’s designated individual must authorize the requisition against the budget loaded at the beginning of the year. If there is insuffi cient money in the budget category, the department must request a budget transfer prior to authorizing the expense. Th is process has improved the monitoring of budget to actual expenses rather than waiting until formal reporting channels highlight the budget variance issues.

Th e Controller will also analyze the entire Total Plan Assets Budget and Capital Outlay Budget on a monthly basis, above and beyond the variance levels, to ensure line items are properly recorded and reported. Any notable areas or instances will be reported to the Deputy Executive Director for guidance and resolution. In addition, the Controller schedules meetings, locations and gathers pertinent data for each budget presentation.

Th e results of the budget-to-actual Total Plan Assets Budget and Capital Outlay Budget will be presented to the Finance Committee quarterly.

OP&F • page 24


Overview of the OP&F Budget Process

OP&F initiates a new budget

Specialorganizationalinitiatives are

developed during theannual Trustee

Retreat April

ABudget Kickoff

Meeting betweenthe ED, Directors andkey personnel assistants

from eachdepartment is

held AugustDirectives, spendingtargets and areas of

emphasis arecommunicated by the

ED to all parties

Budgets aredeveloped by each

Director in accordancewith targets and

directives August

September

Budget submitted toORSC

October

Full revised budgetis presented to theTrustee Finance

Committee(public meeting)

Changesare

recommended

Full budget approvedby the OP&F Board of

Trustees(public meeting)

September

November

December

January

Changesare

recommended

Each reviseddepartmental budgetis presented to theappropriate Trustee

committee(public meeting)

Changesare

recommendedOctober New baseline budget

recalculated by BudgetManager

July

Departmental budgets arepresented to the ED, Financial

Services Director and the Budget Manager to

clarify spending levels

Overview of Budgeting Process

OP&F • page 25


Members’ Employers’ Annuitant and Guarantee Expense Death Benefi t Totals Contribution Funds Contribution Funds Pension Reserve Funds Fund Fund Fund 2015 2014

FUND BALANCE AT

BEGINNING OF YEAR: $2,393,648,384 $2,907,876,555 $8,918,087,000 $— $— $— $14,219,611,939 $11,538,439,448

Changes for the year:

Contributions:

Employers — 427,888,590 — — — — 427,888,590 418,182,644 Members 223,989,055 — — — — — 223,989,055 187,643,584 Medical benefi ts — — — 69,965,747 — — 69,965,747 66,564,696 State of Ohio subsidies — — — 500,152 — — 500,152 530,573 Death benefi t fund — — — — — 20,000,000 20,000,000 20,000,000 Investment income — — — 907,879,975 — — 907,879,975 2,098,117,953 Interest on local funds’ receivable — 1,084,188 — — — — 1,084,188 1,119,204 Other income — — — 23,624,627 — — 23,624,627 26,852,264

Benefi ts: Retirement — — (598,829,553) — — — (598,829,553) (563,237,669) Disability — — (242,125,287) — — — (242,125,287) (238,912,606) Health care — — (199,594,201) — — — (199,594,201) (191,335,860) Survivor — — (79,545,466) — — — (79,545,466) (76,815,281) Death benefi t fund — — — — — (20,000,000) (20,000,000) (20,000,000) DROP — — (190,419,645) — — — (190,419,645) (216,083,555) Administrative expenses — — — — (63,394,529) — (63,394,529) (61,007,622) Refund of member contributions (15,234,370) — — — — — (15,234,370) (15,938,017) Other expenses — — — (12,184) — — (12,184) (72,743) DROP Accounting Change — — — — — — — 1,245,564,926 Transfers (111,090,701) (635,797,663) 1,685,452,152 (1,001,958,317) 63,394,529 — — — Net Changes 97,663,984 (206,824,885) 374,938,000 — — — 265,777,099 2,681,172,491 FUND BALANCE AT

END OF YEAR: $ 2,491,312,368 $2,701,051,670 $9,293,025,000 $— $— $— $14,485,389,038 $14,219,611,939

Reserve and Fund Balances

Projected Fund Balances:

... as of 12/31/2014 $2,620,696,820 $2,792,074,991 $8,805,636,250 $— $— $— $14,218,408,061 2014 Forecast

... as of 12/31/2015 $2,757,444,824 $2,876,849,153 $9,530,939,844 $— $— $— $15,165,233,821 2015 Budget

See Reserve and Fund Balances section for a narrative explanation.

OP&F • page 26


Ohio Police & Fire Pension FundFunding Structure

Police offi cers’ and fi refi ghters’ reserve funds

Member’s

Contribution

Fund

FU

ND

S Employer’s

Contribution

Fund

Guarantee

Fund

Expense

Fund

Pension

Reserve Fund Death

Benefi t

Agency Fund

MemberContributions

Member Refunds/Transfers

Member Share

Transfer out to Pension Reserve Fund

Re

ve

nu

es

an

d E

xp

en

ses

Fu

nd

ing

Ba

lan

ce T

ran

sfe

rs

EmployerContributions

Member Refunds/Transfers

Employer Share


InterestAccruedLiability

Investment Gains and

Other Income

Invesment losses

and other expenses


StateSubsidies

Transfer out to

Expense Fund

Transfer in from Pension Reserve Fund

AdministrativeOperatingExpenses

Transfer in from Guarantee

Fund

RetirementBenefi ts

$1,000 Lump Sum

Death Benefi t

Transfer out to Guarantee

Fund

SurvivorBenefi ts

Transfer in from Guarantee

Fund

Transfer in from Members’Contribution

Fund

Transfer in from Employers’Contribution

Fund

Health Care

Stabilization

Fund

Health care premiums

Health care Benefi ts and

Medicare Part B Reimbursements

Other Income

Administrative Operating Expense

Allocation

Investment Gain or Loss Allocation

Employer Contribution

Allocation

StateSubsidies

DeathBenefi ts

Funding Structure

OP&F • page 27

Annual Budget for Fiscal Year 2016 • TOTAL PLAN ASSETS BUDGET

Total Plan Assets BudgetAnnual Budget for Fiscal year 2016


OP&F • page 28

TOTAL PLAN ASSETS BUDGET • Annual Budget for Fiscal Year 2016

Projected Changes in Total Plan Assets Budget

2016 2015 2016 Budget vs. 2015 Forecast 2015 2016 Budget vs. 2015 Budget

Budget Fund or Category Budget Forecast $ Change % Change Budget $ Change % Change

Contribution Income:

Employer Contributions $433,754,162 $439,935,862 $(6,181,700) –1.4% $434,980,040 (1,225,878) –0.3% Member Contributions 248,781,004 241,298,787 7,482,217 3.1% 241,298,601 7,482,403 3.1% State of Ohio - Subsidies 430,000 446,735 (16,735) –3.7% 470,000 (40,000) –8.5% Health Care Contributions 77,495,130 73,492,860 4,002,270 5.4% 74,537,302 2,957,828 4.0% TOTAL CONTRIBUTION INCOME 760,460,296 755,174,244 5,286,051 0.7% 751,285,943 9,174,353 1.2%

Investment Income * ROR 8.25% 2.85% 5.40% 8.25%

Gain (Loss) on Investments 853,700,000 70,857,603 782,842,397 1104.8% 871,560,000 (17,860,000) –2.0% Interest Income 135,500,000 127,780,836 7,719,164 6.0% 144,450,000 (8,950,000) –6.2% Dividend Income 131,300,000 87,637,931 43,662,069 49.8% 141,740,000 (10,440,000) –7.4% Allocated Income 45,000,000 82,989,861 (37,989,861) –45.8% 36,000,000 9,000,000 25.0% Other Investment Income 6,000,000 42,088,696 (36,088,696) –85.7% 5,800,000 200,000 3.4% TOTAL INVESTMENT INCOME 1,171,500,000 411,354,927 760,145,073 184.8% 1,199,550,000 (28,050,000) –2.3%

OTHER INCOME Interest on Employers’ Liability 1,020,000 1,087,459 (67,459) -6.2% 1,020,000 — 0.0% Other Income 21,900,000 25,809,078 (3,909,078) –15.1% 20,000,000 1,900,000 9.5% TOTAL OTHER INCOME 22,920,000 26,896,537 (3,976,537) –14.8% 21,020,000 1,900,000 9.5%

TOTAL ADDITIONS $1,954,880,296 $1,193,425,708 $761,454,588 63.8% $1,971,855,943 (16,975,647) –0.9%

Benefi t Expenditures:

Retirement Benefi ts $650,106,515 $628,503,249 $21,603,266 3.4% $631,477,951 (16,975,647) –0.9% Disability Benefi ts 242,534,514 245,309,080 (2,774,566) –1.1% 244,353,615 (1,819,101.47) –0.7% Survivor Benefi ts 81,164,804 81,191,890 (27,086) 0.0% 80,716,279 448,525.22 0.6% DROP Withdrawals 218,122,954 218,726,210 (603,256) –0.3% 220,943,827 (2,820,873.00) –1.3% Health Care Benefi ts 223,799,930 211,021,144 12,778,786 6.1% 215,346,106 8,453,823.80 3.9% TOTAL BENEFIT EXPENDITURES 1,415,728,716 1,384,751,574 30,977,143 2.2% 1,392,837,778 22,890,938.23 1.6%

Administrative Expenditures:

Personnel Services 14,019,095 12,206,933 1,812,162 14.8% 13,359,746 659,349.00 4.9% Work Environment 3,922,595 3,287,395 635,200 19.3% 3,812,504 110,091.00 2.9% Professional Services 48,029,880 46,481,082 1,548,798 3.3% 48,255,014 (225,134.00) –0.5% ADMIN. EXP. BEFORE DEPRECIATION 65,971,570 61,975,410 3,996,160 6.4% 65,427,264 544,306.00 0.8%

Depreciation Expense - Capital 1,610,000 1,758,625 (148,625) –8.5% 1,800,000 (190,000.00) –10.6% TOTAL ADMINISTRATIVE EXPENSE 67,581,570 63,734,035 3,847,535 6.0% 67,227,264 354,306.00 0.5%

Other Expenditures:

Member Refunds 12,033,000 11,914,335 118,666 1.0% 12,127,000 (94,000.08) –0.8% Other Expenses 100,000 5,741 94,259 1641.7% 100,000 — 0.0% TOTAL OTHER EXPENDITURES 12,133,000 11,920,076 212,924 1.8% 12,227,000 (94,000.08) –0.8%

TOTAL EXPENDITURES $1,495,443,287 $1,460,405,684 $35,037,602 2.4% $1,472,292,042 23,151,244.15 1.6%

**Beginning of Year Plan Net Assets: $14,218,409,062 $14,485,389,038 $(266,979,976) –1.8% $13,368,378,891 850,030,170.96 6.4%

Pensions 13,268,585,931 13,453,447,836 (184,861,905) –1.4% 12,341,322,258 927,263,672.88 7.5% Health care 949,823,131 1,031,941,202 (82,118,071) –8.0% 1,027,056,633 (77,233,501.92) –7.5%

Current Year Increase (Decrease) 459,437,009 (266,979,976) 726,416,985 –272.1% 499,563,901 (40,126,891.42) –8.0%

End of Year Plan Net Assets $14,677,846,071 $14,218,409,062 $459,437,009 3.2% $13,867,942,792 809,903,279.54 5.8%

Pensions 13,770,597,321 13,268,585,931 502,011,390 3.8% 12,871,727,339 898,869,981.80 7.0% Health care 907,248,750 949,823,131 (42,574,381) –4.5% 996,215,452 (88,966,702.26) –8.9%

* In 2015 and 2016, investment income is budgeted to be 8.25% of expected Beginning of Year Assets.

**Balances Beginning of Year 2016 are based on the 2015 Ending Forecast Balances

OP&F • page 29


Total Plan Assets Budget Review Th e Total Plan Assets Budget Review is an outline of the recommended total plan assets budget for 2016. Th is analysis will highlight the formulation of the budget and the variances between the 2016 budget compared to the 2015 actual forecast and the 2015 approved budget. OP&F budgets for all plan additions and deductions using a variety of assumptions including; active and retired membership rolls, observed trends in previous years, known upcoming future impacts on experiences (economic and legislative), an investment rate of return in line with the actuarial rate of 8.25 percent, and other known activities. Th e purpose of this budget is to have a functional fi nancial plan for the primary purpose of analyzing fi nancial statements throughout the year. Having this fi nancial plan allows OP&F to monitor benefi t payment and contribution receipt levels and it will help highlight when items fall outside the assumption levels.

OP&F is anticipating a beginning net asset balance and a market value of $14.2 billion as of December 31, 2015. For the year 2016, OP&F is budgeting for a net assets increase approximately $459.3 million. Th e budgeted end of year net plan asset balance of $14.7 billion equates to a $15.7 billion market value of assets as of Dec. 31, 2016. Th ese fi gures are based estimating a 2.85 percent return on investments in 2015 and assuming an 8.25 growth rate of the beginning of the year

market value in 2016. Actual results will vary with the actual direction of the fi nancial markets during the remainder of 2015 and during 2016. Th is is unlike the other categories in this budget which some are more precise and predictable and vary with contribution and benefi t experiences beyond what is expected and not based on a specifi c target.

Contributions for employers and members are based primarily on the total annual payroll for all of OP&F’s estimated 915 multiple employers. OP&F is projecting $2.007 billion in annual payroll compared to $2.013 billion or a 0.3 percent decrease from the 2015 budget. Th is is calculated by taking the estimated 27,878 membership times the $71,998 average annual member salary which equates to the $2.007 billion in projected payroll. Th e decrease in the membership rolls from the 2015 budget and the average annual salaries paid to existing members are the major components of the base for contributions.

Active membership is expected to decrease to 27,878 from 28,452 or two percent and the average annual salary is expected to increase by 1.8 percent for the 2016 budget year. Th is budget will subsequently refl ect a 1.4 percent decrease in employer contributions budget and a 3.1 percent increase in member contributions. For 2016, it will be the fi rst full year at the statutory maximum member contribution rate as a result of pension reform legislation enacted in 2012.

Plan Additions

Employer ContributionsEmployers share of contributions – 19.5 percent for Police / 24 percent for FireOP&F is budgeting for employer contributions to decrease in 2016 by 1.4 percent to $433.8 million compared to the 2015 actual forecast of $439.9 million. Th e 2016 budget equates to a 1.3 percent decrease versus the 2015 budget. Th is attributed to a 2 percent decrease in active members than budgeted in 2015.

Historically, employer contributions have fl uctuated from a high of 9.1 percent growth rate in 2000 to a decrease of 1.6 percent in 2011. Th e expected fi ve year average change rate decreased from 1.7 percent to .6 percent last year.

Member Contributions Members share of contributions 12.25 percent, for both Police and FireAn increase of 3.1 percent to $248.8 million in 2016 over a 2015 actual forecast of $241.3 million is being budgeted. Although membership counts overall will decrease to 27,878 members, the average annual salary increased within the budget. Th is is also the fi rst full year of the maximum member contribution rate of 12.25 percent. In 2015 it was a blend of 11.5 and 12.25 percent. Th e 2016 budget for this category is 3.1 percent higher than the 2015 budget.

As a result of GASB 67, the requirement changed the way we must account for the DROP program on the fi nancial statements. We identifi ed a specifi c liability of DROP that was reduced from our net assets as a liability. Now the DROP program balance is included in our assets and no liability is recorded which increases net assets by $1.2 billion as of December 31, 2014. Th is contributions category also includes $2.9 million in estimated member purchases of prior service credit and transferring in from other Ohio retirement systems. Th is has been reduced in prior years due to the fact that

OP&F • page 30


many members escalated purchasing time in 2013 due to the law changes.

Member contributions have fl uctuated from an increased high of 11 percent growth rate in 2002 to a negative low of 2.4 percent in 2010. Th e fi ve year average growth rate is 1.7 percent which is up from 1.5 percent last year.

State of Ohio – Subsidies State contributions to fund certain legislated increases in benefi tsFor 2016 we have budgeted $430,000 for state subsidies. Th is is based on a declining membership population for which OP&F receives subsidized contributions from the State of Ohio.

Health Care Contributions Benefi t recipients’ contributions/premiums to the cost of their health careBenefi t recipients are expected to pay $77.5 million towards the cost of their health care in 2016. Th is refl ects a 5.4 percent increase from 2015 actual forecasted data. Th is increase takes into consideration the addition of new benefi t recipients as well as members terminating from DROP. Calculations were based on Buck Consultant’s health care solvency review and data analyzed by internal staff .

Contribution Income (in thousands)

Contribution type 2016 Budget 2015 Forecast* 2014 Actual 2013 Actual 2012 Actual

Employer Contributions $433,754 –1.4% $439,936 2.8% $427,889 2.3% $418,183 0.3% $417,039 2.3%Member Contributions 248,781 3.1% 241,299 7.7% 223,989 5.9% 211,474 19.1% 177,534 0.4%State of Ohio - Subsidies 430 –3.6% 446 –10.8% 500 –5.8% 531 –8.6% 581 –9.1%Health Care Premiums 77,495 5.4% 73,493 5.0% 69,966 5.1% 66,565 2.3% 65,066 4.1%Total Contributions $760,460 0.7% $755,174 4.5% $722,344 3.7% $696,753 5.5% $660,220 2.0%

*2015 Actual forecast is based upon the most recent actuarial valuation, actual data thru Sept. 30, 2015 and scheduled revenue receipts

Investment IncomeRepresents realized and unrealized gains and losses on the sale of investments, unrealized appreciation and depreciation on investments held, interest, dividends and allocated income, as well as other investment income which includes securities lending.

As of Oct. 2015, OP&F is estimating a 2.85 percent rate of return on investments for 2015. For purposes of this budget, beginning of the year market value of investments is estimated to grow based on the actuarial rate of 8.25 percent. Th is equates to a budget of approximately $1.17 billion in 2016 for the investment income category. Th is assumption is based upon an estimated beginning plan net asset balance and an estimated beginning market value of $14.2 billion on Jan. 1, 2016.

Due to volatility in the fi nancial markets and changes in the allocation of the Fund’s assets, these numbers can fl uctuate dramatically from one year to the next. Please see the analysis below for additional information related to investment income trends.

Th e past fi ve years has shown actual rates of return between our low of 2.57 percent in 2011 to a high of 16.94 percent in 2013. Th e 30 year annualized return equates to 8.87 percent based on the actual experiences and an estimate for 2015. OP&F will continue to target the 8.25 percent actuarial rate for purposes of budgeting until such a time as that rate is changed by the Board of Trustees. Th is allows staff to report and monitor results that vary from that target.

Investment Portfolio Rates of Return, 2010-2015 (2015 is an estimated return)

Year Rate of Return Year Rate of Return Year Rate of Return

2015 ....................................0.07% 2013 ....................................16.94% 2011 .........................................2.57%2014 ....................................6.74% 2012 ....................................15.41% 2010 ...................................... 15.85%

Gain (Loss) on InvestmentsTh is refl ects the realized gains and losses and unrealized appreciation and depreciation on our investments. Realized gains and losses are specifi cally tied to general market forces and investment performance. In addition, they are related to manager

OP&F • page 31


transitions and other specifi c buy and sell transactions. Th e unrealized portion of our investment income is also tied to general market forces and investment performance. However, this category is the gain or loss on securities that OP&F is currently holding in our investment portfolio. OP&F is budgeting for $853.7 million net gain on investments in 2016. OP&F takes a steady approach in predicting asset growth at the actuarial percentage rate of 8.25 percent. Th is is done in an eff ort to manage our overall fi scal plan compared to the actuarial rate of return and not attempt to predict future market returns.

Interest and Dividend Income Th is category typically runs consistent with historical trends and is tied to the mix of investments between equities and fi xed income products. Accordingly we have budgeted fi gures for 2016 to be consistent with trends observed as well as future trends in asset allocation. Master limited partnership income is included in this category.

Allocated Income Th is line item contains income from our commingled real estate, venture capital, and commercial mortgage investment holdings. We are planning for allocated income to decrease slightly in 2016 compared with the 2015 actual forecast.

Other Investment Income Th is category includes securities lending income, interest on commercial paper and international cash equivalents as well as miscellaneous income from security litigation settlements and other miscellaneous investment transactions.

Investment Income (in thousands) 2016 Budget 2015 Forecast* 2014 Actual 2013 Actual 2012 Actual

(at 8.25%) (at 7.65%) (at 6.79%) (at 16.94%) (at 15.41%)

Gain (Loss) on Investments $853,700 $70,857 $581,008 $1,790,125 $1,412,953 Fixed Income Interest 135,500 127,781 135,382 145,916 147,437 Dividend Income 131,300 87,638 100,490 94,061 100,766 Allocated Income 45,000 82,990 85,947 66,180 30,910 Other Interest Income 6,000 42,089 5,053 1,836 5,026 Total Invest. Income $1,171,500 $411,355 $907,880 $2,098,118 $1,697,092

*2015 Actual forecast is based upon actual data thru Sept. 30, 2015, projected through Dec. 31, 2015. Th e gain (loss) on investments line item will vary heavily on year-end fi nancial market results.

Interest on Employers’ LiabilityRepresents the long-term employer unfunded accrued liability to be paid off based on pre-determined amortization periods scheduled through the year 2035.

A budget of $1.02 million in 2016 is estimated for the interest on employer’s liability based on the current accrued liability amortization schedules. Th is line item will continue to decline over time as the scheduled interest payments for employer’s that have a long-term accrued liability continue to decrease with the principal amount due.

Other IncomeRepresents the interest and employer contributions for members transferring into OP&F, recoveries, rebates and Medicare Part D reimbursements for health care costs, fi nes for late fi ling of pre-employment physical documentation and other miscellaneous income

In 2016 we are budgeting approximately $21.9 million for other income related to the items listed above. Th is includes $4.3 million for member’s interest on transferring into OP&F, and $17.6 million for healthcare recoveries, rebates and Medicare Part D reimbursements.

Benefi ts 2016 Budget 2015 Forecast * 2014 Actual 2013 Actual 2012 Actual

Interest on Employer’s Liability $1,020 –6.2% $1,087 0.3% $1,084 –3.1% $1,119 –12.3% $1,276 –4.6%Other Income 21,900 –15.1% 25,809 9.2% 23,625 –12.0% 26,852 -6.8% 28,826 –25.3%Total Other Income $22,920 –14.8% $26,896 8.9% $24,709 –11.7% $27,971 –7.1% $30,102 –24.6%

(Shown in thousands) *2015 Actual forecast is based upon actual data thru Sept. 30, 2015 and the health care expectations based on the actuarial assessments.

OP&F • page 32


Plan Deductions

Pension Benefi ts (Service, Disability and Survivor benefi ts paid to members and survivors)Benefi ts for retirees and survivors are expected to increase to $973.8 million in 2016 over 2015 actual forecast of $955 million. Th is is a 2.0 percent increase from the 2015 actual forecast and a 1.8 percent increase over the 2015 budget. Th ere is a 3 percent cost-of-living adjustment for those eligible and due to the pension legislation changes many members will not receive increases until certain age and service requirements are met.

Pension benefi ts 2016 Budget 2015 Forecast* 2014 Actual 2013 Actual 2012 Actual

Service $650,107 3.4% $628,503 5.0% $598,830 6.3% $563,238 6.3% $529,864 8.1%Disability 242,534 –1.1% 245,309 1.3% 242,125 1.3% 238,913 2.6% 232,833 3.5%Survivor 81,165 0.0% 81,192 2.1% 79,545 3.6% 76,815 3.6% 74,174 3.6%Total Benefi ts $973,806 2.0% $955,004 3.7% $920,500 4.7% $878,966 5.0% $836,871 6.4%

(Shown in thousands) *2014 Actual forecast is based upon the most recent actuarial valuation, actual data thru Sept. 30, 2013 and scheduled cost-of-living adjustments.

DROP Benefi ts and Interest (Benefi ts for participants in the Deferred Retirement Option Plan (DROP) including pension, COLA and interest)In 2016, OP&F anticipating withdrawals for DROP to decrease slightly in 2016. Members in this program have seen a major change to the interest rate and benefi ts accruing into their accounts since the 2013 changes went into eff ect.

DROP benefi ts 2016 Budget 2015 Forecast* 2014 Actual 2013 Actual 2012 Actual

DROP Withdrawal $218,123 –0.3% $218,726 14.9% $190,420 –18.0% $232,213 9.5% $212,092 –12.0%

(Shown in thousands) *2015 Actual forecast is based upon actual data thru Sept. 30, 2015 then projected to December 31, 2015.

Health Care Benefi ts (Health Care coverage provided to members, dependents and survivors)Health care benefi t payments are expected to be $223.8 million in 2016, up from an actual forecast of $211.0 million in 2015. Separately, Medicare Part B reimbursements are expected to be $18.8 million in 2016, up from an actual forecast of $18.0 in 2015, there no increase in the premium for 2016. (see the last chart of this write up for the entire health care stabilization fund budget.)

Health care benefi ts 2016 Budget 2015 Forecast* 2014 Actual 2013 Actual 2012 Actual

Health Care $205,033 6.2% $193,058 6.0% $ 182,075 4.5% $ 174,277 1.5% $ 171,666 6.0%Medicare B 18,767 4.5% 17,963 2.5% 17,519 2.7% 17,059 8.1% 15,780 9.3%Total Health Care Benefi ts $223,800 6.1% $211,021 5.7% $199,594 4.3% $ 191,336 2.1% $ 187,446 6.3%

(Shown in thousands) *2015 Actual forecast is based upon actual data thru Sept. 30, 2015 and adjusted for known plan changes.

Administrative Expenses See separate narrative regarding the Administrative Operating Budget.

Depreciation Expense (Non-cash line item to recognize previously capitalized expenses)Depreciation expenditures are budgeted at $1.6 million in 2016 for a decrease of 8.5 percent over the 2015 actual forecast. Th is is based on prior year actual levels as well as future capital purchases through the capital budget.

Depreciation 2016 Budget 2015 Forecast* 2014 Actual 2013 Actual 2012 Actual

Depreciation expenses $1,610 –8.5% $1,759 0.2% $ 1,756 11.4% $ 1,577 –12.3% $ 1,799 –4.2%

(Shown in thousands) *2015 Actual forecast is based upon actual data thru Sept. 30, 2015 divided by 9 and multiplied by 12.

Member Refunds (Refund of member contributions due to the members withdrawal fr om OP&F) Th is category is an estimate of the amount of refunds OP&F expects to pay out to members in 2016. In 2016, OP&F is budgeting $12.0 million in member refunds, which is a 1 percent increase over the 2015 actual forecast of just under $12.0 million. Th e 5 year average increase is 1.9 percent.

OP&F • page 33


Other Expense (Miscellaneous expenses associated with plan administration)OP&F is estimating $100,000 for 2016 in other expenses based upon trends observed and the timing of doing routine write off s.

Other Expenditures 2016 Budget 2015 Forecast* 2014 Actual 2013 Actual 2012 Actual

Member Refunds $12,033 1.0% $11,914 –21.8% $15,234 –4.4% $15,938 –39.7% $26,448 20.3%Other Expense 100 1566.7% 6 –100.0% 12,184 16590.4% 73 –99.4% 11,611 46344.0%Other Expenditures $12,133 1.8% $11,920 –56.5% $27,418 71.2% $16,011 –57.9% $38,059 72.9%

(Shown in thousands) *2015 Actual forecast is based upon actual data thru Sept. 30, 2015 divided by 9 and multiplied by 12.

Health Care Stabilization Fund (HCSF) balances as of Dec. 31Th e below table is displayed for informational purposes only. As part of the budget process the health care stabilization fund is also budgeted. Components of this fund are budgeted based on experiences with enrollment, past cost histories, projected cost trends and other components are based on the employer contributions received and the investment earnings of the plan.

Benefi ts 2016 Budget 2015 Actual Forecast* 2014 Actual 2013 Actual 2012 Actual

Beginning Balance on January 1 $949,823 $1,031,941 $1,053,534 $935,605 $780,142

Retiree health care costs (205,033) (193,058) (182,075) (174,276) (171,667)Medicare Part B reimburesement (18,767) (17,963) (17,519) (17,059) (15,780)Retiree premium contribution 77,495 73,493 69,966 66,565 65,066 Rebates and recoveries 8,900 9,291 8,587 6,409 12,148 Medicare Part D subsidies 8,700 6,894 9,422 9,156 9,078 Employer contribution allocation 10,036 10,908 9,895 68,721 130,286 Investment return allocation 76,774 28,997 80,863 159,125 126,894 Administrative expense allocation (680) (680) (732) (711) (563)Projected Ending Balance as of Dec. 31 $907,249 $949,823 $1,031,941 $1,053,534 $935,605

(Shown in thousands) |

Budgeted fi gures are based on the following assumptions:

• Retiree Health Care Costs and Retiree Premium Contributions are budgeted based upon expected trend rates provided by the Actuaries and adjusted based on current enrollment trends.• Employer Annual Covered Payroll Contributions allocation to the Health Care Stabilization Fund (HCSF) = 6.75% for 2010-2012 and 4.69% (Jan-May) and 2.85% (June-Dec) for 2013.

Employer Annual Covered Payroll Contributions reduced to .5% January 1, 2014.• Investment Return Allocation to the HCSF is budgeted to equal the Actuarial Rate of Return of 8.25% for the year ending 12/31/2015.

*Th e employer contribution allocation rate for 2015 was reduced to .5 percent of total annual payroll which represents 2.3 percent of dollars employers pay for contributions. Police employers pay 19.5 percent and fi re employers pay 24 percent of total annual payroll, which is a blended rate of 21.60 percent (2.3 percent is allocated to health care) based on the last actuarial valuation. Th is rate was changed as part of the overall funding plan changes approved by the Board of Trustees in Feb. 2013.

For 2011-2013, the employer allocation rate was 6.75 percent of total annual payroll. Th e rate changed twice in 2013 once in January to 4.69 percent and then again in June to 2.85 percent. Th e 2014 rate was set at .5 percent which is what it is at for the 2016 budget.

OP&F • page 34


Statement of Changes in Total Net Plan Assets

2016 2015 2015 % 2014

Budget Fund Or Category Budget Forecast Budget Diff erence Actual

Annual Projected Additions

Employer contributions $433,754,162 $439,935,862 $434,980,040 1.1% $427,888,590 Member contributions 248,781,004 241,298,787 241,298,601 0.0% 223,989,055 State of Ohio subsidies 430,000 446,735 470,000 –5.0% 500,152 Health care contributions 77,495,130 73,492,860 74,537,302 –1.4% 69,965,747 Investment income 1,171,500,000 411,354,927 1,199,550,000 –65.7% 860,685,971 Interest on employers’ liabilities 1,020,000 1,087,459 1,020,000 6.6% 1,084,188 Other income 21,900,000 25,809,078 20,000,000 29.0% 23,624,627 Total Additions $1,954,880,296 $1,193,425,708 $1,971,855,943 -39.5% $1,607,738,330

Annual Projected Deductions

Pension Benefi ts $973,805,833 $955,004,219 $956,547,845 0.2% $920,500,306 DROP Benefi ts and Interest 218,122,954 218,726,210 220,943,827 1.0% 190,419,645 Health Care Benefi ts 223,799,930 211,021,144 215,346,106 2.0% 199,594,201 Administrative expenses, excluding capital 65,971,570 61,975,410 65,427,264 5.3% 16,200,525 Depreciation Expense 1,610,000 1,758,625 1,800,000 2.3% - Refunds 12,033,000 11,914,335 12,127,000 1.8% 15,234,370 Other expense 100,000 5,741 100,000 94.3% 12,184 Total Deductions $1,495,443,287 $1,460,405,684 $1,472,292,042 0.8% $1,341,961,231

Net Asset Increase $459,437,009 ($266,979,976) $499,563,901 –153% $265,777,099

Balances Beginning of Year*

Pension and other assets $13,268,585,931 $13,453,447,836 $12,341,322,258 9.0% $11,920,512,944 Health Care Stabilization Fund 949,823,131 1,031,941,202 1,027,056,633 0.5% 1,053,534,069 Total Plan Assets Balance $14,218,409,062 $14,485,389,038 $13,368,378,891 8.4% $12,974,047,013

Balances End of Year

Pension and other assets $13,770,597,321 $13,268,585,931 $12,871,727,339 3.1% $12,341,322,258 Health Care Stabilization Fund 907,248,750 949,823,131 996,215,452 –4.7% 1,027,056,633 Total Plan Assets Balance $14,677,846,071 $14,218,409,062 $13,867,942,791 2.5% $13,368,378,891

*Opening balance has been adjusted to refl ect market results and actual experiences in each category at the time the budget is prepared.

2016

Budget

$433,754,162 248,781,004

430,000 77,495,130

1,171,500,000 1,020,000

21,900,000 $1,954,880,296

$973,805,833 218,122,954 223,799,930

65,971,570 1,610,000

12,033,000 100,000

$1,495,443,287

$459,437,009

$13,268,585,931 949,823,131

$14,218,409,062

$13,770,597,321 907,248,750

$14,677,846,071

OP&F • page 35


2014 % 2013 2013 % 2012 2012 %

Budget Diff erence Actual Budget Diff erence Actual Budget Diff erence

$430,420,388 –0.6% $418,182,644 $422,315,322 –1.0% $417,038,685 $397,352,386 5.0% 204,338,584 9.6% 187,643,584 183,003,563 2.5% 177,533,755 162,542,369 9.2%

580,657 –13.9% 530,573 580,657 –8.6% 580,657 694,900 –16.4% 69,492,323 0.7% 66,564,696 68,562,063 –2.9% 65,066,253 65,136,580 -0.1%

1,136,400,000 –24.3% 2,098,117,953 1,027,125,000 104.3% 1,697,091,715 990,000,000 71.4% 1,092,000 –0.7% 1,119,204 1,300,000 –13.9% 1,276,330 1,000,000 27.6%

20,691,100 14.2% 26,852,264 20,691,100 29.8% 28,826,060 25,428,362 13.4%$1,863,015,052 -13.7% $2,799,010,918 $1,723,577,706 62.4% $2,387,413,455 $1,642,154,597 45.4%

$934,383,067 –1.5% $878,965,556 $850,960,676 3.3% $836,871,019 $820,928,012 1.9% 241,114,512 –21.0% 216,083,555 213,672,059 1.1% 212,092,447 239,708,134 –11.5% 219,162,921 –8.9% 191,335,860 191,346,415 0.0% 187,445,986 187,582,884 –0.1%

62,474,058 –74.1% 59,430,791 62,592,043 –5.1% 52,805,945 58,677,744 –10.0% 1,600,000 –100.0% 1,576,831 1,900,000 –17.0% 1,798,968 2,300,000 –21.8%

18,652,680 –18.3% 15,938,017 25,555,678 –37.6% 26,447,804 22,926,438 15.4% 50,000 –75.6% 72,743 10,000 627.4% 11,611 40,000 –71.0%

$1,477,437,238 –9.2% $1,363,403,353 $1,346,036,871 1.3% $1,317,473,780 $1,332,163,212 –1.1%

$385,577,814 –31.1% $1,435,607,565 $377,540,835 280.3% $1,069,939,675 $309,991,384 245.2%

$10,550,464,349 13.0% $10,602,833,997 $10,366,815,296 2.3% $9,688,358,143 $9,978,248,727 –2.9% 1,022,035,990 3.1% 935,605,451 917,331,091 2.0% 780,141,630 799,396,605 –2.4%

$11,572,500,338 12.1% $11,538,439,448 $11,284,146,387 2.3% $10,468,499,773 $10,777,645,331 –2.9%

10,928,010,296 12.9% $11,920,512,944 10,678,221,816 11.6% $10,602,833,997 10,215,300,776 3.8% 1,030,067,857 –0.3% 1,053,534,069 983,465,406 7.1% 935,605,451 872,335,940 7.3%

$11,958,078,153 11.8% $12,974,047,013 $11,661,687,222 11.3% $11,538,439,448 $11,087,636,716 4.1%

OP&F • page 36


2

1

3

4

5

6

1 Investments: 59.9%, $1,171,500,000

2 Employer Contributions: 22.2%, $433,754,162

3 Member Contributions: 12.7%, $248,781,004

4 Health Care Contributions: 4.0%, $77,495,130

5 Other Income: 1.1%, $21,900,000

6 Employers’ Interest: 0.1%, $1,020,000

7 State Subsidy: 0.0%, $430,000

7

2016 Total Plan Assets Budget Revenues by Category

2

1

3

45

6

7

1 Pension Benefits: 65.1%, $973,805,833

2

Health Care: 15.0%, $223,799,9303

DROP: 14.6%, $218,122,954

4 Administrative: 4.4%, $65,971,570

5 Refunds: 0.8%, $12,033,000

7 Other Expenses: 0.0%, $100,000

6 Capital Depreciation Expenses: 0.1%, $1,610,000

2016 Total Plan Assets Budget Expenses by Category

2007Actual

2016Budget

2015Forecast

2014Actual

2012Actual

2006Actual

2008Actual

2009Actual

$1,053 $1,061 $1,111$1,192 $1,192

$755$816 $868 $850

$595 $606 $652 $681 $683

$539 $570 $578 $573

Pension benefits paid, including DROP accruals

Employer and Member payroll contributions received

2010Actual

$903

$590

2011Actual

$1,028

$584

$1,200

$1,000

$800

$600

$400

$200

$0

Amou

nt in

mill

ions

2013Actual

2006–2016 Employer and Member Contributions Received versus Pension Benefi ts Paid

OP&F • page 37

Annual Budget for Fiscal Year 2016 • CAPITAL OUTLAY BUDGET

Capital Outlay BudgetAnnual Budget for Fiscal year 2016


OP&F • page 38

CAPITAL OUTLAY BUDGET • Annual Budget for Fiscal Year 2016

2015-2017 Capital Outlay Budget by category

2016 - 2018 Budget

Revised Budget Projected Prior Year 1st Year 2nd Year 3rd Year Three–Year

2015 Actual 2015 Carry Over 2016 2017 2018 Total

Offi ce Building

Carpet replacement $350,000 $— $350,000 $— $— $350,000 Sub-Total $350,000 $— $350,000 $— $— $350,000

Furniture and Equipment

Offi ce Furniture Replacement (OFR) $30,000 $— $30,000 $30,000 $30,000 $90,000 Sub-Total $30,000 $— $8,412 $30,000 $30,000 $90,000

Computer Hardware

PC Replacements $25,000 $ — $50,000 $200,000 $25,000 $275,000 Server/Network Replacements (Cisco) 225,000 — 225,000 225,000 75,000 525,000 Notebook Computers 11,400 — 26,400 - - 26,400 Network Printers 8,000 — 8,000 8,000 8,000 24,000 Scanners for Imaging 5,000 — 10,000 10,000 5,000 25,000 Sub-Total $274,400 $— $— $319,400 $443,000 $113,000 $875,400

Computer Software

V3 Change Orders $250,000 $122,985 $127,015 $122,985 $250,000 $250,000 $750,000 PAM Upgrade 57,000 970 Electronic Records Management (ERM) 66,715 54,878 54,878 V3 Browser Co-Development 55,000 37,370 Network Device Management Software 35,720 Security Information Event Management Log Mgr. 35,400 Protocol Analyzer/Packet Filtering Appliance 52,200 MS Dynamics - Phase 1 300,000 155,804 MS Dynamics - Phase 2 75,000 75,000 HelpStar Replacement 25,000 25,000 25,000 Test Network 83,800 45,799 Microsoft Offi ce Upgrade 48,000 48,000 27,000 75,000 Two-Factor Authentication 25,000 25,000 25,000 Oracle WebLogic Licensing 132,960 10,299 122,661 122,661 Electronic Records Management (ERM) 1,400,000 1,400,000 Replace or Upgrade Phone System 325,000 325,000 Egnyte Software 100,000 100,000 SQL Server Licensing 7,600 7,600 Transparent Data Encryption for Oracle Databases 128,100 128,100 Microsoft Exchange 2016 Upgrade 52,100 52,100 Cisco Firewall Upgrade 20,000 20,000 Endpoint Security with MicroVM Solution 120,000 120,000 Boardroom Audio Videw Control Console 10,000 10,000 Solid State Drive Upgrade 9,900 9,900 Sub-Total $1,166,795 $428,105 $347,676 $2,397,685 $250,000 $250,000 $3,245,361

Automobiles

OP&F vehicle $27,000 $27,000 Sub-Total $— $— $27,000 $— $— $— $27,000

TOTALS $1,821,195 $428,105 $347,676 $3,124,085 $723,000 $393,000 $4,587,761

OP&F • page 39


Th e capital outlay budget allows OP&F to plan and manage for the fi nancing of major fi xed assets and capital projects by segregating these activities from the administrative operating budget. Th e budget is projected over a rolling three-year period beginning in 2016 and ending in 2018, the fi rst capital budget was approved in 2005. Th e budget will be reviewed annually for changes based on priorities, technological advances and needs assessments.

While 2005 is the fi rst year for the creation of the capital outlay budget, previous years capital budgets have been reallocated to this separate budget for comparison.

Capital assets will be recorded at cost and managed according to OP&F’s internal Fixed Asset Accounting & Inventory Policy. Each asset will then be expensed through depreciation over a useful life period using the straight-line method. Th e useful life is determined based on warranty terms, historical experience, and expected experience.

Capital expenditures include purchases of computer hardware and soft ware, projects, furniture, equipment, building improvements and other related items. Items costing $5,000 or greater or have an estimated useful life in excess of one year will be budgeted to the capital accounts and depreciated on a straight-line basis. Major capital projects are also capitalized and typically involve soft ware and hardware initiatives.

Purpose of Separate Capital BudgetTh e dynamic nature of a capital budget will assist management with issues that previously arose when capital assets were planned in static administrative operating budget. Historically, OP&F experienced budget-spiking, delays in updating technology with the annual budget cycle and lacked the ability to communicate replacement cycles in dollars. Th e new environment will benefi t OP&F long-term with assessing the needs of the organization, making timely adjustments, and planning for future acquisitions and cash requirements.

Obligations for future infrastructure needs will be segregated from routine operations and Fund management will be able to keep priorities and adjust priorities as needs and emergencies arise. In addition, cash outlays can be anticipated and projected for communication with our Investment Department.

Th is capital budget will meet OP&F’s technology requirements and allow for fi nancial planning of necessary

purchases for our current PC’s and server equipment. OP&F can purchase and maintain warranties on computer hardware items to extend the life cycle and eliminate the need for staff resources to make repairs and rebuild.

Within the timeframe of the capital budget, PCs will be on a fi ve-year replacement schedule with the fi rst three years being under warranty and the last two years on a replace-as-needed basis. Th is fi ve-year schedule will allow OP&F to stay in the forefront of technology advances while at the same time decrease unnecessary spending and therefore save money. Due to security and technological advances in servers, all servers will be on a three-year replace-as-needed schedule.

Planning for capital outlay needs will help ensure that an eff ective inventory is kept on existing capital assets and replacement cycles. Th is will also help identify items that may not be living up to their expected life cycle due to wear, technology changes and reliability.

Priorities for 2016OP&F sets priorities for capital outlay based on the direction of the Executive Director, the Deputy Executive Director and the Board of Trustees. Factors that impact those priorities include the economy, technological needs and the work environment.

• Work on V3 Browser change orders as required • Replace computer hardware according to the

schedule or changes in priorities• Upgrade soft ware as requested to keep a secure and

up-to-date work environment for staff • Monitor the inventory of existing assets to determine

remaining service levels and establish a replacement cycle for existing capital assets

Capital Outlay Budget

OP&F • page 40


New Initiatives for 2016

Electronic records managementTh e goal of electronic records management, (ERM) is to manage all electronic fi les produced by OP&F in order support the fund’s needs for legal holds and e-discovery. It has the additional benefi ts of improving document search capabilities for the business partners and reducing the electronic fi le storage and support requirements. Th is includes any fi le created or stored internally with applications such as Word, Excel and Power Point or by other electronic means. All documents will be classifi ed as to their type or purpose and the ERM solution will automatically assign the correct, legally accepted retention period. At the end of the retention period, the destruction process will automatically initiate. Th is process includes the audit and review of all documents ready for destruction, an approval process with sign-off and fi nally the destruction of the electronic record. Each destroyed document will have audit information stored that explains the complete historical life cycle of the document. OP&F currently manages paper documents using its retention process. ERM will allow management of electronic documents in a similar manner to the current paper process.

In 2015, an ERM pilot for the Business & Technology Solutions department was successfully implemented. Th ere were approximately forty people storing documents in the ERM system which allowed the identifi cation of functionality gaps and an assessment of overall usability. Th e goal of this initiative is to implement ERM for the fund over the next couple of years. Each department’s needs will have to be assessed and the ERM system will be implemented based on those requirements. ERM will

be phased in one department at a time to allow for a full analysis of the impact on the department’s processes and procedures. Signifi cant training will be required for staff to eff ectively use the ERM system. Th ere are four major areas that need to be completed for a successful fund-wide ERM implementation.

Server Soft ware/HardwareAdditional soft ware and hardware will need to be purchased for the fund-wide implementation of ERM. Th e current SharePoint environment is not adequate to support the increased load that ERM will place on the current infrastructure. A new server farm will need to be installed and all of the soft ware and hardware to support the server farm will need to be purchased. ICC created the following recommendations for hardware and soft ware based on the fi ndings during the ERM pilot project.

Soft ware/Hardware Costs:Hardware – Will be paid for out of the planned capital budget and will not be added to the cost of the project.

• Total estimated cost for fi ve servers and a new storage device ..........$120,000

• Soft ware ....................................................... $75,000

Th ird Party Soft wareOne of the primary purposes of the ERM pilot was to identify any major gaps in functionality in an “out of the box” (OTB) implementation of records management in SharePoint. Two major gaps were identifi ed with an OTB implementation: a lack of auditing/tracking capabilities during the fi le destruction process and implementing

Depreciation Methods, Estimated Usefull Lifes and Salvage ValuesCapitalized assets will be adjusted for accumulated depreciation over their economic useful lives based on the following schedule. Special consideration will be given to unusual assets or assets with particular circumstances surrounding their acquisition. Any special consideration will be fully documented in the accounting and inventory records.

Salvage

Asset Type # of Years Method Values

Automobiles 5 years Straight-Line $0Copiers 6 years Straight-Line $0Computer Hardware 2- 3 years Straight-Line $0Computer Software 3-10 years Straight-Line $0Land improvement 20 years Straight-Line $0Equipment 10 years Straight-Line $0Furniture and Fixtures 10 years Straight-Line $0Building and Improvements 40 years Straight-Line $0Other assets 2-6 years Straight-Line $0

OP&F • page 41


the records management policies is too complex for non-technical users. During the ERM pilot, three third-party soft ware vendors were reviewed that provided functionality that should remedy these two major gaps. During the ERM implementation, OP&F will need to review these products to ensure that they correct the identifi ed gaps. Once the review is completed, a vendor will be selected to implement the third-party solution into the ERM environment.

Th ird-Party Soft ware Costs:• Implementation and Confi guration ....$140,000

• Yearly Maintenanc ..................................... $20,000

Consulting ServicesConsulting services will need to be purchased for setup and confi guration of the ERM environment. ICC worked on both the ERM proof of concept and the ERM pilot, and has a good understanding of OP&F’s needs. ICC provided the following recommendations based on their experiences with other ERM implementations and their experience while implementing the proof of concept and the pilot at the fund.

Services Costs:Resources are a Business Analyst, Project Manager, ERM specialist, and a SharePoint Administrator for two years.

Consulting Services ................................$1–1.2million

Staffi ngSome additional staffi ng may be required, or a shift of staff from their current responsibilities to new ones may be necessary. At a minimum, staffi ng will be required to support the ERM technical environment. Th e new SharePoint server farm will add complexity that current resources are not trained to maintain. To manage the new ERM system, OP&F could either contract some service time with a local consulting fi rm or could hire a SharePoint administrator. It is recommended that the fund contract services for a few years to determine the amount of work that is required. Aft er those fi rst few years, OP&F should conduct a cost benefi t analysis of hiring an Administrator versus contracting those services. Th e other position that will be required will reside in the RIM group. Th e ERM system will have a signifi cant volume of fi les that will need to be managed during the destruction process. Th e position would be responsible for overseeing the destruction process which would include reporting, auditing, review, approval and destruction. At the same

time, this position could manage the steps for the paper process. Th is position will also be responsible for setting up and maintaining the record schedules in the ERM system.

Staffi ng Costs:Staffi ng costs will likely occur aft er project implementation and therefore are not included in the cost of the ERM Project

• RIM Staff Cost ..................................$80,000/year

• SharePoint Administrator Cost .. $100,000/year

ResultERM will be a phased rollout to the organization that will take at least two years for completion. Th e fi rst part of the project will be to determine the department order and the timeframe for each implementation.

Benefi ts of using ERM for the organization:• ERM is fully searchable; it will make it much easier

for the business partners to fi nd documents.• ERM will enable e-discovery for litigation because

documentation is categorized and searchable. • ERM has built in legal hold functionality. Aft er

conducting a search, those documents can be placed into a legal hold area that will have a retention schedule based on the litigation requirements. Held documents can still be viewed and accessed as needed.

• OP&F will only keep documents for as long as they are needed based on the retention policy.

• Th e ERM system will have enhanced security features that provide OP&F with more fl exibility than currently exists with the present network storage.

• ERM will replace the OP&F common and shared drives for storing OP&F’s organizational data.

• Reduction of duplicate and old electronic fi les.• Potential reduction of storage space needed aft er the

fi rst retention cycle is processed.

Electronic Records Management .....................................$1.2–$1.4 million

Post project Annual Cost ...............................$200,000

OP&F • page 42


Replace or Upgrade Phone SystemRequestReplace the legacy phone system with a modern solution.

ResultTh e current phone system was installed in 1998 and is becoming more diffi cult to support as alternative solutions are becoming more popular. As it stands, there is another $120,000 in upgrades needed in order to make it sustainable for the foreseeable future. Continuing to invest money in an outdated PBX is only delaying the inevitable when the announcement is made that it can no longer be supported. Replacing with a newer telephony solution that could potentially include utilizing Voice over Internet Protocol (VoIP), will align with industry standards and allow for greater support.

• Upgraded Phone System .....$150,000-$325,000

• Required Telecomm Upgrades ..............$120,000

Egnyte Soft wareRequestPurchase soft ware that can be used by the disability physicians to complete and transmit disability information to OP&F in a secure manner.

ResultA project is underway to identify soft ware that can be used by the disability physicians to complete and transmit disability information to OP&F in a secure manner, but is simple to deploy and operate, clear to use and requires minimal training for deployment. Egnyte appears to be the best soft ware tool that will provide OP&F with administrative controls along with end-user access, fi le sharing and mobility for panel physicians and vocational experts to perform their review and recommendation of pending disability and death fund applications.

• Egnyte Soft ware ........................................$100,000

SQL Server LicensingRequestAdd additional SQL Server licensing for compliance with Microsoft ’s virtual machine licensing standards.

ResultBring OP&F into license compliance for the SQL Server test/dev/QA environment. At the time of the original license purchase, it was not known that virtual machines

(servers) require a minimum of licensing for four core processors; therefore, only two core processor licenses were initially purchased for the test/dev/QA environment.

• SQL Server 2014 Standard Edition core licenses (2 x $3,800) ........................... $7,600

Transparent Data Encryption for Oracle DatabasesRequestAdd the Advanced Security option to existing Oracle licensing.

ResultProvide an additional layer of security to aid in the prevention of data loss.

• 4 processor licenses x $15,000 + 150 named user licenses x $300 ....................$105,000

• Annual support: 4 processor licenses x $3,300 + 150 named user licenses x $66 ...................................... $23,100

• Oracle Database Encryption .................$128,100

Microsoft Exchange 2016 Upgrade RequestUpgrade our existing Exchange email server from Exchange 2007 to Exchange 2016

ResultInfrastructure will be made current, adding additional features and security patches that will be obsolete as Exchange 2007 reaches end-of-life April 2017 on server hardware that can no longer be supported.

• Exchange 2016 Server License (Estimated): .................................... $5,700

• Exchange 2016 User CALs (Estimated): 200 x $132 ............................ $26,400

• Windows 2012 CALs (Estimated): 200 x $40 ............................... $8,000

• Training ....................................................... $12,000

• Exchange 2016 Upgrade ........................... $52,100

OP&F • page 43


Cisco Firewall UpgradeRequestTh e Cisco ASA 5520 fi rewall’s operating system is in need of an upgrade. Need to transition the failover pair from its current version, 8.2(5)57 to the latest stable version, 9.2/9.3. Th is would involve working with a consultant to specify and implement a memory upgrade and translating the confi guration to the new version.

ResultTh is would provide a more stable perimeter environment and keep our security posture current.

• Cisco Firewall Upgrade ............................ $20,000

Endpoint Security with MicroVM solutionRequest Th e business partners are the weakest link in the security chain. Moving towards the isolation method this solution provides is a logical step. Every time a user opens an email or browses the Internet, micro-virtualization is used to isolate the task in a lightweight, disposable micro-VM. Once the task is done, the micro-VM is discarded, including any malware that may have been present.

ResultTh is solution would provide a more secure work environment and a stable security posture.

Example pricing for Bromium

• 250 licenses .................................................. $90,000

• Management Server ................................... $10,000

• Annual Support .......................................... $20,000

• Endpoint Security ...................................$120,000

Boardroom Audio Video Control ConsoleRequestPurchase and update the current audio video rack control console. Th e current Control 4 unit is beginning to fail, is out of warranty, and with its age, cannot support recent hardware updates to the board room audio and video systems. Because of this, technical support and repair for this model is becoming diffi cult to obtain.

ResultPurchase of the newest central control unit will restore automation and functionality and improve the quality of

audio and video systems for the Board members and public attendees.

• Upgrade Audio/Video Control Console ....................................... $10,000

Solid State Drive UpgradeRequest150 new Samsung 120GB solid state drives (SSD) for the remaining Dell OptiPlex 990 PCs that do not have one. Machines currently utilizing hard disk drives (HDD) are slow, the drives are out of warranty, and at nearly fi ve years running, are approaching the end of their expected life cycle which will ultimately lead to drives failing. Th e cloning of existing PC data from hard disk drives to SSD would provide improved response times, and extend the drive life of the workstation.

ResultPurchase will improve performance and extend drive life of OptiPlex 990 PCs not currently utilizing this technology.

• 150 Samsung SSD units @ $60 per .......... $9000

• 150 Kingwin 2.5”-to-3.5” mounting kits @ $6 per .....................................................$900

• SSD Upgrade ................................................ $9,900

OP&F • page 44


Review of 2015 InitiativesOf the 16 planned initiatives for 2015, three were completed, four are scheduled for completion, fi ve were carried over to 2016, 0 were cancelled and four are on a three year cycle.

Protocol Analyzer/Packet Filtering ApplianceCompletedRequest Compare, assess and purchase a Protocol Analyzer/Packet Filtering Appliance to help troubleshoot latency, confi guration problems and more.

Result Since this device will sit on the core switch, it will log and monitor every packet traversing it. It has the capability of being confi gured to store, replay and analyze transactions, with alerting functionality. It can be used in this fashion or in an investigative method in helping pinpoint trouble before users see it.

• Protocol Analyzer/Packet Filtering Appliance .................................... $40,000

• Training .......................................................... $5,000

• First year maintenance and support ......... $7,200

• Total .............................................................. $52,200

Network Device Management Soft wareCompleted RequestTh e ability to utilize soft ware tools to automate the confi guration, administration, and backup of OP&F’s Cisco networking assets.

ResultTh ese tools will provide enhanced troubleshooting and problem management capabilities as well as confi guration management that will assist in recovery situations and increase the overall security stature of OP&F’s internal and external networking devices.

• Network Device Management Soft ware ....................................................... $10,000

• First year maintenance and support .............$720

• Total .............................................................. $35,720

Security Information Event Management (SIEM) Log Manager Completed RequestCompare, assess and then purchase a SIEM log manager to aggregate and analyze logs from the corporate infrastructure.

ResultTh is tool will be a single pane dashboard into the health of the network. In order to drill down into an issue, logs from various infrastructure components need to be correlated to comprehend the root cause and assist in resolving the problem.

• SIEM log manager ..................................... $30,000

• First year maintenance and support ......... $5,400

• Total .............................................................. $35,400

PAM UpgradePlanned for completionRequestPrinceton Financial Systems (PFS) is requiring OP&F to replace the current PAM for Securities application that was implemented in 2000 with their new product, PAM for Investments. Th is product, built around the Windows.NET platform, has a Windows-based interface and a Microsoft Offi ce-like navigation.

ResultAccording to PFS, PAM for Investments off ers the following enhancements to the PAM for Securities that we currently use:

• Risk Management• Web-based reporting with user-defi ned dashboards• Full Net Asset Value (NAV) calculations for single or

multi-class fundsImplementation cost involved is budgeted as follows:

• Implementation and training .................. $12,500

• Travel expenses for two consultants ($1,000 x2) .............................. $2,000

• Total .............................................................. $57,000

When this initiative was prepared, it wasn’t known that Pervasive SQL was being dropped from support by PFS in 2015. Th is will result in as much as an additional $40,500 being spent on the project to migrate to MS SQL.

OP&F • page 45


Test NetworkPlanned for completionRequest – To build a permanent test environment to test any new soft ware, including patches, before installing on the production network, as well as determining the impact of network and security device confi guration changes. Th e following items are needed:

Internet Service ....................................$5,000 annually

1 ASA5520 with IPS ......................................... $16,000

1 Cisco Catalyst 3750 48 ports switch ............ $4,000

1 FortiGate 800C ............................................... $14,500

1 FortiMail VM .................................................... $1,600

1 CodeGreenNetworks DLP (repurpose old appliance) ..................................No cost

1 UPS ..................................................................... $4,500

1 ESXi Server for the virtual environment (hardware plus VMware licensing) ................ $30,000

1 Windows Server 2012 DataCenter edition ............................................. $5,000

1 MSDN Platforms subscription ...................... $2,200 (will require yearly subscriptions costs of roughly $700 aft er the fi rst year.

1 Dell Workstation similar to current production model .................................. $1,000

ResultTh is would provide a test environment that emulates our production network as closely as possible, but would be completely separate from our organization’s Local Area Network (LAN) so as to not aff ect day to day activities.

• Build a Test Network ................................ $83,800

• Annual Hardware maintenance and support ................................................... $7,220

• Annual T-1 circuit cost ............................... $5,000

• Annual MSDN renewal .................................$700

• Total recurring annual costs ..................... $12,920

Electronic Records Management (ERM)Planned for completion RequestIn 2014 we successfully implemented an Electronic Records Management (ERM) proof of concept (POC) system. Th e POC implemented four diff erent document policies with rules to determine the disposition of a document once they had reached the end of their retention period. Th e business analysts have been using the system for a number of weeks now and we have verifi ed that the document policies are working according to the rules that we defi ned. Our next step would be to expand the proof of concept into an ERM pilot. Th e ERM pilot would be rolled out to the entire Information Systems department and the department would use the systems for six months to determine ERM feasibility at a department level.

Several tasks will need to be completed to move from our current POC environment to the pilot environment. Th ese tasks would include:

• Engage an outside consulting fi rm to assist in the implementation of pilot system

• Defi ne major functional requirements for implementation of the pilot

• Departmental ERM• Audit Reporting of document disposition• Determine records policies to be implemented• Defi ne a Project Plan and Timeline for the pilot

system• Design an ERM environment• Implement and Test the ERM environment• Training of IS Staff on the ERM system

Th is initiative will involve researching products, determining feasibility and implementation of the pilot. Electronic Records Management (ERM) will be an extension of our current paper records management process. Th e goal of ERM is to classify and manage electronic records by assigning them a records retention category. Th e classifi ed record will then follow the rule of the category it has been classifi ed in.

ResultWe will implement and ERM pilot for the IS department to further prove the system’s ability and robustness and to determine any procedure or policy issues that may need to be addressed. Using lessons learned from the pilot we can then determine the feasibility of rolling out ERM to the entire organization.

OP&F • page 46


Th ese are some of the possible benefi ts of using ERM for the organization:

• ERM could replace the OP&F common and shared drives. Th is should reduce the amount of duplicate and old data stored.

• ERM is fully searchable; it will make it much easier for our users to fi nd documents.

• ERM will help with e-discovery for litigation because documentation is categorized and searchable. Finding specifi c documents will be much easier.

• OP&F will only keep documents for as long as they are needed based on the retention policy. Currently the common drives are fi lled with old and redundant data.

• Th e ERM system will have enhanced security features that provide OP&F with more fl exibility than we currently have with our current network storage.

• Electronic Records Management ........... $66,700

V3 Browser Co-DevelopmentPlanned for Completion RequestTh e request is to work with Vitech to create a Co-Development contract. Once the contract has been completed, we will train OP&F development resources in the new technology. Once training has been completed, OP&F development will be able to work on many of the requests that would normally be submitted to Vitech as change orders.

IS spent the fi rst half of 2012 researching V3 Co-Development, we talked to a couple of Co-Development customers and with Vitech. Based on what we learned, we believe Co-Development will be benefi cial to OP&F.

Here are some of the benefi ts discovered:

• Cost: OPF can control its overall expenses because our hourly cost for internal resources is a fraction of Vitech’s cost per hour.

• Priority: OPF’s fi rst priority is not necessarily Vitech’s top priority. With internal resources, we can control what is worked on and in what order.

• Urgency: Vitech’s ability to react to emergency situations is not as fl exible as ours. Critical items can still take weeks in the Vitech process. In emergencies, we will have the ability to assign OP&F resources to the task and make sure it is taken care of more promptly.

• Flexibility: Co-Development will improve our support capabilities via faster response times and direct end-user access to new tools and information. Th ese enhancements will positively aff ect our Members’ experience and improve our internal processes.

ResultCo-development enhances OP&F’s ability to deliver new capabilities to both our Members and employees in ways that we are not currently able to provide. We can be both inventive and creative in providing new solutions to our customers.

• V3 Browser Co-Development ................ $55,000

Two-Factor AuthenticationCarryover RequestIdentify and implement dual security mechanisms for enhanced remote access security.

Result Passwords are not as secure as they were in the past. When a password is compromised, account access and Personally Identifi able Information (PII) are within reach. Even having a strong password does not completely protect the organization. Two-factor authentication helps provide an additional layer of security by asking for more than just the password. It requires both “something you know”, like a password and “something you have”, like your phone. Aft er the user enters their password, they will have a code sent to their phone, and only aft er they enter it will they gain access to the resource. Th is would be implemented for remote access initially.

• Two-Factor Authentication ..................... $25,000

Microsoft Dynamics AX Financial and Procurement SystemCarryover and increase to $375,000 RequestMS Dynamics will be purchased and installed as a replacement to the current CODA System (purchased in 1996). An RFP was conducted and the MS Dynamics presentation best suited OP&F’s fi nancial and procurement needs and vision for the future. It will allow for newer technology and more user friendliness to be embedded into our accounting processes. Th e system is promoted to public sector clients. We feel that the new

OP&F • page 47


system will carry us into the future in providing quality reporting and greater system functionality.

Phase Two Phase two of the implementation plan will consist of the confi guration of the fi xed asset module and the conversion of the fi xed asset data. In addition, training and confi guration of the budget planning module and the vendor portal component for procurement will be setup. Th e estimated cost for this phase is $75,000.

• MS Dynamics Phase Two ......................... $75,000

ResultTh e soft ware and hardware will be put into place and then set up to meet the needs of the organization. Th e chart of accounts and historical balances will be imported from the existing system. One of the goals is to have more timely fi nancial analysis and greater effi ciencies. A project team will be assigned from Tyler Technologies and OP&F to begin planning, implementing and training on the product. Th e estimated cost for this is $300,000.

• MS Dynamics ...........................................$300,000

Oracle WebLogic Licensing CarryoverRequestReplace current Oracle Application Server licensing with Oracle WebLogic licensing.

ResultTh is would allow Vitech to transition OP&F from Oracle Application Server to Oracle WebLogic which is Oracle’s current application server soft ware environment. Premier support for Oracle Application Server ended in June 2014 as Oracle expects customers to migrate to Oracle WebLogic. OP&F is paying an increased amount to receive Extended support. Extended support for Oracle Application Server is slated to end June of 2017.

If Oracle allows some type of migration credit, this cost could be less, but we must assume full price for budgeting purposes.

WebLogic Server Standard Edition• Processor perpetual license ($10,000 per license x 6

processor licenses) ...................................... $60,000

• WebLogic Server Standard Edition – Processor soft ware update license and support – ($2,200 per license x 6 processor licenses) .................. $13,200

• WebLogic Server Standard Edition – Named User Plus – ($200 per license x 40 named user plus licenses) ...................... $8,000

• WebLogic Server Standard Edition – Named User soft ware update license and support – ($44 per license x 40 licenses) ................... $1,760

• Soft ware Licensing ..................................... $82,960

• Vitech Migration Services ........................ $50,000

• WebLogic Migration ...............................$132,960

HelpSTAR Replacement CarryoverRequestTh e request is to fi nd and purchase a best in class problem tracking soft ware application. Th e HelpSTAR soft ware used to log and track issues and their resolutions was implemented in 1999.

ResultExplore other problem tracking solutions and determine potential benefi ts over existing product. Purchase of a new product should result in effi ciencies.

• Problem tracking soft ware replacement ................................. $25,000

Microsoft Offi ce Upgrade Carryover and increase to $75,000RequestPurchase newest version of Offi ce. Our current version of Offi ce is nearly eight years old. Offi ce 2007 is still being supported by Microsoft from a security standpoint, but there are no new soft ware updates for hardware or soft ware issues that may be encountered. Th e newest version of Offi ce will provide much better integration with SharePoint 2013, Dynamics AX and Electronic Records Management.

ResultPurchase of the newest version of offi ce will allow for extended capabilities in other products used at the Fund, as well as be fully supported by Microsoft .

• Offi ce Upgrade ........................................... $48,000

OP&F • page 48


V3 Contingency for Change Orders 3 year planning cycleRequest To include a contingency plan for required programming of our pension administration system needs.

ResultTh is contingency is for legislative changes and change orders.

• V3 Change Orders Contingency ..........$750,000

Computer Hardware Replacement Cycle 3 year replacement cycleRequestTh is recurring budget item represents Capital computer hardware related to PC, servers, scanners, network replacements, notebook computers and switch replacements.

ResultTo include a contingency plan for computer hardware as replacements become necessary.

• Computer hardware replacement cycle .....................................$875,400

New Carpet for all OP&F Floors 3 year replacement cycleRequestTo furnish the necessary labor and material to demolish and haul from the existing carpet area, prep and skim sub fl oor. Furnish and install, by direct installation, new commercial 30oz., 12’ wide carpet with new 4” vinyl base as required. Th e existing wood base will remain.

ResultTh is will allow for an improved appearance of worn out carpet over the next 3 years.

• New Carpet for all OP&F fl oors ..........$353,081

Offi ce Furniture Replacement3 year replacement cycleRequest To include a budget allocation for furniture replacement as departmental needs arise. Th ere are no specifi ed furniture purchases at this time.

ResultTh is will allow for improved function and appearance by replacing old and damaged furniture under a 3 year cost replacement cycle.

• Offi ce Furniture Replacement ................. $90,000

OP&F • page 49

Annual Budget for Fiscal Year 2016 • ADMINISTRATIVE OPERATING BUDGET

Administrative Operating BudgetAnnual Budget for Fiscal year 2016


OP&F • page 50

ADMINISTRATIVE OPERATING BUDGET • Annual Budget for Fiscal Year 2016

OP&F Organizational Chart

OP&F Members

Information ServicesMail Services

Records CenterProcurement

J. HarvilleMember Services

Department

T. HallInvestment

Department

Benefi t Payments and Compliance

Customer ServicePension Contributions

Prior ServiceProcessing

Asset OversightCompliance

Investment AccountingInvestment Management

Financial ReportingGeneral Accounting

InsuranceBudgeting

Tax ReportingEmployer ServicesBuilding Services

Memorial Park

Board of Trustees

J. GallagherExecutive Director

M. FoleyGeneral Counsel

Administration Department

CommunicationsHuman Resources

Legal Services

C. SparksChief Audit Executive

M. GatewoodBusiness and Technology

Services Department

S. MillerFinance

Department

OP&F • page 51


2016 Total Administrative Operating Budget (in thousands)

2016 2015 Variance $ Variance % 2015 2015 2015 2014

Budget Category Budget Forecast 2015 Forecast 2015 Forecast Budget Variance $ Variance % Actual

Personnel Services

Salaries $9,666 $8,636 $1,031 11.9% $9,061 $606 6.7% $8,799 Employee Benefi ts 2,760 2,104 656 31.2% 2,801 (41) –1.5% 2,465 Employer Payroll Expense 1,593 1,369 223 16.3% 1,498 94 6.3% 1,406 Sub-Total $14,019 $12,109 $1,910 15.8% $13,360 $659 4.9% $12,670

Work Environment Offi ce Rent $1,242 $1,225 $17 1.4% $1,242 $- 0.0% $1,226 Maintenance and Repairs 1,166 1,043 123 11.8% 1,053 113 10.7% 923 Legislative Expenses — — — — — — — — Mailing Expense 264 187 76 40.7% 264 (1) –0.2% 253 Printing and Publications 103 59 44 74.1% 100 3 2.6% 66 Offi ce Supplies 114 69 45 66.2% 114 — 0.0% 99 Offi ce Equipment 120 60 60 100.8% 112 9 7.7% 103 Insurance Administrative 247 146 101 69.4% 244 2 1.0% 225 Recovery Plan and Contingency 159 47 112 237.7% 157 2 1.1% 45 OP&F Sponsored Seminars 14 10 4 38.1% 13 1 7.4% 12 Business Travel 101 71 30 41.7% 95 6 6.1% 63 Business Expense 56 42 13 30.9% 58 (2) –3.7% 47 Trustee Training 24 16 8 48.1% 18 5 29.0% 12 Employee Training 111 72 39 54.1% 130 (19) –14.8% 61 Telephone Services 70 51 19 37.5% 70 — 0.0% 54 Dues and Subscriptions 101 98 3 3.0% 110 (9) –7.9% 72 Miscellaneous Expenses 33 23 10 43.9% 33 0 0.2% 27 Sub-Total $3,923 $3,219 $704 21.9% $3,813 $110 2.9% $3,288

Outside Services Investment Services $44,698 $44,234 $464 1.0% $45,050 $(352) -0.8% $43,484 Bank Custody Fees 984 745 239 32.1% 960 24 2.5% 691 Actuarial Services 384 326 58 17.8% 444 (60) –13.5% 374 Audit Services 135 125 10 8.1% 134 2 1.1% 108 Legal Services 384 350 34 9.8% 417 (33) –7.8% 267 Disability Medical Service 591 539 52 9.7% 667 (76) –11.3% 408 Public Relation Consultants — — — — — — — 3 Bank Charges 89 61 28 46.5% 89 — 0.0% 80 Ohio Retirement Study Council 153 46 107 229.2% 53 100 188.7% 38 Legislative Consultants 87 86 1 0.6% 86 1 0.7% 85 Personnel Recruitment 19 19 0 1.2% 16 3 21.4% 11 Temporary Employees — — — — — — — — Contract Staffi ng — — — — — — — — Health Care Consultants 250 25 225 900.0% 25 225 900.0% — Other Professional Service 256 145 111 77.1% 316 (60) –18.9% 130 Sub-Total $48,030 $46,701 $1,329 2.8% $48,255 $(225) –0.5% $45,680

TOTAL OPERATING $65,972 $62,028 $3,944 6.4% $65,427 $544 0.8% $61,638

*Figures may not add due to rounding dollars to the nearest thousand.

OP&F • page 52


Th is review will outline the recommended administrative operating budget for 2016. Th is analysis will highlight the formulation of the budget and the variances between the 2016 budget against the 2015 actual forecast and 2015 approved budget.

Th e 2015 Actual forecast column represents the anticipated actual expenditures for 2015. Th e 2016 Budget column includes new activities for 2016 and items that are anticipated or estimated to be spent in 2016, regardless of the spending level in 2015. Both comparisons must be shown to explain the entire set budget variances and changes. Th e actual forecast is calculated one of two ways; 1) by the department reviewing and calculating what is projected to be spent by the end of the year or 2) for routine operating categories the fi rst seven months actual was divided by seven and multiplied by twelve to obtain an annualized calculation.

Th ere is a .8 percent budget increase in the Administrative Operating Budget in 2016 to 66.0 million compared to $65.4 million in 2015 or $544 thousand increase. Operating costs are budgeted at a 4.2 percent increase or by $927 thousand and investment service fees are budgeted to decrease .8 percent or by 352 thousand in 2016.

By category the .8 percent increase can be broken down as 4.9 percent increase in personnel services, 2.9 percent increase related to work environment, and .5 percent decrease in outside/professional services. OP&F is anticipating a 6.4 percent increase in the overall operating costs compared to the 2015 actual forecast.

SalariesEach year the Human Resources Manager calculates the salary and wage spending for the budget. Th is process begins in August by calculating the base wage spending level as of a pay date (Sept. 25, 2015 was used for 2016 budget) for all fi lled positions. Th is fi gure is then adjusted for vacant positions that are not going to be eliminated in the following budget cycle. An amount is then calculated for the wage spending levels for merit, on-call pay, promotions, overtime, attrition, vacation and sick termination payouts and an amount for equity adjustments based on the Executive Directors direction. Th ese items are outlined at the bottom of this page for the 2016 budget:

Employee Benefi tsA decrease of 1.4 percent is anticipated from the 2015 budget. Th is is related to the health care costs and decreases to the Employee Activity Expense.

Benefi t Description Estimate

Health insurance $2,306,570 Group life insurance 47,401 Sick leave buyback program 252,133 Vacation buyback program 91,282 Parking/bus passes 6,120 Tuition reimbursement 40,000 Employee Activity Expense 16,584 Total Employee Benefi ts $2,760,090

Employer Payroll ExpenseTh ere is a 6.3 percent increase from the 2016 budget due to increases in OPERS and Medicare costs due to the

2016 Total Administrative Operating Budget Review

Salary and Wage Spending $ Estimate Spending

2015 Base Wage Spending Level

$9,089,284 Wage Spending Level as of Sept. 25, 2015 (145 full-time)2016 Additional Adjustments to Wage Spending Level

272,678 3.0 percent average merit budget for eligible staff 2,600 On–call pay for Information Services support 11,509 Overtime estimate based on actual 2015 forecast and 2016 needs (136,339) Attrition savings for timing of open positions in 2016 and turnover 185,467 Longevity ($100 per year of OP&F service, per staff member) 24,700 High performer/profi ciency promotion, limited to known items in 2016 10,000 2016 Equity budget for compensation studies 108,627 2016 Compensation changes 97,950 Headcount increase $ 577,193 Total 2016 additional adjustments to wage spending level (143 employees)

$9,666,476 GRAND TOTAL 2016 WAGE SPENDING LEVEL (145 full time employees)

Th e 2015 actual forecast salaries are refl ecting a 11.9 percent increase, which refl ects the wage spending level for open positions throughout the year being fi lled by 2016, the proposed merit increase and two new headcount being added.

OP&F • page 53


merit budget and the additional positions in 2016. Th is line also includes claims from workers compensation and unemployment.

Offi ce RentIncludes an allowance for common area maintenance, plus additional amounts expected for end-of-year true up of building work orders and an additional amount to ensure increases in operating expenses (based on tenant occupancy rate) and utilities costs are covered if needed. Th e budget is fl at from 2015.

Maintenance and RepairsTh is category is budgeted to increase 10.7 percent compared to the 2015 budget. Th e increase is due to maintenance contracts starting in 2016 for several purchases from 2015 for the 1st time. Th e goal is to pay for maintenance agreements and only pay for repairs as a last resort.

Legislative Expense No money is being budgeted for legislative receptions or mailings.

Mailing Expense Mailing expenses are showing .2 percent decrease from the 2015 budget. Th is amount is refl ecting the overall eff orts to reduce physical mailings and replace with electronic notifi cations whenever possible.

Printing and PublicationsPrinting fees are expected to increase by 74.1 percent from the actual forecast for 2015. Th ere is a 2.6 percent increase in the budget from 2015. Th ere were several projects that were not completed that were budgeted for in 2015 that are part of the 2016 budget fi gure.

Offi ce Supplies Th e budget for 2016 remains fl at from 2015. In the 2015 forcast we did not use as much as budgeted for.

Offi ce Equipment Th e 100.8 percent increase over our 2015 actual forcast variance refl ects the fact that equipment is not purchased unless needed or broken. Areas will budget for various equipment need under their management, however, purchases are not incurred unless necessary. Th e budget in this category has increase by 7.7% on projected needs.

Insurance Administrative A 1.0 percent increase from the 2015 budget. Th is is directly related to the insurance market conditions.

Recovery Plan and ContingencyTh e $100,000 contingency is being budgeted.

OP&F Sponsored SeminarsSeminars are estimated each year based upon expected training and site locations. Th e 38.1 percent increase over our 2015 actual forecast is due to adding in employer seminars in 2016 and increased lodging costs. Th e 2016 budget is increased 7.4% from the 2015 budget.

Business TravelTh e amount of travel in 2015 and is expected to increase 6.1 percent over the 2015 budget. Th is is related to reallocating travel needs that have been taken out of previous budgets. Th ere is still a thorough approval process before any trips are taken.

Business Expense Business expenses are estimated so that funds are available based upon needs for the upcoming year. Th ere is a 3.7 percent decrease in the budget lines.

Trustee Training Estimates are used to ensure that money is available when trips are approved. Th ere is a 29 percent increase or $5,000 due to increase in specifi c training requested for 2016. However, the budget refl ects a 48.1 percent increase over the actual costs for 2015 due to the actual trips that were taken.

Employee Training Education, certifi cation and conference travel were held to a minimum in the past several years. Th is account is expected to increase over 2015 actual forecast by 54.1 percent. Th ere is a 14.8 percent decrease from the 2015 budget due to the planned activities for 2016.

Telephone Services Telephone services are budgeted based upon averages for local, long-distance and dial-up services. Th is expense line is being held fl at from the 2015 budget.

Dues and Subscriptions Expected to be 3.0 percent higher than the 2015 actual forecast. Th e expense line is 7.9 percent less than the 2015 budgeted amount.

Miscellaneous Expense Estimated based upon the number of member/retiree guest visits and other miscellaneous items as necessary.

OP&F • page 54


Investment Services Th e 0.8 percent decrease from the 2016 budget and the actual forecast is increased by 1.0 percent based some fee arrangements going from direct pay which is considered on budget to indirect pay which is off budget. Each investment category was carefully reviewed to establish the 2015 budget.

Bank Custody Th ere is a 32.1 percent increase in fees compared to the 2015 actual forecast due to the estimated banking activity in 2016.

Actuarial Services Services in this area are budgeted at 13.5 percent lower than the 2015 budget due to several projects not needed in 2016 that were part of 2015 budget.

Audit Services Audit services are expected to increase by 8.1 percent over the 2015 forecast due to additional census testing costs planned for 2016.

Legal Services Th is category refl ects a 9.8 percent increase over the actual forecast due to the items that have timing diff erences and other items identifi ed by the legal area that could occur in 2016.

Disability Medical Services Th is item is based on the number of members sent for exams and the consulting done by outside doctors. For 2016 the is a decrease of 11.3 percent.

Public Relations Consultants No spending in this category is being allocated to the 2015 budget at this time.

Bank Charges Commercial banking services are estimated based upon the prior year’s averages and changes predicted in banking transactions. OP&F is expecting the line to remain fl at from the 2015 budget.

Ohio Retirement Study Council ORSC fees based on the percentage of OP&F’s plan assets compared to the total of the other Ohio Retirement Systems total plan assets. For 2016 there is a 188.7 percent increase from 2015 budget due to a actuarial audited that must be done once every ten years.

Legislative Consultants Retainer services are expected to change very slightly over the 2015 level.

Personnel Recruitment Th is account is used for advertising job vacancies in local newspapers and reference check services. We estimate each year the number of advertisements that may be needed based on historical turnover.

Health Care Consultants Related to outside services required for health care data. Th ere will be a consultant used to Health care expertise in 2016.

Other Professional Services A decrease of 18.9 percent in the 2016 budget from the 2015 budget. Th is is due to the number of elections needed for 2016 are less than 2015. Other professional services also contain items for consulting, soft ware consulting, records retention, and other outside service provider fees.

2016 Budget SummaryTOTAL OPERATING BUDGET $65,971,570 0.8% increase over 2015

Operating Costs $22,791,768 4.3% increase from 2015Investment Mgt. Fees $43,179,802 0.9% decrease from 2015Total Operating Budget $65,971,570 0.8% increase over 2015

2016–2018 Th ree–Year Capital Budget SummaryTOTAL BUDGET $4,587,761 3-YEAR CAPITAL BUDGET

Offi ce Building $350,000 7.6% of overall capital budgetFurniture & Equipment $90,000 2.0% of overall capital budgetV3 Costs –Software $750,000 16.3% of overall capital budgetComputer Hardware $875,400 19.1% of overall capital budgetComputer Software $2,495,361 54.4% of overall capital budgetAutomobile $27,000 0.6% of overall capital budgetTotal Capital Budget $4,587,761 100% of 3-Year Capital Budget

OP&F • page 55


Operating Budget Highlights

Investment Services Fees$44,697,979 represents a decrease of 0.8 percent from the 2015 budget. Due to a downturn in the markets from this time last year, this decrease is driven by the use of an asset base that is more than 4.9 percent lower than a year ago to project 2015 management fees. Although we are starting with a lower asset base, projections include shift ing assets from lower fee strategies such as passive equity into more expensive strategies such as master limited partnerships, core fi xed income, and global infl ation protected securities. Furthermore, fees relating to consulting, quotes & data, research and analytical services will increase by $35,097. Some of the items behind this increase are: the addition of amaces, a custody monitoring service; infl ation adjustments to consulting fees and research services; and an increase in service fees for our Bloomberg terminals and Iran/Sudan data feeds.

Custodial FeesTh e $984,000 budgeted amount represents an increase of 2.5 percent from the 2015 budget. Th ese fees represent costs associated with the custody of our portfolio accounts and are generally based on the market value of the underlying securities and/or the level of account activity. Th e increase is attributed mainly to higher international custody fees. OP&F recently transitioned two low cost commingled fund accounts into separate account structures that will now incur transaction fees. OP&F projects international custody fees of $684,000 for JPMorgan Chase Bank, and domestic custody fees of $300,000 for Huntington National Bank.

Actuarial Services$384,000 – Th e budget for this service has decreased by 13.5 percent primarily due to the analysis of prior costs and the consolidation of several projects now part of the monthly retainer change.

Disability Medical Services$590,900 –Th is total represents costs related to the independent medical and vocational evaluation of disability applicants, annual mandatory medical evaluations of disability benefi t recipients, and DEP\Board Advisor physicians and vocational experts. Th is is an 11.3 percent decrease from the 2015 budget due to a slowing trend in disability applications which results in lower cost for exams and physician evaluations.

Ohio Retirement Study Council$153,000 – Th e increase of $100,000 from the 2015 budget is due to the potential for an actuarial audit in 2016.

Maintenance and Repairs$1,165,942 – Th is is a 10.7 percent increase from the 2015 budget. Th is increase is due to dollars needed for Hardware/Soft ware Maintenance and Support for Fortinet, Vitech, PAM and Microsoft Dynamics AX as well as the potential addition of Egnyte soft ware for the disability fi les for physician evaluations.

Initiative Highlights

Health Care Consulting ServicesIn 2015, OP&F began the RFP process to identify a vendor who will assist OP&F in evaluating and selecting the best options available in the health care marketplace in light of the Patient Protection and Aff ordable Care Act of 2010 (PPACA). Th is project will continue into 2016 to help OP&F research and identify the best possible health care plan options for OP&F retirees, members dependents, survivors and employees. We have established a budget amount of $250,000 for the overall project, which we expect will have fi xed fees assigned to specifi c portions of the project with hourly rates paid thereaft er.

Recognition of OP&F’s 50th yearOP&F began paying benefi ts as of Jan. 1, 1967, making 2017 the system’s 50th anniversary year. Since the specifi c anniversary is January 2017, the planning and associated costs will primarily occur in 2016. At the direction of the Executive Director, a planning committee will be formed to propose ideas, plan and manage activities designed to commemorate OP&F’s 50th anniversary. Proposed budget for this initiative is $5,000.

Personnel Highlights

Personnel Services$14,019,095 is budgeted and represents an increase of 4.9 percent from 2015. Included in the increase is a proposed average 3 percent merit increase for eligible staff plus the adjustments resulting from the compensation study. Full time headcount is 145 up two from 2015.

OP&F • page 56


Administrative Operating Budget and Actual ComparisonBudget Actual Revised Budget Budget Budget % Change % Overall

Category 2014 2015 2016 2015–2016 Budget

Personnel Services $12,670,146 $13,359,746 $14,019,095 4.9% 21.3%Work Environment $3,287,600 $3,812,504 $3,922,595 2.9% 5.9%Outside Services $45,680,431 $48,255,014 $48,029,880 -0.5% 72.8%TOTAL $61,638,177 $65,427,264 $65,971,570 0.8% 100.0%

Administrative Operating Summary Totals by Department2016 Budget 2015 Budget $ Change % Change

Operating Budget $65,971,570 $65,427,264 $580,369 0.8%

Administration Department $5,279,681 $6,286,467 $(1,010,722) –16.1% Finance Department $2,691,351 $2,813,486 $(122,135) –4.3% Investment Department $4,468,097 $4,163,438 $304,659 7.3% Investment Management Fees $43,179,802 $43,566,574 $(386,772) –0.9% Member Services Department $4,576,255 $4,362,292 $213,963 4.9% Information Services Department $5,717,854 $4,138,248 $1,579,606 38.2%

Trustees $98,528 $96,758 $1,770 1.8%Total Proposed Budget Including Management Fees $65,971,570 $65,427,264 $580,369 0.8%

Total Proposed Operating Budget $22,791,768 $21,860,690 $967,141 4.3%

Total Proposed Capital Budget 2016-2018 $4,587,761 $2,982,195 $1,605,566 53.8%

Personnel Position Changes, 2014-2016 (full–time only)

Year Department Budgeted Position # of Positions

2016 Administration Deputy Director 12016 Finance Financial Services Director –12016 Finance Employer Services Specialist 12016 Investments Investment Analyst 1

Position changes in 2016: 2

2015 Administration Deputy Director –12015 Information Services Information Services Director 12015 Member Services Prior Service Support Specialist 12015 Administration Member Education/CSR’s (transfer) -112015 Member Services Member Education/CSR’s (transfer) 11


2014 Information Services Network Administrator 12014 Administration Member Education Representative 12014 Member Services Contributions Manager –12014 Member Services Processing Supervisor 12014 Finance Accounting Specialist –1


Position Summary by Department (full-time equivalents)

Administration Finance Investment Bus. & Tech. Solutions Member Services Total Full Time

2016 19 21 15 44 46 145

2015 36 21 14 26 46 143

2014 48 21 14 25 34 142

Investment Management Fees $43,179,802 $43,566,574 $(386,772) –0.9%

Executive Summary and Personnel Highlights

OP&F • page 57

Annual Budget for Fiscal Year 2016 • DEPARTMENTAL REVIEW

Departmental ReviewAnnual Budget for Fiscal year 2016


Administration DepartmentFinance Department

Information Services DepartmentInvestment Department

Member Services DepartmentBoard of Trustees

OP&F • page 58

DEPARTMENTAL REVIEW • Annual Budget for Fiscal Year 2016

Administration Department

J. GallagherExecutive Director

Director Manager/Supervisor

Staff

Y. McElroyExecutive Assistant

K. PointerHuman

ResourcesManager

S. MillerDeputy

Executive Director

D. GrahamCommunications

Manager

M. FoleyGeneral Counsel

Terri RowanParalegal

C. HardenAdministrative

Assistant

K. O’NealAdministrative

Assistant

Pam PattonAdministrative

Assistant

L. HertaEmployee Benefi ts

Counselor

E.EramoCommunications

Coordinator

K. TruszDesign Specialist

B. HolodnakSr. Staff Attorney

T. RankinStaff Attorney,

Associate

S. GrotskyLegal

Secretary

A. GoldenLegal

Secretary

C. HershnerParalegal

T. HallChief

InvestmentOffi cer

J. HarvilleMemberServices Director

C. SparksCheif Audit Executive/ Privacy and

Ethics Offi cer

Board of Trustees

M. GatewoodInformation

Services Director

OP&F • page 59


Administration Department Budget (in thousands)* 2016 2015 Variance $ Variance % 2015 Variance $ Variance % 2014

Budget Category Budget Forecast 2015 2015 Budget 2015 2015 Actual

Personnel Services Salaries $1,652 $2,101 $(449) –21.4% $2,222 $(570) –25.7% $2,690 Employee Benefi ts 474 527 (53) –10.1% 784 (310) –39.6% 716 Employer Payroll Expense 312 338 (25) –7.5% 402 (90) –22.4% 440 Sub-Total $2,438 $2,966 $(528) –17.8% $3,408 $(970) –28.5% $3,845

Work Environment

Offi ce Rent $1,242 $1,225 $17 1.4% $1,242 $ — 0.0% $1,226 Maintenance & Repairs 29 (3) 33 –1026.3% 54 (25) –45.8% 33 Legislative Expenses — — — — — — — — Mailing Expense 264 187 76 40.6% 264 (1) –0.2% 253 Printing and Publications 94 59 35 58.7% 100 (7) –6.5% 66 Offi ce Supplies 114 69 45 66.2% 114 — 0.0% 99 Offi ce Equipment 1 (5) 6 –118.3% 7 (6) –86.3% 35 Insurance Administrative — — — — — — — — Recovery Plan and Contingency 148 38 110 292.8% 148 — 0.0% 37 OP&F Sponsored Seminars — — — — — — — 12 Business Travel 23 20 3 15.3% 24 (2) –6.2% 17 Business Expense 6 2 4 216.5% 8 (2) –27.9% 6 Trustee Training — — — — — — — — Employee Training 54 48 6 12.8% 70 (16) –22.4% 45 Telephone Services — — — — — — — — Dues and Subscriptions 38 50 (12) –23.7% 52 (14) –26.8% 34 Miscellaneous Expenses 19 11 7 65.6% 19 — 0.0% 20 Sub-Total $2,032 $1,700 $332 19.5% $2,104 $(72) –3.4% $1,883

Outside Services Investment Services $— $— $— — $— $— — $— Bank Custody Fees — — — — — — — — Actuarial Services — — — — — — — — Audit Services — — — — — — — — Legal Services 384 350 34 9.8% 417 (33) –7.8% 267 Disability Medical Service — 1 (1) –100.0% — — — — Public Relation Consultants — — — — — — — 3 Bank Charges — (0) 0 –100.0% — — — 0 Ohio Retirement Study Comm 153 46 107 229.2% 53 100 188.7% 38 Legislative Consultants 87 86 1 0.6% 86 1 0.7% 85 Personnel Recruitment 19 19 0 1.2% 16 3 21.4% 11 Health Care Consultants — — — — — — — — Other Professional Service 166 105 61 58.2% 203 (36) –17.8% 55 Sub-Total $810 $608 $202 33.2% $774 $35 4.6% $459

TOTAL OPERATING $5,280 $5,274 $6 0.1% $6,286 $(1,007) –16.0% $6,188

* Figures may not add due to rounding dollars to the nearest thousand.

OP&F • page 60


Administration BudgetOP&F’s Administration Department provides a wide variety of services to the Board of Trustees and other OP&F departments in the areas of human resources, legal, communications, internal audit, purchasing, records, imaging and mail services. In addition to leading the entire organization, the Executive Director also oversees the Administration Department and coordinates external outreach with legislators and member organizations. He also serves as the direct line of contact between the Board of Trustees and OP&F staff .

Th e specifi c responsibilities of each area within the department include:

Human ResourcesResponsible for all personnel matters and human resources functions, including staffi ng, payroll, employee compensation and benefi ts, employee relations, performance management, training, and the Employee Activity Committee.

General CounselTh e General Counsel serves as legal counsel to the Board of Trustees, Executive Director and all divisions of OP&F. General Counsel draft s and/or reviews all contracts entered into by OP&F as well as documents for the investment of OP&F funds. Legal oversees all litigation brought by or against OP&F, draft s and reviews rules and legislation and processes all court orders, powers of attorney and domestic property orders. General Counsel serves as the liaison to the offi ce of the Ohio Attorney General and coordinates all special counsel assigned to the Board of Trustees.

Internal AuditResponsible for auditing department procedures and processes and recommending alternative solutions and practices to lower risk or to increase effi ciency

CommunicationsTh e Communications Group is responsible for public relations and media relations eff orts. In addition, Communications produces all OP&F publications, forms and also is responsible for the content and updates to the OP&F website. Communications ensures that a consistent message and image is conveyed throughout these materials.

Goals and Objectives1. Goal: Coordinate eff ective outreach eff orts with

legislators and member organization leaders. Objective: Provide OP&F information to all interested parties to keep them informed about OP&F activities.

2. Goal: Coordinate monthly meetings for full Board and Board committees.Objective: Coordinate the timely production and distribution of all Board materials.

3. Goal: Monitor status of pending legislation and legislation that has been enacted.Objective: Evaluate potential impact of pending legislation on OP&F operations and assist with the draft ing or review of internal procedures or administrative rules to comply with all new legislation.

4. Goal: Maintain a work environment that supports teamwork and continued learning. Objective: Encourage participation in professional development activities that include in-house training, online learning, position specifi c seminars and workshops, and professional certifi cations as appropriate.

5. Goal: Provide legal oversight on all OP&F matters. Objective: Conduct legal reviews of all pending cases and make recommendations as needed to internal procedures and processes.

6. Goal: Preserve the assets of OP&F through risk management and internal controls.Objective: Conduct internal audits on OP&F processes and procedures, recommend improvements, and monitor implementation of recommendations.

7. Goal: Provide a work environment that promotes a high performance workplace and the satisfaction of OP&F’s staff with the work environment.Objective: Monitor building operations with the contracted building manager to maintain effi cient building operations and a safe work environment.

8. Goal: Promote a consistent business image for OP&F based on member satisfaction and quality service. Objective: Develop communication materials that present a consistent image and message for all OP&F publications.

OP&F • page 61


Performance MeasurementsSupports Goal #4 Actual 2014 Estimated 2015 Expected 2016 Type

In a given year, performance evaluations and feedback will be conducted for all OP&F staff hired prior to 9/30 of that year 100% 100% 100% Output

Online Learning Center available for all staff 100% 100% 100% Output

Supports Goal #5 Actual 2014 Estimated 2015 Expected 2016 Type

80% of Division of Property Order Acknowledgements sent 100% 100% 100% Outputwithin three days

95% of Division of Property Orders processed within 50 days. 100% 100% 100% Effi ciency(10 days less than statutory deadline)

Number of Division of Property Orders reviewed 200 210 205 Effi ciency

50% of Powers of Attorney entered within two days of approval 100% 100% 100% Effi ciency

75% of special counsel information updated within two days of receipt 100% 100% 100% Effi ciency

80% of contract information entered same day as the contract number is issued 100% 100% 100% Output.

Supports Goal #6 Actual 2014 Estimated 2015 Expected 2016 Typee

Number of Internal Audits and Projects Conducted 10 10 10 Output


Number of publications revised and newly developed 46 43 47 Output

OP&F • page 62


Budget Category Summary Actual Revised Budget Budget % Change

Budget Category 2014 2015 2016 2015-2016

Personnel Services $3,845,429 $3,408,444 $ 2,438,115 –28.5%Work Environment $1,882,825 $2,103,593 $2,031,825 –3.4%Outside Services $459,268 $774,430 $809,741 4.6%TOTAL: $6,187,522 $6,286,467 $5,279,681 –16.0%

Budget Category Explanations

Personnel Services Th is category refl ects the salaries, employee benefi ts, and employer payroll expense of all Administration Department employees. For 2016, there is a 28.5 percent decrease from the 2015 budget. Th e increase/decrease can primarily be attributed to the move of the Procurement Group and the Records, Imaging and Mail Services Group from the Administration Department to the Business and Technology Services Department.

Work EnvironmentTh is category represents all expenses related to the Administration Department’s work environment including; maintenance and repairs, equipment, supplies, training and travel, printing and publications and mailing costs.

Outside ServicesTh is category refl ects all external professional services for the Administration Department. Th e 4.6 percent increase for 2016 can be attributed to the cost of an Ohio Retirement Study Council actuarial audit. Th e reduction in the Other Professional Services line item is due to the number of trustee elections scheduled in 2016 (two) compared to 2015 (four).

Personnel ProjectionsCategory 2014 2015 2016

Exempt Salary 16 13 9Non-Exempt Salary 32 23 10TOTAL FULL-TIME 48 36 19

OP&F • page 63


Administration 2016 Initiatives

Recognition of OP&F’s 50th yearOP&F began paying benefi ts as of Jan. 1, 1967, making 2017 the system’s 50th anniversary year. Since the specifi c anniversary is January 2017, the planning and associated costs will primarily occur in 2016. At the direction of the Executive Director, a planning committee will be formed to propose ideas, plan and manage activities designed to commemorate OP&F’s 50th anniversary. Proposed budget for this initiative is $5,000.

Review of Administration Department’s 2015 Initiatives

Comprehensive Compensation StudyIn order to maintain a competitive compensation program, it is OP&F’s goal to complete a comprehensive compensation study about every fi ve years. With the last compensation for non-management staff occurring in 2010 and in 2011 for exempt staff , a study was due in 2015, and completed during the 3rd quarter. Th is was a review of all benchmark positions and slotting for positions where relevant data is not available in the market. Th e vendor benchmarked jobs against Ohio retirement systems, other relevant public employers, private employers for extremely common jobs (accountant, business analyst, customer service, etc), and nationally for some of the executive-level jobs. Th e study determined that OP&F’s compensation structure and pay rates generally have kept up with the market. Th e vendor also suggested some wage changes relevant to the market data, wage structure, and pay practices.

Website search capabilityIn an eff ort to make the OP&F website more user-friendly, this initiative proposed to add search capabilities to op-f.org. Th e new capability allows users to type into a search box on any page on the website in order to locate information or fi les on a specifi c subject. With the expansion of the website to include a large number of documents, reports, forms and publications, this feature is needed to better manage the use of the site. Th e search capabilities are expected to be fi nalized on the website during the fourth quarter of 2015.

OP&F • page 64


Finance Department


Staff

M. JordanController

A. Th ompsonEmployer Services

Supervisor

T. O’BrienAccounting

Manager

B. HarnessAccountant

L. GdulaAccountant

K. Highfi eldAccounting

Specialist

S. McNashAccounting

Specialist

L. AdkinsSr. Accountant

M. TessemaAccountant

F. AllmanSr. Accounting

Specialist

M. KellerFinancial Reporting

Accountant

N. BowenEmployer

Services Auditor

D. AdamsSr. Employer

Services Specialist

(open)Employer Services

Specialist

L. PerkinsEmployer

Services Auditor

K. SzlasaSr. Employer

Services Specialist

B. MillsEmployer Services

Specialist

J. GreshSr. Employer

Services Specialist

S. MillerDeputy

Executive Director

A. DuchAdministrative

AssistantJ. Davis

Employer Education Manager

A. SmithEmployer Services

Specialist

OP&F • page 65


Finance Department Budget (in thousands)* 2016 2015 Variance $ Variance % 2015 Variance $ Variance % 2014


Personnel Services Salaries $1,239 $1,207 $32 2.7% $1,278 $(39) –3.1% $1,267 Employee Benefi ts 374 321 53 16.4% 394 (20) –5.1% 358 Employer Payroll Expense 197 192 5 2.5% 205 (8) –3.7% 201 Sub-Total $1,809 $1,720 $89 5.2% $1,876 $(67) –3.6% $1,826

Work Environment

Offi ce Rent $— $— $— — $— $— — $— Maintenance and Repairs — — — — — — — — Legislative Expenses — — — — — — — — Mailing Expense — — — — — — — — Printing and Publications — — — — — — — — Offi ce Supplies — — — — — — — 0 Offi ce Equipment 1 0 1 410.6% 1 0 1.9% 0 Insurance Administrative 247 146 101 69.4% 244 2 1.0% 225 Recovery Plan and Contingency — — — — — — — — OP&F Sponsored Seminars 1 — 1 — 1 — 0.0% — Business Travel 6 2 4 188.9% 6 0 3.1% 3 Business Expense 3 2 1 64.5% 3 — 0.0% 1 Trustee Training — — — — — — — — Employee Training 10 3 7 209.1% 10 0 2.0% 3 Telephone Services — — — — — — — — Dues and Subscriptions 7 6 1 8.6% 6 1 7.7% 4 Miscellaneous Expenses — — — — — — — — Sub-Total $274 $159 $115 72.2% $271 $3 1.2% $236

Outside Services

Investment Services $— $— $— — $— $— — $— Bank Custody Fees — — — — — — — — Actuarial Services 384 326 58 17.8% 444 (60) –13.5% 374 Audit Services 135 125 10 8.1% 134 2 1.1% 108 Legal Services — — — — — — — — Disability Medical Service — — — — — — — — Public Relation Consultants — — — — — — — — Bank Charges 89 61 28 46.1% 89 — 0.0% 80 Ohio Retirement Study Council — — — — — — — — Legislative Consultants — — — —- — — — — Personnel Recruitment — — — — — — — — Health Care Consultants — — — — — — — — Other Professional Service — — — — — — — — SUB-TOTAL $608 $512 $96 18.8% $666 $(59) –8.8% $563

TOTAL OPERATING $2,691 $2,391 $301 12.6% $2,813 $(122) –4.3% $2,624


OP&F • page 66


FinanceTh e Finance Department manages the accounting, budgeting, taxes, insurance, audit and fi nancial reporting functions of OP&F. Th e strong fi nancial stewardship of our member’s money and the employer’s contributions is our overriding concern as we are a service provider to our members, employers and employees of the Fund. Th ese responsibilities encompass:

Accounting• Maintaining internal controls over plan assets• Recording and reconciling fi nancial transactions in

the general ledger system and subsidiary systems• Financial reporting (internal and external)• Reporting pension distributions and tax withholdings• Paying vendor invoices and pension distributions• Maintaining proper insurance coverage• Forecasting plan assets and liabilities• Reviewing the annual actuarial report and supporting

assumptions• Overseeing external audits ensuring compliance with

statutory funding requirements. Employer Services Group

• Maintains a high working knowledge of the Ohio Revised Code related to employer requirements

• Reviews, posts and releases monthly contributions to members’ participant accounts

• Reviews each payroll for any exceptions and works with the employer to correct any defi ciencies

• Sends 30 day letters to employers regarding payroll defi ciencies

• Calculates, audits and processes employer refunds and credits

• Updates employer information and corrects and maintains information in the agreement and import modules

• Calculates penalties on a monthly basis for late and/or missing payroll and payment items

Employer Education• Provides training and outreach to the employer

community on all OP&F reporting requirements• Serves as a point of contact for general employer

inquiries• Researches and administers special penalty provisions• Identifi es and corrects recurring employer reporting

and payment defi ciencies

Goals and Objectives1. Goal: Goal: Maintain an accurate and effi cient general

ledger system to ensure proper collection, reconciliation, and reporting of fi nancial data.Objective: Record all fi nancial data in the general ledger properly and ensure timely and accurate fi nancial reporting.

2. Goal: Achieve the highest standards of fi nancial and budgetary reporting.Objective: Attainment of the Government Finance Offi cers Association (GFOA) Certifi cate of Achievement for Excellence Award in Financial Reporting for our Comprehensive Annual Financial Report (CAFR) and Distinguished Budget Presentation Award for our annual budget.

3. Goal: Ensure full statutory and regulatory reporting compliance for pension and vendor distributions. Objective: Meet all reporting deadlines for tax deposits, annual forms reporting and avoid penalties for non-compliance from outside agencies.

4. Goal: Provide excellent customer service to our employers, members, and employees. Objective: Ensure we meet the needs of our primary customers (external and internal).

5. Goal: Create a partnership with our employers to help ensure an eff ective exchange of matters as required by the ORC. Th is includes improving processing times and avoiding penalty situations whenever possible.Objective: Notify employers about upcoming due dates prior to penalties being assessed.

6. Goal: Processing employer payroll reports in a timely and accurate manner.Objective: Release member payroll details reported by the employers within 30 days of the date received or the due date of the payroll.

7. Goal: To provide training to employer community on all OP&F reporting requirements.Objective: Th rough onsite and telephonic training, OP&F will respond to employer needs for reporting and/or payment assistance, which will enhance compliance with regulatory requirements.

OP&F • page 67



Accounting close of general ledger system by the 15th business day each month 8 8 11 Effi ciency

Batch deposits are broken down and recorded to proper general ledger account within fi ve business days of receipt 99% 100% 100% Output

General ledger accounts are reconciled by the 20th business day 12 12 12 Outcome

Process general ledger coding corrections and inquiries within fi ve business days of notifi cation or request 100% 100% 100% Effi ciency

General ledger interfaces are completed within fi ve busiess days Yes No Yes Effi ciencyincluding the employee payroll, pension and DROP


Submit and receive the Certifi cate of Achievement for Excellence in Financial Reporting from the Government Fincance Offi cers Association Yes Yes Yes Outcome

Submit and receive annual Distinguished Budget Presentation Award Yes Yes Yes Outcome


Forward all member, retiree and survivor tax withholdings within Federal and State timetable Yes Yes Yes Effi ciency

Mail all eligible vendor Form 1099-Ms by Jan. 31 of each year Yes Yes Yes Output Mail all member, retiree, and survivor Form 1099–Rs by Jan. 31 of each year Yes Yes Yes Output


Process employer refunds within 10 business days of receipt 90% 90% 90% Output Mail employer penalty bills timely and accurately each quarter Yes Yes Yes Output


Provide courtesy calls on the monthly member contribution 12 months 12 months 12 months Effi ciencyreports and payments by the second to the last business day of each month, before penalties

Provide courtesy calls to delinquent employers in an eff ort to Yes Yes Yes Effi ciencyavoid penalty escalation on billing related items

OP&F • page 68



Employer payroll reports processed and released within 89% 54% 80% Output 30 days of the date received

Employer payroll reports processed and released within 30 days 97% 64% 85% Outputof the payroll due date Complete the year-end close process for employer payroll reports by Yes Yes Yes Effi ciencythe end of following February for items in our control


Number of Employers that have undergone training on 125 150 175 OutputOP&F reporting and payment requirements

OP&F • page 69



Budget Category 2014 2015 2016 2015–2016

Personnel Services $1,825,805 $1,876,255 $1,809,238 –3.6%Work Environment $235,600 $270,931 $274,313 1.2%Outside Services $562,877 $666,300 $607,800 –8.8%TOTAL $2,624,282 $2,813,486 $2,691,351 –4.3%


Personnel ServicesTh is category refl ects salaries, employee benefi ts, and employer payroll expenses for all Finance department employees. Th e overall 2016 Personnel Services Category has decreased due to the transition of management from Finance into Administration. Th ere is a proposed average merit increase of 3.0 percent for all eligible staff in 2016. Th e number of personnel (21) for the Finance Department has increased for 2016 due to an additional position in the department.

Work EnvironmentTh is category represents all expenses related to the Finance department work environment including equipment, training, travel, dues and subscriptions. Th e overall Work Environment category for 2016 has increased 1.2 percent primarily due to slight increase in costs related to insurance.

Outside Services Th is category refl ects external professional services such as actuarial services, audit fees, legal fees, and bank charges. For 2016, the Actuarial Services has signifi cantly decreased due to the analysis of projected projects and other services that have been combined with the monthly retainer service charge. Due to the expected costs of census testing, audit services were increased. Th e Bank Service Charges and Warrant Fees will remain the same in 2016



OP&F • page 70


Business and Technology Solutions Department

M. GatewoodBusiness andTechnology

SolutionsDirector


Staff

S. BucherSoft ware

Development Manager

J. BreecknerSystems and

Network Manager

T. GreenBusiness Analyst

T. EdwardsBusiness Analyst

R. LaneBusiness Analyst

J. DawsonBusiness Analyst

(open)Business Analyst

K. TennantAdministrative

Assistant

P. FickBusiness Systems Analyst

D. GanjehsaniSystems and

Network Support Technician

J. ChubakSystems and


(open)Systems and


M. ChadwellSystems and


J. MillerTechnical Support

Coordinator

A. ZedekSecurity and

Network Administrator

D. WoodsSystem

Administrator

D. JamesDatabase

Administrator

M. Taff eSoft ware

DevelopmentSupervisor

P. GreggSoft ware

DevelopmentSupervisor

D. SewardSoft ware

Developer

B. WalumSoft ware

Developer

D. DaughertySoft ware

Developer

J. HornbergerSoft ware

Developer

B. AldridgeSoft ware

Developer

S. BreechSystems

Administrator

J. DukesPurchasing Assistant

B. BonnerRecords and

Imaging Spec.

N. MotleyRecords and

Imaging Spec.

H. BrumRecords &

Imaging Spec.

M. MooreMail Services

Specialist

R. NurSr. Records and Imaging Spec.

(open)Records and

Imaging Spec.

V. CroninRecords and

Imaging Spec.

R. ByrdRecords and

Imaging Spec.

A. BruceRecords and

Imaging Spec.

Y. TubmanRecords,

Imaging and Mail Manager

A. McGeePurchasing Agent

J. EdwardsSr. Records and Imaging Spec.

P. RajkumarRecords and

Imaging Supervisor

S. SchmittAdministrative

Support Services Manager

C. HallMail Services

Specialist

J. BaggsRecords and

Imaging Spec.

J. MayeskyPurchasingManager

OP&F • page 71


Busines and Technology Solutions Department Budget (in thousands)* 2016 2015 Variance $ Variance % 2015 Variance $ Variance % 2014


Personnel Services Salaries $2,965 $1,909 $1,056 55.3% $2,025 $940 46.4% $1,843 Employee Benefi ts 790 402 387 96.3% 494 296 59.9% 422 Employer Payroll Expense 471 303 168 55.5% 323 148 45.9% 292 Sub-Total $4,226 $2,614 $1,611 61.6% $2,842 $1,384 48.7% $2,557

Work Environment Offi ce Rent $— $— $— — $— $— — $— Maintenance and Repairs 1,137 1,046 90 8.6% 999 138 13.8% 890 Legislative Expenses — — — — — — — — Mailing Expenses — — — — — — — — Printing and Publications 9 — 9 — — 9 — — Offi ce Supplies — — — — — — — — Offi ce Equipment 115 63 53 83.8% 101 15 14.8% 69 Insurance Administrative — — — — — — — — Recovery Plan and Contingency 11 9 1 14.8% 9 2 20.1% 8 OP&F Sponsored Seminars — — — — — — — — Business Travel 30 11 19 178.6% 10 20 189.6% 2 Business Expense 1 0 1 1136.8% 1 0 35.3% 0 Trustee Training — — — — — — — — Employee Training 45 8 37 468.0% 32 13 39.6% 8 Telephone Services 70 51 19 37.5% 70 - 0.0% 54 Dues and Subscriptions 8 2 7 391.1% 4 4 88.4% 3 Miscellaneous Expenses — — — — — — — (0) Sub-Total $1,426 $1,190 $237 19.9% $1,226 $201 16.4% $1,034

Outside Services

Investment Services — — — — — — — — Bank Custody Fees — — — — — — — — Actuarial Services — — — — — — — — Audit Services — — — — — — — — Legal Services — — — — — — — — Disability Medical Services — — — — — — — — Public Relation Consultants — — — — — — — — Bank Charges — — — — — — — — Ohio Retirement Study Council — — — — — — — — Legislative Consultants — — — — — — — — Personnel Recruitment — — — — — — — — Temporary Employees — — — — — — — — Contract Staffi ng — — — — — — — 0 Health Care Consultants — — — — — — — — Other Professional Service 66 (2) 68 –3684.3% 71 (5) –7.0% 57 Sub-Total $66 $(2) $68 –3684.3% $71 $(5) –7.0% $57

TOTAL OPERATING $5,718 $3,802 $1,916 50.4% $4,138 $1,580 38.2% $3,647


OP&F • page 72


Business and Technology SolutionsTh e Business and Technology Solutions (BTS) department consists of Information Services, Records, Imaging, Mailroom, and Procurement. Its purpose is to provide support to other departments within OP&F by helping identify more effi cient business processes and technology solutions.

Information ServicesTh e Information Services (IS) group is divided into Business Systems, Systems and Network, and Development staff . IS is ultimately responsible for all of OP&F’s computer and computer-related equipment and the programs running on them.

Business Systems• Responsible for collection and proper

communication of OP&F staff ’s needs to appropriate Vitech and IS technical teams, including follow-through to ensure user satisfaction aft er completion of each request. Th is team serves as the fi rst step in new soft ware development and issue resolution for the pension system.

• Responsible for making recommendations to the business units for improvement in business operations and processes. Th is may include modifi cations to existing soft ware, recommendations for purchase of third party soft ware and changes to processes and/or procedures.

• Responsible for training and documentation.• Responsible for quality assurance testing and

coordination of user acceptance testing of new soft ware development as well as changes to existing soft ware.

Systems and Network • Help Desk: responsible for inputting and tracking

user requests, while assisting staff with computer-related needs. Th e group ensures the proper and effi cient operation of end-users’ personal computers, including hardware and soft ware operations.

• Network and Security Administration: responsible for providing secure and reliable connectivity between all OP&F computer resources and the Internet; includes wiring, network devices and security appliances.

• System Administration: responsible for correct and effi cient operation of all computer server resources and the programs running on them; includes

installation and maintenance of hardware and operating system as well as virtual servers.

• Telecommunications: responsible for control and maintenance of the telephone system including connectivity of phones, and facsimile machines. Completes physical moves and changes of telecommunication devices. Troubleshoots all telephone wiring problems and administration and support for the phone system soft ware and hardware.

DevelopmentDevelopment: responsible for the correct and effi cient development of computer programs to meet stated user requirements.

IS fundamentally serves as a resource to other OP&F departments to provide or assist in the use or creation of tools and systems designed to improve effi ciency and productivity. It also serves as a resource for the evaluation and determination of fi tness for use of purchased soft ware for various projects and departmental needs.

Records, Imaging and Mail (RIM) CenterTh e RIM Center is responsible for handling all member, employer and applicable business records, received in the mail via paper, fax electronic mail and in person. Th e RIM Center provides OP&F with timely, accurate and best practice effi ciencies associated to the OP&F’s business information through creation, receipt, distribution, maintenance, use, protection, retention and preservation.

ProcurementTh e Procurement Group is a centralized function for all fund wide purchases with a few exceptions (i.e., Executive Director and Board travel) and is staff ed by the Purchasing Manager, Purchasing Agent and Purchasing Assistant

OP&F • page 73


Goals and Objectives1. Goal: Ensure timely and accurate monthly benefi t

payments.Objective: Adhere to monthly check run procedures to generate monthly benefi t statements; monitor for effi ciency and improvement; continually implement improvements to increase eff ectiveness and effi ciency.

2. Goal: Maintain a stable and available computing environment.Objective: Monitor network and operating environment; perform system maintenance as scheduled; monitor for effi ciency, security and improvement; continually implement improvements to increase eff ectiveness, integrity and effi ciency.

3. Goal: Properly assist users with computer related tasks.Objective: Provide Help Desk support as listed in the OP&F departmental service level agreements.

4. Goal: Create computer-based tools and systems to assist in pension processing to end-user satisfaction and on schedule.Objective: Ensure user approval of requirements and prototype documentation; conduct user acceptance testing as listed in the OP&F Service Development life cycle (SDLC); conduct follow-up of user satisfaction on all IS requests.

5. Goal: Eff ectively assist staff in evaluating third-party computer-based applications and systems.

Objective: Ensure user approval of requirements for third-party computer-based applications and provide fi nal recommendations to user; provide pros and cons of various recommendations of third-party computer-based tools.

6. Goal: To provide proper protection and fi le integrity of all member and employer fi les, regardless of the medium created or stored – paper or electronic.Objective: Preservation of member and employer related records through the vital records protection program.

7. Goal: To provide accessibility to reliable and accurate member and employer related information once records are collected, scanned and indexed with proper quality controls to the various OP&F departments.Objective: Retrieval of member and employer-related records in a timely and accurate manner for service to other departments.

8. Goal: To provide prompt and effi cient mailroom services to all departments.Objective: Ensure all incoming and outgoing mail is processed in an effi cient and timely manner to the proper department.

9. Goal: Th e Procurement Area strives to obtain quality goods and services, at the lowest reasonable cost, while operating at the highest standards of ethical conduct.Objective: Utilize various bidding methods that foster a fair and open bidding process.


Monthly benefi t checks on time 12 12 12 Output


Level 1 support request time–to–completion 1.21 days 2.89 days 2.05 days Outcome

Level 2 support request time–to–completion 4.04 days 2.60days 3.32 days Outcome

Level 3 support request time–to–completion 28.37 days 16.68 days 22.52 days Outcome

OP&F • page 74



Number of requests opened within 15 minutes of receipt 5,726 4,991 5,359 Output

Percent opened per Service Level Agreement (SLA) 100% 100% 100% Output


Number of development requests received 246 197 222 Outcome

Number of development requests completed 229 216 223 Output

Percent completed 93% 110% 99% Outcome


Products reviewed 17 14 16 Effi ciency

Products acquired 13 9 11 Effi ciency


Processing of Member File requests (minutes/group) 1 1 1 Effi ciency


Number of Member fi les out to departments at reconciliation time 2 2 2 Output

Number of imaged documents available for viewing on Vitech system 3.88 Million 3.80 Million 4.0 Million Output

Amount of correspondence received, scanned and fi les per two-week period 4,926 5,000 5,500 Output


Turnaround time for off -site records - 24 hours on standard request 24 hrs 24 hrs 24 hrs Output

Processing of Incoming mail (letters/hour) 100 100 100 Output

Response time to outgoing mail pickup requests from departments (minutes) 10 10 10 Output


Purchase Orders processed 1,276 1,300 1,500 Output

Request for Information issued 0 0 0 Output Request for Proposals issued 2 3 5 Output

OP&F • page 75



Budget Category 2014 2015 2016 2015–2016

Personnel Services $2,602,317 $2,841,656 $4,225,738 48.7%Work Environment $1,213,644 $1,225,592 $1,426,116 16.4%Outside Services $105,000 $71,000 $66,000 –7.0%TOTAL $3,920,961 $4,138,248 $5,717,854 38.2%


Personnel Services$4,225,738 – Th e 48.7 percent increase is related to the addition of the Procurement and RIM staff to the BTS budget as well as a 3% merit increase for eligible staff . Increases to employee health care costs, and employer share contributions to OPERS also contribute to the increase.

Maintenance and Repairs$1,136,591 – Th is is a 13.8 percent increase from the 2015 budget, this increase is due to dollars needed for Hardware/Soft ware Maintenance and Support for Fortinet, Vitech and the addition of Egnyte, and Microsoft Dynamics AX maintenance.

Other Professional Services$66,000 – Th is -7.0 percent decrease is due to the removal of the Rippe Kingston System dollars that were no longer needed.

Business Travel$30,394 – Th is 189.6 percent increase is from the addition of Procurement and RIM staff to the BTS budget as well as an increase in dollars for Continuity Testing.



Business and Technology Solutions 2016 InitiativesAll Information Services initiatives have been allocated to the Capital Budget.

Review Of Information Services Department’s 2015 Initiatives

Kofax Training and Implementation Services CompletedTh is initiative is to request three things: training of a technical resource, training for our imaging personnel and implementation/problem solving services. Th ere is a new technical resource that needs to be trained on how to develop and administer the Kofax Capture system. Training is needed for the imaging personnel. Th is training would cover daily use of the Kofax Capture product as well as groom one or two people to become super users. Finally, money is needed for implementation and/or technical support to provide consulting on upgrades and problem solving for issues.

Th e goal is to reduce downtime due to implementation issues and to train the Kofax users on how to better take advantage of the product.

Outside Security Assessment CompletedContract with a company to perform a security assessment of our network and websites. Th is would involve a full review of all security equipment currently installed, a complete checkup of the corporate infrastructure and recommended fi xes, and specifying an “industry standard” of security. Th e last assessment was done in 2007.

Th is assessment would assure OP&F that best practices are in place for network security, identify any possible issues or concerns that need to be addressed, and will enable to demonstrate that OP&F is complying with NIST Special Publication 800-122 regulations.

OP&F • page 76


Investment Department

T. HallChief

InvestmentOffi cer


Staff

M. AbankwahAssistant

Investment Offi cer

K. HoustonPortfolio Specialist

A.Mahan-HowardPortfolio Specialist

M. FeniceCash

Manager

J. WestonAssistant

Investment Offi cer

V. Th omasSenior

Accountant

J. AufderhaarSenior

Accountant

G. PryorInvestment

Operations Auditor

B. LukeSenior

Investment Offi cer

(open)Administrative

Assistant

J. YeboahInvestment Operations

Offi cer

(open)Senior

Investment Offi cer

E. EichhornBudget and Compliance

Assistant

(open)Investment

Analyst

OP&F • page 77


Investment Department Budget (in thousands)* 2016 2015 Variance $ Variance % 2015 Variance $ Variance % 2014


Personnel Services Salaries $1,331 $1,168 $162 13.9% $1,132 $199 17.5% $1,117 Employee Benefi ts 319 188 131 69.4% 296 23 7.7% 283 Employer Payroll Expense 218 180 37 20.7% 185 33 17.7% 178 Sub-Total $1,867 $1,537 $330 21.5% $1,613 $254 15.8% $1,578

Work Environment

Offi ce Rent $— $— $— $— $— $— $— $ — Maintenance and Repairs — — — — — — — — Legislative Expenses — — — — — — — — Mailing Expense — — — — — — — — Printing and Publications — — — — — — — — Offi ce Supplies — — — — — — — — Offi ce Equipment — — — — — — — — Insurance Administrative — — — — — — — — Recovery Plan and Contingency — — — — — — — — OP&F Sponsored Seminars — — — — — — — — Business Travel 32 13 19 149.2% 25 7 30.1% 17 Business Expense 0 — 0 — 0 — 0.0% — Trustee Training — — — — — — — — Employee Training 13 3 10 293.7% 9 5 52.7% 2 Telephone Services — — — — — — — — Dues and Subscriptions 37 35 2 6.5% 39 (2) –4.0% 28 Miscellaneous Expenses 0 0 0 63.6% 0 — 0.0% — Sub-Total $83 $52 $32 61.2% $73 $10 14.3% $47

Outside Services

Investment Services $44,698 $44,234 $464 1.0% $45,050 $(352) –0.8% $43,484 Bank Custody Fees 984 745 239 32.1% 960 24 2.5% 691 Actuarial Services — — — — — — — — Audit Services — — — — — — — — Legal Services — — — — — — — — Disability Medical Services — — — — — — — — Public Relation Consultants — — — — — — — — Bank Charges — — — — — — — — Ohio Retirement Study Council — — — — — — — — Legislative Consultants — — — — — — — — Personnel Recruitment — — — — — — — — Health Care Consultants — — — — — — — — Other Professional Service 15 35 (19) –55.3% 35 (19) –55.3% 12 Sub-Total $45,697 $45,014 $684 1.5% $46,044 $(347) –0.8% $44,188

TOTAL OPERATING $47,648 $46,602 $1,046 2.2% $47,730 $(82) –0.2% $45,814


OP&F • page 78


InvestmentTh e Investment department is comprised of several functional areas, including investment management, oversight and operations. Th e role of the Investment department is to eff ectively and prudently invest the assets of the Fund so as to maximize total return while staying within statutory and policy guidelines. Th is is accomplished by investing in a number of diff erent asset classes utilizing both internal staff and multiple external managers. Th is responsibility encompasses:

• Maintaining the asset allocation decisions of the Board of Trustees by shift ing assets among asset classes and among managers.

• Implement existing policy actions, and recommend new policies, new ideas and new managers, when appropriate.

• Manage cash equivalent assets for the Fund.• Monitor our managers, their investment activity, their

compliance with guidelines and their performance.• Report to the Board on investment activity and costs,

policy guideline compliance and performance.• Record and authorize investment activity to maintain

accurate Fund records and to facilitate settlement of investment transactions.

Goals and ObjectivesTh e goals and objectives have been established in conjunction with a comprehensive review of the current and projected fi nancial requirements. Th ese goals and objectives are:

1. Goal: To have the ability to pay all benefi t and expense obligations when due.Objective: We will maintain an investment portfolio structure consistent with guidelines and that also provides the necessary liquidity for near-term cash needs as well as the income and growth to meet future obligations.

2. Goal: To maintain the purchasing power of the current assets and all future contributions by effi ciently maximizing the rate of return on Fund assets at a reasonable level of risk.Objective: We will maintain a diversifi ed portfolio structure with a focus on asset class risk contributions to help minimize total portfolio risk while at the same time implementing a portfolio with the highest level of return consistent with the Board’s risk tolerance. We will study and possibly implement new methods of reducing portfolio risk.

3. Goal: To ultimately achieve and then maintain a fully funded status with regard to the accumulated benefi t obligation. Objective: We will work toward and then maintain Board approved asset allocation targets in an eff ort to earn over the long-term a rate of return in excess of actuarial requirements.

4. Goal: To control costs of administering the Fund and managing the investments.Objective: We will explore new investment ideas and trading approaches in an attempt to improve the effi ciency of and reduce the cost of our operations. We will also monitor the costs of our investment operations through the use of industry surveys such as Cost Eff ectiveness Measurement.

5. Goal: Maintain effi cient systems to ensure proper recording and reconciliation of investment data.Objective: We will maintain all investment data in the investment accounting system and ensure timely and accurate fi nancial reporting. We will upgrade and enhance investment systems as necessary to help monitor investment information.

OP&F • page 79


Th e most important expectation is the achievement of results consistent with this Policy Statement and the analysis set forth in a prior asset liability study completed in Dec. 2012 and updated in May 2014. Th e investment performance goal for the Total Portfolio is to meet or exceed the return of the Total Portfolio policy benchmark over a full market cycle, generally measured over three to fi ve years, without taking on additional risk as measured by standard deviation of returns. Th e Total Portfolio policy benchmark is a weighted average based on the allocation targets of each asset class benchmark.

Th e Fund shall also strive to achieve a long-term rate of return, which is equal to or greater than OP&F’s actuarial rate assumption of 8.25 percent.

Th e Fund shall attempt to achieve these return goals without unnecessary risk to principal. Th e risk/return characteristics of the Fund shall be reviewed on a periodic basis (no less than every fi ve years) through a comprehensive asset allocation and liability study. Th e goal of the study shall be to formulate an Asset Allocation policy that maximizes return while minimizing overall risk through the most effi cient combination of acceptable asset classes under the prudent person standard.

Th e most recent asset liability study completed in December 2012 maintained the total portfolio risk reduction concept known as “risk parity” initially adopted by the Board in early 2010. Th is structure included a 5 percent allocation to Master Limited Partnerships (MLPs). MLPs initially proved to be a great addition to the portfolio and, in mid-2014, the Board approved a revised asset allocation structure increasing the MLPs target to 8 percent while further reducing equity exposure. Th e new structure is expected to provide a more effi cient risk/return tradeoff and improve the risk balance across the portfolio. In mid-2015, staff and consultant conducted a review of the U.S. Equity structure and presented several options to the Board. Based on the review, the Board adopted a U.S. Equity structure that considered alternative investment mandates in small-cap equity and reduced the number of mandates within the portable alpha program. Staff and consultant are currently conducting manager searches for a new small-cap equity manager and a multi-strategy investment manager.

OP&F • page 80



Fund all benefi t and expense obligations 100% 100% 100% Outcome


Outperform the Fund’s policy benchmark No Yes Yes Outcome


Achieve and maintain fully funded status with regard to the accumulated benefi t obligation No No No Outcome

Meet or exceed the return of the Total Portfolio Policy Yes Yes Yes OutcomeBenchmark over a full market cycle


Participate in the Cost Eff ectiveness Measurement survey each year Yes Yes Yes Effi ciency

Investment OperationsInvestment Operations is responsible for processing and accounting for the fund’s investment related assets, liabilities, income, and expenses. This group accounts for the collection of income, as well as administering the fund’s investment accounting system. Investment Operations also provides monthly journal entries to the general ledger and creates numerous reports needed within the department, by other departments or outside sources for informational and decision making purposes.


Process standard purchase and sale transactions by T+1 100% 100% 100% Effi ciency

Complete month-end portfolio valuation within fi ve business days 99% 99% 99% Effi ciency

Complete month-end reconciliations for all portfolios and provide journal entries to the G/L within 10 business days 96% 99% 100% Effi ciency

Alternative InvestmentsPrivate MarketsThe private markets allocation is designed to provide an attractive risk-adjusted rate of return to the overall OP&F investment portfolio. The diversifi cation of the private markets portfolio helps to achieve the performance objectives set forth in the Private Markets Investment Policy.

Supports Goals #2 and #3 Actual 2014 Estimated 2015 Expected 2016 Type

Generate a total return net of fees in excess of the Wilshire 5000 No Yes Yes OutcomeIndex + 300 bps calculated on a public market equivalent basis over full market cycles (Primary Benchmark)

Generate a total return that ranks above the median internal, dollar N/A Yes Yes Outcomeweighted, rate of return of a representative private markets investment universe. (Secondary benchmark) Manage the Private Markets portfolio to be compliant with the investment Yes Yes Yes Outcomeguidelines contained within the Private Markets Investment Policy

Achieve the Private Markets target exposure set forth by the Asset Allocation Policy Yes Yes Yes Outcome

OP&F • page 81


Real EstateThe real estate allocation is designed to provide (i) an infl ation hedge, (ii) a total return that has a low or negative correlation with stock and bond returns, (iii) a total return that is competitive on a risk-adjusted basis with stocks and bonds; and (iv) a total return that is accretive to OP&F achieving its long-term target rate of return. The diversifi cation of the real estate portfolio helps to achieve the performance objectives set forth in the Real Estate Strategic Plan.


Generate a total return net of investment management fees equal to the Yes Yes Yes OutcomeNCREIF Fund Index – Open End Diversifi ed Core Equity (ODCE) net of fees over three-year and fi ve year rolling periods

Generate a total return net of investment management fees equal to the Yes Yes Yes OutcomeNCREIF (ODCE) net of fees over rolling three-year and fi ve year periods. (Secondary benchmark)

Manage the Real Estate portfolio to be compliant with the risk Yes Yes Yes Outcomemanagement policies contained within the Real Estate Strategic Plan

Achieve the real estate target exposure set forth by the Asset Allocation Policy Yes Yes Yes Outcome

TimberlandCurrently, the 5.0 percent strategic allocation to timberland is designed to preserve capital while generating an attractive risk-adjusted rate of return as a function of cash yield and capital appreciation as well as to provide diversifi cation benefi ts, a hedge against infl ation, and relative non-correlation to other asset classes. The diversifi cation of the timberland portfolio helps to achieve the performance objectives set forth in the Timberland Investment Policy. For strategic (i.e. improving the effi cient frontier of this strategic allocation), tactical (i.e. more promising opportunities in agriculture and infrastructure today than timberland), and practical (i.e. diffi culty fi nding enough acceptable timberland investments to fi ll this strategic allocation) reasons, OP&F may explore the attractiveness of converting this 5.0 percent allocation to timberland into a real assets allocation comprised of timberland, agriculture, and infrastructure.


Generate a total return that exceeds a real rate of return of 5% net of fees, over rolling 10-year periods N/A N/A N/A Outcome

Manage the Timberland portfolio to be compliant with the investment Yes Yes Yes Outcomeguidelines contained within the Timberland Investment Policy

Achieve Timberland exposure within the targeted range as set forth Yes Yes Yes Outcomeby the Asset Allocation Policy

Evaluate the attractiveness of converting the current 5% strategic allocation N/A Yes Yes Outcometo timberland into a real assets allocation comprised of timberland, agriculture and infrastructure and, if attractive, present a recommendation to the Board for consideration.

OP&F • page 82


Public Markets InvestmentCash ManagementThe Cash Management STIF portfolio is designed to provide eff ective cash management when investing cash balances, with an emphasis on the protection of principal through the purchase of high quality money market instruments, while at the same time attempting to achieve the highest available return.

Supports Goals #1, #2 and #3 Actual 2014 Estimated 2015 Expected 2016 Type

Achieve investment returns that should exceed the 91-day Treasury bill rate of return over rolling 12-month periods Yes Yes Yes Outcome

Perform credit reviews of approved issuers of commercial paper on a regular basis, but no less than every six months for issuers rated A1/P1 and every three months for issuers rated A2/P2 or split rated Yes Yes Yes Outcome

Maintain commercial paper exposure limits within the policy ranges of OP&F’s Short Term Cash Management Policy Yes Yes Yes Outcome

Domestic EquityThe domestic equity allocation is focused on companies headquartered and/or domiciled in the United States. The structure of the domestic equity allocation will be divided between passive and active managers with further diversifi cation across the capitalization spectrum. In addition, a portion of the domestic equity allocation will be implemented via a pool of alpha transfer strategies (i.e. Portable Alpha Program).


Achieve investment returns for the Domestic Equity Portfolio thatexceed the return of the Wilshire 5000 Index over a three-year period on an annualized basis No Yes Yes Outcome

Achieve excess returns on the Portable Alpha Program that exceed the return of the Standard & Poor’s 500 Index annually No Yes Yes Outcome

Achieve the Domestic Equity exposure within the targeted range as set forth by the Asset Allocation Policy Yes Yes Yes Outcome

Non-U.S. EquityThe Non-US equity allocation is focused on companies headquartered or domiciled in the MSCI ACWI-ex-US countries. The Non-US equity allocation will be managed solely on an active basis in order to exploit the perceived ineffi ciencies in the Non-US equity markets.


Achieve investment returns of the Non-US Equity Portfolio that exceed the return of the Morgan Stanley Capital International All Country World Index ex-US IMI Index (N) over a three-year period on an annualized basis. Yes Yes Yes Outcome

Achieve the Non-US Equity target exposure set forth by the Asset Allocation Policy Yes Yes Yes Outcome

OP&F • page 83


Master Limited PartnershipsThe Master Limited Partnership allocation is focused on active, long-only investments in publicly traded partnership units of energy focused MLP companies. A Master Limited Partnership is a public partnership that is traded on a stock exchange.


Achieve investment returns in the Master Limited Partnership composite portfolio that exceed the return of the Alerian MLP Index over a three-year period on an annualized basis. N/A Yes Yes Outcome

Achieve the MLP target exposure set forth by the Asset Allocation Policy Yes Yes Yes Outcome

Fixed Income: Investment GradeThe Fixed Income Investment Grade allocation is primarily focused on U.S. dollar denominated fi xed income securities. A new, unconstrained alternative fi xed income allocation has yet to be fully implemented and requires further asset class structure work to ensure that OP&F is comfortable with the risk/return basis for the eventual asset mix.


Achieve investment returns in the investment grade fi xed income composite portfolio which exceed the return of the Barclays Aggregate Index over a three-year period on an annualized basis. Yes Yes Yes Outcome

Achieve the Fixed Income Investment Grade target exposure set forth by the Asset Allocation Policy Yes Yes Yes Outcome

Fixed Income: Global Infl ation Protected Securities (GIPS)The GIPS composite portfolio is intended to provide OP&F with a strategic allocation to an infl ation hedged investment strategy and may include bonds from any country issuing Infl ation Linked bonds with a sovereign local currency credit rating (S&P) of A- or better. The GIPS allocation will be levered in keeping with OP&F’s risk parity asset allocation approach, will be managed on an active basis in order to exploit the perceived ineffi ciencies in Infl ation Protected Securities markets and will have a long-term target of 20% (on a 2x levered basis) of total fund assets.


Achieve investment returns in the GIPS composite portfolio which exceed the return of a custom weighted-average mix of the Barclays country indexes within the Global Infl ation-Linked Bond Index over three-year period on an annualized basis. Yes Yes Yes Outcome

Achieve the Global Infl ation Protected Securities target exposure set forth by the Asset Allocation Policy Yes Yes Yes Outcome

Fixed Income: Commercial MortgagesThe Commercial Mortgage portfolio may include any commercial mortgage whole loans that provide for fi xed income payments derived from underlying property cash fl ows. Risk shall be controlled through diversifi cation strategies and the retention of qualifi ed managers with acceptable loan underwriting and/or commercial mortgage acquisition experience.


Achieve investment returns in the Commercial Mortgage composite portfolio that exceed the return of the Barclays Mortgage Index Yes Yes Yes Outcome

OP&F • page 84


Fixed Income: High YieldThe high yield fi xed income composite allocation is focused on below investment grade fi xed income securities issued by U.S. corporations. Non-U.S. dollar denominated securities are an allowable investment of up to 10% in non-U.S denominated European currencies. The high yield fi xed income allocation will be managed solely on an active basis in order to exploit the perceived ineffi ciencies in the high yield markets and to minimize the probability of exposure to securities in default. A new Private Direct Lending category has been added under the high yield allocation with several commitments already made and others to follow as attractive opportunities are discovered.


Achieve investment returns in the high yield fi xed income composite portfolio which exceed the return of the CS First Boston High Yield Index, Developed Countries Only over a three-year period on an annualized basis. Yes Yes Yes Outcome

Achieve the High Yield composite target exposure set forth by the Asset Allocation Policy Yes Yes Yes Outcome

Securities LendingThe Securities Lending program is focused on lending securities to facilitate market liquidity. The program provides domestic securities to borrowers through a third party lending agent, and international securities through a custodial agent. Securities are loaned in exchange for cash or in-kind collateral of a suffi cient percentage over the market value of the securities delivered.

Supports Goals #4 Actual 2014 Estimated 2015 Expected 2016 Type

Maintain a minimum of 102% collateral. Yes Yes Yes Outcome

OP&F • page 85



Budget Category 2014 2015 2016 2015–2016

Personnel Services $1,578,352 $1,612,982 $1,867,162 15.8%Work Environment $47,301 $72,866 $83,318 14.3%Outside Services $44,187,910 $46,044,164 $45,697,419 –0.8%TOTAL $45,813,563 $47,730,012 $47,647,899 –0.2%


Personnel ServicesTh is category represents the salaries, employee benefi ts, and employer payroll expense for all investment department employees. Th e 15.8 percent increase from our 2015 budget is due to the addition of a full time Investment Analyst position and overall increased costs for wages and employer payroll expense.

Work EnvironmentTh is category represents all expenses related to the investment department work environment including: furniture, equipment, supplies, training and travel, and dues and subscriptions. Th e projected 14.3 percent increase in 2016 versus our 2015 budget is explained by an increase in Business Travel for additional due diligence trips to new and potential managers and employee training and registration fees. Th is is off set by a reduction in dues and subscriptions due to the elimination of certifi cation program expenses and multi-year subscription renewals paid in 2015.

Outside ServicesTh is category represents all external professional services for the investment department. Th e 0.8 percent decrease versus our 2015 budget is primarily explained by a $386,772, or 0.9 percent, projected decrease in investment management fees. Th is decrease is primarily driven by the use of an August 2015 asset base that is 4.9 percent lower than the August 2014 asset value used to project 2015 management fees. Th e current long-term asset allocation policy, approved in December 2012, calls for a reduction in domestic and international equities, an increase in core fi xed income, an increase to private markets and timber and the addition of master limited partnerships (MLPs). Since then, OP&F has conducted structure reviews to assess potential changes within each asset class. In May 2014, the Board approved a revised asset allocation structure increasing the target to MLPs while further reducing equity exposure. Th e new structure is expected to provide a more effi cient risk/return tradeoff and improve the risk balance across the portfolio.

To date, OP&F has funded a new multi-strategy fi xed income solution, added direct lending managers, approved new commitments to private equity, and made additional contributions to MLPs. In mid 2015, the Board adopted a new U.S. Equity structure. OP&F is currently conducting manager searches to implement changes within this asset class. Staff and consultant will continue to work over the next few years to implement the long-term asset allocation structure. Aside from investment management fees, custody fees are projected to increase by 2.5 percent due to higher international custody costs projected for the coming year. OP&F recently transitioned two commingled fi xed income accounts into separate account structures, which will result in higher maintenance and transaction custody costs. OP&F will experience increases in consulting, analytical, quotes & data, and research expenses due to contractually allowed infl ation escalators and OP&F is adding a new custody monitoring service.



Review of 2015 Investment Dept. InitiativesTh e Investment Department did not have any initiatives in 2014.

OP&F • page 86


Member Services Department


Staff

L. DoughtyBudget and Compliance

Support Specialist

L. KuhlweinAdministrative

Assistant

J. BowlbyMember

TransactionsManager

J. BreecknerHealth Care

Support Specialist

V. CuppData and

ComplianceCoordinator

C. BuellBenefi t

Payment Support Specialist

K. JohnsonBenefi t

Payment Coordinator

D. GrandyBenefi t

Payment Coordinator

H. JordanSr. Disability Case Manager

L. FoleyDisability and

Processing Support Specialist

Vicki WhiteSurvivor Benefi t

Specialist

S. JohnsonDisability Case

Manager

J. Montez Th omasBenefi t

Calculations Specialist

(open)Benefi t


M. BradyBenefi t

CalculationsAuditor

T. MayBenefi t


A. TranBenefi t

CalculationsSupport Specialist

R. GochenourSr. Benefi t


R. BallBenefi t

CalculationsAuditor

(open)Benefi t

Calculations Supervisor

C. McNamaraBenefi t

CalculationsAuditor

L. HagermanBenefi t


J. PriceSr. Benefi t


J. JewellBenefi t Payment and Compliance

Manager

P. FinnProcessing Supervisor

B. GatesBenefi t

Calculations Supervisor

Y. KellamTransaction

Specialist

K. ClarkBenefi t Payment and Compliance

Supervisor

T. MiddletonMember

Education Manager

M. NardiCustomer

Service Supervisor

P. HarrisReceptionist

D. AlbrechtMember

Education Rep.

H. TranMember

Education Rep.

J. EdwardsCustomer

Service Rep.

L. BallardCustomer

Service Rep.

R. MaynardCustomer

Service Rep.

(open)Sr. Customer Service Rep.

D. SteeleCustomer

Service Rep.

C. DeYarmonCustomer

Service Rep.K. Strait

Benefi t Calculations

Specialist

G. KohlerDisability Specialist

M. PawlowskiDisability Case

Manager

Kim PennMembership

Specialist

G. PleasantSurvivor Support

Specialist

J. HarvilleMemberServices Director

L. FothergillQC

Coordinator

OP&F • page 87


Member Services Department Budget (in thousands)* 2016 2015 Variance $ Variance % 2015 Variance $ Variance % 2014


Personnel Services Salaries $2,481 $2,251 $230 10.2% $2,404 $77 3.2% $1,883 Employee Benefi ts 804 665 139 20.9% 834 (29) –3.5% 685 Employer Payroll Expense 394 356 38 10.7% 383 11 2.8% 296 Sub-Total $3,679 $3,272 $407 12.4% $3,620 $58 1.6% $2,864

Work Environment

Offi ce Rent $ — $ — $— — $ — $ — — $— Maintenance and Repairs — — — — — — — — Legislative Expenses — — — — — — — — Mailing Expense — — — — — — — — Printing and Publications — — — — — — — — Offi ce Supplies — — — — — — — — Offi ce Equipment 3 2 0 8.7% 3 - 0.0% 0 Insurance Administrative — — — — — — — — Recovery Plan and Contingency — — — — — — — — OP&F Sponsored Seminars 13 10 3 33.2% 12 1 7.7% — Business Travel 10 9 1 13.3% 9 1 8.1% 3 Business Expense 2 1 1 198.5% 2 0 27.9% 0 Trustee Training — — — — — — — — Employee Training 8 9 (1) –9.7% 9 (1) –10.6% 2 Telephone Services — — — — — — — — Dues and Subscriptions 4 2 3 177.8% 2 3 151.1% 0 Miscellaneous Expenses 8 5 3 58.6% 6 2 33.6% 1 Sub-Total $48 $38 $11 28.7% $43 $6 13.4% $7

Outside Services

Investment Services $ — $ — $— — $ — $ — — $— Bank Custody Fees — — — — — — — — Actuarial Services — — — — — — — — Audit Services — — — — — — — — Legal Services — — — — — — — — Disability Medical Services 591 538 53 9.9% 667 (76) –11.3% 408 Public Relation Consultants — — — — — — — — Bank Charges — — — — — — — — Ohio Retirement Study Comm — — — — — — — — Legislative Consultants — — — — — — — — Personnel Recruitment — — — — — — — — Health Care Consultants 250 25 225 900.0% 25 225 900.0% — Other Professional Service 8 7 1 21.1% 8 0 5.2% 6 Sub-Total $849 $569 $280 49.1% $699 $150 21.4% $414

TOTAL OPERATING $4,576 $3,879 $697 18.0% $4,362 $214 4.9% $3,285


OP&F • page 88


Member Services Th e Member Services Department serves active and retired OP&F members and their families, from entry into the system, through retirement and beyond. Th e Department is comprised of four teams:

• Benefi t Calculations• Benefi t Payments and Compliance • Customer Service and Member Education• Processing

Th ese teams work together to educate new members and members who are nearing retirement, to deliver superior customer service, to ensure swift and accurate payment of service pensions, disability benefi ts, and health care benefi ts. Th ey also administer survivor benefi ts, death fund benefi ts and sponsor health care programs for eligible retirees, survivors, spouses, children and dependent parents.

Benefi t CalculationsTh e Benefi t Calculations team calculates service and disability benefi ts at the time of retirement. Th ey process Deferred Retirement Option Plan (DROP) distributions, division of property orders, pension recalculations and annual cost of living adjustments. Th ey work closely with the other Ohio retirement systems to calculate service credit transfers among the funds. Th ey are responsible for the granting and purchase of military service credit and other civilian service credit transactions. Th ey prepare reports, perform research, and make recommendations to the Board of Trustees at the monthly Benefi ts Committee meetings.

Benefi t Payments and Compliance Th e Benefi t Payment and Compliance (BPC) team is responsible for the payment of benefi ts through initiation of the monthly check run. Th ey process direct deposit transactions, court ordered transactions, and overpayments. BPC works closely with OP&F’s healthcare vendor and oversees the retiree health care program to ensure compliance with federal regulations and OP&F’s funding policy. Th ey act as liaison between retirees and OP&F’s healthcare vendor, monitor trends, costs and effi ciency of the plan to make recommendations to the Board of Trustees at the monthly Health Care Committee meeting.

Customer Service and Member EducationTh e Customer Service and Member Education team provides superior customer service to OP&F members, dependents and employers. Th ey are responsible for conducting member

seminars and benefi t counseling sessions and serve as the frontline for all incoming calls and interviews.

ProcessingTh e Processing team is responsible for receipt of all incoming application transactions related to new member enrollment, service and disability retirement, DROP and survivor and death fund benefi ts. In addition to performing the initial system set-ups, the team works closely with members and their families to ensure swift initiation of benefi t payments. Th is team also works closely with physicians and vocational experts to compile disability case fi les for review with the Board of Trustees at the monthly Disability Committee meeting.

Goals and Objectives 1. Goal: Provide quality service to members by

establishing and maintaining acceptable turnaround times for core processes.Objective: Ensure the needs of internal and external customers are met.

2. Goal: Maintain accurate fi nancial and indicative data in all areas of production.Objective: Record all system data timely and accurately to ensure accurate records and reliable reporting.

3. Goal: Pay healthcare vendors timely and accurately for delivery of administrative services.Objective: Review invoices for reasonableness, address issues promptly and reply swift ly to health care billing inquiries.

4. Goal: Ensure accurate and timely health care deductions from pension checks to minimize the number of suspended checks.Objective: Validate\maintenance system changes based on UHC deduction fi le within 3-5 days.

5. Goal: Oversee required fi lings and fee payments with CMS and ACA.Objective: Successfully obtain Med D reimbursements quarterly and payment of required PCORI, Transitional Reinsurance fees and Excise Taxes.

6. Goal: Provide healthcare coverage and wellness incentives that meet member needs with the best possible value.Objective: Account for all healthcare expenses and analyze data to deliver meaningful programs

OP&F • page 89


7. Goal: Ensure healthcare vendors meet contractual obligations through analysis of rebates and performance guarantees.Objective: Reconcile monthly all healthcare reimbursements and credits.

8. Goal: Provide quality service in a courteous and responsive manner to members, retirees, benefi ciaries, employers, associations and staff .Objective: Develop resources, training, and work environment to enable and empower OP&F staff to provide courteous and responsive service to all internal and external customers.

Performance MeasurementsSupports Goal #1 and 8 Actual 2014 Estimated 2015 Expected 2016 Type

Service applications acknowledged per month 80 94 72 OutputDisability applications acknowledged per month 15 14 15 OutputSurvivor applications acknowledged per month 30 28 33 OutputDROP applications acknowledged per month 78 73 59 OutputLump Sum DROP disbursements paid within 90 days of termination 260 335 300 OutputAd hoc disbursements and EFT processed in 4 days 4,520 4900 4,750 OutputCorrection of EFT returns in four days 68 70 70 OutputVerifi cation of invoice within three days 697 850 850 OutputCustomer Service calls answered within 30 seconds or less 57% 70% 75% OutputCustomer Service quality assurance measurements maintained at 98% or better 99% 99% 99% Outcome

Supports Goals #2 Actual 2014 Estimated 2015 Expected 2016 Type

DROP benefi ts calculated within 90 days of payroll release 0 of 486 0 of 425 250 of 450 OutputService credit/contribution transfers to OP&F per month 6 4 5 OutputWithdrawals/rollovers processed per month 17 19 18 OutputPrior service costs processed per month 46 52 49 OutputInterim payments processed in 14 days 228 of 263 270 of 300 255 of 275 OutputPartial DROP disbursements paid within 14 days of request 1,584 2,025 1,650 OutputService credit/contribution transfers out per month 1 1 1 OutputPre-Employment Pysicals processed per month 186 180 166 Output


Reconcile invoices and submit for payment within contractual due dates Yes Yes Yes Effi ciency


Verify V3 system changes within three business days Yes Yes Yes Effi ciencyValidate bi-annual eligibility fi le for vendor accuracy Yes Yes Yes Effi ciency


Timely fi le Med D materials for quarterly reimbursements Yes Yes Yes Outcome


Evaluate programs to provide savings through healthier behavior patterns and disease prevention Yes Yes Yes Outcome


Analyze rebates and performance guarantees Yes Yes Yes Effi ciency

OP&F • page 90



Budget Category 2014 2015 2016 2015–2016

Personnel Services $2,689,400 $3,620,408 $3,678,840 1.6%Work Environment $25,160 $42,764 $48,495 13.4%Outside Services $690,720 $699,120 $848,920 21.4%TOTAL $3,405,280 $4,362,292 $4,576,255 4.9%


Personnel ServicesTh is category refl ects employee salaries, benefi t costs, and employer payroll expenses of the Member Services Department.

Work Environment Th is category refl ects the amount needed for offi ce equipment, training, conferences, business travel, dues and subscriptions and in house food expenses. Th e 13 percent increase is due to the addition of OP&F sponsored seminars, Public Sector Roundtable membership dues, replacement of outdated offi ce equipment and expected due diligence travel for 2016.

Outside Services Th is category refl ects expenses for the disability process and other professional services. Th e disability process includes evaluation fees, consultant fees for doctors and vocational

experts, and occasional fees for out of state physician locators. A Request for Proposal (RFP) was issued to identify a vendor who will assist OP&F with evaluation and selection of options available in the health care marketplace considering the Patient Protection and Aff ordable Care Act (PPACA). Th e 21 percent increase is due to this RFP.



OP&F • page 91


Member Services Proposed 2016 Initiatives

Health Care Consulting ServicesIn 2015, OP&F began the RFP process to identify a vendor who will assist OP&F in evaluating and selecting the best options available in the health care marketplace in light of the Patient Protection and Aff ordable Care Act of 2010 (PPACA). Th is project will continue into 2016 to help OP&F research and identify the best possible health care plan options for OP&F retirees, members dependents, survivors and employees. We have established a budget amount of $250,000 for the overall project, which we expect will have fi xed fees assigned to specifi c portions of the project with hourly rates paid thereaft er.

Position Upgrade - AuditorTh e Senior Benefi t Calculations Specialist is recommended for a profi ciency promotion to Auditor. Th is change will raise the Auditor count to three in support of the new team structure. Th e promotion follows a natural growth path for the Senior position and recognizes the employee for taking on more leadership assignments along with additional functions delegated from the Support Specialist. Th is position will not be posted.

Position Upgrade - Benefi t Calculations Specialist, SeniorOne of the Benefi t Calculators is recommended for a profi ciency promotion to include a Senior designation. Th is will maintain two Seniors within the new team structure. Th e promotion follows a natural growth path for the position and recognizes the quality of work performed by the employee along with the new higher level functions that will be delegated from others within the group. Th is position will not be posted.

Review of Member Services 2015 Initiatives

Restructure Reporting Lines of Customer Service GroupMember Services grew in 2015 by merging the Customer Service unit into the Member Services Department. As expected, alignment of these teams brought added effi ciency and expertise, improved communication and the streamlining of work. It also increased the headcount by eleven when Customer Service moved from the Administration team to the Member Services team.

Reorganization of the Calculations TeamsTh is informal initiative occurred in 2015 when the Pension Contributions group and the Prior Service group merged into a single team called Benefi t Calculations. Integrating these teams was necessary to add structure, depth and stability to the groups. It allows for improved resource allocation and creates a strong supplementary line of support. Individual accountability will be realized as cross-training and delegation of work assignments evolves and leads this team to increased productivity and improved effi ciency.

Addition to Budget - Prior Service Support SpecialistAn additional headcount was added to the Prior Service team in 2015, however, instead of adding a Support Specialist position (grade D) a Quality Control Coordinator position (grade C) was added due to work requirements and alignment of the teams.

Position Upgrade - Disability Case Manager–SeniorOne of the three Disability Case Manager positions was upgraded to a Senior in the Processing team. Th is change recognized the senior level responsibilities performed by the employee including new social media procedures, tracking of potential fraud, and death fund processing.

Advanced Pharmacy Concepts ConsultingTh is initiative was dormant in 2015 in lieu of the Board’s decision to make sweeping changes to the retiree\employee health plan. An RFP was issued in 2015 to bring a health care advisor on Board to educate and advise OP&F on the best health care alternatives available in this changing environment.

Retiree Health Plan WellnessOP&F continues to encourage retiree wellness through incentives and knowledge based communication through on-site seminars, e-mail, newsletters, and the web.

OP&F • page 92


Board of Trustees Budget (in thousands)* 2016 2015 Variance $ Variance % 2015 Variance $ Variance % 2014


Personnel Services Salaries — — — — — — — — Employee Benefi ts — — — — — — — — Employer Payroll Expense — — — — — — — — Sub–total — — — — — — — —

Work Environment

Offi ce Rent — — — — — — — — Maintenance and Repairs — — — — — — — — Legislative Expenses — — — — — — — — Mailing Expense — — — — — — — — Printing and Publications — — — — — — — — Offi ce Supplies — — — — — — — — Offi ce Equipment — — — — — — — — Insurance Administrative — — — — — — — — Recovery Plan and Contingency — — — — — — — — OP&F Sponsored Seminars — — — — — — — — Business Travel 20 17 3 17.8% 21 (1) –4.6% 20 Business Expense 44 38 6 14.6% 44 (1) –1.3% 40 Trustee Training 24 16 8 48.1% 18 5 29.0% 12 Employee Training — — — — — — — — Telephone Services — — — — — — — — Dues and Subscriptions 6 3 3 83.8% 6 (0) –3.0% 3 Miscellaneous Expenses 6 6 (0) –6.9% 8 (2) –23.7% 7 Sub-Total $99 $80 $18 22.9% $97 $2 1.8% $82

Outside Services

Investment Services — — — — — — — — Bank Custody Fees — — — — — — — — Actuarial Services — — — — — — — — Audit Services — — — — — — — — Legal Services — — — — — — — — Disability Medical Service — — — — — — — — Public Relation Consultants — — — — — — — — Bank Charges — — — — — — — — Ohio Retirement Study Council — — — — — — — — Legislative Consultants — — — — — — — — Personnel Recruitment — — — — — — — — Health Care Consultants — — — — — — — — Other Professional Service — — — — — — — — Sub total — — — — — — — —

TOTAL OPERATING $99 $80 $18 22.9% $97 $2 1.8% $82


Board of Trustees

OP&F • page 93


Board of Trustees

Th is department is used by OP&F to track the costs and activities of the Board of Trustees.


Budget Category 2014 2015 2015 2015–2016

Personnel Services $0 $0 $0 0.0%Work Environment $81,557 $96,758 $98,528 1.8%Outside Services $0 $0 $0 0.0%TOTAL $81,557 $96,758 $98,528 1.8%


Personnel ServicesTh e Trustees do not receive any compensation or employee benefi ts.

Work EnvironmentTh is category represents all expenses that are paid for by OP&F for the purpose of accommodating and training the Board of Trustees. Th ere is a 1.8 percent increase in this budget category for 2016, which will include costs for the Ohio Retirement Systems trustee training session.

Outside ServicesNo outside services are related to this department.

Capital OutlayNo capital outlay is required for this department.

Personnel ProjectionsTh ere are no personnel projections related to this department, as all Trustees are elected or appointed into non-compensated positions.

OP&F • page 94


Th is page intentionally left blank.

OP&F • page 95

Annual Budget for Fiscal Year 2016 • SUPPLEMENTAL AND GLOSSARY OF TERMS

Supplemental and Glossary of TermsAnnual Budget for Fiscal year 2016


Supplemental SectionGlossary

OP&F • page 96

SUPPLEMENTAL AND GLOSSARY OF TERMS • Annual Budget for Fiscal Year 2016

Active Member Valuation Data Percentage of

Number of Number of Average Average Annual Annual

Employers Active Members* Annual Salary Salary Increases Payroll

Year Police Fire Total Police Fire Total Police Fire Police Fire (Millions)

2014 532 386 918 14,798 12,804 27602 $70,033 $71,228 1.9% 1.6% $1,986.62013 531 380 911 14,841 12,764 27,605 $68,724 $70,087 0.8% 1.0% $1,942.32012 537 380 917 14,745 12,699 27,444 68,163 69,359 1.6% 1.0% 1,913.42011 537 380 917 14,854 12,769 27,623 67,094 68,663 2.2% 1.6% 1,897.42010 533 384 917 15,293 12,929 28,222 65,649 67,559 2.0% 2.0% 1,868.52009 536 385 921 15,581 13,038 28,619 64,373 66,223 1.4% 1.7% 1,895.22008 539 382 921 15,889 13,173 29,062 63,480 65,097 3.1% 3.3% 1,900.92007 538 385 923 15,829 13,035 28,864 61,545 62,989 1.5% 2.4% 1,831.42006 540 384 924 15,646 12,963 28,609 60,638 61,512 0.1% –1.3% 1,782.92005 536 376 912 15,304 12,722 28,026 60,573 62,326 3.1% 4.5% 1,756.2

* Includes rehired retirees

Active Members Number of Percentage Total Annual Percentage

Active Change in Payroll Change in

Year Members * Membership (Thousands) Payroll

2014 27,769 0.59% $1,986,569 2.28%\2013 27,605 -0.07% $1,942,269 1.49%2012 27,444 -2.76% 1,913,383 0.83%2011 27,623 -3.48% 1,897,413 1.55%2010 28,222 -1.39% 1,868,502 -1.41%2009 28,619 -1.52% 1,895,196 -1.71%2008 29,062 0.69% 1,900,935 3.79%2007 28,864 0.89% 1,831,438 2.73%2006 28,609 2.08% 1,782,851 1.52%2005 28,026 0.53% 1,756,230 4.32%

* Includes rehired retirees

Retirees and Benefi ciaries added to and removed from rolls (dollars in thousands)

Added to rolls Removed from rolls Rolls, end of year Percentage Average Percentage

Valuation Annual Annual Annual Change in Annual Change in

as of Jan. 1 Number Allowances Number Allowances Number Allowances Allowance Allowances Membership

2014 1,261 $413,778 859 $17,204 27,963 $931,176 4.59% $33.30 1.46%2013 1,362 $44,842 1,044 $23,851 27,561 $890,288 4.42% $32.30 1.17%2012 1,390 48,249 1,225 19,469 27,243 852,602 5.58% 31.30 0.61%2011 1,783 65,572 779 16,397 27,078 807,550 8.52% 29.82 3.85%2010 1,165 34,553 803 15,721 26,074 744,144 4.74% 28.54 1.41%2009 1,128 30,920 733 14,566 25,712 710,463 4.52% 27.63 1.56%2008 1,046 25,590 607 12,825 25,317 679,769 4.18% 26.85 1.76%2007 1,128 27,877 933 14,586 24,878 652,474 3.55% 26.23 0.79%2006 1,186 32,147 762 12,701 24,683 630,080 4.70% 25.53 0.92%2005 916 19,803 797 12,132 24,459 601,775 3.64% 24.60 0.49%

Active and Retired Member Statistics

OP&F • page 97


Retired Membership By Type Of Benefi t (Source: Actuarial Valuation) Service Disability Survivors

Year Police Fire Police Fire Police Fire Total

2014 7,842 5,972 3,784 2,576 4,403 3,386 27,9632013 7,623 5,784 3,820 2,588 4,395 3,351 27,5612012 7,459 5,683 3,834 2,594 4,352 3,321 27,2432011 7,204 5,540 3,825 2,577 4,543 3,389 27,0782010 6,762 5,185 3,772 2,566 4,479 3,310 26,0742009 6,546 5,060 3,721 2,496 4,300 3,194 25,3172008 6,523 5,036 3,682 2,470 4,090 3,077 24,8782007 6,459 5,012 3,594 2,436 4,067 3,115 24,6832006 6,419 5,045 3,521 2,403 3,982 3,089 24,4592005 6,452 5,101 3,931 3,063 3,429 2,364 24,340

Average Monthly Benefi t Payments* for Members Placed on Retirement Rolls

Service RetirementYear Normal Service Commuted Age Commuted Age/Service

2014 $3,606 $1,698 — $2,4552013 3,530 1,292 — 2,5902012 3,466 1,241 — 2,3412011 3,442 1,282 — 2,6992010 3,339 1,374 — 3,0162009 3,301 1,460 — 2,3592008 3,266 1,222 — 2,3152007 3,251 1,265 — 1,9282006 3,274 1,068 — 1,6652005 3,125 1,102 — 1,231

Disability RetirementYear Permanent and Total P and T Presumptive Partial Partial Presumptive Off Duty

2014 $3,642 $4,252 $3,040 $3,147 $2,2582013 3,997 5,038 2,865 2,599 2,7312012 4,276 3,717 2,928 3,338 2,7702011 3,838 3,870 2,963 2,983 2,5102010 3,495 3,886 2,827 3,659 2,7852009 3,626 3,810 2,807 2,966 2,6972008 3,509 3,424 2,874 2,696 2,5112007 3,301 3,611 2,846 2,959 2,6342006 3,341 2,930 2,793 2,939 2,3062005 3,327 3,254 2,624 3,160 1,924

* Source: Numbers calculated by taking an average of fi nal placements for retirees as listed in OP&F Board of Trustees monthly reports.

Revenues by Source (dollars in millions)

Employer

Member Contributions as Investment and

Emploer Contributions a percentage of Securities Health Care Other Total....

Year Contributions and purchases Covered Payroll Lending Income Contributions Revenues Revenues

2014 $427.8 223.9 21.5% $860.7 $69.9 $24.7 $1,607.0 2013 $418.2 $187.6 21.9% $2,053.0 $66.6 $28.5 $2,753.9 2012 417.0 177.5 22.0% 1,657.9 65.1 30.7 2,348.2 2011 407.5 176.8 21.8% 229.6 62.5 40.5 916.9 2010 414.0 175.5 21.8% 1,651.8 58.9 25.8 2,326.0 2009 404.3 168.4 21.3% 1,894.9 59.1 24.3 2,551.0 2008 405.9 172.5 22.2% (3,832.9) 57.0 26.0 (3,171.5)2007 400.0 165.1 22.4% 1,163.1 56.0 22.3 1,806.5 2006 374.0 167.4 21.3% 1,629.8 58.5 25.1 2,254.8 2005 357.0 167.8 21.2% 847.3 55.2 11.4 1,438.7

Average Benefi t Payments

OP&F • page 98


Expenses By Type (dollars in millions) Benefi t Administrative Refund of Member Other Total....

Year Payments Expenses Contributions Expenses Expenses

2014 $1,310.5 $16.2 $15.2 0.0 $1,341.9 2013 1,286.4 15.9 16.0 0.0 $1,318.3 2012 1,236.4 15.4 26.5 0.0 1,278.32011 1,204.2 15.4 22.0 0.0 1,241.62010 1,132.1 15.1 15.8 0.0 1,163.02009 1,085.1 16.3 15.7 0.0 1,117.12008 1,021.0 16.0 17.7 0.0 1,054.72007 965.0 16.3 15.1 0.0 996.42006 945.0 16.8 18.0 0.0 979.82005 876.8 15.9 16.4 0.0 909.1

Benefi t Expenses by Type (dollars in millions) Year Service DROP** Disability Health Care Survivor Total Benefi ts

2014 $598.8 $190.4 $242.1 $199.6 $79.5 $1,310.4 2013 563.2 216.1 239.0 191.3 76.8 1,286.4 2012 529.9 212.1 232.8 187.4 74.2 1,236.4 2011 490.2 241.1 225.0 176.3 71.6 1,204.2 2010 444.4 241.0 217.8 159.9 69.0 1,132.1 2009 423.7 215.4 211.1 168.8 66.1 1,085.1 2008 407.4 194.9 202.1 153.4 63.1 1,021.0 2007 391.5 172.0 191.7 149.2 60.6 965.0 2006 377.0 147.5 183.4 178.8 58.3 945.0 2005 367.4 117.7 172.6 163.3 55.8 876.8

** Implementation date of Jan. 1, 2003.

Number of Employer Units Municipalities Townships Villages Total Total.

Year Police Fire Police Fire Police Fire Police Fire Both

2014 249 221 0 129 283 36 532 386 9182013 249 223 0 124 282 33 531 380 9112012 249 225 0 122 288 33 537 380 9172011 250 227 0 123 283 34 533 384 9172010 252 229 0 123 284 33 536 385 9212009 252 229 0 121 287 32 539 382 9212008 251 228 0 123 287 34 538 385 9232007 251 229 0 122 289 33 540 384 9242006 252 225 0 119 284 32 536 376 9122005 251 224 0 113 286 31 537 368 905

OP&F • page 99


A short-term solvency test is one means of checking a system’s progress under its funding program. In a short-term solvency test, the plan’s valuation assets are compared with:

1. Active member contributions on deposit; 2. Th e liabilities for future benefi ts to present retired lives; 3. Th e liabilities for service already rendered by active members.

In a system that has been following the discipline of level percent of payroll fi nancing, the liabilities for active member contributions on deposit (Liability 1) and the liabilities for future benefi ts to present retired lives (Liability 2) will be fully covered by present assets (except in rare circumstances). In addition, the liabilities for service already rendered by active members (Liability 3) will be partially covered by the remainder of present assets. Generally, if the system has been using level cost fi nancing, the funding portion of liability 3 will increase over time. Liability 3 being fully funded is very rare.

Accrued Liabilities ($ Amounts in Th ousands)

(1) (2) (3) Portion of Accrued

Active Retirants Active Members Liabilities Covered

Valuation Member and (Employer Financed Valuation by Reported Assets

Year Contributions Benefi ciaries Portion) Assets (1) (2) (3)

Police 2015 $1,210,400 $5,857,146 $3,015,390 $7,141,575 100% 100% 2%Fire 2015 $1,062,097 $4,337,819 $2,912,741 $5,887,716 100% 100% 17%

Police 2014 $1,171,496 $5,368,637 $2,583,711 $6,088,816 100% 92% 0%Fire 2014 $1,028,465 $3,924,388 $2,501,058 $4,974,383 100% 100% 1%

Police 2013 $1,131,664 $5,166,808 $2,532,580 $5,670,069 100% 88% 0%Fire 2013 $974,362 $3,751,279 $2,451,195 $4,607,962 100% 97% 0%

Police 2012 $1,100,146 $4,960,051 $2,969,900 $5,694,783 100% 93% 0%Fire 2012 $965,598 $3,581,800 $2,769,204 $4,614,176 100% 100% 2%

Police 2011 $1,100,251 $4,368,659 $3,008,219 $5,885,449 100% 100% 14%Fire 2011 $956,559 $3,132,521 $2,818,228 $4,795,563 100% 100% 25%

Police 2010 $1,067,209 $4,216,219 $2,832,235 $5,163,648 100% 100% 24%Fire 2010 $916,033 $3,004,267 $2,700,815 $4,818,972 100% 100% 33%

Police 2009 $1,026,597 $4,077,113 $2,832,235 $5,163,648 100% 100% 2%Fire 2009 $874,756 $2,895,243 $2,601,180 $4,145,508 100% 100% 14%

Police 2008 $985,169 $3,992,482 $2,671,816 $6,248,107 100% 100% 48%Fire 2008 $830,439 $2,827,320 $2,420,526 $4,964,761 100% 100% 54%

Police 2007 $934,517 $3,850,347 $2,444,583 $5,654,396 100% 100% 36%Fire 2007 $796,751 $2,757,853 $2,297,575 $4,503,573 100% 100% 43%

Police 2006 $894,963 $3,654,099 $2,297,575 $5,364,003 100% 100% 35%Fire 2006 $747,714 $2,572,229 $2,023,823 $4,186,577 100% 100% 43%

Police 2005 $840,875 $3,510,610 $2,152,500 $5,260,325 100% 100% 42%Fire 2005 $691,252 $2,497,311 $1,852,502 $4,077,137 100% 100% 48%

Short-Term Solvency Test

OP&F • page 100


Schedule of Contribution Rates

Employer Rates

Time Frame of Rates Employer Rates

Police Fire

Jan. 1, 1967 - Dec. 31, 1967 13.55 13.13Jan. 1, 1968 - Dec. 31, 1968 13.66 13.50Jan. 1, 1969 - Dec. 31, 1969 14.68 14.49Jan. 1, 1970 - Dec. 31, 1970 15.52 15.52Jan. 1, 1971 - Dec. 31, 1971 12.81 12.96Jan. 1, 1972 - Dec. 31, 1972 12.96 13.26Jan. 1, 1973 - Dec. 31, 1973 12.85 13.41Jan. 1, 1974 - Dec. 31, 1974 12.88 13.60Jan. 1, 1975 - Dec. 31, 1975 12.49 13.78Jan. 1, 1976 - Dec. 31, 1976 14.02 15.57Jan. 1, 1977 - Dec. 31, 1977 15.34 16.77Jan. 1, 1978 - Dec. 31, 1978 17.53 18.90Jan. 1, 1979 - Dec. 31, 1979 18.40 20.11Jan. 1, 1980 - Dec. 31, 1980 15.70 19.87Jan. 1, 1981 - Dec. 31, 1981 15.60 20.72Jan. 1, 1982 - Dec. 31, 1982 16.62 22.39Jan. 1, 1983 - Dec. 31, 1983 18.45 23.57Jan. 1, 1984 - Dec. 31, 1984 21.35 24.59Jan. 1, 1985 - Dec. 31, 1985 20.03 24.59Jan. 1, 1986 - Present 19.50 24.00

Member Rates

Time Frame of Rates Member Rates

Police Fire

Jan. 1, 1967 to Dec. 31, 1967 6.00 6.00Jan. 1, 1968 to Feb. 28, 1980 7.00 7.00March. 1, 1980 to July 31, 1986 8.50 8.50Aug. 1, 1986 to Sept. 8, 1988 9.50 9.50Sept. 9, 1988 to July 1, 2013 10.00 10.00July 2, 2013 to July 1, 2014 10.75 10.75July 2, 2014 to July 1, 2015 11.50 11.50July 2, 2015 and thereafter 12.25 12.25

Schedule of Actuarial Interest RatesTime Frame of Rates Actuarial Interest Rates

Jan. 1, 1967 - Dec. 31, 1969 4.250Jan. 1, 1970 - Dec. 31, 1971 4.625Jan. 1, 1972 - Dec. 31, 1973 4.750Jan. 1, 1974 - Dec. 31, 1978 5.000Jan. 1, 1979 - Dec. 31, 1979 6.000Jan. 1, 1980 - Dec. 31, 1982 6.375Jan. 1, 1983 - Dec. 31, 1985 7.500Jan. 1, 1986 - Dec. 31, 1988 7.750Jan. 1, 1989 - Present 8.250

Health Care allocation from employer ratesTime Frame of Rates Rate

Jan. 1, 1974 - Dec. 31,1991 Rate = to $ of benefi ts paid Jan. 1, 1992 - Dec. 31, 1998 6.50%Jan. 1, 1999 - Dec. 31, 1999 7.00%Jan. 1, 2000 - Dec. 31, 2000 7.25%Jan. 1, 2001 - Dec. 31, 2002 7.50%Jan. 1, 2002 - Dec. 31, 2006 7.75%Jan. 1, 2007 - Dec. 31, 2012 6.75%Jan. 1, 2013 - May 31, 2013 4.69%June 1, 2013-Dec. 31, 2013 2.85%Jan. 1, 2014 - Present 0.50%

Contribution and Actuarial Interest Rate History

Jan. 1, 1986 - Present 19.50 24.00

July 2, 2015 and thereafter 12.25 12.25

Jan. 1, 2014 - Present 0.50%Jan. 1, 1989 - Present 8.250

OP&F • page 101


Demographics and Economic Impact

Membership Residence Total Ohio Non- % of

Type of Member Persons Residents Residents Non-Residents

Active Members 23,740 23,516 224 0.94%Retirees 20,722 17,381 3,341 16.12%Survivors 6,746 5,473 1,273 18.87%DROP Participants 3,468 3,435 33 0.95%TOTAL 54,676 49,805 4,871 8.91%

Based on Dec. 31, 2014 data

Direct Impact on Ohio’s Economy* Dollar

Category Amount

Benefi t Payments to Retirees and Survivors ..........$495,923,807

OP&F Health Insurance Expenditures ........................ 149,162,338

DROP Withdrawals ................................................................. 4,847,766

OP&F Administrative Expenditures ...............................15,120,000

TOTAL DIRECT ECONOMIC IMPACT ............... $665,053,911

* Based on Dec. 31, 2006 data

Impact on Economic Output* Dollar

Category Amount

Benefi t Payments to Retirees and Survivors ..........$738,628,918

OP&F Health Insurance Expenditures ........................ 330,155,792

DROP Withdrawals ................................................................. 7,220,263

OP&F Administrative Expenditures ...............................32,343,192

TOTAL DIRECT ECONOMIC IMPACT ............ $1,108,348,165

* Based on Dec. 31, 2006 data

Economic Impact Early in 2006, OP&F commissioned an independent and comprehensive economic study to determine the impact of pension benefi ts, health care spending and other dollars spent eff ected Ohio’s economy. While this study is now fi ve years old, the results remain relevant and show the importance of OP&F’s fi scal impact on the state. Two of the principle fi ndings of the study show that in 2006:

• OP&F activity resulted in more than $1.1 billion in economic output across Ohio• OP&F activity resulted in 11,059 jobs in Ohio

When OP&F makes direct payments to retirees and survivors, this income is spent and re-spent on goods and services produced in the local and regional economy where the benefi ciaries reside. Th is spending (oft en termed “induced” impact by economists) in turn creates additional jobs in the sectors where the benefi ciaries spend their benefi t payments.

OP&F creates additional economic impact by providing health care and medical prescription insurance to retirees and survivors. Again, the consumption of health care by OP&F benefi ciaries leads to ripple eff ects throughout the local and regional economy as a result of the increased demand for these services. Finally, OP&F contributes to Ohio’s economy by paying salaries to OP&F employees and purchasing goods and services that are needed to carry out the day-to-day operations and management of the pension fund.

Th ese economic eff ects are oft en referred to as multiplier eff ects. In other words, any new dollar that is spent will have multiple economic eff ects throughout the local and regional economy as it leads to new jobs, which through typical economic inter-relationships then lead to other jobs. To provide a comprehensive estimate of the total economic impact of OP&F, both the direct and indirect eff ects of OP&F expenditures must be captured.

OP&F • page 102


Account A term used to identify an individual asset or record of the fi nancial transactions relating to a specifi c asset, liability, income item, expense item, or net-worth item.

Accrual Basis of Accounting A method of accounting that recognizes the fi nancial eff ect of transactions and events when they occur, regardless of the timing of related cash fl ow.

Accrue A process in which income and expenses are recorded on the fi nancial statements without the actual exchange of money occurring.

Actuarial Investment Rate of ReturnTh e rate of return used by the actuary to project future outcomes based on a long-term expectation.

Actuarial Valuation An annual examination of a pension plan’s fi nancial solvency, including a determination of the actuarial liabilities, assets and employer contribution required to ensure suffi cient assets will be available to pay benefi ts when due.

Actuary A person whose work is to calculate statistical risks, premiums and life expectancies.

Agency Fund Assets held in a fund under an agency relationship for another entity.

Aggregate Considering the whole or sum of all referred activities.

Amortization To account for expenses by prorating over a fi xed period.

Annual Membership Payroll Th e aggregate amount of payroll dollars earned by contributing members in one year used as a base for calculating

member and employer contributions. Th is amount is also used for projecting future contribution levels for the membership body.

Assets Refers to anything that has monetary value to a plan. Usually states the entire resources of an entity at any given point-in-time.

Asset Allocation A process that determines the optimal distribution of funds among various types of assets that off er the highest probability of consistently achieving investment objectives within the confi nes of predetermined level of risk. Th e process oft en includes the use of a computer model program to assist in the process of a myriad of data.

Benchmark A standard or point of reference in measuring or judging quality.

Biennial An occurrence every two years.

Board of Trustees A group of persons who manage or control a business.

Budget A plan used to project or estimate the revenue and expense fl ows of an entity for any given period of time, normally one fi scal year. Primarily used as a management tool to forecast expectations and analyze actual results.

Budget Message A general discussion of the proposed budget as presented in writing to budget making authorities.

Budgetary Control Th e control or management of entity in accordance with an approved budget for the purpose of keeping expenditures within the limitations of available funds.

Capital A term used to describe an asset purchased by an entity with a useful life of more than one year and cost above a predetermined dollar amount. Th ese assets are then depreciated over that useful live and recorded as an expense to the entity.

Category A classifi cation of logical basic concepts or activities.

Comprehensive Annual Financial Report (CAFR) A fi nancial report that encompasses all funds of a governmental unit.

Contingency A thing or event that depends on or is incidental to another event.

Contribution A term used to describe the amount of money received by an entity for a specifi c purpose.

Cost Eff ective Management Group (CEM) An entity providing cost eff ective comparison information to OP&F by measuring activities against other benchmark entities with similar interests.

Deferred Retirement Option Plan (DROP) Th e Deferred Retirement Option Plan is a benefi t option that allows eligible members to defer actual retirement for up to eight years, once they have achieved an eligible retirement status, and continue working. During this extended service their calculated pension is credited to a DROP accrual account, along with their current contributions and interest. Th ese funds are then available to the member once a minimum of three years has passed or other criteria are met.

Department A section of an entity housing specialized functions. Each section has budget allowances and specialized goals.

Glossary of Terms

OP&F • page 103


Disability Evaluation Panel (DEP)Th is is a group of the Board of Trustees’ Disability Committee and four expert physicians and they meet once a month to review applications for disability benefi ts and to prepare written recommendations for action. From the date an application is fi led with OP&F, it may take anywhere from three to fi ve months before the application is heard by OP&F’s Board of Trustees.

Discretionary benefi ts Benefi ts off ered at the discretion of the Board of Trustees. Authority is not fi xed based on state statute.

Encumbrances Obligations in the form of purchase orders, which are committed against a budget until they are received and paid in full. Th is may include products or services.

Enterprise Risk ManagementA process designed to identify areas of organizational risk and how to approach those areas based on the level of risk.

EnvironmentAll the conditions, circumstances and infl uences surrounding and aff ecting the development of an entity.

Equity Th at portion of a company’s net worth belonging to its owners and shareholders.

Expenses Charges or costs for running a business or doing one’s work. Usually results in a reduction of plan net assets, which may include cash, or non-cash reductions.

Fiscal year A period of time including the beginning and ending of a business cycle and encompasses twelve-months of activities.

Fixed Assets Assets of a long-term character in which the intent is to continue to be held or used, such as land, building, machinery, furniture and other equipment.

Forecast An estimation and/or calculation in advance used to predict actual expense levels for the current year.

Fund An independent fi scal and accounting entity with a self-balancing set of accounts, recording cash and/or other resources, together with all related liabilities, obligations, reserves and equities which are segregated for the purpose of carrying on specifi c activities or attaining certain objectives in accordance with any special regulations or restrictions.

Fund Balance A sum of money set aside for a particular purpose as specifi ed law.

Goal A statement of broad direction, purpose or intent based on the needs of the stakeholders that are directly impacted.

Governmental Accounting Standards Board (GASB) Th e ultimate authoritative accounting and fi nancial reporting standard settings body for state and local governments. Th e GASB was established in June 1984 to replace the National Council on Governmental Accounting (NCGA).

Governmental Accounting Standards Board - GASB Statement No. 14 Th e Financial Reporting Entity A statement issued by the Governmental Accounting Standards Board (GASB) that establishes standards for defi ning and reporting on the fi nancial reporting entity. Th e concept underlying the defi nition of the fi nancial reporting entity is that elected offi cials are accountable to their constituents for their actions. Fiscally independent governments have the ability to complete certain essential fi scal events without substantive approval by a primary government. Th is includes determining its annual budget without another government’s having the authority to approve and modify that budget.

Health Insurance Portability and Accountability Act (HIPAA)

HIPAA is the Health Insurance Portability and Accountability Act of 1996. It may also be referred to as the Kennedy-Kassebaum Act. HIPAA was enacted by the federal government on August 21, 1996, with the intent to assure health insurance portability, reduce health care fraud and abuse, guarantee security and privacy of protected health information, and enforce standards for health information.

Income Th e money or other gain received from an individual activity. Th ese activities normally result in an increase of plan net assets, which may include cash, or non-cash increases.

Initiative Th e characteristic of originating new ideas or methods.

LiabilityDebts or commitments of a person or business that are unpaid.

Med B Abbreviation for the Social Security program, which requires recipients to make a monthly payment for Medicare coverage. OP&F then reimburses eligible members for this expense. A member with Medicare coverage reduces the overall OP&F medical costs.

Net Plan Assets Assets remaining aft er a reduction for liabilities or outstanding obligations and accounts payable. Assets include cash, cash equivalents, receivables, investments at fair value and capital assets. Liabilities include payables, unpaid accured benefi ts and obligations to other entities.

Ohio Retirement Study Council (ORSC) Th is council was created in 1968 to assist the state legislature, governor, and other public offi cials in the formation of

OP&F • page 104


sound public pension policy, and is one of the oldest public oversight councils in the country. Th e general purpose of the Council is to advise and inform the state legislature on all matters relating to the benefi ts, funding, investment, and administration of the fi ve statewide retirement systems in Ohio. In addition, the council provides legislative oversight with respect to the Ohio Public Safety Offi cers Death Benefi t Fund, a state-funded program providing death benefi ts to the survivors of law enforcement and public safety offi cers killed in the line of duty, and the Volunteer Fire Fighters’ Dependents Fund, a program providing benefi ts to disabled volunteer fi refi ghters and their survivors. Th e Cincinnati Retirement System is the only municipal retirement system in Ohio, and falls outside the jurisdiction of the Council.

Ohio Revised Code (O.R.C. or R.C.) Contains the laws of Ohio, which the legislature enacts. Th e Ohio Police & Fire Pension Fund can be found in Title [7] VII, Section 742 of the O.R.C.

Operating budgetTh e annual budget of an activity stated in terms of Budget Classifi cation Code, functional/sub-functional categories and cost accounts. It contains estimates of the total value of resources required for the performance of the operation including reimbursable work or services for others. It also includes estimates of workload in terms of total work units identifi ed by cost accounts.

In the United States, businesses along with state and local governments divide their budgets into two types: the operating budget and capital budget. Th e operating budget is used to keep track of maintenance operations, salaries, and interest payments.

Parameter A term used to identify a characteristic, a feature, a measurable factor that can help in defi ning a particular system. It

is an important element to take into consideration for the evaluation or for the comprehension of an event, a project or any situation.

Pension A non-wage payment made periodically to a person who has fulfi lled certain conditions of service, reached a certain age or meets requirements set forth by other policy or law.

Performance MeasurementsMeasurements established to track the quality of business matters.

PlanRefers to the entire structure of an entity encompassing all business activities into one body.

Portable AlphaPortable alpha is an investment strategy that refers to separating the active manager’s excess return from the base market return and transporting the alpha to some other market index for investment purposes.

PortfolioAll the securities held for investment as by an individual, bank, investment company, etc.

Prudent To be capable of exercising sound judgment in practical matters as someone would for their own interest. Also, to be cautious and discreet in relation to business matters.

Return on Investments (ROI)Th e ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested. Th e amount of money gained or lost may be referred to as interest, profi t/loss, gain/loss, or net income/loss. Th e money invested may be referred to as the asset, capital, principal, or the cost basis of the investment. ROI is usually expressed as a percentage.

Revenues Th e fi nancial return from performing individual business activities. A source of income.

Risk Parity An alternative approach to investment portfolio management which focuses on allocation of risk rather than allocation of capital. Th e risk parity approach asserts that when asset allocations are adjusted (leveraged or deleveraged) to the same risk level, the risk parity portfolio has the same expected rate of return as the portfolio with traditional asset allocations.

Segregate To set aside from others or from the main mass or group.

Statutory Benefi ts Benefi ts that are fi xed, authorized or established by state statute.

Trust Fund An arrangement to provide sustained benefi ts for a person or entity.

Unfunded Liability When the actuarial determined fi nancial liabilities of an entity exceed the amount of assets available.

Unrealized Appreciation/Depreciation Overall gains or losses related to investment assets that remain held as assets in the investment portfolio. Gains and losses are not realized until they are sold or traded.

Volatile Something that is likely to shift quickly and unpredictably.

W-2 based formula A formula for determining pensionable earnings from member payroll that coincides closely with the Internal Revenue Code formula for determining taxation of wage/salary earnings. Member contributions toward pensions would be paid on the same fi gures as reported wage and tax statement in most circumstances.

Prudence • Integrity • Empathy140 East Town StreetColumbus, Ohio 43215

Customer Service: 888-864-8363General Information: 614-228-2975TTY: 614-221-3846Facsimile: 614-628-1777E-mail: [email protected]

www.op-f.org

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