KPERS Annual Report 2017

GROWING STRONGER

2017 Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2017

Kansas Public Employees Retirement System a component unit of the State of Kansas

2017 COMPREHENSIVE Kansas Public Employees Retirement System

ANNUAL A component unit of the State of Kansas Fiscal year ended June 30, 2017

FINANCIAL Prepared by KPERS staf 611 S. Kansas Ave., Ste 100 | Topeka, KS 66603-3869 REPORT Alan D. Conroy, Executive Director Judy McNeal, Chief Fiscal Ofcer

OUR MISSION

KPERS, in its fduciary capacity, exists to deliver retirement, disability and survivor benefts to its members and their benefciaries.

 4 INTRODUCTORY

TABLE OF CONTENTS

INTRODUCTORY SECTION

Transmittal Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Board of Trustees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Our Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 KPERS Staf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Consultants and Advisors . . . . . . . . . . . . . . . . . . . . . . . 14 GFOA Certifcate of Achievement. . . . . . . . . . . . . . . . . 15 PPCC Public Pension Standards Award . . . . . . . . . . . . 16

FINANCIAL SECTION

Independent Auditor's Report . . . . . . . . . . . . . . . . . . . 20 Management's Discussion & Analysis . . . . . . . . . . . . . 22

Basic Financial Statements Statement of Fiduciary Net Position . . . . . . . . . . . . . . 26 Statement of Changes in Fiduciary Net Position . . . . 27 Note 1: Organization and Plan Description . . . . . . . . 28 Note 2: Summary of Signifcant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Note 3: Cash and Investments. . . . . . . . . . . . . . . . . . . 32 Note 4: Investment Derivatives . . . . . . . . . . . . . . . . . . 35 Note 5: Fair Value Measurement . . . . . . . . . . . . . . . . . . 38 Note 6: Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Note 7: Net Pension Liability of Particapating Employers . . . . . . . . . . . . . . . . . . . . . . 42 Note 8: Pension Obligation Bonds . . . . . . . . . . . . . . . . 43 Note 9: Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . .44 Note 10: Subsequent Events . . . . . . . . . . . . . . . . . . . . .44

Required Supplementary Information --Retirement Plan Schedule of Changes in the Employers' Net Pension Liability . . . . . . . . . . . . . . . . . 45 Schedule of the Employers' Net Pension Liability . . . 45 Schedule of Employers' Contributions . . . . . . . . . . . .46 Schedule of Investment Returns. . . . . . . . . . . . . . . . . .46

Notes to Required Supplementary Information . . . . . . . . . . . . . . . . . . . . . 47

Other Supplementary Information Schedule of Contributions . . . . . . . . . . . . . . . . . . . . . .48 Schedule of Administrative Expenses . . . . . . . . . . . . . 49 Schedule of Investment Income by Asset Class . . . . 50 Schedule of Investment Management Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Combining Statement of Changes in Assets and Liabilities ? Agency Fund . . . . . . . . . . . . . . . . . . . . . . . 52

INVESTMENTS SECTION

Chief Investment Ofcer's Review . . . . . . . . . . . . . . . . 56 Public Equity Investments . . . . . . . . . . . . . . . . . . . . . . 58 Fixed Income Investments . . . . . . . . . . . . . . . . . . . . . .60 Yield Driven Investments . . . . . . . . . . . . . . . . . . . . . . .60 Real Return Investments . . . . . . . . . . . . . . . . . . . . . . . . 61 Real Estate Investments . . . . . . . . . . . . . . . . . . . . . . . . . 62 Alternative Investments . . . . . . . . . . . . . . . . . . . . . . . . 63 Alternative Investments Initiated On or After July 1, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Largest Equity Holdings . . . . . . . . . . . . . . . . . . . . . . . . 67 Changes in Fair Value of Investments . . . . . . . . . . . . . 67 U.S. Equity Commissions . . . . . . . . . . . . . . . . . . . . . . . 68

ACTUARIAL SECTION

Actuary's Certifcation Letter . . . . . . . . . . . . . . . . . . . . 72 Actuarial Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Experience--All Systems Combined . . . . . . . . . . . . . 77 Projected Employer Contribution Rates . . . . . . . . . . 81 Employer Contribution Rates . . . . . . . . . . . . . . . . . . . . 82 Summary of Change in Unfunded Actuarial Liability by System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

GROWING STRONGER | 2017 A N N UA L R E P O RT

INTRODUCTORY 5

Summary of Changes in Employer Actuarial Contribution Rate by System . . . . . . . . . . . . . . . . . . . . 87 Summary of Historical Changes in Total System UAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Summary of Principal Results - KPERS State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 - KPERS School . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90 - KPERS State/School . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 - KPERS Local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 - Kansas Police & Firemen's Retirement System . . . . .94 - Retirement System for Judges . . . . . . . . . . . . . . . . . . 95 - All Systems Combined . . . . . . . . . . . . . . . . . . . . . . . .96 Summary of Provisions ? KPERS (State, School and Local) . . . . . . . . . . . . . . . . . . . . . . . . 97 Summary of Provisions ? KP&F . . . . . . . . . . . . . . . . . . 100 Summary of Provisions ? Judges . . . . . . . . . . . . . . . . . 102 Actuarial Assumptions ? KPERS . . . . . . . . . . . . . . . . . 103 Actuarial Assumptions ? KP&F . . . . . . . . . . . . . . . . . . . 107 Actuarial Assumptions ? Judges . . . . . . . . . . . . . . . . . 108 Technical Valuation Procedures . . . . . . . . . . . . . . . . . . 109 Schedule of Funding Progress. . . . . . . . . . . . . . . . . . . . .111 Short Term Solvency Test . . . . . . . . . . . . . . . . . . . . . . . 111 Schedule of Active Member Valuation Data . . . . . . . 112 Membership Profle . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Retirants, Benefciaries ? Changes in Rolls ? All Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Summary of Membership Data . . . . . . . . . . . . . . . . . . 114 Employer Contribution Rates . . . . . . . . . . . . . . . . . . . . 115

STATISTICAL SECTION

Revenues by Source . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 Benefts by Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Expenses by Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Changes in Net Position . . . . . . . . . . . . . . . . . . . . . . . . 120

Beneft and Refund Deductions from Net Assets by Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 Highlight of Operations ? 10-Year Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Number of Retired Members and Survivors by Type of Beneft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Number of Retired Members and Survivors by Monthly Beneft Amount . . . . . . . . . . . . . . . . . . . . 123 Number of Retired Members and Survivors by Type of Payment Option . . . . . . . . . . . . . . . . . . . . . 124 Average Beneft by Years of Service ? Five-Year Summary of New Retirees . . . . . . . . . . . . 125 Principal Participating Employers . . . . . . . . . . . 126 ? 128

GROWING STRONGER | 2017 A N N UA L R E P O RT

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