a complete copy of the 2012 CAFR Report! - PSERs

FINANCIAL SECTION
Management’s Discussion and Analysis (continued)
Investment Income
Net investment income decreased from $9.2 billion in
FY 2011 to $1.1 billion in FY 2012, which is consistent
with the decrease in the investment rate of return from
20.37% for FY 2011 to 3.43% for FY 2012. Net investment
income changed by $3.1 billion from $6.1 billion in FY
2010 to $9.2 billion in FY 2011, which is consistent with
the increase in the investment rate of return from 14.59%
for FY 2010 to 20.37% for FY 2011. As depicted in the
following chart, investment earnings provided 71% of
PSERS’ funding over the past 20 years. Net investment
income also includes investment expenses as a deduction.
The “Total PSERS’ Benefits and Expenses” section that
follows includes an analysis of investment expenses.
PSERS' Sources of Funding
Twenty Year History (1993-2012)
Investment
Earnings
71%
Member
Contributions
15%
Investment expenses decreased by $33.4 million from
$514.7 million in FY 2011 to $481.3 million in FY 2012
mainly due to a decline in management fees in the real estate
and alternative investment asset classes. This reduction is
widely attributable to changes in fee structure brought on
by partnerships maturing. Also contributing to this change
was a decrease in performance fees in the public market
sector from FY 2011 to FY 2012. Investment expenses
decreased by $7.6 million from $522.3 million in FY 2010
to $514.7 million in FY 2011 mainly due to a decline in
management fees in the alternative investment asset class.
This reduction is widely attributable to changes in fee
structure brought on by partnerships maturing.
Administrative expenses decreased by $1.2 million from
$57.7 million during FY 2011 compared to $56.5 million
during FY 2012 as PSERS continued to diligently control
administrative expenses. FY 2012 and FY 2011 are more
consistent with historical values. FY 2010 administrative
expenses of $30.5 million were significantly lower due
to a $23.8 million reduction from the capitalization
of previously expensed GASB 51 qualifying costs for
computer systems development.
Employer
Contributions
14%
Total PSERS' Benefits and Expenses
Fiscal Year Ended June 30, 2012
Total PSERS’ Benefits and Expenses
The primary source of expense during FY 2012 was for
the payment of benefits approximating $6.0 billion. The
breakdown consisted of $5.7 billion for Pension, $97.0
million for the PA program, and $213.0 million for HOP
benefits. The chart at the end of this page illustrates the
significant portion of expenses attributable to benefit
payments.
Total PSERS’ benefit expense increased from $5.6 billion
in FY 2011 to $6.0 billion in FY 2012. The increase is
attributable to higher lump sum payments as well as an
ongoing increase to the average monthly benefit and an
increase in the number of members receiving benefits.
There was a decrease in fourth quarter retirements, in
FY 2012 versus the same period in FY 2011, resultng in
a lower pension benefits payable figure at June 30, 2012
of $495.0 million compared to $646.4 million at June
30, 2011. New retirements during FY 2012 outpaced the
number from FY 2011 by approximately 6%. Benefit
expense increased from $5.3 billion in FY 2010 to $5.6
billion in FY 2011. This increase is attributable to the
number of new retirements for the year, higher lump sum
payments, as well as an ongoing increase to the average
monthly benefit.
PAGE 33
Benefits
91.7%
Administrative
expenses
0.9%
Investment
expenses
7.4%