2020 F Y I Popular Annual Financial Report F F Y e J 30, 2020 or the iscal ear nded une Missouri Department of Transportation and Highway Patrol Employees’ Retirement System A Component Unit of the State of Missouri This For Your Information (FYI) The Board of Trustees (Board) periodically completes brochure has been prepared to an asset/liability study. The purpose of this study is to provide a reader friendly summary of identify investment portfolios that are most likely to meet C O O P E R AT I O N MPERS’ information that members the System’s expected future spending needs while and other stakeholders may find minimizing the risk that those needs will not be met. valuable. For additional and more Something that has not been apparent in past studies detailed information, refer to our that became evident this time was the material funding Comprehensive Annual Financial progress of the System. The Board’s aggressive funding Scott Simon Report (CAFR), available on our policies have worked and are now providing a glimpse Executive Director website at www.mpers.org. of the funding relief that has not been conceivable in the past. The recent market environment has challenged Membership in MPERS is comprised of eligible employees that reality, but MPERS is well positioned to weather this A C C O U N TA B I L I T Y of the Missouri Department of Transportation (MoDOT), recent storm and continue the critical path of progress the Missouri State Highway Patrol (MSHP or Patrol), and to support the benefits covered members have worked MPERS. The System administers retirement, survivor, so hard to earn. Maintaining these important policies is and disability benefits in accordance with Chapter 104 essential to the long-term success of the plan. of the Missouri Revised Statutes. MPERS operates as a 401(a) tax qualified defined benefit plan. Benefits are Lastly, during the last fiscal year, an actuarial audit was based upon a formula that is set by law. completed on the work of the retained actuary, GRS Consulting. The conclusions of Cheiron, the actuarial The theme of the 2020 CAFR, as well as the For Your auditor, were that the results of the retained actuary were R E L I A B I L I T Y Information (FYI) brochure, is “MPERS CARES.” During reasonable, reliable, and the costs consistent with the the past year, and perhaps more than ever, it has been work performed. Furthermore, Cheiron complimented MPERS’ goal to let our members and stakeholders the Board for maintaining the aggressive funding policies know that we care. By focusing on Cooperation, that have now been in place for over 15 years. Accountability, Reliability, Excellence, and Service, MPERS’ staff is committed to maintaining a superior We express our gratitude to the members of the Board, level of service to its primary “customers”—members, the staff, the consultants, and the many people who retirees, survivors, and other beneficiaries. MPERS’ worked so diligently to assure the continued successful customers have come to expect prompt, tailored, operation of MPERS. For over 65 years, MPERS has EcourteouXs, persoCnalized, Eand proLfessionaLl servicEe; beeNn committeCd to proEviding a foundation for financial timely payments made in compliance with the law; security to plan participants through the delivery of quality accurate and transparent communications; and timely, benefits, exceptional member service and professional relevant information and education. That same resolve plan administration. on the part of MPERS’ staff was not diminished when presented with the unprecedented circumstances of Sincerely, the COVID-19 pandemic. There is no better test for an organization’s business continuity plans than a real event. We are pleased and proud to report that we were S E RV I C E able to provide uninterrupted service to our members Scott Simon and stakeholders over the past year. Executive Director Cooperation Accountability Reliability Excellence Service www.mpers.org C O O P E R AT I O N About MPERS MPERS At MPERS, our mission is simple: To provide a foundation for financial security to plan participants by delivering quality benefits and exceptional member service CARES through professional plan administration and prudent management of assets, at a reasonable cost to the taxpayers of Missouri. Contents About MPERS ......................................................................................2 Financial .............................................................................................3 Investments ........................................................................................4 Funding ...............................................................................................5 Membership and Benefits .................................................................7 Retiree Location .................................................................................8 CCAooRpeEraStion Our members are our number one focus; we work for them. The System operates under the direction and control of an 11-member Board of Trustees. The Board of Trustees has the ultimate fiduciary responsibility for the System and those covered by the System. Fiduciary duty is a legal relationship of trust between parties, where one party is acting for the benefit of another. Fiduciaries of pension funds have strict standards imposed upon them by law. The Board’s primary fiduciary responsibilities are the duty of loyalty, the duty of prudence, and the duty to follow plan documents. In addition to administrative rules, the Board adopted governance policies that set forth the expectations the Board has for itself and formalize the way the Board conducts business. The policies are intended to help the Board meet its fiduciary responsibilities. The governance policies set forth the structure, manner, and process by which the Board exercises its authority and control. As of June 30, 2020, the Board consisted of the following members: William “Bill” Seibert Patrick McKenna Board Chair Director of MoDOT MSHP Retiree Representative Ex Officio Member Todd Tyler Colonel Eric Olson Board Vice Chair Superintendent of MSHP MoDOT Employee Representative Ex Officio Member Robert Brinkmann Senator Mike Bernskoetter Highways & Transportation State Senator Commissioner John Briscoe Gregg Smith Highways & Transportation Highways & Transportation Commissioner Commissioner Sergeant Matt Broniec Representative Sara Walsh MSHP Employee State Representative Representative Sue Cox MoDOT Retiree Representative 2 MPERS FYI 2020 www.mpers.org www.mpers.org A C C O U N TA B I L I T Y Financial Financial statements report information using accounting methods similar to those used by private sector companies. The net position reported below is an indicator of the System’s financial standing at the end of the fiscal year. For more financial information, refer to the Comprehensive Annual Financial Report at www.mpers.org. Assets and Liabilities The Summarized Comparative Statements of Fiduciary Net Position includes all of the System’s assets and liabilities, with the difference between the two reported as net position. As of As of % Change June 30, 2020 June 30, 2019 2020 / 2019 Assets Cash and Receivables $ 19,630,328 $ 19,474,188 0.8 Investments 2,352,666,839 2,419,349,739 - 2.8 Invested Securities Lending Collateral 108,567,739 104,247,159 4.1 Capital Assets 321,676 569,044 - 43.5 Total Assets 2,481,186,582 2,543,640,130 - 2.5 Deferred Outflows of Resources 31,054 32,014 - 3.0 Liabilities Accounts Payable 2,868,289 7,708,336 - 62.8 OPEB Obligation 1,552,393 1,538,442 0.9 Securities Lending Collateral 114,948,267 110,924,432 3.6 Total Liabilities 119,368,949 120,171,210 - 0.7 Deferred Inflows of Resources 248,799 239,104 4.1 Net Position $2 ,361,599,888 $2 ,423,261,830 - 2.5 We conduct business at a reasonable cost to the taxpayers of CAAccRouEntSability Missouri. Income and Expenses The Summarized Comparative Statements of Changes in Fiduciary Net Position accounts for all the current year’s additions (income) and deductions (expenses), regardless of when cash is received or paid. Year Ended Year Ended % Change June 30, 2020 June 30, 2019 2020 / 2019 Additions Contributions $ 220,902,777 $ 218,595,641 1.1 Net Investment (Loss) Income (10,673,270) 154,326,511 -106.9 Other Income 5,412 307 1,662.9 Total Additions 210,234,919 372,922,459 - 43.6 Deductions Benefits 267,605,833 259,817,811 3.0 Administrative Expenses 4,291,028 4,372,966 -1.9 Total Deductions 271,896,861 264,190,777 2.9 Net (Decrease) Increase (61,661,942) 108,731,682 -156.7 Net Position-Beginning 2,423,261,830 2,314,530,148 4.7 Net Position-Ending $ 2,361,599,888 $ 2,423,261,830 -2.5 www.mpers.org MPERS FYI 2020 3 R E L I A B I L I T Y Investments Investment Policy The primary objective of MPERS is to provide active and retired employees with adequate retirement benefits. The investment portfolio is constructed to generate a total return that, when added to employer contributions, is sufficient to meet the benefit obligations. Following prudent standards for preservation of capital, the goal is to achieve the highest possible rate of return consistent with the plan’s tolerance for risk as determined by the Board in its role as fiduciary. Investment Performance MPERS’ investment portfolio generated a -0.46% return for the year, net of all management fees and based on time-weighted rates of return and market valuations. As of June 30, 2020, MPERS’ investment portfolio had a total fair value of $2.36 billion, representing a decrease of $61.7 million from June 30, 2019. FY 2020 FY 2019 FY 2018 FY 2017 Asset Value $2.3 billion $2.4 billion $2.3 billion $2.2 billion 1-Year Return -0.46% 6.84% 9.42% 11.22% Policy Benchmark 4.03% 8.80% 7.69% 10.90% 3-Year Return 5.18% 9.15% 7.12% 6.20% Policy Benchmark 6.81% 9.13% 6.75% 5.92% 5-Year Return 5.51% 6.97% 9.04% 9.82% Policy Benchmark 6.60% 6.85% 7.94% 8.40% 10-Year Return 8.80% 10.19% 6.40% 5.19% Policy Benchmark 8.18% 9.22% 6.20% 5.26% CRAeliRabEiliSty We strive to preserve, protect, and grow our assets. Asset Allocation MPERS’ investment consultant completes an asset/liability study every five years to determine whether or not changes are needed to the asset allocation. The asset allocation is reviewed annually by the Board. Cash, 0.46% Real Asset Beta, 20.75% Equity Beta, 52.51% Credit Beta, 26.28% 4 MPERS FYI 2020 www.mpers.org www.mpers.org E XC E L L E N C E Funding How is a Pension Plan Funded? MPERS’ funding objective is to meet current and future benefit obligations of retirees and beneficiaries through contributions and investment earnings. Each year, an actuary calculates the liability associated with the benefits, determines the funded status, and recommends the contribution rate needed to fund the system in accordance with the funding policies put in place by the Board. The contribution rate is based on a number of factors, including the current level of benefits, the number of participants, current and future pay levels, members’ age and average life expectancy, expected earnings on investments and the plan’s unfunded liability. The investment portfolio is constructed to generate income that, when added to employer contributions, is sufficient to meet benefit obligations and expenses. Contributions + Investment Income vs. Benefit Payments + Expenses (additions) (deductions) $600 $500 $400 V') C 0 $300 ~ $200 $100 $- 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 ■Additions 447.8 208.4 371.8 506.8 297.7 227.3 433.5 409.4 372.9 210.2 ■ Deductions 204.8 222.6 227.5 235.1 245.8 244.5 255.8 263.8 264.2 271.9 We make decisions in the best interest of our members based upon CExAcRellEenSce statutory guidance. Permanent and Temporary Funding Policies In an effort to address the System’s underfunded status, the Board has adopted policies intended to improve MPERS’ funded status over time. The unfunded actuarial accrued liabilities are amortized as follows: Permanent Policy: In September 2006, the Board adopted a policy where the total contribution is based on normal cost plus a 29-year amortization of unfunded liabilities. The amortization period started July 1, 2007. Temporary Accelerated Policy: In September 2009, after the market downturn, the Board adopted a policy where the total contribution is based on normal cost plus a 15-year amortization period for unfunded retiree liabilities and a 30-year amortization period for other unfunded liabilities. Both amortization periods started July 1, 2010. The temporary accelerated policy will remain in effect until the retiree liability becomes 100% funded or the permanent policy produces a higher contribution rate. Permanent and Temporary Funding Policies Remaining as of July 1, 2020 Permanent Policy 15 years Temporary Policy (retirees) 4 years Temporary Policy (other) 19 years www.mpers.org MPERS FYI 2020 5 E XC E L L E N C E Funding Contribution Rates When the plan was created in 1955, both employees and employers paid contributions equal to 4 percent of the employee’s first $7,500 of salary. In 1976, legislation was passed which made the System non-contributory and all contributions, plus interest, were refunded to members. From then until 2011, the cost of the plan was funded solely by employer contributions and investment income. In 2010, legislation was passed that created the contributory 2011 Tier. Employees hired for the first time in a benefit-eligible position on or after January 1, 2011, contribute 4 percent of their salary to help fund their retirement benefits. The Board establishes the contribution rate, as a percentage of payroll, based on actuarial recommendations. FY 2020 Employer Contribution Rates MoDOT & Civilian Patrol Uniformed Patrol Normal Cost of Benefit 8.11% 15.32% Catch Up Payment on the Unfunded Liabilities* 48.24% 41.03% Administrative Expenses 1.12% 1.12% Subtotal 57.47% 57.47% Disability Insurance Premium 0.53% 0.53% Total Employer Contribution Rate 58.00% 58.00% * The “Catch Up Payment on the Unfunded Liabilities” is just that—extra contributions, over a set period of time, to improve our funded status. Funded Status Calculation ÷ = $2,481,329,531 $4,092,097,897 60.6% Current Value of Assets Needed to Fund Future Benefits Funded History of Funded Status 70.0% *... *... *00 *'£! * °' '#. o.r, r...: r...: o.r, \00 60.0% *m *mui 'uN# i. *Na<: it 1NO./ '1! uo.ri, o.r, o.r, ...,; <:t <:t 50.0% <:t 40.0% 30.0% 20.0% 10.0% 0.0% ~,,, ~,..,. ~'\, ~ ~ ~(o ~ ~ ~ ~(;;) '\,(;;) «.~' \,(;;) '\,(;;) ~ '\,Ii:) '\,Ii:) ~ ~ ~ ~ '<~ ~ ~ '<~ '<~ '<4. '<~ '<~ '<~ 6 MPERS FYI 2020 www.mpers.org www.mpers.org S E R V I C E Membership and Benefits Retirement Plans To participate in MPERS, an employee must be working in a benefit-eligible position for the Missouri Department of Transportation (MoDOT), the Missouri State Highway Patrol (MSHP), or the MoDOT & Patrol Employees’ Retirement System (MPERS). A benefit-eligible position requires the performance of duties during at least 1,040 hours per year (half-time or greater). Based on hire date, members participate in one of three plans. Closed Plan (non-contributory) Steps of a Defined Benefit Retirement Plan The Closed Plan was the original retirement plan for benefit- eligible employees hired prior to July 1, 2000. At retirement, these members may elect to stay in the Closed Plan or retire under the Year 2000 Plan. Year 2000 Plan (non-contributory) Benefit-eligible employees hired for the first time on or after Retirement Eligibility July 1, 2000, but prior to January 1, 2011, are members of the Year 2000 Plan. BECOME Vested 2011 Tier (contributory) A contributory tier was added to the Year 2000 Plan for benefit-eligible employees hired for the first time on or after January 1, 2011. Both employee and the employer make monthly contributions to fund the retirement of 2011 Tier members. Our goal is to provide exceptional service always; no matter who is CSeArvRicEe S on the phone or sitting across from us. Benefits are calculated by a formula set by law: Final Average Pay (FAP) X Credited Service X Multiplier = Monthly Base Benefit The average of a member’s The member’s years and A percentage set by law Paid for the lifetime of the highest 36 consecutive months full months of service member of pay • Non-Uniformed I Civilian MoDOT Uniformed Grand New Retiree Averages Patrol and MPERS Patrol Total Years of Service 22.9 Active Members Final Average Pay $4,199 Closed Plan 232 1,271 451 1,954 Year 2000 Plan 376 1,501 364 2,241 • Year 2000 Plan - 2011 Tier 478 2,276 386 3,140 I Total Active Members 1,086 5,048 1,201 7,355 Total 2020 Benefits Paid $267,605,833 Retirees and Beneficiaries Closed Plan 496 3,344 1,008 4,848 Year 2000 Plan 608 3,612 8 4,228 • Number of New 2020 Retirees Year 2000 Plan - 2011 Tier 5 6 0 11 I Total Regular Pensioners 1,109 6,962 1,016 9,087 MoDOT 249 Uniformed Patrol 44 Disability Pensioners 13 117 9 139 Civilian Patrol 43 Terminated Vested Members 258 1,665 176 2,099 MPERS 1 Total 2,466 13,792 2,402 18,680 www.mpers.org MPERS FYI 2020 7 Retiree Location While the majority of MPERS’ retirees reside in the state of Missouri, we have retirees that live in 41 states and 6 countries. 11 MT ND 1 3 2 MN VT OR 0 ~NH 0 1 9 ID NY --MA 1 1 WY 6 4 0 --eRr0I 0 3 3 IA PA -NJ 0 22 2 OH UT 2 IL IN 4 _ DE 0 1 3 co 38 4 WV -MD 1 9 KS 0 VA 17 MO 3 50 6,622 7 TN 10 NM OK 17 AR 28 2 24 32 2 AL GA 4 7 10 TX LA 39 3 62 AK 1 HI 0 .. - Great Ireland Britain 1 Australia India 1 1 1 Bolivia Canada 1 1 MoDOT & Patrol Employees’ Retirement System Mailing Address: PO Box 1930 • Jefferson City, MO 65102-1930 Toll Free: (800) 270-1271 • Fax: (573) 522-6111 Office Location: 1913 William St. • Jefferson City, MO 65109 Email: [email protected] • Website: www.mpers.org 8 MPERS FYI 2020 www.mpers.org