Report from the CFO

During the fiscal year ended June 30, 2017, account balances reached $4.2 billion and benefit payments totaled $343 million. Annuity payments to 13,845 retirees equaled $249 million, lump sum payments totaled $85 million and death benefits paid amounted to $9 million. On the other side of the ledger, contributions to account balances totaled $267 million. All this activity made for a very busy year.

Actuarial Valuation

As a pension fund, the actuarial estimate of future liabilities is a critical component of our financial statements. The Fund’s actuary, Conduent (formerly Buck Consultants), completed its detailed review of our participants’ account balances, along with the obligations to retirees and the death and disability benefits. They determined that the value of our liabilities was $6,752 million at June 30, 2017.

The complete Annual Report of the Actuary is available here.

Operating Costs

The Fund classifies all operating expenses as either “controllable costs” or “non-controllable costs.” Expenses that are considered controllable costs include all expenses incurred to operate the plans and support the internal investment team. Non-controllable costs are investment management fees paid directly from the Fund and reported on our financial statements as part of investment expenses.

Investment management fees are typically charged as a percentage of the market value of the assets allocated to a specific investment manager. As the market value of the assets grow, the fee in dollars will also grow, but the agreed-upon fee denominated as a percentage of assets will remain the same. Generally, fees related to investments in alternative assets and pooled accounts are subtracted from the asset values under management and reported as realized or unrealized losses. As the portfolio allocation to these types of investments has increased over time, the cost to invest our portfolio has shifted from non-controllable costs to realized or unrealized losses. The Fund reports all investment returns net of all management fees and internal investment costs.

Many organizations measure their operating cost relative to the value of their assets under management (AUM). In fiscal year 2017 our average AUM increased to $6.2B from $5.9B.

Relative Operating Costs Measured in Basis Points

  2017  2016  2015  2014  2013 
Administrative Expenses 36 37 33 34 34
Investment Expenses
38 38 38 36 36
   Total 74 75 71 70 70

Controllable Expenses
51 53 46 47 46
Non-Controllable Expenses 23 22 25 23 24
   Total 74 75 71 70 70
Average AUM $6.2B  $5.9B  $6.1B  $5.7B  $5.2B

Despite the challenges of providing superior service and security to our participants and retirement assets, we managed to end the year with costs slightly under budget. In dollar terms, the total cost was 3.2% higher than the previous year. This was made possible thanks to the dedication of the employees at the Fund.

KPMG, the Fund’s auditors, concluded their work on July 31. Their opinion, along with the Fund’s financial statements and footnotes, is available here.