REPORT DIGEST

 

 

STATE EMPLOYEES’ RETIREMENT SYSTEM

OF ILLINOIS

 

FINANCIAL AUDIT

For the Year Ended:

June 30, 2006

 

Release Date:

 March 27, 2007

 

 

State of Illinois

Office of the Auditor General

 

WILLIAM G. HOLLAND

AUDITOR GENERAL

 

To obtain a copy of the Report contact:

Office of the Auditor General

Iles Park Plaza

740 E. Ash Street

Springfield, IL 62703

(217) 782-6046 or TTY (888) 261-2887

 

This Report Digest and the Full Report are also available on

the worldwide web at

http://www.auditor.illinois.gov

 

 

 

 

 

 

 

 

 

SYNOPSIS

 

 

¨       The unfunded liability of the State Employees’ Retirement System of Illinois (System) was $9,974.7 million at June 30, 2006.  The System’s funded ratio at that date was 52.2%.

 

¨       Public Act 94-0004 (Act) became law on June 1, 2005 and established specific dollar amounts to be contributed to the System by the State for fiscal years 2006 and 2007.  In addition, the Act requires all new benefit increases to be fully funded by an identified funding source. The Act went on to set expiration periods for all new benefits if not reauthorized by law.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

{Financial data is summarized on the reverse page}

 

 

 

 

 

STATE EMPLOYEES’ RETIREMENT SYSTEM OF ILLINOIS

FINANCIAL AUDIT

FOR THE YEAR ENDED JUNE 30, 2006

OPERATING STATEMENT ANALYSIS

FY 2006

FY 2005

 REVENUES: Contributions - Participants.............................

                     Contributions - State Agencies & Appropriations

                        Total Contributions..........................................

                     Investment Income - Appreciation in Fair Value...

                     Investment Income – Net Investments Income...

                     Interest Earned on Cash Balances......................

                        Total Revenues...............................................

 EXPENSES: Benefits...........................................................

                     Refunds............................................................

   Administrative Expenses.....................................

                         Total Expenses..............................................

  Revenue Over Expenses....................................

  $   214,108,896

  210,499,791 

$   424,608,687 

840,493,512

   264,013,416

       8,724,784 

$1,537,840,399 

$1,110,585,961 

$13,410,048 

       8,139,278 

$1,132,135,287

$   405,705,112

  $   209,334,207 

   427,434,612 

$   636,768,819 

721,856,118

227,422,797

       4,300,338 

$1,590,348,072 

$1,063,970,423 

14,105,301

 8,311,269 

$1,086,386,993

$   503,961,079

INVESTMENT SUMMARY – (All investments held in the Illinois State Board of Investment commingled fund at fair value)

JUNE 30, 2006

JUNE 30, 2005

Government and Agency Obligations........................................

Foreign Obligations..................................................................

Corporate Obligations..............................................................

Convertible Bonds...................................................................

Common Stock & Equity Funds...............................................

Preferred Stock.......................................................................

Foreign Equity Securities..........................................................

Hedge Funds...........................................................................

Real Estate Investments............................................................

Private Equity..........................................................................

Money Market Instruments......................................................

Forward Foreign Currency Contracts......................................

     Total Investment Portfolio...................................................

Investments owned by other retirement systems, JRS & GARS.

     State Employees’ Retirement System Investments................

$ 1,110,919,988 

104,455,671

1,382,574,163

0

5,369,124,032

1,057,334

1,113,268,102

416,462,183

1,134,025,154

482,264,036

320,641,552

              26,145

$11,434,818,360

  (779,954,637)

$10,654,863,723

$  1,130,079,107 

88,970,486

1,643,935,794

1,404,244

5,529,033,328

1,593,391

1,035,874,373

0

778,951,123

466,871,030

283,461,008

         (497,874)

$10,959,676,010

  (688,319,215)

$10,271,356,795

ADMINISTRATIVE EXPENSES

FY 2006

FY 2005

Personal Services.....................................................................

Retirement, Insurance & Social Security...................................

Contractual Services................................................................

Electronic Data Processing.......................................................

Printing....................................................................................

Telecommunication..................................................................

Travel......................................................................................

Commodities...........................................................................

Provision for Depreciation........................................................

Automotive..............................................................................

Other Expenses (Net)..............................................................

       Total Administrative Expenses..........................................

$3,235,537   

1,471,229

1,352,042

1,570,156

55,944

61,765

45,970

21,844

269,841

20,535

     34,415

$8,139,278

$3,119,207   

1,656,566

1,352,284

1,724,842

65,592

63,012

49,509

25,081

242,571

20,615

     (8,010)

$8,311,269

FUNDING PROGRESS

JUNE 30, 2006

JUNE 30, 2005

Actuarial Accrued Liability.........................................................

Actuarial Value of Assets...........................................................

Unfunded Actuarial Accrued Liability.........................................

Funded Ratio.............................................................................

$20,874,541,910

10,899,853,065

$  9,974,688,845

52.2%

$19,304,646,648

10,494,147,953

$  8,810,498,695

54.4%

EXECUTIVE SECRETARY

 

 

During Engagement Period: Robert Knox (until May 31, 2006); Tim Blair, Acting (beginning June 2006)

Currently:  Tim Blair, Acting


 

 

 

 

 

 

 

 

Unfunded liability at June 30, 2006 totals $9,974.7 million

 

 

 

 

 

 

 

 

State contributions will be reduced for fiscal year 2007 as a result of Public Act 94-0004

 

INTRODUCTION

 

      This digest covers our financial audit of the State Employees’ Retirement System of Illinois (System) for the year ended June 30, 2006.  A report on the results of our compliance attestation examination for the year ending June 30, 2006 is being issued separately. 

 

UNDERFUNDING OF THE SYSTEM

 

      The actuarial accrued liability was valued at $20,874.5 million at June 30, 2006.  The actuarial value of assets (at fair value) totaled approximately $10,899.8 million at June 30, 2006.  The difference between the liability and the assets of $9,974.7 million reflects the unfunded liability of the System at June 30, 2006.  The System had a funded ratio of 52.2% at June 30, 2006.

 

LEGISLATION AFFECTING THE SYSTEM

 

     Public Act 94-0004 (Act) became law June 1, 2005 and established specific dollar amounts to be contributed to the System by the State for fiscal years 2006 and 2007 as opposed to the State contribution being calculated based on the existing funding formula.  In addition, the Act requires all new benefit increases to be fully funded by an identified funding source. The Act went on to set expiration periods for all new benefits if not reauthorized by law. 

 

    The System has calculated the State contribution will be reduced approximately $419.0 million for fiscal year 2007 as compared to what would have been required under the funding formula.  State required contributions will be higher in future years to make up for the two-year funding reduction, as the overall goal of 90% funding in fiscal year 2045 was unchanged by the Act.            

 

AUDITORS' OPINION

 

      Our auditors state the June 30, 2006 financial statements of the System are fairly presented.

 

 

 

____________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:RPU:pp

 

SPECIAL ASSISTANT AUDITORS

 

      McGladrey & Pullen LLP were our special assistant auditors for this audit.