2008 annual report Fiscal Year Ended June 30, 2008 INTRODUCTORY SECTION TABLE OF CONTENTS INTRODUCTORY SECTION Boards of Trustees Letter of Transmittal ACTUARIAL SECTION Employees' Retirement System Public School Employees Retirement System Legislative Retirement System Georgia Judicial Retirement System Group Term Life Insurance Plan -- Pre-Retirement Group Term Life Insurance Plan -- Post-Retirement Georgia Military Pension Fund INVESTMENT SECTION Pooled Investment Fund/Structural Analysis/Short-Term Investments Bonds Equity Holdings FINANCIAL SECTION Independent Auditors' Report Management's Discussion and Analysis (Unaudited) Basic Financial Statements: Combined Statement of Net Assets as of June 30, 2008 (With Comparative Totals as of June 30, 2007) Combined Statement of Changes in Net Assets for the Year Ended June 30, 2008 (With Comparative Totals for the Year Ended June 30, 2007) Combining Statement of Net Assets as of June 30, 2008 Defined Benefit Plans Combining Statement of Net Assets as of June 30, 2008 Combining Statement of Changes in Net Assets for the Year Ended June 30, 2008 Defined Benefit Plans Combining Statement of Changes in Net Assets for the Year Ended June 30, 2008 Notes to Financial Statements Required Supplementary Schedules (Unaudited) Schedules of Funding Progress Schedules of Employer Contributions Notes to Required Supplementary Schedules Additional Information Administrative Expenses Schedule Contributions and Expenses for the Year Ended June 30, 2008 (With Comparative Totals for the Year Ended June 30, 2007) 2008 - Employees' Retirement System of Georgia 2 3 5 9 13 17 21 25 29 33 34 35 36 37 42 43 44 45 46 47 48 65 66 67 69 1 INTRODUCTORY SECTION BOARDS OF TRUSTEES Russell W. Hinton, ex-officio Chair State Auditor Employees' Retirement System Public School Employees Retirement System Legislative Retirement System Georgia Judicial Retirement System Georgia Defined Contribution Plan Georgia Military Pension Fund Georgia Deferred Compensation Plans State Employees' Assurance Department Dan Ebersole, ex-officio Director Office of Treasury and Fiscal Services Employees' Retirement System Public School Employees Retirement System Legislative Retirement System Georgia Judicial Retirement System Georgia Defined Contribution Plan Georgia Military Pension Fund Georgia Deferred Compensation Plans State Employees' Assurance Department Michael D. Kennedy Korn/Ferry International Employees' Retirement System Public School Employees Retirement System Legislative Retirement System Georgia Judicial Retirement System Georgia Defined Contribution Plan Georgia Military Pension Fund Georgia Deferred Compensation Plans Celeste Osborn Deputy Chief Financial Officer Office of the Governor Employees' Retirement System Public School Employees Retirement System Legislative Retirement System Georgia Judicial Retirement System Georgia Defined Contribution Plan Georgia Military Pension Fund Georgia Deferred Compensation Plans Harold Reheis Joe Tanner & Associates Employees' Retirement System Public School Employees Retirement System Legislative Retirement System Georgia Judicial Retirement System Georgia Defined Contribution Plan Georgia Military Pension Fund Georgia Deferred Compensation Plans Ned J. Winsor Vice Chair Assistant Treasurer United Parcel Service Employees' Retirement System Public School Employees Retirement System Legislative Retirement System Georgia Judicial Retirement System Georgia Defined Contribution Plan Georgia Military Pension Fund Georgia Deferred Compensation Plans State Employees' Assurance Department Steve Stevenson Commissioner State Personnel Administration Employees' Retirement System Public School Employees Retirement System Legislative Retirement System Georgia Judicial Retirement System Georgia Defined Contribution Plan Georgia Military Pension Fund Georgia Deferred Compensation Plans State Employees' Assurance Department Daniel J. Craig Superior Court Judge Augusta Judicial Circuit Georgia Judicial Retirement System William D. Ray Superior Court Judge Gwinnett County Georgia Judicial Retirement System Karlton Van Banke Presiding Judge Juvenile Court of Clayton County Georgia Judicial Retirement System Samuel B. Kellett President Kangaroo Bob's LLC Public School Employees Retirement System J. Sammons Pearson Vice President - Wealth Management Smith Barney Public School Employees Retirement System Michael Thurmond, ex-officio Commissioner of Labor State Employees' Assurance Department H. Phillip Bell Owner Phillip Bell State Farm Insurance Agency State Employees' Assurance Department 2 2008 - Employees' Retirement System of Georgia INTRODUCTORY SECTION LETTER OF TRANSMITTAL The Boards of Trustees and staff are pleased to present the 2008 Annual Report of the retirement systems and programs administered by the Employees' Retirement System of Georgia (ERS). This Report has been prepared in accordance with generally accepted accounting principles as promulgated by the Governmental Accounting Standards Board (GASB) and is presented in four sections: Introductory, Actuarial, Investment, and Financial. The mission of ERS is to be the guardian of the plans for the ultimate benefit of the members, retirees, and beneficiaries of the plans. ERS's core responsibility is pension administration: the collection, reconciliation and disbursement of contributions for the welfare of the members, retirees, and beneficiaries of the plans and the sound and secure investment of retirement funds. We believe this report properly reflects the dedication of the Board of Trustees, staff, and consultants in carrying out ERS's mission. Profile of the Systems ERS administers separate and distinct cost-sharing, multiple employer defined benefit pension plans for various employer agencies of the State of Georgia, as well as defined contribution plans, and a life insurance plan, which are as follows: Employees' Retirement System of Georgia Public School Employees Retirement System Legislative Retirement System Georgia Judicial Retirement System Georgia Military Pension Fund Superior Court Judges Retirement Fund District Attorneys Retirement Fund Georgia Defined Contribution Plan 401(k) Deferred Compensation Plan 457 Deferred Compensation Plan State Employees' Assurance Department During fiscal year 2008, the net assets of the System decreased by $1.4 billion, or 7.8% to $16.1 billion by June 30, 2008. This decline was primarily due to the decrease in the fair market value of investments. Legislative Overview Three key pieces of legislation were passed during the 2008 Legislative session which impact the plans ERS administers: Act 761 requires the boards of all public retirement funds of the State of Georgia to create and maintain a "Scrutinized Companies with Activities in the Iran Petroleum Energy Section List," and to divest from any such companies as long as they remain on the list. The Division of Investment Services complied with the requirements of this Act and will continue to supply any and all necessary reports. Act 414 expanded the definition of public employment related crimes to include any felony offense related to an officer's or employee's public employment in the State of Georgia as provided under the law of this state, any other state, or the United States. These provisions shall apply to persons who first or again become members of a public retirement system on or after July 1, 2008. 2008 - Employees' Retirement System of Georgia 3 INTRODUCTORY SECTION LETTER OF TRANSMITTAL Act 757, the largest of the three legislative changes, created the Georgia State Employees' Pension and Savings Plan (GSEPS). This plan provides a defined benefit plan (DB) and a 401(k) plan with matching employer contributions for new hires on and after January 1, 2009, and an option to transfer membership to GSEPS for those employees in the membership of ERS on December 31, 2008. The ERS Board of Trustees shall have the responsibility of administering GSEPS. Persons who first or again become an employee entitled to membership in ERS on or after January 1, 2009 shall be a member of GSEPS. Group Term Life Insurance coverage will not be provided to any member of GSEPS. The DB formula for GSEPS will be 1% for each year of service multiplied by the average of the highest 24 consecutive calendar months of salary while a member. The formula can be increased in the future up to 2% by the board of trustees, provided funds are appropriated by the General Assembly. Vesting in the DB plan requires 10 years of creditable service. In addition, GSEPS members are automatically enrolled in the 401(k) plan to contribute 1% of their compensation. The state will match 100% of the employee's initial 1% of salary. Employees can choose to decline participation in the 401(k) and forego any match. Employees may elect to contribute up to an additional 4% and the state will match 50% of the additional 4% of salary. Therefore, the state will match 3% against the employee's 5% total savings. Employees may contribute more than 5%, subject to federal rules, with no match. The employee's own savings amounts and associated investment earnings are always 100% vested. State matching contributions and associated investment earnings will vest over 5 years at 20% per year, as follows: Completed years of service 1 2 3 4 5 Percent vested 20% 40% 60% 80% 100% Acknowledgements We express our sincere thanks to the Boards of Trustees for their leadership and support. Many thanks are also extended to the offices of the Governor, Lieutenant Governor, members of the House and Senate Retirement Committees and their staff, members of the House of Representatives and the Senate, and the department officials whose support and assistance have helped ERS accomplish its mission over the years. Respectfully submitted, Pamela L. Pharris, Executive Director Employees' Retirement System of Georgia 4 2008 - Employees' Retirement System of Georgia ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Employees' Retirement System June 30, 2008 Board of Trustees Employees' Retirement System of Georgia Two Northside 75, Suite 300 Atlanta, GA 30318-7778 Attention: Mr. Michael Nehf, Executive Director Members of the Board: Section 47-2-26 of the law governing the operation of the Employees' Retirement System of Georgia provides that the actuary shall make annual valuations of the contingent assets and liabilities of the Retirement System on the basis of regular interest and the tables last adopted by the Board of Trustees. We have submitted the report giving the results of the actuarial valuation of the System prepared as of June 30, 2007. The report indicates that annual employer contributions at the rate of 5.66% of compensation for Old Plan Members and 10.41% of compensation for New Plan Members for the fiscal year ending June 30, 2010 are sufficient to support the benefits of the System. In preparing the valuation, the actuary relied on data provided by the System. While not verifying data at the source, the actuary performed tests for consistency and reasonableness. Our firm, as actuary, is responsible for all of the actuarial trend data in the financial section of the annual report and the supporting schedules in the actuarial section of the annual report. In our opinion, the valuation is complete and accurate, and the methodology and assumptions are reasonable as a basis for the valuation. The valuation takes into account the effect of all amendments to the System enacted through the 2007 session of the General Assembly. The valuation reflects a 1.5% Ad Hoc COLA effective July 1, 2007, a 0.5% Ad Hoc COLA effective January 1, 2008, and semi-annual 1% COLAs effective through January 1, 2010. The System is funded on an actuarial reserve basis. The actuarial assumptions recommended by the actuary and adopted by the Board are in the aggregate reasonably related to the experience under the System and to reasonable expectations of anticipated experience under the System. The assumptions and methods used for funding purposes meet the parameters set for the disclosures presented in the financial section by Governmental Accounting Standards Board (GASB) Statement Nos. 25 and 27. The funding objective of the plan is that contribution rates over time will remain level as a percent of payroll. The valuation method used is the entry age normal cost method. The normal contribution rate to cover current cost has been determined as a level percent of payroll. Gains and losses are reflected in the unfunded accrued liability which is being amortized as a level percent of payroll within a 15-year period. The System is being funded in conformity with the minimum funding standard set forth in Code Section 47-20-10 of the Public Retirement Systems Standards Law. In our opinion the System is operating on an actuarially sound basis. Assuming that contributions to the System are made by the employer from year to year in the future at the rates recommended on the basis of the successive valuations, the continued sufficiency of the retirement fund to provide the benefits called for under the System may be safely anticipated. 2008 - Employees' Retirement System of Georgia 5 ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Employees' Retirement System June 30, 2008 Board of Trustees Page 2 This is to certify that the independent consulting actuary is a member of the American Academy of Actuaries and has experience in performing valuations for public retirement systems, that the valuation was prepared in accordance with principles of practice prescribed by the Actuarial Standards Board, and that the actuarial calculations were performed by qualified actuaries in accordance with accepted actuarial procedures, based on the current provisions of the retirement system and on actuarial assumptions that are internally consistent and reasonably based on the actual experience of the System. Future actuarial results may differ significantly from the current results presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan's funded status); and changes in plan provisions or applicable law. Since the potential impact of such factors is outside the scope of a normal annual actuarial valuation, an analysis of the range of results is not presented herein. Sincerely yours, Edward A. Macdonald, ASA, FCA, MAAA President EAM: bdm Cathy Turcot Managing Director 6 2008 - Employees' Retirement System of Georgia ACTUARIAL SECTION VALUATION BALANCE SHEET Employees' Retirement System - As of June 30, 2007 - DOLLAR AMOUNTS IN THOUSANDS ACTUARIAL LIABILITIES (1) Present value of prospective benefits payable on account of present retired members, beneficiaries of deceased members, and members entitled to deferred vested benefits Service and disability benefits Death and survivor benefits Deferred vested benefits Total (2) Present value of prospective benefits payable on account of present active members (3) TOTAL ACTUARIAL LIABILITIES PRESENT AND PROSPECTIVE ASSETS (4) Actuarial value of assets (5) Present value of total future contributions = (3)-(4) (6) Present value of future member contributions and employer normal contributions (7) Prospective unfunded accrued liability contributions = (5)-(6) (8) TOTAL PRESENT AND PROSPECTIVE ASSETS $ 8,341,987 557,745 121,158 $ $ $ $ 2,703,820 $ 9,020,890 7,526,619 16,547,509 13,843,689 1,662,330 1,041,490 16,547,509 2008 - Employees' Retirement System of Georgia 7 ACTUARIAL SECTION SUMMARY OF PRINCIPAL RESULTS Employees' Retirement System DOLLAR AMOUNTS IN THOUSANDS Valuation Date Number of active members Annual earnable compensation Number of retired members and beneficiaries Annual Allowances Assets: Market Value Actuarial Value Unfunded actuarial accrued liability Amortization period (years) Funded Percentage For Fiscal Year Ending Annual Required Employer Contribution Rates (ARC) Old Plan Initial Normal Rate Employer Paid on Behalf of Employee Normal Rate Accrued Liability Rate Total New Plan Normal Rate Accrued Liability Rate Total June 30, 2007 73,985 $ 2,680,972 34,174 $ 936,278 June 30, 2006 74,089 $ 2,630,167 32,839 $ 842,157 $ 14,272,114 13,843,689 $ 1,041,490 15 93.0% $ 13,033,861 13,461,132 $ 781,713 10 94.5% June 30, 2010 June 30, 2009 6.83% (4.75) 2.08% 3.58% 5.66% 6.83% 3.58% 10.41% 6.77% (4.75) 2.02% 3.64% 5.66% 6.77% 3.64% 10.41% 8 2008 - Employees' Retirement System of Georgia ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Public School Employees' Retirement System June 20, 2008 Board of Trustees Georgia Public School Employees' Retirement System Two Northside 75, Suite 300 Atlanta, GA 30318 Members of the Board: Section 47-4-60 of the law governing the operation of the Georgia Public School Employees' Retirement System provides that the employer contribution shall be actuarially determined and approved by the Board of Trustees. We have submitted the report giving the results of the actuarial valuation of the System prepared as of June 30, 2007. Based on a monthly benefit accrual rate of $14.75, which is effective July 1, 2008, the valuation indicates that annual employer contributions of $5,529,000 or $141.46 per active member for the fiscal year ending June 30, 2010 are sufficient to support the benefits of the System. In preparing the valuation, the actuary relied on data provided by the System. While not verifying data at the source, the actuary performed tests for consistency and reasonableness. Our firm, as actuary, is responsible for all of the actuarial trend data in the financial section of the annual report and the supporting schedules in the actuarial section of the annual report. In our opinion, the valuation is complete and accurate, and the methodology and assumptions are reasonable as a basis for the valuation. Since the previous valuation, the monthly benefit rate has been increased to $14.75 per year of creditable service with an effective date of July 1, 2008. The valuation takes into account the effect of all amendments to the System enacted through the 2007 session of the General Assembly. The System is funded on an actuarial reserve basis. The actuarial assumptions recommended by the actuary and adopted by the Board are in the aggregate reasonably related to the experience under the System and to reasonable expectations of anticipated experience under the System. The assumptions and methods used for funding purposes meet the parameters set for the disclosures presented in the financial section by Governmental Accounting Standards Board (GASB) Statement Nos. 25 and 27. The funding objective of the plan is that contribution rates over time will remain level as a dollar per active member. The valuation method used is the entry age normal cost method. The normal contribution rate to cover current cost has been determined as a dollar per active member. Gains and losses are reflected in the unfunded accrued liability which is negative and being amortized as a level dollar per active member within a 15-year period. The System is being funded in conformity with the minimum funding standard set forth in Code Section 47-20-10 of the Public Retirement Systems Standards Law. In our opinion the System is operating on an actuarially sound basis. Assuming that contributions to the System are made by the employer from year to year in the future at the rates recommended on the basis of the successive actuarial valuations, the continued sufficiency of the retirement fund to provide the benefits called for under the System may be safely anticipated. 2008 - Employees' Retirement System of Georgia 9 ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Public School Employees' Retirement System June 20, 2008 Board of Trustees Page 2 This is to certify that the independent consulting actuary is a member of the American Academy of Actuaries and has experience in performing valuations for public retirement systems, that the valuation was prepared in accordance with principles of practice prescribed by the Actuarial Standards Board, and that the actuarial calculations were performed by qualified actuaries in accordance with accepted actuarial procedures, based on the current provisions of the retirement system and on actuarial assumptions that are internally consistent and reasonably based on the actual experience of the System. Future actuarial results may differ significantly from the current results presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan's funded status); and changes in plan provisions or applicable law. Since the potential impact of such factors is outside the scope of a normal annual actuarial valuation, an analysis of the range of results is not presented herein. Sincerely yours, Edward A. Macdonald, ASA, FCA, MAAA President EAM:mjn Cathy Turcot Managing Director 10 2008 - Employees' Retirement System of Georgia ACTUARIAL SECTION VALUATION BALANCE SHEET Public School Employees' Retirement System - As of June 30, 2007 - ACTUARIAL LIABILITIES (1) Present value of prospective benefits payable on account of present retired members, beneficiaries of deceased members, and members entitled to deferred vested benefits Service and disability benefits Death and survivor benefits Deferred vested benefits Total (2) Present value of prospective benefits payable on account of present active members (3) TOTAL ACTUARIAL LIABILITIES PRESENT AND PROSPECTIVE ASSETS (4) Actuarial value of assets (5) Present value of total future contributions = (3)-(4) (6) Present value of future member contributions (7) Present value of future employer contributions = (5)-(6) (8) Employer normal contribution rate (9) Present value of future membership service (10) Prospective normal contributions = (8) x (9) (11) Prospective unfunded actuarial accrued liability contributions = (7)-(10) (12) TOTAL PRESENT AND PROSPECTIVE ASSETS $ 411,562,719 17,557,778 27,747,831 $ 456,868,328 347,568,891 $ 804,437,219 $ 18,977,219 $ 11,863,331 $ 259.33 197,608 $ 785,460,000 7,113,888 51,245,683 (39,382,352) $ 804,437,219 2008 - Employees' Retirement System of Georgia 11 ACTUARIAL SECTION SUMMARY OF PRINCIPAL RESULTS Public School Employees' Retirement System Valuation Date Number of active members Retired members and beneficiaries: Number Annual allowances Assets: Market Value Actuarial Value Unfunded actuarial accrued liability Amortization period (years) Funded ratio For Fiscal Year Ending Employer contribution rate per active member: Normal Accrued liability Total Annual Required Employer Contribution (ARC): Normal Accrued liability Total June 30, 2007 39,086 June 30, 2006 37,587 13,193 $ 46,661,948 13,014 $ 44,266,003 $ 811,649,000 785,460,000 $ (39,382,352) 15 105.3% $ 743,689,000 766,277,000 $ (74,625,572) 20 110.8% June 30, 2010 June 30, 2009 $ 259.33 $ 237.64 (117.87) (196.82) $ 141.46 $ 40.82 $ 10,136,000 (4,607,000) $ 5,529,000 $ 8,932,175 (7,397,873) $ 1,534,302 Does not include increases in benefit accrual rate effective after the valuation date. The results of the valuation have been adjusted to include these increases. The ARC is in addition to any administrative expense allotments that are contributed to the System. 12 2008 - Employees' Retirement System of Georgia ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Legislative Retirement System June 30, 2008 Board of Trustees Legislative Retirement System of Georgia Two Northside 75, Suite 300 Atlanta, GA 30318 Members of the Board: Section 47-6-22 of the law governing the operation of the Georgia Legislative Retirement System provides that the actuary shall make periodic valuations of the contingent assets and liabilities of the Retirement System on the basis of regular interest and the tables last adopted by the Board of Trustees. We have submitted the report giving the results of the actuarial valuation of the System prepared as of June 30, 2007. The report indicates that no annual employer contributions for the fiscal year ending June 30, 2010 are required to support the benefits of the System. In preparing the valuation, the actuary relied on data provided by the System. While not verifying data at the source, the actuary performed tests for consistency and reasonableness. Our firm, as actuary, is responsible for all of the actuarial trend data in the financial section of the annual report and the supporting schedules in the actuarial section of the annual report. In our opinion, the valuation is complete and accurate, and the methodology and assumptions are reasonable as a basis for the valuation. The valuation takes into account the effect of all amendments to the System enacted through the 2007 session of the General Assembly. The System is funded on an actuarial reserve basis. The actuarial assumptions recommended by the actuary and adopted by the Board are in the aggregate reasonably related to the experience under the System and to reasonable expectations of anticipated experience under the System. The assumptions and methods used for funding purposes meet the parameters set for the disclosures presented in the financial section by Governmental Accounting Standards Board (GASB) Statement Nos. 25 and 27. The funding objective of the plan is that contribution rates over time will remain level as a dollar per active member. The valuation method used is the entry age normal cost method. The normal contribution rate to cover current cost has been determined as a level dollar per active member. Gains and losses are reflected in the unfunded accrued liability which is negative and being amortized as a level dollar per active member. The System is being funded in conformity with the minimum funding standard set forth in Code Section 47-20-10 of the Public Retirement Systems Standards Law. In our opinion the System is operating on an actuarially sound basis. Assuming that contributions to the System are made by the employer from year to year in the future at the rates recommended on the basis of the successive actuarial valuations, the continued sufficiency of the retirement fund to provide the benefits called for under the System may be safely anticipated. This is to certify that the independent consulting actuary is a member of the American Academy of Actuaries and has experience in performing valuations for public retirement systems, that the valuation was prepared in accordance with principles of practice prescribed by the Actuarial Standards Board, and that the actuarial calculations were performed by qualified actuaries in accordance with accepted actuarial procedures, based on the current provisions of the retirement system and on actuarial assumptions that are internally consistent and reasonably based on the actual experience of the System. 2008 - Employees' Retirement System of Georgia 13 ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Legislative Retirement System June 30, 2008 Board of Trustees Page 2 Future actuarial results may differ significantly from the current results presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan's funded status); and changes in plan provisions or applicable law. Since the potential impact of such factors is outside the scope of a normal annual actuarial valuation, an analysis of the range of results is not presented herein. Sincerely yours, Edward A. Macdonald, ASA, FCA, MAAA President EAM:mjn Cathy Turcot Managing Director 14 2008 - Employees' Retirement System of Georgia ACTUARIAL SECTION VALUATION BALANCE SHEET Legislative Retirement System - As of June 30, 2007 - ACTUARIAL LIABILITIES (1) Present value of prospective benefits payable on account of present retired members, beneficiaries of deceased members, and members entitled to deferred vested benefits Service and disability benefits Death and survivor benefits Deferred vested benefits Total (2) Present value of prospective benefits payable on account of present active members (3) TOTAL ACTUARIAL LIABILITIES PRESENT AND PROSPECTIVE ASSETS (4) Actuarial value of assets (5) Present value of total future contributions = (3)-(4) (6) Present value of future member contributions (7) Present value of future employer contributions = (5)-(6) (8) Prospective normal contributions (9) Prospective unfunded actuarial accrued liability contributions = (7)-(8) (10) TOTAL PRESENT AND PROSPECTIVE ASSETS $ 11,556,383 3,226,209 5,064,294 $ 19,846,886 6,255,519 $ 26,102,405 $ (3,946,595) $ (5,556,929) $ 30,049,000 1,610,334 134,915 (5,691,844) $ 26,102,405 2008 - Employees' Retirement System of Georgia 15 ACTUARIAL SECTION SUMMARY OF PRINCIPAL RESULTS Legislative Retirement System Valuation Date Number of active members Retired members and beneficiaries: Number Annual allowances Assets: Market Value Actuarial Value Unfunded actuarial accrued liability Amortization period (years) Funded Ratio For Fiscal Year Ending Employer contribution rate per active member: Normal Accrued liability Total Annual Required Employer Contribution Rates (ARC): Normal Accrued liability Total June 30, 2007 218 June 30, 2006 218 224 $ 1,608,813 216 $ 1,531,685 $ 31,121,000 30,049,000 $ (5,691,844) N/A* 123.4% $ 28,288,000 29,172,000 $ (5,764,509) N/A* 124.6% June 30, 2010 June 30, 2009 $ 154.55 $ 228.77 (154.55) (228.77) $ 0.00 $ 0.00 $ 33,692 $ 49,872 (33,692) (49,872) $ 0$ 0 * If the annual required employer contribution (ARC) is based on 30 year amortization of the unfunded accrued liability as of June 30, 2007 and June 30, 2006, the ARC is less than $0, which is not allowed under GASB 25/27. Therefore, the accrued liability contribution has been set to such that the total ARC equals $0. 16 2008 - Employees' Retirement System of Georgia ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Georgia Judicial Retirement System July 3, 2008 Board of Trustees, Georgia Judicial Retirement System Suite 400, Two Northside 75 Atlanta, GA 30318 Members of the Board: Section 47-23-21 of the law governs the operation of the Georgia Judicial Retirement System. The actuary makes annual valuations of the contingent assets and liabilities of the Retirement System on the basis of regular interest and the tables last adopted by the Board of Trustees. We have submitted the report giving the results of the actuarial valuation of the System prepared as of June 30, 2007. The report indicates that annual employer contributions at the rate of 3.85% of compensation for the fiscal year ending June, 30, 2010 are sufficient to support the benefits of the System. In preparing the valuation, the actuary relied on data provided by the System. While not verifying data at the source, the actuary performed tests for consistency and reasonableness. Our firm, as actuary, is responsible for all of the actuarial trend data in the financial section of the annual report and the supporting schedules in the actuarial section of the annual report. In our opinion, the valuation is complete and accurate, and the methodology and assumptions are reasonable as a basis for the valuation. The valuation takes into account the effect of all amendments to the System enacted through the 2007 session of the General Assembly as well as 1.5% Ad Hoc COLAs effective July 1, 2007, January 1, 2008, July 1, 2008 and July 1, 2009. The System is funded on an actuarial reserve basis. The actuarial assumptions recommended by the actuary and adopted by the Board are in the aggregate reasonably related to the experience under the System and to reasonable expectations of anticipated experience under the System. The assumptions and methods used for funding purposes meet the parameters set for the disclosures presented in the financial section by Governmental Accounting Standards Board (GASB) Statement Nos. 25 and 27. The funding objective of the plan is that contribution rates over time will remain level as a percent of payroll. The valuation method used is the entry age normal cost method. The normal contribution rate to cover current cost has been determined as a level percent of payroll. Gains and losses are reflected in the unfunded accrued liability which is negative and being amortized as a level percent of payroll within a 16-year period. The System is being funded in conformity with the minimum funding standard set forth in Code Section 47-20-10 of the Public Retirement Systems Standards Law. In our opinion the System is operating on an actuarially sound basis. Assuming that contributions to the System are made by the employer from year to year in the future at the rates recommended on the basis of the successive actuarial valuations, the continued sufficiency of the retirement fund to provide the benefits called for under the System may be safely anticipated. This is to certify that the independent consulting actuary is a member of the American Academy of Actuaries and has experience in performing valuations for public retirement systems, that the valuation was prepared in accordance with principles of practice prescribed by the Actuarial Standards Board, and that the actuarial calculations were performed by qualified actuaries in accordance with accepted actuarial procedures, based on the current provisions of the retirement system and on actuarial assumptions that are internally consistent and reasonably based on the actual experience of the System. 2008 - Employees' Retirement System of Georgia 17 ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Georgia Judicial Retirement System July 3, 2008 Board of Trustees Page 2 Future actuarial results may differ significantly from the current results presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan's funded status); and changes in plan provisions or applicable law. Since the potential impact of such factors is outside the scope of a normal annual actuarial valuation, an analysis of the range of results is not presented herein. Sincerely yours, Edward A. Macdonald, ASA, FCA, MAAA President EAM:kc Cathy Turcot Managing Director 18 2008 - Employees' Retirement System of Georgia ACTUARIAL SECTION VALUATION BALANCE SHEET Georgia Judicial Retirement System - As of June 30, 2007 - ACTUARIAL LIABILITIES (1) Present value of prospective benefits payable on account of present retired members, beneficiaries of deceased members, and members entitled to deferred vested benefits Service and disability benefits Death and survivor benefits Deferred vested benefits Total (2) Present value of prospective benefits payable on account of present active members (3) TOTAL ACTUARIAL LIABILITIES PRESENT AND PROSPECTIVE ASSETS (4) Actuarial value of assets (5) Present value of total future contributions = (3)-(4) (6) Present value of future member contributions (7) Present value of future employer contributions = (5)-(6) (8) Employer normal contribution rate (9) Present value of future payroll (10) Prospective normal contributions = (8) x (9) (11) Prospective unfunded actuarial accrued liability contributions = (7)-(10) (12) TOTAL PRESENT AND PROSPECTIVE ASSETS $ 73,230,126 9,655,214 4,447,255 $ 87,332,595 237,780,733 $ 325,113,328 $ 28,023,328 $ (3,582,974) 12.05% $ 367,043,024 $ 297,090,000 31,606,302 44,228,684 (47,811,658) $ 325,113,328 2008 - Employees' Retirement System of Georgia 19 ACTUARIAL SECTION SUMMARY OF PRINCIPAL RESULTS Georgia Judicial Retirement System Valuation Date Number of active members Annual compensation Retired members and beneficiaries: Number Annual Allowances Assets: Market Value Actuarial Value Unfunded actuarial accrued liability Amortization period (years) Funded Ratio For Fiscal Year Ending Annual Required Employer Contribution Rates (ARC): Normal Accrued liability Total June 30, 2007 480 $ 48,620,963 June 30, 2006 478 $ 45,307,981 171 $ 9,472,721 165 $ 8,916,617 $ 304,974,000 297,090,000 $ (47,811,658) 16 119.2% $ 269,207,000 279,564,000 $ (49,727,147) 18 121.6% June 30, 2010 June 30, 2009 12.05% (8.20) 3.85% 12.26% (8.41) 3.85% 20 2008 - Employees' Retirement System of Georgia ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Group Term Life Insurance Plan Pre-Retirement June 19, 2008 Board of Trustees Employees' Retirement System of Georgia Two Northside 75, Suite 300 Atlanta, GA 30318-7778 Attention: Mr. Michael Nehf, Executive Director Members of the Board: Chapters 47-2 and 47-19 of the Code of Georgia which govern the operation of the Georgia Employees' Group Term Life Insurance Plan provide that the actuary shall make periodic valuations of the contingent assets and liabilities of the Insurance Plan on the basis of regular interest and the tables last adopted by the Board of Trustees. In this report, we have determined liabilities for life insurance benefits payable upon death in active service (Pre-Retirement). Governmental Accounting Standards Board Statements No. 43 and 45 require actuarial valuations for post-retirement benefit plans separately from pre-retirement plans. Since the previous valuation, separate trusts were established for preretirement life insurance benefits and for post-retirement life insurance benefits and assets were split based on actuarial accrued liabilities. Assets in excess of what were actuarially required were transferred to the Employees' Retirement System Survivor Benefit Fund. We have submitted the report giving the results of the valuation of the Plan prepared as of June 30, 2007. The report indicates that employee contributions at the rate of 0.05% of active payroll for Old Plan members, and 0.02% of active payroll for New Plan members, members of the Legislative Retirement System and members of the Judicial Retirement System are sufficient to support the pre-retirement benefits of the Plan. No employer contributions are required for the fiscal year ending June 30, 2010 for pre-retirement benefits. The funding method used for this valuation is the unit credit actuarial cost method with projected benefits. Gains and losses are reflected in the unfunded accrued liability. The actuarial assumptions used are in the aggregate reasonably related to the experience under the Plan and to reasonable expectations of anticipated experience under the Plan. In our opinion, the Plan is operating on an actuarially sound basis and the sufficiency of the funds to provide the benefits called for by the Plan may be safely anticipated. This is to certify that the independent consulting actuary is a member of the American Academy of Actuaries and has experience in performing valuations for public retirement systems, that the valuation was prepared in accordance with principles of practice prescribed by the Actuarial Standards Board, and that the actuarial calculations were performed by qualified actuaries in accordance with accepted actuarial procedures, based on the current provisions of the retirement system and on actuarial assumptions that are internally consistent and reasonably based on the actual experience of the Plan. 2008 - Employees' Retirement System of Georgia 21 Board of Trustees June 19, 2008 Page 2 ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Group Term Life Insurance Plan Pre-Retirement Future actuarial results may differ significantly from the current results presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan's funded status); and changes in plan provisions or applicable law. Since the potential impact of such factors is outside the scope of a normal annual actuarial valuation, an analysis of the range of results is not presented herein. Sincerely yours, Edward A. Macdonald, ASA, FCA, MAAA President EAM:kc Cathy Turcot Managing Director 22 2008 - Employees' Retirement System of Georgia ACTUARIAL SECTION VALUATION RESULTS Group Term Life Insurance Plan Pre-Retirement - As of June 30, 2007 - (1) ACTUARIAL ACCRUED LIABILITY: Present value of prospective benefits payable on account of present retired members Present value of prospective benefits payable on account of present active members TOTAL ACTUARIAL ACCRUED LIABILITY (2) PRESENT ASSETS FOR VALUATION PURPOSES: (3) UNFUNDED ACTUARIAL ACCRUED LIABILITY: (1)-(2) (4) EMPLOYER NORMAL CONTRIBUTION RATE: (5) ACCRUED LIABILITY CONTRIBUTION: (6) TOTAL EMPLOYER CONTRIBUTION: (4)+(5) $ 0 59,508,589 $ 59,508,589 $ 185,335,000 $ (125,826,411) 0.22% (0.22) 0.00% 2008 - Employees' Retirement System of Georgia 23 ACTUARIAL SECTION SUMMARY OF PRINCIPAL RESULTS Group Term Life Insurance Plan Pre-Retirement Valuation Date Active members: Number Annual compensation Retired members: Number Insurance amount Actuarial Accrued Liability Market value of assets Unfunded Actuarial Accrued Liability Funding Period Funded Ratio For Fiscal Year Ending Annual Required Contribution Rates: Total Normal Rate Employee Rates: Old Plan Members New Plan, LRS and JRS Members Employer Normal Rate Accrued Liability Rate Total Employer Rate June 30, 2007 June 30, 2006* 74,549 $ 2,720,771,905 74,647 $ 2,667,158,543 N/A N/A $ 59,508,589 $ 185,335,000 $ (125,826,411) 40 years 311.4% N/A N/A $ 57,747,250 $ 164,375,375 $ (106,628,125) 30 years 284.6% June 30, 2010 June 30, 2009 0.25% 0.25% 0.05% ** 0.02% 0.22% (0.22)% 0.00% 0.05% ** 0.02% 0.22% (0.22)% 0.00% * Based on hypothetical valuation results from page 10 of June 30, 2006 valuation report ** 0.03% paid by employer 24 2008 - Employees' Retirement System of Georgia ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Group Term Life Insurance Plan Post-Retirement June 19, 2008 Board of Trustees Employees' Retirement System of Georgia Two Northside 75, Suite 300 Atlanta, GA 30318-7778 Attention: Mr. Michael Nehf, Executive Director Members of the Board: Chapters 47-2 and 47-19 of the Code of Georgia which govern the operation of the Georgia Employees' Group Term Life Insurance Plan provide that the actuary shall make periodic valuations of the contingent assets and liabilities of the Insurance Plan on the basis of regular interest and the tables last adopted by the Board of Trustees. In this report, we have determined liabilities for life insurance benefits payable upon death after retirement (Post-Retirement). Governmental Accounting Standards Board Statements No. 43 and 45 require actuarial valuations for post-retirement benefit plans separately from pre-retirement plans. Since the previous valuation, separate trusts were established for preretirement life insurance benefits and for post-retirement life insurance benefits and assets were split based on actuarial accrued liabilities. Assets in excess of what were actuarially required were transferred to the Employees' Retirement System Survivor Benefit Fund. In accordance with GASB 43 and 45, we have determined the liabilities for life insurance benefits payable upon death after retirement. We have submitted the report giving the results of the valuation of the Plan prepared as of June 30, 2007. The report indicates, for post-retirement benefits, there is no employer annual required contribution for the fiscal year ending June 30, 2010 based on a 36-year amortization period of the unfunded accrued liability. The funding method used for this valuation is the unit credit actuarial cost method with projected benefits. Gains and losses are reflected in the unfunded accrued liability. The actuarial assumptions used are in the aggregate reasonably related to the experience under the Plan and to reasonable expectations of anticipated experience under the Plan. In our opinion, the Plan is operating on an actuarially sound basis and the sufficiency of the funds to provide the benefits called for by the Plan may be safely anticipated. This is to certify that the independent consulting actuary is a member of the American Academy of Actuaries and has experience in performing valuations for public retirement systems, that the valuation was prepared in accordance with principles of practice prescribed by the Actuarial Standards Board, and that the actuarial calculations were performed by qualified actuaries in accordance with accepted actuarial procedures, based on the current provisions of the retirement system and on actuarial assumptions that are internally consistent and reasonably based on the actual experience of the Plan. 2008 - Employees' Retirement System of Georgia 25 Board of Trustees June 19, 2008 Page 2 ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Group Term Life Insurance Plan Post-Retirement Future actuarial results may differ significantly from the current results presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan's funded status); and changes in plan provisions or applicable law. Since the potential impact of such factors is outside the scope of a normal annual actuarial valuation, an analysis of the range of results is not presented herein. Sincerely yours, Edward A. Macdonald, ASA, FCA, MAAA President EAM:kc Cathy Turcot Managing Director 26 2008 - Employees' Retirement System of Georgia ACTUARIAL SECTION VALUATION RESULTS Group Term Life Insurance Plan Post-Retirement - As of June 30, 2007 - (1) ACTUARIAL ACCRUED LIABILITY: Present value of prospective benefits payable on account of present retired members Present value of prospective benefits payable on account of present active members TOTAL ACTUARIAL ACCRUED LIABILITY (2) PRESENT ASSETS FOR VALUATION PURPOSES: (3) UNFUNDED ACTUARIAL ACCRUED LIABILITY: (1)-(2) (4) EMPLOYER NORMAL CONTRIBUTION RATE: (5) ACCRUED LIABILITY CONTRIBUTION: (6) TOTAL EMPLOYER CONTRIBUTION: (4)+(5) $ 436,529,500 206,000,933 $ 642,530,433 $ 778,048,000 $ (135,517,567) 0.25% (0.25) 0.00% 2008 - Employees' Retirement System of Georgia 27 ACTUARIAL SECTION SUMMARY OF PRINCIPAL RESULTS Group Term Life Insurance Plan Post-Retirement Valuation Date Active members: Number Annual compensation Retired members: Number Insurance amount Actuarial Accrued Liability Market Value of Assets Unfunded Actuarial Accrued Liability Funding Period Funded Ratio For Fiscal Year Ending Annual Required Contribution Rates: Total Normal Rate Employee rates: Old Plan Members New Plan, LRS, and JRS Members Employer Normal Rate Accrued Liability Rate Total Employer Rate June 30, 2007 June 30, 2006* 74,549 $ 2,720,771,905 74,647 $ 2,667,158,543 28,998 $ 1,215,944,463 $ 642,530,433 $ 778,048,000 $ (135,517,567) 36 years 121.1% 27,154 $ 1,065,925,933 $ 568,475,523 $ 689,371,903 $ (120,896,380) 30 years 121.3% June 30, 2010 June 30, 2009 0.50% 0.45% ** 0.23% 0.25% (0.25)% 0.00% 0.50% 0.45% ** 0.23% 0.25% (0.25)% 0.00% * Based on hypothetical valuation results from page 10 of June 30, 2006 valuation report ** 0.22% paid by employer 28 2008 - Employees' Retirement System of Georgia ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Georgia Military Pension Fund June 20, 2008 Board of Trustees Georgia Military Pension Fund Two Northside 75, Suite 300 Atlanta, GA 30318 Members of the Board: Section 47-24-22 of the law governing the operation of the Georgia Military Pension Fund provides that the actuary shall make periodic valuations of the contingent assets and liabilities of the Pension Fund on the basis of regular interest and the tables last adopted by the Board of Trustees. We have submitted the report giving the results of the actuarial valuation of the Fund prepared as of June 30, 2007. The report indicates that annual employer contributions of $1,433,628 or $119.30 per active member for the fiscal year ending June 30, 2010 are sufficient to support the benefits of the Fund. In preparing the valuation, the actuary relied on data provided by the Fund. While not verifying data at the source, the actuary performed tests for consistency and reasonableness. Our firm, as actuary, is responsible for all of the actuarial trend data in the financial section of the annual report and the supporting schedules in the actuarial section of the annual report. In our opinion, the valuation is complete and accurate, and the methodology and assumptions are reasonable as a basis for the valuation. The valuation takes into account the effect of all amendments to the Fund enacted through the 2007 session of the General Assembly. The Fund is funded on an actuarial reserve basis. The actuarial assumptions recommended by the actuary and adopted by the Board are in the aggregate reasonably related to the experience under the Fund and to reasonable expectations of anticipated experience under the Fund. The assumptions and methods used for funding purposes meet the parameters set for the disclosures presented in the financial section by Governmental Accounting Standards Board (GASB) Statement Nos. 25 and 27. The funding objective of the plan is that contribution rates over time will remain level as a percent dollar per active member. The valuation method used is the entry age normal cost method. The normal contribution rate to cover current cost has been determined as a level dollar per active member. Gains and losses are reflected in the unfunded accrued liability which is being amortized as a level dollar per active member within a 30-year period. The Fund is being funded in conformity with the minimum funding standard set forth in Code Section 47-20-10 of the Public Retirement Systems Standards Law. In our opinion the Fund is operating on an actuarially sound basis. Assuming that contributions to the Fund are made by the employer from year to year in the future at the rates recommended on the basis of the successive actuarial valuations, the continued sufficiency of the retirement fund to provide the benefits called for under the Fund may be safely anticipated. This is to certify that the independent consulting actuary is a member of the American Academy of Actuaries and has experience is performing valuations for public retirement systems, that the valuation was prepared in accordance with principles of practice prescribed by the Actuarial Standards Board, and that the actuarial calculations were performed by qualified actuaries in accordance with accepted actuarial procedures, based on the current provisions of the retirement system and on actuarial assumptions that are internally consistent and reasonably based on the actual experience of the Fund. 2008 - Employees' Retirement System of Georgia 29 ACTUARIAL SECTION ACTUARY'S CERTIFICATION LETTER Georgia Military Pension Fund June 20, 2008 Board of Trustees Page 2 Future actuarial results may differ significantly from the current results presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan's funded status); and changes in plan provisions or applicable law. Since the potential impact of such factors is outside the scope of a normal annual actuarial valuation, an analysis of the range of results is not presented herein. Sincerely yours, Edward A. Macdonald, ASA, FCA, MAAA President EAM:mjn Cathy Turcot Managing Director 30 2008 - Employees' Retirement System of Georgia ACTUARIAL SECTION VALUATION BALANCE SHEET Georgia Military Pension Fund - As of June 30, 2007 - ACTUARIAL LIABILITIES Present value of prospective benefits payable on account of: (1) Present retired members (2) Former members entitled to deferred benefits (3) Present active members (4) TOTAL ACTUARIAL LIABILITIES PRESENT AND PROSPECTIVE ASSETS (5) Actuarial value of assets (6) Present value of total future contributions = (4)-(5) (7) Employer normal contribution rate (8) Present value of future membership service (9) Prospective normal contributions = (7) x (8) (10) Prospective unfunded actuarial accrued liability contributions = (6)-(9) (11) TOTAL PRESENT AND PROSPECTIVE ASSETS $ 2,495,166 5,159,549 12,757,007 $ 20,411,722 $ $ 16,246,722 $ 8.52 $ 61,612 4,165,000 524,934 15,721,788 $ 20,411,722 2008 - Employees' Retirement System of Georgia 31 ACTUARIAL SECTION SUMMARY OF PRINCIPAL RESULTS Georgia Military Pension Fund Valuation Date Number of active members Retired members: Number Annual pensions Former members entitled to deferred vested pensions: Number Annual deferred pensions Assets: Market Value Actuarial Value Unfunded actuarial accrued liability Amortization Period Funded Ratio For Fiscal Year Ending Employer contribution rate per active member: Normal Accrued liability Total Annual Required Employer Contribution Rates (ARC): Normal Accrued liability Total June 30, 2007 12,017 June 30, 2006 10,320 235 163 $ 260,400 $ 178,320 1,068 937 $ 953,172 $ 846,144 $ 4,336,000 $ 3,053,000 $ 4,165,000 $ 3,100,000 $ 15,721,788 $ 14,525,320 30 years 30 years 20.9% 17.6% June 30, 2010 June 30, 2009 $ 8.52 $ 9.03 110.78 119.17 $ 119.30 $ 128.20 $ 102,385 $ 93,190 1,331,243 1,229,834 $ 1,433,628 $ 1,323,024 32 2008 - Employees' Retirement System of Georgia INVESTMENT SECTION POOLED INVESTMENT FUND - As of June 30, 2008 - Dollar Amounts in Thousands Employees' Retirement System Public School Employees Retirement System Legislative Retirement System Georgia Judicial Retirement System State Employees' Assurance Department - Active State Employees' Assurance Department - OPEB Georgia Military Pension Fund Superior Court Judges Retirement Fund Georgia Defined Contribution Plan $ 13,150,642 740,857 28,672 290,992 172,258 736,084 4,927 1,299 50,684 $ 15,176,415 STRUCTURAL ANALYSIS OF INVESTMENTS AT FAIR VALUE - As of June 30, 2008 - Type of Investment Short-term Investments Bonds Common Stock Mutual funds, common collective trust funds and separate accounts* Total *Investments of state Deferred Compensation 401(k) and 457 Plans and Reserve Trust. 1.5% 37.2% 55.6% 5.7% 100.0% Face Amount $244,278,000* SHORT-TERM INVESTMENTS - As of June 30, 2008 - Issuer United States Government, Agency, and Corporate Obligations (subject to repurchase agreements due 7/01/08) *Consists of Pooled Investment Fund $234,503,000 and Georgia Defined Contribution Plan $9,775,000. Fair Value $244,278,000* 2008 - Employees Retirement System of Georgia 33 INVESTMENT SECTION US GOVERNMENT, AGENCY AND CORPORATE BONDS - As of June 30, 2008 - Issuer US TREAS. NOTE US TREAS. NOTE US TREAS. NOTE US TREAS. NOTE US TREAS. NOTE US TREAS. NOTE US TREAS. NOTE US TREAS. NOTE FHLMC-CALLABLE US TREAS. BOND US TREAS. NOTE US TREAS. BOND US TREAS. NOTE GENERAL ELECTRIC CAP CORP US TREAS. NOTE GENERAL ELECTRIC CAP CORP US TREAS. NOTE US TREAS. NOTE FHLMC-CALLABLE WELLS FARGO FNMA-CALLABLE BERKSHIRE HATHAWAY 3M COMPANY GENERAL ELECTRIC US TREAS. NOTE UNITED PARCEL SERVICE FNMA-CALLABLE GENERAL ELECTRIC CAP CORP US TREAS. NOTE US TREAS. NOTE US TREAS. BOND FNMA-CALLABLE US TREAS. NOTE JOHNSON AND JOHNSON JOHNSON AND JOHNSON US TREAS. NOTE Year of Maturity 2017 2013 2015 2018 2012 2008 2018 2012 2011 2028 2010 2036 2010 2011 2008 2020 2010 2009 2011 2011 2022 2012 2012 2013 2010 2013 2020 2026 2008 2009 2029 2011 2012 2012 2017 2009 Interest Rate % 4.500 2.500 4.000 3.500 4.125 4.625 3.875 3.375 3.500 5.250 3.625 4.500 3.875 4.110 4.625 5.550 2.125 3.625 3.600 4.000 5.780 5.125 4.650 5.400 2.875 4.500 5.550 5.550 3.250 4.750 5.250 3.600 3.875 5.150 5.550 4.500 ERS Fixed Income Securities Georgia Defined Contribution Plan Fixed Income Securities Total ERS and Georgia Defined Contribution Plan Fixed Income Securities Par Value $ 365,500,000 394,000,000 362,000,000 280,000,000 236,000,000 240,000,000 241,000,000 236,000,000 232,000,000 207,000,000 198,000,000 196,000,000 181,000,000 185,000,000 175,000,000 174,000,000 155,000,000 139,000,000 139,000,000 139,000,000 122,000,000 116,000,000 116,000,000 116,000,000 116,000,000 116,000,000 104,000,000 111,000,000 92,000,000 89,000,000 74,000,000 75,000,000 70,000,000 60,000,000 58,000,000 36,000,000 $ 5,945,500,000 22,000,000 $ 5,967,500,000 Fair Value $ 380,690,180 380,119,380 372,096,180 269,522,400 244,278,880 242,625,600 238,985,240 237,033,680 229,741,944 224,383,860 201,744,180 194,606,440 185,695,140 183,777,150 176,244,250 166,906,020 153,873,150 141,335,200 137,429,300 136,745,420 122,328,668 119,393,000 116,963,960 116,750,520 116,570,720 116,234,320 103,125,360 99,588,090 92,172,960 90,460,490 80,284,080 74,354,925 71,782,900 62,847,600 60,395,400 36,638,280 $ 5,977,724,867 22,405,330 $ 6,000,130,197 34 2008 - Employees Retirement System of Georgia Shares 2,124,682 3,607,000 175,700 824,000 517,700 822,006 1,415,700 2,949,200 1,292,555 827,678 656,600 1,186,020 1,044,200 761,140 2,883,100 1,949,968 1,025,160 3,270,445 2,618,200 1,198,600 INVESTMENT SECTION EQUITY HOLDINGS - As of June 30, 2008 - Company Exxon Mobil Corp. Microsoft Corp. Google Inc. Schlumberger Ltd. Apple Inc. Chevron Corp. Wal-Mart Stores Inc. General Electric Co. Procter & Gamble Co. ConocoPhillips International Business Machines Corp. Johnson & Johnson iShares MSCI EAFE Index Occidental Petroleum Corp. Cisco Systems Inc. AT&T Inc. Pepsico Inc. Pfizer Inc. Intel Corp. QUALCOMM Inc. Total - 20 Largest Holdings Total - All Holdings Fair Value $ 187,248,225 99,228,570 92,491,994 88,522,320 86,683,688 81,485,455 79,562,340 78,714,148 78,600,270 78,124,526 77,826,798 76,308,527 71,705,214 68,396,040 67,060,906 65,694,422 65,189,924 57,134,674 56,238,936 53,181,882 $ 1,609,398,859 $ 8,946,541,243 A complete listing is available upon written request, subject to restrictions of O.C.G.A. Section 47-1-14. 2008 - Employees Retirement System of Georgia 35 FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT Independent Auditors' Report KPMG LLP Suite 2000 303 Peachtree Street, NE Atlanta, GA 30308 The Board of Trustees Employees' Retirement System of Georgia: We have audited the accompanying financial statements of the Employees' Retirement System of Georgia (the System), a component unit of the state of Georgia, as of and for the year ended June 30, 2008 as listed in the table of contents. These financial statements are the responsibility of the System's management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized comparative information has been derived from the System's June 30, 2007 financial statements and, in our report dated September 27, 2007, we expressed an unqualified opinion on those financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the System's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the System's net assets as of June 30, 2008 and the changes in net assets for the year then ended in conformity with U.S. generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued our report dated September 30, 2008 on our consideration of the System's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The management's discussion and analysis, the schedules of funding progress, and schedules of employer contributions on pages 37 through 41 and pages 65 through 66, respectively, are not a required part of the basic financial statements but are supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information, and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included in the administrative expenses schedule is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects, in relation to the financial statements taken as a whole. The introductory, actuarial and investment sections have not been subjected to the auditing procedures applied by us in the audit of the basic financial statements and, accordingly, we express no opinion on them. September 30, 2008 36 2008 - Employees' Retirement System of Georgia FINANCIAL SECTION MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) - June 30, 2008 - This section provides a discussion and analysis of the financial performance of the Employees' Retirement System of Georgia (the System) for the year ended June 30, 2008. The discussion and analysis of the System's financial performance is within the context of the accompanying basic financial statements, notes to the financial statements, required supplementary schedules, and additional information following this section. The System is responsible for administering a cost sharing, multiple-employer defined benefit pension plan for various employer agencies of Georgia, along with eight other defined benefit pension plans and three defined contribution plans. The defined benefit pension plans include: Employees' Retirement System (ERS) Public School Employees Retirement System (PSERS) Legislative Retirement System (LRS) Georgia Judicial Retirement System (GJRS) Georgia Military Pension Fund (GMPF) State Employees' Assurance Department Active Members Trust Fund (SEAD-Active) State Employees' Assurance Department Retired and Vested Inactive Members Trust Fund (SEAD-OPEB) Superior Court Judges Retirement Fund (SCJRF) District Attorneys Retirement Fund (DARF) The defined contribution retirement plans include: Georgia Defined Contribution Plan (GDCP) 401(k) Deferred Compensation Plan (401(k)) 457 Deferred Compensation Plan (457) Financial Highlights The following highlights are discussed in more detail later in this analysis: The net assets of the System decreased by $1.4 billion, or 7.8%, from $17.5 billion at June 30, 2007 to $16.1 billion at June 30, 2008. The decline was primarily due to a decrease in the fair value of investments. For the year ended June 30, 2008, the total additions to net assets were a decrease of $152 million compared to an increase of $2.7 billion for the year ended June 30, 2007. For the year ended June 30, 2008, the additions consisted of employer and member contributions totaling $445 million, insurance premiums of $8.6 million, net investment loss of $608 million, participant fees of $1.7 million, and other income of $1 million. For the year ended June 30, 2007, the additions consisted of employer and member contributions totaling $429 million, insurance premiums of $9.1 million, net investment income of $2.3 billion, participant fees of $1.2 million, and other income of $1 million. Net investment loss of $608 million (comprised of interest and dividend income, the change in fair value of investments, and other, reduced by investment expenses) represents a $2.9 billion decrease, compared to the net investment income of $2.3 billion for the year ended June 30, 2007. The net investment loss is primarily due to declining equities markets in 2008, compared to 2007. The total deductions were $1.2 billion and $1.1 billion for the years ended June 30, 2008 and 2007, respectively. For the year ended June 30, 2008, the deductions consisted of benefit payments of $1.15 billion, refunds of $20 million, death benefits of $29 million, and administrative expenses of $23 million. For the year ended June 30, 2007, the deductions consisted of benefit payments of $1.0 billion, refunds of $20 million, death benefits of $25 million, and administrative expenses of $18 million. 2008 - Employees' Retirement System of Georgia 37 FINANCIAL SECTION MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Benefit payments paid to retirees and beneficiaries increased by $82.6 million, or 7.7% from $1.07 billion in 2007 to $1.15 billion in 2008. This increase was the result of increases in the number of retirees and beneficiaries receiving benefits across all plans and postretirement cost of living increases in benefits as well as a contingent liability involving retroactive benefit payments (see note 7). Overview of the Financial Statements The basic financial statements include (1) the combined statements of net assets and changes in net assets, (2) the combining statements of net assets and changes in net assets, and (3) notes to the financial statements. The System also includes in this report additional information to supplement the financial statements. In addition, the System presents two types of required supplementary schedules, which provide historical trend information about the plans' funding. The two types of schedules include (1) a schedule of funding progress and (2) a schedule of employer contributions. The System prepares its financial statements on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles. These statements provide information about the System's overall financial status. Description of the Financial Statements The Combined Statement of Net Assets is the statement of financial position presenting information that includes all of the System's assets and liabilities, with the balance representing the Net Assets Held in Trust for Pension Benefits. The investments of the System in this statement are presented at fair value. This statement is presented on page 42. The Combined Statement of Changes in Net Assets reports how the System's net assets changed during the fiscal year. The additions and deductions to net assets are summarized in this statement. The additions include contributions to the retirement plans from employers and members, group life insurance premiums, participant fees, and investment income, which includes interest and dividends and the net increase/decrease in the fair value of investments. The deductions include benefit payments, life insurance death benefit payments, refunds of member contributions and interest, and administrative expenses. This statement is presented on page 43. The Combining Statement of Net Assets and Combining Statement of Changes in Net Assets present the financial position and change in financial position for each of the funds administered by the System, including the Pooled Investment Fund that holds and invests funds from each of the participating plans and funds. These statements begin on page 44. Notes to the Financial Statements are presented to provide the information necessary for a full understanding of the financial statements. The notes to the financial statements begin on page 48. There are two Required Supplementary Schedules included in this report. These required schedules are applicable to five of the defined benefit plans: ERS, PSERS, LRS, GJRS, and GMPF. The Schedule of Funding Progress presents historical trend information about the actuarially determined funded status of the plans from a long term, ongoing plan perspective, and the progress made in accumulating sufficient assets to fund benefit payments as they become due. The Schedule of Employer Contributions presents historical trend information about the annual required contributions of employers and percentage of such contributions in relation to actuarially determined requirements for the years presented. The required supplementary schedules begin on page 65. 38 2008 - Employees' Retirement System of Georgia FINANCIAL SECTION MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Notes to Required Supplementary Schedules are presented to provide the information necessary for a full understanding of the supplementary schedules. The notes to required supplementary schedules begin on page 67. Additional information is presented, beginning on page 69. This section includes the Administrative Expenses Schedule. The Administrative Expenses Schedule presents the expenses incurred in the administration of these plans and funds, and the contributions from each plan and fund to provide for these expenses. Financial Analysis of the System A summary of the System's net assets at June 30, 2008 and 2007 is as follows: Net Assets (in thousands) Assets: Cash and receivables Investments Capital assets, net Total Assets 2008 2007 $ 133,963 16,106,069 12,573 16,252,605 $ 205,023 17,334,129 15,340 17,554,492 Amount Change $ (71,060) (1,228,060) (2,767) (1,301,887) Percentage change (34.7) % (7.1) (18.0) (7.4) Liabilities: Due to brokers and accounts payable Net assets 109,048 37,589 71,459 $ 16,143,557 $ 17,516,903 $ (1,373,346) 190.1 (7.8) % The following table presents the investment allocation at June 30, 2008 and 2007: Asset allocation at June 30 (in percentages): Equities U.S. Treasuries U.S. Agencies Corporate and other bonds Mutual and common collective trust funds Short-term securities 2008 55.6 % 25.8 4.1 7.3 5.7 1.5 2007 59.5 % 18.0 9.6 3.4 5.5 4.0 Asset allocation at June 30 (in thousands): Equities U.S. Treasuries U.S. Agencies Corporate and other bonds Mutual and common collective trust funds Short-term securities $ 8,946,541 4,153,549 666,980 1,179,601 915,120 244,278 $ 16,106,069 $ 10,306,659 3,122,490 1,663,751 588,076 953,540 699,613 $ 17,334,129 The total investment portfolio decreased by $1.23 billion from 2007, which is due primarily to a decrease in the fair value of investments. 2008 - Employees' Retirement System of Georgia 39 FINANCIAL SECTION MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) The investment rate of return in fiscal year ended June 30, 2008 was (3.5)%, with a (10.8)% return on equities and a 9.7% return on fixed income investments. The five year annualized rate of return on investments at June 30, 2008 was 6.8%, with a 9.2% return on equities and a 3.8% return on fixed income investments. A summary of the changes in the System's net assets for the years ended June 30, 2008 and 2007 is as follows: Additions: Employer contributions Member contributions Participant fees Insurance premiums Net investment income (loss) Other Total additions Changes in net assets (in thousands) 2008 2007 Amount change Percentage change $ 308,962 $ 296,277 $ 12,685 4.3 % 136,046 133,169 2,877 2.2 1,682 1,211 471 38.9 8,620 9,107 (487) (5.3) (608,051) 2,276,431 (2,884,482) (126.7) 903 903 -- -- (151,838) 2,717,098 (2,868,936) (105.6) Deductions: Benefit payments Refunds Death benefits Administrative expenses Total deductions Net increase (decrease) in net assets 1,150,192 19,716 28,716 22,884 1,221,508 $ (1,373,346) 1,067,604 19,588 25,223 18,311 1,130,726 $ 1,586,372 82,588 128 3,493 4,573 90,782 $ (2,959,718) 7.7 0.7 13.8 25.0 8.0 (186.6) % Additions The System accumulates resources needed to fund benefit payments through contributions and returns on invested funds. In fiscal year 2008, total contributions increased 3.6%, reflecting a contribution percentage that increased along with a modest overall salary increase. Net investment income decreased by $2.9 billion. The decrease was primarily due to declining equity markets in 2008, compared to 2007. Deductions For fiscal year 2008, total deductions increased 8.0%, primarily because of a 7.7 % increase in benefit payments. This was due to an increase of approximately 3.9% in the number of retirees receiving benefit payments across all defined benefit plans and to postretirement cost of living increases in benefits as well as a contingent liability involving retroactive benefit payments in 2007. Refunds increased 0.7%, which was primarily due to an increase in the number of refunds processed during 2008. Administrative expenses increased 25% over the prior year, due primarily to increases in computer services, contractual services, and accounting and investment services. 40 2008 - Employees' Retirement System of Georgia FINANCIAL SECTION MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Funding Status The schedules of funding progress and employer contributions provide information regarding how the plans are performing and funded from an actuarial perspective. The information is based upon actuarial valuations conducted by certified actuaries. The funding ratio, which is presented on the schedule of funding progress, indicates the ratio of the actuarial value of assets and the actuarial accrued liabilities. The higher this ratio, the better position the System is in with regard to its funding requirements. The June 30, 2007 and 2006 actuarial valuations, the latest valuations available, indicate the actuarial value of assets and funding ratios for the five applicable defined benefit retirement plans were as follows: ERS PSERS LRS GJRS GMPF Actuarial value of plan assets (in thousands) June 30, 2007 June 30, 2006 $ 13,843,689 785,460 30,049 297,090 4,165 $ 13,461,132 766,277 29,172 279,564 3,100 Funding ratio June 30, 2007 June 30, 2006 93.0 % 105.3 123.4 119.2 20.9 94.5 % 110.8 124.6 121.6 17.6 In management's opinion, the System continues to operate on an actuarially sound basis, as evidenced by the funding ratios. A funding ratio over 100% indicates the plans, from an actuarial perspective, have more assets available than will be necessary to satisfy the obligations of the plans. GMPF is a relatively new plan that was established in 2002 and is being increasingly funded over time, in accordance with contribution amounts recommended by the actuary. Requests for Information This financial report is designed to provide a general overview of the System's finances for all those with interest in the System's finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to Employees' Retirement System of Georgia, Two Northside 75, Suite 300, Atlanta, GA 30318. 2008 - Employees' Retirement System of Georgia 41 FINANCIAL SECTION COMBINED STATEMENT OF NET ASSETS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) (A Component Unit of the State of Georgia) COMBINED STATEMENT OF NET ASSETS June 30, 2008 (With Comparative Totals as of June 30, 2007) (In thousands) ASSETS CASH RECEIVABLES: Employer and member contributions Interest and dividends Due from brokers for securities sold Other Total receivables INVESTMENTS - AT FAIR VALUE: Short-term U.S. Treasuries U.S. Agencies Corporate and other bonds Common stocks Mutual funds, common collective trust funds, and separate accounts Total investments CAPITAL ASSETS, NET Total assets LIABILITIES Accounts payable and other Due to brokers for securities purchased Total liabilities NET ASSETS HELD IN TRUST FOR PENSION BENEFITS (A schedule of funding progress is presented on page 65.) See accompanying notes to financial statements. 2008 2007 $ 5,535 $ 7,977 38,127 67,428 19,389 3,484 128,428 37,072 79,320 80,202 452 197,046 244,278 4,153,549 666,980 1,179,601 8,946,541 915,120 16,106,069 12,573 16,252,605 699,613 3,122,490 1,663,751 588,076 10,306,659 953,540 17,334,129 15,340 17,554,492 42,017 67,031 109,048 20,446 17,143 37,589 $ 16,143,557 $ 17,516,903 42 2008 - Employees' Retirement System of Georgia FINANCIAL SECTION COMBINED STATEMENT OF CHANGES IN NET ASSETS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) (A Component Unit of the State of Georgia) COMBINED STATEMENT OF CHANGES IN NET ASSETS Year Ended June 30, 2008 (With Comparative Totals for the Year Ended June 30, 2007) (In thousands) NET ASSETS HELD IN TRUST FOR PENSION BENEFITS BEGINNING OF YEAR ADDITIONS: Contributions: Employer Member Participant fees Insurance premiums Administrative expense allotment 2008 2007 $ 17,516,903 $ 15,930,531 308,962 136,046 1,682 8,620 903 296,277 133,169 1,211 9,107 903 Investment income (loss): Net increase (decrease) in fair value of investments Interest and dividends Other Total investment income (loss) (1,095,707) 504,993 1,846 (588,868) 1,769,567 523,686 1,467 2,294,720 Less investment expenses Net investment income (loss) Total additions DEDUCTIONS: Benefit payments Refunds of member contributions and interest Death benefits Administrative expenses Total deductions Net increase (decrease) in net assets (19,183) (608,051) (151,838) (18,289) 2,276,431 2,717,098 1,150,192 19,716 28,716 22,884 1,221,508 (1,373,346) 1,067,604 19,588 25,223 18,311 1,130,726 1,586,372 NET ASSETS HELD IN TRUST FOR PENSION BENEFITS END OF YEAR See accompanying notes to financial statements. $ 16,143,557 $ 17,516,903 2008 - Employees' Retirement System of Georgia 43 44 FINANCIAL SECTION COMBINING STATEMENT OF NET ASSETS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) (A Component Unit of the State of Georgia) COMBINING STATEMENT OF NET ASSETS June 30, 2008 (In thousands) Assets Cash Receivables Employer and member contributions Interest and dividends Due from brokers for securities sold Other Unremitted insurance premiums Total receivables Defined Benefit Plans $ 5,167 34,772 2,895 1,367 39,034 Pooled Investment Fund $ 1 67,224 19,388 86,612 Defined Contribition Plans Georgia Defined Contribution Plan $ 321 401(k) Plan $ 23 457 Plan $ 23 1,238 1,443 674 198 3 3 1 295 294 1,437 1,741 971 Eliminations $ (1,367) (1,367) Total 2008 $ 5,535 38,127 67,428 19,389 3,484 128,428 Investments - at fair value: Short-term U.S. Treasuries U.S. Agencies Corporate and other bonds Common stocks Mutul funds, common collective trust funds, and separate accounts Equity in pooled investment fund Total investments Capital assets, net Total assets 15,125,731 15,125,731 12,573 15,182,505 234,503 4,131,144 666,980 1,179,601 8,946,541 15,158,769 15,245,382 9,775 22,405 50,684 82,864 84,622 341,073 341,073 342,837 574,047 574,047 575,041 (15,176,415) (15,176,415) (15,177,782) 244,278 4,153,549 666,980 1,179,601 8,946,541 915,120 16,106,069 12,573 16,252,605 Liabilities Accounts payable and other Due to brokers for securities purchased Insurance premiums payable Due to participating systems Total liabilities Net assets held in trust for pension benefits 36,655 1,367 1,936 67,031 15,176,415 38,022 15,245,382 $ 15,144,483 $ $ 272 272 84,350 1,739 1,739 $ 341,098 1,415 1,415 $ 573,626 (1,367) (15,176,415) (15,177,782) $ 42,017 67,031 109,048 $ 16,143,557 2008 - Employees' Retirement System of Georgia (A schedule of funding progress is presented on page 65) See accompanying notes to financial statements. FINANCIAL SECTION DEFINED BENEFIT PLANS - COMBINING STATEMENT OF NET ASSETS 2008 - Employees' Retirement System of Georgia EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) (A Component Unit of the State of Georgia) DEFINED BENEFIT PLANS - COMBINING STATEMENT OF NET ASSETS June 30, 2008 (In thousands) Defined Benefit Plans Assets Employees' Retirement System Public School Employees Retirement System Legislative Retirement System Georgia Judicial Retirement System State Employees' Assurance Department Active State Employees' Assurance Department OPEB Cash $ 4,581 $ 106 $ 82 $ 66 $ 89 $ 46 Receivables Employer and member contributions Interest and dividends Due from brokers for securities sold Other Unremitted insurance premiums 34.122 2,776 35 615 119 129 1,238 Total receivables 36,898 35 615 248 1,238 Investments - at fair value: Short-term U.S. Treasuries U.S. Agencies Corporate and other bonds Common stocks Mutul funds, common collective trust funds, and separate accounts Equity in pooled investment fund Total investments Capital assets, net Total assets 13,150,642 13,150,642 12,573 13,204,694 740,857 740,857 740,963 28,672 28,672 28,789 290,992 290,992 291,673 172,258 172,258 172,595 736,084 736,084 737,368 Liabilities Accounts payable and other Due to brokers for securities purchased Insurance premiums payable Due to participating systems 35,572 599 22 169 1,344 3 20 254 Total liabilities Net assets held in trust for pension benefits 36,916 $ 13,167,778 599 $ 740,364 25 $ 28,764 189 $ 291,484 $ 172,595 254 $ 737,114 Georgia Military Pension Fund $ 19 Superior Court Judges Retirement Fund $ 175 District Attorneys Retirement Fund $ 3 4,927 1,299 4,927 1,299 4,946 1,474 3 1 37 1 1 37 1 $ 4,945 $ 1,437 $ 2 Defined Benefit Plans Total $ 5,167 34,772 2,895 1,367 39,034 15,125,731 15,125,731 12,573 15,182,505 36,655 1,367 38,022 $ 15,144,483 (A schedule of funding progress is presented on page 65) See accompanying notes to financial statements. 45 46 FINANCIAL SECTION COMBINING STATEMENT OF CHANGES IN NET ASSETS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) (A Component Unit of the State of Georgia) COMBINING STATEMENT OF CHANGES IN NET ASSETS Year Ended June 30, 2008 (In thousands) Defined Contribution Plans Georgia Defined Pooled Defined Benefit Investment Contribution 401(k) 457 Plans Fund Plan Plan Plan Total 2008 Net assets held in trust for pension benefits - beginning of year Additions: Contributions Employer Member Participant fees Insurance premiums Administrative expense allotment $ 16,479,404 $ 294,769 54,793 8,620 903 $ 80,654 $ 336,379 $ 620,466 $ 17,516,903 14,193 15,860 38,927 26,466 921 761 308,962 136,046 1,682 8,620 903 Investments income (loss): Net increase (decrease) in fair value of investments Interest and dividends Other Less investment expenses Allocation of investment earnings (loss) Net investment income (loss) Total addtiions 162 (1,685) (553,552) (555,075) (195,990) (1,043,942) 502,933 (14,412) 555,421 359 1,222 (43) (1,869) (331) 15,529 (20,903) 373 726 (1,498) (21,302) 32,739 (31,221) 303 1,120 (1,545) (31,343) (4,116) (1,095,707) 504,993 1,846 (19,183) (608,051) (151,838) Deductions Benefit payment Refunds of member contributions and interest Death benefits Administrative expenses Total deductions Net increase (decrease) in net assets Net assets held in trust for pension benefits - end of year 1,082,080 8,202 28,716 19,933 1,138,931 (1,334,921) $ 15,144,483 $ $ 9 11,514 310 11,833 3,696 84,350 26,548 1,472 28,020 4,719 $ 341,098 41,555 1,169 42,724 (46,840) $ 573,626 1,150,192 19,716 28,716 22,884 1,221,508 (1,373,346) $ 16,143,557 2008 - Employees' Retirement System of Georgia See accompanying notes to financial statements. FINANCIAL SECTION DEFINED BENEFIT PLANS - COMBINING STATEMENT OF CHANGES IN NET ASSETS 2008 - Employees' Retirement System of Georgia EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) (A Component Unit of the State of Georgia) DEFINED BENEFIT PLANS - COMBINING STATEMENT OF CHANGES IN NET ASSETS Year Ended June 30, 2008 (In thousands) Net assets held in trust for pension benefits - beginning of year Additions: Contributions Employer Member Participant fees Insurance premiums Administrative expense allotment Employees' Retirement System Public School Employees Retirement System Legislative Retirement System Defined Benefit Plans Georgia Judicial Retirement System State Employees' Assurance Department Active State Employees' Assurance Department OPEB $ 14,362,447 $ 811,649 $ 31,121 $ 304,974 $ 185,335 $ 778,048 286,256 48,324 2,869 1,451 588 73 2,395 320 4,698 110 175 864 7,756 Investment income (loss): Net increase (decrease) in fair value of investments Interest and dividends Other Less investment expenses Allocation of investment earnings (loss) Net investment income (loss) Total additions 162 (1,685) (481,156) (482,679) (148,099) (27,052) (27,052) (22,144) (1,051) (1,051) (548) (10,702) (10,702) (3,434) (6,321) (6,321) (5,457) (27,032) (27,032) (19,276) Georgia Military Pension Fund Superior Court Judges Retirement Fund District Attorneys Retirement Fund $ 4,336 $ 1,492 $ 2 1,103 1,993 80 30 (191) (47) (191) (47) 912 1,976 80 Defined Benefit Plans Total $ 16,479,404 294,769 54,793 8,620 903 162 (1,685) (553,552) (555,075) (195,990) Deductions: Benefit payments Refunds of member contributions and interest Death benefits Administrative expenses Total deductions Net increase (decrease) in net assets 1,019,950 7,815 18,805 1,046,570 (1,194,669) 48,245 308 588 49,141 (71,285) 1,634 65 110 1,809 (2,357) 9,867 14 175 10,056 (13,490) 7,261 22 7,283 (12,740) 21,455 203 21,658 (40,934) 303 2,001 30 303 2,031 609 (55) Net assets held in trust for pension benefits - end of year $ 13,167,778 $ 740,364 $ 28,764 $ 291,484 $ 172,595 $ 737,114 $ 4,945 $ 1,437 $ 80 1,082,080 8,202 28,716 19,933 80 1,138,931 (1,334,921) 2 $ 15,144,483 See accompanying notes to financial statements. 47 FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS - June 30, 2008 - (1) General The accompanying basic financial statements of the Employees' Retirement System of Georgia, including all plans and funds administered by the Employees' Retirement System of Georgia (collectively, the System), is comprised of the Employees' Retirement System of Georgia (ERS), Public School Employees Retirement System (PSERS), Legislative Retirement System (LRS), Georgia Judicial Retirement System (GJRS), Georgia Military Pension Fund (GMPF), State Employees' Assurance Department Active Members Trust Fund (SEAD-Active), State Employees' Assurance Department Retired and Vested Inactive Members Trust Fund (SEAD-OPEB), Superior Court Judges Retirement Fund (SCJRF), District Attorneys Retirement Fund (DARF), Georgia Defined Contribution Plan (GDCP), 401(k) Deferred Compensation Plan (401(k) Plan), and the 457 Deferred Compensation Plan (457 Plan). All significant accounts and transactions among the various systems, departments, and funds have been eliminated. In evaluating how to define the System for financial reporting purposes, the management of the System has considered all potential component units. The decision to include a potential component unit in the reporting entity is made by applying the criteria set forth by Governmental Accounting Standards Board (GASB) Statement No. 14, as amended by GASB Statement No. 39. Based on these criteria, the System has not included any other entities in its reporting entity. Although the System is a component unit of the State of Georgia's financial reporting entity, it is accountable for its own fiscal matters and presentation of its separate financial statements. The Boards of Trustees, comprised of active and retired members and ex-officio state employees, are ultimately responsible for the administration of the System. (2) Authorizing Legislation and Plan Descriptions Each plan and fund, including benefit and contribution provisions, was established and can be amended by state law. The following summarizes authorizing legislation and the plan description of each retirement fund: (a) ERS is a cost sharing multiple employer defined benefit pension plan established by the Georgia General Assembly during the 1949 Legislative Session for the purpose of providing retirement allowances for employees of the State of Georgia and its political subdivisions. ERS is directed by a Board of Trustees and has the powers and privileges of a corporation. Membership As of June 30, 2008, participation in ERS is as follows: Retirees and beneficiaries currently receiving benefits Terminated employees entitled to benefits but not yet receiving benefits Active plan members Total Employers 35,186 68,815 74,935 178,936 726 Benefits The benefit structure of ERS was significantly modified on July 1, 1982. Unless the employee elects otherwise, an employee who currently maintains membership with ERS based upon state employment that started prior to July 1, 1982 is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. All other members are "new plan" members, subject to the modified plan provisions. (continued) 48 2008 - Employees' Retirement System of Georgia FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS Under both the old and new plans, a member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60 or 30 years of creditable service regardless of age. Additionally, there are some provisions allowing for early retirement after 25 years of creditable service for members under age 60. Retirement benefits paid to members are based upon the monthly average of the member's highest 24 consecutive calendar months, multiplied by the number of years of creditable service, multiplied by the applicable benefit factor. Annually, postretirement cost of living adjustments are also made to members' benefits. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension, at reduced rates, to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS. Contributions and Vesting Member contributions under the old plan are 4% of annual compensation, up to $4,200 plus 6% of annual compensation in excess of $4,200. Under the old plan, the state pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these state contributions are included in the members' accounts for refund purposes and are used in the computation of the members' earnable compensation for the purpose of computing retirement benefits. Member contributions under the new plan are 1.25% of annual compensation. The state is required to contribute at a specified percentage of active member payroll, determined annually by actuarial valuation. The state contributions are not at any time refundable to the member or his/her beneficiary. Employer contributions required for fiscal year 2008 were based on the June 30, 2005 actuarial valuation as follows: Employer: Normal Employer paid for member Accrued liability Total Old plan 2.41 % 4.75 3.25 10.41 % New plan 7.16 % 3.25 10.41 % Members become vested after ten years of membership service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contributions, the member forfeits all rights to retirement benefits. The employer contributions are projected to liquidate the unfunded actuarial accrued liability within 15 years, based upon the actuarial valuation at June 30, 2007, on the assumption that the total payroll of active members will increase by 3.75% each year. On November 20, 1997, the ERS Board of Trustees created the Supplemental Retirement Benefit Plan of ERS (SRBP). SRBP was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC 415) as a portion of ERS. The purpose of the SRBP is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC 415. Beginning January 1, 1998, all members and retired former members in ERS are eligible to participate in this plan whenever their benefits under ERS exceed the limitation on benefits imposed by IRC 415. 2008 - Employees' Retirement System of Georgia (continued) 49 FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS There were 180 members eligible to participate in this portion of ERS for the year ended June 30, 2008. Employer contributions of $2,000,000 and benefit payments of $2,022,024 under the SRBP are included in the combined statements of changes in net assets for the year ended June 30, 2008. Cash of $15,120 under the SRBP is included in the combined statements of net assets as of June 30, 2008. (b) PSERS is a cost sharing multiple employer defined benefit pension plan established by the Georgia General Assembly in 1969 for the purpose of providing retirement allowances for public school employees who are not eligible for membership in the Teachers Retirement System of Georgia. The ERS Board of Trustees, plus two additional trustees, administers PSERS. Membership As of June 30, 2008, participation in PSERS is as follows: Retirees and beneficiaries currently receiving benefits Terminated employees entitled to benefits but not yet receiving benefits Active plan members Total Employers 13,558 66,950 40,131 120,639 214 Benefits A member may retire and elect to receive normal monthly retirement benefits after completion of ten years of creditable service and attainment of age 65. A member may choose to receive reduced benefits after age 60 and upon completion of ten years of service. Upon retirement, the member will receive a monthly benefit of $14.25, multiplied by the number of years of creditable service. Death and disability benefits are also available through PSERS. Additionally, PSERS makes periodic cost of living adjustments to the monthly benefits. Contributions and Vesting Members contribute $4 per month for nine months each fiscal year. The State of Georgia, although not the employer of PSERS members, is required by statute to make employer contributions actuarially determined and approved and certified by the PSERS Board of Trustees. Employer contributions required for the year ended June 30, 2008 were $41.80 per active member and based on the June 30, 2005 actuarial valuation. Members become vested after ten years of creditable service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contribution, the member forfeits all rights to retirement benefits. The employer contributions are projected to liquidate the actuarial accrued funding excess within 15 years, based upon the actuarial valuation at June 30, 2007. (c) LRS is a cost sharing multiple employer defined benefit plan established by the Georgia General Assembly in 1979 for the purpose of providing retirement allowances for all members of the Georgia General Assembly. LRS is administered by the ERS Board of Trustees. (continued) 50 2008 - Employees' Retirement System of Georgia FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS Membership As of June 30, 2008, participation in LRS is as follows: Retirees and beneficiaries currently receiving benefits 225 Terminated employees entitled to benefits but not yet receiving benefits 130 Active plan members 218 Total 573 Employers 1 Benefits A member's normal retirement is after eight years of creditable service and attainment of age 65, or eight years of membership service (four legislative terms) and attainment of age 62. A member may retire early and elect to receive a monthly retirement benefit after completion of eight years of membership service and attainment of age 60; however, the retirement benefit is reduced by 5% for each year the member is under age 62. Upon retirement, the member will receive a monthly service retirement allowance of $36, multiplied by the number of years of creditable service, reduced by age reduction factors, if applicable. Death benefits are also available through the plan. Contributions and Vesting Member contributions are 8.5% of annual salary. The state pays member contributions in excess of 4.75% of annual compensation. Employer contributions are actuarially determined and approved and certified by the ERS Board of Trustees. There were no employer contributions required for the year ended June 30, 2008 based on the June 30, 2005 actuarial valuation. Members become vested after eight years of creditable service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contributions, the member forfeits all rights to retirement benefits. (d) The GJRS is a system created to serve the members and beneficiaries of the Trial Judges and Solicitors Retirement Fund, the Superior Court Judges Retirement System, and the District Attorneys Retirement System (collectively, the Predecessor Retirement Systems). As of June 30, 1998, any person who was an active, inactive, or retired member or beneficiary of the Predecessor Retirement Systems was transferred to GJRS in the same status effective July 1, 1998. All assets of the Predecessor Retirement Systems were transferred to GJRS as of July 1, 1998. The ERS Board of Trustees and three additional trustees administer GJRS. GJRS is a cost sharing multiple employer defined benefit pension plan established by the Georgia General Assembly for the purpose of providing retirement allowances for judges and solicitors generals of the state courts and juvenile court judges in Georgia, and their survivors and other beneficiaries, superior court judges of the state of Georgia, and district attorneys of the state of Georgia. 2008 - Employees' Retirement System of Georgia (continued) 51 FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS Membership As of June 30, 2008, participation in GJRS is as follows: Retirees and beneficiaries currently receiving benefits 179 Terminated employees entitled to benefits but not yet receiving benefits 66 Active plan members 477 Total 722 Employers 95 Benefits The normal retirement for GJRS is age 60, with 16 years of creditable service; however, a member may retire at age 60 with a minimum of 10 years of creditable service. Annual retirement benefits paid to members are computed as 66 2/3% of state paid salary at retirement for district attorneys and superior court judges and 66 2/3% of the average over 24 consecutive months for trial judges and solicitors, plus 1% for each year of credited service over 16 years, not to exceed 24 years. Early retirement benefits paid to members are computed as the pro rata portion of the normal retirement benefit, based on service not to exceed 16 years. Death, disability, and spousal benefits are also available. Contributions and Vesting Members are required to contribute 7.5% of their annual salary plus an additional 2.5% of their annual salary if spousal benefit is elected. Employer contributions are actuarially determined and approved and certified by the GJRS Board of Trustees. Employer contributions required for fiscal year 2008 were based on the June 30, 2005 actuarial valuation as follows: Employer: Normal Accrued liability Total 12.41 % (8.56) 3.85 % Members become vested after ten years of creditable service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contributions, the member forfeits all rights to retirement benefits. The employer contributions are projected to liquidate the actuarial accrued funding excess within 16 years, based upon the actuarial valuation at June 30, 2007, assuming that the amount of accrued liability payment increases 3.75% each year. (e) The GMPF is a single employer defined benefit pension plan established on July 1, 2002 by the Georgia General Assembly for the purpose of providing retirement allowances and other benefits for members of the Georgia National Guard (National Guard). The ERS Board of Trustees administers the GMPF. Membership As of June 30, 2008, GMPF had 305 retirees and beneficiaries currently receiving benefits. Active and inactive plan member information is maintained by one employer, the Georgia Department of Defense. (continued) 52 2008 - Employees' Retirement System of Georgia FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS Benefits A member becomes eligible for benefits upon attainment of age 60, with 20 or more years of creditable service (including at least 15 years of service as a member of the National Guard), having served at least 10 consecutive years as a member of the National Guard immediately prior to discharge, and having received an honorable discharge from the National Guard. The retirement allowance is payable for life in the amount of $50 per month, plus $5 per month for each year of creditable service in excess of 20 years. The maximum benefit is $100 per month. Contributions and Vesting Employer contributions are actuarially determined and approved and certified by the ERS Board of Trustees. There are no member contributions required. Employer contributions required for the year ended June 30, 2008 were $124.36 per active member and were based on the June 30, 2005 actuarial valuation. A member becomes vested after 20 years of creditable service (including at least 15 years of service as a member of the National Guard), having served at least 10 consecutive years as a member of the National Guard immediately prior to discharge, and having received an honorable discharge from the National Guard. The employer contributions are projected to liquidate the unfunded actuarial accrued liability within 30 years, based upon the actuarial valuation at June 30, 2007. (f) SEAD-Active was created in 2007 by the Georgia General Assembly to amend Title 47 of the Official Code of Georgia Annotated, relating to retirement, so as to establish a fund for the provision of term life insurance to active members of ERS, LRS, JRS, and SCJRF. The SEAD-Active trust fund accumulates in the fund the premiums received from the aforementioned retirement systems, including interest earned on deposits and investments of such payments from active members. Employee contribution rates of 0.05% and 0.02% of members' salaries for old plan members and new plan members, respectively, were appropriate for the fiscal year ending June 30, 2008. There were no employer contribution rates required for the fiscal year ended June 30, 2008. Old plan members were hired prior to July 1, 1982, and new plan members were hired on or after July 1, 1982. According to the policy terms covering the lives of members, insurance coverage is provided on a monthly, renewable term basis, and no return premiums or cash value are earned. The net assets represent the excess accumulation of investment income and premiums over benefit payments and expenses and is held as a reserve for payment of death benefits under existing policies. (g) SEAD-OPEB was created in 2007 by the Georgia General Assembly to amend Title 47 of the Official Code of Georgia Annotated, relating to retirement, so as to establish a fund for the provision of term life insurance to retired and vested inactive members of ERS, LRS, JRS, and SCJRF. The SEAD-OPEB trust fund accumulates in the fund the premiums received from the aforementioned retirement systems, including interest earned on deposits and investments of such payments from retired and vested inactive members. 2008 - Employees' Retirement System of Georgia (continued) 53 FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS Employee contribution rates of 0.45% and 0.23% of members' salaries for old plan members and new plan members, respectively, were appropriate for the fiscal year ending June 30, 2008. There were no employer contribution rates required for the fiscal year ended June 30, 2008. Old plan members were hired prior to July 1, 1982, and new plan members were hired on or after July 1, 1982. According to the policy terms covering the lives of members, insurance coverage is provided on a monthly, renewable term basis, and no return premiums or cash value are earned. The net assets represent the excess accumulation of investment income and premiums over benefit payments and expenses and is held as a reserve for payment of death benefits under existing policies. (h) SCJRF is a single employer defined benefit pension plan established by the Georgia General Assembly in 1945 for the purpose of providing retirement benefits to the superior court judges of the state of Georgia. SCJRF is directed by its own Board of Trustees. The Boards of Trustees for ERS and SCJRF entered into a contract for ERS to administer the plan effective July 1, 1995. Membership As of June 30, 2008, SCJRF had 27 retirees and beneficiaries currently receiving benefits and no active members. Benefits The normal retirement for SCJRF is age 68, with 19 years of creditable service, with a benefit of two-thirds the salary paid to superior court judges. A member may also retire at age 65, with a minimum of 10 years of creditable service, with a benefit of one-half the salary paid to superior court judges. Death, disability, and spousal benefits are also available. Contributions and Vesting Member contributions are 5.0% of their salary, plus an additional 2.5% for the spousal coverage benefit, if elected. The state pays member contributions of 5.0% of the member's annual salary. Additional employer contributions are not actuarially determined, but are provided on an as needed basis to fund current benefits. (i) DARF is a defined benefit pension plan established by the Georgia General Assembly in 1949 for the purpose of providing retirement benefits to the district attorneys of the state of Georgia. DARF is directed by its own Board of Trustees. The Boards of Trustees for ERS and DARF entered into a contract for ERS to administer the plan effective July 1, 1995. Membership As of June 30, 2008, DARF had 7 retirees and beneficiaries currently receiving benefits and no active members. Benefits Persons appointed as district attorney emeritus shall receive an annual benefit of $15,000, or one-half of the state salary received by such person as a district attorney for the calendar year immediately prior to the person's retirement, whichever is greater. Contributions and Vesting Member contributions were 5.0% of their annual salary, plus an additional 2.5% for the spousal coverage benefit, if elected. The state paid member contributions of 5.0% of the member's annual salary. Employer contributions are not actuarially determined, but are provided on an as-needed basis to fund current benefits. (continued) 54 2008 - Employees' Retirement System of Georgia FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS (j) GDCP is a defined contribution plan established by the Georgia General Assembly in July 1992 for the purpose of providing retirement allowances for state employees who are not members of a public retirement or pension system. GDCP is administered by the ERS Board of Trustees. Membership As of June 30, 2008, participation in GDCP is as follows: Retirees and beneficiaries currently receiving benefits Terminated employees entitled to benefits but not yet receiving benefits Active plan members Total Employers 1 94,873 19,452 114,326 378 Benefits A member may retire and elect to receive periodic payments after attainment of age 65. The payments will be based upon mortality tables and interest assumptions to be adopted by the ERS Board of Trustees. If a member has less than $50,000 credited to his/her account, the ERS Board of Trustees has the option of requiring a lumpsum distribution to the member. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Contributions Members are required to contribute 7.5% of their annual salary. There are no employer contributions. Earnings will be credited to each member's account as adopted by the ERS Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member. (k) The 401(k) Plan was established by the State of Georgia Employee Benefit Plan Council (the Council) in accordance with Georgia Law 1985, page 441, as amended, Official Code of Georgia, Sections 45-18-50 through 45-18-58, and Section 401(k) of the Internal Revenue Code (IRC). On October 1, 1994, activity commenced when the 401(k) Plan became available to employees of the State of Georgia Community Service Boards (CSBs). On December 1, 1998, the 401(k) Plan became available to employees of the Georgia Lottery Corporation (the GLC). Effective July 1, 1998, the State of Georgia Employee's Deferred Compensation Group Trust (Master Trust) was formed for the State of Georgia Deferred Compensation Program to serve as the funding medium for the 401(k) Plan. At that time, the 401(k) Plan began operating on an employee elective deferral basis for all state employees working at least 1,000 hours in a 12 month period. All assets of the 401(k) Plan are held in trust for the exclusive benefit of the participants and their beneficiaries. The assets of the 401(k) Plan and the State of Georgia Employees' Deferred Compensation 457 Plan are commingled in the Master Trust with the respective trusts owning units of the Master Trust. Effective July 1, 2005 (HB275), ERS became the trustee of the 401(k) Plan. CitiStreet LLC and State Street Bank and Trust Company hold, administer, and invest the assets of the Master Trust. Contributions and Vesting The 401(k) Plan requires participating CSBs and the GLC to annually contribute 7.5% of all eligible employees' base salary (limited to a maximum of $220,000 base salary for 2007). Through December 31, 2001, the 401(k) Plan allowed individual participants to defer up to the lesser of 15% of eligible gross compensation earned (increased to 100% of eligible compensation as of January 1, 2002) or up to limits prescribed by the IRC. 2008 - Employees' Retirement System of Georgia (continued) 55 FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS A maximum 50% matching contribution of participant deferrals may be made by the employer, subject to appropriation by the State Legislature. No appropriations by the State Legislature were made during 2008. Currently, the state does not provide any sort of match to the Plan, nor has it in the past. Employer contributions vest according to the following schedule: Less than 2 years 2 3 4 5 6 or more 0% 20 40 60 80 100 For participants whose services terminated prior to January 1, 2002, the following schedule applies: Less than 3 years 3 4 5 6 7 or more 0% 20 40 60 80 100 Employee contributions and earnings thereon are 100% vested at all times. The 401(k) Plan also allows participants to roll over amounts from other qualified plans to their respective account in the 401(k) Plan on approval by the 401(k) Plan Administrator. Such rollovers are 100% vested at the time of transfer. Distributions The participant may receive the value of their vested accounts upon attaining age 59.5, qualifying financial hardship, or retirement or other termination of service. Upon death of a participant, his or her beneficiary shall be entitled to the full value of his or her accounts. Distributions are made in installments or in a lump sum. (l) The 457 Plan was established by the State Personnel Board in accordance with Georgia laws 1974, page 198 as amended, Official Code of Georgia, Sections 45-18-30 through 45-18-36, and Section 457 of the Internal Revenue Code (IRC). The 457 Plan is available to employees of the State of Georgia and county health departments and permits such employees to defer a portion of their annual salary until future years. Employee contributions and earnings thereon are 100% vested at all times. Effective July 1, 1998, the State of Georgia Employee's Deferred Compensation Group Trust (Master Trust) was formed for the State of Georgia Deferred Compensation Program to serve as the funding medium for the 457 Plan. All assets of the 457 Plan are held in trust for the exclusive benefit of the participants and their beneficiaries. The assets of the 457 Plan and the State of Georgia Employees' Deferred Compensation 401(k) Plan are commingled in the Master Trust with the respective trusts owning units of the Master Trust. Effective July 1, 2005 (HB275), ERS became the trustee of the 457 Plan. CitiStreet LLC and State Street Bank and Trust Company hold, administer, and invest the assets of the Master Trust. Distributions The balance in the employee's account in the 457 Plan is not available to the employee until termination, retirement, death, or unforeseeable emergency as defined in the 457 Plan. 56 2008 - Employees' Retirement System of Georgia FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS (3) Significant Accounting Policies and System Asset Matters (a) Basis of Accounting The System's basic financial statements are prepared on the accrual basis of accounting. Contributions from the employers and members are recognized as additions in the period in which the members provide services. Retirement benefits and refund payments are recognized as deductions when due and payable. During fiscal year 2008, the System adopted the provisions of GASB Statement No. 50, Pension Disclosures. The objective of this Statement is to amend note disclosure and required supplementary information (RSI) standards of Statement No. 25 and Statement No. 27 to conform with applicable changes adopted in Statement No. 43 and Statement No. 45 for other post employment benefits. (b) Investments Investments are reported at fair value. 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. Investment income is recognized as earned by the System. No investment in any one organization except the U.S. Government or its agencies represents 5% or more of the net assets available for pension benefits. There are no investments in, loans to, or leases with parties related to the System. The System utilizes various investment instruments. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the financial statements. (c) Capital Assets Capital assets, including software development costs, are stated at cost less accumulated depreciation. The capitalization thresholds are $100,000 for buildings and building improvements and $5,000 for equipment, vehicles, and purchased computer software. Depreciation on capital assets is computed using the straight line method over estimated useful lives of five to forty years. Depreciation expense is included in administrative expenses. Maintenance and repairs are charged to administrative expenses when incurred. When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the statements of changes in plan net assets in the period of disposal. (d) Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of net assets and changes therein. Actual results could differ from those estimates. 2008 - Employees' Retirement System of Georgia (continued) 57 FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS (4) Investment Program The System maintains sufficient cash to meet its immediate liquidity needs. Cash not immediately needed is invested in either short-term or long-term investment securities as directed by the Board of Trustees. All investments are held by agent custodial banks in the name of the System. Cash Cash balances are fully insured through the Federal Deposit Insurance Corporation, an agency of the U.S. Government. Fiduciary accounts, such as those of the System, are granted $100,000 of insurance coverage per participant in the System. Temporary cash on hand not committed for a specific purpose is invested overnight. Investments State statutes authorize the System to invest in a variety of short-term and long-term securities as follows: (a) Short-Term Short-term investments are authorized in the following instruments: Repurchase and reverse repurchase agreements, whereby the System and a broker exchange cash for direct obligations of the U.S. Government or in obligations unconditionally guaranteed by the agencies of the U.S. Government or U.S. corporations. The System or broker promises to repay the cash received, plus interest, at a specific date in the future in exchange for the same securities. The System held repurchase agreements of $244,278,000 at June 30, 2008. U.S. Treasury obligations with varying terms up to 360 days. Other short term securities authorized, but not currently used, are: Commercial paper, with a maturity of 180 days or less. Commercial paper is an unsecured promissory note issued primarily by corporations for a specific amount and maturing on a specific day. The System considers for investment only commercial paper of the highest quality, rated P-l and/or A-l by national credit rating agencies. Master notes, an overnight security administered by a custodian bank and an obligation of a corporation whose commercial paper is rated P-l and/or A-l by national credit rating agencies. Investments in commercial paper or master notes are limited to no more than $100 million in any one name. (b) Long-Term Fixed income investments are authorized in the following instruments: U.S. and foreign government obligations with terms up to 30 years. The System held U.S. Treasuries of $4,153,548,520 at June 30, 2008. Obligations unconditionally guaranteed by agencies of the U.S. Government with terms up to 30 years. The System held agency bonds of $666,980,197 at June 30, 2008. Corporate bonds with at least an "A" rating by a national rating agency and limited to no more than 5% of total System assets in any one name. Maturities of these securities vary up to a period of 40 years. The System held corporate bonds of $1,179,601,480 at June 30, 2008. Private placements are authorized under the same general restrictions applicable to corporate bonds. 58 2008 - Employees' Retirement System of Georgia FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS Mortgage investments are authorized to the extent that they are secured by first mortgages on improved real property located in the state of Georgia having a loan to value ratio no higher than 75%. Mortgages, as a group, cannot exceed 10% of total assets or 1% for any one loan. Equity securities are also authorized (in statutes) for investment as a complement to the System's fixed-income portfolio and as a long-term inflation hedge. By statute, no more than 60% of the total invested assets on a historical cost basis may be placed in equities and no more than 5% in any one corporation. Equity holdings in any one corporation may not exceed 5% of the outstanding equity of the issuing corporation. The equity portfolio is managed by the Division of Investment Services (the Division), in conjunction with independent advisors. Buy/sell decisions are based on securities meeting rating criteria established by the Board of Trustees, in-house research considering such things as yield, growth, and sales statistics, and analysis of independent market research. Equity trades are approved and executed by the Division's staff. Common stocks eligible for investment are approved by the Investment Committee of the Board of Trustees before being placed on an approved list. The System held common stocks totaling $8,946,541,243 at June 30, 2008. The State of Georgia Employee's Deferred Compensation Group Trust (Master Trust) invests in various mutual funds, common collective trust funds, and separate accounts, as selected by participants. Each participant is allowed to select and invest contributions into 3 mutual funds, 7 common collective trust funds, and 4 separate accounts, as authorized by the Board of Trustees. Mutual funds, common collective trust funds, and separate accounts are reported at the fair value of participant balances. Substantially all of the investments of ERS, PSERS, LRS, SCJRF, GJRS, GMPF, and SEAD, and certain investments of GDCP are pooled into one common investment fund. Investments of approximately $32,180,000 at June 30, 2008 held by GDCP, are not included in the common investment fund. Units in the pooled common investment fund are allocated to the respective plans, based upon the cost of assets contributed, and additional units are allocated to the participating plans, based on the market value of the pooled common investment fund at the date of contribution. Net income of the pooled common investment fund is allocated monthly to the participating plans, based upon the number of units outstanding during the month. The units and fair value of each plan's equity in the pooled common investment fund at June 30, 2008 were as follows (dollars in thousands): Fair value Units Employees' Retirement System Public School Employees Retirement System Legislative Retirement System Georgia Judicial Retirement System State Employees' Assurance Department - Active State Employees' Assurance Department - OPEB Georgia Military Pension Fund Superior Court Judges Retirement Fund Georgia Defined Contribution Plan $ 13,150,642 740,857 28,672 290,992 172,258 736,084 4,927 1,299 50,684 $ 15,176,415 5,465,485 307,905 11,916 120,938 71,592 305,921 2,048 540 21,065 6,307,410 2008 - Employees' Retirement System of Georgia (continued) 59 FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS Credit Risk. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations to the Employees' Retirement System. State law limits investments to investment grade securities. It is the System's investment policy to require that the bond portfolio be of high quality and chosen with respect to maturity ranges, coupon levels, refunding characteristics and marketability. The System's policy is to require that new purchases of bonds be restricted to high grade bonds rated no lower than "A" by any nationally recognized statistical rating organization. The System's investment in U.S. Agencies was 11.1% of total fixed income securities and was rated AAA by Standard & Poor's and Aaa by Moody's Investors Service. The System's investment in corporate bonds was 19.7% of total fixed income securities which consisted of 13.5% rated AAA/Aaa and 6.2% rated AA/Aa. The investment policy requires that repurchase agreements be limited to the purchase of U.S. Treasury or Agency obligations or corporate bonds rated no lower than "A" by any nationally recognized statistical rating organization with a market value in excess of funds advanced. As of June 30, 2008, the System held repurchase agreements of $244,278,000. Mutual funds, common collective trust funds, and separate accounts investments of the deferred compensation plans are not considered to have credit risk and do not require disclosure of credit risk rating. Concentration of Credit Risk. Concentration of credit risk is the risk of loss that may be attributed to the magnitude of a government's investment in a single issue. On June 30, 2008, the System did not have debt or equity investments in any one organization, other than those issued by the U. S. Government or its agencies, which represented greater than 5% of plan net assets. Interest Rate Risk. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. This risk is managed within the portfolio using the effective duration method. This method is widely used in the management of fixed income portfolios and quantifies to a much greater degree the sensitivity to interest rate changes when analyzing a bond portfolio with call options, prepayment provisions, and any other cash flows. Effective duration makes assumptions regarding the most likely timing and amounts of variable cash flows and is best utilized to gauge the effect of a change in interest rates on the fair value of a portfolio. It is believed that the reporting of effective duration found in the table below quantifies to the fullest extent possible the interest rate risk of the System's fixed income assets. Effective duration of fixed income assets and repurchase agreeements by security type Fixed income and repurchase agreements security type U.S. Treasuries U.S. Agencies Corporate bonds Repurchase agreements Market value June 30, 2008 $ 4,153,548,520 666,980,197 1,179,601,480 244,278,000 Percent of all fixed income assets and repurchase agreements 66.5 % 10.7 18.9 3.9 Effective duration (years) 5.2 3.6 5.1 Total $ 6,244,408,197 100.0 % 5.0* *Total effective duration (years) does not include repurchase agreements. Mutual funds, common collective trust funds, and separate accounts investments of the deferred compensation plans are not considered to have interest rate risk and do not require disclosure of interest rate risk. (continued) 60 2008 - Employees' Retirement System of Georgia FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS (5) Investments Lending Program State statutes and Board of Trustees policies permit the System to lend its securities to broker-dealers with a simultaneous agreement to return the collateral for the same securities in the future. The System is presently involved in a securities lending program with major brokerage firms. The System lends equity and fixed income securities for varying terms and receives a fee based on the loaned securities' value. During a loan, the System continues to receive dividends and interest as the owner of the loaned securities. The brokerage firms pledge collateral securities consisting of U.S. Government and agency securities, mortgage backed securities issued by a U.S. Government agency, and corporate bonds. The collateral value must be equal to at least 102% to 110% of the loaned securities' value, depending on the type of collateral security. Securities loaned totaled $5,255,646,467 at fair value at June 30, 2008. The collateral value was equal to 104.9% of the loaned securities' value at June 30, 2008. The System's lending collateral was held in the System's name by the tri-party custodian. Loaned securities are included in the accompanying statements of net assets since the System maintains ownership. The related collateral securities are not recorded as assets on the System's statements of net assets, and a corresponding liability is not recorded, since the System is deemed not to have the ability to pledge or trade the collateral securities. The System is deemed not to have the ability to pledge or sell the collateral securities, since the System's lending contracts do not address whether the lender can pledge or sell the collateral securities without a borrower default, the System has not previously demonstrated that ability, and there are no indications of the System's ability to pledge or sell the collateral securities. (6) Capital Assets The following is a summary of capital assets and depreciation information as of June 30, 2008 and for the year then ended: Capital Assets: Land Building Equipment Vehicles Computer Software Balance at June 30, 2007 Additions Disposals Balance at June 30, 2008 $ 944,225 $ 2,800,000 789,793 13,381 14,267,473 18,814,872 $ 250,057 77,137 327,194 $ 944,225 2,800,000 1,039,850 13,381 14,344,610 19,142,066 Accumulated depreciation for: Building Equipment Vehicles Computer software Capital assets, net (210,000) (410,844) (810) (2,853,495) (3,475,149) (70,000) (168,926) (1,912) (2,853,537) (3,094,375) $ 15,339,723 $ (2,767,181) $ $ (280,000) (579,770) (2,722) (5,707,032) (6,569,524) 12,572,542 During fiscal year 2008, the System did not experience any capital asset impairment loss with respect to the provisions of GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries. 2008 - Employees' Retirement System of Georgia 61 FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS (7) Commitments and Contingencies In January 2007, multiple retirees filed a civil action in Fulton County Superior Court (the Court) against ERS seeking additional benefits retroactive to the time of their retirement dates for a class of those retirees who elected survivorship options and who retired during the preceding twenty-year period. Plaintiffs alleged that ERS did not use updated mortality tables in the calculation of their benefits. These claims are identical to those brought against the Teachers Retirement System of Georgia (TRS) under class action, by the same attorneys, in 2004. In the TRS case, the Court granted summary judgment for TRS. However, this was reversed by the Georgia Supreme Court and remanded back to the Court to determine the applicable statute of limitations. On February 29, 2008 the Court ruled for the plaintiffs using a twenty-year statute of limitations. This judgment is being appealed by both TRS and plaintiffs. TRS is appealing the twenty-year statute of limitations and related attorney fees. The plaintiffs are appealing the interest rate granted. On February 29, 2008, the Court issued an uncontested claims order against TRS using the minimum statute of limitations of six years. Because of the above decisions against TRS, ERS has conceded liability on the breach of contract claim. The ultimate liability to the System is impacted by certain variables that are uncertain until the final decision by the Court, most notably the applicable statute of limitations and any applicable interest rates on such liability. The System anticipates a decision from the Court within the fiscal year 2009. At June 30, 2008, management recorded an estimate of the potential liability of approximately $17.5 million using the six-year statute of limitations and the interest rate used during that period. This amount is recorded in accounts payable and other liabilities in the accompanying statement of plan net assets. Management's assessment of the potential liability on the twenty-year statute of limitations cannot be reasonably estimated at June 30, 2008. Although the ultimate liability may exceed the amount recorded for the six-year statue of limitations, management believes that it will not have a material adverse impact on the financial condition of the System. The System is subject to legal actions in the ordinary course of its business. There may be other cases involving similar claims which may impact other retirement systems currently being administered by the System. In the opinion of management, the System has adequate legal defenses with respect to such actions and their final outcome will not have a material adverse effect upon the financial status of the System. (8) Subsequent Events On August 7, 2008, multiple retirees filed a civil action in Fulton County Superior Court against PSERS seeking additional benefits retroactive to the time of their retirement dates for a class of those retirees who elected survivorship options and who retired during the preceding twenty year period. The case asserts the same claims as were asserted against the Teachers Retirement System of Georgia (TRS) and ERS. In management's opinion, the ultimate liability of the suit will not have a material adverse impact on the financial statements of the System. On September 7, 2008, the Federal Housing Finance Agency (FHFA) placed Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) into conservatorship with FHFA as the conservator. The conservatorship is a statutory process designed to stabilize a troubled institution with the objective of returning the entities to normal business operations. As a result there will be a financing and investing relationship with the United States Government via the FHFA. Changes in fair values of the Plan's investments in FNMA and FHLMC subsequent to June 30, 2008 have not had a material impact on the fair value of Plan assets. (continued) 62 2008 - Employees' Retirement System of Georgia FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS (9) Funded Status and Funding Progress The funded status of each plan as of June 30, 2007, the most recent actuarial valuation date, is as follows (dollar amounts in thousands): Actuarial value of plan assets (a) Actuarial accrued liability (AAL) entry age (b) Unfunded AAL/(funding excess) (b-a) Funding ratio (a/b) Annual covered payroll (c) Unfunded AAL/(funding excess) as percentage of covered payroll [(b-a)/c] ERS PSERS LRS GJRS GMPF $ 13,843,689 785,460 30,049 297,090 4,165 $ 14,885,179 746,078 24,357 249,278 19,887 $ 1,041,490 93.0 % (39,382) 105.3 (5,692) 123.4 (47,812) 119.2 15,722 20.9 $ 2,680,972 N/A 3,688 48,621 N/A 38.8 % N/A (154.3) (98.3) N/A No statistics regarding covered payroll are available. Contributions are not based upon members' salaries, but are simply $4.00 per member per month for nine months each fiscal year. No statistics regarding covered payroll are available. Active and inactive plan member information is maintained by the Georgia Department of Defense. The schedules of funding progress, presented as required supplementary information (RSI) following the notes to the financial statements, present multiyear trend information about whether the actuarial values of plans assets are increasing or decreasing over time relative to the AALs for benefits. Additional information as of the latest actuarial valuation follows: Valuation date Actuarial cost method Amortization method Remaining amortization period Asset valuation method Actuarial assumptions Investment rate of return Projected salary increases Postretirement cost-of-living adjustment Includes inflation rate of 3.75% in 2006 and 3.75% in 2007. ERS June 30, 2007 Entry Age Level percentage of pay, open 15 years 7-year market PSERS June 30, 2007 Entry Age Level dollar, open 15 years 7-year market 7.50% 5.45-9.25% None 7.50% N/A 3% annually LRS June 30, 2007 Entry Age Level dollar, open N/A 7-year market 7.50% N/A 3% annually 2008 - Employees' Retirement System of Georgia (continued) 63 FINANCIAL SECTION NOTES TO FINANCIAL STATEMENTS Valuation date Actuarial cost method Amortization method Remaining amortization period Asset valuation method Actuarial assumptions Investment rate of return Projected salary increases Postretirement cost-of-living adjustment Includes inflation rate of 3.75% in 2006 and 3.75% in 2007. GJRS June 30, 2007 Entry Age Level percent of pay, open 16 years 7-year market 7.50% 6.00% None GMPF June 30, 2007 Entry Age Level dollar, open 30 years 7-year market 7.50% N/A None 64 2008 - Employees' Retirement System of Georgia FINANCIAL SECTION REQUIRED SUPPLEMENTARY SCHEDULES (UNAUDITED) 2008 - Employees' Retirement System of Georgia EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) (A Component Unit of the State of Georgia) REQUIRED SUPPLEMENTARY SCHEDULES (Unaudited) SCHEDULES OF FUNDING PROGRESS (In thousands) Employees' Retirement System Actuarial valuation date 6/30/2002 6/30/2003 6/30/2004 6/30/2005 6/30/2006 6/30/2007 Actuarial value of plan assets (a) $ 12,124,414 12,428,736 12,797,389 13,134,472 13,461,132 13,843,689 Actuarial accrued liablility (AAL) entry age (b) $ 11,994,850 12,370,563 13,106,648 13,512,773 14,242,845 14,885,179 Unfunded AAL/(funding excess) (b-a) $ (129,564) (58,173) 309,259 378,301 781,713 1,041,490 Funding ratio (a/b) 101.1 % 100.5 97.6 97.2 94.5 93.0 Annual covered payroll (c) $ 2,408,306 2,489,490 2,445,619 2,514,430 2,630,167 2,680,972 Public School Employees Retirement System 6/30/2002 727,529 630,295 (97,234) 115.4 N/A 6/30/2003 734,879 664,207 (70,672) 110.6 N/A 6/30/2004 743,815 666,883 (76,932) 111.5 N/A 6/30/2005 753,767 671,040 (82,727) 112.3 N/A 6/30/2006 766,277 691,651 (74,626) 110.8 N/A 6/30/2007 785,460 746,078 (39,382) 105.3 N/A Legislative Retirement System 6/30/2002 6/30/2003 6/30/2004 6/30/2005 6/30/2006 6/30/2007 26,637 27,157 27,892 28,462 29,172 30,049 21,779 21,898 22,023 23,531 23,407 24,357 (4,858) (5,259) (5,869) (4,931) (5,765) (5,692) 122.3 124.0 126.6 121.0 124.6 123.4 3,413 3,434 3,402 3,586 3,602 3,688 Georgia Judicial Retirement System 6/30/2002 6/30/2003 6/30/2004 6/30/2005 6/30/2006 6/30/2007 228,417 237,683 250,313 264,924 279,564 297,090 175,154 185,825 196,502 213,060 229,837 249,278 (53,263) (51,858) (53,811) (51,864) (49,727) (47,812) 130.4 127.9 127.4 124.3 121.6 119.2 38,630 38,867 40,908 42,916 45,308 48,621 Georgia Military Pension Fund 6/30/2002 8,322 8,322 N/A 6/30/2003 609 11,098 10,489 5.5 N/A 6/30/2004 1,250 12,343 11,093 10.1 N/A 6/30/2005 2,176 14,454 12,278 15.1 N/A 6/30/2006 3,100 17,625 14,525 17.6 N/A 6/30/2007 4,165 19,887 15,722 20.9 N/A This data, except for annual covered payroll, was provided by the System's actuary. Information is shown only for the years available in accordance with the parameters of GASB Statement No. 25. Additional years will be added as data become available. No statistics regarding covered payroll are available. Contributions are not based upon members' salaries, but are simply $4.00 per member per month for nine months each fiscal year. No statistics regarding covered payroll are available. Active and inactive plan member information is maintained by the Georgia Department of Defense. See accompanying notes to required supplementary schedules. Unfunded AAL/ (funding excess) as percentage of covered payroll [(b-a)/c] (5.4) % (2.3) 12.6 15.0 29.7 38.8 N/A N/A N/A N/A N/A N/A (142.3) (153.1) (172.5) (137.5) (160.0) (154.3) (137.9) (133.4) (131.5) (120.9) (109.8) (98.3) N/A N/A N/A N/A N/A N/A 65 FINANCIAL SECTION REQUIRED SUPPLEMENTARY SCHEDULES (UNAUDITED) EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) (A Component Unit of the State of Georgia) REQUIRED SUPPLEMENTARY SCHEDULES SCHEDULES OF EMPLOYER CONTRIBUTIONS (In thousands) Employees' Retirement System Year ended June 30 2002 2003 2004 2005 2006 2007 State annual required contribution $ 233,229 246,172 245,388 243,074 258,482 270,141 Percentage contributed 100 % 100 100 100 100 100 Public School Employees Retirement System 2002 2003 2004 2005 2006 2007 11,623 100 4,121 86 833 100 833 100 3,634 100 6,484 100 Legislative Retirement System Georgia Judicial Retirement System Georgia Military Pension Fund 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 N/A N/A N/A N/A N/A N/A N/A N/A 1,558 100 1,594 100 1,683 100 1,778 100 591 100 617 100 891 100 891 100 1,005 100 This data was provided by the System's actuary. Information is show only for the years available in accordance with the parameters of GASB Statement No. 25. Additional years will be added as data becomes available. See accompanying notes to required supplementary schedules. 66 2008 - Employees' Retirement System of Georgia FINANCIAL SECTION NOTES TO REQUIRED SUPPLEMENTARY SCHEDULES (UNAUDITED) EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) (A Component Unit of the State of Georgia) NOTES TO REQUIRED SUPPLEMENTARY SCHEDULES (Unaudited) June 30, 2008 (1) Schedule of Funding Progress The actuarial value of assets recognizes a portion of the difference between the fair value of assets and the expected actuarial value of assets, based on the assumed valuation rate of return. The amount recognized each year is 1/7th of the difference between fair value and expected actuarial value. (2) Schedule of Employer Contributions The required employer contributions and percent of those contributions actually made are presented in the schedule. (3) Actuarial Assumptions The information presented in the required supplementary schedules was determined as part of the actuarial valuations at the dates indicated. Additional information from the actuarial valuations for the most recent two year period is as follows: Employees' Retirement System: Valuation date Actuarial cost method Amortization method Remaining amortization period of the Funding Excess Asset valuation method Actuarial assumptions: Investment rate of return Projected salary increases Postretirement cost-of-living adjustment June 30, 2007 Entry age Level percent of pay, open June 30, 2006 Entry age Level percent of pay, open 15 years 7-year smoothed market 10 years 7-year smoothed market 7.50% 5.45-9.25% None 7.50% 5.45-9.25% None Public School Employees Retirement System: Valuation date Actuarial cost method Amortization method Remaining amortization period of the Funding Excess Asset valuation method Actuarial assumptions: Investment rate of return Projected salary increases Postretirement cost-of-living adjustment June 30, 2007 Entry age Level dollar, open 15 years 7-year smoothed market 7.50% N/A 3% annually June 30, 2006 Entry age Level dollar, open 20 years 7-year smoothed market 7.50% N/A 3% annually Includes inflation rate of 3.75% in 2006 and 3.75% in 2007. 2008 - Employees' Retirement System of Georgia (continued) 67 FINANCIAL SECTION NOTES TO REQUIRED SUPPLEMENTARY SCHEDULES (UNAUDITED) EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) (A Component Unit of the State of Georgia) NOTES TO REQUIRED SUPPLEMENTARY SCHEDULES (Unaudited) June 30, 2008 Legislative Retirement System: Valuation date Actuarial cost method Amortization method Remaining amortization period of the Funding Excess Asset valuation method Actuarial assumptions: Investment rate of return Projected salary increases Postretirement cost-of-living adjustment June 30, 2007 Entry age Level dollar, open N/A 7-year smoothed market 7.50% N/A 3% annually June 30, 2006 Entry age Level dollar, open N/A 7-year smoothed market 7.50% N/A 3% annually Georgia Judicial Retirement System: Valuation date Actuarial cost method Amortization method Remaining amortization period of the Funding Excess Asset valuation method Actuarial assumptions: Investment rate of return Projected salary increases Postretirement cost-of-living adjustment June 30, 2007 Entry age Level percent of pay, open June 30, 2006 Entry age Level percent of pay, open 16 years 7-year smoothed market 18 years 7-year smoothed market 7.50% 6.00% None 7.50% 6.00% None Georgia Military Pension Fund: Valuation date Actuarial cost method Amortization method Remaining amortization period of the Funding Excess Asset valuation method Actuarial assumptions: Investment rate of return Projected salary increases Postretirement cost-of-living adjustment June 30, 2007 Entry age Level dollar, open 30 years 7-year smoothed market 7.50% N/A None June 30, 2006 Entry age Level dollar, open 30 years 7-year smoothed market 7.50% N/A None Includes inflation rate of 3.75% in 2006 and 3.75% in 2007. 68 2008 - Employees' Retirement System of Georgia FINANCIAL SECTION ADDITIONAL INFORMATION EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) (A Component Unit of the State of Georgia) ADMINISTRATIVE EXPENSES SCHEDULE CONTRIBUTIONS AND EXPENSES Year Ended June 30, 2008 (With comparative totals for the Year Ended June 30, 2007) (In thousands) Contributions: Employees' Retirement System Public School Employees Retirement System Legislative Retirement System Georgia Judicial Retirement System State Employees' Assurance Department - Active State Employees' Assurance Department - OPEB Georgia Defined Contribution Plan 401(k) Plan 403(b) Plan 457 Plan Superior Court Judges Retirement Fund Total contributions Expenses: Personal services: Salaries and wages Retirement contributions FICA Health insurance Miscellaneous Communications: Postage Publications and printing Telecommunications Travel Professional Services: Accounting and investment services Computer services Contracts Actuarial services Medical services Professional fees Legal services 2008 - Employees' Retirement System of Georgia 2008 2007 $ 18,805 $ 14,901 588 588 110 110 175 175 225 22 203 310 310 1,472 1,050 1 1,169 921 30 30 22,884 18,311 4,272 430 304 961 50 6,017 258 78 62 26 424 4,491 3,807 2,317 646 257 155 59 11,732 4,218 438 303 707 25 5,691 235 99 77 32 443 4,020 1,042 1,576 523 180 152 51 7,544 (continued) 69 FINANCIAL SECTION ADDITIONAL INFORMATION EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA (Including All Plans and Funds Administered by the Employees' Retirement System of Georgia) (A Component Unit of the State of Georgia) ADMINISTRATIVE EXPENSES SCHEDULE CONTRIBUTIONS AND EXPENSES Year Ended June 30, 2008 (With comparative totals for the Year Ended June 30, 2007) (In thousands) Management fees: Building maintenance Other services and charges: Temporary services Supplies and materials Repairs and maintenance Courier services Depreciation Miscellaneous Office equipment Total expenses Net income 2008 2007 $ 636 $ 636 733 125 48 14 3,094 53 8 4,075 22,884 683 106 60 15 3,080 47 6 3,997 18,311 See accompanying independent auditors' report. 70 2008 - Employees' Retirement System of Georgia www.ersga.org Two Northside 75, Suite 300 Atlanta, Georgia 30318-7701 (404) 350-6300 (800) 805-4609 (404) 350-6308 fax