Summary Annual Financial Report

Funds of the State of Washington for the Year Ended June 30, 2018


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 2018 is from July 1, 2017, through June 30, 2018.

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DRS Director Tracy Guerin

Reviewing the past year here at DRS, I'm again struck by the dedication and focus of our team members as we work to ensure a successful retirement for the 300,000-plus members working for state and local governments in Washington. Our team members have a passion for serving our customers in the best way possible, which is why we want to provide the support and tools they need to be successful in delivering high levels of customer satisfaction.

To that end, DRS continues to grow our understanding of customer needs and expectations. While we continue to interview scores of recently retired members each month, we feel there is more to be learned. We are now in the beginning stages of expanding our understanding of the customer experience, clearly documenting how customers interact with DRS and the retirement process throughout their careers, and what they want from us at key waypoints. As we learn more about service delivery from the customers' point of view, our team members will be better positioned to meet customer expectations.

We're also working to provide the best possible tools to help our customers strengthen their retirement readiness. One example is the recent launch of a new, mobile-friendly web platform for Plan 3 and Deferred Compensation Program customers to access their account information. The site provides a lineup of new features to help these members monitor and manage their retirement, including an easy-to-use projection tool to track and adjust progress toward their goals for replacement income.

On another front, we have begun the initial rollout of a new Employer Reporting Application (ERA) that will significantly improve the way employers transmit member retirement information to DRS. At the same time, we have projects underway to identify how DRS will transition to the next phase of modernizing our legacy systems as ERA becomes fully operational.

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,
directors signature
Tracy Guerin
Director

784,000 Current and former public employees

JRS, JRF 104
WSPRS Plan 2: 631
WSPRS Plan 1: 1,651
PSERS Plan 2: 6,947
LEOFF Plan 1: 7,162
LEOFF Plan 2: 24,830
TRS Plan 2: 28,588
TRS Plan 1: 34,104
SERS Plan 2: 43,007
PERS Plan 3: 46,759
PERS Plan 1: 49,562
SERS Plan 3: 52,474
TRS Plan 3: 75,812
PERS Plan 2: 200,648

This chart illustrates active, retired and vested inactive membership by system and plan. It excludes 212,000 inactive nonvested members. For more information, see the CAFR page 51.


image of the safr pie chart

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)

More than
572,000

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

41%

Percentage of members currently employed and contributing to their retirement
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).
$8.3 billion
The CTF increase in value during fiscal year 2018
$101.3 billion
The total value of DRS funds invested in the CTF as of June 30, 2018
10.2%
The CTF percentage return for the fiscal year
Commingled Trust Fund Returns (by asset class on a total fund basis)
Asset Type 1-Year 3-Year 5-Year
Total Fund 10.20% 8.67% 9.53%
Fixed Income 0.02% 2.38% 2.67%
Tangible 4.27% 6.35% 5.53%
Real Estate 14.84% 11.78% 12.52%
Public Equity 11.42% 8.88% 10.20%
Private Equity 16.58% 12.57% 13.75%
Innovation -45.80% -22.94% -10.66%
Cash 1.49% 0.87% 0.56%
Current Asset Allocation and Long-Term Target Allocations
Asset Type Target Allocation Actual Allocation
Fixed Income 20.00% 23.52%
Tangible Assets 7.00% 4.36%
Real Estate 18.00% 17.17%
Public Equity 32.00% 34.24%
Private Equity 23.00% 20.59%
Innovation 0.00% 0.04%
Cash 0.00% 0.08%
Total 100% 100%

10 Largest Public Equity Holdings
Apple 1.61%
Alphabet Inc. 1.33%
Microsoft Corp. 1.29%
Facebook Inc. 0.97%
Amazon.com Inc. 0.92%
Wells Fargo & Co. 0.83%
Mastercard Inc. 0.72%
Royal Dutch Shell PLC 0.71%
UnitedHealth Group Inc. 0.71%
Visa Inc. 0.63%

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 2018
Retirement Contributions $4,354.7
Deferred Compensation Participant Contributions 275.7
Net Investment Income 9,559.1
Charges for Services 41.1
Other Additions 11.2
Total $ 14,241.8

322,082 active members contributed $1,634.0 million in fiscal year 2018.

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.

$4,306.7 million
Total number of benefits paid to members in fiscal year 2018 (including pension and annuity benefits)
$852.1 million
Refunds paid to former members in fiscal year 2018
$38.3 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

Donut chart

Condensed Statement of Fiduciary Net Position

Pension trust funds by plan as of June 30, 2018 (dollars in thousands)

PERS, SERS and PSERS

Assets PERS
Plan 1
PERS
Plan 2/3
PERS
Plan 3
Defined Contribution
SERS
Plan 2/3
SERS
Plan 3
Defined Contribution
PSERS
Plan 2
Cash and Pooled Investments $ 2,259 $ 2,290 $ 206 $ 1,519 $ 1,730 $ 309
Total Receivables 248,018 1,082,151 56,537 157,672 46,458 18,295
Capital Assets, Net of Depreciation 27 28 0 5 0 0
Total Investments, Noncurrent 7,687,464 38,917,079 3,140,092 5,447,060 2,067,390 603,772
Other Assets 329 334 0 59 0 4
Total Assets 7,938,097 40,001,882 3,196,835 5,606,315 2,115,578 622,380
Total Liabilities 258,110 1,313,920 68,895 185,305 56,554 21,171
Total Fiduciary Net Position $ 7,679,987 $38,687,962 $ 3,127,940 $ 5,421,010 $ 2,059,024 $ 601,209

TRS, LEOFF and WSPRS

Assets TRS
Plan 1
TRS
Plan 2/3
TRS
Plan 3
Defined Contribution
LEOFF
Plan 1
LEOFF
Plan 2
WSPRS
Plan 1/2
Cash and Pooled Investments $ 1,948 $ 2,128 $ 7,409 $ 1,463 $ 1,181 $ 644
Total Receivables 182,404 403,830 174,425 152,589 351,126 34,142
Capital Assets, Net of Depreciation 24 15 0 13 9 2
Total Investments, Noncurrent 5,816,054 14,057,191 9,170,871 5,944,419 13,082,441 1,297,290
Other Assets 284 179 0 156 103 19
Total Assets 6,000,714 14,463,343 9,352,705 6,098,640 13,434,860 1,332,097
Total Liabilities 196,616 489,353 198,732 194,672 428,494 42,499
Total Fiduciary Net Position $ 5,804,098 $13,973,990 $ 9,153,973 $ 5,903,968 $ 13,006,366 $ 1,289,598

JRS, JRF, JRA, DCP and Annual Totals

Assets JRS JRF JRA
Defined
Contribution
Deferred
Compensation
Total
June 30, 2018
Total
June 30, 2017
Cash and Pooled Investments $ 7,839 $ 795 $ 9 $ 4,292 $ 36,021 $ 40,242
Total Receivables 16 1 1 2,226 2,909,891 2,900,408
Capital Assets, Net of Depreciation 0 0 0 0 123 183
Total Investments, Noncurrent 0 0 10,058 4,427,772 111,668,953 102,658,593
Other Assets 0 0 0 0 1,467 1,359
Total Assets 7,855 796 10,068 4,434,290 114,616,455 105,600,785
Total Liabilities 1 0 0 2,294 3,456,616 3,474,447
Total Fiduciary Net Position $ 7,854 $ 796 $ 10,068 $ 4,431,996 $ 111,159,839 $102,126,338

For a detailed breakdown of this table, see pages 23-26 of the 2018 Comprehensive Annual Financial Report.

Plan Membership Eligibility Vesting Retirement Eligibility Benefit
PERS
Plan 1
State 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 service After 30 years of service, at age 60 with five years of service or at age 55 with 25 years of service

2% 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 2

New 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 service At age 65 with five years of service or an actuarially reduced benefit at age 55 with 20 years of service

2% 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 3 Varies At 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.


Plan Membership Eligibility Vesting Retirement Eligibility Benefit
SERS
Plan 2
All 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 service After age 65 with five years of service or an actuarially reduced benefit at age 55 with 20 years of service 2% 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) Varies At 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.

Plan Membership Eligibility Vesting Retirement Eligibility Benefit
PSERS
Plan 2
All 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 service At 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 60 2% of AFC per year of service
Plan Membership Eligibility Vesting Retirement Eligibility Benefit
TRS
Plan 1
All certificated public school employees who worked in an instructional, administrative or supervisory capacity (by 9/30/1977) After five years of eligible service Any age with 30 years of service, at age 60 with five years of service or at age 55 with 25 years of service

2% 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 2
All 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 service At age 65 with five years of service or an actuarially reduced benefit at age 55 with 20 years of service 2% 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) Varies At 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.

Plan Membership Eligibility Vesting Retirement Eligibility Benefit
LEOFF
Plan 1
All full-time, fully compensated law enforcement officers and fire fighters (by 9/30/1977) After five years of eligible service At age 50 with five years of service

20 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 2
All full-time, fully compensated law enforcement officers, fire fighters and emergency medical technicians (on or after 10/1/1977) After five years of eligible service At 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 53 2% of FAS per year of service
Plan Membership Eligibility Vesting Retirement Eligibility Benefit
WSPRS
Plan 1
Commissioned employees of the Washington State Patrol (on or after 8/1/1947 and by 12/31/2002) No requirement for active members; after five years of eligible service for inactive members At age 55 or after 25 years of service 2% of Average Final Salary (AFS) per year of service, capped at 75% of AFS
WSPRS
Plan 2
Commissioned employees of the Washington State Patrol (on or after 1/1/2003) No requirement for active members; after five years of eligible service for inactive members At age 55 or after 25 years of service 2% of AFS per year of service, capped at 75% of AFS
Plan Membership Eligibility Vesting Retirement Eligibility Benefit
JRS Judges 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 service At age 60

15 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

JRF Judges elected or appointed to the Supreme Court, Court of Appeals and superior courts (by 8/8/1971) After 12 years of service At age 70 with 10 years of service or any age with 18 years of service Half 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 Information Responsibility
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