ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM MEMORANDUM

Transcription

1 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM MEMORANDUM DATE: August 6, 2015 TO: Board of Retirement FROM: Tracy Bowman, Director of Finance SUBJECT: Second Quarter 2015 Budget to Actuals Report Recommendation: Receive and File. Highlights: Actuals to Date Annual Budget Budget $ Budget % Administrative Budget Personnel Costs $4,316,533 $9,411,426 $5,094, % Services and Supplies 1,423,473 4,365,141 2,941, % Capital Expenditures 1,500,126 6,793,368 5,293, % Administrative Expense Total $7,240,132 $20,569,935 $13,329, % Actuals to Date Annual Amended Budget Amended Budget $ Amended Budget % Investment Budget Personnel Costs $599,146 $1,330,017 $730, % Services and Supplies 57, , , % Professional Services 21,639,639 27,383,827 5,744, % Investment Expense Total $22,296,577 $28,874,264 $6,577, % Background: The Board of Retirement approved OCERS s Administrative and Investment Budgets for Fiscal Year 2015 (FY15) on November 17, 2014, in the amount of $49,374,199; $20,569,935 for administration and $28,804,264 for investment related activities. At the May 11, 2015 Regular Board Meeting, the Board approved a budget amendment to add an Investment Analyst position at a budget amount of $70,000, resulting in an amended investment budget of $28,874,264 and an overall amended budget of $49,444,199. C-11 2nd Quarter 2015 Budget To Actuals Report Page 1 of 7

2 OCERS s budgeting authority is regulated by California Government Code Sections and , including a provision that OCERS s budget for administrative expenses (which excludes investment related costs and expenditures for computer software, hardware and related technology consulting services) is limited to twenty-one hundredths of one percent of the accrued actuarial liability of the retirement system (commonly referred to as the 21 basis point test). The approved FY15 administrative budget represents 7.97 basis points of the projected actuarial accrued liability. The budget also meets OCERS s Board policy limitation of 18 basis points of the projected actuarial value of total assets and represents basis points of assets for FY15. The Chief Executive Officer, or the Assistant CEO, has the authority to transfer funds within the three broad categories of the budget: 1) Salaries and Benefits, 2) Services and Supplies, and 3) Capital Projects. Funds may not be moved from one category to another without approval from the Board of Retirement. Discussion: Administrative Summary For the six months ended June 30, 2015, year-to-date actual administrative expenses were $7,240,132 or 35.2% of the $20,569,935 administrative budget and below the 50% target set for the end of the second quarter (six months ended June 30, 2015/twelve months for the year ending December 31, 2015). A summary of all administrative expenses (excluding investments) and explanations of significant variances are provided below: C-11 2nd Quarter 2015 Budget To Actuals Report Page 2 of 7

3 Summary of all Administrative Expenses (excluding Investments) For the Six Months Ended June 30, 2015 Prorated % of Budget vs. Actuals Annual Balance Budget Prorated Actuals to Date Budget Used Budget* (Over)/Under Personnel Costs $4,316,533 $9,411,426 $5,094, % $4,705, ,180 Services and Supplies Bldg. Prop. Mgmt./Maintenance 247, , , % 330,000 82,990 Equipment Lease 38,730 98,000 59, % 49,000 10,270 Equipment Maintenance 114, , , % 210,706 96,524 Equipment/Software Expenses 56, , , % 82,500 26,102 Legal Services 182, , , % 205,000 22,022 Meetings & Mileage 11,639 47,150 35, % 23,575 11,936 Membership/Periodicals 19, , , % 65,665 46,613 Office Supplies 16,051 42,000 25, % 21,000 4,949 Postage 39, , , % 72,000 32,370 Printing 24,602 95,000 70, % 47,500 22,898 Professional Services 561,468 1,710,400 1,148, % 855, ,732 Telephone 34,523 90,000 55, % 45,000 10,477 Training 77, , , % 175,425 98,215 Services and Supplies 1,423,473 4,365,141 2,941, % 2,182, ,098 Administrative Expense-Sub Total 5,740,006 13,776,567 8,036, % 6,888,284 1,148,278 Capital Expenditures** 1,500,126 6,793,368 5,293, % 3,396,684 1,896,558 Administrative Expense Total $7,240,132 $20,569,935 $13,329, % $10,284,968 $3,044,836 *Prorated budget represents 50% (6 months/12 months) of annual budget. **Capital expenditures represent purchases of assets to be amortized in future periods. Personnel Costs - Administrative Personnel Costs incurred as of the second quarter are approximately $4.3 million or 45.9% of the annual budget for this category. These expenses are slightly below the 50% target for budget used as of the second quarter due to several positions that were vacant at the end of the second quarter, including an Accountant Auditor and Senior Accounting Assistant. Services and Supplies - Administrative Total expenditures for services and supplies were $1,423,473 or 32.6% of the annual budget for this category. The variance of $759,098 between the pro-rated budget and year-to-date actuals in this category is primarily due to the following: Building Property Mgmt./Maintenance costs utilized 37.4% of the annual budget and were lower than the pro-rated budget by $82,990. This is mainly due to proceeds received from OCERS Headquarters property manager in the amount of $64,990 for C-11 2nd Quarter 2015 Budget To Actuals Report Page 3 of 7

4 reimbursement of funding that exceeded the property management established reserves for maintenance of the building. Equipment Lease is at 39.5% of the annual budget and lower than the pro-rated budget by $10,270. This is attributable to the timing of budgeted costs that have not yet been incurred. Equipment Maintenance costs are at 27.1% of the annual budget and are lower than the pro-rated budget by $96,524. This is attributable to the timing of budgeted costs that have not yet been incurred, primarily IT software maintenance/license fees which have varying renewal timelines throughout the year. Equipment/Software expense utilized 34.2% of the annual budget and is lower than the pro-rated budget by $26,102. This is primarily due to the timing of purchases of equipment and software that have been budgeted but not yet expensed. Legal Services are at 44.6% of the annual budget and are slightly lower than the pro-rated budget by $22,022. This is primarily due to budgeted legal services being utilized on an as-needed basis. Meetings & Mileage expense is at 24.7% of the annual budget and is lower than the prorated budget by $11,936. This is primarily due to budgeted meetings that have not yet been expensed, including manager visits to Southern California Retirement Systems, legislative meetings, and travel for plan sponsor audits. Memberships/Periodical expense is at 14.5% of the annual budget and lower than the prorated budget by $46,613. This is mainly due to timing of membership and periodical expenses that will occur in later quarters, including IT s subscription fees for Gartner. Office Supplies utilized 38.2% of the annual budget and is lower than the pro-rated budget by $4,949. This is mainly due to budgeted costs coming in less than expected. Postage is at 27.5% of the annual budget and lower than the pro-rated budget by $32,370. This is attributable to the timing of bulk mailing to Plan members, the use of postage on an as-needed basis, and cost savings from the change in using standard verses first class postage for At Your Service newsletter. Printing expense is at 25.9% of the annual budget and lower than the pro-rated budget by $22,898. This is primarily due to the timing of printing expenses budgeted for the CAFR which is expected to be completed in the third quarter, as well as quarterly newsletters. Professional Services utilized 32.8% of the annual budget. Expenses are lower than the pro-rated budget by $293,732 primarily due to timing of expenses for various IT-related C-11 2nd Quarter 2015 Budget To Actuals Report Page 4 of 7

5 software consulting, administrative hearing process fees, as well as costs used on an asneeded-basis, such as CEO contingency. Telephone expense is at 38.4% of the annual budget and lower than the pro-rated budget by $10,477. This is due to budgeted costs coming in less than expected. Training has utilized 22% of the annual budget and is lower than the pro-rated budget by $98,215. This is primarily due to training costs that have been budgeted but not yet expensed, including the Southern California SACRS and CALAPRS conferences, allstaff training, and various training sessions planned for personnel to be taken later in the year. Capital Expenditures - Administrative Capital Expenditures as of the second quarter are approximately $1.5 million or 22.1% of the annual budget for this category. The variance of approximately $1.9 million between the prorated budget and year-to-date actuals in this category is primarily due to the timing of V3 and Business Continuity/Disaster Recovery expenses which are scheduled to occur later in the year as both projects advance and payments, based on milestones achieved, are incurred. C-11 2nd Quarter 2015 Budget To Actuals Report Page 5 of 7

6 Investment Summary For the six months ended June 30, 2015, year-to-date, actual investment expenses are approximately $22.3 million or 77.2% of the $28,874,264 annual amended investment budget and above the 50% target as of the first quarter. A summary of all investment expenses and explanations of significant variances are provided below: Summary of all Investment Expenses For the Six Months Ended June 30, 2015 Prorated % of Amended Annual Amended Prorated Budget vs. Actuals Amended Balance Budget Amended Actuals to Date Budget Used Budget* (Over)/Under Personnel Costs $599,146 $1,330,017 $730, % $665,009 $65,863 Services and Supplies Due Diligence 19,463 52,725 33, % 26,363 6,900 Equipment/Software Expenses 12,000 25,000 13, % 12, Meetings & Mileage 3,497 9,000 5, % 4,500 1,003 Membership/Periodicals 20,044 28,975 8, % 14,488 (5,556) Training 2,788 44,720 41, % 22,360 19,572 Services and Supplies 57, , , % 80,211 22,419 Investment Expense-Sub Total 656,938 1,490, , % 745,220 88,282 Professional Services** 21,639,639 27,383,827 5,744, % 13,691,914 (7,947,725) Investment Expense Total $22,296,577 $28,874,264 $6,577, % $14,437,134 ($7,859,443) *Prorated amended budget represents 50% (6 months/12 months) of annual amended budget. **Professional services excludes unbudgeted professional service actual expenses of foreign income tax / other and security lending fees totaling approximately $7.7 million and $129,000, respectively. Personnel Costs - Investments Personnel costs are approximately $599,146 or 45% of the annual amended budget for this category. At the May 11, 2015 Regular Board Meeting, the Board approved a budget amendment to add an Investment Analyst position at a budget amount of $70,000. The original investment personnel cost budget of $1,260,017 has been adjusted, and the amended investment budget for FY15 is $1,330,017. These expenses are slightly below the 50% target for budget used as of the second quarter due to the previously mentioned budget amendment of $70,000, as well as an Investment Analyst position that had been vacant and was subsequently filled during the first quarter of 2015 and an Investment Staff Specialist position that became vacant during the second quarter. C-11 2nd Quarter 2015 Budget To Actuals Report Page 6 of 7

7 Services and Supplies - Investments Services and Supplies expenditures are $57,792 or 36% of the annual amended budget and below the 50% target for this category. The notable variances are mainly attributed to Training expense coming in below the 50% target due to the timing of budgeted travel and training conferences that will occur throughout the year, offset by Membership/Periodicals expense exceeding the 50% target due to timing of budgeted memberships renewed through the second quarter. Professional Services - Investments Professional services, which consist primarily of investment management fees, are approximately $21.6 million or 79% of the annual amended budget and above the pro-rated budget by approximately $7.9 million. The majority of the variance relates to the timing of a $4.3 million performance fee related to the sale of the Brickell Office Plaza property that occurred in the first quarter, as well as budgeted investment management fees coming in higher than expected. Excluding the Brickell Office Plaza performance fee, Professional Services and total investment expense would reflect 63.4% and 62.4%, respectively, of their annual amended budgets. The remaining variance is primarily a result of investment managers more-transparent reporting of identifiable at-source fees that were not previously visible, which total approximately $6.5 million through the second quarter. Reporting identifiable at-source investment management fees improves transparency of expense reporting. Therefore, we plan to request a budget amendment to cover the now-identifiable at-source investment management fees that will be incurred for 2015, which will be discussed at the budget workshop in October. This will be consistent with the full cost analysis in the original budget and our most recent annual fee report. Conclusion: Through the end of the second quarter, the Administrative budget was below the 50% target of the annual budget at 35.2% and the Investment budget exceeded the 50% target of the annual budget at 77.2%, primarily due to the timing of a performance fee related payment, for the six months ended June 30, In addition, actual Administrative expenses were within the 21 basis point test and 18 basis point test as budgeted. Submitted by: Tracy Bowman Director of Finance C-11 2nd Quarter 2015 Budget To Actuals Report Page 7 of 7