City of Fresno Employees Retirement System
A Pension Trust Fund of the City of Fresno (California)
ANNUAL COMPREHENSIVE
FINANCIAL REPORT
FOR FISCAL YEARS ENDED JUNE 30, 2021 AND 2020
Issued by:
Robert T. Theller
Retirement Administrator
Kathleen Riley Brown
Assistant Retirement Administrator
2828 Fresno Street Suite 201, Fresno, CA 93721-1327
(559) 621-7080 / [email protected]
www.CFRS-CA.org
TABLE OF CONTENTS
Introduction Section
Letter of Transmittal .................................................................................................................................................................................. i
City of Fresno Employees Retirement System Board Members ............................................................................................................... ix
City of Fresno Retirement Administrative Staff ........................................................................................................................................ x
Administration of the System .................................................................................................................................................................... xi
Organizational Structure ............................................................................................................................................................................ xii
Professional Services and Consultants ...................................................................................................................................................... xiii
Investment Portfolio Managers ................................................................................................................................................................. xiv Certificate of Achievement for Excellence in Financial Reporting .......................................................................................................... xv Financial Section
Independent Auditor’s Report ................................................................................................................................................................... 2 Management’s Discussion and Analysis ................................................................................................................................................... 4 Basic Financial Statements
Statement of Fiduciary Net Position ......................................................................................................................................................... . 16 Statement of Changes in Fiduciary Net Position ....................................................................................................................................... 17 Notes to the Basic Financial Statements ................................................................................................................................................... . 18 Required Supplementary Information
Schedule of Changes in the Net Pension Liability ............................................................................................................................... 54 Schedule of Employer Contributions ................................................................................................................................................... 56 Schedule of Investment Returns .......................................................................................................................................................... . 56 Notes to the Required Supplementary Information ............................................................................................................................. . 57 Other Supplementary Information
Schedule of Administrative Expenses .................................................................................................................................................. 59 Schedule of Investment Management Expenses .................................................................................................................................. 60 Schedule of Payments to Consultants .................................................................................................................................................. . 60 Investment Section
Investment Report from the Retirement Administrator ............................................................................................................................. 62 Investment Consultant’s Report ................................................................................................................................................................ 67 Investment Results (Gross and Net of Fees) ............................................................................................................................................. 69 Target Asset Allocation and Actual Asset Allocation ............................................................................................................................... 71 Largest Stock and Bond Holdings ............................................................................................................................................................. 73 Brokerage Commission Recapture ............................................................................................................................................................ 74 Schedule of Commissions ......................................................................................................................................................................... 74 Investment Summary ................................................................................................................................................................................. 75 City of Fresno Employees Retirement System
Actuarial Section
Actuarial Certification Letter .................................................................................................................................................................... . 77 Summary of Actuarial Assumptions and Funding Method ....................................................................................................................... 80 Probabilities of Separation Prior to Retirement ........................................................................................................................................ . 82 Schedule of Active Member Valuation Data ............................................................................................................................................. 83 Schedule of Retirees and Beneficiaries Added to or Removed from Rolls ............................................................................................... 84 Solvency Test ............................................................................................................................................................................................ 85 Actuarial Analysis of Financial Experience .............................................................................................................................................. 86 Schedule of Funding Progress ................................................................................................................................................................... 86 Major Benefit Provisions of the Retirement System ................................................................................................................................. 87 History of Employer Net Contribution Rates ............................................................................................................................................ 88 Statistical Section
Statistical Section Review.......................................................................................................................................................................... 90 Schedule of Changes in Fiduciary Net Position ........................................................................................................................................ 91 Schedule and Graph of Additions by Source ............................................................................................................................................. 92 Schedule and Graph of Deductions by Type ............................................................................................................................................. 93 Membership Information
Schedule of Average Benefit Payments ............................................................................................................................................... 94 Retirees by Type of Benefit .................................................................................................................................................................. 95 Schedule and Graph of Pension Benefit Payments Deductions by Type ............................................................................................. 96 Schedule and Graph of Active Vested, Active Non-Vested and Deferred Membership History ......................................................... 97 Schedule and Graph of Retirees Pension Benefit Payments by Type of Benefit ................................................................................. 98 Summary of Active Participants and Retirees ...................................................................................................................................... 99 Member and City Contribution Rates .................................................................................................................................................. 100 Economic Assumptions and Funding Method ..................................................................................................................................... 100 Benefits and Withdrawals Paid ............................................................................................................................................................ 101 Average Monthly Benefits to Retirees ................................................................................................................................................. 102 Expectation of Life (Age and Service Retirees) .................................................................................................................................. 103 Expectation of Life (Disabled Retirees) ............................................................................................................................................... 103 Compliance Section
Independent Auditor’s Report on Internal Control .................................................................................................................................... 105 Over Financial Reporting and on Compliance
and Other Matters Based on an Audit of
Financial Statements Performed in Accordance
With Government Auditing Standards
City of Fresno Employees Retirement System
MISSION STATEMENT
To protect and provide System benefits through the highest quality delivery of service for our members and the employer, prudently fulfilling our fiduciary duties of investment and conservation of Trust assets.
BOARD AND STAFF COMMITMENT
We promise to carry out our Mission through a competent, professional, impartial and open decision-making process. In providing benefits and services, all persons will be treated fairly, with courtesy and respect. Assets will be invested and administered to balance the need to control risk with superior performance. We expect excellence in all activities. We will also be accountable and act in accordance with the law.
GOALS
• To create an environment in which Board Members can
maximize their performance as trustees.
• To improve business processes and our delivery of services provided to members and retirees.
• To improve communications with members, retirees and the employer.
• To attract, develop and retain competent and professional staff. • To achieve and maintain superior investment performance on a risk controlled basis measured by the Public Fund Universe.
City of Fresno Employees Retirement System
The Employees
Retirement System was
established on June 1,
1939 and is maintained
and governed by Article 5
of the Fresno Municipal
Code.
The Employees
Retirement System (the
System) provides
retirement benefits for all
qualified non-sworn
employees of the City of
Fresno.
INTRODUCTION
i Letter of Transmittal
ix City of Fresno Employees Retirement System Board Members x City of Fresno Retirement Administrative Staff
xi Administration of the System
xii Organizational Structure
xiii Professional Services and Consultants
xiv Investment Portfolio Managers
xv Certificate of Achievement for Excellence in Financial Reporting Letter of Transmittal
Robert T. Theller, Esq.
RETIREMENT ADMINISTRATOR
Dear Board Members:
As Retirement Administrator of the City of Fresno Employees Retirement System (the System), it is with great pleasure that I submit the Annual Comprehensive Financial Report (ACFR) for the fiscal years ended June 30, 2021 and 2020.
The fiscal year 2021 began with the country and the world firmly in the midst of a worldwide pandemic. Our lives and lifestyles changed, where working and learning from home became the “new normal,” and in-person communication was replaced by virtual meetings. In addition to the issue of public health came a great deal of economic uncertainty that would remain through much of the first half of the fiscal year.
But as the year progressed, some positive news came at the end of 2020 with the development and initial dissemination of COVID-19 vaccines and additional legislation that provided billions in pandemic-related stimulus. The second half of the fiscal year saw significant progress in managing the virus through vaccinations and medical protocols. This progress allowed both the federal government and several states to continue to push forward with reopening after relaxing many of their pandemic-related constraints. The overall global financial market, driven by progress on the vaccine rollout, accommodating monetary policy, fiscal stimulus, strong corporate earnings growth, and the reopening of the economy, ended the fiscal year with a strong performance by equities and bonds also held up reasonably well. The System itself posted its largest overall return ever with 30.8% return gross of fees. As we head into the new fiscal year, fears of inflation have begun to rise, as mismatches between supply and demand began pushing up consumer prices. The path of inflation is still unclear and could depend on economic policy decisions yet to be made.
Despite the tremendous challenges of the past year, the System is currently fully funded on both a market fair value and actuarial valuation basis at 132.7 percent and 116.0 percent, respectively. From a long-term perspective, the System is positioned to provide a solid rate of return that is equal to or better than the respective asset classes market indices even as we enter yet another year of uncertainties in the global economic and financial markets. The Retirement Board (the Board) has carefully managed the investment portfolio throughout global pandemic, and we remain confident that new investment opportunities will arise and the Board, with the required amount of due diligence and vigilance, will position the System’s investments for future long-term growth.
City of Fresno Employees Retirement System l Introduction Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 i The System’s returns for the last two years have been mixed at 30.81 percent and 1.62 percent for the fiscal years ended June 30, 2021 and 2020, respectively. Noticeably, the returns are well above the System’s assumed rate of return of 7.00 percent effective June 30, 2021, and well below the assumed rate of return of 7.00 percent effective June 30, 2020.
In fiscal year 2021, the System’s gross of fee returns provided by its custodian, Northern Trust, when compared to other institutional investors and weighted policy benchmarks, were favorable. The System’s gross of fees one-year return was
30.81 percent, 3.59 percent above its policy benchmark return of 27.22 percent; and outperforming its actual weighted benchmark by 1.24 percent; also outperforming its actuarial interest rate assumption of 7.00 percent by 23.81 percent in Fiscal Year 2021. The five-year annualized gross of fees return of 11.89 percent was 4.89 percent above its actuarial interest rate assumption of 7.00 percent and above its policy benchmark return of 10.85 percent by 1.04 percent; the ten-year annualized gross of fees return at 9.33 percent exceeded its policy benchmarks of 8.62 percent by 0.71 percent and also exceeded its actuarial interest rate assumption for the same period.
The System remains highly funded and well positioned to serve our members and retirees. As illustrated by the System’s 10, 15 and 25-year long-term gross of fees returns of 9.33 percent, 7.76 percent, and 8.37 percent, respectively, as of June 30, 2021, the System has the ability to achieve its long-term objectives over extended periods. Meanwhile, the System’s actuarial and fair value funding status continues to be the highest of any public non-safety pension defined benefit plan in California.
The Annual Comprehensive Financial Report (ACFR)
The Annual Comprehensive Financial Report (ACFR) of the City of Fresno Employees Retirement System for fiscal years ended June 30, 2021 and 2020 is submitted herewith. Information contained in this report is designed to provide a complete and accurate review of the years' operations. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, rests with the management of the System. For a general overview of the City of Fresno Employees Retirement System’s finances, please refer to the Management’s Discussion and Analysis in the Financial Section of this report. The ACFR consists of six sections:
The Introduction Section contains our Mission Statement, a Letter of Transmittal, a description of the System’s management and organizational structure, a listing of the professional services providers, and the Government Finance Officers Association’s Certificate of Achievement for Excellence in Financial Reporting.
The Financial Section contains the opinion of the independent auditor, Brown Armstrong Accountancy Corporation, Management’s Discussion and Analysis, the Basic Financial Statements of the System, the Required Supplementary Information and the Other Supplementary Information.
The Investment Section includes an Investment Report from the Retirement Administrator, a letter from the System’s Investment Consultant, NEPC, LLC, (NEPC) recapping the fiscal year investment results and activities, along with performance and asset allocation information. Investment Consultant returns may differ slightly from the custodian's book of record due to rounding methodology.
City of Fresno Employees Retirement System l Introduction Letter of Transmittal Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 ii The Actuarial Section includes the certification letter produced by the independent actuary, The Segal Company, along with supporting schedules and information.
The Statistical Section contains significant detailed data pertaining to the System.
The Compliance Section contains the Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance And Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards.
I trust that you and the members of the System will find this ACFR helpful in understanding the System, and our commitment to financial integrity and member services.
THE EMPLOYEES RETIREMENT SYSTEM AND ITS SERVICES
The Employees Retirement System was established on June 1, 1939, under Charter Section 910 and is governed by Article 5 of Chapter 3 of the City of Fresno Municipal Code. The System provides retirement allowances to the non-safety members employed by the City of Fresno (the City). In accordance with the provisions of the City of Fresno Municipal Code, the System provides lifetime retirement, disability, and death benefits to its members.
The Employees Retirement Board is responsible for establishing policies governing the administration of the System, making benefit determinations, and managing the investment of the System’s assets. The Board operates under the authority vested in Article 5 of Chapter 3 of the City of Fresno Municipal Code and the California Pension Protection Act of 1992. Article XVI, Section 17(b) of the Constitution of the State of California provides that “the members of the Retirement Board of a public retirement system shall discharge their duties ... solely in the interest of, and for the exclusive purpose of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the System. A Retirement Board’s duty to its participants and their beneficiaries shall take precedence over any other duty.” Section 17(a) further provides that the Board has ... “the sole and exclusive responsibility to administer the System in a manner that will assure prompt delivery of benefits and related services to the participants and their beneficiaries.” The Retirement Board is also responsible for the prudent investment of member and employer contributions and defraying reasonable expenses of administration.
The Retirement Board has five (5) members: two (2) management employees who are appointed by the Mayor and confirmed by the City Council, one (1) employee who is elected by the manual workers of the System, and one (1) employee who is elected by the clerical or supervisory workers of the System, both of which serve a four-year term. The fifth and final member of the Board is a qualified elector of the City, not connected with its government, appointed by the previously designated four members. The Board oversees the Retirement Administrator and staff in the performance of their duties in accordance with the Municipal Code and the Board’s Rules, Regulations and Policies.
City of Fresno Employees Retirement System l Introduction Letter of Transmittal Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 iii Major Initiatives
The Board, jointly with the City of Fresno Fire & Police Retirement System Board (the Boards), renewed service provider agreements with Foley & Lardner, investment legal counsel; Saltzman & Johnson, general legal counsel; and The Segal Company, actuarial service provider; and continued education and evaluations related to all investment classes, especially Alternative investments.
During Fiscal Year 2020, the Boards authorized a European direct lending manager search through its investment consultant, NEPC. Staff and NEPC conducted investment due diligence of several firms and recommended the selection of Arcmont Asset Management (Arcmont) of London, England. Due to travel restrictions and work-from-home status as a result of the COVID-19 pandemic, Staff were able to conduct operational due diligence via video conference meetings in October 2020, and found from an operational standpoint, that Arcmont is a well-run organization, and recommended after a review of all pertinent legal documents, background investigations of key personnel that the Boards select Arcmont Asset Management to manage a European direct lending fund with a commitment of up to $150 million. The Boards approved the recommendation for Arcmont in October 2020 and funded the initial capital call in March 2021.
During fiscal year 2021, the Boards approved a new asset allocation, four-year pacing plan, and updated the existing investment policy statement (IPS) effective July 2021; and authorized an additional Core Real Estate commitment to Carlyle.
Changes to the strategic asset allocation include reducing public equity, while increasing liquid and illiquid fixed income, adjusting exposure to various real asset strategies, and creating a new composite entitled Diversifying/Thematic Assets. With the adoption of the new asset allocation, the Boards also authorized a private real estate manager search. Staff/NEPC identified three managers who fit the criteria and conducted investment due diligence with Bain Capital, Kayne Anderson and Alidade, recommending the Boards move forward with the due diligence review of three proposed managers. Following the initial investment review process, the Boards chose to conduct a full legal review of pertinent legal documents, investment due diligence, operational due diligence, and background investigations of key personnel at Kayne Anderson and Alidade.
Selection of these firms and capital investments are expected in fiscal year 2022.
Effective January 1, 2017, the IRS eliminated its staggered five-year remedial amendment cycle system for individually designed qualified retirement plans and no longer accepts applications for determination letters. The System's letter of determination was effective through January 31, 2019. The IRS' current determination letter program, in general, provides that a plan sponsor that maintains a qualified plan, with a favorable determination letter, may continue to rely on the determination with respect to any plan provision, until such time that the plan provision subsequently is amended or affected by a change in law. The Boards retained the services of the law firm of Ice Miller, LLP (Ice Miller) to assist with a review of our plan documents and applicable statutes in effect through 2013, and any plan amendments or changes to provisions made after January 1, 2014. Based on their initial review, since the date of the plan's favorable determination letter May 26, 2014, the plan has been timely amended to comply with the changes required to be tax qualified under Internal Revenue Code § 401 (a). Staff began work with Ice Miller in 2019 to review the Retirement Systems' plan provisions for continued IRS Compliance. The proposal from Ice Miller to participate in the IRS Comply Now program included updating of the Systems’ plan provisions to incorporate certain distribution provisions and new provisions required by the Setting Every Community Up for Retirement Enhancement (SECURE) and Coronavirus Aid, Relief and Economic Security (CARES) Acts. Comply City of Fresno Employees Retirement System l Introduction Letter of Transmittal Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 iv Now reports detailing the changes to be considered were presented to the Boards during fiscal year 2021. However, submission to the IRS Comply Now program is delayed due to review of additional provisions to be considered. Ice Miller expects to submit the request to the IRS during Fiscal Year 2022.
With the ongoing challenges posed by COVID-19 during fiscal year 2021, the Retirement Benefits Staff continued to ramp up their communication efforts with both employees and retirees of the System. Aggressive efforts deployed helped to maximize enrollment in the Member Direct module initially implemented in January 2016. Participation in Member Direct has continually increased every fiscal year. In addition, Retirement Counselors successfully met and counseled Members regarding prospective retirements via Zoom. Although face-to-face in person meetings are preferable, Staff provided all the necessary information and support that the Members needed by answering individual questions to assist Members in making their retirement decisions to retire during the Fiscal Year.
With the assistance of its actuary and staff, the Board completed the annual actuarial valuations for June 30, 2021 and 2020, and Governmental Accounting Standards Board (GASB) Statement No. 67, which redefines pension liability and expense for financial reporting purposes only. In accordance with Actuarial Standards of Practice (ASOP) 51, the System's actuary has identified and assessed risks that may be reasonably anticipated to significantly affect the System's future financial condition, which helps intended users of the actuarial findings gain a better understanding of risks inherent in the measurements of pension obligations and actuarially determined pension plan contributions.
Professional Services
Professional Services Consultants and Investment Portfolio Managers are retained by the Board to provide professional services essential to the effective and efficient operation of the System. See listings on pages xiii and xiv.
An opinion from the Independent Auditor and a certification letter from the Actuary are included in this report along with a summary investment report from the Board’s Investment Consultant. The Consultants and Investment Managers retained by the Board are listed in the following section of this report.
Certificate of Achievement
The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Fresno Employees Retirement System for its annual comprehensive financial report for the fiscal year ended June 30, 2020. The Certificate of Achievement is a prestigious national award recognizing excellence in the preparation of public employee retirement system annual comprehensive financial reports.
To be awarded a Certificate of Achievement for Excellence in Financial Reporting, a government entity must publish an easily readable and efficiently organized annual comprehensive financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements.
City of Fresno Employees Retirement System l Introduction Letter of Transmittal Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 v A Certificate of Achievement for Excellence in Financial Reporting is valid for a period of one year only. The System has received a Certificate of Achievement for the last twenty-one consecutive years. We believe that our current annual comprehensive financial report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. For Fiscal Year 2020, the System submitted a Popular Annual Financial Report (PAFR) to the GFOA. The System received from the GFOA an Award for Outstanding Achievement in Popular Annual Financial Reporting. The PAFR provides System membership with condensed and concise information in an easier to read format than is presented in the ACFR.
Actuarial Funding Status and Net Pension Liability
The System’s funding objective is to meet long-term benefit promises by retaining a well-funded plan status and obtaining superior investment returns while minimizing employer contributions. The Board’s objective for employer contributions is to establish a rate as a level percent of member payroll. The greater the level of overall plan funding, the larger the ratio of assets accumulated compared to the actuarial accrued liability and the greater the level of investment potential. The advantage of a well-funded plan is that the benefits earned by participants are funded during their working careers and not by future generations of taxpayers.
The June 30, 2021 actuarial valuation is presented in this ACFR. As of June 30, 2021, the funded ratio of the Employees Retirement System was 116.0 percent. The ratio of the valuation value of assets to actuarial accrued liabilities was 109.9 percent as of the June 30, 2020, valuation. The funding ratios as of June 30, 2021 and 2020, if measured using the market fair value of assets instead of the actuarial valuation value of assets are 132.7 percent and 105.3 percent, respectively. The funded ratios were determined by using the actuarial value of the assets in accordance with actuarial standards.
The actuarial accrued liability of the System at June 30, 2021, for funding purposes, amounted to $1,189,980,000; the actuarial valuation value of assets amounted to $1,380,265,471 and the market fair value of assets (including non-valuation reserves) amounted to $1,731,237,413. At June 30, 2020, the actuarial valuation value of assets amounted to $1,269,173,360; the market fair value of assets (including non-valuation reserves) amounted to $1,360,836,903.
Under the Governmental Accounting Standards Board (GASB) Statement No. 67 Financial Reporting methodology, the net pension liability of the System as of June 30, 2021 indicates a surplus of $351,804,214; while on an actuarial funding basis the valuation value of assets basis reflects a surplus of $190,285,471 and a funding ratio of 116.0 percent. At June 30, 2020, the net pension liability of the System indicated a surplus of $23,528,802 and a funding ratio of 109.9 percent. For financial reporting purposes, the Plan Fiduciary Net Position as a percentage of the Total Pension Liability is 125.50% and 101.76% as of June 30, 2021 and 2020, respectively.
The Board engages an independent actuarial consulting firm to conduct annual actuarial valuations of the System. The purpose of the actuarial valuation is to reassess the magnitude of the benefit commitments. This is compared to the assets expected to be available to support those commitments. Recommendations are presented to the Board for consideration. The Segal Company is the System’s independent actuarial consultant. The Actuarial Section of this report contains a more detailed discussion of funding.
City of Fresno Employees Retirement System l Introduction Letter of Transmittal Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 vi Accounting System & Reports
The management of the System is responsible for establishing and maintaining an internal control structure designed to ensure that System assets are protected from loss, theft, or misuse. Responsibility for the accuracy, completeness, and fair presentation of the information, and all disclosures, rests with the management of the System.
The accounting firm of Brown Armstrong Accountancy Corporation provides financial audit services. The financial audit ensures that the System’s financial statements are presented in conformity with accounting principles generally accepted in the United States of America (GAAP) and are free of material misstatement. The internal controls are designed to provide reasonable but not absolute assurance that these objectives are met. The System recognizes that even sound internal controls have their inherent limitations. Internal controls are reviewed to ensure that the System’s operating policies and procedures are being adhered to and that the controls are adequate to ensure accurate and reliable financial reporting and to safeguard the System’s assets. The objective is to provide a reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements given the prudent need to ensure that the cost of a control should not exceed the benefits to be derived. We believe that the System's internal controls adequately safeguard assets.
This report has been prepared in accordance with Generally Accepted Accounting Principles for State and Local Governments (GAAP) as established by the Governmental Accounting Standards Board (GASB). The System’s transactions are reported on the accrual basis of accounting. Revenues are taken into account when earned, regardless of the date of collection. Expenses are recorded when the corresponding liabilities are incurred, regardless of when the payment is made.
Investments
Article XVI, Section 17(c) of the Constitution of the State of California, provides that “the members of the Retirement Board of a public pension or retirement system shall discharge their duties... with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aim.” By permitting further diversification of investments within a fund, the prudent expert standard may enable a fund to reduce overall risk and increase returns. A summary of the asset allocation can be found in the investment section of this report and in Note 2 – Summary of Significant Accounting Policies (see section Investment).
The prudent expert rule permits the Board to establish an investment policy based upon professional advice and counsel and allows for delegation of investment authority to professional investment advisors. The Investment Objectives and Policy Statement of the Board outline the responsibility for the investment of the fund and the degree of risk that is deemed appropriate for the fund. Investment advisors are to execute the policy in accordance with the Board policy and guidelines.
For the fiscal years ended June 30, 2021 and 2020, the System’s investments provided a 30.81 percent and 1.62 percent gross of fees rate of return, respectively, as reported by the custodian, Northern Trust.
City of Fresno Employees Retirement System l Introduction Letter of Transmittal Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 vii City of Fresno Employees Retirement System l Introduction Letter of Transmittal Continued
Acknowledgments
The compilation of this report reflects the combined effort of the System’s staff under the leadership of the Board. It is intended to provide complete and reliable information as a basis for making management decisions, as a means of determining compliance with legal provisions, and as a means of determining responsible stewardship of the funds of the System.
On behalf of the Board, I would like to express my appreciation for the dedication and efforts of my staff members, Kathleen Riley Brown, Yvonne Timberlake, Chad Jacobs, Alberto Magallanes, Karen Espiritu, Cristina Jurado, Pattie Laygo, Andrea Ketch, Phillip Carbajal, Patricia Basquez, Joan Taketa, Ohn Viengsay, Katie Baroni, Stanton Perkins, Tracy Gonzales and the Board's consultants, for their assistance in the preparation of this report and for their ongoing commitment to serve the Board and the members of the System. I also would like to thank the Board members for their support in accomplishing the many tasks and goals over the past year.
Respectfully Submitted,
Robert Theller
Robert T. Theller, Esq.
Retirement Administrator
December 1, 2021
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 viii Retirement Board Members
As of June 30, 2021
Chair
Phillip Hardcastle
Re-Elected June 2020
Term Expires June 2024
Represents Clerical and Supervisory Members
Vice Chair
TJ Miller
Appointed September 2013
Term Continuous
Appointed by the Mayor and Confirmed by the Fresno City Council David Cain
Re-Elected June 2018
Term Expires July 2022
Represents Manual Worker Members
Marvell French
Appointed July 2000
Term Continuous
Outside Member Appointed by Retirement Board
Alma Torres
Appointed August 2020
Term Continuous
Appointed by the Mayor and Confirmed by the Fresno City Council City of Fresno Employees Retirement System l Introduction Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 ix Retirement Administrative Staff
Robert T. Theller, Esq.
Retirement Administrator
Pattie Laygo Tracy Gonzales Chad Jacobs Stanton Perkins Retirement Office Manager Senior Administrative Clerk Investment Officer Programmer/Analyst IV Financial Services (From left to right)
Karen Espiritu
Senior Accountant Auditor
Alberto Magallanes
Retirement Accounting Manager
Kathleen Riley-Brown
Assistant Retirement Administrator
Cristina Jurado
Accountant Auditor I
Benefit Services (From left to right)
Patti Basquez
Senior Retirement Counselor
Andrea Ketch
Retirement Benefits Manager
Yvonne Timberlake
Assistant Retirement-Administrator
Onh Viengsay
Retirement Counselor II
Phillip Carbajal
Retirement Counselor II
Joan Taketa
Retirement Counselor II
Katie Baroni (not pictured)
Retirement Counselor I
City of Fresno Employees Retirement System l Introduction Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 x Administration of the System
Administration
The Administrative Section is responsible for the administration of the City of Fresno Employees Retirement System, including the risk management of the investment activities in accordance with the policies, regulations, and general guidelines of the Retirement Board. It is also responsible for interfacing with the investment managers, the investment consultant, the actuary, legal counsel, custodial bank, and any other consultants authorized by the Board. (See pages xiii and xiv for professional services and consultants and investment portfolio managers and page 74 for a schedule of brokerage commissions.)
Member Services
This section is responsible for providing all benefit services to the members of the System. This includes benefit calculations, investigation of claims for disability retirement, preparation of data to support applications for retirement, preparation of the retiree payroll, membership counseling, and membership training.
Financial Services
This section is responsible for planning, organizing and directing all fiscal activities of the Retirement Systems. This includes the preparation and publication of the Annual Financial Reports, monthly or quarterly financial report and information to the Board, and all other financial records and reports including financial statements, control and balancing of payroll and members' contributions and reconciliation of investments.
Investment Officer
This position is responsible for monitoring compliance with the Board’s Investment Objectives and Policy Statement and assists and coordinates in the management and administration of the System's investment program. This includes the planning and development of investment strategies.
Retirement Office Manager
This position is responsible for providing administrative and clerical support services for the Board and the retirement staff.
City of Fresno Employees Retirement System l Introduction Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 xi Organizational Structure
City of Fresno Employees Retirement System l Introduction Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 xii Professional Services and Consultants
Custodial Bank
NORTHERN TRUST
Chicago, Illinois
General Legal Advisor
SALTZMAN and JOHNSON LAW CORPORATION
San Francisco, California
Tax Counsel
ICE MILLER LLP
Indianapolis, Indiana
Investment Legal Advisor
FOLEY & LARDNER LLP
Boston, Massachusetts
Operational Due Diligence - Background Investigations
CHARLES LEVENBERG, LLC
Boulder, Colorado
Investment Consultant
NEPC, LLC
Boston, Massachusetts
Actuary
THE SEGAL COMPANY
San Francisco, California
Medical Advisor
BENCHMARK, AN EXAMWORKS COMPANY, INC.
Sacramento, California
Independent Auditor
BROWN ARMSTRONG ACCOUNTANCY CORPORATION
Bakersfield, California
City of Fresno Employees Retirement System l Introduction Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 xiii Investment Portfolio Managers
DOMESTIC EQUITY
Large Cap
Northern Trust Asset Management, Denver, CO
Small Cap
Eagle Asset Mgmt., Inc., St. Petersburg, FL
Kennedy Capital Mgmt. Inc., St. Louis, MO
INTERNATIONAL & EMERGING
MARKETS
International
BlackRock, San Francisco, CA
Baillie Gifford & Co., Edinburgh, Scotland
Principal Global Investors, DesMoines, IA
Emerging Market
Acadian Asset Mgmt. LLC, Boston, MA
Axiom Int'l Investors, LLC, Boston, MA
FIXED INCOME
Core Fixed Income
Dodge & Cox, San Francisco, CA
Prudential Investment Mgmt., Inc., Newark, NJ
High Yield
Loomis Sayles, Boston, MA
REAL ESTATE
Private Real Estate Investments
Core
JP Morgan Asset Mgmt., New York, NY
The Carlyle Group, Washington, D.C.
Value Add
Oaktree Capital Management, Los Angeles, CA
PCCP, LLC, Los Angeles, CA
PIMCO BRAVO III, Newport Beach, CA
Blue Vista Capital Management, Chicago, IL
Artemis Real Estate Partners, Chevy Chase, MD
Brookfield Asset Management, New York, NY
ALTERNATIVES
Private Debt/Credit
Arcmont Asset Mgmt, London, United Kingdom
Crescent Capital, Los Angeles, CA
Monroe Capital, Chicago, IL
PIMCO COF II, Newport Beach, CA
Infrastructure
JP Morgan IIF, New York, NY
Ullico UIF, Silver Spring, MD
Private Equity
Pantheon Ventures, San Francisco, CA
City of Fresno Employees Retirement System l Introduction Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 xiv City of Fresno Employees Retirement System l Introduction Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 xv To protect and provide
system benefits through
the highest quality
delivery of service for our
members and the
employer, prudently
fulfilling our fiduciary
duties of investment and
conservation of Trust
assets.
FINANCIAL
2 Independent Auditor's Report
4 Management's Discussion and Analysis
16 Basic Financial Statements
18 Notes to the Basic Financial Statements
54 Required Supplementary Information
59 Other Supplementary Information
Independent Auditor’s Report
City of Fresno Employees Retirement System l FINANCIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 2 Independent Auditor’s Report Continued
City of Fresno Employees Retirement System l FINANCIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 3 Management's Discussion and Analysis
We are pleased to provide this overview and analysis of the financial activities of the City of Fresno Employees Retirement System (the System) for the fiscal years ended June 30, 2021 and 2020. We encourage readers to
consider the information presented here in conjunction
with additional information that we have furnished in the Letter of Transmittal beginning on page i of this report.
Financial Highlights
The System’s net position restricted for pension benefits is for payment of pension benefits to participants and their beneficiaries and all of the net position is restricted to meet the System’s ongoing obligations.
At the close of the fiscal year 2021, the assets of the System exceed its current liabilities by $1,731,237,413; as of fiscal year-end 2020, the assets of the System exceeded its liabilities by $1,360,836,903; as of fiscal year 2019, the assets of the System exceeded its liabilities by
$1,379,415,130.
The System’s net position restricted for pension benefits increased by $370,400,510 or 27.22 percent for fiscal year 2021; decreased by $18,578,227 or 1.35 percent for fiscal year 2020; and increased by $30,724,497 or 2.28 percent for fiscal year 2019, primarily as a result of the
performance of the investment markets.
The System’s funding objective is to meet long-term
benefit obligations through contributions and investment income. As of June 30, 2021, the date of the last actuarial valuation, the funded ratio for the System was 116.0
percent reflecting that the System has a valuation value of assets which is in excess of the actuarial accrued liability.
In general, this indicates that for every dollar of benefits due, we have approximately $1.16 of assets available for payment as of that date.
As of June 30, 2020, the date of the previous annual
actuarial valuation, the funded ratio for the System was 109.9 percent; and as of June 30, 2019, the funded ratio for the System was 111.9 percent.
Additions to Fiduciary Net Position
Additions for the fiscal year 2021 increased $394,014,761 or 826.20 percent over the prior year from $47,690,169 to $441,704,930, which includes employee contributions of
$13,749,909, employer contributions of $20,144,322, a
net investment income gain of $407,614,716 and net
securities lending income of $195,983.
Fiscal year 2020 additions decreased $46,841,771 or
49.55 percent over the prior year from $94,531,940 to
$47,690,169, which included member contributions of
$11,027,519, employer contributions of $16,553,928, a
net investment income gain of $19,790,696 and net
securities lending income of $318,026.
For fiscal year 2019 additions decreased $39,321,660 or
29.38 percent over the prior year from $133,853,600 to
$94,531,940, which included member contributions of
$10,515,533, employer contributions of $14,627,425, a
net investment income gain of $69,020,391 and net
securities lending income of $368,591.
Deductions from Fiduciary Net Position
Deductions from fiduciary net position for the fiscal year 2021 increased $5,036,024 or 7.60 percent over the prior fiscal year from $66,268,396 to $71,304,420.
Fiscal year 2020 deductions increased $2,460,953 or 3.86 percent over the prior fiscal year 2019 from $63,807,443 to $66,268,396.
City of Fresno Employees Retirement System l FINANCIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 4 Fiscal year 2019 deductions increased $4,522,740 or 7.63 percent over the prior fiscal year 2018 from $59,284,703 to $63,807,443.
The current year increase in deductions is due primarily to the increases in retirees and the respective retirement benefits paid in 2021 even though there were no Post
Retirement Supplemental Benefits (PRSB) paid during
calendar year 2021.
Schedule and Graph of Additions By Source
For Fiscal Years Ended June 30, 2021, 2020 and 2019 (In Thousands) 2019 2020 2021
Employer Contributions $ 14,627 $ 16,554 $ 20,144
Employee Contributions 10,516 11,028 13,750
Investment Income 69,389 20,108 407,811
TOTAL $ 94,532 $ 47,690 $ 441,705
Employer Contributions Employee Contributions
Investment Income
2019 2020 2021
$0
$40,000
$80,000
$120,000
$160,000
$200,000
$240,000
$280,000
$320,000
$360,000
$400,000
$440,000
$480,000
City of Fresno Employees Retirement System l FINANCIAL
Management's Discussion and Analysis Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 5 Schedule and Graph of Deductions By Type
For Fiscal Years Ended June 30, 2021, 2020 and 2019 (In Thousands) 2019 2020 2021
Benefit Payments $ 60,814 $ 63,592 $ 67,497
PRSB — — —
Refunds of Contributions 1,330 928 1,749
Administrative Expenses 1,663 1,748 2,058
TOTAL $ 63,807 $ 66,268 $ 71,304
Administrative Expenses Refunds of Contributions
PRSB Benefit Payments
2019 2020 2021
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
City of Fresno Employees Retirement System l FINANCIAL
Management's Discussion and Analysis Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 6 Overview of the Financial Statements
The following discussion and analysis are intended to
serve as an introduction to the System’s financial
statements, which are comprised of these components:
Statement of Fiduciary Net Position – The
Statement of Fiduciary Net Position presents the major
categories of assets and liabilities and their related value as of the System’s fiscal years ended June 30, 2021 and 2020. “Net Position Restricted for Pension Benefits”
represents funds available to pay benefits and it is a point in time or a snapshot of account balances as of the fiscal year-end. It indicates the assets available for future payments to retirees and any current liabilities. Increases and decreases in Net Position Restricted for Pension
Benefits, when analyzed over time, may serve as an
indicator of whether the System’s financial position is improving or deteriorating. Other factors, such as market conditions, should also be considered in measuring the
System’s overall health.
Statement of Changes in Fiduciary Net Position
– This Statement of Changes in Fiduciary Net Position
provides information about the financial activities during the reporting period that increased and decreased the Net Position Restricted for Pension Benefits.
The two statements above include all assets and liabilities, using the full accrual basis of accounting, which is similar to the accounting method used by most private sector
companies. All of the current year’s additions and
deductions are taken into account regardless of when the cash is received or paid. All investment gains and losses are shown at trade date, not settlement date. In addition, both realized and unrealized gains and losses are shown on investments.
Both statements are in compliance with Governmental
Accounting Standards Board (GASB) Pronouncements.
These pronouncements require certain disclosures and
require State and Local governments to report using the full accrual basis of accounting. The System complies
with all material requirements of these pronouncements.
Notes to the Basic Financial Statements - The
Notes to the Basic Financial Statements are an integral part of the basic financial statements and provide
additional information that is essential to acquire a full understanding of the information and data provided in the two statements discussed above. The notes include
further discussion and details regarding the System’s key policies, programs, investments and activities that
occurred during the year.
Required Supplementary Information – The
Required Supplementary Information presents historical
trend information concerning the changes in net pension liability, employer contributions and investment returns, and includes notes that explain factors that significantly affect trends in the amounts reported, such as changes of benefit terms, changes in the size or composition of the population covered by the benefit terms, or the use of
different assumptions over time. The information is based on actuarial valuations prepared for the pension plan. The actuarial valuation report includes additional actuarial information that contributes to the understanding of the changes in the net pension liability of the defined benefit pension plan over the past ten years as presented in the schedule. The actuarial information is based upon
assumptions made regarding future events at the time the valuations are performed and is derived for both financial reporting and funding purposes.
City of Fresno Employees Retirement System l FINANCIAL
Management's Discussion and Analysis Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 7 Other Supplementary Information – The Other
Supplementary Information, presented immediately
following the required supplementary information,
includes schedules pertaining to the System’s
administrative expenses, investment management fees and other investment related expenses, and payments to
consultants and other professional services providers.
The System’s funding ratio at June 30, 2021, was 116.0
percent, which means the System’s fund has
approximately $1.16 available for each $1.00 of liability.
The Statement of Fiduciary Net Position and the
Statement of Changes in Fiduciary Net Position report
information about the System’s financial activities during the reporting periods that increased and decreased the Net Position Restricted for Pension Benefits.
Financial Analysis Net Position
As previously noted, net position restricted for pension benefits may serve over time as a useful indication of the System’s financial position. The System's assets
exceeded its liabilities at the close of the fiscal year 2021 by $1,731,237,413. All of the net position is restricted to meet the System’s ongoing obligations to plan
participants and their beneficiaries.
In fiscal year 2021, the System’s restricted fiduciary net position, representing assets available to pay current and future member pension benefits, increased by 27.22
percent due to strong performance of the investment
markets; while in 2020, the System’s restricted fiduciary net position decreased by 1.35 percent largely due to
declines in the global investment markets (See Table 1); and also, due to strong investment performance in 2019, the System’s restricted fiduciary net position increased by
2.28 percent.
In order to determine whether the $1.731 billion in net position will be sufficient to meet future obligations, the System’s independent actuary performed an actuarial
valuation as of June 30, 2021. The result of this valuation determines what future contributions by plan members
and the City of Fresno are needed to pay all expected
future benefits. The valuation takes into account the
Retirement Board’s (the Board) funding policy which
includes a provision to smooth the impact of market
volatility by spreading each year’s gains or losses over five years.
There has been extreme volatility in the various
economies of the world and throughout the global
financial markets over the past twenty to twenty-five
years, therefore, it is of utmost importance to examine the System’s investment returns with a long-term view rather than a short-term focus which tends to distort the
perception of how well the investments have actually
performed. As an example, you cannot isolate the high
returns during the Tech Bubble in the 1990’s without
including the Tech Bubble corrections in the early 2000’s.
Historical long-term performance rates of returns
demonstrate that the System has been able to meet or
exceed its actuarial assumed rate of return of 7.00 percent over long periods. As of June 30, 2021, the System’s 25- year annualized return is 8.37 percent and its 20-year
annualized return is 7.70 percent.
Despite volatility in the stock market, management and
the System’s actuary concur that the System remains in a very strong financial position to meet its obligations to the plan participants and beneficiaries. The System’s current financial position is a result of a very sound and carefully managed investment and risk management program.
City of Fresno Employees Retirement System l FINANCIAL
Management's Discussion and Analysis Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 8 Table 1 – Employees Retirement System Fiduciary Net Position Restricted For Pension Benefits
As of June 30, 2021, 2020 And 2019
FY 2021 FY 2021
FY 2021 FY 2020
Increase/
(Decrease)
Amount
Increase/
(Decrease)
Percent
Current and Other Assets $ 134,361,039 $ 61,314,319 $ 73,046,720 119.13% Investments at Fair Value 1,712,954,301 1,359,346,092 353,608,209 26.01% Total Assets $ 1,847,315,340 $ 1,420,660,411 $ 426,654,929 30.03% Total Liabilities 116,077,927 59,823,508 56,254,419 94.03% Net Position Restricted for Pension Benefits $ 1,731,237,413 $ 1,360,836,903 $ 370,400,510 27.22% FY 2020 FY 2020
FY 2020 FY 2019
Increase/
(Decrease)
Amount
Increase/
(Decrease)
Percent
Current and Other Assets $ 61,314,319 $ 123,581,049 $ (62,266,730) (50.39%) Investments at Fair Value 1,359,346,092 1,351,121,470 8,224,622 0.61% Total Assets $ 1,420,660,411 $ 1,474,702,519 $ (54,042,108) (3.66%) Total Liabilities 59,823,508 95,287,389 (35,463,881) (37.22%) Net Position Restricted for Pension Benefits $ 1,360,836,903 $ 1,379,415,130 $ (18,578,227) (1.35%) Total Assets Total Liabilities
FY 2021 FY 2020 FY 2019
$0
$500,000,000
$1,000,000,000
$1,500,000,000
$2,000,000,000
City of Fresno Employees Retirement System l FINANCIAL
Management's Discussion and Analysis Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 9 Capital Assets
The System’s investment in capital assets decreased from $689,560 to $553,904 (net of accumulated depreciation)
between fiscal years 2020 and 2021 after decreasing from $828,412 to $689,560 (net of accumulated depreciation)
between fiscal years 2019 and 2020. This investment in capital assets includes office equipment, furniture,
software, and technology infrastructure. The total
decrease in the System's investment in capital and
intangible assets as of June 30, 2021 and 2020 was
attributed to additional capital assets and the annual
depreciation expense which netted to $(135,656) and
$(138,852), respectively. These changes in both fiscal years were primarily due to the costs and associated
depreciation incurred for the development of software to program and install an upgrade to our original pension
administration system that was originally installed in
1997, which was implemented effective July 1, 2015. For additional, more detailed, information related to the
System's capital assets, please refer to Note 12 - Capital Assets on page 51.
Reserves
Reserves are not required, nor recognized, under
accounting principles generally accepted in the United
States of America (GAAP). The reserves are not shown
separately on the Statement of Fiduciary Net Position, but they equate to and are accounts within the net position restricted for pension benefits and are vital to the
System’s operations. They are established from
contributions and the accumulation of investment income, after satisfying investment and administrative expenses.
Investments of the System are stated at fair value instead of at cost, which includes the recognition of unrealized gains and losses in the current period.
The System’s major reserve accounts, described in Note 5 – Net Position Restricted for Pension Benefits, include Active Member (Employee) Reserves, Employer
Advance/Retired Reserves, DROP Reserves, PRSB
Reserves and City Surplus Reserves.
Deferred Retirement Option Program (DROP) Reserve
represents funds reserved for Deferred Retirement Option Program benefits accumulated by active members and
retirees. DROP is an alternate method of receiving
retirement benefits. It is a voluntary program as described by the conditions and requirements of the City of Fresno Municipal Code Section 3-566. A DROP account is a
nominal, bookkeeping account established within the
System for each DROP participant. Monthly amounts
credited to DROP accounts include an amount which
represents the service retirement allowance which the
member would have received if the member had retired
on the date the member commenced DROP participation
and interest credited at the five year average interest rate as adopted by the Retirement Board (the Board) in
accordance with the City of Fresno Municipal Code
requirements.
Post Retirement Supplemental Benefit (PRSB) Reserve
represents surplus earnings that have been allocated but not distributed to eligible participants in accordance with the City of Fresno Municipal Code Section 3-567. PRSB
is a supplemental benefit distributed to eligible
participants in accordance with the City of Fresno
Municipal Code Section 3-567, if and only if distributable actuarial surplus is available to provide such a benefit.
Actuarial surplus means the amount by which the
actuarial value of the System’s assets exceeds one
hundred and ten percent (110%) of the System’s actuarial accrued liabilities.
The PRSB Reserve Account was exhausted at the end of
December 2013.
City of Fresno Employees Retirement System l FINANCIAL
Management's Discussion and Analysis Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 10 City Surplus Reserve represents that portion of
distributable actuarial surplus that has been allocated but not used as a reduction to offset or eliminate the City of Fresno’s (the City) pension contributions in accordance with the conditions and requirements of Municipal Code
Section 3-567 Post Retirement Supplemental Benefits.
The City Surplus Reserve Account accrues interest at the average gross rate of return earned by the System’s entire investment portfolio for each of the three prior fiscal years, including realized and unrealized gains and losses and as reduced by all investment related expenses.
Table 2 shows that the vast majority of reserves are
generated from Employer Advance/Retired reserves.
DROP reserves represent funds credited for participants who elected to participate in the Deferred Retirement
Option Program. PRSB Reserve presents that portion of
distributable actuarial surplus that has been allocated for PRSB but not yet distributed to eligible participants.
Additions to and deductions from PRSB occur when
surpluses and allocations occur, respectively. The City Surplus reserve represents that portion of distributable actuarial surpluses and accrued interest, reduced by
required City normal pension contributions. The City
Surplus Reserve Account shall be drawn upon in
subsequent years if needed to reduce or eliminate the
City’s annual pension contribution requirement.
The City Surplus Reserve Account shows a positive
balance for the fiscal year 2021, while fiscal year 2020 showed a slightly negative balance. The City’s normal
contribution rate for fiscal years 2021 and 2020 included an adjustment for phase-in of assumption changes in the actuarial assumed rate of return.
Table 2 – Employees Retirement System’s Reserves
As of June 30, 2021, 2020 and 2019 (In Thousands)
FY 2021 FY 2020 FY 2019
Employer Advance/Retired Reserves $ 1,456,484 $ 1,100,905 $ 1,134,426 Active Member (Employee) Reserves 122,574 115,238 109,263 DROP Reserves 152,107 144,777 136,301
PRSB Reserves — — —
City Surplus Reserves 72 (83) (575)
Net Position Restricted for Pension Benefits $ 1,731,237 $ 1,360,837 $ 1,379,415 City of Fresno Employees Retirement System l FINANCIAL
Management's Discussion and Analysis Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 11 FY 2021 FY 2020 FY 2019
Employer
Adv/Ret
Active Member
(Employee)
DROP PRSB City Surplus
$0
$500,000
$1,000,000
$1,500,000
City of Fresno Employees Retirement System l FINANCIAL
Management's Discussion and Analysis Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 12 System’s Activities
Attributable in part to the continued growth and volatility in global economic and financial markets, the System’s
net position increased $370,400,510 for the fiscal year 2021 resulting in a 27.22 percent increase in the fiduciary net position restricted for pension benefits for the fiscal year ended June 30, 2021. The System’s fiduciary net
position decreased $18,578,227 for the fiscal year 2020 resulting in a 1.35 percent decrease in the fiduciary net position restricted for pension benefits for the fiscal year ended June 30, 2020, primarily attributable to the
volatility in the global financial markets. In fiscal year 2019, the System’s fiduciary net position increased
$30,724,497 resulting in a 2.28 percent increase in the fiduciary net position restricted for pension benefits for the fiscal year ended June 30, 2019.
Key elements of the additions to and deductions from
Fiduciary Net Position for fiscal years 2021, 2020 and
2019 are described in the sections below.
Additions to the System’s Fiduciary Net
Position
The reserves needed to finance retirement benefits are
normally accumulated through the collection of employer and employee contributions and through earnings on
investment income net of investment expense. Total
additions to the System's fiduciary net position for the fiscal year ended June 30, 2021 totaled $441,704,930.
For the fiscal year ended June 30, 2021, overall additions had increased by $394,014,761 or 826.20 percent
primarily due to the performance of the investment
markets. For fiscal year 2020, overall additions had
decreased by $46,841,771 or 49.55 percent from the prior year; and for fiscal year ended June 30, 2019, primarily due to the performance of the investment markets and
changes in actuarial assumptions, overall additions had decreased by $39,321,660 or 29.38 percent from the prior fiscal year. The investment section of this report reviews the details of the results of investment activity for the fiscal year ended June 30, 2021.
Deductions from the System’s Fiduciary Net
Position
The System was created to provide lifetime retirement
annuities, survivor benefits and permanent disability
benefits to qualified members and their beneficiaries. The cost of such programs includes recurring benefit
payments, as designated by the System, refunds of
contributions to terminated employees, and the cost of
administering the System.
Deductions from the fiduciary net position for the fiscal year ended June 30, 2021, totaled $71,304,420 which was an increase of $5,036,024 or 7.60 percent over the prior fiscal year 2020. Deductions from the fiduciary net
position for the fiscal year ended June 30, 2020, totaled $66,268,396 which was an increase of $2,460,953 or 3.86 percent over the prior fiscal year 2019. The fiscal year ending June 30, 2019 had deductions from the fiduciary net position totaling $63,807,443, which was an increase of $4,522,740 or 7.63 percent over the prior fiscal year 2018. The increase in benefits paid resulted primarily from an increase in the amount of benefit payments due to the number of retirees from the prior year.
The System’s increases in total deductions have closely paralleled inflation and are reflective of the membership and services provided. The System has consistently met
its Administrative Budget. There are no material
variances between planned expenses and actual expenses.
City of Fresno Employees Retirement System l FINANCIAL
Management's Discussion and Analysis Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 13 Changes in Fiduciary Net Position (Condensed)
For Fiscal Years Ended June 30, 2021, 2020 and 2019
FY 2021 FY 2021
Increase/
(Decrease)
Increase/
(Decrease)
FY 2021 FY 2020 Amount Percent
Additions
Employer Contributions $ 20,144,322 $ 16,553,928 $ 3,590,394 21.69% Employee Contributions 13,749,909 11,027,519 2,722,390 24.69% Net Investment Income * 407,810,699 20,108,722 387,701,977 1,928.03% Total Additions $ 441,704,930 $ 47,690,169 $ 394,014,761 826.20% Deductions
Retiree Benefit Payments $ 67,497,485 $ 63,591,967 $ 3,905,518 6.14% Post Retirement Supplemental Benefit (PRSB) — — — —% Refunds of Contributions 1,748,572 927,501 821,071 88.53% Administrative Expenses 2,058,363 1,748,928 309,435 17.69% Total Deductions $ 71,304,420 $ 66,268,396 $ 5,036,024 7.60% Changes in Net Position 370,400,510 (18,578,227) 388,978,737 2,093.73% Net Position Restricted for Pension Benefits
Beginning of the Year 1,360,836,903 1,379,415,130 (18,578,227) (1.35%) End of the Year $ 1,731,237,413 $ 1,360,836,903 $ 370,400,510 27.22% * Net of investment expense of $13,708,409 and $13,067,452 for June 30, 2021 and 2020, respectively.
FY 2020 FY 2020
Increase/
(Decrease)
Increase/
(Decrease)
FY 2020 FY 2019 Amount Percent
Additions
Employer Contributions $ 16,553,928 $ 14,627,425 $ 1,926,503 13.17% Employee Contributions 11,027,519 10,515,533 511,986 4.87% Net Investment Income * 20,108,722 69,388,982 (49,280,260) (71.02%) Total Additions $ 47,690,169 $ 94,531,940 $ (46,841,771) (49.55%) Deductions
Retiree Benefit Payments $ 63,591,967 $ 60,814,434 $ 2,777,533 4.57% Post Retirement Supplemental Benefit (PRSB) — — — —% Refunds of Contributions 927,501 1,329,651 (402,150) (30.24%) Administrative Expenses 1,748,928 1,663,358 85,570 5.14% Total Deductions $ 66,268,396 $ 63,807,443 $ 2,460,953 3.86% Changes in Net Position (18,578,227) 30,724,497 (49,302,724) (160.47%) Net Position Restricted for Pension Benefits
Beginning of the Year 1,379,415,130 1,348,690,633 30,724,497 2.28% End of the Year $ 1,360,836,903 $ 1,379,415,130 $ (18,578,227) (1.35%) * Net of investment expense of $13,067,452 and $13,449,271 for June 30, 2020 and 2019, respectively.
City of Fresno Employees Retirement System l FINANCIAL
Management's Discussion and Analysis Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 14 City of Fresno Employees Retirement System l FINANCIAL
Management's Discussion and Analysis Continued
System’s Fiduciary Responsibilities
The System’s Board and management staff are fiduciaries of the pension trust fund. Under the California Constitution, the assets must be used exclusively for the benefit of plan participants and their beneficiaries.
Requests for Information
This financial report is designed to provide the Retirement Board, our membership, taxpayers, investment managers, and creditors with a general overview of the City of Fresno Employees Retirement System’s finances, and to show accountability for the funds it receives. Questions concerning any of the information provided in this report, or requests for additional financial information should be addressed to:
City of Fresno Employees Retirement System
2828 Fresno Street Suite 201
Fresno, California 93721-1327
Respectfully submitted,
Robert Theller
Robert T. Theller, Esq.
Retirement Administrator
December 1, 2021
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 15 Basic Financial Statements
Statement of Fiduciary Net Position
As of June 30, 2021 and 2020
2021 2020
ASSETS
Cash (Note 7) $ 2,302,291 $ 1,403,574
Collateral Held for Securities Lent (Note 9) 79,711,386 54,554,346 Receivables
Receivables for Investments Sold 31,370,552 1,333,335 Interest and Dividends 2,385,274 2,492,771
Other Receivables 17,915,393 673,269
Total Receivables 51,671,219 4,499,375
Prepaid Expenses — —
Total Current Assets 133,684,896 60,457,295
Investments at Fair Value (Notes 6 and 7) and NAV
Domestic Equity 626,488,266 498,544,872
International Developed Market Equities 266,659,195 231,930,494 Government Bonds 67,780,279 60,868,853
Corporate Bonds 172,790,456 149,340,231
Alternatives 276,539,149 221,914,503
Real Estate 211,014,873 135,019,443
International Emerging Market Equities 65,448,667 47,796,689 Short-Term Investments 26,233,416 13,931,007
Total Investments 1,712,954,301 1,359,346,092
Capital Assets Net of Accumulated Depreciation (Note 12) 553,904 689,560 Other Assets 122,239 167,464
Total Assets 1,847,315,340 1,420,660,411
LIABILITIES
Collateral Held for Securities Lent (Note 9) 79,711,386 54,554,346 Payable for Investments Purchased 16,933,186 3,374,798 Other Liabilities 1,558,066 1,220,719
Payable for Foreign Currency Purchased 17,875,289 673,645 Total Liabilities 116,077,927 59,823,508
Net Position Restricted for Pension Benefits (Note 5) $ 1,731,237,413 $ 1,360,836,903 The accompanying notes to the basic financial statements on pages 18 - 53 are an integral part of this statement.
City of Fresno Employees Retirement System l FINANCIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 16 Statement of Changes in Fiduciary Net Position
For Fiscal Years Ended June 30, 2021 and 2020
2021 2020
ADDITIONS
Contributions (Note 3)
Employer $ 20,144,322 $ 16,553,928
Employee 13,749,909 11,027,519
Total Contributions 33,894,231 27,581,447
Investment Income
Net Appreciation/(Depreciation) in Fair Value of Investments 399,865,514 9,033,434 Interest 8,481,807 10,898,891
Dividends 12,838,117 11,924,182
Other Investment Related 88,740 72,874
Total Investment Income 421,274,178 31,929,381
Less: Investment Expense (13,659,462) (12,138,685)
Total Net Investment Income 407,614,716 19,790,696
Securities Lending Income
Securities Lending Earnings (Note 9) 244,930 1,246,793 Less: Securities Lending Expense (48,947) (928,767)
Total Net Securities Lending Income 195,983 318,026
Total Additions 441,704,930 47,690,169
DEDUCTIONS
Benefit Payments 67,497,485 63,591,967
Post Retirement Supplemental Benefits (Note 11) — —
Refunds of Contributions 1,748,572 927,501
Administrative Expense 2,058,363 1,748,928
Total Deductions 71,304,420 66,268,396
Changes in Net Position 370,400,510 (18,578,227)
NET POSITION RESTRICTED FOR PENSION BENEFITS
BEGINNING OF YEAR 1,360,836,903 1,379,415,130
END OF THE YEAR $ 1,731,237,413 $ 1,360,836,903
The accompanying notes to the basic financial statements on pages 17 - 53 are an integral part of this statement.
City of Fresno Employees Retirement System l FINANCIAL
Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 17 Notes to the Basic Financial Statements
1 Significant Provisions of the
Retirement System
The City of Fresno Employees Retirement System (the
System) was established on June 1, 1939, under Charter
Section 910 and is governed by Article 5 of Chapter 3 of the City of Fresno Municipal Code. The System is a
single-employer, contributory, defined benefit plan. The System provides lifetime retirement, disability, and death benefits to the non-safety members employed by the City of Fresno (the City), including substantially all full-time employees, other than sworn officers of the Fire and
Police Departments.
The System is administered by the Employees Retirement
Board (Board) which operates under the authority vested in Article 5 of Chapter 3 of the City of Fresno Municipal Code and the California Pension Protection Act of 1992
which provides that “the members of the Retirement
Board of a public retirement system shall discharge their duties…solely in the interest of, and for the exclusive purpose of providing benefits to participants and their beneficiaries, minimizing employer contribution thereto, and defraying reasonable expenses of administering the
System.”
The Employees Retirement Board does not operate under
the control of the City Council. The Board has the sole and exclusive responsibility to administer the System in a manner that will assure prompt delivery of benefits and related services to the members and their beneficiaries.
Fiduciary oversight of the Employees Retirement System
is vested with the Board, which consists of five (5)
members: two (2) management employees who are
appointed by the Mayor and confirmed by the City
Council, one (1) employee who is elected by the manual
workers of the System, and one (1) employee who is
elected by the clerical or supervisory workers of the
System; both elected members serve a four year term. The fifth and final member of the Board is a qualified elector of the County of Fresno, not connected with its
government, elected by the previously designated four
members and serves at the pleasure of the Board.
The Board, in conjunction with the Fire and Police
Retirement Board, appoints, directs and oversees a
Retirement Administrator. The Retirement Administrator
is responsible for the overall management and
administration of the Employees and Fire and Police
Retirement Systems in accordance with the direction,
policy and goals set by the Boards and for providing
highly responsible and complex administrative support to the Boards. The Retirement Administrator serves at the
pleasure of the Boards.
Working closely with the Boards, the Retirement
Administrator and his staff develop investment and
benefits policies, coordinate member services and
programs, and develop long-term strategies that fulfill the Systems’ mission and goals.
The Board oversees the Retirement Administrator and
staff in the performance of their duties in accordance with the City of Fresno Municipal Code and the Board’s Rules, Regulations and Policies.
City of Fresno Employees Retirement System l FINANCIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 18 Membership and Benefit Eligibility
All permanent full-time employees of the City of Fresno, except sworn Fire and Police personnel, are eligible to participate in the plan. Employees become eligible for
membership on their first day of regular employment, and members become fully vested after earning 5 years of
service credit.
Total participants of the System were comprised
as follows at June 30, 2021 and 2020:
2021 2020
Active Members
Vested 1,319 1,295
Non-Vested 994 993
Total Active Members 2,313 2,288
Retirees and Beneficiaries of Deceased
Retirees, Currently Receiving Benefits 2,129 2,076
Inactive Vested Members 248 243
Total Retirees and Inactive Members 2,377 2,319
Grand Total 4,690 4,607
Benefit Provisions
The System provides retirement allowances and other
benefits such as disability and death benefits to the
nonsafety members employed by the City of Fresno.
The retirement (pension) benefits the member will receive are based upon a combination of age at retirement, years of credited service, final average monthly salary, and the distribution option selected by the participant.
Members' contributions, including interest, are 100
percent vested at all times. Employer contributions do not become vested until completion of 5 years of credited
service when the member becomes 100 percent vested,
but are not payable until the member attains the age of 55.
Effective January 28, 2008, members may retire between
age 50-55 with an actuarially equivalent service
retirement benefit.
Member Retirement Benefits
Members are eligible for service retirement benefits upon completion of at least five years of service, upon
termination of service, if they have left contributions and interest with the System and are at least age 55. Or,
Members may retire upon written application to the
Retirement Board provided that the Member is credited
with five years of continuous service and has attained age fifty and consents in writing to the early retirement benefit reduction. Members may also be eligible for service
retirement benefit if they have less than five years of service with the City of Fresno, but have established
reciprocity with a prior employer and are eligible to retire from that agency.
The service retirement benefit is calculated pursuant to the provisions of Section 3-541 of the City of Fresno
Municipal Code. The monthly allowance for a member is
equal to 2 percent of final compensation times each of the first 25 years of accrued retirement service credit plus 1 percent of final compensation times any years of accrued retirement service credit in excess of 25 years, multiplied by the age factor at retirement age.
Final average compensation consists of the highest
average consecutive 36 months of compensation earnable
calculated using the rate of pay in effect at the time of retirement.
The member may elect an unmodified retirement
allowance, or choose an optional retirement allowance.
The unmodified retirement allowance provides the highest monthly benefit and a 50% continuance to an eligible
surviving spouse or domestic partner. An eligible
surviving spouse is one married to the member one year
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 19 prior to the effective retirement date for members retiring on or before the effective date (February 10, 2000) of
Ordinance No. 2000-5. For members retiring after the
effective date of Ordinance 2000-5, an eligible surviving spouse or domestic partner is one married to or registered with the member on or before the date of retirement.
There are four optional retirement allowances the member may choose. Each of the optional retirement allowances
requires a reduction in the unmodified retirement
allowance in order to allow the member the ability to
provide certain benefits to a surviving spouse, domestic partner, or named beneficiary having an insurable interest in the life of the member.
Deferred Retirement Option Program
(DROP)
DROP is an optional voluntary program that allows a
member to have his or her retirement benefits deposited in a special account within the System while the member
continues to work in his or her current position. It is a voluntary method of receiving a distribution of retirement benefits; it is not an additional retirement benefit.
DROP may not be beneficial to all members. Each
member must determine how the DROP option will affect
the member’s retirement benefits prior to making an
election to enter the DROP.
The member’s retirement benefits are determined as of
the date of entry into the DROP option and accumulate in the member’s DROP account while the member continues
to work. Members entering DROP, after January 27,
2011 in accordance with ordinances that amended
sections of the City of Fresno Municipal Code, continue making employee contributions.
Eligibility: Any member who is eligible for a service
retirement and is age 55 (or age 50 for an early retirement reduced benefit) with a minimum of 5 years of service.
Participation Period: The maximum participation period is ten years. Because the participation period cannot be
extended, the member must retire at its conclusion;
however, the member may end participation in DROP and
terminate employment with the City and begin retirement at any time prior to the end of the ten-year period.
DROP Account: A DROP account is set up for each
participant; the monthly amount credited to DROP
accounts include an amount which represents the service retirement allowance which the member would have
received if the member had retired on the date the
member commenced DROP participation. Interest is also
credited to the DROP account monthly at a rate which is set annually by the Retirement Board. The rate is based on the prior five-year moving average of net market
returns of the System's investments in accordance with the City of Fresno Municipal Code requirements. The Board
is authorized to reduce the annual interest crediting rate up to 3 percent, if necessary, to maintain DROP’s cost
neutrality.
A DROP account is a nominal, bookkeeping account
established within the System for each DROP participant.
Upon termination of DROP participation and retirement
from the City, a member receives the amounts credited to their DROP account, including interest. In addition, the member will also begin receiving his or her monthly
retirement allowance in the amount being credited to their DROP account. The member may select a method of
withdrawing the money from their DROP account from
the options provided.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 20 DROP Reserves which represent funds reserved for
DROP benefits accumulated by active members and
retirees were $152,107,180 and $144,777,235 as of June
30, 2021 and 2020, respectively.
Terminated Member Benefits
If a member terminates before earning five years of
credited service, the member forfeits the right to receive his or her service retirement benefit and is entitled to withdraw refundable contributions made, together with
accumulated interest. If the member enters a reciprocal retirement system within 180 days (6 months) of
terminating employment with the City of Fresno and
elects to leave their accumulated contributions on deposit with the System, then the member will receive a deferred retirement allowance when eligible.
Death and Disability Benefits
Death benefits are based upon whether the death occurred before or after retirement. Disability benefits are based upon whether the member has at least ten years of
credited service, over or under age 55 and whether the
permanent incapacity is found to be service or non
service-connected.
Cost-of-Living Benefits
Cost-of-living adjustment (COLA) increases for retirees under the Employees Retirement System are provided for
in the Municipal Code, and are determined by annual
changes in the Consumer Price Index (CPI) for each of
the two immediately preceding calendar years. Retirement staff research the percentage change in CPI (United States city average for urban wage earners and clerical workers – all items) and propose that percent to the Retirement
Board as the COLA to be adopted for the following fiscal year. This procedure is completed by the end of April
each year for implementation in July. The COLA is
limited to a five percent (5.00%) maximum change per
year and any excess over 5.00 percent is banked for the retiree for use in a year where the percent of CPI change is negative.
The Board adopted the annual COLA, pursuant to Section
3- 553(b) of 2.3 percent, effective July 1, 2020 for fiscal year 2021, and 1.8 percent, effective July 1, 2019 for
fiscal year 2020.
2 Summary of Significant
Accounting Policies
Reporting Entity
The Retirement System, with its own governing board, is an independent governmental entity separate and distinct from the City of Fresno. The System’s annual financial statements are included in the City of Fresno Annual
Financial Report as a pension trust fund.
Basis of Accounting
The System’s financial statements are prepared using the accrual basis of accounting and in accordance with
accounting principles generally accepted in the United
States of America (GAAP), under which revenues are
recognized when earned and deductions are recorded
when the liability is incurred. Employer and employee
contributions are recognized as revenue when due.
Contributions are recorded in the period the related
salaries are earned and become measurable. Investment
income is recognized when it is earned. The net
appreciation in fair value of investments held by the
System is recorded as an increase to investment income
based on the valuation of investments at fiscal year-end, which includes both realized and unrealized gains and
losses on investments. Retirement benefits and refunds
are recognized when due and payable under the terms of
the plan as defined in Sections 3-534 and 3-538 of the
City of Fresno Municipal Code. Other expenses are
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 21 recognized when the corresponding liabilities are
incurred.
Securities lending transactions are accounted for in
accordance with Governmental Accounting Standards
Board (GASB) Statement No. 28, Accounting and
Financial Reporting for Securities Lending Transactions, which establishes reporting standards for securities
lending transactions. In accordance with GASB Statement No. 28, cash received as collateral on securities lending transactions and investments made with that cash are
reported as assets and liabilities, and the results from these transactions are reported in the Statement of
Fiduciary Net Position. In addition, the costs of securities lending transactions are reported as an expense in the
Statement of Changes in Fiduciary Net Position.
Investments
The System is authorized by the City of Fresno Municipal Code and the policies of the Retirement Board to invest in any form or type of investment deemed prudent by the
Board and does so through its Investment Objectives and Policy Statement which establishes and outlines the
responsibilities of the various parties that are associated with managing assets of the Retirement System,
consistent with applicable sections of the Municipal Code, Federal laws and Article XVI, Section 17(c) of the
Constitution of the State of California which provides that “the member of the Retirement Board of a public pension or retirement system shall discharge their duties…with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aim.”
System investments are reported at fair value. Fair value is the amount that the System can reasonably expect to
receive for an investment in a current sale between a
willing buyer and seller, that is, other than in a forced or liquidation sale. Fair value for investments of publicly traded securities is stated at fair value based upon closing sales prices reported on recognized securities exchanges on the last business day of the period or for listed
securities having no sales reported and for unlisted
securities, based upon last reported bid prices. All
purchases and sales of securities are accounted for on a trade date basis and dividends declared but not received are accrued on the ex-dividend date. Short-term
investments are reported at cost, which approximates fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. Investments in both bonds and
mortgage-backed pass-through certificates are carried at fair value.
Cost values, as shown, are derived from Master Custodial Transaction Records. The fair value of real estate
investments is based on independent appraisals.
Investments that do not have an established market are
reported at estimated fair values.
The asset allocation policy set by the Board, in
conjunction with the Fire and Police Retirement Board, is outlined in the Boards’ Investment Objectives and Policy Statement. Plan assets are managed with a long-term
objective of achieving and maintaining a fully funded
status for the benefits provided by the System. The table on the following page provides the Boards’ adopted asset allocation policy as of June 30, 2021 and 2020.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 22 Asset Allocation Policy
As of June 30, 2021 and 2020
Asset Class FY 2021 FY 2020
Domestic Equity
Large Cap 15.8% 15.8%
Small Cap 7.2% 7.2%
International Equity
Developed Markets 19.0% 19.0%
Emerging Markets 6.0% 7.0%
Fixed Income
Core Fixed Income 10.0% 10.0%
High Yield Bonds 5.0% 5.0%
Real Estate
Core Real Estate 11.0% 11.0%
Value Add Real Estate/REITs 4.0% 4.0%
Alternatives
Infrastructure 4.0% 4.0%
Midstream Energy (MLP's) 5.0% 5.0%
Private Equity 5.0% 4.0%
Private Debt 8.0% 8.0%
Short Term Investments 0.0% 0.0%
100% 100%
Estimates
The preparation of financial statements in accordance
with generally accepted accounting principles (GAAP)
requires the System administrator to make estimates and assumptions that affect certain amounts and disclosures.
Accordingly, actual results may differ from those
estimates.
Reclassifications
Certain amounts presented in the prior year's data has
been reclassified to be consistent with the current year's presentation. Such reclassifications had no effect on
previously reported fiduciary net position.
Implementation of New Accounting
Pronouncements
For the year ended June 30, 2021, the Board adopted and the System implemented all applicable new GASB
pronouncements. The most recent pronouncements,
effective for fiscal year ended June 30, 2021, are provided below.
GASB Statement No. 84 - Fiduciary Activities, was
issued in January 2017. This Statement establishes
criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are
included to identify fiduciary component units and
postemployment benefit arrangements that are fiduciary
activities. The System has determined that this standard is not applicable, and thus has no material impact on the System's financial statements.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 23 GASB Statement No. 90 - Majority Equity Interests, was
issued in August 2018. The primary objectives of this
Statement are to improve the consistency and
comparability of reporting a government’s majority equity interest in a legally separate organization and to improve the relevance of financial statement information for
certain component units. It defines a majority equity
interest and specifies that a majority equity interest in a legally separate organization should be reported as an
investment if a government’s holding of the equity
interest meets the definition of an investment. The
System has determined that this standard is not applicable, and thus has no material impact on the System's financial statements.
GASB Statement No. 98 - The Annual Comprehensive
Financial Report , was issued in October 2021. This
Statement establishes the term annual comprehensive
financial report and its acronym ACFR. That new term
and acronym replace instances of comprehensive annual
financial report and its acronym in generally accepted
accounting principles for state and local governments.
The requirements of this Statement are effective for fiscal years ending after December 15, 2021. The System has
made the decision to early implement this requirement,
effective for the fiscal year ended June 30, 2021.
3 Contributions
Authority to Collect
The responsibility for both City and employee
contributions to the System is mandated by the City of
Fresno Municipal Code Sections 3-523 and 3-529.
Contributions are made by the members and the employer
at rates recommended by the System's independent
actuary and adopted by the Board.
Employee contribution rates vary according to age and are designed to provide funding for approximately one third of retirement benefit basic normal costs and one-half of the cost-of-living component. All active members are
required to make contributions to the System. The average member contribution rate as of June 30, 2021 for
2020-2021 (based on the June 30, 2019 valuation) was
9.04 percent of compensation. The average member
contribution rate as of June 30, 2020 for 2019-2020
(based on the June 30, 2018 valuation) was 7.58 percent of compensation.
The employer contribution rate is designed to provide
funding for the remaining regular retirement and cost-of- living benefits, as well as all regular disability and
survivors' benefits. The average employer contribution
rate as of June 30, 2021 for 2020-2021 (based on the June 30, 2019 valuation) was 13.03 percent of compensation.
The average employer contribution rate as of June 30,
2020 for 2019-2020 (based on the June 30, 2018
valuation) was 11.11 percent of compensation.
One of the funding objectives of the System is to establish contribution rates which, over time, will remain level as a percentage of payroll unless the System benefit provisions are changed.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 24 Funding Status & Method
Actuarial Funding Policy and Actuarial Cost
Methodology for Funding Purposes.
The Board adopted a Comprehensive Actuarial Funding
Policy on November 7, 2012. For the Employees
Retirement System, that policy included a change in
actuarial cost methodology from the Projected Unit Credit (PUC) method used for funding purposes to the Entry
Age Normal (EAN) method as the EAN method is used
by a substantial majority of the retirement systems in
California and nationwide. More importantly, the Board
made this change in actuarial cost methodology due to the adoption of GASB Statements No. 67 and No. 68 which
substantially revised the financial reporting requirements for governmental pension plans and their sponsors.
Goals of the Actuarial Funding Policy:
• To achieve long-term full funding of the cost of
benefits provided by the System;
• To seek reasonable and equitable allocation of the
cost of benefits over time; and
• To minimize any volatility of the City’s contribution to the extent reasonably possible, consistent with
other policy goals.
Funding Requirements and Policy
Components
The System’s annual funding requirement is comprised of a payment of the Normal Cost and a payment on the
Unfunded Actuarial Accrued Liability (UAAL) if
applicable. The Normal Cost and the amount of the
payment on UAAL are determined by three components
of the Board’s funding policy: 1) Actuarial Cost Method – the techniques used to allocate the cost/liability of
retirement benefits to a given period; 2) Asset Smoothing Method – the techniques that spread the recognition of
investment gains or losses over a period of time for the purposes of determining the Actuarial Value of Assets
used in the actuarial valuation process; and 3)
Amortization Policy – the decisions on how, in terms of duration and pattern, to fund the difference between the Actuarial Accrued Liability and the Actuarial Value of
Assets in a systematic manner.
Using the Asset Smoothing Method, the investment gains
or losses of each valuation period, as a result of
comparing the actual market return to the expected market return, are recognized in level amounts over five (5) years in calculating the Actuarial Value of Assets.
As of June 30, 2021, the System does not have an
Unfunded Actuarial Accrued Liability (UAAL). The
Board’s Amortization Policy sets forth the amortization procedures for funding any UAAL or amortization and
allocation of any available surplus in the System.
Any new UAAL as a result of actuarial gains or losses
identified in the annual valuation as of June 30 will be amortized over a period of fifteen (15) years. Any new
UAAL as a result of any change in actuarial assumptions or methods will be amortized over a period of twenty-five (25) years. The amortization period for any increase in UAAL as a result of any amendments to the System will
be amortized over a period of fifteen (15) years, while any increase in UAAL resulting from a temporary retirement
incentive will be funded over a period not to exceed five (5) years.
UAAL shall be amortized over “closed” (separate)
amortization periods so that the amortization period for each layer decreases by one year with each actuarial
valuation.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 25 UAAL is amortized as a level percentage of payroll so
that the amortization amount in each year during the
amortization period shall be expected to be a level
percentage of covered payroll, taking into consideration the current assumption for general payroll increase.
If an overfunding status exists (i.e., the Valuation Value of Assets exceeds the Unfunded Actuarial Accrued
Liability (UAAL), the System is considered to have a
surplus in the System as of a point in time), such actuarial surplus and any subsequent surpluses will be amortized
over an “open” amortization period of twenty-five (25)
years. This amortization period of twenty-five years shall be applicable to the provisions in Fresno Municipal Code Sections relating to the amortization period used in the calculation of the Post Retirement Supplemental Benefit (PRSB). Any prior Unfunded Actuarial Accrued Liability
(UAAL) amortization layers will be considered fully
amortized, and any subsequent UAAL will be amortized
over fifteen (15) years as the first of a new series of amortization layers.
The System uses a five year smoothing of market gains
and losses to derive the actuarial value of assets. As of the fiscal year ended June 30, 2021, the actuarial value of assets was $1.380 billion with a funded percentage of
116.0 percent on a valuation value of assets.
The progress being made towards meeting the System’s
funding objective through June 30, 2021 is illustrated in the Schedule of Funding Progress shown below and in the Actuarial Section on page 86.
Schedule of Funding Progress
For The Three Years Ending June 30, 2021
(Dollars in Millions)
(1) (2) (3) (4) (5) (6)
Actuarial
Valuation
Date
Actuarial
Valuation
Value of
Assets
Actuarial
Accrued
Liability
(AAL)
Percentage
Funded (1)/(2)
Prefunded /
(Unfunded AAL)
(2)–(1)
Annual
Covered
Payroll
Prefunded /
(Unfunded
AAL)
Percentage of
Covered Payroll
[(2) - (1)] / (5)
2021 $1,380 $1,190 116.0% $190 $160 118.7%
2020 $1,269 $1,155 109.9% $114 $156 73.0%
2019 $1,239 $1,107 111.9% $132 $145 90.7%
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 26 Funding Policy
The City (Employer) currently funds, at a minimum, the
amounts recommended by the actuary and approved by
the Retirement Board. Such amounts are determined
using the individual entry age normal funding method
applied to the projected benefits in determining the
Normal Cost and Actuarial Accrued Liability. The
Normal Cost is determined on an individual basis for each active member. If there is a positive (Surplus) or negative (Unfunded) difference between the Valuation of Assets
and the Actuarial Accrued Liability (AAL), the
amortization policy determines the amortization of the
Unfunded Actuarial Accrued Liability (UAAL) on a level
percentage of payroll needed to fund the UAAL or the
amount of available surplus which would be distributable in any given year. This method produces an employer
contribution rate consisting of amounts for (a) normal cost and (b) amortization of any unfunded (UAAL) or
prefunded (PAAL) actuarial accrued liability.
These minimum contributions are recognized currently in the Statement of Changes in Fiduciary Net Position.
Employees' contributions are funded and recognized
currently through payroll deductions in amounts
recommended by the actuary. Costs of administering the
System are charged against System assets.
Total contributions (basic and cost-of-living adjustments (COLA)) to the System for fiscal year 2021 totaled
$33,894,231. Employees contributed $13,749,909 and the
City made contributions of $20,144,322.
Contributions aggregating $33,894,231 ($20,144,322
employer contributions and $13,749,909 employee
contributions) were made in fiscal year 2021, based on an actuarial valuation determined as of June 30, 2019, which became effective for the year ended June 30, 2021.
During fiscal year 2021, the Employer normal
contribution rate was set at 13.37 percent. However, due to an adjustment for an excess contribution from the prior year, Employer and System member basic and COLA
contributions represented 13.03 percent and 9.04 percent, respectively, of the fiscal year 2021 covered payroll.
Contributions aggregating $27,581,447 ($16,553,928
employer contributions and $11,027,519 employee
contributions) were made in fiscal year 2020, based on an actuarial valuation determined as of June 30, 2018, which became effective for the year ended June 30, 2020.
During fiscal year 2020, the Employer normal
contribution rate was set at 11.70 percent. Employer and System member contributions represented 11.11 percent
and 7.58 percent, respectively, of the fiscal year 2020 covered payroll.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 27 Contributions Required and Contributions Made
The employer’s required normal contributions to the System has two components: basic and COLA. For fiscal years 2021 and 2020, the employer’s required normal contributions (basic and COLA) to the System were as follows:
Normal Cost
FY2021 FY2020
Employee Contributions $ 13,749,909 $ 11,027,519
Employer Contribution Rate 13.37 % 11.70 %
Employer Contributions $ 20,593,899 $ 17,480,115
Prior Year Contribution
(Surplus)/Shortfall (449,577) (926,187)
Net Employer Contributions $ 20,144,322 $ 16,553,928
Pensionable Payroll $ 154,030,657 $ 149,402,670
4 Net Pension Liability
The components of the net pension liability of the System are as follows:
Schedules of Changes in the System’s Net Pension Liability (GASB 67) As of June 30, 2021 and 2020
(In Thousands)
As of As of
June 30, 2021 June 30, 2020
Total Pension Liability $1,379,433 $1,337,308
Plan Fiduciary Net Position ($1,731,237) ($1,360,837)
Net Pension Liability/(Surplus) ($351,804) ($23,529)
Plan Fiduciary Net Position as a percentage of the total pension liability 125.50% 101.76% The net pension liability was measured as of June 30, 2021 and 2020, and determined based upon the total pension liability (on a GASB 67 basis) from actuarial valuations as of June 30, 2021 and 2020, respectively.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 28 Actuarial Assumptions
Key Methods and Assumptions Used in Valuation
of Total Pension Liability
The total pension liability as of June 30, 2021 was determined by an actuarial valuation as of June 30, 2021, using the following actuarial assumptions, applied to all periods included in the measurement:
Valuation Date June 30, 20211
Actuarial Experience Study 3 Year Period Ending June 30, 2018 Actuarial Cost Method Entry Age Normal Actuarial Cost Method Normal Cost and Actuarial Accrued Liability are calculated on an individual basis and are based on costs allocated as a level percentage of compensation.
Actuarial Assumptions
Inflation 2.75%
Salary Increases 3.75% to 11.25%, varying by service, including inflation Discount Rate 7.00%, net of pension plan investment expense, including inflation Other Assumptions See June 30, 2021 funding valuation for the service retirement rates after they have been adjusted to treat DROP participation as service retirement.
Mortality Rates Healthy Members and Beneficiaries • Pub-2010 General Healthy Retiree Amount- Weighted Mortality Table (separate tables for males and females) times 105%, projected generationally with the two-dimensional mortality improvement scale MP-2018.
Disabled Members • Pub-2010 Non-Safety Disabled Retiree Amount-Weighted Mortality Table (separate tables for males and females), projected generationally with the two- dimensional mortality improvement scale MP-2018.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 29 1Actuarially determined contribution rates are calculated as of June 30, two years prior to the end of the fiscal year in which contributions are reported. As such, the actuarial valuations dated, June 30, 2021 and 2020, will impact the contribution rates for the fiscal years ended June 30, 2023 and 2022.
The valuation interest rate is 7.00 percent; total salary scale increases range between 3.75% to 11.25% (include
2.75 percent for inflation plus 0.50 percent across the board salary increase plus merit and promotion increases based on completed years of service) were based on the
June 30, 2018 Experience Analysis and Economic
Assumptions Reports.
Actuarial valuations of an ongoing plan involve estimates of the fair value of reported amounts and assumptions
about the probability of occurrence of events far into the future. Examples include assumptions about future
employment, mortality, inflation and investment returns.
Amounts determined regarding the funded status of the
plan and the annual required contributions of the
employer are subject to continual revisions as actual
results are compared with past expectations and new
estimates are made about the future.
GASB Statement No. 67 addresses accounting and
financial reporting requirements for pension plans and
redefines pension liability and expense for financial
reporting purposes, and does not apply to contribution
amounts for pension funding purposes.
When measuring pension liability under GASB Statement
No. 67, the actuary uses the same actuarial cost method (Entry Age method) and the same type of discount rate
(expected return on assets) as the System uses for
funding. Note that, unrelated to the investment return
assumption, the new rules use a version of the Entry Age method where the Total Pension Liability (TPL) for
financial reporting purposes must be fully accrued by the time a member either enters DROP or is expected to elect the DROP. This is in contrast to the version of the Entry Age method used for funding, where the Actuarial
Accrued Liability (AAL) does not have to be fully
accrued until members retire from employment after
participation in the DROP. Under GASB Statement No.
67, active members who are expected to enroll in the
DROP in the future would report a Service Cost that is higher than the Normal Cost used for funding, while
members already in the DROP would report no Service
Cost even though their Normal Cost continues to accrue.
Long-Term Expected Real Rate of Return
The long-term expected rate of return on the System’s
investments was determined using a building-block
method in which expected future real rates of return
(expected returns, net of pension plan investment expense and net of inflation) are developed for each major asset class. This information is combined to produce the long- term expected rate of return by weighting the expected
future real rates of return by the target asset allocation percentage and by adding expected inflation and
deducting expected investment expenses and a risk
margin. The target allocation and projected arithmetic real rates of return for each major asset class, after deducting inflation, but before deducting investment expenses, used in the derivation of the long-term expected investment
rate of return assumption are summarized in the following table.
The actual asset class target allocations from the Board's prior adopted Asset Allocation Target Policy were utilized in the Analysis of Actuarial Experience during the period July 1, 2015 through June 30, 2018 and for the Review of Economic Actuarial Assumptions used for the June 30,
2021 Actuarial Valuation.
The actual asset class target allocations from the Board's prior adopted Asset Allocation Target Policy were utilized in the Analysis of Actuarial Experience during the period July 1, 2015 through June 30, 2018 and for the Review of Economic Actuarial Assumptions used for the June 30,
2020 Actuarial Valuation.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 30 Asset Class/Target Allocation/Long-term Expected
Real Rate of Return Table
As of June 30, 2021 As of June 30, 2020
Asset Class
Target
Asset
Allocation
Weighted Average
Long-Term Expected
Real Rate of Return*
(Arithmetic)
Target
Asset
Allocation
Weighted Average
Long-Term Expected
Real Rate of Return*
(Arithmetic)
Large Cap U.S. Equity 15.8% 5.44% 15.8% 5.44%
Small Cap U.S. Equity 7.2% 6.18% 7.2% 6.18%
Developed International Equity 19.0% 6.54% 19.0% 6.54%
Emerging Market Equity 6.0% 8.73% 6.0% 8.73%
Private Equity 5.0% 9.27% 5.0% 9.27%
Domestic Fixed Income 10.0% 1.42% 10.0% 1.42%
High Yield Bonds 5.0% 3.64% 5.0% 3.64%
Private Debt/Direct Lending 8.0% 5.54% 8.0% 5.54%
Midstream Energy 5.0% 6.24% 5.0% 6.24%
Real Estate 15.0% 4.60% 15.0% 4.60%
Private Real Assets - Infrastructure/Land 4.0% 4.89% 4.0% 4.89% Total 100.0% 100.0%
*Based on June 30, 2018 Economic Study of Assumptions.
Mortality Rates
Mortality rates used in the latest actuarial valuation are based on the Pub-2010 mortality tables. For healthy
members and beneficiaries the Pub-2010 General Healthy
Retiree Amount-Weighted Mortality Table (separate
tables for males and females) times 105% is used,
projected generationally with the two-dimensional
mortality improvement scale MP-2018. For members that
are disabled, the Pub-2010 Non-Safety Disabled Retiree
Amount-Weighted Mortality Table (separate tables for
males and females) is used, projected generationally with the two-dimensional mortality improvement scale
MP-2018.
Discount Rate
The discount rate used to measure the total pension
liability was 7.00 percent as of June 30, 2021 and 2020.
The projection of cash flows used to determine the
discount rate assumed plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the actuarially determined contribution rates. For this purpose, only
employer contributions that are intended to fund benefits for current plan members and their beneficiaries are
included. Projected employer contributions that are
intended to fund the service costs for future plan members and their beneficiaries, as well as projected contributions from future plan members, are not included. Based on
those assumptions, the pension plan's fiduciary net
position was projected to be available to make all
projected future benefit payments for current plan
members. Therefore, the long-term expected rate of return on the System’s investments was applied to all periods of projected benefit payments to determine the total pension liability as of both June 30, 2021 and June 30, 2020.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 31 The table below presents the net pension liability of the Retirement System calculated using the discount rate of
7.00 percent, as of June 30, 2021 and 2020, as well as
what the System’s net pension liability would be if it were calculated using a discount rate that is 1.00 percent lower or 1.00 percent higher than the current rate:
Sensitivity of Net Pension Liability to Changes in the Discount Rate As of June 30, 2021 and 2020 (In Thousands)
1% Current 1%
Decrease Discount Rate Increase
Net Pension Liability/(Surplus) 6.00% 7.00% 8.00%
June 30, 2021 ($190,533) ($351,804) ($483,823)
1% Current 1%
Decrease Discount Rate Increase
Net Pension Liability/(Surplus) 6.00% 7.00% 8.00%
June 30, 2020 $132,560 ($23,529) ($151,412)
5 Net Position Restricted for
Pension Benefits
Net position restricted for pension benefits is segregated into Active Members Reserve (members’ accumulated
contributions) and reserves established by the Board for various benefit payments.
Reserves are established by the System from member and
employer contributions and the accumulation of
investment income after satisfying investment and
administrative expenses. Note: The reserves do not
represent the present value of assets needed, as
determined by actuarial valuation, to satisfy retirements and other benefits as they become due.
The System’s major reserves are as follows:
ACTIVE MEMBER (EMPLOYEE) RESERVES
represent the total accumulated member contributions.
Additions include member contributions and investment
earnings; deductions include refunds of member
contributions and transfers to Employer Advance/Retired Reserves.
EMPLOYER ADVANCE/RETIRED RESERVES
represent the total accumulated employer contributions
for future retirement payments to current active and vested terminated members and the total accumulated
transfers from Active Member Reserves and investment
earnings, less payments to retirees and transfers to the DROP Reserve. Additions include contributions from the
employer, transfers from Active Member Reserve and
investment earnings; deductions include payments to
retirees and transfers to the DROP Reserve.
DEFERRED RETIREMENT OPTION PROGRAM
(DROP) RESERVE represents funds reserved for
Deferred Retirement Option Benefits accumulated by
members and retirees.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 32
POST RETIREMENT SUPPLEMENTAL BENEFIT
(PRSB) RESERVE represents surplus earnings that have
been allocated but not distributed to eligible retirees in accordance with the City of Fresno Municipal Code
Section 3-567 “Post Retirement Supplemental Benefit.”
The PRSB Reserve Account was exhausted at the end of
calendar year 2013.
CITY SURPLUS RESERVE represents surplus earnings
that have been allocated but not used as a reduction to offset or eliminate the City’s pension contributions in accordance with the conditions and requirements of
Municipal Code Section 3-567 “Post Retirement
Supplemental Benefit.” The City Surplus Reserve
Account was slightly negative for fiscal years 2020 and 2019 due to the differences between the actual and
estimated surplus allocation for the City for offsetting the City’s contributions for those years. The City’s normal contribution rate for fiscal year 2019 included funding of the fiscal year 2018 deficit City Surplus Reserve balance.
Interest is allocated at an actuarially determined interest rate as approved by the Board and is credited monthly to the Active Member Reserves and the Employer Advance/
Retired Reserves. Active members in the Deferred
Retirement Option Program accrue interest on their
accumulated DROP accounts monthly at an interest rate
annually adopted by the Board.
The amount of reserves for the years ended June 30, 2021 and 2020, consisted of the following:
Reserves Table as of FY 2021 and FY 2020
(In Thousands)
2021 2020
Employer Advance/Retired Reserves $ 1,456,484 $ 1,100,905 Active Member (Employee) Reserves 122,574 115,238
DROP Reserves 152,107 144,777
PRSB Reserves — —
City Surplus Reserves 72 (83)
Net Position Restricted for Pension Benefits $ 1,731,237 $ 1,360,837 City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 33 6 Fair Value Measurements
In accordance with GASB Statement No. 72, Fair Value
Measurement and Application, which addresses
accounting and financial reporting issues related to fair value measurements and disclosures. The System’s
investments are measured and reported within the fair
value hierarchy established by generally accepted
accounting principles. The fair value hierarchy, which has three levels, is based on the valuation inputs used to
measure an asset’s fair value and gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are as follows:
Level 1: Inputs are based on quoted prices for identical assets or liabilities in an active market that the System can access. An active market for the asset or liability is one in which transactions for the asset or liability occurs with sufficient frequency and volume to provide pricing
information on an ongoing basis. A quoted price in an
active market usually provides the most reliable evidence of fair value and is generally used without adjustment if available. This classification includes public equities with observable market prices.
Level 2: Inputs that are observable either directly or indirectly but are not Level 1 inputs. Level 2 inputs
include quoted prices for similar instruments, broker
quotes, or observable inputs that directly impact value such as interest rates, prepayment speeds, and credit risk.
Pricing inputs, including broker quotes, are generally
those other than exchange quoted prices in active markets, and fair values are determined through the use of models or other valuation methodologies. For investments in
funds where there is an ability to redeem such investments at the Net Asset Value (NAV) per share (or its equivalent) at the measurement date or in the near term, the fair value of the investment is generally categorized as Level 2.
Level 3: Inputs that are unobservable. Level 3 inputs are generally used in situations where there is little, if any, market activity for the investment. These inputs into the determination of fair value require significant
management judgment or estimation. Due to the inherent
uncertainty of these estimates, these values may differ significantly from the values that would have been used had a ready market for these investments existed.
Investments that are included in this category generally include public entities and other fixed income securities where there is an inability to redeem such investments at the NAV per share (or its equivalent) at the measurement date or in the near term.
The tables on the following pages show the fair value
leveling of the System’s investments as of June 30, 2021 and 2020.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 34 Fair Value Measurements Using
Investment Type June 30, 2021
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Investments by Fair Value Level
Debt Securities
Asset Backed Securities $ 20,837,502 $ — $ 20,837,502 $ — Commercial Mortgage-Backed 11,165,798 — 11,165,798 — Corporate Bonds 117,729,232 — 117,300,414 428,818
Corporate Convertible Bonds 4,069,941 — 4,069,941 — Government Agencies 3,251,064 — 3,161,448 89,616
Government Bonds 17,235,381 — 17,235,381 —
Government Mortgage Backed Securities 41,413,294 — 41,413,294 — Gov't-issued Commercial Mortgage-Backed 3,497,294 — 3,497,294 — Municipal/Provincial Bonds 2,383,244 — 2,383,244 —
Non-Government Backed C.M.O.s 2,968,613 — 2,787,002 181,611 Total Debt Securities 224,551,363 — 223,851,318 700,045 Equity Securities
Consumer Discretionary 72,044,103 72,044,103 — —
Consumer Staples 22,629,649 22,629,649 — —
Energy 98,254,515 98,254,515 — —
Financials 83,034,462 83,034,462 — —
Health Care 44,117,298 44,117,298 — —
Industrials 79,042,200 79,042,200 — —
Information Technology 83,086,874 83,086,874 — —
Materials 35,167,195 35,056,277 — 110,918
Miscellaneous 1,279,160 414,000 — 865,160
Real Estate 10,778,110 10,778,110 — —
Telecommunication Services 26,875,565 26,875,565 — — Utilities 5,050,226 5,050,226 — —
Total Equity Securities 561,359,357 560,383,279 — 976,078 Securities Lending 79,711,386 79,711,386 — —
Short-Term Investments 26,233,416 26,233,416 — —
Private Real Estate Holdings 3,358,395 — 3,358,395 — Total Investments by Fair Value Level $ 895,213,917
Investments Measured at the Net Asset Value (NAV)
Commingled Fund - Equities $ 485,770,926
Commingled Fund - Real Estate 146,629,638
Commingled Fund - Infrastructure 59,694,981
Private Real Estate Funds 61,026,840
Private Debt/Private Credit 91,986,465
Private Equity 39,089,009
Total Investments Measured at NAV 884,197,859
Total Investments Measured at Fair Value and NAV $ 1,779,411,776 Investment Derivative Instruments*
Deb Securities - Futures $ 13,253,790 $ 13,253,790 $ — $ — Rights/Warrants
121 121 — —
Total Investment Derivative Instruments $ 13,253,911 $ 13,253,911 $ — $ — * Short-term derivative instruments included on page 47 are excluded here.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 35 Fair Value Measurements Using
Investment Type June 30, 2020
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Investments by Fair Value Level
Debt Securities
Asset Backed Securities $ 13,449,655 $ — $ 13,449,655 $ — Commercial Mortgage-Backed 8,618,485 — 8,618,485 —
Corporate Bonds 118,995,915 — 118,995,915 —
Corporate Convertible Bonds 2,178,185 — 2,178,185 —
Government Agencies 2,619,141 — 2,619,141 —
Government Bonds 8,908,484 — 8,908,484 —
Government Mortgage Backed Securities 38,741,239 — 38,741,239 — Gov't-issued Commercial Mortgage-Backed 5,852,948 — 5,852,948 — Index Linked Government Bonds 1,562,469 — 1,562,469 — Municipal/Provincial Bonds 3,184,572 — 3,184,572 —
Non-Government Backed C.M.O.s 792,738 — 792,738 —
Total Debt Securities 204,903,831 — 204,903,831 —
Equity Securities
Consumer Discretionary 62,927,193 62,927,193 — —
Consumer Staples 18,786,993 18,786,993 — —
Energy 61,797,050 61,797,033 17 —
Financials 65,384,148 65,384,148 — —
Health Care 40,562,175 40,562,175 — —
Industrials 57,333,415 57,333,415 — —
Information Technology 62,248,539 62,248,539 — —
Materials 21,588,089 21,588,089 — —
Real Estate 8,681,835 8,681,835 — —
Telecommunication Services 31,893,860 31,893,860 — —
Utilities 5,394,978 5,394,978 — —
Total Equity Securities 436,598,275 436,598,258 17 —
Securities Lending 54,554,346 54,554,346 — —
Short-Term Investments 13,926,337 9,439,794 4,486,543 — Private Real Estate Holdings 3,358,395 — 3,358,395 —
Total Investments by Fair Value Level $ 713,341,184
Investments Measured at the Net Asset Value (NAV)
Commingled Fund - Equities $ 398,844,500
Commingled Fund - Real Estate 81,442,709
Commingled Fund - Infrastructure 57,192,273
Private Real Estate Funds 50,218,339
Private Debt/Private Credit 96,641,211
Private Equity 12,779,176
Total Investments Measured at NAV 697,118,208
Total Investments Measured at Fair Value and NAV $ 1,410,459,392 Investment Derivative Instruments*
Deb Securities - Futures $ 3,432,708 $ 3,432,708 $ — $ — Deb Securities - Options 3,668 3,668 — —
Short Term Investments - Swaps 4,670 — 4,670 —
Total Investment Derivative Instruments $ 3,441,046 $ 3,436,376 $ 4,670 $ — * Short-term derivative instruments included on page 47 are excluded here.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 36 Commingled equity and real estate funds are valued based on NAV reported by the investment manager, which are
generally calculated based on the last reported sale price of the underlying assets held by such funds. Direct
lending funds are typically structured as limited
partnerships and limited liability companies. Since there is no readily available market for these investments in limited partnerships and limited liability companies, such investments are stated at fair value as estimated in an inactive market. These investments include securities of companies that may not be immediately liquid, such as
private debt securities, real estate or other assets. The valuations of these investments are based upon values
provided by the investment managers, based on the
guidelines established with the investment managers and in consideration of other factors related to the System’s interests in these investments.
Investments that are measured at fair value using the net asset value per share (NAV or its equivalent) as a
practical expedient are not classified in the fair value hierarchy. In these instances where inputs used to measure fair value fall into different levels in the fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is
significant to the valuation. The System’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors
specific to each asset or liability.
Equity and derivative securities classified in Level 1 are valued using prices quoted in active markets for those
securities. Equity and debt securities classified in Level 2 and Level 3 are using either a bid evaluation or a matrix pricing technique. Bid evaluations may include market
quotations, observable market based inputs and
unobservable inputs (i.e., extrapolated data, proprietary models, and indicative quotes). Matrix pricing is used to value securities based on the securities relationship to benchmark quoted prices. Investment derivative
instruments classified as Levels 2 and 3 are valued using market approaches that consider, as applicable,
benchmark interest rates or foreign exchange rates.
Real estate assets classified in Level 2 are the System’s private real estate investments which are valued using
independent external appraisers. The System’s policy is to perform independent appraisals of the property every
three years. The appraisals include a complete property and market inspection and analysis by designated
Members of the Appraisal Institute (MAI). The appraisals are performed using generally accepted valuation
approaches applicable to the property type. Calculations used in the System’s independent appraisals are generally based on a discounted cash flow analysis.
Investments in Entities That Calculate Net
Asset Value Per Share
The fair value measurement of investments in
commingled equity, real estate and direct lending funds are valued based on the investments’ net asset value
(NAV) per share (or its equivalent) reported by the
investment manager, which are generally calculated based on the last reported sale price of the underlying assets held by such funds. These include funds that are
structured as limited partnerships and limited liability companies.
Since there is no readily available market for investments in limited partnerships and limited liability companies, such investments are stated at fair value as estimated in an inactive market. These investments include securities of companies that may not be immediately liquid, such as
private debt securities and real estate or other assets.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 37 The valuations of these investments are based upon values provided by the investment managers, and in
consideration of other factors, including guidelines
established with those investment managers, related to the System’s interests in these investments. Such fair value measurements are shown in the tables below as of June
30, 2021 and 2020.
City Of Fresno Employees Retirement System
Investments Measured at the NAV
As of June 30, 2021
Investment Type Fair Value
Unfunded
Commitments
Redemption
Frequency
(If Currently
Eligible)
Redemption
Notice
Period
Commingled Fund - Equities $ 485,770,926 $ — Daily None Commingled Fund - Real Estate 146,629,638 — Quarterly 45-90 Days Commingled Fund - Infrastructure 59,694,981 — Not Eligible N/A Private Real Estate Funds 61,026,840 29,265,476 Not Eligible N/A Private Debt/Private Credit 91,986,465 125,934,771 Not Eligible N/A Private Equity 39,089,009 47,904,340 Not Eligible N/A Total investments measured at the NAV $ 884,197,859 $ 203,104,587 City Of Fresno Employees Retirement System
Investments Measured at the NAV
As of June 30, 2020
Investment Type Fair Value
Unfunded
Commitments
Redemption
Frequency
(If Currently
Eligible)
Redemption
Notice
Period
Commingled Fund - Equities $ 398,844,500 $ — Daily None Commingled Fund - Real Estate 81,442,709 54,491,988 Quarterly 45-90 Days Commingled Fund - Infrastructure 57,192,273 — Not Eligible N/A Private Real Estate Funds 50,218,339 35,883,283 Not Eligible N/A Private Debt/Private Credit 96,641,211 45,100,630 Not Eligible N/A Private Equity 12,779,176 69,130,564 Not Eligible N/A Total investments measured at the NAV $ 697,118,208 $ 204,606,465 On the following page is an explanation of the investment types listed above.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 38 The investment types listed in the tables on the preceding page were measured at the NAV as follows.
(1) Commingled equity funds are highly
liquid and can be redeemed within short-term periods of time. The System’s investments of this type consist of
institutional investment funds - one international
ACWIexUS equity fund that is diversified across
developed and emerging market countries and sectors and two domestic large cap equity index funds (S&P 500
Index and Russell 1000 Index). The fair value of these
investment types has been determined using the NAV per
share of the investments.
(2) Commingled real estate fund: The
System’s two commingled real estate funds are a core
investment strategy designed to deliver a relatively high level of current income combined with moderate
appreciation potential. It is comprised of institutional quality office, retail, residential and industrial investments in major markets throughout the U.S. The redemption
frequency of the real estate fund is quarterly, if liquidity is available, with a notice of redemption 45 days before the end of a quarter.
(3) Commingled fixed income funds: The
System’s commingled fixed income fund is fairly liquid
and can be redeemed within short periods of time. This is an institutional quality fund that invests in high, medium, and low grade instruments such as U.S. treasuries,
investment grade corporates, securitized products, and
derivatives. The fund is designed to provide current
income through tactical positioning. The fair value of these investment types has been determined using the
NAV per share of the investments.
(4) Private real estate funds: The System’s
six private real estate funds are designed to act as a
diversifier and alpha generator to the core real estate portfolio. Investments are made in middle-market assets across various domestic and international regions and
sectors such as industrial, multifamily, office, and retail.
The strategies focus on identifying investments with
pricing dislocations that can be renovated, repurposed, and exited at opportunistic levels. The investment period is generally 3-5 years with a lifespan of 10-12 years.
(5) Private Debt/Private Credit - direct
lending funds: The System’s three direct lending funds
are each invested through a master-feeder structure, on a leveraged basis primarily in senior secured loans of
private U.S. lower-middle-market companies. Strategies
employ a capital preservation focus and structured
investments with strong covenant provisions to reduce
associated risks, underwriting multiple cushions to
provide downside protections. Investment period is
generally 3-5 years with reinvestment of committed
capital.
(6) Commingled infrastructure funds: The
System’s two infrastructure funds invest in core assets that generate long-term stable cash yields, have modest price appreciation, and provide inflation protection.
Types of assets include energy (water, wind, and solar, etc.), transportation (toll roads and bridges, airports, and seaports, etc.), and social (hospitals, prisons, and schools, etc.). Investments are located domestically as well as in the Organization for Economic Co-operation and
Development (OECD) countries internationally. Each
fund has lockup periods of 4 years and, after that initial period, redemptions can be requested on a quarterly basis, if liquidity is available.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 39 (7) Private Equity Funds: The System’s private
equity fund represents investments in privately owned
companies that are not listed on public market exchanges.
They are typically accessed through partnerships and
managed by external general partners.
The System’s one private equity fund is composed of
primaries, secondaries, and co-investments, split between North America and international markets. Most
investments are sourced from the small-to-mid market
investment universe
7 Deposits and Investments
The System’s investment guidelines reflect the duties imposed by an investment standard known as the “prudent expert rule.” The prudent expert rule establishes a standard for all fiduciaries which includes anyone who has discretionary authority with respect to the System’s investments.
Northern Trust serves as custodian of the System’s investments. The System’s asset classes include U.S. Equity, International Equity, Emerging Market Equity, U.S. Fixed Income, and Real Estate. Any class may be held in direct form, pooled form, or both. The System has fifteen external investment managers, managing eighteen individual portfolios.
Investments as of June 30, 2021 and 2020, consist of the following:
Investments at Fair Value as of June 30, 2021 and 2020
(In Thousands)
2021 2020
Investments at Fair Value
Domestic Equity $ 626,488 $ 498,545
International Developed Market Equities 266,659 231,930 International Emerging Market Equities 65,449 47,797
Government Bonds 67,780 60,869
Corporate Bonds 172,791 149,340
Alternatives 276,539 221,915
Real Estate 211,015 135,019
Short-Term Investments 26,233 13,931
Total Investments at Fair Value $ 1,712,954 $ 1,359,346 City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 40 The Board, through its Investment Objectives and Policy Statement, provides guidelines for investments and established the following target allocations with a minimum and maximum range for each of the asset classes:
Asset Class Minimum Target and Maximum Allocations
FY 2021 FY 2020
Asset Class Minimum Target Maximum Minimum Target Maximum Domestic Equities
Large Cap 10.0% 15.8% 26.0% 10.0% 15.8% 26.0%
Small Cap 2.0% 7.2% 12.0% 2.0% 7.2% 12.0%
International Equities
Developed Markets 14.0% 19.0% 24.0% 14.0% 19.0% 24.0%
Emerging Markets 3.0% 6.0% 9.0% 3.0% 7.0% 9.0%
Fixed Income
Core Fixed Income 7.0% 10.0% 15.0% 7.0% 10.0% 15.0%
High Yield Bonds 4.0% 5.0% 12.0% 4.0% 5.0% 12.0%
Real Estate
Core Real Estate 7.0% 11.0% 15.0% 7.0% 11.0% 15.0%
Value Add Real Estate/REITs 2.0% 4.0% 6.0% 2.0% 4.0% 6.0% Alternatives
Infrastructure 2.0% 4.0% 6.0% 2.0% 4.0% 6.0%
MLPs 2.0% 5.0% 8.0% 2.0% 5.0% 8.0%
Private Equity 0.0% 5.0% 10.0% 0.0% 4.0% 10.0%
Private Debt 4.0% 8.0% 12.0% 4.0% 8.0% 12.0%
Short-Term Investments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
100% 100%
Allowable securities must meet the reporting
requirements of the Securities and Exchange Commission
and must meet a “prudent expert” standard for investing.
In no case may the System have five percent (5%) or
more of System net position invested in any one
organization.
The Board’s investment policies and guidelines permit
investment in numerous specified asset classes to take
advantage of the non-correlated economic behavior of
diverse asset classes. The result is a well-diversified portfolio.
Custodial Credit Risk
Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, the System will not be able to recover the value of its investment or collateral securities that are in the
possession of another party. The Retirement System’s
investment securities are not exposed to custodial credit risk since all securities are registered in the System’s name and held by the System’s custodial bank.
Custodial credit risk for deposits is the risk that, in the event of the failure of the depository financial institution, the System will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. Any cash associated with the System’s investment portfolios not invested at the end City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 41 of a day is temporarily swept overnight to the Northern Trust Collective Short-Term Investment Fund.
That portion of the System’s cash held by the City in a Trust account as part of the City’s cash investment pool totaled $685,571 and $1,131,821 at June 30, 2021 and
2020, respectively. Accordingly, the System’s
investments in the pool are held in the name of the City and are not specifically identifiable.
Disclosure of the legal and contractual provisions of the City’s investment policy and carrying amounts by type of investments may be found in the notes to the City’s
separate Annual Comprehensive Financial Report for the
fiscal year ended June 30, 2021.
Credit and Interest Rate Risk
Credit risk associated with the System’s debt securities is identified by their ratings in the table below. Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. The
System has no general policy on credit and interest rate risk. The System limits its investments in below
investment grade bonds and monitors the interest rate risk inherent in its portfolio by measuring the duration of its portfolio.
The average duration of the System’s debt portfolios in years is also listed in the following table:
2021 2020
Type of Investment Fair Value
Credit
Quality Duration Fair Value
Credit
Quality Duration
Asset Backed Securities $ 20,837,501 AA- 2.44 $ 13,449,655 AA+ 2.07 Commercial Mortgage-Backed 11,165,798 A 6.25 8,618,485 A- 6.58 Corporate Bonds 117,729,233 BB 5.77 118,995,915 BB+ 6.71 Corporate Convertible Bonds 4,069,941 CC 5.20 2,178,185 CC 4.43 Fixed Income Derivatives - Futures 13,253,790 — 6.64 3,432,708 — — Fixed Income Derivatives - Options — — — 3,668 — —
Funds - Corporate Bond — — — — — —
Non-Government backed C.M.O.s 2,968,614 CCC+ 2.46 792,738 B- 1.64 Rights & Warrants 121 — — — — —
Convertible Equity 860,123 BB+ 11.78 1,071,458 BB+ 14.92 Common Stock 246,647 — — 41,705 — —
Preferred Stock 1,658,688 BB+ — 755,714 BB+ —
Government Agencies 3,251,066 BBB- 7.27 2,619,141 AAA 7.88 Government Bonds 17,235,381 AAA 8.36 8,908,484 AAA 12.33 Gov't Issued Commercial Mortgage Backed Securities 3,497,294 AAA 5.91 5,852,948 AAA 7.30 Government Mortgage Backed Securities 41,413,294 AAA 4.59 38,741,239 AAA 2.44 Municipal/Provincial Bonds 2,383,244 A 9.56 3,184,572 A+ 10.21 Index Linked Government Bonds — 1,562,469 AAA 1.34
Total Credit Risk Fixed Income $ 240,570,735 $ 210,209,084 City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 42 Per Section 3.5.f.i. of the System’s Investment Policy
Statement, no more than 15 percent of an investment
manager’s fixed income portfolio may be invested in
below investment grade rated securities (BB or B rated
bonds). Therefore, at least 85 percent of the manager’s fixed income portfolio must be invested in investment
grade securities. Intermediate Bond portfolios shall
maintain an average credit quality of A+ or better.
High yield fixed income portfolios, in accordance with
Section 3.5.f.ii. of the System’s Investment Policy
Statement, shall maintain an average credit quality rating equal to or higher than that of the Barclays US Corporate High Yield Index. Based on the Barclays US Corporate
High Yield Index, a high yield manager’s portfolio shall have a constraint of the benchmark weight plus five
percent (5%) in bonds rated Caa1/CCC+ or lower with
non-rated bonds being limited to five percent (5%) of the portfolio with both limits subject to maintaining the
average portfolio credit quality requirement of the
Barclays US Corporate High Yield index. No more than
25 percent of a high yield manager’s portfolio may be
invested in foreign securities; within this limit, a manager may allocate up to 20 percent in emerging market
government securities including both non-U.S. dollar
denominated securities and U.S. dollar denominated
Yankee securities and up to 15 percent of the portfolio may be invested in non-U.S. dollar denominated
securities.
High yield bond portfolios may hold up to the benchmark weight plus five percent (5%) of assets in Rule 144A
bond issues with or without registration rights. No more than 10 percent of the high yield manager’s portfolio may be invested in convertibles or preferreds, and no more
than 20 percent may be invested in securitized bank debt.
No single security and/or issuer can represent more than five percent (5%) of the fair value of a portfolio at the time of purchase, and no single industry can represent
more than 25 percent of the fair value of the account at the time of purchase.
Firms that manage fixed income portfolios will
continually monitor the risk associated with their fixed income investments. They will be expected to report, as a component of their quarterly report, a risk/reward analysis of the management decisions relative to their benchmarks.
Statistics that relate performance variance to effective duration decisions will be included in each quarterly
report.
Concentration Risk
The investment portfolio as of June 30, 2021 and 2020,
contained no concentration of investments in any one
entity (other than those issued or guaranteed by the U.S.
Government) that represented five percent (5%) or more
of the total investment portfolio or fiduciary net position.
Foreign Currency Risk
Foreign Currency Risk is the risk that changes in foreign exchange rates will adversely affect the fair value of an investment or deposit. The System has no general
investment policy with respect to foreign currency risk.
The System’s investment policy guidelines allow
international developed and emerging equity managers to hedge their currency risks in foreign countries through the purchase of derivatives. Used as a defensive measure and in an effort to control the risks associated with
international portfolios, international equity investment managers are permitted to invest in forward currency
contracts, swaps, currency futures, and exchanged-traded index futures that represent broad equity exposure to
countries represented in their respective benchmark index.
The positions shown on the following page represent the System’s exposure to foreign currency risk as of June 30, 2021 and 2020.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 43 Foreign Currency Risk Exposure
As of June 30, 2021
Base Currency Country
Equities /
Fixed Income
Futures &
Forwards
Swaps &
Rights /
Warrants
Cash & Cash
Equivalents Total
AED United Arab Emirates Dirham
United Arab
Emirates $ 26,602 $ — $ — $ 251 $ 26,853
ARS Argentine Peso Argentina 44,244 — — 19,280 63,524 AUD Australian Dollar Australia 5,304,533 — — — 5,304,533 BRL Brazilian Real Brazil 4,434,820 — — 221,541 4,656,361 CAD Canadian Dollar Canada 10,864,456 — — — 10,864,456 CHF Swiss Franc Switzerland 17,938,412 — — — 17,938,412 CLP Chilean Peso Chile 7,329 — — 632 7,961
CNY Chinese Yuan Renminbi China 5,895,624 — — 73,582 5,969,206 CZK Czech Koruna Czech Republic 3,516 — — — 3,516
DKK Danish Krone Denmark 9,376,698 — — — 9,376,698 EGP Egyptian Pound Egypt 12,622 — — — 12,622
EUR Euro Europe 63,491,779 — — 112,943 63,604,722
GBP British Pound Sterling United Kingdom 24,910,510 — — 185,432 25,095,942 HKD Hong Kong Dollar Hong Kong 40,113,877 — — 104,198 40,218,075 HUF Hungarian Forint Hungary 661,364 — — — 661,364 IDR Indonesian Rupiah Indonesia 1,617,614 — — 1,385 1,618,999 ILS New Israeli Shekel Israel 509,385 — — — 509,385 INR Indian Rupee India 14,033,647 — — 924,871 14,958,518 JPY Japanese Yen Japan 38,229,223 — — — 38,229,223 KRW South Korean Won South Korea 22,057,363 — — 49,687 22,107,050 MXN Mexican Peso Mexico 3,598,463 — — 6,486 3,604,949 MYR Malaysian Ringgit Malaysia 323,699 — — 10,791 334,490 NOK Norwegian Krone Norway 666,490 — — — 666,490
PEN Peruvian Nuevo Sol Peru 2,795 — — 893 3,688
PHP Philippine Peso Philippines 15,097 (3,110) — 4,677 16,664 PLN Polish Zloty Poland 843,190 — — 3,203 846,393
QAR Qatari Rial Qatar 6,348 — — 131,970 138,318
SAR Saudi Riyal Saudi Arabia 1,845,780 — — 44,652 1,890,432 SEK Swedish Krona Sweden 6,091,308 — — — 6,091,308 SGD Singapore Dollar Singapore 2,025,872 — — — 2,025,872 THB Thai Baht Thailand 1,207,140 — — 620 1,207,760 TRY Turkish Lira Turkey 73,726 — — — 73,726
TWD New Taiwan Dollar Taiwan 20,932,338 — — 47,938 20,980,276 USD United States Dollar United States 999,629,609 13,256,919 (67,446) 52,927,054 1,065,746,136 ZAR South African Rand South Africa 2,471,259 — — 34,114 2,505,373 Total Equities (In USD) 1,299,266,732 13,253,809 (67,446) 54,906,200 1,367,359,295 Total Non-USD Equities (In USD) $299,637,123 ($3,110) $— $1,979,146 $301,613,159 City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 44 Foreign Currency Risk Exposure
As of June 30, 2020
Base Currency Country
Equities /
Fixed Income
Futures -
Domestic
Fixed
Income
Options &
Swaps
Cash & Cash
Equivalents Total
AED United Arab Emirates Dirham
United Arab
Emirates $ 33,481 $ — $ — $ — $ 33,481
ARS Argentine Peso Argentina 53,530 — — 4,550 58,080 AUD Australian Dollar Australia 5,541,179 — — — 5,541,179 BRL Brazilian Real Brazil 3,102,981 — — 85 3,103,066 CAD Canadian Dollar Canada 9,446,338 — — — 9,446,338 CHF Swiss Franc Switzerland 15,457,680 — — — 15,457,680 CLP Chilean Peso Chile 338,545 — — — 338,545
CNY Chinese Yuan Renminbi China 3,055,193 — — 31,900 3,087,093 CZK Czech Koruna Czech Republic 3,332 — — 103 3,435 DKK Danish Krone Denmark 7,918,811 — — — 7,918,811 EGP Egyptian Pound Egypt 19,338 — — 1,155 20,493
EUR Euro Europe 53,516,792 — — (38,517) 53,478,275 GBP British Pound Sterling United Kingdom 20,622,702 — — — 20,622,702 HKD Hong Kong Dollar Hong Kong 35,948,142 — — 181,867 36,130,009 HUF Hungarian Forint Hungary 163,821 — — 28,657 192,478 IDR Indonesian Rupiah Indonesia 1,040,990 — — — 1,040,990 ILS New Israeli Shekel Israel 378,861 — — — 378,861 INR Indian Rupee India 7,893,446 — — 3,234 7,896,680 JPY Japanese Yen Japan 32,901,548 — — — 32,901,548 KRW South Korean Won South Korea 14,190,769 — — 1,831 14,192,600 MXN Mexican Peso Mexico 1,397,561 — — 14,802 1,412,363 MYR Malaysian Ringgit Malaysia 201,459 — — 573 202,032 NOK Norwegian Krone Norway 499,103 — — — 499,103
PEN Peruvian Nuevo Sol Peru 3,304 — — 971 4,275
PHP Philippine Peso Philippines 374,540 — — 8 374,548 PLN Polish Zloty Poland 184,537 — — — 184,537
QAR Qatari Rial Qatar 161,955 — — — 161,955
SEK Swedish Krona Sweden 6,003,263 — — — 6,003,263 SGD Singapore Dollar Singapore 2,079,411 — — — 2,079,411 THB Thai Baht Thailand 557,061 — — — 557,061
TRY Turkish Lira Turkey 1,064,921 — — — 1,064,921
TWD New Taiwan Dollar Taiwan 13,445,223 — — 423 13,445,646 USD United States Dollar United States 826,462,139 3,432,708 8,338 12,366,555 842,269,740 ZAR South African Rand South Africa 4,764,869 — — — 4,764,869 Total Equities (In USD) 1,068,826,825 3,432,708 8,338 12,598,197 1,084,866,068 Total Non-USD Equities (In USD) $242,364,686 $— $— $231,642 $242,596,328 City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 45 Per Section 3.5.e. of the System’s Investment Objectives and Policy Statement, assets in international equity
portfolios shall consist of liquid, publicly traded equity and equity like securities traded on major stock exchanges as well as cash and cash equivalents as necessary.
Securities will be primarily composed of foreign ordinary shares and depository receipts (American Depository
Receipts (ADR’s) and Global Depository Receipts
(GDR’s) including ADR’s and GDR’s that are 144A
securities). Securities that are 144A securities, including ADR and GDR 144A securities are authorized
investments which in aggregate cannot exceed 10 percent of the portfolio. Primarily large capitalization securities may be held, although investments in small and mid
capitalization securities are also allowed. Firms will continually monitor their country, currency, sector and security selection risks associated with their international portfolios. All of the risks will be included in the
manager’s quarterly reports and performance attribution based on these factors will also be included.
The System’s complete Investment Objectives and Policy
Statement can be found on the System’s website at
www.CFRS-CA.org or by contacting the Retirement
Office at 2828 Fresno Street, Suite 201, Fresno, CA
93721.
Rate of Return
For the fiscal years ended June 30, 2021 and 2020, the
annual money-weighted rate of return on the assets of the System, net of investment expense, was 30.43 percent and
1.26 percent, respectively. The money-weighted rate of return expresses investment performance, net of
investment expense, adjusted for timing of cash flows and the changing amounts actually invested.
8 Derivatives
The Retirement Board has authorized certain investment
managers to invest in or otherwise enter into transactions involving derivative financial instruments when, in the judgment of management, such transactions are consistent with the investment objectives established for a specific investment manager’s assignment. The acceptable
investment purposes for the use of derivatives are as
follows:
a. Mitigation of risk (or risk reduction).
b. A useful substitute for an existing, traditional
investment. In certain circumstances it may be
cheaper, quicker or easier to invest in a
derivative instrument or security rather than
transacting in cash or in the traditional security
market.
c. To provide investment value to the portfolio
while being consistent with the System’s overall
and specific investment policies.
d. To obtain investment exposure which is
appropriate for the manager’s investment
strategy and the System’s investment guidelines,
but could not be made through traditional
investment securities.
The Retirement Board monitors and reviews each
investment manager’s securities and derivative position as well as the manager’s performance relative to established benchmark rates of return and risk measures. In
management’s opinion, derivative activities must be
evaluated within the context of the overall portfolio
performance and cannot be evaluated in isolation.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 46 Allowable derivative financial instruments held by the
System include stable and well-structured collateralized mortgage obligations (CMOs); centrally cleared
instruments including, but not limited to, futures, swaps and options; and forwards including currency forwards.
Derivative investments with allocation limits include
mortgage derivatives (interest only and principal only
CMOs); non centrally cleared derivatives; caps and floors; and inverse floating rate notes and bonds. Allocation
limits will be determined and specified in portfolio
guidelines with individual investment managers based on the objectives and risk tolerances of a given strategy.
Cash securities containing derivative features include
callable bonds, structural notes, and collateralized
mortgage obligations (CMOs). These instruments are
generally traded in over-the-counter bond markets.
Financial instruments whose value is dependent upon a
contractual price or rate relative to one or more reference prices or rates, applied to a notional amount, including interest rate futures, options, swaps and caps, and foreign currency futures and forward contracts. Some of these
instruments are exchange-traded and others are traded
over-the-counter (OTC).
Market Risk
Market risk is the risk of change in fair value of an
instrument in response to changes in a market price or
index. While all investments are subject to market risk, derivatives often have a higher degree of market risk than other types of investment instruments. Values of cash
securities containing derivative features are often more susceptible to market risk than other types of fixed
income securities because the amounts and/or timing of
their scheduled cash flows may fluctuate under changing market conditions, according to their contractual terms.
For other types of derivatives, amounts of contractual
cash flows may be either positive or negative depending upon prevailing market conditions relative to the
reference prices or rates, and thus the values of such
instruments may be positive or negative, despite the fact that little or no cash is initially exchanged to enter into such contracts.
Credit Risk
Credit risk of cash securities containing derivative
features is based upon the credit worthiness of the issuers of such securities. The Retirement Board establishes
minimum credit requirements for such securities. The
other derivative instruments described above are subject to credit risk to the extent their value is a positive market fair value, and the counterparty to such contract fails to perform under the terms of the instrument.
Exchange traded derivatives are generally considered to be of lower credit risk than OTC derivatives due to the exchange margin requirements. Equity Index Swaps are
derivatives and represent an agreement between two
parties to swap two sets of equity values. Equity Futures are contracts used to replicate an underlying stock or
stock market index. These futures can be used for
hedging against an existing equity position, or for
speculating on future movement of the index.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 47 As of June 30, 2021 and 2020, the System held a total fair value of $14,668,279 and $4,628,050, respectively, in
derivative holdings. These holdings consisted of Rights/ Warrants, and Foreign Currency Forwards and Futures
designed to synthetically create equity returns and are held as components of the System’s international equity investments, and a variety of ACWIexUS index related
futures as components of the System’s investments in
ACWIexUS Index Funds. Holdings also consist of
futures – interest rate contracts, options and swaps held as components of the System’s absolute return fixed income strategy. These derivatives are used for the purpose of synthetically creating equity returns, synthetically
creating floating rates and to buy or sell credit protection on the assets.
There is no net counterparty exposure for which there is a positive replacement cost to the fund. The details of these derivative holdings are as follows:
Derivative Type: FY 2021 FY 2020 FY 2021 - FY 2020
Notional Change in Fair
Amount Fair Value Fair Value Value
Foreign Currency Forward $(3,110) $3,129 $— $ 3,129
Future Contracts - Domestic Fixed Income (13,253,790) 13,253,790 3,432,708 9,821,082 Future Contracts - International Equity Index — 1,477,382 1,177,640 299,742 Options/Swaption — — 3,668 (3,668)
Rights & Warrants — 1,545 9,364 (7,819)
Swaps — (67,567) 4,670 (72,237)
Total $14,668,279 $4,628,050
Derivative Type: FY 2020 FY 2019 FY 2020 - FY 2019
Notional Change in Fair
Amount Fair Value Fair Value Value
Foreign Currency Forward $— $— $1,759,881 $ (1,759,881) Future Contracts - Domestic Equity Index (3,432,708) 3,432,708 — 3,432,708 Future Contracts - International Equity Index — 1,177,640 1,397,419 (219,779) Options/Swaption — 3,668 — 3,668
Rights & Warrants — 9,364 48,120 (38,756)
Swaps — 4,670 — 4,670
Total $4,628,050 $3,205,420
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 48 9 Securities Lending
The City of Fresno Municipal Code and the Board’s
policies permit the Retirement Board of the City of Fresno Fire and Police Retirement System and the City of Fresno Employees Retirement System (the Systems) to use
investments of both Systems to enter into securities
lending transactions, i.e., loans of securities to broker- dealers and other entities for collateral with a
simultaneous agreement to return the collateral for the same securities in the future. The Systems have
contracted with Northern Trust, their custodian, to
manage the securities lending program for the Systems
and all securities held in a separately managed account are available for lending. As the securities lending agent, Northern Trust calculates collateral margins and accepts collateral in the form of cash or marketable securities and irrevocable bank letters of credit for all securities lending transactions. Transactions are collateralized at 102
percent of fair value (contract value) for domestic
securities and 105 percent of fair value (contract value) for international securities. Collateral is marked to market daily. When a loan is secured by cash, a rebate is
negotiated and the cash collateral is invested according to the guidelines in the collateral pool.
As designated by the Board, cash collateral is invested in Northern Trust’s Core U.S.A. Collateral Section (short- term investment pool), which, as of June 30, 2021 and
2020, had a weighted average duration of 70 days and 65 days, respectively, an average maturity of 30 days and 31 days, respectively, and an average monthly yield of 0.22 percent and 0.49 percent, respectively. The relationship between the maturities of the investment pool and the
System’s loans is affected by the maturities of the security loans made by other entities that use the Northern Trust Core U.S.A. Collateral Section and a definitive statement of that relationship cannot be formulated by the System.
As of June 30, 2021 and 2020, the Northern Trust CORE
U.S.A. Cash Collateral Fund had zero exposure in below
investment grade long-term securities and there were no known credit risks related to the securities lending
transactions.
As of June 30, 2021, the fair value of the securities on loan was $103.3 million. The fair value of associated
collateral was $106.3 million ($79.7 million of cash
collateral and $26.6 of non-cash collateral). Non-cash
collateral, the collateral which the System does not have the ability to sell unless the borrower defaults, is not reported in the Statement of Fiduciary Net Position. As of June 30, 2020, the fair value of the securities on loan was $63.4 million. The fair value of associated collateral was $64.5 million ($54.6 million of cash collateral and $9.9 of non-cash collateral). Non-cash collateral, the collateral which the System does not have the ability to sell unless the borrower defaults, is not reported in the Statement of Fiduciary Net Position.
Northern Trust will ensure that, in any agreement with a borrower, it retains its absolute right to terminate the agreement without cause, upon short notice and without
any penalty. The System cannot pledge or sell collateral securities received unless the borrower defaults. In the event of a borrower default, Northern Trust indemnifies the System against losses and will replace or reimburse the System for any borrowed securities not replaced. In general, the average term of all System loans is overnight or “on demand." All securities loans can be terminated on demand by either the lender or the borrower, although the average term of the System’s loans were approximately
70 days and 65 days, respectively, as of June 30, 2021 and 2020.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 49 The System’s securities lending income is as follows:
Securities Lending Income
For Fiscal Years Ended June 30, 2021 and 2020
2021 2020
Gross Income $244,930 $1,246,793
Expenses:
Bank Fees 48,947 928,767
Total Expenses 48,947 928,767
Net Income from Securities Lending $195,983 $318,026
Fair Value of Loaned Securities
As of June 30, 2021 and 2020
FY 2021 FY 2020
Collateralized by Cash Securities Total Cash Securities Total U.S. Government & Agency $ 10,470,637 $ 836,295 $ 11,306,932 $ 5,894,230 $ 1,741,271 $ 7,635,501 Domestic Equities 41,091,825 21,823,027 62,914,852 36,126,535 7,255,007 43,381,542 Domestic Fixed 22,757,243 658,316 23,415,559 9,958,371 — 9,958,371 International Equities 3,269,227 2,358,514 5,627,741 378,635 — 378,635 International Fixed 32,622 — 32,622 1,213,157 827,624 2,040,781 Total Value $ 77,621,554 $ 25,676,152 $ 103,297,706 $ 53,570,928 $ 9,823,902 $ 63,394,830 Fair Value of Collateral Received for Loaned Securities As of June 30, 2021 and 2020
FY 2021 FY 2020
Collateralized by Cash Securities Total Cash Securities Total U.S. Government & Agency $ 10,675,832 $ 855,130 $ 11,530,962 $ 6,035,558 $ 1,779,889 $ 7,815,447 Domestic Equities 42,130,816 22,463,410 64,594,226 36,704,141 7,319,345 44,023,486 Domestic Fixed 23,342,469 674,179 24,016,648 10,133,726 — 10,133,726 International Equities 3,526,901 2,588,276 6,115,177 400,572 — 400,572 International Fixed 35,368 — 35,368 1,280,349 876,228 2,156,577 Total Value $ 79,711,386 $ 26,580,995 $ 106,292,381 $ 54,554,346 $ 9,975,462 $ 64,529,808 City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 50 10 Administrative Expenses
Section 3-325 of the City of Fresno Municipal Code
provides that all administrative costs of the System shall be a charge against the assets of the System. Per the City of Fresno Municipal Code, the Administrative expenses
are a component of the City’s contribution calculation. 11 Post Retirement Supplemental
Benefit (PRSB)
The System is not obligated to provide for or fund any
other post-employment benefits as retirees do not receive paid healthcare benefits from the System. The Post
Retirement Supplemental Benefit (PRSB) Program was
created as a contingent program to provide supplemental distributions to eligible retirees which they could use to pay for various post retirement expenses. The Retirement Board will annually review the actuarial valuation report and declare an actuarial surplus, if available, in
accordance with the procedures in the City of Fresno
Municipal Code Section 3-567.
If an actuarial surplus is declared by the Board, the
surplus is allocated into two components. One component composed of two-thirds of the declared surplus shall be used to reduce or eliminate the City’s pension
contributions. Any unused portion shall be reserved in the City Surplus Reserve and drawn upon in subsequent years if needed. The remaining one-third component shall be
distributed among eligible post retirement supplemental benefit recipients in accordance with procedures in the City of Fresno Municipal Code Section 3-567(f)(4). Any
unused portion shall be reserved in the PRSB Reserve and drawn upon in subsequent years if needed.
For the fiscal years ended June 30, 2021 and 2020, there was a surplus (or prefunded actuarial accrued liability) as the System had a valuation value of assets which was in excess of the actuarial accrued liability. The System’s funded ratio was 116.0 percent and 109.9 percent, for
fiscal years 2021 and 2020, respectively. For fiscal year 2021, the 116.0 percent funded ratio was more the 110
percent requirement for declaration of a surplus therefore, there was an actuarial surplus available to reduce a
portion of the City’s and members' COLA contributions
for Fiscal Years 2022 but not enough surplus to fund new PRSB benefits. For fiscal year 2020, the 109.9 percent funded ratio was below the required 110 percent for
declaration of a surplus.
As of June 30, 2021 and 2020, the City Surplus Reserve
balances were $71,604 and $(82,754), respectively. The
City’s normal rate in fiscal year 2021 included an
adjustment of 0.59% which represented an actuarial
surplus allocated in the June 30, 2019 actuarial report. In fiscal year 2020, the City's normal rate included an
adjustment of 1.08% which represented an actuarial
surplus allocated in the June 30, 2018 actuarial report. 12 Capital Assets
Capital assets are carried at historical cost, net of
accumulated depreciation. Capital assets are any items of equipment or furnishings purchased with a value of or an initial cost of $500 or greater and $5,000 for land,
buildings and infrastructure and an estimated useful life in excess of two years.
Accumulated depreciation shall be summarized and
reflected on the System’s annual financial statements.
Capital assets shall be depreciated over their estimated useful lives using the straight-line depreciation method.
Intangible assets with limited useful lives (e.g., by legal or contractual provisions) should be depreciated over their estimated useful lives. Depreciation of computer software begins when the program is placed into service.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 51 The System’s major two-year project to program and
install an upgrade to our original pension administration system that was installed in 1997 (the LRS Pension Gold Retirement Solutions’ Version 3 project) includes
software costs of $531,837 and $664,797 which were
capitalized as of June 30, 2021 and 2020, respectively, and are amortized over a ten-year useful life period
commencing July 1, 2015.
As of June 30, 2021, other capital assets consisting of office furniture and equipment for the System’s
Retirement Offices located at 2828 Fresno Street, Fresno, California, in the amount of $22,067 are capitalized and depreciated over remaining estimated useful lives of 2-15 years.
As of June 30, 2020, capital assets consisting of office furniture and equipment for the System’s Retirement
Offices in the amount of $24,762 were capitalized and
depreciated over remaining estimated useful lives of 2-15 years.
13 Leases
Under the lease agreement with CFRS Realty Holding
Corporation (the Corporation), the holding corporation
formed jointly by the Retirement Boards to take
ownership of the building, effective September 19, 2005, the City of Fresno Employees and City of Fresno Fire and Police Retirement Boards and their staff occupy
approximately 7,900 square feet of the second floor of the renovated building at 2828 Fresno Street, Fresno,
California. The term of the lease is ten years with an option for two additional five year extensions. The first five (5) year extension was exercised effective September 1, 2015. On March 1, 2020, the Corporation amended the lease with the Retirement Boards. The amended lease
agreement establishes the Retirement Boards as the sole tenant of the second floor, a total of 11,784 rentable
square feet, consisting of 10,426 net square feet in the premises and 1,358 square feet in common area. The
amendment also exercises the second five (5) year lease extension. As of June 30, 2021, the Systems share equally a base rent of $19,223 per month, which is $1.63 per
square foot per month, triple net. For the fiscal year ended June 30, 2020, the Systems equally shared a base rent of $18,846 per month, which is $1.60 per square foot per month, triple net.
14 Related Party Transactions
The Retirement System is involved in various business
transactions with the City of Fresno, the primary plan
sponsor. These include reimbursement to the City for the salary and benefits of the System’s Retirement Staff
members paid through the City, reimbursement to the City Personnel Department for personnel consulting services, and reimbursement to the City Information Services
Department for computer and telephone support.
The Retirement Systems lease office space from the
CFRS Realty Holding Corporation, a title holding
company controlled jointly by the City of Fresno
Employees and City of Fresno Fire and Police Retirement Systems. See Note 13 for a description of this
arrangement.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 52 15 Commitments and Contingencies
The Board, in accordance with its Asset Allocation Plan, has committed capital for investment in Private Debt/
Private Credit, Private Real Estate and Infrastructure
Funds. The following table details the outstanding capital commitments in these investments as of June 30, 2021
and 2020.
Unfunded
Commitments
Investment Type FY 2021 FY 2020
Commingled Fund - Real Estate
The Carlyle Group $ — $ 54,491,988
Total $ — $ 54,491,988
Private Real Estate Funds
Artemis $ 5,861,317 $ 7,046,846
Blue Vista 5,389,467 5,812,479
Brookfield 9,438,167 13,919,978
Oaktree Capital Mgt. 1,976,893 2,254,606
PIMCO BRAVO III 2,714,331 1,160,999
PCCP, LLC 3,885,301 5,688,375
Total $ 29,265,476 $ 35,883,283
Private Debt/Private Credit
Arcmont $ 60,370,033 $ —
Monroe Capital 7,469,366 11,413,737
Crescent Capital 12,344,758 6,304,669
PIMCO COF 45,750,614 27,382,224
Total $ 125,934,771 $ 45,100,630
Private Equity
Pantheon $ 47,904,340 $ 69,130,564
Total $ 47,904,340 $ 69,130,564
Total Unfunded
Commitments $ 203,104,587 $ 204,606,465
16 Date of Management Review
The date to which events occurring after June 30, 2021, have been evaluated for possible adjustments to the
financial statements or disclosures is December 1, 2021, which is the date the financial statements were available to be issued.
Management identified the following subsequent financial events that require disclosure:
The Boards authorized a private real estate manager
search through its investment consultant, NEPC, during
Fiscal Year 2021. In September 2021, following a due
diligence process that included full legal review of
pertinent legal documents, investment due diligence,
operational due diligence and background investigations of key personnel at each firm, the Board selected Alidade Capital and Kayne Anderson Capital.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Basic Financial Statements Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 53 Schedule of Changes in the Net Pension Liability
(Dollars in Thousands)
For Fiscal Years Ended June 30, 2013-2021
Change in Net Pension Liability 2021 2020 2019 2018
Total Pension Liability
Service cost $30,993 $28,762 $23,509 $21,275
Interest 93,358 89,222 86,110 82,833
Change of benefit terms — — — —
Differences between expected and actual experience (12,980) 5,748 (446) (4,164) Changes of assumptions — — 35,773 2,939
Benefit Payments (including refunds, excluding PRSB) (69,246) (64,520) (62,144) (57,666) Net Change in Total Pension Liability $42,125 $59,212 $82,802 $45,217 Total Pension Liability - Beginning $1,337,308 $1,278,096 $1,195,294 $1,150,077 Total Pension Liability - Ending (a)* $1,379,433 $1,337,308 $1,278,096 $1,195,294 Plan Fiduciary Net Position
Employee Contributions $13,750 $11,028 $10,515 $10,330
Employer Contributions 20,144 16,554 14,627 14,609
Net Investment Income 407,811 20,109 69,389 108,916
Actual Benefit Payments (including Refunds, PRSB) (69,246) (64,520) (62,144) (57,666) Administrative & Professional Expense (2,059) (1,749) (1,663) (1,619) Net Change in Plan Fiduciary Net Position $370,400 $(18,578) $30,724 $74,570 Plan Fiduciary Net Position - Beginning $1,360,837 $1,379,415 $1,348,691 $1,274,121 Plan Fiduciary Net Position - Ending (b) $1,731,237 $1,360,837 $1,379,415 $1,348,691 System Net Pension Liability (Surplus) - (a)-(b) $(351,804) $(23,529) $(101,319) $(153,397) Plan fiduciary net position as a percentage of
total pension liability 125.50% 101.76% 107.93% 112.83% Covered Payroll $154,031 $149,403 $138,396 $128,461
Net Pension Liability (Surplus) as a percentage of covered payroll (228.40) (15.75)% (73.21)% (119.41)% * In accordance with provisions of GASB 67, the data on the next two pages show Total Pension Liability for the reporting periods from June 30, 2013 through June 30, 2021. Ten years of data in this format is not yet available, the System will provide 10 years in the format required by GASB 67 as information becomes available.
Note to Schedule:
Changes of Assumptions: The calculations above reflect various assumption changes, including the modification of the Board's assumed rate of return to 7.00 percent for use in preparing the June 30, 2019 annual actuarial valuation and other assumption changes based on the triennial experience study for the period from July 1, 2015 through June 30, 2018. The calculations above also reflect the assumed rate of return of 7.25 percent for use in preparing the June 30, 2016, 2017 and 2018 annual actuarial valuation and other assumption changes based on the triennial experience study for the period from July 1, 2012 through June 30, 2015 and 7.50 percent for use in preparing the June 30, 2013, 2014 and 2015 annual actuarial valuation and other assumption changes based on the triennial experience study for the period from July 1, 2009 through June 30, 2012 which included changes in assumptions for retirement from active employment, pre-retirement mortality, healthy life post- retirement mortality, disabled life post-retirement mortality, vested termination, disability DROP election, percentage of members married, spouse age difference and salary increases.
City of Fresno Employees Retirement System l FINANCIAL
Required Supplementary Information
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 54 Schedule of Changes in the Net Pension Liability Continued (Dollars in Thousands)
For Fiscal Years Ended June 30, 2013-2021
GASB 67 Basis*
Financial Reporting
Change in Net Pension Liability 2017 2016 2015 2014 2013 Total Pension Liability
Service cost $18,885 $18,687 $18,476 $19,342 $18,903
Interest 79,266 79,762 78,212 77,009 76,279
Change of benefit terms — — — — —
Differences between expected and actual experience 5,263 (24,394) (24,691) (29,889) (11,346) Changes of assumptions — 9,612 — — 36,845
Benefit Payments (including refunds, excluding PRSB) (55,550) (52,528) (50,546) (48,580) (47,040) Net Change in Total Pension Liability $47,864 $31,139 $21,451 $17,882 $73,641 Total Pension Liability - Beginning $1,102,213 $1,071,074 $1,049,623 $1,031,741 $958,100 Total Pension Liability - Ending (a)* $1,150,077 $1,102,213 $1,071,074 $1,049,623 $1,031,741 Plan Fiduciary Net Position
Employee Contributions $10,181 $9,098 $8,750 $7,946 $7,995 Employer Contributions 15,205 13,060 12,327 11,440 13,330 Net Investment Income 162,373 5,089 33,309 172,773 121,116 Actual Benefit Payments (including Refunds, PRSB) (55,550) (52,529) (50,546) (48,581) (47,040) Administrative & Professional Expense (1,387) (1,346) (1,071) (1,086) (1,138) Net Change in Plan Fiduciary Net Position $130,822 $(26,628) $2,769 $142,492 $94,263 Plan Fiduciary Net Position - Beginning $1,143,299 $1,169,927 $1,167,158 $1,024,666 $930,403 Plan Fiduciary Net Position - Ending (b) $1,274,121 $1,143,299 $1,169,927 $1,167,158 $1,024,666 System Net Pension Liability (Surplus) - (a)-(b) $(124,044) $(41,086) $(98,853) $(117,535) $7,075 Plan fiduciary net position as a percentage of
total pension liability 110.79% 103.73% 109.23% 111.20% 99.31% Covered Payroll $119,007 $108,541 $105,820 $103,597 $105,509 Net Pension Liability (Surplus) as a percentage of covered payroll (104.23)% (37.85)% (93.42)% (113.45)% 6.71% City of Fresno Employees Retirement System l FINANCIAL
Required Supplementary Information Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 55 Schedule of Employer Contributions
Last Ten Fiscal Years
(Dollars in Thousands)
Fiscal Year
Ended June 30
Actuarially
Determined
Contribution (ADC)
Contributions in
Relation to the
ADC
Contribution
Deficiency
(Excess) Covered Payroll
Contributions as a
Percentage
of Covered Payroll
2021 $20,144 $20,144 $— $154,031 13.08%
2020 16,554 16,554 — 149,403 11.08%
2019 14,627 14,627 — 138,396 10.57%
2018 14,609 14,609 — 128,461 11.37%
2017 15,205 15,205 — 119,007 12.78%
2016 13,060 13,060 — 108,541 12.03%
2015 12,327 12,327 — 105,820 11.65%
2014 11,440 11,440 — 103,597 11.04%
2013 13,330 13,330 — 105,509 12.63%
2012 11,374 11,374 — 110,492 10.29%
Schedule of Investment Returns
Last Ten Fiscal Years
Fiscal Year Annual Money-Weighted Rate of Return Annual Money-Weighted Rate of Return Ending June 30 Gross of Investment Expenses Net of Investment Expense 2021 30.85% 30.43%
2020 1.61% 1.26%
2019 5.54% 5.20%
2018 8.93% 8.57%
2017 14.73% 14.35%
2016 0.82% 0.53%
2015 3.32% 2.93%
2014 17.61% 17.16%
2013 13.65% 13.20%
2012 (0.20%) (0.57%)
The Schedule of Investment Returns above shows the annual money-weighted rate of return on the assets of the System, both gross and net of investment expense for ten fiscal years (2012 – 2021). The money-weighted rate of return expresses investment performance adjusted for timing of cash flows and the changing amounts actually invested. These returns differ slightly from the time-weighted rate of returns calculated and reported by the System’s custodian, Northern Trust (shown in the Transmittal Letter on page i and within the Investment Section beginning on page 61) and as independently reported by the System’s investment consulting firm, NEPC, LLC (shown in the Investment Section on pages 67-67). The System’s custodian and investment consulting firm must use time-weighted returns as opposed to money-weighted returns in order to meet Global Investment Performance Standards for the purposes of effectively evaluating and reporting the performance of the System's investment managers.
The time-weighted return method is a measure of the compound rate of return of a portfolio over a stated period of time. It requires a set of sub-period returns to be calculated whenever there is an external cash flow, such as a deposit or withdrawal from the portfolio. In essence, it calculates the geometric total and mean return as opposed to the arithmetic total and mean return. This method does not include or have any distortions created when money is deposited or withdrawn from a portfolio. This is in contrast to the money-weighted returns.
City of Fresno Employees Retirement System l FINANCIAL
Required Supplementary Information Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 56
For Fiscal Years Ended June 30, 2021 and 2020
Actuarial Assumptions
The Segal Company, the System’s actuary, performed the most recent annual actuarial valuation as of June 30, 2021, which computes the contribution requirements (employee and employer contributions rates for fiscal year 2023), and determines the funding status of the plan. The fiscal year 2021 contribution rates and assumptions were based on the actuarial valuation as of June 30, 2019; these assumptions are detailed below.
Valuation Date: Actuarially determined contribution rates are calculated as of June 30, two years prior to the end of the fiscal year in which contributions are reported.
Actuarial Cost Method: Entry Age Actuarial Cost Method
Amortization Method: Level percent of payroll for total Unfunded or Prefunded Actuarial Accrued Liability (UAAL or PAAL)
Remaining Amortization Period: Effective with the June 30, 2013 valuation, any new UAAL established on each subsequent valuation as a result of actuarial gains or losses or plan amendments are amortized over separate 15-year declining periods (with the exception of temporary retirement incentives which are amortized over its own declining period of up to 5 years). Any new UAAL established as a result of changes in actuarial assumptions or methods at each valuation is amortized over separate 25-year declining periods. Any actuarial surplus (when the funded ratio is over 110%) will be amortized over a non-declining 30-year period.
Asset Valuation Method: Fair value of assets less unrecognized returns from each of the last five years. Unrecognized returns are equal to the difference between the actual market return and the expected return on a fair value basis and are recognized over a five-year period. The Actuarial Value of Assets is reduced by the value of the non-valuation reserves.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Required Supplementary Information
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 57 Actuarial Assumptions Continued:
Investment Rate of Return: 7.00%
Inflation Rate: 2.75%
Real Across-the-Board Salary Increase: 0.50%
Projected Salary Increases: Ranges from 3.75 percent to 11.50 percent based on years of service.
Includes inflation at 2.75% plus real across-the-board salary increase of
0.50% plus merit and promotion increases.
Cost-of-Living Adjustments: 3.00 percent of retirement income Other Assumptions: See June 30, 2019 funding valuation report and Section 4 for the service retirement rates after they have been adjusted to treat DROP participation as service retirement.
Post-Retirement Mortality Rates: For healthy members and beneficiaries, Pub-2010 General Healthy Retiree Amount-Weighted Mortality Table (separate tables for males and females) times 105%, projected generationally with the two-dimensional mortality improvement scale MP-2018; For disabled members, Pub-2010 Non- Safety Disabled Retiree Amount-Weighted Mortality Table (separate tables for males and females), projected generationally with the two- dimensional mortality improvement scale MP-2018.
City of Fresno Employees Retirement System l FINANCIAL
Notes to the Required Supplementary Information Continued Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 58 Schedule of Administrative Expenses
For Fiscal Years Ended June 30, 2021 and 2020
2021 2020
Personnel Services
Staff Salaries $ 703,244 $ 657,358
Fringe Benefits 200,376 172,586
Total Personnel Services $ 903,620 $ 829,944
Professional Services
Actuarial $ 124,419 $ 58,180
Legal Counsel 206,197 105,730
Information Systems Services 207,496 183,882
Specialized Services 104,771 115,702
Total Professional Services $ 642,883 $ 463,494
Communication
Telephone $ 12,528 $ 5,451
Postage 5,928 1,736
Total Communication $ 18,456 $ 7,187
Rentals
Office Rent $ 114,961 $ 93,049
Common Area Maintenance (CAM) Charges 73,623 48,837
Total Rentals $ 188,584 $ 141,886
Other
Education and Conference $ 3,048 $ 42,751
Membership & Dues 6,018 6,565
Subscriptions & Publications 547 2,046
Office Supplies 5,311 3,393
Computer Equipment 7,992 316
Equipment Lease 19,985 11,737
Insurance 37,765 37,753
Miscellaneous 23,223 8,429
Reimbursement to City for Inter-Dept Services 64,591 54,130 Depreciation 136,340 139,297
Total Other $ 304,820 $ 306,417
Total Administrative Expenses $ 2,058,363 $ 1,748,928
City of Fresno Employees Retirement System l FINANCIAL
Other Supplementary Information
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 59 Schedule of Investment Management Expenses
For Fiscal Years Ended June 30, 2021 and 2020
2021 2020
Investment Manager Fees
Equity
Domestic $ 1,016,969 $ 811,142
International 1,777,948 1,474,065
Fixed Income 620,503 689,461
Alternatives 4,894,685 4,161,213
Real Estate 3,269,848 3,300,136
Total Investment Manager Fees 11,579,953 10,436,017
Other Investment Expenses
Foreign Income Taxes & Related Services, Charges 1,558,392 1,341,779 Custodial Services 283,699 161,605
Investment Consultant 137,949 144,399
Investment Legal Counsel 27,240 31,698
Analytical Database Service 72,229 23,187
Total Other Investment Expenses 2,079,509 1,702,668
Total Fees & Other Investment Expenses 13,659,462 12,138,685 Securities Lending Expenses
Agent Fees 48,947 928,767
Total Securities Lending Expenses 48,947 928,767
Total Investment Expenses $ 13,708,409 $ 13,067,452
Schedule of Payments To Consultants
For Fiscal Years Ended June 30, 2021 and 2020
2021 2020
Actuarial Services $ 124,419 $ 58,180
Audit Services 20,084 22,081
City Information Services 207,496 183,882
Legal Services 206,197 105,730
Medical Consultant 27,325 83,762
Miscellaneous 57,362 9,859
Total Payments to Consultants $ 642,883 $ 463,494
City of Fresno Employees Retirement System l FINANCIAL
Other Supplementary Information Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 60 We promise to carry
out our Mission
through a competent,
professional, impartial
and open decision-
making process. In
providing benefits and
services, all persons
will be treated fairly,
with courtesy and
respect.
INVESTMENT
62 Investment Report from the Retirement Administrator
67 Investment Consultant’s Report
69 Investment Results (Gross and Net of Fees)
71 Target Asset Allocation and Actual Asset Allocation
73 Largest Stock and Bond Holdings
74 Brokerage Commission Recapture
74 Schedule of Commissions
75 Investment Summary
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 61 Investment Report from the
Retirement Administrator
For the Years June 30, 2021 and 2020
Analysis of Our Portfolio in Fiscal Year 2021
The Retirement Board’s (the Board) responsibility, as a long-term investor, is to manage in and through the global financial market environments as they unfold. Our Board understands the City of Fresno Employees Retirement
System’s (the System) portfolio requires a sound and
stable strategy for meeting investment goals over the
long-term with appropriate risk levels and controls.
Fiscal year 2021 encountered many unprecedented events
such as: the “risk-on” rally continued for an uninterrupted thirteenth year, inflation and rising interest rates entered investors’ minds due to the injection of trillions of dollars of new capital of which households, businesses, real
estate, and the capital markets were the primary
beneficiaries, and vaccines became widely dispersed
globally to defeat the COVID-19 pandemic.
Unemployment is still above pre-pandemic levels but is
slowly decreasing as global central banks continued their coordinated efforts to stabilize local economies.
From an economic perspective, stock markets reached
new highs, personal savings increased dramatically, and real estate boomed in many areas due to employees living and working remotely. Also, a global rotation trade
pushed value stocks higher for the first time in years
while growth stocks retreated after years of strong
performance. From a profit and loss perspective, the total fund gained over $800 million in fair value with the bulk generated from public equity (over 60%). The Joint
Boards approved a new strategic asset allocation that went into effect July 1, 2021 which continues to diversify the portfolio over the long-term.
The System generated a net return of 30.4% and
outperformed its policy benchmark by 3.2% in Fiscal
Year 2021, as reported by its custodian Northern Trust.
The System outperformed its assumed rate of return by
23.4%. Across longer investment horizons, the System
has outperformed its assumed rate of return and policy
benchmark.
Public equities remained over-allocated by nearly 11%
while drawdowns in Private Real Estate, Private Debt,
and Private Equity continued to be funded. All strategies earned positive absolute performance ranging low single digits (core fixed income) to over 50% (midstream
energy). Certain individual managers achieved
significantly higher returns. The System's allocation to a European private credit mandate began investing while
searches in US private credit and private real estate were initiated at the end of the fiscal year.
City of Fresno Employees Retirement System l INVESTMENT Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 62 Investment Performance
The System earned a return of 30.8%, its highest ever,
while the table below highlights the gross and net of fees performance of each major asset class provided by the
System's custodian, Northern Trust, for Fiscal Year 2021.
These returns may differ slightly from the performance
reported by the System's investment consultant due to
rounding methodology:
Asset Class Gross Return Net Return
Total Fund 30.81% 30.40%
Domestic Equity 46.89% 46.60%
International Equity 38.24% 37.68%
Fixed Income 7.57% 7.27%
Real Estate 9.83% 9.36%
Alternatives 27.94% 27.45%
Fiscal Year End Fund
Value $1,731,237,413
The System’s 15 and 25-year long-term gross returns of
7.76 percent and 8.37 percent, respectively, illustrate the System’s ability to achieve our long-term objectives over extended periods. Meanwhile, the System remains highly funded and well positioned to serve our members and
retirees.
The principal goals of the System’s Board in managing
the System’s Investment Portfolio are the following:
1) To fund the System’s benefit payments;
2) To assume a prudent risk posture to minimize the
cost of meeting the obligations of the System;
3) To comply with legal statutes and regulations; and
4) To maintain a fully funded pension status.
Presented in the graph below are the System’s Total Fund returns versus NEPC, LLC’s InvestorForce (IF) Public
Funds Universe (Gross of Fee), for plans with $1 billion or more in assets:
Period Ending
Percentage %
City of Fresno Retirement Systems
Fiscal Year Total Fund and Median Fund Annual Returns
Fresno Total Fund (Gross of Fees) Weighted Benchmark Indexes IF Median Public Pension Fund
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
-5%
0%
5%
10%
15%
20%
25%
30%
City of Fresno Employees Retirement System l INVESTMENT Investment Report from the Retirement Administrator Continued Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 63 Summary of Portfolio Results
The fiscal year ended June 30, 2021, marked yet another extraordinarily volatile year which ended with a decline from its peak fiscal year performance for the System. The System experienced a total investment gain of 30.81
percent for the fiscal year ended June 30, 2021,
outperforming the System’s actuarial interest rate
assumption of 7.00 percent by 23.81 percent and
outperforming the System’s policy benchmark (a
weighted average of the fund’s target allocation to the various asset classes and their respective benchmarks)
return of 27.22 percent by 3.59 percent. The System’s
ten-year annualized returns averaged 9.33 percent,
outperforming its policy benchmarks return of 8.62
percent for the period by 0.71 percent. Over the longer term, our investment results remain sound with
annualized returns of 7.70 percent and 8.37 percent,
respectively, over the past twenty and twenty-five years.
After paying all benefits and expenses of the System, the year-end value of the System reached $1.731 billion.
General Information
The System’s investment assets are managed by external
investment management firms. Professional investment
consultants, along with staff, closely monitor the activity of these managers and assist the Board with the
implementation of investment policies and long-term
strategies. The System’s goal is to fund benefit payments, while assuming a risk posture that is consistent with the Board’s risk tolerance, protecting against loss of
purchasing power by achieving rates of return above
inflation, and to maintain a fully funded pension status.
Summary of General Investment
Guidelines, Policies and Procedures
The Board, having the sole and exclusive authority and
fiduciary responsibility for the administration of the
System and its assets, has adopted an Investment Policy Statement which reflects the Board’s policies for
management of the System’s investments. The Board
reserves the right to amend, supplement or rescind this statement at any time. This Investment Policy Statement establishes the investment program goals and policies,
asset allocation policies, and beliefs. It also defines the principal duties of the Board, staff, investment managers, master custodian and consultants.
An integral part of the overall investment policy is the strategic asset allocation policy. This allocation mix is designed to provide an optimal mix of asset categories
with return expectations that reflect expected risk. This emphasizes a maximum diversification of the portfolio
that protects the System from declines that a particular asset class may experience in a given period. Both
traditional assets (equities and fixed income) and non- traditional assets (real estate, infrastructure, midstream energy, private equity, and private debt) are included in the mix.
Total portfolio return, over the long-term, is directed toward achieving and maintaining a fully funded status
for the System. Prudent risk taking is warranted within the context of overall portfolio diversification to meet this objective. All activities will be conducted so as to serve the best interests of the System’s members and
beneficiaries.
City of Fresno Employees Retirement System l INVESTMENT Investment Report from the Retirement Administrator Continued Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 64 Summary of Proxy Voting Guidelines and
Procedures
In recognition of its duty to manage retirement plan assets in the best interest of the plan participants, the Board has established proxy voting guidelines and procedures which are intended to assist in the faithful discharge of the Board’s duty to vote proxies on behalf of plan
participants. These guidelines consist of preferences with respect to specific, recurring proxy-voting issues followed by a general statement of voting policies. The System
will at all times strive to cast proxy votes so as to advance the overall good of the System.
Specific Investment Results by Asset
Classification
As of June 30, 2021, the System’s portfolio was slightly over-weight in total equities, with 58.5 percent in total equities versus the target of 48.0 percent. Domestic
equities were slightly over-weight with 29.7 percent
versus the target of 23.0 percent, and international equity with 18.7 percent developed and 10.1 percent emerging
markets was slightly over-weight total international equity with 28.8 percent versus the target of 25.0 percent. Fixed income with 13.8 percent was 1.2 percent under-weight
its target of 15.0 percent and real estate at 11.6 percent was 3.4 percent under-weight its target of 15.0 percent.
Alternative investments represented 16.1 percent of the System's portfolio, which is 5.9 percent under-weight of its target of 22.0 percent.
The investments were further diversified into the following asset classes and target percentages:
Asset Classification Actual Target
Domestic Equities:
Large-Cap 21.3% 15.8%
Small-Cap 8.4% 7.2%
International Equities:
Developed Markets 18.7% 19.0%
Emerging Markets 10.1% 6.0%
Fixed Income:
Domestic Fixed Income 8.9% 10.0%
High Yield Fixed Income 4.9% 5.0%
Real Estate:
Core Real Estate 8.2% 11.0%
Value Add Real Estate/REITs 3.4% 4.0%
Alternatives:
Infrastructure 3.5% 4.0%
Midstream Energy (MLP's) 5% 5.0%
Private Equity 2.4% 5.0%
Private Debt 5.2% 8.0%
Short-Term Investments 0.0% 0.0%
Total 100.0% 100.0%
City of Fresno Employees Retirement System l INVESTMENT Investment Report from the Retirement Administrator Continued Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 65 City of Fresno Employees Retirement System l INVESTMENT Investment Report from the Retirement Administrator Continued This asset class diversification allows the Retirement Board to monitor and adjust its risk in accordance with its Investment Policy Statement. The investment returns presented herein are based on a time-weighted rate of return methodology based upon fair values. As Fiscal Year 2021 came to a close, rising interest rates and inflation, due to historic liquidity injections, were at the forefront of investor’s minds. Readily available vaccines allowed countries the opportunities to ease lockdowns and return to some sort of normalcy. A rotation trade saw value stocks dramatically outperform for the first time in years and force investors away from growth-type stocks that became synonymous with low interest rates. The fund earned its highest ever fiscal year return and achieved a new high water mark in value.
Respectfully submitted,
Robert Theller
Robert T. Theller, Esq.
Retirement Administrator
December 1, 2021
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 66 Investment Consultant’s Report
City of Fresno Employees Retirement System l INVESTMENT Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 67 City of Fresno Employees Retirement System l INVESTMENT Investment Consultant's Report Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 68 Investment Results
Gross of Fees Ending June 30, 2021
Fair Value ($) % of Portfolio 1 Yr (%) 3 Yrs (%) 5 Yrs (%) 10 Yrs (%) Total Fund 3,801,093,940 100.00 30.83 11.96 11.88 9.32
Policy Index 28.20 10.73 10.94 8.64
InvMetrics Public DB > $1B Gross Median 27.40 11.03 10.95 8.71 Total Equity Composite 2,222,874,934 58.48 42.57 15.48 15.96 11.12 MSCI ACWI 39.26 14.57 14.61 9.90
InvMetrics Public DB Glbl Eq Gross Median 39.41 13.54 14.27 7.33 Domestic Equity Composite 1,130,008,324 29.73 46.87 17.86 17.82 14.42 Domestic Equity Index 49.07 17.27 17.44 14.29
InvMetrics Public DB US Eq Gross Median 44.42 17.45 17.13 14.08 Large Cap Equity Composite 809,444,030 21.30 43.05 19.19 18.09 15.01 Large Cap Equity Index 43.07 19.16 17.96 14.99
eV US Large Cap Equity Gross Median 41.57 17.71 16.84 14.22 Small Cap Equity Composite 320,564,294 8.43 58.48 16.47 18.33 13.46 Russell 2000 62.02 13.52 16.47 12.34
eV US Small Cap Equity Gross Median 61.32 13.96 16.26 13.19 International Equity Composite 1,092,866,610 28.75 38.20 13.06 14.16 7.93 International Equity Index 37.74 10.46 11.78 6.12
InvMetrics Public DB ex-US Eq Gross Median 37.63 10.06 11.59 6.66 ACWI ex US Equity Composite 946,295,632 24.90 36.95 13.17 14.41 8.09 MSCI ACWI ex USA Gross 36.29 9.88 11.59 5.93
eV ACWI ex-US All Cap Equity Gross Median 40.12 12.26 13.14 8.11 International Emerging Markets Equity Composite 146,570,976 3.86 46.76 14.69 15.90 5.89 MSCI Emerging Markets Gross 41.36 11.67 13.43 4.65
InvMetrics Public DB Emg Mkt Eq Gross Median 45.20 11.64 12.68 4.12 Total Fixed Income Composite 521,917,249 13.73 7.57 7.04 5.67 5.18 Fixed Income Index 4.99 6.19 4.81 4.57
Bloomberg US Aggregate TR -0.33 5.34 3.03 3.39
InvMetrics Public DB Total Fix Inc Gross Median 3.79 5.81 3.96 4.31 Core Fixed Composite 337,070,525 8.87 2.81 6.18 4.44 4.28 Bloomberg US Aggregate TR -0.33 5.34 3.03 3.39
InvMetrics Public DB US Fix Inc Gross Median 1.14 5.35 3.39 3.82 High Yield Composite 184,846,724 4.86 17.05 8.16 7.78 6.84 Bloomberg US High Yield TR 15.37 7.44 7.48 6.66
InvMetrics Public DB US Fix Inc Gross Median 1.14 5.35 3.39 3.82 Alternatives 610,648,258 16.07 27.71 7.50 0.00 0.00
Alternatives Index 29.23 9.93 0.00 0.00
Private Credit 195,880,151 5.15 19.65 8.85 9.17 0.00
Private Credit Index 8.34 7.56 7.60 0.00
Infrastructure 132,078,427 3.47 8.05 0.00 0.00 0.00
CPI + 4% (Unadjusted) 9.59 6.63 6.51 5.94
Midstream Energy 191,344,120 5.03 52.49 0.00 0.00 0.00
Alerian Midstream Energy Index 53.15 4.95 4.34 0.00
Private Equity 91,345,560 2.40 4.39 0.00 0.00 0.00
Private Equity Index -9.91 0.00 0.00 0.00
Real Estate Composite 444,807,588 11.70 9.83 5.89 5.98 9.60 Real Estate Index 7.41 5.25 5.04 8.93
InvMetrics Public DB Real Estate Pub+Priv Gross Median 9.11 5.77 6.66 9.48 Private Real Estate Composite 444,807,588 11.70 9.83 5.35 6.56 9.72 NCREIF ODCE 8.02 5.52 6.57 9.60
Public Real Estate Composite 0 0.00 0.00 0.00 0.00 0.00 Wilshire RESI 0.00 0.00 0.00 0.00
eV US REIT Gross Median 0.00 0.00 0.00 0.00
Cash & Equivalents Composite 845,911 0.02 0.47 1.37 1.25 0.71 91 Day T-Bills 0.05 1.20 1.11 0.59
Calculations are prepared by NEPC, LLC using a time-weighted rate of return based on fair values.
City of Fresno Employees Retirement System l INVESTMENT Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 69 Investment Results (Continued)
Net of Fees Ending June 30, 2021
Fair Value ($) % of Portfolio 1 Yr (%) 3 Yrs (%) 5 Yrs (%) 10 Yrs (%) Total Fund 3,801,093,940 100.00 30.40 11.60 11.52 8.93
Policy Index 28.20 10.73 10.94 8.64
InvMetrics Public DB > $1B Net Median 26.97 10.58 10.54 8.18 Total Equity Composite 2,222,874,934 58.48 42.15 15.13 15.62 10.75 MSCI ACWI 39.26 14.57 14.61 9.90
InvMetrics Public DB Glbl Eq Net Median 38.60 13.74 14.10 7.05 Domestic Equity Composite 1,130,008,324 29.73 46.59 17.59 17.56 14.13 Domestic Equity Index 49.07 17.27 17.44 14.29
InvMetrics Public DB US Eq Net Median 44.33 17.20 16.80 13.76 Large Cap Equity Composite 809,444,030 21.30 43.04 19.18 18.08 14.94 Large Cap Equity Index 43.07 19.16 17.96 14.99
eV US Large Cap Equity Net Median 40.54 16.78 15.94 13.28 Small Cap Equity Composite 320,564,294 8.43 57.35 15.63 17.46 12.60 Russell 2000 62.02 13.52 16.47 12.34
eV US Small Cap Equity Net Median 59.62 13.16 15.35 12.08 International Equity Composite 1,092,866,610 28.75 37.66 12.66 13.76 7.49 International Equity Index 37.74 10.46 11.78 6.12
InvMetrics Public DB ex-US Eq Net Median 37.46 9.88 11.31 6.25 ACWI ex US Equity Composite 946,295,632 24.90 36.50 12.88 14.12 7.79 MSCI ACWI ex USA Gross 36.29 9.88 11.59 5.93
eV ACWI ex-US All Cap Equity Net Median 39.02 12.28 12.78 8.06 International Emerging Markets Equity Composite 146,570,976 3.86 45.54 13.73 14.91 4.97 MSCI Emerging Markets Gross 41.36 11.67 13.43 4.65
InvMetrics Public DB Emg Mkt Eq Net Median 44.04 11.07 12.23 3.56 Total Fixed Income Composite 521,917,249 13.73 7.27 6.77 5.42 4.93 Fixed Income Index 4.99 6.19 4.81 4.57
Bloomberg US Aggregate TR -0.33 5.34 3.03 3.39
InvMetrics Public DB Total Fix Inc Net Median 3.52 5.64 3.79 4.10 Core Fixed Composite 337,070,525 8.87 2.63 6.02 4.29 4.13 Bloomberg US Aggregate TR -0.33 5.34 3.03 3.39
InvMetrics Public DB US Fix Inc Net Median 0.75 5.10 3.09 3.56 High Yield Composite 184,846,724 4.86 16.53 7.64 7.25 6.30 Bloomberg US High Yield TR 15.37 7.44 7.48 6.66
InvMetrics Public DB US Fix Inc Net Median 0.75 5.10 3.09 3.56 Alternatives 610,648,258 16.07 27.46 7.35 0.00 0.00
Alternatives Index 29.23 9.93 0.00 0.00
Private Credit 195,880,151 5.15 19.65 8.85 9.17 0.00
Private Credit Index 8.34 7.56 7.60 0.00
Infrastructure 132,078,427 3.47 8.05 0.00 0.00 0.00
CPI + 4% (Unadjusted) 9.59 6.63 6.51 5.94
Midstream Energy 191,344,120 5.03 51.43 0.00 0.00 0.00
Alerian Midstream Energy Index 53.15 4.95 4.34 0.00
Private Equity 91,345,560 2.40 34.80 0.00 0.00 0.00
Private Equiy Index 59.90 0.00 0.00 0.00
Real Estate Composite 444,807,588 11.70 9.36 5.30 5.33 8.83 Real Estate Index 7.41 5.25 5.04 8.93
InvMetrics Public DB Real Estate Pub+Priv Net Median 7.92 5.37 6.55 8.85 Private Real Estate Composite 444,807,588 11.70 9.36 4.74 5.84 8.81 NCREIF ODCE 8.02 5.52 6.57 9.60
Public Real Estate Composite 0 0.00 0.00 0.00 0.00 0.00 Wilshire RESI 0.00 0.00 0.00 0.00
eV US REIT Net Median 0.00 0.00 0.00 0.00
Cash & Equivalents Composite 845,911 0.02 0.47 1.37 1.25 0.71 91 Day T-Bills 0.05 1.20 1.11 0.59
Calculations are prepared by NEPC, LLC using a time-weighted rate of return based on fair values.
City of Fresno Employees Retirement System l INVESTMENT Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 70 Target and Actual Asset Allocation
As of June 30, 2021
Asset Class Current Target Allocation Range Actual
Domestic Large Cap Equities 15.8% 10.0% - 26.0% 21.3%
Domestic Small Cap Equities 7.2% 2.0% - 12.0% 8.4%
International Developed Market Equities 19.0% 14.0% - 24.0% 18.7% International Emerging Market Equities 6.0% 3.0% - 9.0% 10.1% Core Fixed Income 10.0% 7.0% - 15.0% 8.9%
High Yield Bonds* 5.0% 4.0% - 12.0% 4.9%
Core Real Estate 11.0% 7.0% - 15.0% 8.2%
Value Add Real Estate/REITs 4.0% 2.0% - 6.0% 3.4%
Infrastructure 4.0% 2.0% - 6.0% 3.5%
Midstream Energy (MLPs) 5.0% 2.0% - 8.0% 5.0%
Private Equity 5.0% 0.0% - 10.0% 2.4%
Private Debt 8.0% 4.0% - 12.0% 5.2%
Short-Term Investments 0.0% 0% 0%
* 1% High Yield Bonds Managed Within Domestic Fixed Income Target Asset Allocation*
As of June 30, 2021
Domestic Large Cap Equities: 15.8%
Domestic Small Cap Equities: 7.2%
International Developed Market
Equities: 19.0%
International Emerging Market
Equities: 6.0%
Core Fixed Income: 10.0%
High Yield Bonds: 5.0%
Core Real Estate: 11.0%
Value Add Real Estate/REITs: 4.0%
Infrastructure: 4.0%
MLPs: 5.0%
Private Equity: 5.0%
Private Debt: 8.0%
* Short-Term Investments is 0%.
City of Fresno Employees Retirement System l INVESTMENT Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 71 Actual Asset Allocation*
As of June 30, 2021
Domestic Large Cap Equities: 21.3%
Domestic Small Cap Equities: 8.4%
International Developed Market
Equities: 18.7%
International Emerging Market
Equities: 10.1%
Core Fixed Income: 8.9%
High Yield Bonds: 4.9%
Core Real Estate: 8.2%
Value Add Real Estate/REITs: 3.4%
Infrastructure: 3.5%
MLPs: 5.0% Private Equity: 2.4%
Private Debt: 5.2%
* Short-Term Investments is 0%.
City of Fresno Employees Retirement System l INVESTMENT Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 72 Largest Stock Holdings (by Fair Value)
As of June 30, 2021
Shares Stock Holding Fair Value
1) 536,229 TAIWAN SEMICONDUCTOR MANUFACTURING TWD10 $ 11,451,107 2) 126,580 CHENIERE ENERGY INC COM NEW 10,979,590
3) 149,383 SAMSUNG ELECTRONICS CO KRW5000 10,704,823
4) 350,996 MLP MPLX LP COM UNIT REPSTG LTD PARTNER 10,392,980 5) 363,374 MLP ENTERPRISE PRODS PARTNERS L P COM 8,768,208 6) 113,179 TENCENT HLDGS LIMITED COMMON STOCK 8,511,164 7) 787,747 MLP ENERGY TRANSFER LP COMMON UNITS REP 8,373,748 8) 137,221 TARGA RES CORP COM 6,099,485
9) 223,133 WILLIAMS COMPANY INC COMMON STOCK $1 PAR 5,924,169 10) 3,759 MERCADOLIBRE INC COM STK 5,855,090
Total Largest Stock Holdings $ 87,060,364
Largest Bond Holdings (by Fair Value)
As of June 30, 2021
Share/Par Coupon Maturity
Value Bond Holding Rate Date Fair Value
1) 2,796,635 UNITED STS TREAS NTS DTD 0.875% 2030/11/15 $ 2,659,425 2) 2,230,968 UNITED STATES TREAS NTS DTD 04/30/2021 0.750% 2026/04/30 2,219,639 3) 2,076,228 FNMA POOL #CA8441 2.0% DUE 01-01-2051 2.000% 2051/01/01 2,104,162 4) 1,803,175 PVTPL NAVIENT STUDENT LN TR 2021-2 0.642% 2070/02/25 1,805,157 5) 1,670,735 UNITED STATES OF AMER TREAS NOTES DTD 0.625% 2030/08/15 1,556,524 6) 1,453,797 PVTPL CCO HLDGS LLC/CAP CORP 4.75% DUE 4.750% 2030/03/01 1,537,391 7) 1,227,349 FORD MTR CO DEL 9.0% DUE 9.000% 2025/04/22 1,513,162 8) 1,440,211 UNITED STATES TREAS NTS DTD 05/15/2021 1.625% 2031/05/15 1,462,264 9) 1,034,868 CHARTER COMMUNICATIONS OPER LLC / 6.484% 2045/10/23 1,425,202 10) 1,276,488 GNMA SER 2017-H22 CL MX-FH 0.578% 2067/11/20 1,270,750 Total Largest Bond Holdings $ 17,553,676
A complete list of portfolio holdings is available upon request.
City of Fresno Employees Retirement System l INVESTMENT Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 73 Brokerage Commission Recapture
The System participates in a commission recapture program offered by Northern Trust Securities Inc. (NTSI). Investment Managers are instructed to seek best execution and to seek to minimize omission and market impact costs when trading securities. Consistent with the pursuit of best execution, equity managers participating in the Brokerage Commission Recapture Program are to give consideration to executing a portion of the trades for their account through brokerage firms identified by NTSI as eligible Broker Dealer firms. The System receives a rebate in the amount of 80 percent for domestic and 70 percent for international of the total commissions directed through the NTSI Network. For fiscal years ended June 30, 2021 and 2020, the net income from Brokerage Commission Recapture was $57 and $4,056 respectively. During these periods, the overall participating rate by the System’s equity managers was 0.01 percent and 3.38 percent, respectively. The percentage of equity trading being executed through the program is generally at a low cost and has resulted over the years in a meaningful cost recapture. Program economics are tough in the lower commission environment and participation by the System’s investment managers is voluntary.
Schedule of Commissions
For The Fiscal Year Ended June 30, 2021
Total Number of Commission
Brokerage Firm Commissions Shares Cost/Share
B.RILEY & CO. LLC $ 20,660 708,859 $ 0.0291
PIPER JAFFRAY & CO 10,351 730,131 0.0142
GOLDMAN, SACHS AND CO. 9,153 31,076,761 0.0003
UBS SECURITIES ASIA LIMITED 8,714 6,243,609 0.0014
HSBC SECURITIES (USA) INC. 7,698 14,819,726 0.0005
VIRTU AMERICAS LLC 7,685 308,993 0.0249
CREDIT SUISSE SECURITIES (USA) LLC 7,662 405,976 0.0189 MORGAN STANLEY AND CO., LLC 7,467 44,614,319 0.0002
UBS AG LONDON BRANCH 5,850 841,135 0.0070
CITIGROUP GLOBAL MARKETS INC. 5,777 36,388,946 0.0002 $ 91,017 136,138,455 $ 0.0007
All Other Brokerage Firms 187,603 483,747,524 0.0004 TOTAL $ 278,620 619,885,979 $ 0.0004
City of Fresno Employees Retirement System l INVESTMENT Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 74 Investment Summary
For The Fiscal Year Ended June 30, 2021
Investment Value Percent of Fund
Investment
Management Fees
Equity
Domestic $ 626,488,266 36.6% $ 1,016,969
International Developed Market 266,659,195 15.6% 1,275,994 International Emerging Market 65,448,667 3.8% 501,954 Fixed Income 240,570,735 14.0% 620,503
Alternatives 276,539,149 16.1% 4,894,685
Real Estate 211,014,873 12.3% 3,269,848
Short-term Investments 26,233,416 1.6% —
Total $ 1,712,954,301 100.0% $ 11,579,953
Investment Summary
For The Fiscal Year Ended June 30, 2020
Investment Value Percent of Fund
Investment
Management Fees
Equity
Domestic $ 498,544,872 36.7% $ 811,142
International Developed Market 231,930,494 17.0% 1,075,266 International Emerging Market 47,796,689 3.5% 398,799 Fixed Income 210,209,084 15.5% 689,461
Alternatives 221,914,503 16.3% 4,161,213
Real Estate 135,019,443 9.9% 3,300,136
Short-term Investments 13,931,007 1.0% —
Total $ 1,359,346,092 100.0% $ 10,436,017
City of Fresno Employees Retirement System l INVESTMENT Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 75 Assets will be invested
and administered to
balance the need to
control risk with
superior performance.
We expect excellence
in all activities. We
will also be
accountable and act in
accordance with the
law.
ACTUARIAL
77 Actuarial Certification Letter
80 Summary of Actuarial Assumptions and Funding Method
82 Probabilities of Separation Prior to Retirement
83 Schedule of Active Member Valuation Data
84 Schedule of Retirees and Beneficiaries Added to or
Removed from Rolls
85 Solvency Test
86 Actuarial Analysis of Financial Experience
86 Schedule of Funding Progress
87 Major Benefit Provisions of the Retirement System
88 History of Employer Net Contribution Rates
City of Fresno Employees Retirement System l ACTUARIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 76 Actuarial Certification Letter
City of Fresno Employees Retirement System l ACTUARIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 77 City of Fresno Employees Retirement System l ACTUARIAL
Actuarial Certification Letter Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 78 City of Fresno Employees Retirement System l ACTUARIAL
Actuarial Certification Letter Continued
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 79 Summary of Actuarial Assumptions and Funding Method
These actuarial assumptions and methods based on June 30, 2021 data were adopted by the City of Fresno Employees Retirement System (the System) Retirement Board on November 30, 2021, and were effective for July 1, 2022.
Assumptions
Valuation Interest Rate: 7.00%
Inflation: 2.75%
Post-Retirement Mortality
(a) Service Retirement
Pub-2010 General Healthy Retiree Amount-Weighted
Mortality Table (separate tables for males and
females) times 105%, projected generationally with
the two-dimensional mortality improvement scale
MP-2018.
Beneficiaries
Pub-2010 General Healthy Retiree Amount-Weighted
Mortality Table (separate tables for males and
females) times 105%, projected generationally with
the two-dimensional mortality improvement scale
MP-2018.
(b) Disability Retirement
Pub-2010 Non-Safety Disabled Retiree Amount-
Weighted Mortality Table (separate tables for males
and females), projected generationally with the two-
dimensional mortality improvement scale MP-2018.
Pre-Retirement Mortality
Based upon the Analysis of Actuarial Experience during
the period July 1, 2015 through June 30, 2018.
Withdrawal Rates
Based upon the Analysis of Actuarial Experience during
the period July 1, 2015 through June 30, 2018.
Disability Rates
Based upon the Analysis of Actuarial Experience during
the period July 1, 2015 through June 30, 2018.
Service Retirement Rates
Based upon the Analysis of Actuarial Experience during
the period July 1, 2015 through June 30, 2018.
Assets
Five-year smoothed recognition of realized and unrealized capital gains and losses greater or lesser than the actuarial assumed rate of return.
Funding Method
The System’s liability is being funded on the Entry Age Normal Actuarial Cost method. Entry age is the age of the member on their hire date. Normal Cost and Actuarial
Accrued Liability are compensation, as if the current
benefit formulas have always been in effect (i.e.,
“replacement life”).
The System’s funding policy for determining Total
Pension Liability (for funding purposes) uses a version of the Entry Age method whereby the Actuarial Accrued
Liability is fully accrued when a member retires from
employment after participating in DROP (Deferred
Retirement Option Program). While for financial
reporting purposes only, in accordance with GASB 67
provisions, for determining Total Pension Liability, the Actuarial Accrued Liability is fully accrued when a
member either enters DROP or is expected to elect DROP
(See page 28 of the Financial Section and pages 56 and 57 of the Required Supplementary Information on the
different actuarial assumptions used for financial
reporting versus funding progress).
City of Fresno Employees Retirement System l ACTUARIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 80 Summary of Actuarial Assumptions and Funding Method Continued DROP Rates
1st year eligible 30% participation
2nd year eligible 15% participation
3rd and 4th year eligible 10% participation
5th year eligible 15% participation
6th year eligible 10% participation
Thereafter 0% participation
Members are assumed to remain in DROP for six years.
Marriage Rates
It is assumed that 80% of all male members and 55% of
all female members will be married at retirement.
Age of Spouse
Male members are three years older than their spouses.
Female members are two years younger than their
spouses.
Cost-of-Living Adjustment (COLA)
Assumption
3.00% per year; Retiree COLA increases due to
Consumer Price Index (CPI) are limited to maximum at
3.00% per year.
Ultimate Salary Scale
Salary Scale is made up of merit and longevity, and
inflation components. The inflation component is equal to
2.75%; plus 0.50% real across-the-board salary increase.
The merit and longevity component varies by service and is illustrated below:
Years Since Hire Merit and Longevity Assumption
< 1 year 8.00%
1 year 5.75%
2 years 4.50%
3 years 3.75%
4 years 3.00%
5 years 1.85%
6 years 1.05%
7 years 0.70%
8 years 0.70%
9 or more years 0.25%
City of Fresno Employees Retirement System l ACTUARIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 81 Probabilities of Separation Prior to Retirement
Rate (%)
Mortality
Age Male Female
25 0.04 0.01
30 0.04 0.02
35 0.04 0.03
40 0.05 0.03
45 0.07 0.05
50 0.13 0.09
55 0.22 0.15
60 0.40 0.21
65 0.68 0.30
All pre-retirement deaths are assumed to be non-service connected.
Rate (%)
Disability
Age All Members
20 0.00
25 0.00
30 0.01
35 0.03
40 0.14
45 0.20
50 0.26
55 0.48
60 0.90
65 1.79
All disabilities are assumed to be non-service connected.
Rate (%) Rate (%)
Total Terminations
(Less than 5 years of service)
Total Terminations
(5 or more years of service)
Years of Service All Members Age All Members
0 – 1 12.00 20 7.50
1 – 2 10.00 25 7.20
2 – 3 5.00 30 7.00
3 – 4 5.00 35 6.40
4 – 5 5.00 40 4.80
45 3.70
85% of members are assumed to
elect a withdrawal of
contributions. No termination is
assumed after a member is
assumed to retire.
50 0.00
45% of members are assumed to
elect a withdrawal of contributions.
The remaining members are
assumed to elect a deferred vested
benefit. No termination is assumed
after a member is assumed to retire.
City of Fresno Employees Retirement System l ACTUARIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 82 Schedule of Active Member Valuation Data
% Increase
Valuation Annual Annual (Decrease)
Date Active/DROP Number Payroll Average Pay in Average Pay June 30, 2021 Active Members 2,009 $ 138,130,869 $ 68,756 1.6% DROP Participants 304 22,241,215 73,162 1.6%
Totals 2,313 $ 160,372,084 $ 69,335
June 30, 2020 Active Members 1,952 $ 132,156,485 $ 67,703 4.6% DROP Participants 336 24,198,036 72,018 5.4%
Totals 2,288 $ 156,354,521 $ 68,337
June 30, 2019 Active Members 1,890 $ 122,353,908 $ 64,738 4.9% DROP Participants 338 23,103,904 68,355 3.9%
Totals 2,228 $ 145,457,812 $ 65,286
June 30, 2018 Active Members 1,812 $ 111,852,669 $ 61,729 3.4% DROP Participants 351 23,093,533 65,794 3.3%
Totals 2,163 $ 134,946,202 $ 62,388
June 30, 2017 Active Members 1,715 $ 102,354,521 $ 59,682 4.4% DROP Participants 370 23,560,592 63,677 3.9%
Totals 2,085 $ 125,915,113 $ 60,391
June 30, 2016 Active Members 1,592 $ 91,007,785 $ 57,166 (1.1%) DROP Participants 366 22,428,051 61,279 1.3%
Totals 1,958 $ 113,435,836 $ 57,935
June 30, 2015 Active Members 1,524 $ 88,090,729 $ 57,802 (0.5%) DROP Participants 364 22,015,866 60,483 (0.5%)
Totals 1,888 $ 110,106,595 $ 58,319
June 30, 2014 Active Members 1,512 $ 87,842,034 $ 58,097 (3.8%) DROP Participants 347 21,100,432 60,808 (3.6%)
Totals 1,859 $ 108,942,466 $ 58,603
June 30, 2013 Active Members 1,528 $ 92,244,313 $ 60,369 3.2% DROP Participants 311 19,610,437 63,056 0.7%
Totals 1,839 $ 111,854,750 $ 60,824
June 30, 2012 Active Members 1,620 $ 94,766,049 $ 58,498 0.1% DROP Participants 280 17,540,903 62,646 (0.4%)
Totals 1,900 $ 112,306,952 $ 59,109
City of Fresno Employees Retirement System l ACTUARIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 83 Schedule of Retirees and Beneficiaries Added to
or Removed from Rolls
Added to Rolls Removed from Rolls Rolls at Fiscal Year End Fiscal Year
Ended June 30 Number
Annual
Allowance Number
Annual
Allowance Number
Annual
Allowance
Average
Annual
Allowance
% Increase /
(Decrease)
in Retiree
Allowance
June 30, 2021 106 $1,787,137 (53) $(897,401) 2,129 $67,497,485 $31,704 3.50 June 30, 2020 95 $1,796,078 (54) $(655,652) 2,076 $63,591,967 $30,632 2.50 June 30, 2019 120 $1,905,246 (55) $(672,253) 2,035 $60,814,434 $29,884 4.68 June 30, 2018 114 $1,570,066 (60) $(834,397) 1,970 $56,241,911 $28,549 0.64 June 30, 2017 135 $1,458,929 (68) $(786,272) 1,916 $54,350,851 $28,367 2.44 June 30, 2016 123 $1,578,451 (64) $(898,105) 1,849 $51,198,523 $27,690 1.00 June 30, 2015 103 $1,402,353 (62) $(718,791) 1,790 $49,072,063 $27,415 1.21 June 30, 2014 110 $1,518,754 (61) $(686,326) 1,749 $47,376,551 $27,088 0.36 June 30, 2013 104 $1,607,660 (66) $(825,889) 1,700 $45,883,057 $26,990 4.73 June 30, 2012 99 $1,026,077 (59) $(640,326) 1,662 $42,833,718 $25,772 0.76 City of Fresno Employees Retirement System l ACTUARIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 84 Solvency Test (In thousands)
Portion of Accrued Liabilities
Aggregate Accrued Liabilities for Covered by Reported Asset Valuation
Date As Of
June 30
Active Member
Contributions
Retirees and
Beneficiaries
(Includes
Deferred Vested)
Active Members
(Employer
Financed Portion)
Actuarial
Valuation
Value of
Assets
Active
Member
Contributions
Retirees and
Beneficiaries
(Includes
Deferred
Vested)
Active
Members
(Employer
Financed
Portion)
6/30/2021 $102,090 $870,147 $217,743 $1,380,265 100% 100% 100% 6/30/2020 97,041 847,631 210,388 1,269,173 100% 100% 100% 6/30/2019 92,076 819,374 195,210 1,238,651 100% 100% 100% 6/30/2018 87,404 798,382 161,906 1,202,691 100% 100% 100% 6/30/2017 84,476 768,142 161,066 1,145,061 100% 100% 100% 6/30/2016 84,142 736,665 156,102 1,087,125 100% 100% 100% 6/30/2015 85,644 704,462 170,258 1,049,093 100% 100% 100% 6/30/2014 85,712 694,761 169,801 993,641 100% 100% 100% 6/30/2013 86,768 663,832 184,347 933,722 100% 100% 100% 6/30/2012 86,590 609,218 176,150 891,366 100% 100% 100% City of Fresno Employees Retirement System l ACTUARIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 85 Actuarial Analysis of Financial Experience
(Dollars in Millions)
Plan Years
2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Prior Valuation Actuarial Accrued Liability $1,155 $1,107 $1,048 $1,014 $977 $960 $950 $935 $872 $791 Expected Increase from Prior Valuation — — — — — — — — — — Salary Increase (Greater) Less than Expected (3) 3 5 1 5 (7) (11) (17) (3) (13) Asset Return (Less) Greater than Expected — — — — — — — — — — COLA Increase Greater (Less) than Expected (9) (3) (8) (6) (7) (18) (18) (10) (9) (1) Other Experience 3 6 3 (2) 3 (6) (2) (1) (2) (4)
Economic Assumption Changes — — 21 3 — 8 — — 33 —
Noneconomic Assumption Changes — — — — — — — — — —
Normal Cost 33 31 26 24 21 22 22 23 22 24
Interest 80 76 74 72 70 71 70 69 69 67
Payments (69) (65) (62) (58) (55) (52) (51) (49) (47) (44) Change in Valuation Programs and Methods — — — — — (1) — — — 52 Ending Actuarial Accrued Liability $1,190 $1,155 $1,107 $1,048 $1,014 $977 $960 $950 $935 $872 Schedule of Funding Progress
(Dollars in Millions)
(6)
(1) (2) (4) Prefunded /
Actuarial Actuarial (3) Prefunded / (5) (Unfunded AAL)
Actuarial Valuation Accrued Percentage (Unfunded Annual Percentage of Valuation Value of Liability Funded AAL) Covered Covered Payroll As of June 30 Assets (AAL) (1) / (2) (2) - (1) Payroll [(2) - (1)] / (5) 2021 $1,380 $1,190 116.0% $190 $160 118.70%
2020 $1,269 $1,155 109.9% $114 $156 73.00%
2019 $1,239 $1,107 111.9% $132 $145 90.70%
2018 $1,203 $1,048 114.8% $155 $135 114.90%
2017 $1,145 $1,014 113.0% $131 $126 104.30%
2016 $1,087 $977 111.3% $110 $113 97.20%
2015 $1,049 $960 109.2% $89 $110 80.60%
2014 $994 $950 104.6% $43 $109 39.80%
2013 $934 $935 99.9% ($1) $112 (1.10%)
2012 $891 $872 102.2% $19 $112 17.30%
City of Fresno Employees Retirement System l ACTUARIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 86 Major Benefit Provisions of the Retirement System
ELIGIBLE EMPLOYEES
All non-Fire and Police employees who enter service after July 1, 1952, and are certified from a civil service list for permanent employment.
FINAL AVERAGE SALARY (FAS)
Highest three consecutive-year average using the rate of pay in effect at the time of retirement.
NORMAL RETIREMENT
Requirement: age 55 and 5 years of service.
Benefit: Sum of (1) and (2) times (3)
(1) 2% of FAS times years of service, not-to-exceed
25 years
(2) 1% of FAS times years of service in excess of 25
years
(3) RETIREMENT AGE FACTOR TABLE
Age Factor Age Factor
55 1.000 61 1.140
56 1.020 62 1.180
57 1.040 63 1.220
58 1.060 64 1.260
59 1.080 65 1.300
60 1.100 Add .01 for every
quarter after age 65
EARLY RETIREMENT PROVISION
An employee who is age 50 with 5 years of continuous service may elect an early retirement and shall have his or her retirement allowance reduced by the early retirement actuarial adjustment factor.
DEFERRED RETIREMENT OPTION PROGRAM (DROP)
An employee who is age 55 with 5 years of service may enter DROP. The eligibility age may be reduced to age 50 with 5 years of service if the employee elects an early retirement.
Retirement amount is calculated and monthly deposits are made to the employee’s DROP account while the employee continues to work up to maximum of 10 years.
DISABILITY RETIREMENT
Requirement: 10 years of service.
Benefit: 1.8 percent times FAS times years of service, if exceeds 1/3 of FAS; or 33-1/3%, or service retirement, if higher.
MEMBER CONTRIBUTIONS RATES
Basic rates are based on a formula reflecting the age at entry into the System. The rates are such as to provide an average annuity, at age 55, of 1/150 of FAS for each of the first 25 years of service, plus 1/300 of FAS for each year of service after 25.
Member cost-of-living rates are designed to pay for one-half of the future cost-of-living increases.
DEATH BEFORE RETIREMENT
A. Before eligible to retire for disability (less than 5 years):
(1) One month's salary for each year of service, not-
to-exceed six months.
(2) Return of contributions with interest.
B. While eligible for service retirement:
Fifty percent (50%) of service retirement benefit to
eligible beneficiary
C. With 5 or more years:
Fifty percent (50%) of service retirement benefit formula at age 55, based on years of service at death.
DEATH AFTER RETIREMENT
Fifty percent (50%) of the member’s allowance continued to eligible spouse for life.
WITHDRAWAL OF BENEFITS
If less than five years of service, return of contributions. If more than five years of service, right to have vested deferred retirement benefit at normal retirement date.
POST RETIREMENT SUPPLEMENTAL BENEFIT (PRSB)
On August 27, 1998, the City Council adopted the Post
Retirement Supplemental Benefit (PRSB) Program which is intended to provide assistance to retirees to pay for various post- retirement expenses. Annually, after an actuarial study has been performed, the Retirement Board will review the availability of surplus earnings in the System and determine whether a benefit can be paid to eligible PRSB recipients. If a surplus is declared by the Board, PRSB benefit payments will be calculated for eligible recipients and payments for the following calendar year will begin in January.
COST-OF-LIVING BENEFITS
Based on the percentage change in Consumer Price Index (U.S. city-average for urban wage earners and clerical works –all items), limited to a five percent (5%) maximum change per year each July 1.
City of Fresno Employees Retirement System l ACTUARIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 87 History of Employer Net Contribution Rates
Employer Normal Employer Net Contribution
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Fiscal Year Ending June 30 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Employer Normal 10.70 % 11.37 % 11.28 % 12.03 % 12.06 % 12.26 % 11.69 % 11.66 % 11.70 % 13.37 % Prefunded Liability/Prepaid Contributions 0.49 % -1.26 % 0.27 % 0.38 % 0.02 % -0.51 % 0.30% 1.08 % 0.59 % 0.34 % Employer Net Contribution 10.21 % 12.63 % 11.01 % 11.65 % 12.04 % 12.77 % 11.39 % 10.58 % 11.11 % 13.03 % City of Fresno Employees Retirement System l ACTUARIAL
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 88 To create an environment
in which Board Members
can maximize their
performance as trustees.
To improve business
processes and our delivery
of services provided to
members and retirees.
To improve
communications with
members, retirees and the
employer.
STATISTICAL
90 Statistical Section Review
91 Schedule of Changes in Fiduciary Net Position
92 Schedule and Graph of Additions by Source
93 Schedule and Graph of Deductions by Type
94 Membership Information
City of Fresno Employees Retirement System l STATISTICAL Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 89 Statistical Section Review
This section provides additional historical perspective, context, and detail in order to provide a more comprehensive understanding of this year’s financial statements, note disclosures, and supplementary information which covers the benefits provided by the City of Fresno Employees Retirement System.
It also provides multi-year trend of financial and operation information to facilitate comprehensive understanding of how the organization’s financial position and performance has changed over time.
More specifically, the financial and operating information provides contextual data for the System’s net position, benefits, refunds, contribution rates and different types of retirement benefits.
The financial and operating trend information is located on the following pages.
City of Fresno Employees Retirement System l STATISTICAL Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 90 Schedule of Changes in Fiduciary Net Position
Last Ten Fiscal Years 2012 - 2021
(Dollars in Millions)
2021 2020 2019 2018 2017
Additions
Employer Contributions $ 20.1 $ 16.6 $ 14.6 $ 14.6 $ 15.2 Employee Contributions 13.7 11.0 10.5 10.3 10.1
Investment Income (Loss) 407.9 20.1 69.4 109.0 162.3 Total Additions 441.7 47.7 94.5 133.9 187.6
Deductions
Benefit Payments $ 67.5 $ 63.6 $ 60.8 $ 56.2 $ 54.3
Post Retirement Supplemental Benefits — — — — —
Refunds 1.7 1.0 1.3 1.5 1.1
Administrative 2.1 1.7 1.7 1.6 1.3
Total Deductions 71.3 66.3 63.8 59.3 56.7
Change in Fiduciary Net Position $ 370.4 $ (18.6) $ 30.7 $ 74.6 $ 130.9 2016 2015 2014 2013 2012
Additions
Employer Contributions $ 13.1 $ 12.3 $ 11.4 $ 13.3 $ 11.4 Employee Contributions 9.1 8.8 7.9 8.0 5.5
Investment Income (Loss) 5.0 33.3 172.9 121.1 (5.6) Total Additions 27.2 54.4 192.2 142.4 11.3
Deductions
Benefit Payments 51.2 49.1 47.4 45.8 42.7
Post Retirement Supplemental Benefits — — — 0.1 0.1 Refunds 1.3 1.5 1.2 1.2 1.3
Administrative 1.3 1.1 1.1 1.1 1.1
Total Deductions 53.8 51.7 49.7 48.2 45.2
Change in Fiduciary Net Position $ (26.6) $ 2.7 $ 142.5 $ 94.2 $ (33.9) City of Fresno Employees Retirement System l STATISTICAL Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 91 Schedule and Graph of Additions by Source (In Thousands) Last Ten Fiscal Years 2012 - 2021
EMPLOYER CONTRIBUTIONS EMPLOYEE CONTRIBUTIONS
INVESTMENT INCOME (LOSS)
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
$-200,000
$-100,000
$0
$100,000
$200,000
$300,000
$400,000
$500,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
EMPLOYER CONTRIBUTIONS $ 11,374 $ 13,330 $ 11,440 $ 12,327 $ 13,060 $ 15,205 $ 14,609 $ 14,627 $ 16,554 $ 20,144 EMPLOYEE CONTRIBUTIONS 5,507 7,995 7,945 8,750 9,098 10,181 10,329 10,516 11,028 13,750 INVESTMENT INCOME (LOSS) (5,620) 121,116 172,773 33,309 5,089 162,376 108,916 69,389 20,108 407,811 TOTAL $ 11,261 $ 142,441 $ 192,158 $ 54,386 $ 27,247 $ 187,762 $ 133,854 $ 94,532 $ 47,690 $ 441,705 City of Fresno Employees Retirement System l STATISTICAL Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 92 Schedule and Graph of Deductions by Type (In Thousands) Last Ten Fiscal Years 2012 - 2021
PROFESSIONAL & ADMINISTRATIVE REFUNDS
SURVIVORS NON-SERVICE DISABILITY
SERVICE DISABLITY SERVICE RETIREMENTS
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
SERVICE RETIREMENTS $ 34,944 $ 37,748 $ 38,677 $ 40,261 $ 42,031 $ 44,883 $ 46,548 $ 50,237 $ 52,798 $ 55,989 SERVICE DISABLITY 1,940 2,042 2,286 2,358 2,625 2,915 3,027 2,913 3,098 3,888 NON-SERVICE DISABILITY 1,338 1,400 1,709 1,579 1,744 1,602 1,654 1,344 1,370 1,304 SURVIVORS 4,612 4,693 4,704 4,874 4,799 4,951 5,013 6,320 6,326 6,316 REFUNDS 1,313 1,157 1,204 1,474 1,330 1,199 1,424 1,330 928 1,749
PROFESSIONAL &
ADMINISTRATIVE 1,087 1,138 1,086 1,071 1,346 1,389 1,619 1,663 1,748 2,058 TOTAL $ 45,234 $ 48,178 $ 49,666 $ 51,617 $ 53,875 $ 56,939 $ 59,285 $ 63,807 $ 66,268 $ 71,304 City of Fresno Employees Retirement System l STATISTICAL Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 93 Schedule of Average Benefit Payments
Years of Credited Service Fiscal Year
Average/New
Retirement Effective Dates 5-10 10-15 15-20 20-25 25-30 30+ Retirants Period 7/1/20 to 6/30/21*
Average Monthly Pension Benefits $ 1,387 $ 1,932 $ 2,079 $ 2,836 $ 3,198 $ 4,063 $ 2,583 Average Monthly DROP Payment — 860 924 2,006 2,471 2,756 1,503 Average Final Average Salary 8,449 5,748 5,524 5,500 5,205 6,514 6,157 Number of New Retired Members 11 17 24 22 12 11 97 Period 7/1/19 to 6/30/20*
Average Monthly Pension Benefits $ 1,142 $ 1,630 $ 2,054 $ 2,627 $ 3,123 $ 3,234 $ 2,302 Average Monthly DROP Payment 214 321 1,041 2,048 2,685 3,223 1,589 Average Final Average Salary 7,385 5,322 5,029 5,727 5,243 5,238 5,657 Number of New Retired Members 8 25 21 14 6 5 79
Period 7/1/18 to 6/30/19*
Average Monthly Pension Benefits $ 1,477 $ 1,791 $ 1,927 $ 2,611 $ 3,447 $ 3,267 $ 2,420 Average Monthly DROP Payment — 218 539 1627 2323 2389 1,183 Average Final Average Salary 5817 6114 4750 5114 6243 4825.09 5,477 Number of New Retired Members 8 29 22 16 13 11 99
Period 7/1/17 to 6/30/18*
Average Monthly Pension Benefits $ 822 $ 1,492 $ 1,777 $ 2,820 $ 2,462 $ 3,560 $ 2,156 Average Monthly DROP Payment — 277 594 1,549 1,569 2,473 1,077 Average Final Average Salary 5,746 5,217 4,478 6,058 4,559 5,679 5,290 Number of New Retired Members 7 18 22 22 10 10 89 Period 7/1/16 to 6/30/17*
Average Monthly Pension Benefits $ 976 $ 1,446 $ 2,448 $ 2,624 $ 2,851 $ 3,648 $ 2,332 Average Monthly DROP Payment — 153 901 1,590 1,989 1,718 1,059 Average Final Average Salary 5,707 4,938 5,905 5,403 4,333 5,531 5,303 Number of New Retired Members 12 26 23 20 8 9 98 Period 7/1/15 to 6/30/16*
Average Monthly Pension Benefits $ 938 $ 1,567 $ 1,847 $ 2,606 $ 2,596 $ 2,402 $ 1,993 Number of New Retired Members 1,506 1,046 1,446 2,264 1,684 1,624 9,570 Average Final Average Salary 5,576 5,480 5,048 5,325 4,961 4,395 30,785 Number of New Retired Members 14 23 24 16 20 11 108 Period 7/1/14 to 6/30/15
Average Monthly Pension Benefits $ 912 $ 1,409 $ 2,173 $ 2,509 $ 5,125 $ 5,039 $ 2,861 Number of New Retired Members 13 11 25 6 16 6 77 Period 7/1/13 to 6/30/14
Average Monthly Pension Benefits $ 1,060 $ 1,610 $ 2,144 $ 3,586 $ 3,258 $ 6,795 $ 3,076 Number of New Retired Members 12 12 17 15 10 8 74 Period 7/1/12 to 6/30/13
Average Monthly Pension Benefits $ 864 $ 1,476 $ 2,315 $ 3,598 $ 4,335 $ 4,925 $ 2,919 Number of New Retired Members 16 15 14 12 10 10 77 Period 7/1/11 to 6/30/12
Average Monthly Pension Benefits $ 568 $ 1,551 $ 2,341 $ 2,659 $ 4,268 $ 5,167 $ 2,759 Number of New Retired Members 22 13 17 13 7 5 77 *The Schedule of Average Benefit Payments includes information in accordance with GASB Statement No. 44 for the periods from July 1, 2016 through June 30, 2021. Since implementing PG3 - our new Pension Administration System commencing July 1, 2015, we are now able to capture information prospectively that is necessary for the System to comply with GASB 44 reporting. The System will provide 10 years in the format required by GASB 44 as information becomes available.
City of Fresno Employees Retirement System l STATISTICAL Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 94 Retirees by Type of Benefit
As of June 30, 2021
Amount of Number of Type of Retirement*
Monthly Benefit Retirees 1 2 3
$1 - $1,000 358 254 2 102
$1,001 - $2,000 656 409 87 160
$2,001 - $3,000 467 368 49 50
$3,001 - $4,000 275 248 15 12
$4,001 - $5,000 155 146 5 4
$5,001 - $6,000 97 88 6 3
$6,001 - $7,000 54 53 1 —
> $7,000 67 67 — —
Total 2,129 1,633 165 331
*Type of Retirement
1 - Service Retiree
2 - Disability Retiree
3 - Beneficiary/Continuant/Survivor
Amount of Number of Option Selected**
Monthly Benefit Retirees Unmodified Option 1 Option 2 Option 3 $1 - $1,000 358 198 76 67 17
$1,001 - $2,000 656 311 175 130 40
$2,001 - $3,000 467 205 107 110 45
$3,001 - $4,000 275 116 73 67 19
$4,001 - $5,000 155 56 38 41 20
$5,001 - $6,000 97 48 22 20 7
$6,001 - $7,000 54 26 13 11 4
> $7,000 67 20 13 25 9
Total 2,129 980 517 471 161
**Option Selected
Unmodified - Beneficiary receives 50% of the member's allowance Option 1 - Beneficiary receives lump sum of member's unused contributions Option 2 - Beneficiary receives 100% of member's reduced monthly benefit Option 3 - Beneficiary receives 75% of member's reduced monthly benefit City of Fresno Employees Retirement System l STATISTICAL Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 95 Schedule and Graph of Pension Benefit Payments
Deductions by Type
Last Ten Fiscal Years 2012 - 2021
(Dollars in Millions)
Service Retiree Benefits Disability Retiree Benefits Separation Death Benefits Misc
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
$0
$10
$20
$30
$40
$50
$60
$70
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Service Retiree Benefits $39.5 $42.4 $43.4 $45.1 $46.8 $49.9 $51.5 $56.6 $59.1 $62.3 Disability Retiree Benefits 3.3 3.4 4.0 3.9 4.4 4.5 4.7 4.2 4.5 5.2 Separation 1.1 1.1 1.1 1.3 1.1 1.1 1.4 1.2 0.8 1.3
Death Benefits 0.2 0.1 0.1 0.2 0.2 — — 0.1 0.1 0.4
Misc — — — — — — — — — —
Total Benefit Deductions $44.1 $47.0 $48.6 $50.5 $52.5 $55.5 $57.6 $62.1 $64.5 $69.2 City of Fresno Employees Retirement System l STATISTICAL Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 96 Schedule and Graph of Active Vested, Active Non-Vested and Deferred Membership History
Last Ten Fiscal Years 2012 - 2021
ACTIVE VESTED ACTIVE NON-VESTED DEFERRED
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
0 250
500
750
1000
1250
1500
1750
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
ACTIVE VESTED 1,638 1,641 1,604 1,517 1,462 1,405 1,285 1,266 1,295 1,319 ACTIVE NON-VESTED 267 205 263 376 492 674 887 965 993 994 DEFERRED 217 205 209 236 261 251 251 247 243 248
TOTAL 2,122 2,051 2,076 2,129 2,215 2,330 2,423 2,478 2,531 2,561 City of Fresno Employees Retirement System l STATISTICAL Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 97 Schedule and Graph of Retirees Pension Benefit Payments by Type of Benefit
Last Ten Fiscal Years 2012 - 2021
SERVICE RETIREMENTS SERVICE DISABLITY
NON-SERVICE DISABILITY SURVIVORS
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
0 75
150
225
300
375
450
525
600
675
750
825
900
975
1050
1125
1200
1275
1350
1425
1500
1575
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
SERVICE RETIREMENTS 1,166 1,202 1,237 1,342 1,398 1,454 1,498 1,551 1,583 1,633 SERVICE DISABLITY 67 71 73 71 82 89 92 95 99 104
NON-SERVICE DISABILITY 71 73 68 68 67 63 63 65 62 61
SURVIVORS 358 354 363 302 302 310 317 324 332 331
TOTAL 1,662 1,700 1,741 1,783 1,849 1,916 1,970 2,035 2,076 2,129 City of Fresno Employees Retirement System l STATISTICAL Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 98 Summary of Active Participants
NUMBER OF PENSIONABLE ANNUAL NET CHANGE IN
YEAR MEMBERS PAYROLL AVERAGE SALARY AVERAGE SALARY
2021 2,313 $154,030,657 $66,593 1.98%
2020 2,288 $149,402,670 $65,298 5.26%
2019 2,231 $138,395,785 $62,033 4.88%
2018 2,172 $128,461,461 $59,144 3.32%
2017 2,079 $119,006,918 $57,242 3.05%
2016 1,954 $108,541,068 $55,548 (0.63%)
2015 1,893 $105,820,382 $55,901 0.46%
2014 1,867 $103,890,391 $55,646 (2.64%)
2013 1,846 $105,508,591 $57,155 (1.46%)
2012 1,905 $110,492,026 $58,001 5.69%
Summary of Retirees
ANNUAL NET CHANGE
ANNUAL AVERAGE IN BENEFITS
NUMBER BENEFITS TO ALLOWANCE TO
YEAR OF RETIREES PARTICIPANTS (INDIVIDUAL) PARTICIPANTS 2021 2,129 $67,497,485 $31,704 3.50%
2020 2,076 $63,591,967 $30,632 2.50%
2019 2,035 $60,814,434 $29,884 4.68%
2018 1,970 $56,241,911 $28,549 0.64%
2017 1,916 $54,350,851 $28,367 2.44%
2016 1,849 $51,198,523 $27,690 0.61%
2015 1,783 $49,072,063 $27,522 1.14%
2014 1,741 $47,376,551 $27,212 0.82%
2013 1,700 $45,883,057 $26,990 4.73%
2012 1,662 $42,833,718 $25,772 (3.76%)
City of Fresno Employees Retirement System l STATISTICAL Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 99 Member and City Contribution Rates
Last Ten Fiscal Years 2012 - 2021
Member Rates City Contribution Rates
As of June 30 Basic at Entry Age Total
City Rate
Less
Prefunded Actuarial
Accrued Liability
(PAAL)
Net City
Contribution
RateFiscal Year Valuation Date 20 25 30 Basic COLA
June 30, 2021 June 30, 2019 5.78% 6.79% 8.13% 10.55% 2.82% 13.37% (0.34%) 13.03% June 30, 2020 June 30, 2018 4.7% 5.56% 6.7% 9.09% 2.61% 11.70% (0.59%) 11.11% June 30, 2019 June 30, 2017 4.84% 5.72% 6.89% 9.14% 2.52% 11.66% (1.08%) 10.58% June 30, 2018 June 30, 2016 5.12% 6.05% 7.29% 9.18% 2.51% 11.69% (0.3%) 11.39% June 30, 2017 June 30, 2015 5.69% 6.69% 7.99% 9.5% 2.76% 12.26% 0.51% 12.77% June 30, 2016 June 30, 2014 5.69% 6.68% 7.98% 9.31% 2.75% 12.06% (0.02%) 12.04% June 30, 2015 June 30, 2013 5.69% 6.68% 7.98% 9.02% 3.01% 12.03% (0.38%) 11.65% June 30, 2014 June 30, 2012 5.33% 6.28% 7.53% 8.63% 2.65% 11.28% (0.27%) 11.01% June 30, 2013 June 30, 2011 5.34% 6.29% 7.56% 8.75% 2.62% 11.37% 1.26% 12.63% June 30, 2012 June 30, 2010 3.47% 4.09% 4.91% 8.2% 2.5% 10.70% (0.49%) 10.21% Data Source: Annual Actuarial Valuation Reports
Economic Assumptions and Funding Method
Last Ten Fiscal Years 2012 - 2021
Valuation Date
as of Salary Cost-of-Living Inflation Funding
June 30 Interest Scale Adjustment (COLA) Component Method June 30, 2021 7.00% .50 - 8.0% 2.75% 2.75% Entry Age Normal June 30, 2020 7.00% .50 - 8.0% 2.75% 2.75% Entry Age Normal June 30, 2019 7.00% .25 - 8.0% 2.75% 2.75% Entry Age Normal June 30, 2018 7.25% .25 - 8.0% 3.00% 3.00% Entry Age Normal June 30, 2017 7.25% .25 - 8.0% 3.00% 3.00% Entry Age Normal June 30, 2016 7.25% .25 - 8.0% 3.00% 3.00% Entry Age Normal June 30, 2015 7.50% .50 - 8.0% 3.25% 3.25% Entry Age Normal June 30, 2014 7.50% .60 - 8.5% 3.25% 3.25% Entry Age Normal June 30, 2013 7.50% .60 - 8.5% 3.25% 3.25% Entry Age Normal June 30, 2012 8.00% .60 - 8.5% 3.50% 3.50% Entry Age Normal Source: The Segal Company June 30, 2021, Actuarial Valuation Report City of Fresno Employees Retirement System l STATISTICAL Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 100 Benefits and Withdrawals Paid
Last Ten Fiscal Years 2012 - 2021
(In Thousands)
BENEFITS PRSB WITHDRAWALS
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
$0
$10000
$20000
$30000
$40000
$50000
$60000
$70000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
BENEFITS $ 42,696 $ 45,807 $ 47,368 $ 49,072 $ 51,199 $ 54,351 $ 56,242 $ 60,814 $ 63,592 $ 67,497 PRSB 138 76 9 — — — — — — —
WITHDRAWALS 1,313 1,157 1,204 1,474 1,330 1,199 1,424 1,330 928 1,749 TOTAL 46,159 49,053 50,595 52,561 54,545 57,567 59,684 64,163 66,540 71,267 City of Fresno Employees Retirement System l STATISTICAL Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 101 Average Monthly Benefits to Retirees
Last Ten Fiscal Years 2012 - 2021
(In Thousands)
Average Monthly Benefit Average Monthly PRSB
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
$0
$500
$1000
$1500
$2000
$2500
$3000
Average Monthly 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Benefit $2,141 $2,245 $2,267 $2,294 $2,367 $2,363 $2,379 $2,490 $2,552 $2,642 PRSB 7 4 — — — — — — — —
Total Average Monthly $2,148 $2,249 $2,267 $2,294 $2,367 $2,363 $2,379 $2,490 $2,552 $2,642 City of Fresno Employees Retirement System l STATISTICAL Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 102
EXPECTATION OF LIFE
(Age and Service Retirees)
Years of Age
Male Female
25 30 35 40 45 50 55 60 65 70
0.00 0.20
0.40 0.60
0.80 Separation Rates Prior to Retirement
Due to Death*
Rate %
Age Male Female
25 0.03 0.01
30 0.04 0.01
35 0.05 0.02
40 0.07 0.04
45 0.10 0.06
50 0.15 0.08
55 0.22 0.12
60 0.32 0.19
65 0.47 0.30
70 0.70 0.49
*All pre-retirement deaths are assumed to be non-
service connected.
EXPECTATION OF LIFE
(Disabled Retirees)
Years of Age
20 25 30 35 40 45 50 55 60 65 70
0.00 1.00
2.00 3.00
4.00 5.00
Separation Rates Prior to Retirement
Due to Disability
Rate %
Age Rate (%)
20 0.00
25 0.00
30 0.00
35 0.00
40 0.06
45 0.28
50 0.40
55 0.88
60 2.04
65 3.38
70 3.90
City of Fresno Employees Retirement System l STATISTICAL Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 103 To attract, develop and
retain competent and
professional staff.
To achieve and
maintain superior
investment
performance on a risk
controlled basis
measured by the
Public Fund Universe.
COMPLIANCE
105 Independent Auditor’s Report on Internal Control Over Financial Reporting and On Compliance and Other Matters Based on an Audit of Financial Statements Performed in
Accordance with Government Auditing Standards
Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 104 Independent Auditor’s Internal Control Letter
City of Fresno Employees Retirement System l COMPLIANCE Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 105 Independent Auditor’s Internal Control Letter Continued City of Fresno Employees Retirement System l COMPLIANCE Annual Comprehensive Financial Report For Fiscal Years Ended June 30, 2021 and 2020 106