Oklahoma Teachers Retirement System IS 14 005 Annual

Oklahoma Teachers Retirement System - IS 14 -005 Annual Review House Interim Study 16 -019 (Best Practices & Financial Condition) September 13, 2016 Tom Spencer, Executive Director

History and Overview �Created in 1943 by an act of the Oklahoma Legislature. �Official operations began July 1, 1943. �First retirement checks disbursed Jan. 1, 1947. �Employees of more than 600 local school districts, career technology schools, public colleges and universities are enrolled as members of OTRS. 2

OTRS Board of Trustees OTRS is governed by a Board of Trustees comprised of 13 voting members and 1 non-voting member. Trustees are appointed by the Governor, President Pro-Tem, and Speaker of the House, as well as several ex officio members from the executive branch. The non-voting Trustee is appointed by a statewide organization representing retired educators. That Trustee was seated for the first time in January 2015. 3

OTRS Membership �Available to all public school employees working half-time or more. �Teachers and administrators are required to be members. �Support staff may join voluntarily. �As of June 30, 2016, TRS had 172, 454 total clients: � 89, 490 Active Clients � 60, 261 Retired Clients (incl. beneficiaries) � 10, 813 Inactive Vested Clients � 11, 890 Inactive Non-vested Clients 4

The Plan �Defined Benefit Plan �Retirees receive a lifetime annuity �Benefit calculated by average salary X years of service X 2%. �Employee and employer pay contributions �Vesting is 5 years �COLAs – Not statutory; all “ad hoc. ” 5

Financial Overview �FY-2016 Contributions - $1. 020 Billion * �Client Contributions - $302. 07 M �Employer Contributions - $402. 1 M �State Contributions (& grants) - $315. 7 M �FY-2016 Expenditures - $1. 29 B * �Benefit Payments - $1. 2 B �Refunds - $36. 1 M �Administrative Expenses - $4. 45 M Ratio of Contrib. to Expenditures – 79% *All amounts are unaudited 6

OTRS Investment Performance Annual Market Rate of Return (Fiscal Year) 2016 (2. 00)% 2015 3. 5% 2014 22. 4% 2013 17. 8% 2012 1. 80% 2011 23. 5% 2010 16. 6% 2009 (15. 25)% 2008 (7. 50)% 2007 18. 00% 2006 9. 40% 2005 10. 00% 2004 20. 2% 2003 4. 80% 2002 (5. 40)% 2001 (2. 30)% 2000 10. 5% 1999 11. 9% Compound annualized rate of returns (end of fiscal years): 10 yr. 7. 1% 5 yr. 8. 3 % 3 yr. 7. 5% 7

OTRS Investments �Asset Allocation: The asset allocation for OTRS is as follows: 40% Domestic Equities 17. 5% International Equities 17. 5% Core Fixed Income 6. 0% High Yield Bonds 19. 0% Alternatives (MLP’s, Priv. Eq. , Real Estate) 8

Investment Returns – Historical Investment Returns by Fiscal Year 25% 20% 15% 10% 5% 0% -5% -10% 19 96 19 98 20 00 20 02 20 04 20 06 20 08 20 10 20 12 20 14 20 16 9

Legislation 2016 HB 2263 (Rep. Randy Mc. Daniel; Sen. Jason Smalley) eff. 11/1/16 This was a TRS request bill that did several things: 1. Creates a retirement application with a 60 -day deadline. (Waiver process) 2. “Final Certification” is required from employer for retiring clients to hasten reconciliation of benefit amount. 3. Permits “Special Needs Trusts” to be named beneficiaries. 4. Increases probate waiver authority from $5, 000 to $25, 000. 10

Legislation 2016 (continued) 5. Medical Board can have out-of-state doctors. Will allow possible out-sourcing. 6. Participating employers must give access to payroll records & cooperate with TRS auditors. 7. TRS Board can grant late payment waivers for good cause to employers. 11

TRS Improvements Since 2014 1. Rigorous internal audit program by external audit firm. 2. Hiring of a credentialed Chief Investment Officer with 16 yrs. experience as a CIO who is a Chartered Financial Analyst (CFA). 3. Roll out of an online portal giving client access to membership data and ability to do transactions. 4. Created the position and hired a General Counsel (first ever) 5. Improved Information Center with two new positions, new phone system and ability to initiate transactions. 12

Tom Spencer, Executive Director Oklahoma Teachers Retirement System (405) 521 -4745 (800) 543 -6044 �www. ok. gov/trs 13