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Summary Annual Financial Report

Funds of the State of Washington for the Year Ended June 30, 2019
This publication is a summary of the DRS Comprehensive Annual Financial Report. For the complete report, including sources for the numbers and data contained here, see the Annual Financial Reports. Fiscal year 2019 is from July 1, 2018, through June 30, 2019.

I am pleased to present the Washington State Department of Retirement Systems (DRS) Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2019.

This past fiscal year has seen a number of accomplishments in support of our team members’ work to promote a secure, successful retirement for the 330,000-plus members working for state and local governments in Washington.

We especially appreciate the state Legislature’s approval of several improvements suggested by DRS, all aimed at strengthening security, convenience and retirement readiness for our customers.

With legislative support, we are moving forward on several security-related enhancements, including software tools and dedicated personnel to improve system monitoring and security for sensitive data. We have also established a Chief Information Security Officer (CISO) for the agency, bringing a heightened focus and strategic approach to protecting the information entrusted to us.

Another important outcome of the 2019 legislative session was approval of a measure giving retiring members of all DRS systems and plans the option to purchase an annuity via the Washington State Investment Board. This purchase option, previously available in only three systems, allows all members a way to supplement their regular pension benefit through an annuity purchase from their own savings.

The Legislature also approved a bill to simplify the spousal consent requirements for members applying for retirement, streamlining the process and removing unnecessary paperwork for many DRS customers.

Looking ahead, DRS continues to work on a long-range initiative to modernize the agency’s mission-critical legacy systems for collecting, maintaining and analyzing retirement-related information, as well as calculating and paying pension benefits. The initial phase of this effort is focused on moving from a mainframe hosting environment to cloud-based services.

Meanwhile, at the DRS headquarters in Tumwater, we are well underway in a comprehensive renovation of our building, which we’ve occupied for over 20 years. When completed in 2020, the renovations will make the building more efficient, flexible and secure, and provide a greatly improved experience for both our customers and our team members.

As we look to the coming year at DRS, I’d like to take this opportunity to thank our team members, partners, policymakers, stakeholders and others who collaborate to deliver one of the best-run and well-funded public pension systems in America. And, as always, appreciation goes out to our members and retirees – the hundreds of thousands of people around Washington who work to support the residents of our communities and our state. Thank you!

Sincerely,

Tracy Guerin
Director

This chart illustrates active, retired and vested inactive membership by system and plan. It excludes 222,000 inactive nonvested members. For more information, see the CAFR.

The retired and vested inactive members total also includes beneficiaries.

8

Number of pension systems the Washington Department of Retirement Systems (DRS) manages

15

Number of plans DRS manages in addition to the Deferred Compensation Program (DCP)

Almost

590,000

Number of active, retired or inactive vested public service employees (state and local governments, school districts, police and fire departments, and judicial agencies)

56%

Percentage of members currently employed and contributing to their retirement (excludes inactive/non-vested members)

The Washington State Investment Board (WSIB) manages retirement fund assets to maximize investment returns at a prudent level of risk. Most of these retirement funds are invested in the Commingled Trust Fund (CTF).

$8.4 billion: The CTF increase in value during fiscal year 2019

$109.7 billion: The total value of DRS funds invested in the CTF as of June 30, 2019

8.4%: The CTF percentage return for the fiscal year

Commingled Trust Fund Returns (by asset class on a total fund basis)
Asset Type1-Year3-Year5-Year
Total Fund8.36%10.65%7.85%
Fixed Income9.20%3.81%3.29%
Tangible3.11%7.72%5.15%
Real Estate8.66%11.18%11.64%
Public Equity5.98%11.99%6.76%
Private Equity12.26%15.23%12.24%
Innovation20.47%(16.65%)(13.16%)
Cash2.43%1.57%1.02%
Current Asset Allocation and Long-Term Target Allocations
Asset TypeTarget AllocationActual Allocation
Fixed Income20.00%21.50%
Tangible Assets7.00%5.13%
Real Estate18.00%18.25%
Public Equity32.00%33.36%
Private Equity23.00%21.49%
Innovation0.00%0.14%
Cash0.00%0.13%
Total100%100%
10 Largest Public Equity Holdings
Microsoft Corp.1.71%
Apple1.62%
Alphabet Inc.1.25%
Facebook Inc.1.03%
Amazon.com Inc.1.01%
Visa Inc.0.95%
Mastercard Inc.0.89%
Oracle Corp.0.85%
HCA Holding Inc.0.74%
UnitedHealth Group Inc.0.69%

Investment performance is a result of two primary factors: individual asset selection and the allocation of the portfolio among asset classes, such as stocks, fixed income and real estate.

The WSIB sets a specific long-term asset mix and adopts tight ranges around those targets to control the overall risk and return of the Commingled Trust Fund.

Each day, the WSIB compares the asset allocation to the established ranges and shifts assets whenever the approved range is exceeded or when cash is needed elsewhere. Every three to four years, the WSIB reviews changes to the overall asset mix.

Additions to Fiduciary Net Position

The primary sources of additions to the retirement trust fund include investment earnings and contributions from employers, active system members and the state. Additions to the deferred compensation trust fund include participant contributions and investment earnings.

Total Additions to the Fiduciary Net Position (dollars in millions)
 Fiscal Year 2019
Retirement Contributions$4,783.2
Deferred Compensation Participant Contributions312.8
Net Investment Income9,445.6
Charges for Services44.4
Other Additions148.1
Total$ 14,734.1
330,402 active members contributed $1,766.5 million in fiscal year 2019
Deductions to Fiduciary Net Position

The retirement system primary fund deductions (excluding transfers) include the payment of benefits to retirees and beneficiaries, the refund of contributions to former members, and the cost of administering the retirement systems.

$4,627.1 million
Total number of benefits paid to members in fiscal year 2019 (including pension and annuity benefits)
$960 million
Refunds paid to former members in fiscal year 2019
$41.7 million

Administrative expenses, including pension expenses incurred by DRS and the Offices of the State Actuary and Attorney General

Expenses for the management of trust funds are incurred by the Washington State Investment Board and are funded from earnings on investments

 
Deductions to Fiduciary Net Position
Condensed Statement of Fiduciary Net Position

Pension trust funds by plan as of June 30, 2019 (dollars in thousands)

PERS, SERS and PSERS

AssetsPERS Plan 1PERS Plan 2/3PERS Plan 3 Defined ContributionSERS Plan 2/3SERS Plan 3 Defined ContributionPSERS Plan 2
Cash and Pooled Investments$2,776$4,539$330$2,105$2,582$421
Total Receivables391,9471,912,83590,303282,83473,47434,433
Capital Assets, Net of Depreciation16260400
Total Investments, Noncurrent7,842,26442,719,1803,232,6516,140,3992,091,225719,290
Other Assets28045707407
Total Assets8,237,28344,637,0373,323,2846,425,4162,167,281754,151
Total Liabilities382,9662,100,24198,747306,26481,96936,861
Total Fiduciary Net Position$7,854,317$42,536,796$3,224,537$6,119,152$2,085,312$717,290

TRS, LEOFF and WSPRS

AssetsTRS Plan 1TRS Plan 2/3TRS Plan 3 Defined ContributionLEOFF Plan 1LEOFF Plan 2WSPRS Plan 1/2
Cash and Pooled Investments$2,350$4,660$12,122$1,924$2,026$654
Total Receivables295,473735,671277,886259,402635,47959,406
Capital Assets, Net of Depreciation13120881
Total Investments, Noncurrent5,872,45716,021,1179,389,3316,060,64514,290,3481,368,209
Other Assets237211014414621
Total Assets6,170,53016,761,6719,679,3396,322,12314,928,0071,428,291
Total Liabilities288,265816,719290,035291,722687,95165,784
Total Fiduciary Net Position$5,882,265$15,944,952$9,389,304$6,030,401$14,240,056$1,362,507

JRS, JRF, JRA, DCP and Annual Totals

AssetsJRSJRFJRA Defined ContributionDeferred CompensationTotal 30-Jun-19Total 30-Jun-18
Cash and Pooled Investments$8,440$972$10$4,214 $50,125 $36,021
Total Receivables20211,9045,051,0702,915,545
Capital Assets, Net of Depreciation000088123
Total Investments, Noncurrent009,2804,706,366120,462,762111,668,953
Other Assets00001,5771,467
Total Assets8,4609749,2914,712,484125,565,622114,622,109
Total Liabilities0001,1175,448,6413,462,270
Total Fiduciary Net Position$8,460$974$9,291$4,711,367$120,116,981$111,159,839

For a detailed breakdown of this table, see pages 22-25 of the 2019 Comprehensive Annual Financial Report.

PlanMembership EligibilityVestingRetirement EligibilityBenefit
PERS Plan 1State employees, elected officials, employees of local governments, legislative committee employees, community/technical college employees, classified employees of school districts, district/municipal court judges, and some employees of the Supreme Court, Court of Appeals and superior courts (by 9/30/1977)After five years of eligible serviceAfter 30 years of service, at age 60 with five years of service or at age 55 with 25 years of service2% of Average Final Compensation (AFC) per year of service, capped at 60% of AFC Judicial Benefit Multiplier (JBM) participants: 3.5% of AFC per year of service, capped at 75% of AFC
PERS Plan 2New members who met the same employer membership eligibility requirements as PERS Plan 1 and were hired on or after 10/1/77, new state agency and higher education members hired on or after 3/1/2002 who chose Plan 2, and new members for all other employers hired on or after 9/1/2002 who chose Plan 2. PERS Plan 2 excludes classified employees of school districts.After five years of eligible serviceAt age 65 with five years of service or an actuarially reduced benefit at age 55 with 20 years of service2% of AFC per year of service JBM participants: 3.5% of AFC per year of service, capped at 75% of AFC
PERS Plan 3*New members who met the same employer membership eligibility requirements as PERS Plan 2, new state agency and higher education members hired on or after 3/1/2002 who chose Plan 3, new members for all other employers hired on or after 9/1/2002 who chose Plan 3, and PERS Plan 2 members hired on or after 10/1/1977 who met transfer eligibility requirements and made a permanent choice to transfer to PERS Plan 3VariesAt age 65 if vested or an actuarially reduced benefit at age 55 with 10 years of service (defined benefit portion)1% of AFC per year of service (defined benefit portion) JBM participants: 1.6% of AFC per year of service, capped at 37.5% of AFC The defined contribution portion depends on the member's contribution level and on investment performance.
PlanMembership EligibilityVestingRetirement EligibilityBenefit
SERS Plan2All classified employees of school districts or educational service districts (by 8/31/2000 and employees on or after 7/1/2007 with no past PERS Plan 2 service who chose Plan 2)After five years of eligible serviceAfter age 65 with five years of service or an actuarially reduced benefit at age 55 with 20 years of service2% of AFC per year of service
SERS Plan 3*All classified employees of school districts or educational service districts (on or after 9/1/2000 and employees on or after 7/1/2007 with no past PERS Plan 2 service who chose Plan 3)VariesAt age 65 if vested or an actuarially reduced benefit at age 55 with 10 years of service (defined benefit portion)1% of AFC per year of service (defined benefit portion) The defined contribution portion depends on the member's contribution level and on investment performance.
PlanMembership EligibilityVestingRetirement EligibilityBenefit
PSERS Plan 2All full-time public safety officers at select state agencies, counties and cities except the cities of Seattle, Spokane and Tacoma (on or after 7/1/2006)After five years of eligible serviceAt age 65 with five years of service, at age 60 with 10 years of PSERS service or at age 53 with 20 years of service reduced 3% for each year younger than age 602% of AFC per year of service
PlanMembership EligibilityVestingRetirement EligibilityBenefit
TRS Plan 1All certificated public school employees who worked in an instructional, administrative or supervisory capacity (by 9/30/1977)After five years of eligible serviceAny age with 30 years of service, at age 60 with five years of service or at age 55 with 25 years of service2% of AFC per year of service, capped at 60% of AFC JBM participants: 3.5% of AFC per year of service, capped at 75% of AFC
TRS Plan 2All certificated public school employees who worked in an instructional, administrative or supervisory capacity (on or after 10/1/1977 and by 6/30/1996 and employees on or after 7/1/2007 who chose Plan 2)After five years of eligible serviceAt age 65 with five years of service or an actuarially reduced benefit at age 55 with 20 years of service2% of AFC per year of service
TRS Plan 3*All certificated public school employees who worked in an instructional, administrative or supervisory capacity (on or after 7/1/1996 and employees on or after 7/1/2007 who chose Plan 3)VariesAt age 65 if vested or an actuarially reduced benefit at age 55 with 10 years of service (defined benefit portion)1% of AFC per year of service (defined benefit portion) The defined contribution portion depends on the member's contribution level and on investment performance.
PlanMembership EligibilityVestingRetirement EligibilityBenefit
LEOFF Plan 1All full-time, fully compensated law enforcement officers and fire fighters (by 9/30/1977)After five years of eligible serviceAt age 50 with five years of service20 or more years of service: 2% of Final Average Salary (FAS) per year of service 10-19 years of service: 1.5% of FAS per year of service 5-9 years of service: 1% of FAS per year of service
LEOFF Plan 2All full-time, fully compensated law enforcement officers, fire fighters and emergency medical technicians (on or after 10/1/1977)After five years of eligible serviceAt age 53 with five years of service or a benefit at age 50 with 20 years of service reduced 3% for each year younger than age 532% of FAS per year of service
PlanMembership EligibilityVestingRetirement EligibilityBenefit
JRSJudges elected or appointed to the Supreme Court, Court of Appeals and superior courts (on or after 8/9/1971 and by 6/30/1988; new judges on or after 7/1/1988 join PERS)After 15 years of serviceAt age 6015 years of service: 3.5% of FAS per year of service, capped at 75% of FAS 10-14 years of service: 3% of FAS per year of service, capped at 75% of FAS
JRFJudges elected or appointed to the Supreme Court, Court of Appeals and superior courts (by 8/8/1971)After 12 years of serviceAt age 70 with 10 years of service or any age with 18 years of serviceHalf the monthly salary

*Members who are eligible to choose PERS, SERS or TRS Plan 2 or Plan 3 who do not make a plan choice within 90 days of hire default into PERS, SERS or TRS Plan 3.

DRS publishes handbooks describing the rights and benefits for each system and plan, including disability and survivor benefits. They are available from the member information pages.

Organization and Contact InformationResponsibility
Washington State Department of Retirement Systems
PO Box 48380 ● Olympia, WA 98504-8380
360.664.7000 or 800.547.6657
Collects and accounts for employer and employee contributions, maintains retirement records, pays benefits, communicates pension information, provides investment education and administers the Deferred Compensation Program
Washington State Investment Board
PO Box 40916 ● Olympia, WA 98504-0916
360.956.4600

Invests and accounts for pension funds

Office of Financial Management
PO Box 43113 ● Olympia, WA 98504-3113
360.902.0555

Advises the governor on pension and funding policies and issues

Office of the State Actuary
PO Box 40914 ● Olympia, WA 98504-0914
360.786.6140

Acts as an advisory agency to the Legislature and to the director of DRS; performs actuarial studies and reports on retirement bills; and creates factors used to compute benefit payment adjustments that are based on early retirement, cost-of-living adjustments or long-term survivor benefits

Law Enforcement Officers’ and Fire Fighters’ Plan 2 Retirement Board
PO Box 40918 ● Olympia, WA 98504-0918
360.586.2320

Policy-making board that studies pension issues, acts as fiduciary of LEOFF Plan 2, sets contribution rates and recommends pension policy to the Legislature for LEOFF Plan 2 members

Select Committee on Pension Policy
Contact through the Office of the State Actuary
PO Box 40914 ● Olympia, WA 98504-0914
360.786.6140

Studies pension issues and retirement finances, develops pension policies and recommends pension legislation

DRS Advisory Committee
Contact through DRS
PO Box 48380 ● Olympia, WA 98504-8380
360.664.7000 or 800.547.6657

Serves in an advisory role to the director of DRS

Pension Funding Council
Contact through DRS
PO Box 48380 ● Olympia, WA 98504-8380
360.664.7000 or 800.547.6657

Adopts economic assumptions for pension funding and member and employer pension contribution rates for LEOFF Plan 1, PERS, PSERS, SERS, TRS and WSPRS

Legislative Fiscal Committees
House Appropriations Committee
PO Box 40600 ● Olympia, WA 98504-0600
Senate Ways and Means Committee
PO Box 40482 ● Olympia, WA 98504-0482
360.786.7155 or 800.562.6000

Reviews and reports on retirement bills to the full Legislature

Beneficiary Designation

Members, you can update your beneficiary information from your online retirement account. Select “My Account” in the navigation menu and then “View/Edit” beside “Beneficiary.”

(If you prefer to fill out and mail in a printed form, select this link.)