23
GWINNETT RETIREMENT SYSTEM GWINNETT COUNTY BOARD OF EDUCATION Suwanee, Georgia TWENTY-NINTH ANNUAL REPORT Fiscal Year Ended December 31, 2011
GWINNETT RETIREMENT
SYSTEM
GWINNETT COUNTY BOARD OF EDUCATION Suwanee, Georgia
TWENTY-NINTH ANNUAL REPORT Fiscal Year Ended December 31, 2011
TABLE OF CONTENTS
Introductory Section Letter from the Chairman…………………………………… 1 Ten Year History…………………………………………… 2 2011 GRS Administrative Staff and Advisors……………… 3
Administrative Section Overview……………………………………………………. 4 GRS Department……………………………………………. 5
Financial Section Audit Opinion……………………………………………….. 6-7 Statement of Plan Net Assets……………………………….. 8 Statement of Changes in Plan Net Assets…………………… 9 Financial Highlights………………………………………… 10-11
Investment Section Investment Policy…………………………………………… 12-13 Investment Highlights………………………………………. 14-15 Investment Managers……………………………………….. 16 Detailed Investment Listing………………………………… 17
Introductory Section
Gwinnett Retirement System
GWINNETT COUNTY BOARD OF EDUCATION GWINNETT RETIREMENT SYSTEM
437 Old Peachtree Road, NW, Suwanee, GA 30024-2978
RICK COST, Chm. BOARD OF EDUCATION DR. FRANCES DAVIS, V. Chm. JIM BARBEE LOUISE RADLOFF Chm. KEITH CHANEY CAROLE BOYCE, V. Chm. DR. STEPHEN FAIRCHILD DR. ROBERT MCCLURE DR. STEVE FLYNT DR. MARY KAY MURPHY RON GAY DANIEL D. SECKINGER DON MOORE SANDI ROBERSON J. ALVIN WILBANKS Superintendent December 11, 2012 Dear Fellow Employees: On behalf of the administrative committee, I am pleased to present the Twenty-Ninth Annual Report of the Gwinnett Retirement System (GRS). This report is intended to enhance your understanding of a valuable employee benefit plan and to serve as a report card on the operating results of GRS during 2011. The GRS was established as an alternative to Social Security upon the request of the Gwinnett County Public School employees, on January 1, 1983. The Plan is funded through a combination of employer and employee contributions, and investment income. In accordance with Georgia law, periodic contributions to the retirement fund are made based on an independent actuary’s calculation of the amount necessary to fund all benefits when due. The Plan provides benefits comparable to Social Security at a much reduced contribution rate for employees. Since inception, the Plan has grown significantly in terms of total participants. At the end of 2011, there were 19,991 active participants in the Plan, slightly down from 20,425 at the end of 2010. Retirements from the Plan are still increasing and are expected to continue to grow significantly over the next several years, as a greater percentage of school system employees reach retirement age. During 2011, the number of retirees and beneficiaries of the system increased from 4,434 to 4,874. In 2011 the assets of the Plan continued to recover from the investment market downturn of 2008-2009, albeit at a slower rate than in 2010. By year’s end, the market value of assets held in the GRS investment portfolio had increased by 1.0 percent over 2010. Since the inception of the Plan, assets have achieved an average annual growth rate of over 9 percent per year. These average annual returns compare quite favorably with those of other public pension plans. Detailed investment performance information is provided in the Investment Section of this report. All members of the Committee welcome your input and questions at any time. Please feel free to contact any of us at your convenience. In closing, I would like to express my appreciation to all of our advisors and staff whose diligent work continues to provide all GRS participants with a secure plan that can be counted on to provide all the benefits they expect and deserve. The quality of our plan is a tribute to their wisdom and efforts. Sincerely,
Rick A. Cost Chairman, Gwinnett Retirement System Administrative Committee
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Plan Investments ($’s, in Millions)
Active Plan Participants (In Thousands)
500 600 700 800 900
1,000 1,100 1,200 1,300 1,400
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
12 13 14 15 16 17 18 19 20 21
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Gwinnett Retirement System Ten Year History
2
Gwinnett County Public Schools Board of Education
Dr. Robert McClure , Chairman Louise Radloff, Vice Chairman
Carole Boyce Dr. Mary Kay Murphy Daniel D. Seckinger
GRS Plan Administrative Committee
J. Alvin Wilbanks, Superintendent (Ex Officio) Rick Cost, Chief Financial Officer, Chairman
Dr. Frances Davis, Chief Human Resources Officer, Vice Chairman Jim Barbee, Teacher, Peachtree Ridge High School
Keith Chaney, Principal, Mountain View High School Dr. Stephen Fairchild, Teacher, Duluth High School
Dr. Steve Flynt, Associate Superintendent Ronald Gay, Teacher, Hull Middle School
Don Moore, Assistant Director, Transportation Sandi Roberson, Retiree
Administrative Staff
GRS Retirement Services Department Tom Daymude, Director Alex McDugald, Assistant Director Betty Williams, Retirement Services Manager Cheri Trainor, Assistant Director Gwenna Dotson, Lead Retirement Specialist Jan Taylor, Lead Financial Systems Specialist Lynn Skinner, Retirement Specialist Sherry Boring, GRS Payroll Assistant Michelle Watson, Retirement Specialist Connie Fay Crane, Assistant Sondra Shipley, Assistant Susie Meadows, Assistant Martha Parker, Assistant
Office of the Chief Financial Officer Paula Gill, Recording Exec. Secretary
Investment Managers
Domestic Equity Fixed Income International Atlanta Capital Management Standish Mellon Asset Management Dimensional Fund Advisors Sound Shore Management Taplin, Canida & Habacht Marathon Asset Management State Street Global Advisors Vanguard Group Systematic Financial Management Mellon Capital Management Real Estate Parametric REMS Group
Gwinnett Retirement System 2011 Staff and Advisors
3
Administrative Section
Gwinnett Retirement System
Objective The objective of the Gwinnett Retirement System is to hold in trust and soundly invest all funds contributed to the Plan in order to provide defined retirement and long-term disability benefits for all covered employees. Eligibility Covered employees may retire and elect to receive monthly retirement benefits upon attainment of age 65 or upon attaining eligibility for early retirement under the appropriate State Plan (Teachers Retirement System of Georgia or Public School Employees Retirement System). Early retirement benefits are reduced by factors which have been established for each year of age under 65. Monthly disability benefits are payable after six months in which the employee remains on approved leave of absence as determined by Board policy, or upon determination of disability if later. Coverage All regular full-time employees are automatically covered by the GRS Plan. Full-time employees are those who are regularly scheduled to work at least twenty hours per week and are not student, seasonal or intermittent employees. Administration The GRS Plan Administrative Committee consists of nine voting members and one non-voting member. The Superintendent (non-voting), Chief Financial Officer, and the Chief Human Resources Officer are permanent members. The seven other rotating members consist of three school teachers, one local school administrator, one classified employee, one retiree drawing GRS benefits and one person in any position the Board chooses. As each rotating member’s term expires, replacement members are recommended by the GRS Plan Administrative Committee to the Superintendent and Board of Education for approval. The rotating members serve a seven year term and must remain off the Committee at least twelve months before being considered for another term. A complete listing of the 2011 GRS Committee is included on page 3. Asset Management In 2011 the GRS Plan Administrative Committee employed the firm of NEPC, LLC to provide independent investment counsel. NEPC assisted in the development of investment policies and the selection and employment of investment managers. On an ongoing basis, NEPC has assisted in revising these policies and in monitoring the investment manager results. Detailed information on the investments of the Plan is presented in the Investment Section of this report. Actuarial The GRS Plan Administrative Committee employs the firm of Cavanuagh Macdonald Consulting, LLC to perform annual actuarial valuations. A copy of the most recent actuarial valuation report may be viewed or downloaded from the GRS website at: http://www.gwinnett.k12.ga.us/GRS/GRSWeb-App.nsf/pages/Publications Audit The accounting firm of Mauldin & Jenkins, LLP conducts annual audits of the Plan. The audit opinion and the two basic financial statements for 2011 are presented in the Financial Section of this report. A full copy of the financial report may be viewed or downloaded from the GRS website at: http://www.gwinnett.k12.ga.us/GRS/GRSWeb-App.nsf/pages/Publications
Gwinnett Retirement System Plan Overview
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Gwinnett Retirement Services Department Mission The mission of the Retirement Services Department is to provide Gwinnett County Public Schools employees and retirees with the information, guidance, support, and service they need to plan and achieve a comfortable, secure, and independent retirement; and to manage the assets of the Plan to ensure the promise of life-long benefits. Key Tasks and Responsibilities
Retirement Services Financial Operations Provide Member Counseling Manage Contributions Manage Enrollment Provide Accounting Services Manage Benefits Provide Financial Statements Manage Participant Data Manage Disbursements Provide Member Statements Manage Banking Operations
GRS Website The GRS website was created to provide easy access to Plan information and answers to frequently asked questions. The goal of the website is to maintain continuous communication links between GRS and its customers. The current web address is www.gwinnett.k12.ga.us/GRS. Benefit Recipients The GRS Department is responsible for the retirement process of every employee who retires from the Plan. Since its inception in 1983, the GRS Plan has continued to experience rapid growth in the annual and overall numbers of retirees. The total number of people receiving monthly GRS benefits is now over 4,800. Over the next several years the number of employees eligible for retirement is expected to continue to grow rapidly.
Benefit Recipients
1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Gwinnett Retirement System Retirement Services Department
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Financial Section
Gwinnett Retirement System
6
7
STATEMENTS OF PLAN NET ASSETSYEARS ENDED DECEMBER 31, 2011 AND 2010
2011 2010
AssetsReceivables:
Accrued interest and dividends 2,309,314$ 2,900,038$ Pending trades receivable 1,834,569 216,618 Total receivables 4,143,883 3,116,656
Common stocks 190,330,910 196,244,866 Preferred stocks 1,123,740 1,457,610 U.S. government securities 44,830,104 26,459,130 Mutual and commingled funds 822,155,220 842,546,784 Corporate bonds 69,358,553 67,796,596 Money market funds 33,479,066 26,313,100 Municipal bonds 672,256 1,162,308 Mortgage-backed securities 63,312,298 58,561,480 Asset-backed securities 12,158,020 6,826,698 Other bonds 119,697,652 105,813,248 Securities lending short-term collateral investment pool 76,049,171 126,450,813 Total investments 1,433,166,990 1,459,632,633
Capital Assets, net 5,207 6,943
Total assets 1,437,316,080 1,462,756,232
LiabilitiesAccounts payable and accrued expenses 85,530 73,066 Pending trades payable 15,620,359 3,798,880 Loan Payable for securities lending 76,132,918 126,716,020 Total liabilities 91,838,807 130,587,966
$ 1,345,477,273 $ 1,332,168,266 (A schedule of funding progressis presented on page 17)
Investments, at fair value:
Net assets held in trust for pension benefits
GWINNETT COUNTY BOARD OF EDUCATION RETIREMENT SYSTEM
December 31,
See auditor's report and accompanying notes to financial statements.
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2011 2010
Employer $ 44,518,645 $ 39,585,901 Members 8,773,926 9,006,353 Total contributions 53,292,571 48,592,254
Net appreciation in fair value of investments (24,745,486) 121,078,800 Interest and dividends 28,478,692 28,420,833 Other investment income 30,931 10,484,829
3,764,137 159,984,462 Less investment activity expenses (2,320,450) (2,144,796) Net income from investing activities 1,443,687 157,839,666
Security lending income 207,466 268,512Security lending expenses (22,343) (24,411)Net appreciation in fair value short-term collateral investment pool (3,663) (11,502) Net income from security lending activities 181,460 232,599
Net investment income 1,625,147 158,072,265
Total additions 54,917,718 206,664,519
Retirement 37,546,710 32,772,171 Disability 2,354,585 2,150,226
39,901,295 34,922,397 1,707,416 3,131,722
Total deductions 41,608,711 38,054,119
Net increase 13,309,007 168,610,400
Beginning of the year 1,332,168,266 1,163,557,866
End of the year $ 1,345,477,273 $ 1,332,168,266
Years Ended December 31,
Administrative expenses
GWINNETT COUNTY BOARD OF EDUCATION RETIREMENT SYSTEMSTATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 2011 AND 2010
Benefits paid to participantsDeductions
Contributions
Investment income
Additions
From investing activities
From security lending activities
Net assets held in trust for pension benefits
See auditor's report and accompanying notes to financial statements.
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Additions Plan assets increased by a net $13 million during the year. The growth was due to a combination of investment return and contributions to the plan. Investment return contributed $1 million to Plan asset value. The remaining $12 million was accounted for by contributions net of expenses to the Plan. Further detail on Plan investment performance is provided in the Investment Section of this report.
Components of Annual Growth ($’s, in Millions)
Contributions Employer and employee contributions have consistently added to asset value over the life of the Plan. Contributions totaled $53.3 million for the year 2011. The Board contributed $44.5 million for the benefit of 19,991 active employees. The remaining $8.8 million was contributed by employees through payroll deduction.
Annual Contributions ($’s, in Millions)
(250) (200) (150) (100) (50)
- 50
100 150 200 250
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Contributions Net of Expenses Investment Income
- 5 10 15 20 25 30 35 40 45 50 55 60
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Employee Contributions Board Contributions
Gwinnett Retirement System Financial Highlights
For the Year Ended December 31, 2011
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Investment Section
Gwinnett Retirement System
Benefit Payments Benefit payments of $39,901,295 were disbursed from the Plan during 2011. This represents an increase of $5.0 million over benefits disbursed in 2010. The level of benefit payments is expected to increase substantially over the next several years as the number of employees eligible for retirement increases.
Projected Benefit Payments ($’s, in Millions)
Plan Expenses Investment and administrative expenses for the year totaled $2,320,450 and $1,707,416 respectively, for a total of $4,027,956. Investment expenses increased marginally on an absolute basis and as a percent of the value of Plan assets from the prior year due to manager and portfolio transition expenses. Administrative expenses decreased on both an absolute and percentage of assets basis, resulting in lower overall expenses for the Plan compared with 2010.
Expenses as a % of Total Assets
- 10 20 30 40 50 60 70 80 90
2011 2012 2013 2014 2015 2016
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Gwinnett Retirement System Financial Highlights
For the Year Ended December 31, 2011
11
Investment Objectives The primary investment objective of GRS is better than average returns on investment over the long term. Investment objectives reflect the long-term nature of the Plan, the expected strong cash flow, and the relatively young age of participants. As a public body, the Board of Education’s funding ability is influenced by the local economic conditions and by political considerations. Therefore, it is important that the Plan meet its investment goals if benefit levels are to be assured. Operating Procedures
The Gwinnett County Board of Education shall be responsible for the overall management of the assets of the retirement system.
The Board has established an Administrative Committee to carry out the terms of the Plan, including
responsibility for the investment of funds.
The Administrative Committee is responsible for establishing investment policy, hiring and firing of advisers, providing professional services to the Plan, and, in general, directing the Plan’s investments in a manner most appropriate to meeting Plan goals.
Investment Guidelines The policy of GRS is to seek out the best investment management available to provide participants with adequate and cost-effective disability coverage and retirees with an adequate and fully competitive retirement income at a reasonable cost. The Plan Administrative Committee may employ one or more investment managers to carry out investment policies. As a local retirement system maintained by a political subdivision of the State of Georgia, investments made by the Plan are subject to the Official Code of Georgia Annotated. Every two years, the Plan is required to certify to the State Auditor that it has complied with the investment practices outlined in the Public Retirement Systems Investment Authority Law (O.C.G.A. 47-20-80 et seq) at all times. It is the Administrative Committee’s decision to voluntarily abide by the provisions of the Employee Retirement Income Security Act (ERISA) of 1974 where applicable and feasible. It is also understood that the fund’s managers will abide by ERISA. The Plan includes two benefit plans that are managed as one portfolio – the Retirement Fund and the Disability Fund. The Administrative Committee believes a broadly diversified portfolio of well-selected investments will be most successful in meeting the Fund’s goals at the lowest level of risk. The Administrative Committee has adopted the following target asset mix for the fund. All asset classes are measured at cost. Equities 30 - 65% Fixed Income 30 - 70% Real Property 0 - 10%
Gwinnett Retirement System Investment Policy
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Investment Restrictions Investments in corporations are permitted only if the corporation has a market capitalization equivalent to $100 million. Investments in obligations of corporations are permitted only if the obligations are listed as investment grade by a nationally recognized rating agency. Investments in securities of companies on the Scrutinized Companies with Activities in Iran Petroleum Energy Sector List (as defined by O.C.G.A. 47-20-83.1) are prohibited. The following may not be used in making equity investments:
• leverage techniques • option techniques • futures • commodities • private placements • direct participation plans
The Plan may enter into contracts, agreements, and other instruments designed to manage risk exposure. Expected Returns and Risk Levels The Administrative Committee establishes the following investment goals based on current capital market conditions and the funding status of the Plan:
• Expected return: Over a five-year period, the total return should be at least 3% above the rate of inflation (as measured by the CPI) and rank in the top half of a peer group of large public pension plans. The Plan is also expected to outperform the target benchmark which is defined as the target asset mix multiplied by the appropriate benchmark for each asset class.
• Expected risk: Over a five-year period, the standard deviation of the returns for the total fund should be
less than 13% and less than that for a peer group of large public pension plans.
Gwinnett Retirement System Investment Policy
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Asset Mix The Plan investment portfolio was diversified at year end in accordance with the GRS investment policy.
Assets as of December 31, 2011
Investment Returns In 2011 the Plan’s equity holdings in domestic large cap, domestic small cap and international equities all underperformed their benchmarks, returning 0.1%, -4.4%, and -12.5%, respectively. The Plan’s fixed income and real assets holdings helped to offset the underperformance of equities, returning 7.7% and 11.2% respectively. For the year ending December 31, 2011, the Plan returned 0.3% (gross of fees) exceeding its benchmark by 0.3%.
Annual Portfolio Investment Return
Domestic Equity 30%
International Equity 22% Real Assets
11%
Fixed Income 36%
Cash & Equivalents 1%
-25.0% -20.0% -15.0% -10.0%
-5.0% 0.0% 5.0%
10.0% 15.0% 20.0% 25.0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Gwinnett Retirement System Investment Highlights
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Long Term Investment Return The GRS Plan has a long term investment outlook due to the nature of the Plan and the characteristics of the participant base. The Plan has an assumed actuarial investment return rate of 7.5% in order to appropriately fund both current and future benefits. The one, three, five, seven and ten year returns are presented below.
Annualized Portfolio Investment Return
0.3%
10.9%
2.3% 4.3%
5.9%
0.0% 2.0% 4.0% 6.0% 8.0%
10.0% 12.0% 14.0% 16.0% 18.0% 20.0%
1 Year 3 Year 5 Year 7 Year 10 Year
Gwinnett Retirement System Investment Highlights
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Investment Managers GRS diversifies investments over a wide range of asset classes and investment styles in order to meet stated investment objectives. In order to achieve diversification the GRS Administrative Committee employs a variety of investment managers. The performance of each manager is monitored by the Committee on a regular basis. One, three and five year returns are presented below for each asset class.
0.1%
14.9%
-0.1% -5%
0%
5%
10%
15%
20%
1 Year 3 Year 5 Year
Equity - Large Cap Returns
-12.5%
9.1%
-4.3%
-15%
-10%
-5%
0%
5%
10%
15%
1 Year 3 Year 5 Year
Equity - International Returns
7.7% 6.9%
4.1%
0%
5%
10%
1 Year 3 Year 5 Year
Fixed Income Returns
-4.4%
17.3%
0.5%
-10%
-5%
0%
5%
10%
15%
20%
1 Year 3 Year 5 Year
Equity - Small Cap Returns
-6.1%
13.4%
-1.3%
-10%
-5%
0%
5%
10%
15%
1 Year 3 Year 5 Year
Equity - Global Returns
11.2% 12.2%
4.3%
0%
5%
10%
15%
1 Year 3 Year 5 Year
Real Assets Returns
Gwinnett Retirement System Investment Highlights
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Ten Largest Equity Holdings
Company Market Value Exxon Mobil Corp $ 3,427,610 Wal-Mart Stores Inc 2,901,169 CVS Caremark Corp 2,875,928 Proctor & Gamble Co 2,866,796 Pfizer Inc 2,810,344 General Electric Co 2,724,039 Microsoft Corp 2,310,897 Texas Instruments Inc 2,288,037 Apple Inc 2,205,225 Time Warner Inc 2,065,473
Total of 10 Largest Equity Holdings $ 26,475,517 Ten Largest Fixed Income Holdings
Description Maturity Date
Interest Rate Market Value
U.S. Treasury Note 5/31/2015 2.125% $ 12,256,677 U.S. Treasury Inflation Indexed 7/15/2014 2.000% 11,407,716 U.S. Treasury Note 4/30/2012 1.000% 9,253,874 U.S. Treasury Inflation Indexed 1/15/2020 1.375% 8,369,527 U.S. Treasury Inflation Indexed 4/15/2028 3.625% 8,195,385 U.S. Treasury Inflation Indexed 1/15/2016 2.000% 7,753,123 U.S. Treasury Inflation Indexed 7/15/2021 0.625% 7,125,740 U.S. Treasury Inflation Indexed 1/15/2026 2.000% 6,665,513 FNMA SF MTG 1/1/2042 4.000% 6,623,213 U.S. Treasury Inflation Indexed 7/15/2017 2.625% 6,575,574
Total of 10 Largest Fixed Income Holdings $ 84,226,344
A complete list of portfolio holdings is available upon request.
Gwinnett Retirement System Investment Highlights
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