Winston-Salem Police Officers Retirement System WSPORS... · Comparative Statement of Changes in...

Winston-Salem Police Officers’ Retirement System

Winston-Salem, North Carolina

Annual Financial Report

June 30, 2011

Winston-Salem Police Officers’ Retirement System Winston-Salem, North Carolina

Table of Contents Page

Introductory Section Letter of Transmittal ..................................................................................................................3

Organizational Chart ..................................................................................................................7

City of Winston-Salem Council Members .................................................................................9

Commission Members .............................................................................................................11

Medical Review Board Members ............................................................................................13

Administrative Staff .................................................................................................................15

Professional Services/Investment Managers ............................................................................17

Financial Section Management’s Discussion and Analysis .................................................................................21

Financial Statements

Comparative Statement of Plan Net Assets .......................................................................23

Comparative Statement of Changes in Plan Net Assets ....................................................24

Notes to Financial Statements ..................................................................................................25

Required Supplementary Information

Schedule of Funding Progress ...........................................................................................27

Schedule of Employer Contributions .................................................................................28

Investment Section Letter from Deutsche Bank ......................................................................................................31

Introduction ..............................................................................................................................33

Investment Policies and Objectives .........................................................................................33

Investment Performance ..........................................................................................................38

Actuarial Section AON Actuarial Report ...................................................................................................................43

Summary of Results .................................................................................................................44

Review and Analysis................................................................................................................46

Actuarial Certification .............................................................................................................48

Valuation Method and Assumptions ........................................................................................49

Financial Statements ................................................................................................................51

Summary of Principal Plan Provisions ....................................................................................54

Supporting Data .......................................................................................................................57

Appendices ...............................................................................................................................59

Introductory Section

1

WINSTON-SALEM POLICE OFFICERS’ RETIREMENT COMMISSION

P.O. Box 2511

Winston-Salem, N C 27102

336.747.6900 FAX 336.727.2566

Chairman

Brenda B. Diggs

Vice Chairman

Lt. Robert G. Cozart

Members

Asst. Police Chief

Michael V. McCoy, Ret.

Lt. Douglas A. Nance

Alternate Members

Lt. Jeffrey T. Watson

Lt. Christopher A. Lowder

City Council Member

Robert C. Clark

Letter of Transmittal

December 31, 2011

Honorable Mayor and City Council


Winston-Salem, NC

It is our pleasure to submit the Annual Financial Report for the Winston-Salem

Police Officers’ Retirement System (System) for the fiscal year ended June 30,

2011. The System is included in the City of Winston-Salem’s (City) reporting

entity and the Comprehensive Annual Financial Report (CAFR) as a fiduciary fund.

The CAFR, which is submitted for review under the Certificate of Achievement for

Excellence in Financial Reporting Program, is available online at

www.cityofws.org, Finance Department. Management of the City is responsible for

the integrity and objectivity of the financial statements and representations

contained in this annual report.

The Report consists of four sections, described below:

The Introductory Section containing the Letter of Transmittal,

identification of the Mayor and City Council, the Winston-Salem Police

Officers’ Retirement System Commission, the administrative organization,

and list of professionals who provide services to the System.

The Financial Section contains the Management Discussion and Analysis

(MD&A), the financial statements of the System, and supplementary

information.

The Investment Section contains a report on the investment activity,

policies, and performance.

The Actuarial Section contains certification of actuarial valuations and

summaries of actuarial assumptions and methods.

Profile of the Retirement System


The System is a single-employer, defined benefit plan with required membership

for sworn police officers. It was established by the City in 1977. At June 30,

2011, the System had 840 members consisting of 296 retirees, beneficiaries of

deceased retirees, vested terminated employees, and 544 active employees. 3

http://www.cityofws.org/

Members may retire with unreduced benefits after completing 30 years of creditable service or

at age 55 with 5 years of creditable service. Officers retiring with unreduced benefits are

entitled to annual benefits equal to 1.85% of average highest earnings for four consecutive years

times the number of years of creditable service. The City established the System, which is

similar to the North Carolina Local Governmental Employees’ Retirement System for Law

Enforcement Officers, and authorizes benefit provisions and amendments, including post-

retirement benefit increases.

Funding Status

A retirement fund is considered adequately funded when sufficient reserves are available to

meet expected future obligations to its participants. The City is committed to annually budget

the actuarially determined contribution to meet the current and future obligations. The

valuation included in this report was completed with payroll data as of December 31, 2010 and

is included in the Actuarial Section.

Investments

City Council has adopted an Investment Policy for all City funds inclusive of the investment of

the retirement fund. The City Manager, with recommendation from the Chief Financial Officer

and City Treasurer, has the authority, with the assistance of financial consultants, to select and

employ asset managers to direct investment activities of the System in accordance with the

Investment Policy. The City has eight equity and four fixed income asset managers, whose

performance is measured against appropriate market indices. Financial consultants are

approved by City Council to assist the City in the selection and oversight of asset managers.

Deutsche Bank Alex. Brown serves as the financial consultant that helps select and monitor the

performance of the System’s equity asset managers. Stephens, Inc. serves as the financial

consultant that helps select and monitors performance of the System’s fixed income asset

managers.

If a asset manager’s performance falls below the appropriate benchmarks for a period of three

years, then the manager is replaced. A manager can be replaced at any time when there is

unwarranted below benchmark performance, significant changes in key staff of the investment

firm, or significant changes in the style or process of the manager. Managers may have assets

under management changed by the System to take advantage of new market opportunities,

rebalance the asset allocations by style or by asset classification (e.g. equities vs. fixed income).

Investments of the System are generally limited to those investments that can be made by the

North Carolina State Treasurer. All System assets are held in the custody of a fiduciary master

trust at U.S. Bank. Assets placed into the master trust may only be used to pay System benefits

and are not subject to liens against the City of Winston-Salem.

It is a goal for the System investments to perform at or above the 7.5% actuarially assumed rate

of return over the long-term; typically ten years.

Professional Services

In addition to financial consultants, the City engages professionals to perform actuarial

evaluations, custodian and trustee services, and annual audits. A list of the appointed

professionals is included in the report. 4

Administration

The City Council established the Winston-Salem Police Officers’ Retirement Commission to

provide oversight to the benefits and investments of the plan. The Commission is composed of

a member of the City Council, two sworn officers elected by members of the plan, one retired

officer, and an unaffiliated citizen of Winston-Salem who serves as Chairperson of the

Commission. Two additional elected sworn officers serve as Alternate Members.

The Chief Financial Officer (CFO) of the City serves as the System Administrator and overseas

both benefits administration and investments.

A Medical Review Board is established by City Council to review all disability retirement

applicants. Upon recommendation of two or more of the members of the Medical Review

Board, an officer may be recommended to the Retirement Commission for disability retirement.

Acknowledgements

The administration of the retirement system could not be accomplished without the dedicated

services of the staff of the City Financial Management Services and Human Resources

Department. We would like to express our appreciation to all the members of these

departments. We also express our appreciation to the Mayor, City Council, and the Winston-

Salem Police Officers’ Retirement Commission for their leadership and guidance.

Respectfully submitted,

Denise C. Bell

Administrator

5


Organizational Chart

7

Citizens of Winston-Salem

Mayor and City Council

Boards and Commissions City Attorney

Angela I. Carmon

City Manager Lee D. Garrity

Police

Scott A. Cunningham Fire

Antony R. Farmer

Budget and Evaluation

Ann G. Jones Finance

Denise C. Bell

Assistant City Manager Gregory M. Turner

- Emergency Management

- Engineering

- Information Systems

- Sanitation

- Stormwater

- Transportation

- Utilities

Deputy City Manager Derwick L. Paige

- Community & Business Development

- Human Relations

- Inspections

- Planning

- Property & Facilities Management

- Recreation & Parks

Assistant City Manager Martha L. Wheelock

- City Link

- City Secretary

- Community Assistance

- Human Resources

- Marketing & Communications

- Public Assembly Facilities

City of Winston-Salem City Government Officials

City Council

Allen Joines ............................................................................................................................. Mayor

Vivian H. Burke ................................................................................................ Mayor Pro Tempore

Denise D. Adams ................................................................................................................. Member

Dan Besse............................................................................................................................. Member

Robert C. Clark .................................................................................................................... Member

Molly Leight ........................................................................................................................ Member

Wanda Merschel .................................................................................................................. Member

Derwin L. Montgomery ....................................................................................................... Member

James Taylor, Jr. .................................................................................................................. Member

Office of the City Manager

Lee D. Garrity ............................................................................................................. City Manager

Derwick L. Paige ............................................................................................ Deputy City Manager

Gregory M. Turner ....................................................................................... Assistant City Manager

Martha L. Wheelock .................................................................................... Assistant City Manager

Financial Management Services

Denise C. Bell .............................................................................................. Chief Financial Officer

Clark G. Case ......................................................................... Assistant Financial Officer/Treasurer

Lisa M. Saunders .................................................................. Assistant Financial Officer/Controller

Other Officials

Carmen Caruth ......................................................................................... Human Resource Director

Angela I. Carmon ........................................................................................................ City Attorney

Alan Andrews ................................................................................................. Deputy City Attorney

9

Winston-Salem Police Officers’ Retirement Commission Winston-Salem, North Carolina

Commission Members

Brenda B. Diggs, Chairman, City Council Appointed

Robert C. Clark, City Council Member, City Council Appointed

Lt. Robert G. Cozart, Vice Chairman, Elected Member

Lt. Douglas A. Nance, Elected Member

Lt. Christopher A. Lowder, Elected Alternate Member

Lt. Jeffrey T. Watson, Elected Alternate Member

Asst. Police Chief Michael V. McCoy, Retired Member, City Council Appointed

City of Winston-Salem

Denise C. Bell, Administrator

FOR INFORMATION

Winston-Salem Police Officers’ Retirement Commission

P. O. Box 2511

Winston-Salem, North Carolina 27102

(336) 747-6900

Fax: (336) 727-2566

Email: [email protected]

Web Site: www.cityofws.org

11

mailto:[email protected]

http://www.cityofws.org/


Medical Review Board Members

Dr. Tadhg James O’Gara Orthopaedic

Department of Orthopaedic Surgery

Wake Forest University Health Sciences

Dr. Stephen A. Hubbard Preventive & Occupational Medicine

The Mobile Doc PLLC

Dr. Andreas D. Runheim Neurology

Salem Neurological Center

Dr. Thomas W. Brown Psychiatry

Department of Psychiatry & Behavioral Medicine

Wake Forest University Health Sciences

13


Administrative Organization

Administrative Staff

Denise C. Bell

Chief Financial Officer

Clark G. Case

Assistant Financial Officer/Treasurer

Donna C. Hull

Debt Manager

Lisa M. Saunders

Assistant Financial Officer/Controller

Timothy A. Bauer

Investment Analyst

Shantell N. Davis

Employee Accounting/Payroll Manager

Sandra A. Killian

Senior Administrative Assistant

15


Professional Services

Deutsche Bank Alex. Brown

Financial Consultant

Equity Managers


Aon Hewitt

Consulting Actuary


Stephens, Inc.

Financial Consultant

Fixed Income Managers


Cherry, Bekaert & Holland, LLP

External Auditors

Raleigh, North Carolina

U. S. Bank

Custodian and Trustee Bank

Charlotte, North Carolina

Investment Managers

Equity Managers Fixed Income

Douglas C. Lane & Associates

New York, New York

Garcia Hamilton & Associates

Houston, Texas

Neuberger Berman Group

New York, New York

Standish Mellon Asset Management Co.

Boston, Massachusetts

Westwood Management

Dallas, Texas

Wells Capital Management

San Francisco, California

Diamond Hill Capital Management

Columbus, Ohio

Miller Convertible I Fund

Wellesley, Massachusetts

EARNEST Partners

Atlanta, Georgia

Fred Alger Management Inc.

New York, New York

Systematic Financial Management

Teaneck, New Jersey

Thornburg Investment Management

Santa Fe, New Mexico

17

Financial Section

19

Winston-Salem Police Officers’ Retirement System A Fiduciary Fund of the City of Winston-Salem

Management’s Discussion and Analysis

The following is a narrative overview and analysis of the financial activities and funding status

of the System for the fiscal year ended June 30, 2011 with comparative data for 2010 and 2009.

Financial Highlights

1) The System’s Net Assets (cash and cash equivalents) at June 30, 2011, were $83.5

million, exceeding the prior year by $14.8 million. The increase in net assets was due to

investment income in 2011. These funds are held in trust to meet future benefit

payments.

2) Net investment income for fiscal year ended 2011 was $15.6 million (net of investment

expenses), compared to $7.2 million for 2010.

3) Employer contributions for fiscal years ended 2011 and 2010 were $5.6 million and $5.5

million respectively. City contributions for both years met the annual required amounts

per the actuarial valuation for those years.

4) Plan members contributed $1.5 million and $1.6 million for the fiscal years 2011 and

2010, respectively. These amounts are the required contributions of six percent of the

members salaries.

5) Benefit payments were $7.8 million and $7.3 million for fiscal years 2011 and 2010,

respectively.

Statement of Plan Net Assets

The Statement of Plan Net Assets reports all of the assets and liabilities of the System, with

the difference between the two being reported as net assets. Growth in the net assets

indicates the System’s financial position is improving.

During fiscal year 2011, net assets held in trust for future pension benefits increased $14.8

million, 21.5% from the prior fiscal year. Fiscal year 2010 also grew by 11.1% from the

prior fiscal year. The growth in both years is a result of positive investment performance.

Statement of Changes in Plan Net Assets

The Statement of Changes in Plan Net Assets reports financial activity of the System for the

fiscal year with comparative data for fiscal years 2010 and 2009. Plan assets in fiscal years

2011 and 2010 have increased over $21.6 million.

21

Contributions

All sworn police officers are plan members and are required to contribute six percent of their

salaries to the System by payroll deduction. Officer contributions for fiscal years 2011,

2010, and 2009 were $1.5 million, $1.6 million, and $1.5 million, respectively. City

contributions to the plan are a percentage of the police payroll and are determined by an

independent actuarial valuation, which were 21.6% of annual police payroll for fiscal year

2011. Employer contributions were $5.6 million, $5.5 million, and $5.0 million for fiscal

years ended 2011, 2010 and 2009. The City is committed to fully funding the Annual

Required Contribution.

Plan Membership

The Winston-Salem Police Officers’ Retirement System is a single-employer, defined benefit

plan with required membership for police officers. The following outlines the plan

membership as of January 1, 2012:

2011 2010 2009

Active Employees 551 531 514

Retirees/Beneficiaries 277 260 248

Vested Terminated 17 19 17

Total 845 810 779

Funding Status

The funded ratio of the plan measures the ratio of the actuarially determined assets against

actuarial liabilities and is a good indicator of the fiscal strength of a pension fund’s ability to

meet obligations to its members. The valuation as of January 1, 2011 showed the funded

status of the System decreasing to 66.38 % from 70.33% at January 1, 2010. The System

asset valuations use a five-year smoothed market basis. The actuarial value of assets was

$86.8 million, $86.6 million, and 86.9 million for the years ended 2011, 2010 and 2009. The

actuarial accrued liability was $130.8 million, $123.1 million, and $130.l million for years

ended 2011, 2010, and 2009. The decrease in the funded ratio was principally due to lower

returns across all global markets as a result of the depressed global economy of the past

several years.

Contacting Financial Management

The financial report is designed to provide users with an overview of the System’s financial

performance. Questions regarding this report or requests for additional financial information

should be directed to the Chief Financial Officer, City of Winston-Salem, P.O. Box 2511,

Winston-Salem, North Carolina 27102.

22


Comparative Statement of Plan Net Assets

June 30, 2011, 2010, and 2009

2011 2010 2009

AssetsCash and cash equivalents 83,508,629$ 68,721,734$ 61,864,548$ Accounts receivable, net of

allowance for uncollectibles 18,637 18,637 18,637

Total assets 83,527,266 68,740,371 61,883,185

LiabilitiesAccounts payable 6,776 1,450 -

Net Assets

Held in trust for pension benefits 83,520,490$ 68,738,921$ 61,883,185$

As of June 30

23


Comparative Statement of Changes in Plan Net Assets

For Fiscal Year Ended June 30, 2011, 2010, and 2009

2011 2010 2009

Additions

ContributionsEmployer 5,586,673$ 5,549,502$ 5,001,870$ Plan members 1,536,482 1,583,987 1,495,884

Other - - 46

Total contributions 7,123,155 7,133,489 6,497,800

Investment income (loss)Net appreciation in fair value 14,545,055 6,143,185 (17,181,949) Interest and dividends 1,528,664 1,532,434 1,807,467

Total investment income (loss) 16,073,719 7,675,619 (15,374,482)

Less investment expense 501,286 455,510 409,568

Net investment income (loss) 15,572,433 7,220,109 (15,784,050)

Total additions 22,695,588 14,353,598 (9,286,250)

Deductions

Benefits 7,773,215 7,328,351 7,095,194 Refund of contributions 82,809 128,938 98,727 Administrative expense 57,995 40,573 40,529

Total deductions 7,914,019 7,497,862 7,234,450

Net increase (decrease) 14,781,569 6,855,736 (16,520,700)

Net assets - beginning 68,738,921 61,883,185 78,403,885

Net assets - ending 83,520,490$ 68,738,921$ 61,883,185$

Fiscal Year Ended June 30

24


Notes to Financial Statements


A single-employer, defined benefit plan with required membership for police officers was

established by the City of Winston-Salem in 1977. At June 30, 2011, the System had 840

members consisting of 296 retirees, beneficiaries of deceased retirees, vested terminated

employees, and 544 active employees. Members may retire with unreduced benefits after

completing 30 years of creditable service or at age 55 with 5 years of creditable service.

Officers retiring with unreduced benefits are entitled to annual benefits equal to 1.85% of

average highest earnings for four consecutive years times the number of years of creditable

service. The City established the System, which is similar to the North Carolina Local

Governmental Employees’ Retirement System for Law Enforcement Officers, and authorizes

benefit provisions and amendments, including post-retirement benefit increases.

Summary of Significant Accounting Policies

Financial statements are prepared using the accrual basis of accounting. Member and

employer contributions are recognized in the period in which the contributions are due.

Benefits and refunds are recognized when due and payable in accordance with the terms of

the plan.

Investments are reported at fair market value. Short-term investments are reported at cost,

which approximates fair market value. Securities traded on a national exchange are valued at

the last reported sales price.

Contributions

The City Ordinances establish contribution requirements of System members and the City.

Members are required to contribute 6% of their salary and contributions by the City are based

upon annual actuarial valuations. The City has contributed 100% of the Annual Required

Contribution (ARC) as determined by independent actuarial valuations since the inception of

the plan. A schedule of the City contributions is included in the supplemental information

following the notes. The City is responsible for the payment of administrative expenses of

the plan as additional contributions.

In 2008, the City entered into a trust agreement with U.S. Bank National Association to

establish an irrevocable trust for post-employment benefits including the System assets.

Annual Pension Cost and Net Pension Obligation

The ARC for the current year was determined as part of the January 1, 2009, actuarial

valuation using the projected unit credit method. The 2009 valuation actuarial assumptions

include (a) projected salary increases of 2.5%, compounded annually, attributable to

25

inflation, (b) additional projected annual salary increases of 4%, (c) annual post-retirement

benefit increase of 2.5%, and (d) an average rate of return on investment of present and

future assets of 8.75%. Assets of the plan for actuarial valuation are reported at market

value.

At January 1, 2011, the System had an actuarially determined unfunded accrued liability of

$43,978,675, which reflects a change in asset valuation to a five-year smoothed market value

method without phase-in. The accrued liability is being amortized over 25 years using the

level dollar closed method. The System at June 30, 2011, does not have a net pension

obligation.

Funding Status and Funding Progress

At January 1, 2011, the most recent actuarial valuation date, the System was 66.38% funded.

The actuarial accrued liability for benefits was $130,818,320, and the actuarial value of

assets was $86,839,645, resulting in an unfunded actuarial accrued liability (UAAL) of

$43,978,675. The covered payroll of the System was $25,396,559, and the ratio of the

UAAL to the covered payment was 173.17%. The results of the actuarial reviews are

included in this report starting on page 44.

The schedule of funding progress, presented as required supplementary information

following the notes to the financial statements, presents multi-year trend information about

whether the actuarial value of System assets are increasing or decreasing over time relative to

the actuarial accrued liability of benefits.

26


Schedule of Funding Progress

ActuarialAccrued Unfunded UAAL as a

Actuarial (1)

Liability (AAL) (Overfunded) Percentage of

Actuarial Value of Projected AAL Funded Covered Covered

Valuation Assets Unit Credit (UAAL) Ratio Payroll Payroll

Date (a) (b) (b-a) a/b (c) ([b-a]/c)

1/1/2011 86,839,645$ 130,818,320$ 43,978,675$ 66.38% 25,396,559$ 173.17%

1/1/2010 86,576,235 123,103,371 36,527,136 70.33 26,025,207 140.35

1/1/2009 86,945,457 130,099,380 43,153,923 66.83 24,610,353 175.35

1/1/2008 86,668,120 125,530,382 38,862,262 69.04 24,341,160 159.66

1/1/2007 80,064,171 115,147,219 35,083,048 69.53 21,562,998 162.70

1/1/2006 71,684,566 106,841,281 35,156,715 67.09 20,153,766 174.44

1/1/2005 73,000,533 102,279,264 29,278,729 71.37 19,847,353 147.52

1/1/2004 75,264,668 99,703,966 24,439,298 75.49 19,915,189 122.72

1/1/2003 78,719,976 92,152,657 13,432,681 85.42 19,086,223 70.38

1/1/2002 82,256,316 86,303,873 4,047,557 95.31 17,636,803 22.95

without phase-in.

(1) Results reflect a change in asset valuation method to a five-year smoothed market value method

27


Schedule of Employer Contributions

Fiscal Annual Year Required Percentage

Ending Contribution Contributed

2011 5,324,788$ 100%2010 4,832,238 1002009 4,299,153 1002008 4,167,474 1002007 3,455,026 1002006 3,012,374 1002005 1,932,891 1002004 1,087,426 1002003 612,412 1002002 582,234 100

Winston-Salem Police

Officers' Retirement System

28

Investment Section

29


Investments

Introduction:

The purpose of the Investments Section is to provide the reader with data reflecting the

investment policy, operations and performance of the System.

Investment Policies and Objectives:

Overview

The City established an investment portfolio to provide retirement benefits for sworn police

officers who are eligible to receive pension benefits in the System. City ordinances require

each member to contribute through payroll deduction six percent of their annual salaries to

the System. The City is required to contribute such amounts in addition to the member

contribution as required to maintain the System on a solvent actuarial reserve basis for all

future service benefits. These funds are invested by the System to provide for the

accumulation of money in an actuarially sound method so that the burden on taxpayers will

be spread over the years of a member’s service to the City. Investment results are

considered to be a critical element in achieving the System’s funding goals.

Investment Objectives:

Assets in the System are governed by an Investment Policy adopted by the City Council

which is designed to set forth policies and guidelines for those who administer and invest the

funds in the portfolio. City Council also approves financial consultants to assist the City in

selection and on-going evaluation of asset managers for fixed income and equity

investments.

The actuarial assumption for the System was adjusted downward to expect a long-term

compound rate of return of 7.5% effective January 1, 2010. While market conditions can

produce periods where such returns are difficult to achieve, the consultants are expected to

contribute to meeting the long term performance objectives of the System. It is the

investment objective to meet or exceed the assumed investment rate of 7.5%. While the

current five year performance is behind this goal due to the unusually severe downturn of

2008 and 2009, the System has been at or above this goal throughout most of the 1990’s and

2000’s. From a historical perspective the System should achieve its long-term investment

goals.

33

Investment Policy:

City Council has adopted an Investment Policy for all City funds inclusive of the investment

of the retirement fund. The City Manager, with recommendation from the Chief Financial

Officer and City Treasurer, has the authority, with the assistance of financial consultants, to

select and employ asset managers to direct investment activities of the System in accordance

with the Investment Policy. The City has eight equity and four fixed income asset managers,

whose performance is measured against appropriate market indices. Financial consultants

are approved by City Council to assist the City in the selection and oversight of asset

managers. Deutsche Bank Alex. Brown serves as the financial consultant that helps select

and monitor the performance of the System’s equity asset managers. Stephens, Inc. serves as

the financial consultant that helps select and monitors performance of the System’s fixed

income investment managers.

If an asset manager’s performance falls below the appropriate benchmarks for a period of

three years, then the manager is replaced. A manager can be replaced at any time when there

is unwarranted below benchmark performance, significant changes in key staff of the

investment firm, or significant changes in the style or process of the manager. Managers

may have assets under management changed by the System to take advantage of new market

opportunities, rebalance the asset allocations by style or by asset classification (e.g. equities

vs. fixed income). All System assets are held in the custody of a fiduciary master trust at

U.S. Bank. Assets placed into the master trust may only be used to pay System benefits and

are not subject to liens against the City of Winston-Salem.

The City’s ability to invest System assets in long-term fixed income and equity assets are

empowered and limited by North Carolina General Statutes. While state statute permits the

City to invest System assets in anything the NC State Treasurer can invest, the City’s

Investment Policy as approved by the City Council is more restrictive and conservative. The

Policy does not permit investing in some of the riskier instruments such as private equity

funds, hedge funds or direct investments in real estate or timber.

It is a goal for the System investments to perform at or above the 7.5% actuarially assumed

rate of return over the long-term; typically ten years.

Risk Tolerance:

The assets of the System are long-term holdings and should be invested with a risk

orientation that is consistent with a moderate ability to assume risk. The City defines a

moderate risk orientation as:

A willingness to tolerate some interim fluctuations in market value and rates of return

in order to achieve the asset allocation objectives and actuarially assumed rates of

return.

A desire to limit volatility in the System’s rate of return to a level that approximates

the average volatility experienced by other U.S. defined benefit retirement plans.

34

Asset Allocation:

Asset allocation is a strategy that attempts to balance risk versus reward by adjusting the

percentage of each asset in an investment portfolio. Based on the principle that asset types

perform differently in different market and economic conditions, asset allocation is an

important factor in determining returns for an investment portfolio. Target asset allocations

are set by ranges within the City Council approved Investment Policy and adjusted within

those ranges from time to time to adjust for market conditions.

The System’s assets are divided up into fixed income and equity portfolios. Each portfolio is

overseen by a financial consultant who assists in the selection of asset managers and

independently monitors and reports to the City and the Winston-Salem Police Officers’

Retirement Commission, the performance of each manager and of each portfolio as a whole.

The current asset allocations between the equity and fixed income portfolios are:

System Assets June 30, 2011

Equity

$64,961,537

77.8%

Portfolio $83,508,629

Fixed Income & Cash

$18,547,092

22.2%

35

http://en.wikipedia.org/wiki/Portfolio_(finance)

Fixed income investments are overseen by Stephens, Inc. as financial consultant. The fixed

income investments are invested by four external investment management firms: Garcia

Hamilton & Associates, Standish Mellon Asset Management Company, Miller Convertible I

Fund, and Wells Capital Management Inc. The following graph breaks the portfolio by

investment type.

Fixed Income Portfolio

by Investment Type June 30, 2011

Money Markets, $809,603

4%

U.S. Treasuries, $8,046,275

43%

Government Agencies,

$6,502,12135%

Corporates, $2,509,151

14%

Convertible Bonds Fund,

$679,942 4%

Fixed Income Portfolio $18,547,092

36

Equity investments are overseen by Deutsche Bank Alex. Brown as financial consultant. The

equity investments are managed by eight asset management firms providing active

management by investment style.

Equity Portfolio by Investment Type June 30, 2011

$6.4 m10%

$6.4 m10%

$14.3 m22%

$6.9 m11%

$7.4 m 11%

$11.6 m18%

$11.9 m18%

Equity Portfolio $64,961,537

International ADR

Lg Cap Core

Mid Cap Value

Lg Cap Value

Lg Cap Growth

Sm Cap Growth

Sm Cap Value

Portfolio by Investment Managers June 30, 2011

Investment Type Totals

Equity Portfolio

Douglas C. Lane & Associates Large Cap Core 6,392,218$

Neuberger Berman Group Large Cap Growth 6,434,734

Westwood Management Large Cap Value 7,570,384

Diamond Hill Capital Mgmt. Large Cap Value 6,748,341

Earnest Partners Mid Cap Value 6,937,202

Fred Alger Management Inc. Small Cap Growth 7,361,413

Systematic Financial Mgmt. Small Cap Value 11,579,328

Thornburg Investment Mgmt. Int'l ADR 11,937,917

Total Equity Portfolio 64,961,537$

Fixed Income Portfolio

Garcia Hamilton & Associates 1-3 Yr. Gov't 7,432,201

Standish Mellon Asset Mgmt Co. Int. Gov't/Credit A+ 6,160,331

Wells Capital Management Inc. 1-3 Yr. Treasuries 4,274,595

Miller Convertible I Fund Convertible Bd Index 679,965

Total Fixed Income Portfolio 18,547,092$

Total Portfolio 83,508,629$

37

Investment Performance

Portfolio Performance June 30, 2011

FiscalInvestment Type Year 3 Yr 5 Yr

Equity Managers

Douglas C. Lane & Associates* Large Cap Core 11.22% - -Neuberger Berman Group* Large Cap Growth 29.91% - -Diamond Hill Capital Management Large Cap Value 27.49% 2.81% -Westwood Management Large Cap Value 29.76% -0.57% 2.57%EARNEST Partners Mid Cap Value 35.79% 5.59% 5.61%Fred Alger Management Inc. Small Cap Growth 39.25% 10.51% -Systematic Financial Management Small Cap Value 31.03% 13.12% 5.87%Thornburg Investment Management Int'l ADR 31.10% 3.50% 6.10%

Combined Equity Portfolio 31.79% 2.65% 2.86%

Fixed Income Managers Garcia Hamilton & Associates 1-3 Yr. Gov't 2.14% 3.91% 4.98%Standish Mellon Asset Management Int. Gov't/Credit A+ 3.23% 6.53% 6.87%Wells Capital Management Inc. 1-3 Yr. Treasuries 1.38% 3.99% 5.26%Miller Convertible I Fund Convertible Bd Index 0.02% - -

Combined Fixed Income Portfolio 2.20% 4.31% 5.32%

Total System Return 23.49% 4.21% 4.28%

Annualized

Rate of Return

* Managers added to portfolio in fiscal year 2011.

Portfolio Returns As of June 30

Fiscal Fixed System

Year Equity Income Combined

2011 31.79% 2.20% 23.49%

2010 14.52% 4.71% 11.52%

2009 -28.37% 6.06% -17.83%

2008 -11.58% 8.35% -6.87%

2007 20.42% 5.39% 17.04%

2006 12.21% 1.01% 10.68%

2005 11.09% 4.01% 9.95%

Annualized 7 Years Return 5.97%

Rate of Return

38

Actuarial Section

39

Winston-Salem Police Officers Retirement System WSPORS... · Comparative Statement of Changes in...

Documents

Transcript of Winston-Salem Police Officers Retirement System WSPORS... · Comparative Statement of Changes in...