Summary annual financial report, year ended June 30, 2011 [2011]

Popular Annual Financial Report
Fiscal Year Ended June 30, 2011
TEACHERS RETIREMENT SYSTEM OF GEORGIA A COMPONENT UNIT OF THE STATE OF GEORGIA

Teachers Retirement System of Georgia

A Message from the Executive Director
I am pleased to present the Summary Annual Financial Report of the Teachers Retirement System of Georgia (TRS) for the fiscal year ended June 30, 2011. This report summarizes the more detailed 2011 Comprehensive Annual Financial Report (CAFR). The CAFR was prepared by TRS in conformity with generally accepted accounting principles and is available at the TRS office and on our website, www.TRSGA.com.
This report does not replace the CAFR, but includes important details to give you a basic understanding of our overall financial condition and investment performance. It also describes how our System works to serve our members and what benefits we offer.
I would like to take this opportunity to express my gratitude to Governor Nathan Deal, members of the Georgia General Assembly, the TRS Board of Trustees, the staff, and the many people who have worked so diligently to ensure the successful operation of the System.
A Model Retirement System
Our vision at TRS is to be a model retirement system -- one that provides unparalleled service to our members. The best way to accomplish this is through efficient and effective processes supported by a competent, empowered staff and innovative technology. Everything we do, such as allowing our members to manage their accounts online, revolves around this vision. Our commitment to excellence extends throughout TRS. It is essential that we protect your retirement security and strive to exceed your expectations.
Accomplishments and Initiatives
The System continuously looks for innovative ways to make the services it provides to its members faster, friendlier, and easier by a continued focus on providing excellent customer service throughout the System.
This year, the System enhanced its online presence by implementing a LiveChat feature on our website. TRS members and visitors, who have non-account specific questions, can chat live with a customer service representative without having to pick up the phone. This new method of communication allows customers to quickly obtain information that they might have otherwise not sought out due to lack of time or opportunity.
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A Message from the Executive Director
New brochures were created to provide detailed information on the most requested information: Partial Lump-Sum Option, Purchasing Service Credit, Requesting a Refund, TRS and Social Security, Unused Sick Leave, and Working-After-Retirement.
The Annual Membership Statements, that provide current account information and retirement projections to members, were enhanced with additional information. The statement now identifies the type of service a member has earned or purchased (Military, Out-of-State, etc.). Also, the statement lists outstanding service purchase inquiries for members who have requested a costing to purchase service, but did not complete the purchase, as a reminder if they should want an updated calculation.
We enhanced the security and efficiency of our IT systems, as well as upgraded the infrastructure for our disaster recovery systems. We decreased the number of physical servers in our datacenter by converting to virtual machines, which are connected to physical server hosts, resulting in a thirty percent reduction in servers.
The online reporting website used by employers to report employee and employer contributions was enhanced to identify errors prior to submission, allowing contributions to be posted in a more timely and accurate manner. We also implemented a new ACH payment solution that allows employers to securely pay monthly contributions online. This enhancement provides TRS staff with the ability to proactively manage, authorize, and settle transactions in real-time. Sincerely,
Jeffrey L. Ezell Executive Director
Mission: to provide exceptional service in the administration of
pension benefits and related services to TRS members, retirees, and employers.
Vision: To be a model retirement system, providing comprehensive
customer service to members, retirees, and employers. This vision will be accomplished by utilizing innovative, efficient, and effective processes supported by state of the art technology and a fully trained, empowered, and motivated staff.
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Board of Trustees
TRS was created in 1943 by an act of the Georgia General Assembly to provide retirement security to those individuals who choose to dedicate their lives to educating the children of the State of Georgia. TRS is administered by a ten-member Board of Trustees. Members of the Board of Trustees listed are as of December 1, 2011.

Dr. L. C. Evans
CHAIR TRS Member Appointed by the
Governor Term Expires 6/30/12

Mr. Russell W. Hinton
VICE-CHAIR State Auditor
Ex-Officio

Dr. Virginia J. Dixon
Retired Teacher Elected by the Board of Trustees Term Expires 6/30/12

Mr. Brad Dunagan
Citizen of the State Appointed by the
Governor Term Expires 6/30/14

Ms. Jennifer W. Frisch
Classroom Teacher Appointed by the
Governor Term Expires 6/30/14

Mr. Steve McCoy
State Treasurer Ex-Officio

Mr. Thomas W. Norwood
Investment Professional Elected by the
Board of Trustees Term Expires 6/30/14

Dr. Ralph E. Steuer

Mr. J. Alvin Wilbanks

TRS Member Appointed by the Board of Regents Term Expires 6/30/12

Administrator Appointed by the
Governor Term Expires 6/30/13

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Ms. Rachel L. Willis
Classroom Teacher Appointed by the
Governor Term Expires 6/30/12

Eligibility and Benefits at a Glance

Retirement Eligibility
You become eligible to receive retirement benefits once you are vested with TRS and terminate your TRS covered employment. Upon application and approval, you are eligible for a monthly benefit for the rest of your life and, if you select a survivorship option, your beneficiary would also receive lifetime benefits upon your death. Vesting occurs when you reach 10 years of service. The age at which retirement benefits begin depends on your length of service.
Length of Service for Normal Service Retirement Benefits
n 10 or more years of service at age 60
n 30 years of service at any age
If you have between 25 and 30 years of service and have not reached the age of 60, you can retire with a reduced monthly benefit.

The Amount of Your Retirement Benefit
Under the Maximum Plan of Retirement, you receive a monthly benefit for life based on the following formula:

Number of

years of creditable service, including

X

partial years

2% X

Average monthly salary for the
highest consecutive 2 years of
membership service

=

Initial monthly benefit
under the Maximum Plan

You also have the option of selecting one of six different survivorship plans that allows you to leave a monthly lifetime benefit to one or more beneficiaries should they outlive you. You could, for example, leave a beneficiary 50% or 100% of your monthly benefit amount. If you select a survivorship plan, your monthly benefit is reduced based on actuarial factors, which take into consideration your age and the age of your beneficiaries at the time of your retirement.
Regardless of the plan you select, if you retire under a normal service retirement, you may elect the Partial Lump-Sum Option Plan which provides you with a lump-sum distribution in exchange for a permanently reduced monthly retirement benefit. The amount of your lump-sum dis-
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Eligibility and Benefits at a Glance
tribution cannot exceed the sum of 36 monthly benefit payments under the Maximum Plan of Retirement. Your age, plan of retirement, and the amount of your lump-sum distribution are used to determine the reduction in your monthly benefit. A lump-sum distribution will be made as a single payment at the time the first monthly benefit is paid.
To help counter the effects of inflation, cost-of-living adjustments (COLA) may be granted by TRS to increase your benefit. The current COLA is 1.5%, which may be granted semi-annually in January and July.
For more details on eligibility and benefits, please refer to the TRS Member's Guide, which is available through your employer or by visiting the TRS web site at www.TRSGA.com.
A Benefit Comparison
Defined Benefit Plan vs. Defined Contribution Plan
TRS is a defined benefit plan. This means your retirement benefit is determined by a preset formula. Critical to determining that benefit are your years of service and your final average salary. During your active employment, both you and your employer make monthly contributions to TRS. These contributions become part of a trust fund and are invested by professionals. Funds in the TRS investment portfolio are used to pay retirement, disability, and survivor benefits. You personally are not impacted by investment decisions because your benefit level is established in advance by a formula set by state law.
In a defined contribution plan, your retirement benefit is determined by the amount of assets in your personal account at the time of your retirement and you determine how these assets are to be distributed in your retirement years. Typically, during your active employment, both you and your em-
ployer make monthly contributions to your personal account. You have the
primary responsibility to determine how these funds are then invested. Your investment decisions, and factors such as the general state of the economy, will influence the amount of funds available at the time of your retirement. Poor investment choices have a profound impact on your retirement benefit.
Thus, defined contribution plans include considerably more uncertainty and investment risk when compared to defined benefit plans. Defined contribution plans do have some advantages, such as shorter vesting periods and increased versatility because participants have more control over investment decisions. But this also means that you have to stay abreast of current market conditions and trends because you control the selection of funds in which your money is invested.
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Eligibility and Benefits at a Glance
The Most Important Part of Your Retirement Security
It is probably something you rarely think about, but that does not mean it is not valuable to you. Do not underestimate the value of this important asset of yours. Throughout the years you are working, as your salary and contributions grow, your TRS benefit can grow significantly in value. After you retire, your TRS benefit will provide you with a guaranteed lifetime income, regardless of how long you live. For this reason, your TRS benefit should be the foundation of your retirement plan. You may also have Social Security and your own personal savings to enhance your retirement income, but nothing can truly replace what TRS will provide you. Because it cannot be diminished, it is the most critical asset you own.
Four Important Benefits of Your Defined Benefit Plan
1. Guaranteed Lifetime Income that You Cannot Outlive Regardless of how long you live and what happens in the stock
market before, during, or after your retirement, you can count on a predictable retirement benefit each month for the rest of your life from TRS. No other type of retirement plan can offer you that security.
2. Professional Investment Management Just as not everyone can teach or perform your public sector job,
not everyone can successfully invest in the stock and bond markets. The State has an obligation to pay your guaranteed retirement benefits. To fulfill this obligation, TRS maintains a professional investment staff to determine the best mix of stocks, bonds, and other investments at a given time, and research and select the most appropriate securities for TRS.
In a defined contribution plan, you are responsible for selecting your investment funds from the choices provided. You bear the risk that a poor choice of investments at a given time or a poor investment return will cause your assets to decline. In addition, your assets may decline at an inopportune time for you. If you need or wish to retire at a time when the stock or bond market is declining, you could be surprised at what a hit your nest egg has taken. You may have to postpone your retirement while you try to rebuild your retirement fund!
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Eligibility and Benefits at a Glance
3. Relatively Low Cost TRS retains and creates assets for retirement via a very large
portfolio. The investment earnings alone from this portfolio fund a significant portion of the ultimate benefits that will be paid out to you and your colleagues. Because of the size of the TRS portfolio and the associated economies of scale, administrative and investment costs are very low. In fact, per dollar of benefits paid, TRS is less costly than a defined contribution plan. Over time, these fees can eat into the value of your retirement fund.
4. A Disciplined, Ongoing Investment Program Requiring No Effort on Your Part
You probably do not give your TRS account much thought, and that's exactly how it should be. During the years you have been teaching, you and your employer have been contributing towards your retirement security through TRS. You are not required to determine appropriate asset allocation, research and select investment options, monitor performance, and make changes when necessary. TRS does all of that.
In fact, one of the biggest benefits of TRS is that participants do not have to think much about it. Time works as your ally. A good retirement benefit depends on leaving your assets invested over the long-term. In fact, many people who take a lump-sum from their defined contribution plan when they move to another job end up
using the money for immediate cash needs instead of reinvesting it
for retirement.
Understand What You Have and Its Value
TRS offers many benefits. As described above, it provides strength and stability for your retirement by providing you with a predictable, guaranteed retirement income for life. In addition, TRS offers many other important benefits that a defined contribution plan does not, such as disability retirement, death benefits, and potential cost-of-living adjustments for retirees.
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Eligibility and Benefits at a Glance
The Value of Your Benefit
To give you a perspective on the value of the TRS defined benefit plan, consider the following examples based on actual benefit calculations:
1) Ms. Smith is 60 years old with 30.444 years of creditable service and earns $4,312 per month. Assuming she retires now, her projected retirement benefit will be $2,625 per month.* If Ms. Smith had to provide this benefit on her own, she would need to have saved approximately $484,000 at retirement and would need to earn a 7.5% return on these savings each year for the rest of her life. 2) Mr. Jones is currently 33 years old with 9 years of creditable service and earns $3,916 per month. Assuming he retires at age 54 with 30 years of creditable service, and he receives, on average, a 3.20% annual salary increase, his projected monthly benefit will be $4,550 per month. If Mr. Jones had to provide this benefit on his own, he would need to have saved approximately $902,000 at retirement and would need to earn a 7.5% return on these savings each year for the rest of his life. In both examples, the projected monthly retirement benefit is under the Maximum Plan of Retirement and is calculated using the benefit formula on page 4.
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Membership and Benefit Statistics
Total Membership
As of June 30, 2011
Members
Active plan members ........................................................ 216,167 Terminated members entitled to benefits ......................... 7,677 Terminated members not entitled to benefits.................... 78,724 Total .................................................................................. 302,568 Retired Members .............................................................. 92,180 Grand Total ................................................ 394,748

Average Monthly Benefits for New Retirees
For Fiscal Years Ended June 30, 2011 and 2010

Years of Service Average Monthly Benefit

at Retirement

FY 11

FY 10

10 - 15 16 - 20 21 - 25 26 - 30 Above 30 Total

$ 879 $1,483 $1,964 $2,720 $3,736
$2,457

$ 860 $1,433 $1,931 $2,625 $3,656
$2,480

Number of Retirees

FY 11

FY 10

1,455 954
1,150 812
2,797

1,195 786
1,018 690
2,736

7,168 6,425

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Strategic Information and Funding Progress
TRS Strategic Goals FY 2011
Payment of benefits and collection of employer contributions will be made
efficiently, timely, and accurately.
Maximize the rate of return on our investments through the management
of a prudent pension investment policy.
Information provided to customers will be timely, relevant, and accurate. Enhance relationships with members, retirees, and employers. Develop a fully trained, empowered, and motivated staff that will provide
exceptional customer service.

Schedule of Funding Progress (Dollars in thousands)

Actuarial Valuation
Date

Actuarial Value of Plan Assets
(a)

Actuarial Accrued Liability (AAL) -Entry Age
(b)

Unfunded AAL
(UAAL) (Funding Excess)
(b-a)

Funding Ratio (a/b)

6/30/05 6/30/06 6/30/07 6/30/08 6/30/09* 6/30/10

$ 46,836,895 49,263,027 52,099,171 54,354,284 53,438,604 54,529,416

$ 47,811,214 51,059,681 54,996,570 59,133,777
59,450,116 63,592,037

$ 974,319 1,796,654 2,897,399 4,779,493 6,011,512 9,062,621

98.0 % 96.5 94.7 91.9 89.9 85.7

*Revised since the previous valuation to reflect the refinement of the "smoothed valuation interest rate" methodology used in the 2010 valuation, which includes corridors around the long-term investment rates of return.

The Government Finance Officers Association of the United States and Canada (GFOA) has given an Award for Outstanding Achievement in Popular Annual Financial Reporting to the Teachers Retirement System of Georgia for its Popular Annual Financial Report for the fiscal year ended June 30, 2010. The Award for Outstanding Achievement in Popular Annual Financial Reporting is a prestigious national award recognizing conformance with the highest standards for preparation of state and local government popular reports.
An Award for Outstanding Achievement in Popular Annual Financial Reporting is valid for a period of one year only. We believe our current report continues to conform to the Popular Annual Financial Reporting requirements, and we are submitting it to GFOA.
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Financial Information

Schedule of Plan Net Assets (in thousands)
This schedule shows TRS assets, which are primarily investments, and then deducts the System's liabilities, or debts. The final totals represent the financial resources available to pay pension benefits.

Assets Cash and cash equivalents, and receivables Investments, at fair value Capital assets, net Total assets
Liabilities Accounts payable and other
Net Assets Held in Trust for Pension Benefits

June 30,

2011

2010

$ 2,192,314 51,954,518 4,135
54,150,967

$ 1,671,441 44,313,553 3,803
45,988,797

66,791

63,248

$ 54,084,176

$ 45,925,549

Schedule of Changes in Plan Net Assets (in thousands)
This schedule shows additions to and deductions from TRS plan net assets.

Additions
Employer contributions Member contributions Net investment income Total additions
Deductions
Benefit payments Refunds of member contributions Administrative expenses, net Total deductions
Net Increase
Net Assets Held in Trust for Pension Benefits:
Beginning of year End of year

Year Ended June 30,

2011

2010

$ 1,089,912 604,126
9,594,994
11,289,032

$ 1,057,416 592,264
4,671,571
6,321,251

3,041,503 67,916 20,986
3,130,405
8,158,627

2,800,424 53,638 20,223
2,874,285
3,446,966

45,925,549 $ 54,084,176

42,478,583 $ 45,925,549

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Financial Information
TRS invests in a mix of investments, which is comprised of high quality stocks and bonds. This investment mix allows TRS to participate in rising markets, while keeping risk levels relatively low when markets are on the decline. A high quality, balanced fund has proven to be a successful strategy in both rising and declining markets over a long period of time.
Conservation of capital and conservatism continue to be the principal guides in making investment decisions. By investing in a number of different asset categories and in a wide range of companies, a process called diversification, TRS is able to accomplish these investment objectives. Investment allocation recommendations are made by the Division of Investment Services staff to the Investment Committee, which is comprised of TRS Board Members. The TRS Board gives final approval on investment actions.

Growth of Investments (in billions)
Ten Years Ended June 30, 2011
$60

$50

$40

$30

$20

2002 2003 2004 2005 2006 2007 2008 2009 2010

2011

Investment Mix (in millions)
As of June 30, 2011
72.3% Stocks
$37,568
27.7% Bonds
$14,387

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Two Northside 75, Suite 100 Atlanta, GA 30318
(404) 352-6500 or (800) 352-0650 www.trsga.com