REPORT DIGEST

 

TEACHERSí RETIREMENT SYSTEM OF THE

STATE OF ILLINOIS

 

COMPLIANCE EXAMINATION

For the Year Ended:

June 30, 2005

 

Summary of Findings:

 

Total findings this report††††††††††† 1

Total findings last report††††††††††† 0

Repeated findings†††††††              0

 

 

Release Date:

 May 2, 2006

 

 

 

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.state.il.us/auditor

 

 

 

 

 

 

 

 

 

 

 

 

SYNOPSIS

†††††

u      The Teachersí Retirement System identified in their June 30, 2005 financial statements that they did not have a formal policy addressing custodial credit risk.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

{Financial Data and Activity Measures are summarized on the reverse page.}


TEACHERS' RETIREMENT SYSTEM OF ILLINOIS

INFORMATION FROM FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

YEAR ENDED JUNE 30, 2005

OPERATING STATEMENT ANALYSIS

FY 2005

FY 2004

REVENUES: Contributions - Members.....................................................

†††††††††††††††††††††††† Contributions - State of Illinois........................................

†††††††††††††††††††††††† Contributions - School Districts.......................................

††††††††††††††† ††††††††††† Total Contributions.........................................................

†††††††††††††††††††††††† Investment Income - Appreciation in Fair Value...........

†††††††††††††††††††††††† Investment Income - Income From Investments............

†††††††††††††††††††††††††† Total Investment Income................................................

†††††††††††††††††††††††† Investment Expense...........................................................

††††††††††††††† ††††††††††† Total Revenues................................................................

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

†††††††††† †††††††††††† Refunds................................................................................

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

††††††††† ††††††††††††††††† Total Expenses..................................................................

Revenue over Expenses....................................................

$†† 761,790,009 

906,749,310

†† 148,813,036 

$1,817,352,355 

2,569,878,360

†† 953,893,405 

$3,523,771,765

†† 193,732,607 

$5,147,391,513 

$2,533,102,848

59,395,758

†††† 14,403,715††

$2,606,902,321

$2,540,489,192

$†††† 768,661,300

5,361,851,773127,573,465 

$6,258,086,538††

3,873,564,792

†††† 740,823,119 

$4,614,387,911

†††† 128,658,566††

$10,743,815,883  

$2,262,329,479

48,019,644

    13,560,546 

$2,323,909,669

$8,419,906,214

INVESTMENT PORTFOLIO ANALYSIS - Fair Value

JUNE 30, 2005

JUNE 30, 2004

Total Government Obligations...................................................................

Total Corporate Obligations.......................................................................

International Notes and Bonds..................................................................

Preferred Stock (U.S. & International Combined)...................................

Common Stock - U.S....................................................................................

Common Stock - International....................................................................

Short Term Investments..............................................................................

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

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

Foreign Currency.........................................................................................

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

$6,019,627,007 

3,646,412,522

659,701,554

168,998,798

12,499,580,367

6,118,615,710

1,413,132,556

3,525,456,881

1,068,633,225

†††††† 28,166,730 

$35,148,325,350

$ 5,699,920,106 

3,047,586,076

341,939,109

170,070,366

13,185,157,414

5,249,363,442

1,036,863,444

2,680,788,703

840,390,782

†††† ††24,999,284 

$32,277,078,726

ADMINISTRATIVE EXPENSES

FY 2005

FY 2004

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

Professional Services..................................................................................

Postage..........................................................................................................

Machine Repair and Rental........................................................................

Other Contractual Services.........................................................................

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

Occupancy Expense....................................................................................

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

Gain on Disposal of Equipment.................................................................

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

$10,787,362 

981,768

452,629

462,559

765,214

506,844

172,652

277,617

††††† (2,930)

$14,403,715

$ 9,855,223 

981,402

436,283

503,353

792,565

435,978

182,991

372,751

††††††††††††††† 0 

$13,560,546

Contributions Available to Invest (iNVESTMENTS USED FOR Benefits and Expenses)

FY 2005

FY 2004

CONTRIBUTIONS:†† Member/Participants................................................

††††††††††† Employers..............................................................

State of Illinois Appropriations ........................

†††††††††† Total Contributions (1).................................

DEDUCTIONS:†††††††† Benefits........................................................................

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

††††††††††††††††††††††††††† Administration.........................................................

Total Deductions (2).......................................

Contributions Available to Invest (Investments used to Pay

†††† Benefits and Expenses) (1)-(2)..............................................................

$†† 761,790,009

148,813,036

†† 906,749,310

$1,817,352,355

$2,533,102,848

59,395,758

†††† 14,403,715

$2,606,902,321

 

$(789,549,966)

$†† 768,661,300

127,573,465

5,361,851,773

$6,258,086,538

$2,262,329,479

48,019,644

†††† 13,560,546

$2,323,909,669

$3,934,176,869

SUPPLEMENTARY INFORMATION

FY 2005

FY 2004

Total investment manager fees..................................................................

Total time weighted return on investments.............................................

Average Number of System Employees...................................................

Number of Retirement Annuitants............................................................

Total Brokerage Commissions Paid..........................................................

$104,221,360

10.8%

168

73,464

$16,360,838

$94,175,293

16.5%

165

67,950

$20,031,798

EXECUTIVE DIRECTOR

 

 

During Engagement Period: Jon Bauman

Currently:Jon Bauman


 

 

 

 

 

 

 

 

 

 

 

 

 


System did not have a formal policy addressing custodial credit risk

 

 

 

A change in an accounting standard now requires disclosures regarding various risks for deposits and investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Funding legislation was changed to reduce the required employer (State) contributions for fiscal years 2006 and 2007

INTRODUCTION

 

††††† This digest covers our compliance examination of the Teachersí Retirement System (System) for the year ended June 30, 2005.A financial audit covering the year ending June 30, 2005 was issued separately.

 

FINDING, CONCLUSION, AND RECOMMENDATION

 

NO FORMAL POLICY ADDRESSING CUSTODIAL CREDIT RISK

 

†††† The Teachersí Retirement System (System) identified in their June 30, 2005 financial statements that they did not have a formal policy addressing custodial credit risk.At June 30, 2005, the System identified $165,262,023 of investments that were noted as being uninsured and unregistered, with the securities held by a counterparty, but not in the Systemís name (exposed to custodial credit risk).

 

†††† The Systemsí financial statements are prepared in accordance with generally accepted accounting standards (standards).The standards require the System to disclose information regarding deposits and investments that are subject to various risks, with custodial credit risk being one of those risks.Custodial credit risk is the risk that in the event of a financial institution failure, the System would not be able to recover the value of the investments in the possession of an outside party.

 

†††† System management noted they did not have a formal policy addressing custodial credit risk because such a policy is not required by law or GASB 40.

 

†††† We recommended the System develop a formal policy to address custodial credit risk as it relates to investments.(Finding 1, page 9-10)

 

†††† System management noted there is no statute or accounting standard setting authority that requires a formal written policy to address custodial credit risk.However, the System agrees to implement a formal written policy to address custodial credit risk and will continue to work with its custodian and investment managers to monitor custodial credit risk exposure.

 

††††††† Ms. Jana Bergschneider, Director of Administration provided the Systemís response to the finding.†† ††

 

CHANGE IN FUNDING LEGISLATION

 

††††† In June 2005, Public Act 94-0004 became law.This legislation further modified the funding plan of the System by reducing the amount of required employer contributions for fiscal year 2006 and 2007 that would have otherwise been required under the previous funding legislation.The required State contributions for fiscal years 2008 through 2010 will then be increased incrementally as a percentage of the participant payroll so that by fiscal year 2011 the State is contributing at the required level contribution rate to achieve the financing objective of a 90% funded status by the end of fiscal year 2045.††††††††††††
 

AUDITORSí OPINION

 

††††† We conducted a compliance attestation examination of the System for the year ended June 30, 2005 as required by the Illinois State Auditing Act.A financial audit covering the year ending June 30, 2005 was issued separately.

 

 

 

 

_____________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:RPU:pp

 

SPECIAL ASSISTANT AUDITORS

 

††††† BKD LLP were our special assistant auditors for this engagement.