Fall 2017 Fall 2017 RETIREMENT - Fairfax County Public Schools

[Pages:6]RETIREMENT

REVIEW

A BIANNUAL NEWSLETTER FOR RETIRED MEMBERS OF ERFC AND ERFC 2001 FALL 2017

ERFC Portfolio Earned a 12.3 Percent Return in FY 2017

Portfolio Outperformed its Policy Index by 2.2 percent

ERFC's portfolio increased 12.3 percent increased 21.9 percent for the fiscal year,

in fiscal year 2017, a welcome strong return

outperforming its benchmark, the Russell

after two years of disappointing fiscal

3000 Index, which returned 18.5 percent.

year returns. The Fund ended the fiscal

ERFC's international developed equity

year at $2.3 billion. For the year, ERFC

portfolio increased 22.4 percent versus its

outperformed its policy index by 2.2 percent benchmark, the All Country World Index

due primarily to strong returns by several of

Ex US, which increased 20.5 percent. Its

its managers in the asset classes of domestic

emerging market equity portfolio increased

equity, international

22.1 percent versus its

developed equity, domestic fixed income and global asset allocation. The

ERFC Performance/Rankings for Periods Ending June 30, 2017

MSCI Emerging Markets Index, which increased 24.0 percent.

one-year return ranked

1-Year

ERFC's domestic fixed

the Fund at the median of

income portfolio returned

ERFC

Rank* Median**

its peer universe. Domestic

4.4 percent in FY 2017 ?

and international equity

12.3%

50

12.3%

significantly outperforming

markets increased sharply

5-Year

its benchmark, the

during the year with ERFC's large cap and

Bloomberg Barclays

ERFC

Rank

Median

Capital Aggregate Bond

small cap equity portfolios

8.1%

71

8.7%

Index, which decreased

and its international and

10-Year

0.3 percent. High yield,

emerging market equity portfolios achieving net

which has hurt ERFC's

ERFC

Rank

Median

performance previously,

returns in excess of 20

5.0%

67

5.4%

helped performance in

percent. The Fund's

15-Year

the fiscal year with the

longer-term returns remained strong with the five, 10 and 15-year

Bloomberg Barclays Capital

ERFC

Rank

Median

High Yield Index increasing

7.4%

30

7.0%

12.7 percent. ERFC's fixed

returns exceeding the policy index returns

* Rank = Percentage of Public Funds that performed better than ERFC for the period indicated

** Investor Force Public Defined Benefit Plan Median

income managers' results were outstanding; Loomis

and the 15-year return

Sayles outperformed the

ranking in the top third of its peer universe.

broad fixed income market by 8.7 percent,

(See Performance Rankings table above.) In

its credit focus helping results. The Fund's

contrast to last fiscal year's high volatility, low emerging market debt portfolio gained

volatility reigned in the markets during fiscal ground with an 8.0 percent increase during

year 2017. The tranquil end to the year was in the year, outperforming its index return of 7.9

contrast to the two prior years which closed

percent.

in 2016 with the surprise vote by the United

The Global Asset Allocation (GAA)

Kingdom to leave the European Union and

portfolio increased 11.9 percent during the

ended in 2015 with the fiscal issues in Greece. 2017 fiscal year; its blended benchmark

ERFC's domestic equity portfolio

Portfolio Returns, continued on page 3

ERFC Bids Fond Farewell to Board Chairperson Nancy Hammerer

Kimberly Adams (r), presented Nancy Hammerer with a plaque recognizing her service to ERFC. Nancy was joined by her husband, John.

The ERFC Board of Trustees recognized outgoing Chairperson Nancy Hammerer for her seven years of service to the Board and our members. Board Vice Chairperson Kimberly Adams thanked Nancy for her dedication and presented her with a plaque during a farewell reception. Although Nancy is no longer serving on the ERFC Board, she continues her FCPS career at Twain Middle School, where she keeps the students on their toes as a health and physical education teacher.

Best wishes, Nancy!

A PUBLICATION OF THE EDUCATIONAL EMPLOYEES' SUPPLEMENTARY RETIREMENT SYSTEM OF FAIRFA X COUNT Y

Fall 2017

FCPS Office of Benefit Services Schedules Open Enrollment/ Open Houses for 2018 Health Care Oct. 9-Oct. 27

The FCPS Office of Benefit Services will be conducting its annual Open Enrollment period, which allows employees and retirees who are currently enrolled in FCPS-sponsored health care coverage, to request changes to their insurance plans for the 2018 calendar year. This year, Benefits Open Houses will be conducted as follows:

Retiree Benefits Open House

Monday, Oct. 23 3:30 p.m. ? 6:30 p.m. Stone Middle School Cafeteria

Flu Shot Clinics*

$26.50 Open to retirees and family members of employees/retirees.

Thursday Oct. 19 4 p.m. ? 7 p.m. Hayfield Secondary Cafeteria (Benefits Open House)

Tuesday, Jan. 23 2:30 p.m. ? 5:30 p.m. Gatehouse Administrative Center Cafe

*Appointments are required. To schedule a flu shot appointment, email flushots@fcps.edu

For more information, visit fcps.edu/ benefits-open-enrollment

Online Safety with ERFC

We believe it is important to stay vigilant in maintaining up-to-date and secure online services that continue to serve the needs of our members. In our efforts to achieve this, we are constantly monitoring technology trends and updating our online system accordingly, under the administration of LRS Retirement Solutions, a leading provider of pension administration software since 1987.

Recently, there was a very large breach of information from Equifax. We have been advised from LRS that they are exercising additional diligence in relation to monitoring the security of ERFC's online system. Rest assured that if a member already has established an online account, they are protected from an entity trying to log in as the member unless they have the

member's user id and password. LRS has created queries to analyze the

ERFC system to see if there is anything in the ERFCDirect accounts that looks suspect. The good news is they haven't found any indication of fraudulent activity and they are continuing to monitor member portal activity monthly. In addition to our administrator monitoring our online system, ERFC has conducted recent testing to ensure proper security patches are in place.

We want you to feel confident that ERFC will continue to work in close collaboration with our system support team at LRS to ensure our services are secure and diligently monitored.

For more information on LRS Retirement Solutions, go to about-us.

What's New in Pension Research?

The National Institute on Retirement Security (NIRS) recently shared a new research brief analyzing the effectiveness of pensions on teacher retention and productivity. According to the issue brief, Defined Benefit (DB) pensions remain a cost-effective way to increase highly skilled teacher retention. Longer-tenured teachers are more effective, which increases the overall quality of public education. Because the cost of teacher turnover is substantial, DB plans actually save school districts money.

The brief goes on to explain that education policy literature finds that teacher productivity increases within the first three to five years of teaching; therefore, each time a highly effective teacher leaves and is replaced by an inexperienced teacher, productivity losses are great. Also, when new teachers are hired, the school must engage in recruitment, hiring, administrative processing, and training.

Research associated with the brief shows that DB plans are an important recruitment tool and have a big effect on employee commitment. Additionally, DB pensions encourage "efficient retirement" such that

employees withdraw from the labor force when their productivity decreases.

In conclusion, the report finds that DB pensions help recruit and retain highly productive teachers longer and decrease the cost of teacher turnover.

You can read the brief in its entirety on the NIRS website at .

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RETIREMENT REVIEW | FALL 2017

Fall 2017

Portfolio Returns, from page 1

increased 6.5 percent. This dynamic portion of the portfolio is designed to help lessen economic risk factors while also seeking excess returns; allocations to international developed and emerging market equities boosted performance during the fiscal year. ERFC's Absolute Return Strategies portfolio increased 6.5 percent, outperforming the HFRI Fund of Funds Composite Index which increased 6.4 percent. The Real Estate portfolio returned 3.0 percent, underperforming the blended real estate benchmark at 3.7 percent. ERFC's value-add and opportunistic manager, J.P. Morgan, led the ERFC real estate managers with a 6.7 percent return.

The Private Equity portfolio increased to 3.0 percent of the total Fund at fiscal year-end, up from 2.9 percent last year. This program is scheduled to reach five percent of the total Fund when fully committed. Although early in the program, the IRR performance for the year ending March 31, 2017, was attractive at 13.2 percent.

Effective July 1, 2017, the School Board increased its employer contribution rate to 6.24 percent of covered payroll in accordance with the actuary's recommendation. The employee contribution rate remained unchanged at 3 percent. As mentioned last year, the trustees lowered the

actuarial earnings assumption from 7.5 to 7.25 percent and updated ERFC's mortality table, which caused upward pressure on the employer contribution rate. The increase was mitigated somewhat by the ERFC 2001 changes approved by the School Board effective July 1, 2017.

Rate of Returns

Fiscal Year Returns for Periods Ending June 30

25 % 20 %

15 % 10 %

22.1% 17.1%

16.2% 11.2%

12.3%

5 % 0 % -4.4% -19.2%

0.4%

2.0% -0.3%

-5 %

-10 %

-15 %

-20 % '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Performance for Periods Ending June 30, 2017

20%

15%

12.3%

12.3%

10%

10.1%

5%

4.5% 4.2% 5.3%

8.1%

8.7%

7.2%

Total Fund Diversified Benchmark* Large Funds**

5.0% 4.6% 5.4%

0%

1 year

3 years

5 years

10 years

*Diversified Benchmark is 14.0% Russell 1000, 6.0% Russell 2000, 14% MSCI ACWI Ex-US, 3% MSCI Emerging Markets, 3.75% FTSE EPRA NAREIT, 3.75% NCREIF, 18.0% Bloomberg Barclays Capital (BC) Aggregate, 4.0% BBg Barc Credit, 4.0% BBg Barc Long Credit, 7.5% MS World Net, 7.5% Citi World Gov't Bond, 8.0% Hedge Fund Research, Inc. Fund of Funds, 3% GBI EM Debt, 3.5% Cambridge Private Equity

**Investor Force Public Defined Benefit Fund Median

Subsequent to the fiscal year end, the months of July and August saw a continued increase in ERFC's return and the Fund is up 10.8 percent year-to-date. The trustees recognize the inevitable return of volatility to

the markets. Over the long-term, the trustees believe that its diversified risk-balanced portfolio best serves the ERFC members in withstanding a variety of economic environments.

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RETIREMENT REVIEW | FALL 2017

ERFC Investment Managers

As of June 30, 2017 (Dollars in millions)

INVESTMENT MANAGER

INVESTMENT TYPE

AMOUNT

Equities

LARGE CAPITALIZATION

Aronson Johnson Ortiz Mellon Capital Management Corp. T. Rowe Price

SMALL/MID CAPITALIZATION

Epoch Investment Partners, Inc. Lazard Asset Management Westfield Capital Management

INTERNATIONAL

Acadian Asset Management Causeway William Blair & Company William Blair & Company

Fixed Income Loomis-Sayles & Company Mellon Capital Management Corp. J.P. Morgan Mondrian Investments GAM Loomis Strategic Alpha

Global Asset Allocation Bridgewater Associates, Inc. Wellington Management Co. Pacific Investment Management Co.

Absolute Return Grosvenor Institutional Partners, L.P.

Real Estate J.P. Morgan Asset Management Prudential Financial UBS Trumbull Realty Investors Center Square Investment Management

Value Core Index (Russell 1000) Growth

Small Cap Value Mid Cap Core Small Cap Growth

$ 115.7 188.9 126.2

51.4 48.1 46.6

Core Value Growth Emerging Market

134.2 97.3

100.6 69.7

Core Plus Core Index (Barclays Aggregate) Core Plus Emerging Market Unconstrained Unconstrained

140.2 77.4

216.3 66.7 90.6 42.9

Better Beta Global Asset Allocation Global Asset Allocation

112.4 122.6 114.1

Hedge Fund of Funds

90.5

Private

32.7

Private

32.5

Private

34.3

Public

79.8

Private Equity Newstone Lexington Audax Glouston Private Advisors HarbourVest

Mezzanine Debt

3.1

Fund of Funds

7.6

Mezzanine Debt

3.7

Fund of Funds

4.5

Fund of Funds

15.0

Fund of Funds

34.0

Cash & Receivable

3.4

TOTAL

$ 2,303.0

Fall 2017

Board Meetings

Meetings of the ERFC Board of Trustees and the System's Investment Committee are held in the ERFC board room at 8001 Forbes Place, Suite 300, in Springfield, Va. The Investment Committee meets quarterly, and the Board meets monthly throughout the year (excluding August). The Trustees also conduct a comprehensive annual planning session and offsite retreat. For notices of schedule changes and other information, visit the system website at fcps.edu/erfc.

FY 2018 Board of Trustees' Meeting Schedule

All meetings begin at 3 p.m.

? October 19, 2017 ? November 16, 2017 ? December 21, 2017 ? January 18, 2018 ? February 15, 2018 ? March 15, 2018 ? Annual Board Retreat

(off-site) April 18-19, 2018 ? May 17, 2018 ? June 21, 2018 ? July 19, 2018

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RETIREMENT REVIEW | FALL 2017

Fall 2017

Fall in Love with the Foliage in Virginia!

According to the interactive 2017 Fall Foliage Prediction Map (smokymountains. com/fall-foliage-map), Virginia is projected to reach the peak of fall beauty from October 15-25. But just where are the best locations to view the "true colors" of Virginia's leaves? The Virginia Department of Forestry (VDOF) recommends five Fall Foliage Driving Tours designed by a local VDOF forester that will feast your eyes without being a traffic nightmare. You can find them at dof.fall.

And if you'd like a science refresher on why fall leaves change color, leaves offers a quick and easy explanation before heading out to "leaf peep." Enjoy the hues everyone!

ERFC Board Changes for FY 2018

? Daryl Richards elected to serve as Chairperson ? Kimberly Adams re-elected to serve as Vice Chairperson ? Kristen Michael re-elected to serve as Treasurer ? Welcome new Trustee: Kathie Pfeffer-Hahn

Mr. Daryl Richards was elected to serve as Chairperson for FY 2018. Mr. Richards is serving his first three-year term as an ERFC Trustee since being elected to the ERFC Board in spring 2016. Mr. Richards has taught mathematics at W.T. Woodson High School since 2012. Prior to joining FCPS, Mr. Richards worked for nine years as an actuarial pension consultant for Deloitte Consulting and Towers Watson. While at Towers Watson, Mr. Richards worked on client teams for Fortune 500 companies, reviewing actuarial work for pension plans and post-retirement medical plans. Mr. Richards earned his undergraduate degree in mathematics with a minor in economics from the University of Oklahoma and attended George Mason University.

Ms. Kimberly Adams was re-elected as Vice Chairperson for the ERFC Board for FY 2018. Ms. Adams is serving her first three-year term as an ERFC Trustee since being elected to the ERFC Board in spring 2015. Ms. Adams is the librarian at Mantua Elementary School and the former president of the Fairfax Education Association (FEA). FEA is a local affiliate of the Virginia Education Association and the National Education Association, and represents FCPS teachers with state and county legislators, county officials, members of the school board and the superintendent and her staff. Prior to her election as FEA President, Ms. Adams was an FCPS Media Specialist/Librarian for 13 years. Ms. Adams earned a Bachelor of Science degree in education with a minor in English from Central Connecticut State University located in New Britain, Connecticut.

Ms. Kristen Michael was re-elected to serve as Treasurer for FY 2018. Ms. Michael, assistant superintendent, Department of Financial Services for FCPS, was appointed to the ERFC Board in 2014. Ms. Michael joined the school district as a budget analyst in 2005 and was promoted to coordinator in 2006. She served as assistant budget director for a year before being promoted to budget director. Ms. Michael earned a master's degree in public administration from George Mason University and a Bachelor of Science degree in psychology from Loyola University Chicago.

Ms. Kathie PfefferHahn was elected to serve as a Trustee for a three-year term in spring 2017. Ms. Pfeffer-Hahn has been an FCPS teacher for over 16 years. She is an advanced academics teacher at Colvin Run Elementary School and also taught at Forest Edge Elementary School. Prior to joining FCPS, Ms. Pfeffer-Hahn worked for seven years as an International Sales Specialist at Newbridge Networks Inc., providing sales data and commission information to finance. She worked for two years as an area associate at Apple Computer, Inc. She also is working toward the Certified Financial Planner certification. Ms. Pfeffer-Hahn earned her undergraduate degree in elementary education from Kansas State University and her Master's degree in education leadership from George Mason University. In addition to serving on the Board, Ms. Pfeffer-Hahn also serves as an ERFC Ambassador at Colvin Run.

5 RETIREMENT REVIEW | FALL 2017

Fall 2017

Retirement Review is a biannual newsletter published for retired members of ERFC and ERFC 2001 by the Educational Employees' Supplementary Retirement System of Fairfax County (ERFC).

8001 Forbes Place, Suite 300 Springfield, VA 22151-2205

Board of Trustees FY 2018

Daryl Richards Chairperson and Trustee

Kimberly Adams Vice Chairperson and Trustee

Kristen Michael Treasurer and Trustee

Susan Quinn Trustee

Michael Burke Trustee

Marty K. Smith Trustee

Kathie Pfeffer-Hahn Trustee

Administration

Jeanne Carr Executive Director and CIO

Jim Roehner Deputy Executive Director

Patricia Church Retirement Coordinator

Lisa Scott Communications

Michael Lunter Finance Coordinator

703-426-3900 844-758-3793 erfcoffice@fcps.edu fcps.edu/erfc

The Word on What You've Heard

Q. I've heard that I have to wait a full year after retirement before returning to employment with FCPS. Is that true? A. No. Employees who retire from one of the FCPS-sponsored retirement systems as a result of their FCPS employment and who elect to immediately receive a retirement annuity must have separated employment for six or more months prior to being reemployed.

Q. I've heard that if I selected a survivor option when I retired and my survivor predeceases me, I cannot change my benefit payment option. Is this true? A. No. If your survivor predeceases you and you are receiving a benefit with a survivor option, you may change to a basic benefit payment option. Please note that you must first notify ERFC of your survivor's death by providing a certified death certificate. ERFC will then send you a letter which you must sign and return to "pop-up" your benefit.

Q. I've heard the retiree COLA has been changed. Is this true? A. No. The COLA for current retirees has not changed and will continue to be set at a minimum of 3 percent annually. Keep in mind your first COLA will equal approximately 1.49 percent of your monthly ERFC retirement benefit. Thereafter, your ERFC benefit will increase by 3 percent annually on March 31.

Q. I've heard that since I filed a beneficiary designation prior to December 2009, my beneficiaries cannot be displayed through ERFCDirect. Is this true? Yes, if you filed your beneficiary information prior to December 2009, it will not be displayed through ERFCDirect. However, any paper beneficiary form will remain in effect until changed. You may resubmit your beneficiary designation(s) on ERFCDirect and it will automatically update your intentions and allow you to access the information online.

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RETIREMENT REVIEW | FALL 2017

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