Securing the future for Ohio’s Police & Firefighters · OP&F • page vi EXECUTIVE SUMMARY •...

OHIO POLICE & FIRE PENSION FUND • 2015

BUDGET BOOK • JAN. 1 to DEC. 31

S e c u r i n g t h e f u t u r e f o r O h i o ’ s P o l i c e & F i r e f i g h t e r s

Annual Budget for Fiscal Year 2015Ohio Police & Fire Pension Fund

140 East Town Street • Columbus, Ohio 43215www.op–f.org • 888–864-8363

Prepared through the combined eff orts of the OP&F staff .

OP&F • page v

Annual Budget for Fiscal Year 2015 • TABLE OF CONTENTS

Executive SummaryDistinguished Budget Presentation Award 2014 ....................... viOP&F Mission, Vision and Core Values ..................................viBudget Message Letter from Executive Director ........................ 1

Budget Policy and TrendsOP&F Overview ................................................................................ 6Fund Policy ......................................................................................... 7Benefi t Funding Policy ..................................................................... 8Long-term Goals and Objectives .................................................... 8Funding Administration .................................................................. 9Reserve and Fund Balances ............................................................12Debt Obligations .............................................................................14Budget Financial Categories ..........................................................14Additions to Total Plan Assets ......................................................14Deductions from Total Plan Assets ..............................................17Budget Management and Other Planning Processes ...............18Budget Structure ..............................................................................21Budget Production, Preparation and Adoption ........................22Budget Oversight .............................................................................23Overview of Budget Process ..........................................................24Reserve and Fund Balances ............................................................25Funding Structure ............................................................................26

Total Plan Assets BudgetProjected Changes in Total Plan Assets Budget ........................28Total Plan Assets Budget Review ..................................................28Plan Additions ..................................................................................29Plan Deductions ...............................................................................32Statement of Changes in Total Net Plan Assets ........................34Total Plan Assets Budget Revenues by Category ......................36Total Plan Assets Budget Expenses by Category .......................36Employer and Member Contributions vs. Benefi ts Paid Chart ..36

Capital Outlay BudgetCapital Outlay Budget by Category ............................................38Capital Outlay Budget ....................................................................39Purpose of Separate Capital Budget ............................................39Priorities for 2015 ............................................................................39Depreciation Methods, Estimated Useful Lifes and Salvage Values..................................................................40Status of Capital Projects, New Initiatives for 2015 .................40Status of Capital Projects, Review of 2014 Initiatives..............42

Administrative Operating BudgetOP&F Organizational Chart ........................................................48Total Administrative Operating Budget .....................................49Total Administrative Operating Budget Review .......................50Budget Summary ..............................................................................53Th ree-Year Capital Budget Summary ..........................................53Operating Budget Highligts ..........................................................53Initiative Highlights ........................................................................54Executive Summary of OP&F Budget ........................................55Personnel Highlights .......................................................................55Administrative Operating Budget and Actual Comparison .....55Administrative Operating Summary Totals by Department .....55Personnel Position Changes ..........................................................56Position Summary by Department ...............................................56

Departmental Review TabsAdministration Department .........................................................58Finance Department .......................................................................66Information Services Department ................................................72Investment Department .................................................................78Member Services Department ......................................................86Board of Trustees .............................................................................92

Supplemental and Glossary of TermsActive and Retired Member Statistics. ........................................96Average Benefi t Payments ..............................................................97Revenues by Source .........................................................................97Expenses by Type .............................................................................98Number of Employer Units ...........................................................98Short-Term Solvency test ...............................................................99Contribution and Actuarial Interest Rate History .................100Demographics and Economic Impact .......................................101Glossary of Terms.. .........................................................................102

Table of Contents

OP&F • page vi

EXECUTIVE SUMMARY • Annual Budget for Fiscal Year 2015

Distinguished Budget Presentation Award 2014

OP&F’s Mission, Vision and Core Values

MissionSecuring the future for Ohio’s police and fi refi ghters.

VisionTh e Ohio Police & Fire Pension Fund will continue to be a leader and model among retirement systems, providing peace of mind to our members and a level of service that exceeds expectations.

Core ValuesPrudenceOP&F will make prudent decisions while delivering our benefi t services, selecting our investment strategies and executing our operational practices.

IntegrityTh e integrity of our organization is based on accuracy, credibility and ethical conduct at all times.

EmpathyOP&F will respond in an appropriate and timely manner with respect and honesty to all inquiries from every audience.

Th e Government Finance Offi cers Association of the United States and Canada (GFOA) presented a Distinguished Budget Presentation Award to Ohio Police & Fire Pension Fund (OP&F), for its annual budget for the fi scal year beginning Jan. 1, 2014. In order to receive this award, a governmental unit must publish a budget document that meets program criteria as a policy document, as an operational guide, as a fi nancial plan and as a communications device.

Th is award is valid for a period of one year only. OP&F believes our current budget continues to conform to program requirements, and we are submitting it to GFOA to determine its eligibility for another award.

OP&F • page 1

Annual Budget for Fiscal Year 2015 • EXECUTIVE SUMMARY

Budget Message Letter from the Executive Director

December 10, 2014

Trustees of the Ohio Police & Fire Pension Fund (OP&F), I am pleased to submit our proposed Total Plan Assets and Annual Administrative Operating Budget for fi scal year 2015, along with the Capital Outlay Budget covering fi scal years 2015-2017 for your review and approval.

As expected, our long-term funding outlook again took signifi cant steps forward in 2014 with the inclusion of additional investment gains and ongoing eff ects of pension reform legislation. Our investments appear headed toward another positive year of returns; however, we may fall short of our assumed rate of return this year. Th is will not truly be known until the end of the year.

As in past years, we remain committed to a fi scally responsible approach. Our process examines each line item throughout the organization’s budget and scrutinizes expenses throughout our operation. It is important that our members and the Ohio’s elected offi cials are aware of these responsible and conservative spending practices.

Th e Administrative Operating Budget for 2015 is $65.4 million, which represents an increase of 4.7 percent from 2014. Th is includes routine operating costs and direct paid investment costs. Fortunately, we continue to benefi t from a steadily improving economy and generally positive investment environment.

A signifi cant reason for the overall increase in the Operating Budget is a 6.7 percent increase in investment services, or $2.7 million compared to the last year budget. As we have learned from previous years with excellent investment returns, these positive returns also include higher than normal investment management fees.

Other categories showing a noteworthy change from last year’s budget are Bank Custody Fees (decrease of 15.8 percent, or $180,000); Legal Services (decrease of 15.7 percent, or $78,000); Actuarial Services (decrease of 12.4 percent or $63,000). In addition to investment services, line item increases for 2015 also include Other Professional Services (increase of 29.9 percent or $73,000) related to election services and a compensation study and Dues and Subscriptions (increase of 23.5 percent or $21,000) related to increases costs expected for pension news publications and membership fees.

OP&F’s 2015 operating costs are budgeted for $21.9 million, representing an increase of 0.9 percent from 2014. While containing costs as much as possible, the increase allows us to again improve services to our members and support OP&F’s commitment to its mission, vision and core values.

Based on trends observed in recent years and using an actuarial investment rate of return of 8.25 percent, OP&F is budgeting net assets to increase approximately $478.3 million in 2015. Our Capital Outlay Budget is $3.0 million for the three-year cycle from 2015-2017.

OP&F continues to see an increase in size of benefi ts paid out over the amount of contributions received. Changes resulting from 2012’s pension reform legislation have helped stem this trend, and will continue to do so over the long-term. As has been the trend, investment income is depended on to balance these payments versus receipts and is budgeted at $1.2 billion in 2015.

140 East Town Street / Columbus, Ohio 43215–5164 / Tel. (614) 228–2975 / www.op–f.org

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In 2015, OP&F is anticipating a 3.4 percent increase in total contributions over the 2014 actual forecast. Additionally, OP&F is anticipating benefi t payments of $1.4 billion versus the $730.0 million in contribution receipts.

A REVIEW OF 2014As described within this budget, OP&F again had several signifi cant accomplishments in 2014:

• An OP&F Disability Fraud Hotline was established with a dedicated toll-free number for members and the general public to use to report suspected abuse of the OP&F disability benefi ts and the granting process. Th e Fraud Hotline became available on April 15, 2014, as scheduled. As of Oct. 1, 2014, OP&F has received 13 allegations of fraud and required four members to be reexamined. Legal staff is managing the hotline data with available resources and additional soft ware is not necessary at this time.

• One full-time Member Education Representative was added to the Member Education Group. Th e position is responsible for conducting member pre-retirement interviews, assisting with member walk-ins, preparing pension estimates for interviews, mail out requests, and assist with OP&F pre-retirement seminars and special request meetings as needed. Th e addition has enhanced service to OP&F membership by increasing interview appointments as needed and also improved effi ciency within the department by decreasing turnaround time for preparation of mail out pension estimate requests.

• In January 2014, the Member Services Department was re-organized. Th e Processing Supervisor position was reestablished and the Contributions Manager position was eliminated due to retirement. Th e Member Transactions Manager’s role was expanded when the Pension Calculations team and Prior Service team became part of the Transactions group. Additional movement among the department was made to streamline reporting lines, recognize a promotional opportunity and consolidate work routines within the department.

• In 2014, OP&F contracted with a company to perform a security assessment of our network and websites. Th e assessment, which will take place in 2014, will involve a full review of all security equipment currently installed, a complete checkup of the corporate infrastructure and recommended fi xes, and specifying an industry standard of security. Th e last assessment was done in 2007. Th is assessment assures OP&F that best practices are in place for network security, identify any possible issues or concerns that need to be addressed.

• In 2014, OP&F hired a Systems Administrator with Linux experience to support the BoardVantage system. Additionally, having another System Administrator on staff allows for segregation of tasks resulting in a faster turnaround and also provides much needed redundancy to the position.

LOOKING AHEAD TO 2015OP&F continues to strive to become the most effi cient and dynamic organization possible. In 2015 we will once again undertake a series of initiatives designed to position OP&F for future growth. Examples of 2015 initiatives are:

• Microsoft (MS) Dynamics will be purchased and installed as a replacement to the current CODA System (purchased in 1996). A Request for Proposals was conducted and the MS Dynamics presentation best suited OP&F’s fi nancial and procurement needs and vision for the future. It will allow for newer technology and more user friendliness for our accounting processes. We feel that the new system will carry us into the future in providing quality reporting and greater system functionality.

• In order to maintain a competitive compensation program, it is OP&F’s goal to complete a comprehensive compensation study about every fi ve years. With the last compensation for non-management staff occurring in 2010 and in 2011 for exempt staff , a study is due in 2015. Th e purpose is to determine if OP&F’s compensation structure and pay rates have been keeping up with the market and to off er suggested changes

Budget Message Letter from the Executive Director

OP&F • page 3

Annual Budget for Fiscal Year 2015 • EXECUTIVE SUMMARY

where appropriate on wages relevant to the market data, wage structure, and pay practices.• In an eff ort to make the OP&F website more user-friendly, this initiative will add search capabilities to

op-f.org. Th e new capability would allow users to type into a search box on any page on the website in order to locate information or fi les on a specifi c subject. With the expansion of the website to include a large number of documents, reports, forms and publications, this feature is needed to better manage the use of the site.

• Th e newest version of Microsoft Offi ce will be purchased in 2015. Our current version is nearly eight years old. Offi ce 2007 is still being supported by Microsoft from a security standpoint, but there are no new soft ware updates for hardware or soft ware issues that may be encountered. Th e newest version of Offi ce will provide much better integration with other soft ware and tools currently used.

• Princeton Financial Systems (PFS) is requiring OP&F to replace the current PAM for Securities application that was implemented in 2000 with its new product, PAM for Investments. According to PFS, PAM for Investments off ers the several important enhancements that are not available with the current application.

OP&F is currently projecting a 6.74 percent return in 2014, below our 8.25 percent target return. We remain committed to sound investment principles and our team of consultants and staff continue to provide the Board with investment strategies and options in the best interests of our membership. Th e portfolio value currently stands at approximately $14.3 billion.

As was the case last year, this budget refl ects another full year of impact of the contribution and benefi t changes made in pension reform legislation. Th ese changes were well thought-out by fi rst the Board of Trustees and also by the Ohio General Assembly in craft ing Senate Bill 340 in 2012. Th e changes bring long-term fi nancial stability to OP&F and bring us within reach of the state’s 30-year funding requirement.

Th e annual pension actuarial valuation completed by Buck Consultants, shows that our funding ratio as of Jan. 1, 2014, is 66.7 percent based on the actuarial value of assets, an improvement over the 64.2 percent from the previous valuation. Additionally, the valuation shows a signifi cant improvement in OP&F’s funding period. Investment returns and the eff ect of pension reform legislation have moved the funding period from 47 to 33 years. Th e report confi rms that we continue to be able to meet our current and future pension obligations.

2015 ADMINISTRATIVE OPERATING BUDGETTh e proposed budget for 2015 is $65.4 million, which represents 0.42 percent of OP&F’s projected assets of $15.7 billion as of Dec. 31, 2015. As described below, this is a 4.7 percent increase overall from OP&F’s revised 2014 budget.

Operating Costs $21,860,690 0.9% increase from 2014Investment Management 43,566,574 6.7% increase from 2014

TOTAL BUDGET $65,427,264 4.7% INCREASE FROM 2014

We continue to organize OP&F’s departmental structure to increase effi ciency and streamline operations. Other signifi cant highlights of our operating budget are as follows:

• Since a formal budget process was put in place in 1998, OP&F has not exceeded its annual budget in actual spending, with the exception of investment management fees during 2010 which was driven by market increases.

• Th e full-time headcount is 143 for 2015, up one net position from 142 in 2014. Th is includes the

OP&F • page 4


addition of a Prior Service Support Specialist in the Member Services Department. Also, in the 2015 budget, the Deputy Director position was changed to the Information Services Director and transferred to the Information Services Department. Some areas of oversight were also transferred as a result of this new change.

• In 2015, investment management fees are budgeted at $43.6 million, representing a 6.7 percent increase from 2014. Th e increase is attributable to a higher than budgeted investment returns, which result in higher management fees for the investment managers.

In closing, I wish to express my gratitude to the department directors and their staff s for the eff orts in preparing of this budget. It is a team eff ort and has resulted in a budget that I believe will serve as an eff ective fi nancial and management guide for the coming year. I welcome the opportunity to address any questions that you may have regarding this document.

Respectfully submitted,

John J. Gallagher, Jr.Executive Director

Respec y

John J. Gallagher, Jr.

OP&F • page 5

Annual Budget for Fiscal Year 2015 • BUDGET POLICY AND TRENDS

Budget Policy and TrendsAnnual Budget for Fiscal year 2015

140 East Town Street • Columbus, Ohio 43215www.op–f.org

OP&F • page 6

BUDGET POLICY AND TRENDS • Annual Budget for Fiscal Year 2015

OP&F Overview

OP&F is a cost sharing multiple-employer public employee retirement system, providing pension and disability benefi ts, and an optional health care plan to qualifi ed participants. In addition, survivor and death benefi ts and an optional health care plan are provided to qualifi ed spouses, children, and dependent parents. OP&F is designed to provide an adequate retirement income to participants and their benefi ciaries when they need it most—when they stop working, become disabled or in the event of death.

Th e Ohio General Assembly (OGA) created OP&F in 1965, to replace 454 separate local police and fi refi ghter’s relief and pension funds, many of which were close to fi nancial insolvency. Th e statewide fund began operating Jan. 1, 1967, when the local pension funds transferred their assets and liabilities to OP&F. Assets transferred to OP&F were about $75 million, with accrued liabilities at just under $500 million.

Since then, OP&F has grown to become the 119th largest pension plan in the United States (Pensions & Investments, Feb. 9, 2015), with approximately $14.3 billion in assets under management at the end of Dec. 2014. OP&F covers police and fi re employers in Ohio cities, villages and townships. Total membership is more than 55,000 individuals, including both active employees and OP&F pensioners and their survivors.

Membership in OP&F is mandatory under Ohio law for all full-time police offi cers and fi refi ghters in Ohio. Th ere are 911 active participating employers representing 27,605 current active members and 27,561 retirees and benefi ciaries.

GovernanceTh e Board of Trustees is the governing body of the organization and is responsible for the administration, control and management of OP&F including, but not limited to:

• adopting administrative rules and policies for the operation of the fund;

• approving and disapproving disability grants; • approving and disapproving the appointment of

external investment managers;• adopting an annual administrative budget;• reviewing annual actuarial reports and the fi nancial

audit; and • administering and determining the plan design and

level of benefi ts for the OP&F–sponsored health care program.

Ohio law provides for the OP&F Board of Trustees to consist of nine members, including six employee members elected to four–year terms by their respective member groups:

• Two representatives of police departments;• Two representatives of fi re departments;• One retired fi refi ghter; and• One retired police offi cer.

Th e Board also has an additional three members with professional investment experience:

• One appointed by the Governor;• One by the Treasurer of State; and• One appointed jointly by the Senate President and

Speaker of the House.

Although OP&F remains an independent organization, the ORSC provides legislative oversight on behalf of the OGA. Th e ORSC assists the state legislature, governor, and other public offi cials in the formation of sound public pension policy. Th e ORSC provides legislative oversight to each of Ohio’s fi ve public retirement systems: OP&F, the Ohio Public Employees Retirement System, the State Teachers Retirement System of Ohio, the School Employees Retirement System of Ohio and the Ohio Highway Patrol Retirement System.

Ohio’s fi ve public retirement systems Active Retirees and Net Assets *

Retirement System Members Benefi ciaries (in millions)

Ohio Public Employees Retirement System (OPERS) 347,727 196,594 $88,989.94 State Teacher’s Retirement System of Ohio (STRS) 169,295 169,244 75,420.05 Ohio Police & Fire Pension Fund (OP&F) 27,605 27,703 12,974.04 School Employees Retirement System of Ohio (SERS) 121,251 79,654 13,234.91 Ohio Highway Patrol Retirement System (OHPRS) 1,613 1,663 813.95

TOTALS: 667,491 474,858 $191,432.89

*STRS and SERS based on fi scal year ending 06/30/14, remaining are calendar year ending 12/31/13.

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OP&F is a separate fi nancial reporting entity in accordance with criteria established by Governmental Accounting Standards Board (GASB) Statement No. 14 Th e Financial Reporting Entity. Th is statement was issued by the GASB to establish standards for defi ning and reporting on the fi nancial reporting entity. Th e concept underlying the defi nition of the fi nancial reporting entity is that elected offi cials are accountable to their constituents for their actions. Fiscally independent governments have the ability to complete certain essential fi scal events without substantive approval by a primary government. Th is includes determining its annual budget without another government’s having the authority to approve and modify that budget.

Because OP&F is legally separate, a voting majority of the governing board is not appointed by the State of Ohio, and it is fi scally independent of other state and local governments, OP&F does not employ governmental fund accounting when preparing the annual budget and does not have a legally adopted budget. Th e Board of Trustees, who monitors and sets spending levels each fi scal year approve OP&F’s budget. OP&F does not operate under a balanced budget approach and pays the costs of administering the plan by a transfer from the guarantee fund each year. Th is transfer occurs fi rst from investment income and then from pension reserves when necessary.

OP&F’s budget, consistent with its accounting policies, is constructed on an accrual basis, and utilizes a January through December fi scal year. Th e accrual basis recognizes all revenues when earned and expenses in the period in which they are incurred. Th is budget is targeted to meet our actuarial rate of return-on-investments of 8.25 percent and our legal requirement under ORC Section 742.16 of achieving a pension fund actuarial amortization period of 30 years or less by December 2006, and every year thereaft er. If the amortization period is not met, then a plan must be approved and submitted to the General Assembly outlining how to achieve the required funding levels. Th is plan could include changes to mandated or discretionary benefi ts and will be submitted each year until the legal level is achieved. It is also driven by requirements set forth by other governing statutes and OP&F organizational goals and objectives.

OP&F’s Fund Balance or Total Plan Assets is the amount of net assets available to provide statutory and discretionary benefi ts as of the fi nancial statement date. Th e Fund Balance includes the value of assets and is reduced by liabilities. Total Net Plan Assets at the end of the year

2015 are projected to be $13.8 billion versus $13.4 billion, or a 3.6 percent increase over the 2014 forecast, with net income of $478.3 million budgeted for 2015.

OP&F also has a separate Capital Outlay Budget used to segregate capital purchases and details of that budget are contained in the Capital section. Comparative information for prior capital purchases has been adjusted to refl ect this change as these items were previously included in the Administrative Operating Budget.

Th e Ohio Revised Code (ORC) contains the laws of Ohio, which are enacted by the Ohio General Assembly. OP&F’s governing laws outline the basis for which the fi nancial policies related to the contributions, benefi t eligibility and benefi t calculations are based.

Th e Board of Trustees in the governing body that is responsible for the administration, control and management of the organization. Th ey are responsible for administering the laws, appointing professional staff , and adopting annual spending budgets.

Within the framework of the administering the laws, OP&F must also maintain the fi nancial reporting requirements set forth by the ORSC, maintain a comprehensive investment policy, and maintain other fi nancial policies and goals to help administer the fund.

Included in the other fi nancial policies and goals are the following:

• Mission, Vision and Core Values• Benefi t Funding Policy & Administration Guide• Reserve and Fund Balances• Long-Term Goals & Objectives• Strategic Planning• Annual Budgets

OP&F’s 3-year Strategic Plan and Mission, Vision, and Core Values are all linked to the Benefi t Funding Policy & Administration Guide to help provide guidance for our future budget requirements and long-term requirements of the fund.

Th e Benefi t Funding Policy & Administration Guide includes high-level fi nancial, retirement, and fi nancial policies as well as an overview of the administration activities that go along with managing those policies. Th e policy is outlined as follows:

Fund Policy

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Benefi t Funding PolicyPurposeTh is document establishes the goals, objectives, and protocols for the Ohio Police and Fire Pension Fund (OP&F) under the direction of the Board of Trustees (Board) to outline established benefi t funding guidelines.Th e purpose of this Policy is to:

• Provide an understanding of the benefi t funding goals and objectives;

• Provide a brief summary of acceptable benefi t funding levels; and

• Articulate OP&F’s requirements on providing statutory and discretionary benefi ts.

Th e execution of this Policy shall be accomplished in a manner that fulfi lls the statutory requirements outlined in Chapter 742 of the Ohio Revised Code and justly represents the entire membership body.

Th is Policy will be actively managed as part of the decision-making process related to fi nances, benefi ts, reserve fund balances, accounting, revenues and expenses to ensure that this policy remains comprehensive and sound. All Policy statements are on a combined basis representing police offi cers’ and fi refi ghters’, mutually inclusive. Th is Policy will complement other OP&F policies.

Long-Term Goals and ObjectivesFinancial OP&F has established the following goals, while not all-inclusive, related to fi nancial requirements of funding benefi ts:

• Continue our path toward reducing our funding amortization period and enhancing our funding Policy;

• Continue to pay all benefi ts and expense obligations when due;

• Continue to improve OP&F’s funded status with regard to the accumulated benefi t obligation;

• Control administrative costs and manage assets prudently to maximize the investment rate of return;

• Control spending through the administrative operating budget;

• Establish a plan to maintain a 30-year or less amortization period; and

• Preserve a discretionary health care option for eligible members.

Retirement Benefi tsStatutory benefi ts will be considered suffi ciently funded if the:

• Amortization period of the Unfunded Actuarial Accrued Liability is 30 years or less in the year of the actuarial valuation: and

• Th e Actuarial Accrued Liability funded status of the assets is at a percentage deemed prudent by the Board or is greater than or equal to 95 percent; and

• All actuarially determined, deferred investment gains and losses are fully smoothed into the actuarial value of assets in the year of the actuarial valuation. Th is means the calculations will be done both based on the Actuarial Value of Assets and the Market Value of Assets.

If all the above conditions are not met, the Board will monitor all fi nancial components to determine if changes in plan provisions should be considered. In addition, when the fi rst bullet point above alone is not met, the Board must approve a written plan to achieve compliance and submit that plan to the General Assembly as required.

If all of the above conditions are met, the Board may then consider recommending to the General Assembly benefi t enhancements and/or contribution reductions or make contribution allocation changes. Th is would be done based on Board priorities.

Prior to any recommendations for benefi t changes being presented to the General Assembly, an actuarial analysis and a full understanding of the short-term and long-term fi nancial eff ects on the change will be completed by the actuary. In addition, recommended benefi t changes will be submitted to the General Assembly not later than sixty days from the date of introducing the legislation for changes as required by law.

Health Care Benefi tsHealth care benefi ts are not statutorily mandated; however, the goal of the Board is to provide access to these benefi ts to both current and future members and survivors and their eligible dependents, according to the terms of the Health Care Plan. Th e funding goal for the Section 115 Health Care Trust Fund, which is not considered to be pre-funded, will be suffi ciently funded if:

• It is forecasted to be solvent for at least a 15-year future projection period (which means that the current balance can sustain the aggregate of the next 15 years of projected net cash fl ows as determined by the actuary).

Th ere are no requirements to fund future projected health care benefi ts at any set level; rather, these costs must be measured and disclosed as required as long as health care plan benefi ts are off ered

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Funding AdministrationTh is summary will provide an overview related to the following stakeholder/individuals to pursue action on the following items, which is not all-inclusive. Th e division of responsibilities and action of these items helps to ensure the eff ective execution of the Policy.

Th e Ohio General Assembly• Establish contribution rates for active members and

employers to ensure funding adequacy levels are maintained as appropriate;

• Set Cost of Living Adjustment (COLA) percentages; • Perform contribution rate adequacy studies on an

annual basis; • Perform an independent fi duciary audit on request or

at least once every ten years;• Review 30-year Funding Plans (if applicable); and• Review OP&F Annual Budget.

Th e Board of Trustees• Set the actuarial valuation interest rate percentage;• Authorize investment transactions as a fi duciary,

based on the prudent person standards and Board established guidelines;

• Work with Investment Consultants’ to conduct an asset liability valuation study and investment structure reviews;

• Target the highest level of investment return within an acceptable framework of risk and return expectations;

• Set the interest rates on various benefi t transactions;• Report every two years to the General Assembly on

the condition of the retirement system;• Establish the amount of OP&F’s health care subsidy

on an annual basis, consistent with OP&F’s health care funding policy;

• Establish the percentage of employer contributions allocated to the health care accounts;

• Make recommendations to the General Assembly related to contribution rates to assist in funding objectives and requirements;

• Establish Board Committees and OP&F staff action items and guidelines to execute the benefi t funding plan;

• Establish the rate at which Medicare Part B will be reimbursed; and

• Maintain comparable prescription drug program within federal guidelines to maintain eligibility for the Medicare Part D subsidy.

Professional Services (Consultants, Custodians, Counsel, Actuaries and Auditors)OP&F either retains the service of or has appointed qualifi ed outside organizations to perform professional services on behalf of the Board in specialized areas as listed below.

• Perform an independent external fi nancial statement audit on an annual basis and issue an opinion, which will be incorporated within the Comprehensive Annual Financial Report (Currently selected by the Auditor of State);

• Perform an actuarial valuation of the assets, liabilities and funding requirements on an annual basis and submit the report to the General Assembly (Th is is conducted by our current actuary);

• Review actuarial assumptions on a Quinquennial, every 5 years basis (Th is is conducted by our current actuary);

• Perform an actuarial cost and fi nancial impact analysis on potential legislation and plan provision changes (Th is is conducted by our current actuary);

• Conduct a cost neutrality study for DROP at least every 5 years to determine the status of the program and recommend changes to the Board as necessary (Th is is conducted by our current actuary);

• Perform an actuarial audit at least once every 10 years (Th is is performed by outside actuary);

• Perform asset liability valuation study and investment structure review every 3-5 years or as needed (Th is is completed by current investment consultant); and

• Implement new accounting standards as required.

OP&F Staff – Action Items• Implement the Board approved asset liability

valuation study and investment structure review recommendations;

• Provide an adequate cash management function to ensure funds are available to pay benefi ts and operating costs when due;

• Prepare an annual health care report;• Prepare reports on disability experience, ethics and

other areas as required to monitor events;• Manage transaction fl ows among the established

reserve and trust funds; • Allocate administration expenses to the health care

trust fund each year in accordance with Government Accounting Standards Board pronouncements;

• Request state subsidy payments in accordance with requirements;

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• Seek out cost saving eff orts related to health care costs and behaviors;

• Make plan provision recommendations; and• Ensure appropriate internal controls and accounting

and fi nancial reporting on all fund balances and fi nancial transactions.

OP&F Staff - Compliance and Monitoring FunctionsTh e following functions, while not all-inclusive, will be monitored in connection with the goals and objectives of the Benefi t Funding Policy.

• Monitor the costs of the administrative operating and capital budget;

• Monitor all revenue sources and monies due and payable to ensure receipts are made;

• Monitor and maintain appropriate levels of administrative insurance;

• Investment income to the health care funds will be on a prorated basis at a rate equal to the actual return on investments;

• Maintain a segregated Internal Revenue Service (IRS) Code Section 401(h) account for Medicare Part B reimbursements;

• Maintain a segregated IRS Code Section 115 trust for accrual of health care fund fi nancial activities;

• Ensure Medicare Part D subsidies are credited to the Section 115 health care trust;

• Ensure revenues and expenses are projected based on objective forecasting assumptions each year as part of the budget process to monitor anticipated changes;

• Ensure proper levels and types of collateral are maintained on all loaned investment securities;

• Safeguard all assets on deposit with the named custodial agent;

• Continue to seek alternative vehicles for medical/prescription savings needs;

• Ensure proper agency administration of the State of Ohio Public Safety Offi cers Death Benefi t Fund in accordance with statute;

• Remain compliant with the IRS for qualifi ed plan status;

• Comply with court orders and applicable statutory provisions on member and survivor benefi ts; and

• Maintain all accounting and fi nancial reporting systems in conformity with Generally Accepted Accounting Principles.

Long-term objectivesTh e key long-term objectives for OP&F have been established in conjunction with a comprehensive review of the current and projected fi nancial requirements. In addition, the Board of Trustees and OP&F senior staff members participate in off -site retreats annually to review prior year achievements and highlights and to set organizational goals for future periods. Th ese goals are used to develop the Total Plan Assets Budget items and to ensure that OP&F incorporates input from staff and members into the annual planning process.

1. Objective: Continue the path toward reducing our funding amortization period and enhancing our funding policy;Meeting the objective:Staff , consultants and the Board of Trustees again put together a funding plan aimed at meeting the thirty-year amortization requirement. Th is is in addition to the Sept. 2012 legislative changes. Th e additional pension legislative changes include additional member contribution increases, reducing the health care allocation of employer payroll, further reducing cost-of-living adjustments and equalizing employer contributions between the police and fi re divisions.

In addition to legislative changes, the Board of Trustees continually works on making changes to discretionary health care benefi ts, administrative costs, investment strategies and other parts of the funding plan that can be accomplished without legislative actions. Careful consideration is put into each item prior to adopting changes to ensure a well balanced approach is taken to protect the long-term funding goals. Th ey also approve every fi ve years the actuarial consultants comprehensive experience study looking at trends in several categories, including membership, health care and funding sources. Th is study was completed in the fall of 2012 to cover the experience for calendar years 2007-2011. Th ere were eight recommended changes, all of which were approved by the Board of Trustees.

Th ese changes included:

• An increase in withdrawal rates to refl ect experience;• An increase and a decrease in disability retirements

based on age groups;• A reduced retirement rate of service retirees due to

the DROP experience and 90 percent of eligible members electing to enter the program;

• Updated mortality tables for pre and post-retirement;• Decrease to 75 percent the assumed married members;

OP&F • page 11


• An adjustment in the percentage of joint and survivor elections;

• A reduction in salary increase assumptions to refl ect experience; and

• A reduction to refl ect experience in the payroll growth assumption.

As of Jan.1, 2014 (the most recent actuarial valuation) OP&F’s funding level is 66.7 percent. Th e previous year’s funding ratio was 64.2 percent. Th e valuation resulted in a 33 year amortization period compared to the 47 year amortization period last year. Th e legislation has had a positive impact on the long-term funding level and OP&F is confi dent that the fi nancial market improvements will help to achieve the overall 30 -year amortization period without having to make major changes to benefi ts or contributions in the near future.

Th e DROP cost neutrality was also performed as part of the study and it confi rms that the program does not result in additional annual costs and continues to increase the amount of time members remain on the job. Th e program extends the careers of members over two years and OP&F does not incur health care costs while members are in the program.

2. Objective: Continue to pay all benefi t and expense obligations when due;Meeting the objective:OP&F is fully able to meet all of its obligations while adjustments are made to ensure long-term fund soundness. Th e State of Ohio requires that the public pension systems must be able to pay off unfunded accrued liabilities in a 30-year period. If a system is not able to meet this requirement, the state requires that each system have a plan in place to fall within the 30-year period. While OP&F met this requirement in the late 1990s, stock market performance drove the funding period above 30 years to infi nity. Legislation passed in the fall of 2012 has paved the way for additional revenues and reduces benefi ts to greatly assist in the amortization period. Our plan to meet this requirement is mentioned in objective #1 and will be combine with a variety of other cost saving strategies and cash fl ow management.

To meet daily, weekly and monthly obligations, the OP&F Investment Department coordinates with the Finance Department to assure that a cash allocation is available.

3. Objective: Continue to improve the funded status with regard to the accumulated benefi t obligation;Meeting the objective:Th ere was an increase in the funded status of the plan last year by 2.5 percent and reduction of 14 years on the amortization period, both improvements to funding. Funding also refl ects the Board of Trustees desire to preserve discretionary health care benefi ts and that rate was maintained at 0.5 percent allocation of contributions to the health care reserves. OP&F’s funding level was 66.7 percent with a 33 year amortization period as of Jan. 1, 2014. Th e portfolio is projected to end 2014 with a net plan asset value of $14.5 billion.

4. Objective: Control administrative costs and manage the assets prudently to maximize the investment rate of return;Meeting the objective:Fiscal responsibility drives the annual budget process at OP&F, with the goal of reducing administrative expenses whenever possible. Th is is done with a consistent approach to the annual budget process and with Executive Director’s involvement with the process. Each area is required to meet with the Executive Director and explain all budget details.

With increased focus on all public retirement systems, we want our membership and the general public to be aware of our conservative spending practices. Th e 2014 administrative operating budget for OP&F was up 4.7 percent from the previous year which includes a 0.9 percent increase in operating cost and a 6.7 percent increase in investment management fees paid directly through the budget.

OP&F must also present the annual budget to the ORSC for examination and questions. OP&F again presented the budget as requested.

Additionally, the Board, staff and consultants regularly examine investment strategies and develop asset allocation models that will help to maximize potential investment returns. OP&F has a stringent Investment Policy that has been adopted by the Board that helps ensure staff has direction and guidance for making prudent decisions on all investment matters.

OP&F • page 12


5. Objective: Control spending through the Administrative Operating Budget;Meeting the objective:OP&F’s budget process is a bottom-up execution with Senior Management and the Board of Trustees review and ultimate approval. Since a formal budget process was put into place at OP&F in 1998, the Fund has never exceeded its annual operating portion of the budget in actual spending with the exception of management fees in 2010. Positive returns lift ed our asset levels and required additional fees be paid by contract. Baseline spending is recalculated each year to eliminate carryovers, non-essential spending and one-time costs. New initiatives are also carefully scrutinized to ensure that their undertakings are both necessary and achievable.

Other controls in place include a central purchasing unit that researches contracts, and extends bids for goods and services.

6. Objective: Establish and maintain a 30-year or less amortization period on pension assets;Meeting the objective:Ohio law requires OP&F to establish and maintain the industry standard 30-year or less amortization period. With that, many repeated eff orts have been undertaken to develop plans that will help achieve this legal requirement as mentioned in #1 and #2 above. Eff orts will continue with our oversight board and our Board of Trustees to manage this requirement. Please visit our web site at op-f.org for more information and news about our funding activities.

7. Objective: Preserve a discretionary health care option for eligible members;Meeting the objective:Th e Board of Trustees has established a 15-year solvency goal for the health care program and will continue all eff orts to maintain this coverage.

Th e Board of Trustees approved modest increases to premiums for retirees and survivors in order to help maintain the solvency.

Th e Board of Trustees also adopted an Internal Revenue Code Section 115 Health Care Trust in 2006 to ensure the non-taxable status of the benefi ts currently being off ered to our members will continue into the foreseeable future.

Reserve and Fund BalancesOP&F’s budget is prepared on a combined police and fi re basis. Th e state statute requires that several reserve funds be maintained annually for tracking fund activities for both police and fi re. OP&F budgets for the revenue and expense activities that fl ow through these accounts. OP&F does not budget for the annual funding balance transfers that occur due to active and retired membership transitions. Additionally, OP&F does not prepare a budget for the Death Benefi t Agency Fund.

Each year-end the reserve funds are managed and allocations are done to refl ect the revenue and expense activities and funding balance transfers due to changes in membership status from active to retired.

Th e Guarantee Fund and Expense Fund is always zero at the end of each year as they are used to fund the Pension Reserve Fund from investment gains and losses and to account for the Administrative Operating Expenses. Th e reserve funds are described below. Please see the back of this section for charts outlining the reserve fund activities.

Police Offi cers’ and Firefi ghters’ Contribution Funds (Members’ Contributions)Th is fund is credited with the contributions deducted from the salaries of members of police and fi re departments and paid into OP&F, as provided by section 742.31 of the ORC, and that percentage of the employers’ accrued liability that is attributable to deductions previously made from the salaries of members of the police and fi re departments who are still in the active service at the time that portion of the employers’ accrued liability is paid. Upon retirement the accumulated contributions of a member of a police and fi re departments shall be transferred at the member’s retirement from the police and fi re offi cers’ contribution fund to the police and fi re offi cers’ pension reserve fund.

Police Offi cers’ and Firefi ghters’ Employers’ Contribution Fund (Employers’ Contributions)Th is fund is credited with the employer share contributions received from the police and fi re offi cer employers, as provided by section 742.33 of the ORC, and that percentage of the employers’ accrued liability that is attributable to the employers’ liability for prior service of members of the police and fi re department who are still in the active service at the time that portion of the employers’ accrued liability is paid, and that portion of

OP&F • page 13


the state contribution allocated to such fund, as provided by section 742.36 of the ORC. Members of a police and fi re department retiring in the future or their qualifi ed benefi ciaries shall be paid from the reserves for such pensions and other benefi ts transferred to the Police and Fire Offi cers’ Pension Reserve Fund.

Guarantee Fund Fund from which interest is transferred and credited on the amounts in the funds described in divisions (C), (D), (E), and (F) of this section, and is a contingent fund from which the special requirements of said funds may be paid by transfer from this fund. All income derived from the investment of funds by the board of trustees of OP&F as trustee under section 742.11 of the ORC, together with all gift s and bequests or the income there from, shall be paid into this fund.

Any defi cit occurring in any other fund that will not be covered by payments to that fund, as otherwise provided by sections 742.01 to 742.61 of the ORC, shall be paid

by transfers of amounts from the guarantee fund to such fund or funds. Should the amount in the guarantee fund be insuffi cient at any time to meet the amounts payable there from, the amount of such defi ciency, with regular interest, shall be paid by an additional employer rate of current contribution as determined by the actuary and shall be approved by the board of trustees of OP&F, and the amount of such additional employer contribution shall be credited to the guarantee fund.

Th e board may accept gift s and bequests. Any funds that may come into the possession of the board in this manner, or any other funds whose disposition is not otherwise provided for, shall be credited to the Guarantee Fund.

Expense Fund Fund from which shall be paid the expenses for the administration and management of OP&F, as provided by sections 742.01 to 742.61 of the ORC and to which shall be credited from the guarantee fund an amount suffi cient to pay the expenses of operation.

Health Death Reserve

Budget Category or Pension Care Benefi t Fund

Agency Classifi cation Fund Fund Fund Budgeted

Revenues

Employer contributions — Employers’ Cont.Member contributions — — Members’ Cont.Health care contributions — — Pension ReserveInvestment income — GuaranteeInterest on employers’ liability — — Employers’ Cont.Other income — — GuaranteeExpenses

Pension benefi ts — — PensionDrop benefi ts — — PensionHealth care benefi ts — — PensionAdministrative expenses — ExpenseDepreciation expense—capital — — ExpenseRefunds — — Members’ Cont.Other expense — — GuaranteeBalance sheet Asset — — N/ALiability — — N/A

Budget Category–to–Fund Allocation

2014 2013

Reserve Fund Fund Balance Fund Balance

Members’ Contribution $2,199,961,497 $2,106,026,506Employers’ Contribution 1,855,998,516 890,561,942Pension Reserve 8,918,087,000 8,541,851,000Guarantee — —Expense — —Death Benefi t — — TOTAL $12,974,047,013 $11,538,439,448

OP&F • page 14


Death Benefi t Agency Fund Th is is an agency fund, which is fully funded by the State of Ohio. Th is fund is part of our Total Plan Assets only to segregate funds reserved for payments of death benefi ts to families of local police and fi re offi cers that have been killed in the line of duty or have died as a result of previous on-the-job injuries. OP&F is required to request these funds from the State on an annual basis. For more information please see the supplemental section of this book. Th is fund is not budgeted.

Pension Reserve Fund Th e Pension Fund maintains the majority of all income and expenses budgeted and accounted for in OP&F’s Total Plan Assets Budget. Th is balance represents funds available to pay pensions obligations and administer the Fund into the future. Th is fund is comprised of all the member contributions, employer contributions, guarantee fund and expense fund.

Health Care Stabilization Fund Th is is a discretionary fund and is part of the Pension Reserve Fund. OP&F segregates this fund to put some funding aside to pay for future health care costs. It is part of the Total Plan Assets Budget for monitoring the balance available for post employment health care benefi ts for members and is used to accumulate expected health care contributions and expenses. While all contributions for health care premiums and all health care expenses are recorded to this category, only a portion of employer contributions, the related share of investment income and a portion of administrative costs are allocated to this fund.

Debt ObligationsOP&F does not have any debt obligations or issuances of any type outstanding. No budget for interest or debt service is included. OP&F is not governed by any legal debt limits.

Budget Financial CategoriesBudget categories, as summarized in the Total Plan Assets Budget, include all the major revenue and expense categories of OP&F and are budgeted based on a variety of methods, depending on the category. A more detailed analysis of the budgeting logic used for the fi nancial categories is available in the Total Plan Assets Section of this book.

Additions to Total Plan AssetsAdditions to Total Plan Assets include employer and member contributions, health care contributions for members with coverage, investment income, interest on employers’ liability and other income.

Revenue Categories (additional information on revenue calculations can be found in the Total Plan Assets section of this book)

OP&F relies on combined employer and member contributions for 34 percent of all revenue categories. Th ese revenues are generated based on the Total Annual Payroll of our membership. Th is payroll number is the aggregate amount of all members’ anticipated salary for the year and is used to calculate the contributions due OP&F on a monthly and quarterly basis, member contributions and employer contributions respectively, based on the current rates in eff ect. OP&F currently has 27,605 active members contributing to the Fund along with 911 employers. Please see the supplemental section of this book for more active member valuation data.

Total Annual Payroll is projected based on actual experiences and assumptions set forth in our most recent actuarial valuation. Our actuary has included projected salary increases of 5 percent-11 percent, depending on age and service and 3.0 percent cost-of-living adjustments for all of our existing members as well as a 1.0 percent increase in the number of members covered. Membership counts are higher by 161 members than the previous year and salary increases are less than expected.

Employer ContributionsEmployer contribution rates, which have not changed since 1986, are set a 19.5 percent and 24 percent, for police and

OP&F • page 15


fi re, respectively. Employer contributions to the Fund are budgeted based on the total annual payroll of $2,012.9 million, multiplied by the respective employer contribution rate or 21.61 percent on a blended basis, which equates to the $434.9 million budget. OP&F is anticipating a 1.1 percent increase in the amount of dollar contributions from the previous year, there is a 1.1 percent of the increase in the total annual payroll and the 1.1 percent is based on expected membership growth. OP&F is forecasting actual contributions in this category for 2014 at approximately $431.9 million.

While the new pension legislation did not increase the amount of employer contributions as a percentage of total annual payroll, the legislation did include OP&F’s long-time desire to collect the employer contributions on a monthly basis, rather than the current quarterly basis. Th is will accelerate the cash fl ow and in turn will also help assist in the overall funding goals.

Th e employer contributions line also includes purchased service credits made by employers on behalf of members, penalties and interest charged to employers for late submissions of contributions and other minor amounts from related activities.

Employer contributions currently represent 22.3 percent of all of OP&F current sources of revenues. A full detailed listing of employer contribution rates from 1967 until present can be found in the Supplemental Section of this book.

Member Contributions Member contribution rates increase to 11.5 percent during 2014. Rates are scheduled to increase to 12.25 percent in 2015 which is the last legislative increase scheduled to occur. Pension reform allowed for this rate increase by 0.75 percent each year for three years for all active members of the Fund.

Member contributions to the Fund are budgeted based on the total annual payroll of $2,012.9 million, multiplied by the estimated contribution rate of 11.8 percent. Th e rate is a blend of the 11.5 percent rate with the new 12.25 percent starting in July 2015. Th is amounts to approximately $238.4 million, and is then increased by $2.9 million in member purchases and reduced by $21.3 million which represents member contributions kept in DROP accounts as part of their accrual. Th e net impact is the $220 million budgeted for 2015.

OP&F estimates an increase of 7.7 percent over the 2014 budget and 8.6 percent over the 2014 forecast actual. Th ere is a 1.1 percent increase in active membership included and the remaining amount of the increase is due to the fact that the contribution rates that members pay will increase by 0.75 percent in mid-2015.

A full detailed listing of member rates from 1967 until present can be found in the Supplemental Section of this book.

2015 Total Plan Assets Budget 2015 Percent of Percent change 2014 2013

Revenue Category Budget Totals Budget from 2014 Budget Budget Total Budget Total

Employer Contributions $434,980,040 22.3% 1.1% $430,420,388 $422,315,322Member Contributions 220,039,180 11.3% 7.7% 204,338,584 183,003,563 State of Ohio - Subsidies 470,000 0.0% –19.1% 580,657 580,657 Health Care Contributions 74,537,302 3.8% 7.3% 69,492,323 68,562,063 Investment Income*** 1,199,550,000 61.5% 5.6% 1,136,400,000 1,027,125,000 Interest on Employers’ Liability 1,020,000 0.1% –6.6% 1,092,000 1,300,000 Other Income 20,000,000 1.0% –3.3% 20,691,100 20,691,100 Total Plan Additions $1,950,596,522 100.0% 4.7% $1,863,015,052 $1,723,577,706

Total Annual Payrol, Active Members, 2005–2015 ($ in Millions)

20152005 2006 2007 2008 2009 2010 2011

$1,895

$1,913 $2,013

$1,683 $1,684$1,756

20142012

$1,783$1,831

$1,901

$2,500

$2,400

$2,300

$2,200

$2,100

$2,000

$1,900

$1,800

$1,700

$1,600

$1,500

$1,869

2013

$1,897

As displayed on the graph above, OP&F anticipates Total Annual Payroll of $2,013 billion in 2015

OP&F • page 16


Health Care

Contributions to OP&F for health care coverage is collected from eligible retired members, survivors and benefi ciaries. Rates at which these individuals are required to pay are set by the Health Care Committee and require Board of Trustee approval. Th ese costs represent the amount of money OP&F charges our retired membership and their benefi ciaries or dependents for their monthly health insurance premiums. Co-payments and deductibles are paid by the covered member and are not paid by OP&F as part of plan design.

Total budgeted contributions for health care are expected to increase next year by approximately 7.3 percent from 2014 levels. OP&F anticipates this increase due to increases in covered lives and an increase in contributions from covered benefi t recipients. Th e Board of Trustees, as always, looks at changes to prolong the solvency of the health care stabilization fund for fi ft een or more years.

• In 2015, the projected ending balance of the fund is $996.2 million or 3.3 percent decrease from the 2014 budget. Th is decrease is due to reduction of the amount of employer payroll allocated to the fund. Th e amount allocated to health care was reduced to 0.5 percent in 2014. Reducing this major infl ow to the health care stabilization fund will have a negative impact on the balance in the fund over the coming years. OP&F is still projecting positive market returns in 2015 and overall revenues to the fund being higher than costs. Health care is not a guaranteed benefi t and is funded on a pay-as-you-go-basis. OP&F dramatically restructured our

current health care plan in an eff ort to maintain the stabilization fund for a fi ft een-year solvency period. Annually, OP&F will make plan changes and request OP&F benefi t recipients to choose benefi t options and monitor the cost sharing ratios between OP&F and our benefi t recipients.

• OP&F decreased the allocation to 0.5 percent from 2.85 percent of employer contributions to this fund. As always OP&F is required to fund mandated pension and Medicare Part B reimbursement benefi ts as a priority, so this allocation can potentially change each year, depending on our funding status.

• Investment income is allocated based on the actual rate of return on investments achieved by the Fund and the balance in the stabilization fund. In 2015, our estimated rate of return is 7.65 percent and the stabilization fund is projected to be impacted with positive income of $83.6 million for the year.

Investment IncomeInvestment income represents 61.5 percent of our anticipated revenues. Included are positive earnings related to dividends, interest, rental income, currency contracts, securities lending income and realized and unrealized gains and losses on the investment portfolio. Th ere is a projected increase in the 2015 budget related to gains and losses on investment income year to year due to the fact that the market value of assets is higher due to positive returns in 2014 and 2013. Currently our actuarial investment return is 8.25 percent based on our current asset allocation and market valuation and that will be our budget target as well. Th is will assist us in determining if we are below or above our target at any point throughout

Inv

est

me

nt

Inco

me

(tho

usan

ds)

–$2,000,000

–$1,000,000

0

$1,000,000

$2,000,000

$3,000,000

–$3,000,000

–$4,000,0002012 2014 20152005 2006 2007 20092008 2010 2011 2013

Re

turn

on

In

ve

stm

en

t

–20%

–10%

0%

10%

20%

30%

–30%

–40%

Investment rate of return

Actual income Budget income

7.65%9.07%16.15% 10.5%

–28.10%

20.73% 15.83%

2.60%12.75% 16.00%

2005–2015 Investment Income Budget to Actual Comparison (in thousands)

OP&F • page 17


the year. Estimated investment income is expected to increase by that same rate 8.25 percent in the fi scal year 2015 over 2014 for budget purposes. OP&F expects to experience a 6.74 percent return in 2014, however, this budget was based on a 7.65 percent return due to the timing of the overall budget production and adoption versus getting the fi nal returns from our investment consultant in the 1st quarter of 2015.

Interest on Employers’ LiabilityIn 1967 all of the local police and fi re pension funds were merged together to form OP&F. At that time, an actuarial analysis was performed to determine the diff erence between pension liabilities and the assets being transferred to OP&F as a result of the merger. Th is shortfall of assets compared to liabilities is referred to as the Employers’ Accrued Liability. Th is unfunded liability is being paid to OP&F over a 65-year period at an interest rate of 4.25 percent. Th e budgeted amount represents the expected receipts of interest in 2015, based on the ending 2014 balances. Local governments began repayments in 1969 and payments are scheduled to continue until the year 2035. Th e outstanding balance at December 31, 2014 was $25.3 million.

Other IncomeTh is category represents rebates and recoveries received for vendor contract compliance issues, member transfers in interest and contributions and miscellaneous income.

Deductions from Total Plan AssetsDeductions from Total Plan Assets for 2015 include expenses related to pension benefi ts, health care benefi ts for members with coverage, administrative costs, depreciation expense, member refunds and other expense.

Pensions and DROPConsistent with OP&F’s mission, this category represents the largest single expense for OP&F. Payments for pension benefi ts including; retirement, disability and survivor benefi ts account for 65 percent of all expenses this budget year. Plan benefi ts are established under Chapter 742 of the ORC. Th e budgeted amount is based on the actuarial projections and assumptions by staff on new retirements and members exiting the DROP program. Th e estimated $956.5 million in pension benefi t payouts for 2015 includes a 2.4 percent increase in the expectation for members exiting the DROP program, 0 percent increase for new retirees, survivors and benefi ciaries due to over

budgeting in 2014. Additionally, OP&F estimates that $220.9 million will be accrued in pension, cola and interest in the participant accounts of our DROP program, net of account withdrawals.

Health CareOP&F off ers an excellent health care coverage for eligible retired members, survivors and benefi ciaries. Th is category encompasses all costs to OP&F for prescriptions, medical coverage and Med B participant reimbursements. Th e cost of these benefi ts are expected to increase by 14.6 percent over last year, based on 2014 experience levels, DROP retirees, requirements under the new federal law and the most recent actuarial estimates of health care cost trends for OP&F.

AdministrationTh is category represents the portion of the Total Plan Assets Budget referred to as the Administrative Operating Budget and encompasses all of OP&F’s operating and administrative activities. Th is includes personnel services, work environment, investment management fees, professional services, personnel recruitment, training and travel, legal and building operating expenses. OP&F has an annual budget process to determine the levels at which spending will occur and what new goals will be accomplished each year. Please see the detailed Executive Director’s message and in the Administrative Operating Budget sections of this book. Th is section also contains detailed budget to actual comparisons for each category.

Depreciation Th is expense represents the annual depreciation OP&F assumes on previously capitalized goods and services. Assets are depreciated over their useful life using the straight-line method. Capital items are purchased through OP&F’s new Capital Outlay Budget. Items costing $5,000 or more or having an estimated useful life of one or more years or a part of a large project will be budgeted to the capital accounts and depreciated over the expected useful life. An increase of 0.1 percent refl ects the fact that OP&F has started to fully expense dollars as allocated in the budget as items are used to their full expected life. Capital project spending priorities for building and computer related items have caused shift s in the amounts expected to be depreciated.

OP&F • page 18


Refunds Th ere are a variety of member refunds, transfers and eligible rollovers of contributions that occur throughout the year from OP&F upon member separation of employment or legislative actions. A historical analysis is used to budget for these occurrences. Refunds are paid to former OP&F members upon request or as part of death payouts, when no survivors are eligible for benefi ts. OP&F anticipated refunds to remain fl at during the coming year. OP&F is also required to record an estimate each year in this category for non-active, non-vested employee members who are eligible to refund their contributions, but have elected not to do so at this time.

Other Expense Th is category represents refunds to employers for payroll reporting errors, miscellaneous pension expense and write-off s for uncollectible pension overpayments.

Budget Management and Other Planning ProcessesTh e monitoring all stages of the budget process. Th is role is currently assigned to the Controller of the Finance Department.

As a member of the Finance Department, this role was designed to add consistency and accountability to the process and to allow a central point of contact for all related budgeting issues. Preparing fi nancial reports, providing variance analysis, determining budget category methodology, monitoring additions/deductions and establishing and monitoring goals are the primary focuses of this role.

Additionally, the Controller works with the Executive Director and Financial Services Director to gather information from a variety of other planning processes that go on throughout the year to ensure their inclusion in the budget is determined. Th ree of the major planning processes are listed as follows:

Annual Board Retreat At this retreat, the Board of Trustees hears from the senior management the activities accomplished during the year and future activities that are planning to be undertaken in the departmental areas. In turn, the Executive Director works with the Trustees to determine the annual priorities.

Board of Trustee Committee Meetings OP&F has various committees that meet each month to handle detailed aspects of matters that require Board approval. Oft en times during these meetings, Board members and staff express desirable and required budget undertakings for the next budget cycle. Th e Executive Director gathers this information and ensures that the items are incorporated into the budget.

Strategic PlanningTh e strategic plan was designed to connect internal and external goals and approaches that will drive our strategies in the future. It was developed by an internal professional team with a wide variety of knowledge and experience. Th is team was charged with identifying the critical success factors required, and then target the approaches necessary to accomplish each goal. Any budgetary needs are reviewed each year and incorporated into the next budget process. Please visit op-f.org for full details under the OP&F reports section of the Information Center.

Seven critical success factors identifi ed by the team:

1. Establish and maintain a 30-year funding period for pension benefi ts;

2. Preserve a discretionary health care option for eligible members;

3. Enhance service and education levels to OP&F membership;

4. Enhance service and education levels to OP&F employers;

2015 Total Plan Assets Budget 2015 Percent of Percent change 2014 2013

Expense Category Budget Totals Budget from 2014 Budget Budget Total Budget Total

Pension Benefi ts $956,547,845 65.0% 2.4% $934,383,067 $850,960,676DROP Benefi ts & Interest 220,943,827 15.0% –8.4% 241,114,512 213,672,059 Health Care Benefi ts 215,346,106 14.6% –1.7% 219,162,921 191,346,415 Administrative Expenses** 65,427,264 4.4% 4.7% 62,474,058 62,592,043 Depreciation Expense 1,800,000 0.1% 12.5% 1,600,000 1,900,000 Refunds 12,127,000 0.8% –35.0% 18,652,680 25,555,678 Other Expenses 100,000 0.0% 100.0% 50,000 10,000 Total Plan Deductions $1,472,292,042 100.0% –0.3% $1,477,437,238 $1,346,036,871

OP&F • page 19


5. Improve organizational eff ectiveness and effi ciencies;

6. Advocate and manage external change to assist OP&F in achieving its long-term objectives; and

7. Accelerate employer payments and improve employer reporting compliance.

Goals and Approaches

Th e Th e following section will detail the goals and approaches associated with each critical success factor.

1. Establish and maintain a 30-year funding period for pension benefi tsA primary objective for OP&F is to establish and maintain a maximum 30-year amortization period for unfunded actuarial accrued pension liability. Goals:

• Achieving a steadily increasing funding ratio and identify and understand temporary and permanent changes in the funding ratio at the time of each actuarial valuation;

• Targeting the highest investment return feasible within acceptable risk tolerances and given a low return environment;

• Ensuring that actuarial valuation assumptions are reliable and accurate; assumptions should add stability to the valuation process;

• Evaluating pension plan provisions;• Evaluating Deferred Retirement Option Plan

(DROP) provisions.Strategic approaches:

• Work for legislation to meet the 30 year amortization requirement (increase in member contributions, increase the minimum retirement age, reduce Cost of Living Adjustment (COLA) availability, increase the years used for fi nal average salary, change DROP interest, contributions and minimum requirements, and balance discretionary health care solvency and contributions with pension contributions);

• Work with OP&F’s actuarial consultant to study payroll growth rate, valuation interest rate and mortality rate assumptions to ensure they refl ect current economic environment and adopt changes as necessary;

• Analyze changes in funding ratio and determine temporary and permanent impacts each year;

• Conduct a cost neutrality study of the DROP program;

• Implement changes as recommended by the asset and

liability study and the investment structure review;• Amend the benefi t funding policy;• Review the interest rate paid to accounts in DROP;• Incorporate recommendations from Contribution

Rate Adequacy study;• Examine Cost of Living Adjusment (COLA) formula;• Examine the re-employed retiree benefi t calculation

against other plan provision off erings;• Review joint and survivor annuity options available

and recommend for changes;• Implement portable alpha strategies within the

investment portfolio;• Explore new value-added investment strategies.

2. Preserve a discretionary health care option for eligible membersGoals:

• Redesign the sponsored health care plan to streamline benefi t off erings and reduce internal administration;

• Maintain a minimum projected 15-year solvency period for the health care stabilization fund without jeopardizing the pension funding status;

Strategic approaches:• Evaluate and model scenarios for health care plan

provision changes;• Eliminate the use of HMO providers;• Review subsidy levels each year and adjust

accordingly;• Examine eligibility requirements for participation;• Establish a retiree medical trust program, and propose

appropriate legislation;• Propose legislation to cap the Medicare B

reimbursements;• Examine using contributing versus paid-time for time

eligibility requirements;• Amend the Board of Trustee’s Health Care Funding

Policy.

3. Enhance Service and Education Levels to our MembershipGoals:

• Enhance service and communication levels to OP&F membership;

• Enhance benefi t formulas where feasible and aff ordable;• Enhance education opportunities available for

OP&F members;• Improve OP&F’s understanding of occupational

diseases and management of related illnesses;• Refi ne training programs and resources for OP&F staff .

OP&F • page 20


Strategic approaches:• Establish metrics on responding to member inquiries; • Use technology to increase the levels of service

and communication to both our active and retired membership;

• Conduct a customer satisfaction survey. Analyze results and work to strengthen areas indicated as weak or missing;

• Study pension benefi t formulas and analyze opportunities for improved plan provisions;

• Employ the member education group to educate the membership;

• Create informational videos to assist in areas of education;

• Explore alternative methods of education such as mid-career seminars;

• Analyze member inquiries on a quarterly basis to determine if any issues exist or improvements in communication or education levels are warranted;

• Conduct a cancer research project and implement recommended education, communication, and other corrective actions as deemed appropriate;

• Provide consistent training sessions and follow-up training as needed;

• Complete a member forms and correspondence review.

4. Enhance Service & Education Levels to our EmployersGoals:

• Enhance service levels to OP&F employers;• Enhance education opportunities available for OP&F

employers.Strategic approaches:

• Establish an education certifi cation program;• Employ the employer education group to educate our

employers on compliance and reducing penalties;• Update the employer education manual and

distribute to employers;• Establish metrics on responding to employer inquiries;• Analyze employer inquiries on a quarterly basis to

determine any improvement in communication or education levels;

• Conduct an employer satisfaction survey. Analyze results and work to strengthen areas indicated as weak or missing;

• Use technology to increase the amount of data exchanged with employers;

• Complete an employer forms and correspondence review.

5. Improve Organizational Eff ectiveness and Effi ciencies

Goals:• Control the cost of the administrative operating

expenses;• Integrate the annual budget process with the long-

term objectives;• Reengineer processes to achieve effi ciencies;• Maintain qualifi ed staff .

Strategic approaches:• Continue to monitor method used to ensure control

of administrative operating expenses;• Implement audit recommendations;• Review organizational structure annually for

necessary realignment;• Maintain industry-leading technology for staff ;• Continue to perform bottom-up budget analysis

when creating the fund budgets;• Continue to perform work group process studies to

identify operating improvements;• Perform annual critical job audits on positions

identifi ed annually by department directors;• Analysis of career ladders and grade changes;• Review organizational processes to evaluate areas for

effi ciencies and enhance communication within OP&F;• Continue to evaluate employee benefi ts to assist in

maintaining qualifi ed staff while meeting fund objectives.

6. Advocate and Manage External Change to assist OP&F in achieving its Long-Term ObjectivesGoals:

• Remain active in Social Security reform debate and potential impacts;

• Implement new legislation to ensure compliance;• Monitor employer budgets for changes;• Understand workers compensation off set;• Protect assets against infl ationary changes;• Understand OP&F membership.

Strategic approaches:• Propose legislation to change ORC 742.16 to add

a projection period to the 30-year amortization requirement that will minimize plan provision changes due to market volatility;

• Keep current on all pending and new legislation to ensure compliance can occur when enacted;

• Attend local, regional and state group meetings related to member topics;

• Implement global infl ation protected securities mandate;

• Explore real asset investments;

OP&F • page 21


• Seek employer and/or monitor employer fi nancial status.

7. Accelerate Employer Payments and Improve Employer Reporting ComplianceGoals:

• Accelerate payments due from employers;• Ensure member and employer contribution reporting

and payments are on time and accurate according to OP&F reporting requirements.

Strategic approaches:• Propose legislation to make employer share

contributions due monthly along with the member share contributions;

• Escalate problem employers;• Certify employers with past due balances through an

effi cient and consistent process with the county of residence;

• Increase participation in the Automated Clearing House program for employer payments;

• Increase participation in the electronic reporting of member contribution payroll reports;

• Provide employers with a Web-based contribution reporting and payment system;

• Require employers to report using the standard OP&F approved reporting forms;

• Improve the internal process for posting payrolls to the reporting system;

• Study the need for employer billing;• Establish and implement an Employer Advisory

Group (EAG) with active employers;• Establish a ruling and appeals committee for past due

contribution reporting and payment penalties.

Budget StructureOP&F has three distinct budgets

1. Total Plan Assets Budget;

2. Administrative Operating Budget; and

3. Capital Outlay Budget.

Th e Executive Director, Financial Services Director and Controller are responsible for preparing the all budgets. Th e basis of budgeting each of the budget expense line items and plan assets categories is the combination of the analysis set forth in the asset allocation, fi nancial forecast study, historical experience, operating needs and goals established internally and externally. OP&F uses external specialized consultants and actuaries to prepare studies that analyze trends, growth rates and legislation consistent with OP&F operations in order to predict plan additions and deductions.

Th e annual Administrative Operating Budget is one piece of the Total Plan Assets Budget, which is the responsibility of each individual Department Director. Each Department Director is responsible for preparing their departmental budget based on the goals set forth for the coming fi scal year and must be done following a prescribed format. Th e individual department budgets are then combined to create the Administrative Operating Budget. Th is should include baseline or continuation budget items and initiatives. Th e Capital Outlay Budget is prepared with the combined eff orts of the information systems and project management staff that survey and assess capital needs and priorities.

Baseline or Continuation ItemsOP&F starts the Administrative Operating Budget with a budget based on continuation of current levels of staffi ng and services. Th is continuation budget contains no consultant contracts excluding those with on-going retainer relationship (auditing, actuarial, legislative relations, legal and investments). It does contain the fi rst seven months actual expenses incurred by OP&F by department and category and in addition to the remaining fi ve months of the prior year budgeted expenses. An adjustment is then made for non-recurring items or one-time expenses from last year’s budget.

InitiativesInitiatives represent resources other than those currently utilized in the continuation budget that will be required to

OP&F • page 22


either address the current workload placed upon OP&F, begin to put into place the groundwork for easing future workloads or for improving future service or statutory deliverables.

Each Department Director is required to assess departmental needs, which are linked to OP&F’s short-term and long-term goals. Th is planning stage is converted into initiatives during the budget process, allocating time, money and resources to achieve the overall goal.

Initiatives must be fully justifi ed when presented to the Executive Director and must align with the overall direction of OP&F. Initiatives are then presented to their respective committee for approval before inclusion in the overall annual budget.

Capital Outlay Capital expenditures for OP&F are included in the separate Capital Outlay Budget and include purchases of computer hardware and soft ware, projects, furniture, equipment, building improvements and other related items. Items costing $5,000 or greater or have an estimated useful life in excess of one year will be budgeted to the capital accounts and depreciated on a straight-line basis. Major capital projects are also capitalized and typically involve soft ware and hardware initiatives.

Th e purchase of a capital item is recorded directly to the asset account and then to the fi xed asset system so that tracking and depreciation can begin. Th is will allow OP&F to periodically expense the cost of these items over their useful life as part of the depreciation expense line item. Th e straight-line method is used for all assets. Asset useful lives range from 3 to 10 years for offi ce furniture, computers and equipment. Th e Fund uses 40 years for building and improvements. Th ese assets are also tracked in detail in the Fixed Asset Accounting System for inventory and depreciation purposes. For more details on the capital planning please see the Capital Outlay Budget section of this book.

Budget Production, Preparation and AdoptionIn late July, individual and group meetings will occur between the Executive Director, Board Trustees, Department Directors, Controller and Budget Assistants to communicate linkages in the budget across departments and establish broad goals for measuring the results. During these meetings the Executive Director will establish budget directives for all departments. Th ese directives summarize the initial goals of the operating budget so that the individual departments have a uniform starting point.

Th e fi rst budget request will include three parts

1. current operating needs

2. proposed initiatives that address our highest priority goals and objectives and

3. an examination of the current baseline needs.

In early August, the Controller will communicate to the Department Directors their baseline budget for the year, the prescribed format and the deadline for submitting their portion of the budget. Th e Financial Services Director and Human Resource Manager will also make salary budget guideline recommendations to the Administration Committee. Th is includes estimated number of new hires and a salary increase assumption.

In September, department directors formulate individual department budgets for submission to the various Board Committees. Prior to the committee presentations, each Department Director will present their proposed budget to the Executive Director and Financial Services Director. Th e Controller and Financial Services Director present the Total Plan Assets Budget to the Executive Director.

During these meetings, each department presents their requests to the Executive Management team and gives any additional information necessary to justify increases or planned initiatives. A thorough review is done on each baseline adjustment made by the departments versus the baseline prepared by the Finance Department.

Once all departmental meetings are complete, each directive is reviewed to determine if they were accomplished, next decisions are made by the Executive Director as to which items will be included in the proposed budget. Th is information is then formally communicated to the individual departments.

OP&F • page 23


Th en in October, all departmental budgets will be presented to the various committees for their input and approval. Committee members are given a chance to hear the proposed budget and make recommendations for change or to approve or disapprove the budget. Once approved, the budget moves to the Finance Committee. If the committee disapproves a particular department budget item, then a special meeting will be held in an eff ort to achieve a consensus between the Committee and the Executive Director.

In November, once the individual department budgets are combined, the Finance Committee members then review the entire Total Plan Assets Budget, which includes the Administrative Operating Budget approved by the various committees. Th e Finance Committee then recommends that the package be presented to the entire Board of Trustees for approval. Th e Finance Committee is comprised of three Trustee members, the Executive Director and the Financial Services Director.

In December, the fi nal total combined budget is presented to the Board of Trustees for approval. Once the budget is approved, it is then communicated to all stakeholders and monitored through normal operations.

Budget DistributionTh e approved budget will be submitted to all Department Directors, Budget Assistants, the Ohio Retirement Study Council and other interested parties as requested, similar to that of the Comprehensive Annual Financial Report.

Budget AmmendmentsTh e approved budget can be amended in two ways, transfers and changes

Budget Transfers Budget transfers are usually related to the Administrative Operating Budget and are due to necessary changes in allocation of expense account line items, departmental transfers, change in concept or period changes due to project or initiatives timing. Budget transfers do not result in a dollar increase or decrease from the approved budget, rather they are movements between budget categories already approved. Transfers between diff erent account line items need the Executive Directors signature. Budget transfers between OP&F’s three separate budgets do not occur. All transfers require the signature of the Department Directors, Financial Services Director and Budget Manager.

Budget Changes Budget changes are also related to the Administrative Operating Budget. When the budget is approved, fi nal details of a major project may not be available for submission. Because of this, a project would then be submitted through the normal approval channels at a later time. Changes usually result in a dollar increase in the approved budget. Th ese material changes are taken back to the Finance Committee for approval.

Budget OversightTh e Controller and Departmental Budget Assistants will analyze budget-to-actual administrative operating expenses and total plan assets on an as needed basis.

Departmental Budget Assistants will fi rst analyze variances in the administrative budget on a year-to-date plan level and determine all categories that are less than 80 percent or greater than 120 percent of the budget and diff er by more than $1,000 for materiality purposes. Th en each operating initiative will be analyzed. Initiatives must be monitored regularly to ensure completion of planned items.

Once these determinations are made, the Departmental Budget Assistants will be responsible for determining the reasons for the variances for their respective areas and work with their respective area to determine the reasons and need for additional money for the remainder of the year. If there are areas under budget in a particular area, then a determination is made as to what is not getting accomplished to ensure goals are being accomplished.

OP&F has a procurement system, which serves as an additional control to isolate budget variances prior to the department approving the expenditure. Th is procurement system has a zero tolerance between the individual department request and the approval of expenditures. When the department requests an item to be purchased or a service to be rendered, they must enter a requisition into the procurement system based on the budget category line item and the department’s designated individual must authorize the requisition against the budget loaded at the beginning of the year. If there is insuffi cient money in the budget category, the department must request a budget transfer prior to authorizing the expense. Th is process has improved the monitoring of budget to actual expenses rather than waiting until formal reporting channels highlight the budget variance issues.

Th e Controller will also analyze the entire Total Plan Assets Budget and Capital Outlay Budget on a monthly

OP&F • page 24


Overview of the OP&F Budget Process

OP&F initiates a new budget

Specialorganizationalinitiatives are

developed during theannual Trustee

Retreat April

ABudget Kickoff

Meeting betweenthe ED, Directors andkey personnel assistants

from eachdepartment is

held AugustDirectives, spendingtargets and areas of

emphasis arecommunicated by the

ED to all parties

Budgets aredeveloped by each

Director in accordancewith targets and

directives August

September

Budget submitted toORSC

October

Full revised budgetis presented to theTrustee Finance

Committee(public meeting)

Changesare

recommended

Full budget approvedby the OP&F Board of

Trustees(public meeting)

September

November

December

January

Changesare

recommended

Each reviseddepartmental budgetis presented to theappropriate Trustee

committee(public meeting)

Changesare

recommendedOctober New baseline budget

recalculated by BudgetManager

July

Departmental budgets arepresented to the ED, Financial

Services Director and the Budget Manager to

clarify spending levels

basis, above and beyond the variance levels, to ensure line items are properly recorded and reported. Any notable areas or instances will be reported to the Financial Services Director for guidance and resolution. In addition, the Controller schedules meetings, locations and gathers pertinent data for each budget presentation.

Th e results of the budget-to-actual Total Plan Assets Budget and Capital Outlay Budget will be presented to the Finance Committee quarterly.

Overview of Budgeting Process

OP&F • page 25


Members’ Employers’ Annuitant and Guarantee Expense Death Benefi t Totals Contribution Funds Contribution Funds Pension Reserve Funds Fund Fund Fund 2013 2012

FUND BALANCE AT

BEGINNING OF YEAR: $2,122,771,219 $873,817,228 $8,541,851,000 $— $— $— $11,538,439,448 $10,468,499,773

Changes for the year:

Contributions:

Employers — 418,182,644 — — — — 418,182,644 417,038,685 Members 187,643,584 — — — — — 187,643,584 177,533,755 Medical benefi ts — — — 66,564,696 — — 66,564,696 65,066,253 State of Ohio subsidies — — — 530,573 — — 530,573 580,657 Death benefi t fund — — — — — 20,000,000 20,000,000 20,000,000 Investment income — — — 2,098,117,953 — — 2,098,117,953 1,697,091,715 Interest on local funds’ receivable — 1,119,204 — — — — 1,119,204 1,276,330 Other income — — — 26,852,264 — -— 26,852,264 28,826,060

Benefi ts: Retirement — — (563,237,669) — — — (563,237,669) (529,864,440) Disability — — (238,912,606) — — — (238,912,606) (232,832,996) Health care — — (191,335,860) — — — (191,335,860) (187,445,986) Survivor — — (76,815,281) — — — (76,815,281) (74,173,583) Death benefi t fund — — — — — (20,000,000) (20,000,000) (20,000,000) DROP — — (216,083,555) — — — (216,083,555) (212,092,447) Administrative expenses — — — — (61,007,622) — (61,007,622) (54,604,913) Refunds (15,938,587) 570 — — — — (15,938,017) (26,447,804) Other expenses — — — (72,743) — — (72,743) (11,611) Transfers (94,514,719) 562,878,870 1,662,620,971 (2,191,992,743) 61,007,622 — — — Net Changes 77,190,278 982,181,288 376,236,000 — — — 1,435,607,565 1,069,939,675 FUND BALANCE AT

END OF YEAR: $2,199,961,497 $1,855,998,516 $8,918,087,000 $— $— $— $12,974,047,013 $11,538,439,448

Reserve and Fund Balances

Projected Fund Balances:

... as of 12/31/2014 $2,302,553,964 $1,937,908,979 $9,127,915,948 $— $— $— $13,368,378,891 2014 Forecast

... as of 12/31/2015 $2,422,593,144 $2,022,889,019 $9,401,201,208 $— $— $— $13,846,683,371 2015 Budget

See Reserve and Fund Balances section for a narrative explanation.

OP&F • page 26


Ohio Police & Fire Pension FundFunding Structure

Police offi cers’ and fi refi ghters’ reserve funds

Member’s

Contribution

Fund

FU

ND

S Employer’s

Contribution

Fund

Guarantee

Fund

Expense

Fund

Pension

Reserve Fund Death

Benefi t

Agency Fund

MemberContributions

Member Refunds/Transfers

Member Share

Transfer out to Pension Reserve Fund

Re

ve

nu

es

an

d E

xp

en

ses

Fu

nd

ing

Ba

lan

ce T

ran

sfe

rs

EmployerContributions

Member Refunds/Transfers

Employer Share


InterestAccruedLiability

Investment Gains and

Other Income

Invesment losses

and other expenses


StateSubsidies

Transfer out to

Expense Fund

Transfer in from Pension Reserve Fund

AdministrativeOperatingExpenses

Transfer in from Guarantee

Fund

RetirementBenefi ts

$1,000 Lump Sum

Death Benefi t

Transfer out to Guarantee

Fund

SurvivorBenefi ts

Transfer in from Guarantee

Fund

Transfer in from Members’Contribution

Fund

Transfer in from Employers’Contribution

Fund

Health Care

Stabilization

Fund

Health care premiums

Health care Benefi ts and

Medicare Part B Reimbursements

Other Income

Administrative Operating Expense

Allocation

Investment Gain or Loss Allocation

Employer Contribution

Allocation

StateSubsidies

DeathBenefi ts

Funding Structure

OP&F • page 27

Annual Budget for Fiscal Year 2015 • TOTAL PLAN ASSETS BUDGET

Total Plan Assets BudgetAnnual Budget for Fiscal year 2015


OP&F • page 28

TOTAL PLAN ASSETS BUDGET • Annual Budget for Fiscal Year 2015

Projected Changes in Total Plan Assets Budget

2015 2014 2015 Budget vs. 2014 Forecast 2014 2015 Budget vs. 2014 Budget

Budget Fund or Category Budget Forecast $ Change % Change Budget $ Change % Change

Annual Projected Additions:

Employer Contributions $434,980,040 $431,910,463 $3,069,577 0.7% $430,420,388 $4,559,652 1.1% Member Contributions 220,039,180 202,592,467 17,446,713 8.6% 204,338,584 15,700,596 7.7% State of Ohio - Subsidies 470,000 500,152 (30,152) –6.0% 580,657 (110,657) –19.1% Health Care Contributions 74,537,302 70,714,221 3,823,081 5.4% 69,492,323 5,044,979 7.3% Investment Income* 1,199,550,000 1,082,959,660 116,590,340 10.8% 1,136,400,000 63,150,000 5.6% Interest on Employers’ Liability 1,020,000 1,087,459 (67,459) –6.2% 1,092,000 (72,000) –6.6% Other Income 20,000,000 19,592,921 407,079 2.1% 20,691,100 (691,100) –3.3% TOTAL ADDITIONS $1,950,596,522 $1,809,357,342 $141,239,180 7.8% $1,863,015,052 $87,581,470 4.7%

Annual Projected Deductions:

Pension Benefi ts (Service & Disability) $956,547,845 $913,805,558 $42,742,287 4.7% $934,383,067 $22,164,778 2.4% DROP Benefi ts & Interest 220,943,827 222,635,093 (1,691,266) –0.8% 241,114,512 (20,170,685) –8.4% Health Care Benefi ts 215,346,106 201,826,713 13,519,393 6.7% 219,162,921 (3,816,815) –1.7% Administrative Expenses 65,427,264 62,997,580 2,429,684 3.9% 62,474,058 2,953,206 4.7% Depreciation Expense 1,800,000 1,743,318 56,682 3.3% 1,600,000 200,000 12.5% Refunds 12,127,000 12,007,043 119,958 1.0% 18,652,680 (6,525,680) –35.0% Other Expenses 100,000 10,159 89,841 884.4% 50,000 50,000 100.0% TOTAL DEDUCTIONS $1,472,292,042 $1,415,025,464 $57,266,578 4.0% $1,477,437,238 $(5,145,196) –0.3%

Net Plan Asset Increase $478,304,480 $394,331,878 $83,972,601 21.3% $385,577,814 $92,726,666 24.0% Pensions 12,341,322,258 11,920,512,944 420,809,314 3.5% 10,550,464,349 1,790,857,910 17.0% Healthcare 1,027,056,633 1,053,534,069 (26,477,436) –2.5% 1,022,035,990 5,020,643 0.5%Balances Beginning of Year: $13,368,378,891 $12,974,047,013 $394,331,878 3.0% $11,572,500,338 $1,795,878,553 15.5%

Pensions 12,850,467,919 12,341,322,258 509,145,661 4.1% 10,928,010,296 1,922,457,623 17.6% Healthcare 996,215,452 1,027,056,633 (30,841,181) –3.0% 1,030,067,857 (33,852,405) –3.3%Balances End of Year: $13,846,683,371 $13,368,378,891 $478,304,480 3.6% $11,958,078,153 $1,888,605,219 15.8%

*In 2014 and 2015, investment income is assumed to be 8.25 percent of expected Beginning of Year Assets.

Total Plan Assets Budget Review Th e Total Plan Assets Budget Review is an outline of the recommended total plan assets budget for 2015. Th is analysis will highlight the formulation of the budget and the variances between the 2015 budget compared to the 2014 actual forecast and the 2014 approved budget. OP&F budgets for all plan additions and deductions using a variety of assumptions including; active and retired membership rolls, observed trends in previous years, known upcoming future impacts on experiences (economic and legislative), an investment rate of return in line with the actuarial rate of 8.25 percent, and other known activities. Th e purpose of this budget is to have a functional fi nancial plan for the primary purpose of analyzing fi nancial statements throughout the year. Having this fi nancial plan allows OP&F to monitor benefi t payment and contribution receipt levels and it will help highlight when items fall outside the assumption levels.

OP&F is anticipating a beginning net asset balance of $13.4 billion which equates to a $14.5 billion market value of assets as of Dec. 31, 2014. For the 2015 year, OP&F is

budgeting for a net assets increase approximately $478.3 million. Th e budgeted end of year net plan asset balance of $13.8 billion equates to a $15.7 billion market value of assets as of Dec. 31, 2015. Th ese fi gures are based estimating a 7.65 percent return on investments in 2014 and assuming an 8.25 growth rate of the beginning of the year market value in 2015. Actual results will vary with the actual direction of the fi nancial markets during the remainder of 2014 and during 2015. Th is is unlike the other categories in this budget which some are more precise and predictable and vary with contribution and benefi t experiences beyond what is expected and not based on a specifi c target.

Contributions for employers and members are based primarily on the total annual payroll for all of OP&F’s estimated 918 multiple employers. OP&F is projecting $2.013 billion in annual payroll compared to $1.992 billion or a 1.1 percent increase from the 2014 budget. Th is is calculated by taking the estimated 28,452 membership times the $70,746 average annual member salary which equates to the $2.013 billion in projected payroll. Increases in the membership rolls and the salaries paid to existing members are the major components of the base for contributions.

OP&F • page 29


Active membership is expected to increase to 28,452 from 28,170 or 1.0 percent and the average annual salary is expected to increase by 2.4 percent for the 2015 budget year, 1.0 percent of this is based on the 2014 forecast. Th is budget will subsequently refl ect a 1.1 percent increase in employer contributions budget and a 7.7 percent increase

in member contributions. Another factor contributing to this increase is that member contributions as a percentage of total annual payrolls are set to increase to 12.25 percent from the current 11.50 percent in July of 2015; this is a 6.53 percent increase in the rate.

Plan Additions

Employer Contributions: Employers share of contributions – 19.5 percent for police / 24 percent for fi re)OP&F is budgeting for employer contributions to increase in 2015 by 0.7 percent or to $435.0 million over the 2014 actual forecast of $431.9 million. Th e 2015 budget equates to a 1.1 percent increase over the 2014 budget is attributed to a 1.1 percent increase in actual active members than budgeted in 2014.

Historically, employer contributions have fl uctuated from a high of 9.1 percent growth rate in 2000 to a decrease of 1.6 percent in 2011. Th e expected fi ve year average change rate decreased from 1.7 percent to 0.6 percent last year.

Member Contributions: Members share of contributions – 11.50 percent Jan., 2015 – June, 2015 and 12.25 percent July, 2015 – Dec. 2015, for both police and fi reAn increase of 8.6 percent to $220.0 million in 2015 over a 2014 actual forecast of $203.0 million is being budgeted. Th is primarily relates to member contributions as a percentage of total annual payroll are set to increase to 12.25 percent from the current 11.50 percent in July of 2015, this is a 6.5 percent increase the rate. Also anticipated is that membership counts overall will increase to 28,452 members; payroll growth will be higher due to current experiences and an average salary growth of 3.0 percent for members. Th e 2015 budget for this category is 7.7 percent higher than the 2014 budget.

Th e DROP program allows the member to keep their contributions in a separate account, thus decreasing the total member contributions. DROP enrollment is expected to increase in 2015 to 3,608 members from the 2014 forecast of 3,572 members this is 10 percent lower than the 2014 budget of 4,007 members. Th is large decrease is related to overstating the 2014 budget enrollment counts. Th e enrollment has been rebased from the 1/1/2014 actuarial valuation which included members, who purchased time prior to the law changes in July, 2013.

Th e contributions category also includes $2.9 million in estimated member purchases of prior service credit and transferring in from other Ohio retirement systems. Th is is reduced due to the fact that many members escalated purchasing time in 2013 due to the law changes.

Member contributions have fl uctuated from an increased high of 11 percent growth rate in 2002 to a negative low of 2.4 percent in 2010. Th e fi ve year average growth rate is 1.7 percent which is up from 1.5 percent last year. Th is positive increase will continue as member rates increase.

State of Ohio – Subsidies: State contributions to fund certain legislated increases in benefi tsFor 2015 we have budgeted $470,000 for state subsidies. Th is is based on a declining membership population for which OP&F receives subsidized contributions from the State of Ohio.

Health Care Contributions: Benefi t recipients’ contributions/premiums to the cost of their health careBenefi t recipients are expected to pay $74.5 million towards the cost of their health care in 2015. Th is refl ects a 5.4 percent increase from 2014 actual forecasted data. Th is increase takes into consideration the addition of new benefi t recipients as well as members terminating from DROP. Calculations were based on Buck Consultant’s health care solvency review and data analyzed by internal staff .

OP&F • page 30


Contribution Income (in thousands)

Contribution type 2015 Budget 2014 Forecast* 2013 Actual 2012 Actual 2011 Actual

Employer Contributions $434,980 0.7% $431,910 3.6% $418,183 2.3% $417,039 2.3% $407,473 –1.6%Member Contributions 220,039 8.6% 202,593 14.1% 187,643 0.4% 177,534 0.4% 176,813 0.8%State of Ohio - Subsidies 470 –6.0% 500 –13.9% 531 –9.1% 581 -9.1% 639 –7.8%Health Care Premiums 74,537 5.4% 70,714 8.7% 66,565 4.1% 65,066 4.1% 62,528 6.1%Total Contributions $730,026 3.4% $705,717 6.9% $672,922 3.9% $660,220 2.0% $647,453 –0.3%

*2014 Actual forecast is based upon the most recent actuarial valuation, actual data thru Sept. 30, 2014 and scheduled revenue receipts

Investment IncomeRepresents realized and unrealized gains and losses on the sale of investments, unrealized appreciation and depreciation on investments held, interest, dividends and allocated income, as well as other investment income which includes securities lending.

As of Oct. 2014, OP&F had estimated a 7.65 percent rate of return on investments for the 2014 budget. Th e investment rate of return is now estimated at 6.74 percent. For purposes of this budget, beginning of the year market value of investments is estimated to grow based on the actuarial rate of 8.25 percent. Th is equates to a budget of approximately $1.2 billion in 2015 for the investment income category. Th is assumption is based upon an estimated beginning plan net asset balance of $13.4 billion and an estimated beginning plan market value of $14.5 billion on Jan. 1, 2015.

Due to volatility in the fi nancial markets and changes in the allocation of the Fund’s assets, these numbers can fl uctuate dramatically from one year to the next. Please see the analysis below for additional information related to investment income trends.

Th e past fi ve years has shown actual rates of return between our low of 2.57 percent in 2011 to a high of positive 20.73 percent in 2009. Th e 20 year annualized return equates to 8.89 percent based on the actual experiences and an estimate for 2014. OP&F will continue to target the 8.25 percent actuarial rate for purposes of budgeting until such a time as that rate is changed by the Board of Trustees. Th is allows staff to report and monitor results that vary from that target. In 2014, revisions were made to the 2010-2013 returns due to an error in reporting cash fl ows of our new portable alpha program. Th ese returns were revised and restated accordingly.

Investment Portfolio Rates of Return, 2009-2014 (2014 is an estimated return)

Year Rate of Return Year Rate of Return Year Rate of Return

2014 ....................................6.74% 2012 ....................................15.41% 2010 ...................................... 15.85%2013 ................................. 16.94% 2011 ...................................... 2.57% 2009 ...................................... 20.73%

Gain (Loss) on InvestmentsTh is refl ects the realized gains and losses and unrealized appreciation and depreciation on our investments. Realized gains and losses are specifi cally tied to general market forces and investment performance. In addition, they are related to manager transitions and other specifi c buy and sell transactions. Th e unrealized portion of our investment income is also tied to general market forces and investment performance. However, this category is the gain or loss on securities that OP&F is currently holding in our investment portfolio. OP&F is budgeting for $871.6 million net gain on investments in 2015. OP&F takes a steady approach in predicting asset growth at the actuarial percentage rate of 8.25 percent. Th is is done in an eff ort to manage our overall fi scal plan compared to the actuarial rate of return and not attempt to predict future market returns.

Interest and Dividend Income Th is category typically runs consistent with historical trends and is tied to the mix of investments between equities and fi xed income products. Accordingly we have budgeted fi gures for 2015 to be consistent with trends observed as well as future trends in asset allocation. Master limited partnership income is included in this category.

OP&F • page 31


Allocated Income Th is line item contains income from our commingled real estate, venture capital, and commercial mortgage investment holdings. We are planning for allocated income to decrease slightly in 2015 compared with the 2014 actual forecast.

Other Investment Income Th is category includes securities lending income, interest on commercial paper and international cash equivalents as well as miscellaneous income from security litigation settlements and other miscellaneous investment transactions.

Investment Income (in thousands) 2015 Budget 2014 Forecast* 2013 Actual 2012 Actual 2011 Actual

(at 8.25%) (at 7.65%) (at 16.94%) (at 15.41%) (at 2.57%)

Gain (Loss) on Investments $871,560 $782,537 $1,790,125 $1,412,953 ($3,159)Fixed Income Interest 144,450 126,717 145,916 147,437 146,202 Dividend Income 141,740 132,078 94,061 100,766 92,533 Allocated Income 36,000 36,392 66,180 30,910 28,481 Other Interest Income 5,800 5,236 1,836 5,026 2,263 Total Investment Income $1,199,550 $1,082,960 $2,098,118 $1,697,092 $266,320

*2014 Actual forecast is based upon actual data thru Sept. 30, 2014, projected through Dec. 31, 2014. Th e gain (loss) on investments line item will vary heavily on year-end fi nancial market results.

Interest on Employers’ LiabilityRepresents the long-term employer unfunded accrued liability to be paid off based on pre-determined amortization periods scheduled through the year 2035.

A budget of $1.1 million in 2015 is estimated for the interest on employer’s liability based on the current accrued liability amortization schedules. Th is line item will continue to decline over time as the scheduled interest payments for employer’s that have a long-term accrued liability continue to decrease with the principal amount due.

Other IncomeRepresents the interest and employer contributions for members transferring into OP&F, recoveries, rebates and Medicare Part D reimbursements for health care costs, fi nes for late fi ling of pre-employment physical documentation and other miscellaneous income

In 2015 we are budgeting approximately $21 million for other income related to the items listed above. Th is includes $3 million for member’s interest on transferring into OP&F, and $17 million for healthcare recoveries, rebates and Medicare Part D reimbursements.

Benefi ts 2015 Budget 2014 Forecast * 2013 Actual 2012 Actual 2011 Actual

IInterest on Employer’s Liability $1,020 –6.2% $1,087 –14.8% $1,119 –4.6% $1,276 –4.6% $1,338 –3.0%Other Income 20,000 2.1% 19,593 –32.0% 26,852 –25.3% 28,826 –25.3% 38,568 62.2%Other Income $21,020 1.6% $20,680 –31.3% $27,971 –29.9% $30,102 –24.6% $39,906 58.6%

(Shown in thousands) *2014 Actual forecast is based upon actual data thru Sept. 30, 2014 and the health care expectations based on the actuarial assessments.

OP&F • page 32


Plan Deductions

Pension Benefi ts (Service, Disability and Survivor benefi ts paid to members and survivors)Benefi ts for retirees and survivors are expected to increase to $956.5 million in 2015 over 2014 actual forecast of $913.8 million. Th is is a 4.7 percent increase from the 2014 actual forecast and a 2.4 percent increase over the 2014 budget. Th ere is a 3.0 percent cost-of-living adjustment for those eligible and due to the pension legislation changes many members will not receive increases until certain age and service requirements are met.

Pension benefi ts 2015 Budget 2014 Forecast* 2013 Actual 2012 Actual 2011 Actual

Service $631,478 6.5% $592,767 11.9% $563,238 8.1% $529,864 8.1% $490,183 10.3%Disability 244,354 1.0% 241,863 3.9% 238,913 3.5% 232,833 3.5% 225,044 3.3%Survivor 80,716 1.9% 79,196 6.8% 76,815 3.6% 74,174 3.6% 71,607 3.7%Total Benefi ts $956,548 4.7% $913,826 9.2% $878,966 11.7% $836,871 6.4% $786,834 7.6%

(Shown in thousands)*2014 Actual forecast is based upon the most recent actuarial valuation, actual data thru Sept. 30, 2013 and scheduled cost-of-living adjustments.

DROP Benefi ts and Interest (Benefi ts for participants in the Deferred Retirement Option Plan (DROP) including pension, COLA and interest)In 2015, we are anticipating expenditures for DROP liabilities incurred to the DROP accrual accounts to decrease slightly in 2015. Th is is due to budgeting a 2.75 percent interest rate in 2015 versus budgeting a 3.5 percent interest rate last year. DROP benefi ts for the year 2015 are expected to decrease by 0.8 percent to $221.0 million compared to the 2014 actual forecast. Members in this program have seen a major change to the interest rate and benefi ts accruing into their accounts since the 2013 changes went into eff ect.

DROP benefi ts 2015 Budget 2014 Forecast* 2013 Actual 2012 Actual 2011 Actual

DROP Benefi ts $220,944 –0.8% $222,635 5.0% $216,084 –10.4% $212,092 –12.0% $241,049 0.0%

(Shown in thousands)*2014 Actual forecast is based upon the most recent actuarial valuation, actual data thru Sept. 30, 2013, plan benefi t arrangements and scheduled cost-of-living adjustments.

Health Care Benefi ts (Health Care coverage provided to members, dependents and survivors)Health care benefi t payments are expected to be $197.1 million in 2015, up from an actual forecast of $184.3 million in 2014. Separately, Medicare Part B reimbursements are expected to be $18.3 million in 2015, up from an actual forecast of 17.5 in 2014, this is due to a budgeted 3.0 percent increase in eligible members, there is no increase in the premium for 2015.

(Please see the last chart of this write up for the entire health care stabilization fund budget.)

Health care benefi ts 2015 Budget 2014 Forecast* 2013 Actual 2012 Actual 2011 Actual

Health Care $197,081 6.9% $184,295 7.4% $174,277 6.0% $171,666 6.0% $161,907 10.9%|Medicare B 18,265 4.2% 17,532 11.1% 17,059 9.3% 15,780 9.3% 14,433 3.4%Total Health Care Benefi ts $215,346 6.7% $201,827 7.7% $191,336 8.5% $187,446 6.3% $ 176,340 10.3%

(Shown in thousands) *2014 Actual forecast is based upon actual data thru Sept. 30, 2014 and adjusted for known plan changes.

Administrative Expenses See separate narrative regarding the Administrative Operating Budget.

OP&F • page 33


Depreciation Expense (Non-cash line item to recognize previously capitalized expenses)Depreciation expenditures are budgeted at $1.8 million in 2015 for a increase of 3.3 percent over the 2014 actual forecast. Th is is based on prior year actual levels as well as future capital purchases through the capital budget.

Depreciation 2015 Budget 2014 Forecast* 2013 Actual 2012 Actual 2011 Actual

Depreciation expenses $1,800 3.3% $1,743 –3.1% $1,577 –16.0% $1,799 –4.2% $1,878 –0.2%

(Shown in thousands) *2014 Actual forecast is based upon actual data thru Sept. 30, 2014 divided by 9 and multiplied by 12.

Member Refunds (Refund of member contributions due to the members withdrawal fr om OP&F) Th is category is an estimate of the amount of refunds OP&F expects to pay out to members in 2015. In 2015, OP&F is budgeting $12.1 million in member refunds, which is a 1.0 percent increase over the 2014 actual forecast of approximately $12.0 million. Th e 5 year average increase is 1.9 percent

Other Expense (Miscellaneous expenses associated with plan administration)OP&F is estimating $100,000 for 2015 in other expenses based upon trends observed and the timing of doing routine write off s.

Other Expenditures 2015 Budget 2014 Forecast* 2013 Actual 2012 Actual 2011 Actual

Member Refunds $12,127 1.0% $12,007 –54.6% $15,938 20.3% $26,448 20.3% $21,991 39.3%Other Expense 100 900.0% 10 –99.9% 73 46718.5% 11,611 46718.5% 25 12.7%Other Expenditures $12,227 1.7% $12,017 –68.4% $16,011 –27.3% $38,059 72.9% $22,016 39.2%

(Shown in thousands) *2014 Actual forecast is based upon actual data thru Sept. 30, 2014 divided by 9 and multiplied by 12.

Health Care Stabilization Fund (HCSF) balances as of Dec. 31Th e below table is displayed for informational purposes only. As part of the budget process the health care stabilization fund is also budgeted. Components of this fund are budgeted based on experiences with enrollment, past cost histories, projected cost trends and other components are based on the employer contributions received and the investment earnings of the plan.

Benefi ts 2015 Budget 2014 Actual Forecast* 2013 Actual 2012 Actual 2011 Actual

Beginning Balance on January 1 $1,027,057 $1,053,534 $935,605 $780,142 $717,730

Retiree health care costs (197,081) (184,295) (174,276) (171,667) (161,907)Medicare Part B reimburesement (18,265) (17,532) (17,059) (15,780) (14,433)Retiree premium contribution 74,537 70,714 66,565 65,066 62,528 Rebates and recoveries 8,300 8,165 6,409 12,148 19,912 Medicare Part D subsidies 8,700 6,843 9,156 9,078 8,735 Employer contribution allocation 10,064 10,226 68,721 130,286 129,298 Investment return allocation 83,583 80,081 159,125 126,894 18,995 Administrative expense allocation (680) (680) (711) (563) (716)Projected Ending Balance as of Dec. 31 $996,216 $1,027,057 $1,053,534 $935,605 $780,142

(Shown in thousands)

*Th e employer contribution allocation rate for 2015 was reduced to 0.5 percent of total annual payroll which represents 2.3 percent of dollars employers pay for contributions. Police employers pay 19.5 percent and fi re employers pay 24 percent of total annual payroll, which is a blended rate of 21.60 percent (2.3 percent is allocated to health care) based on the last actuarial valuation. Th is rate was changed as part of the overall funding plan changes approved by the Board of Trustees in Feb. 2013.

For 2011-2013, the employer allocation rate was 6.75 percent of total annual payroll. Th e rate changed twice in 2013 once in January to 4.69 percent and then again in June to 2.85 percent. Th e 2014 rate is set at 0.5 percent.

OP&F • page 34


Statement of Changes in Total Net Plan Assets

2015 2014 2014 % 2013

Budget Fund Or Category Budget Forecast Budget Diff erence Actual

Annual Projected Additions

Employer contributions $434,980,040 $431,910,463 $430,420,388 0.3% $418,182,644 Member contributions 220,039,180 202,592,467 204,338,584 –0.9% 187,643,584 State of Ohio subsidies 470,000 500,152 580,657 –13.9% 530,573 Health care contributions 74,537,302 70,714,221 69,492,323 1.8% 66,564,696 Investment income 1,199,550,000 1,082,959,660 1,136,400,000 –4.7% 2,098,117,953 Interest on employers’ liabilities 1,020,000 1,087,459 1,092,000 –0.4% 1,119,204 Other income 20,000,000 19,592,921 20,691,100 –5.3% 26,852,264 Total Additions $1,950,596,522 $1,809,357,342 $1,863,015,052 –2.9% $2,799,010,918

Annual Projected Deductions

Pension Benefi ts $956,547,845 $913,805,558 $934,383,067 –2.2% $878,965,556 DROP Benefi ts and Interest 220,943,827 222,635,093 241,114,512 –7.7% 216,083,555 Health Care Benefi ts 215,346,106 201,826,713 219,162,921 –7.9% 191,335,860 Administrative expenses, excluding capital 65,427,264 62,997,580 62,474,058 0.8% 59,430,791 Depreciation Expense 1,800,000 1,743,318 1,600,000 9.0% 1,576,831 Refunds 12,127,000 12,007,043 18,652,680 –35.6% 15,938,017 Other expense 100,000 10,159 50,000 –79.7% 72,743 Total Deductions $1,472,292,042 $1,415,025,464 $1,477,437,238 –4.2% $1,363,403,353

Net Asset Increase $478,304,480 $394,331,878 $385,577,814 2.3% $1,435,607,565

Balances Beginning of Year*

Pension and other assets $12,341,322,258 $11,920,512,944 $10,550,464,349 13.0% $10,602,833,997 Health Care Stabilization Fund 1,027,056,633 1,053,534,069 1,022,035,990 3.1% 935,605,451 Total Plan Assets Balance $13,368,378,891 $12,974,047,013 $11,572,500,338 12.1% $11,538,439,448

Balances End of Year

Pension and other assets $12,850,467,919 $12,341,322,258 10,928,010,296 12.9% $11,920,512,944 Health Care Stabilization Fund 996,215,452 1,027,056,633 1,030,067,857 -0.3% 1,053,534,069 Total Plan Assets Balance $13,846,683,371 $13,368,378,891 $11,958,078,153 11.8% $12,974,047,013

*Opening balance has been adjusted to refl ect market results and actual experiences in each category at the time the budget is prepared.

2015

Budget

$434,980,040 220,039,180

470,000 74,537,302

1,199,550,000 1,020,000

20,000,000 $1,950,596,522

$956,547,845 220,943,827

215,346,106 65,427,264 1,800,000

12,127,000 100,000

$1,472,292,042

$478,304,480

$12,341,322,258 1,027,056,633

$13,368,378,891

$12,850,467,919 996,215,452

$13,846,683,371

OP&F • page 35


2013 % 2012 2012 % 2011 2011 %

Budget Diff erence Actual Budget Diff erence Actual Budget Diff erence

$422,315,322 –1.0% $417,038,685 $397,352,386 5.0% $407,472,828 $410,675,500 –0.8% 183,003,563 2.5% 177,533,755 162,542,369 9.2% 176,812,961 170,951,489 3.4%

580,657 –8.6% 580,657 694,900 –16.4% 639,099 694,900 –8.0% 68,562,063 –2.9% 65,066,253 65,136,580 –0.1% 62,528,377 60,862,324 2.7%

1,027,125,000 104.3% 1,697,091,715 990,000,000 71.4% 266,320,178 940,500,000 –71.7% 1,300,000 –13.9% 1,276,330 1,000,000 27.6% 1,337,967 1,351,986 –1.0%

20,691,100 29.8% 28,826,060 25,428,362 13.4% 38,568,179 18,919,909 103.8%$1,723,577,706 62.4% $2,387,413,455 $1,642,154,597 45.4% $953,679,589 $1,603,956,108 –40.5%

$850,960,676 3.3% $836,871,019 $820,928,012 1.9% $786,834,067 $803,231,600 –2.0% 213,672,059 1.1% 212,092,447 239,708,134 –11.5% 241,048,734 236,468,897 1.9% 191,346,415 0.0% 187,445,986 187,582,884 –0.1% 176,340,482 177,584,102 –0.7%

62,592,043 –5.1% 52,805,945 58,677,744 –10.0% 50,292,935 54,483,718 –7.7% 1,900,000 –17.0% 1,798,968 2,300,000 –21.8% 1,878,024 2,300,000 –18.3%

25,555,678 –37.6% 26,447,804 22,926,438 15.4% 21,990,673 19,440,491 13.1% 10,000 627.4% 11,611 40,000 –71.0% 24,846 150,000 –83.4%

$1,346,036,871 1.3% $1,317,473,780 $1,332,163,212 –1.1% $1,278,409,761 $1,293,658,808 –1.2%

$377,540,835 280.3% $1,069,939,675 $309,991,384 245.2% ($324,730,172) $310,297,301 –204.7%

$10,366,815,296 2.3% $9,688,358,143 $9,978,248,727 –2.9% $10,075,500,004 $9,642,370,293 4.5% 917,331,091 2.0% 780,141,630 799,396,605 –2.4% 717,729,941 664,873,204 7.9%

$11,284,146,387 2.3% $10,468,499,773 $10,777,645,331 –2.9% $10,793,229,945 $10,307,243,497 4.7%

10,678,221,816 11.6% $10,602,833,997 10,215,300,776 3.8% $9,688,358,143 $9,884,027,816 –2.0% 983,465,406 7.1% 935,605,451 872,335,940 7.3% 780,141,630 733,512,982 6.4%

$11,661,687,222 11.3% $11,538,439,448 $11,087,636,716 4.1% $10,468,499,773 $10,617,540,798 –1.4%

OP&F • page 36


2

1

3

4

5

6

1 Investments: 61.5%, $1,199,550

2 Employer: 22.3%, $434,980

3 Member: 11.3%, $220,039

4 Health Care Contributions: 3.8%, $74,537

5 Other Income: 1.0%, $20,000

6 Employers’ Interest: 0.1%, $1,020

7 State Subsidy: 0.0%, $470

7

2015 Total Plan Assets Budget Revenues by Category (in thousands)

2

1

3

45

6

7

1 Pension Benefits: 65.1%, $956,548

2

Health Care: 14.6%, $215,3463

DROP: 15.0%, $220,944

4 Administrative: 4.4%, $65,427

5 Refunds: 0.8%, $12,127

7 Other Expenses: 0.0%, $100

6 Capital Depreciation Expenses: 0.1%, $1,800

2015 Total Plan Assets Budget Expenses by Category (in thousands)

2007Actual

2005Actual

2015Budget

2014Forecast

2012Actual

2006Actual

2008Actual

2009Actual

$1,053 $1,061 $1,175 $1,175

$713 $755$816 $868 $850

$595 $608 $635 $655

$528 $539 $570 $578 $573

Pension benefits paid, including DROP accruals

Employer and Member payroll contributions received

2010Actual

$903

$590

2011Actual

$1,028

$584

$1,200

$1,000

$800

$600

$400

$200

$0

Amou

nt in

mill

ions

2013Actual

2005–2015 Employer and Member Contributions Received versus Pension Benefi ts Paid

OP&F • page 37

Annual Budget for Fiscal Year 2015 • CAPITAL OUTLAY BUDGET

Capital Outlay BudgetAnnual Budget for Fiscal year 2015


OP&F • page 38

CAPITAL OUTLAY BUDGET • Annual Budget for Fiscal Year 2015

2015-2017 Capital Outlay Budget by category

2015 - 2017 Budget

Revised Budget Projected Prior Year 1st Year 2nd Year 3rd Year Three–Year

2014 Actual 2014 Carry Over 2015 2016 2017 Total

Offi ce Building

Carpet replacement $338,000 $— $338,000 $12,000 $— $— $350,000 Sub-Total $417,000 $— $338,000 $12,000 $— $— $350,000

Furniture and Equipment

Offi ce Furniture Replacement (OFR) $30,000 $8,412 $21,588 $8,412 $30,000 $30,000 $90,000 Sub-Total $30,000 $8,412 $21,588 $8,412 $30,000 $30,000 $90,000

Computer Hardware

PC Replacements $25,000 — $25,000 $25,000 $200,000 $25,000 $275,000 Server/Network Replacements (Cisco) 166,000 139,098 26,902 198,098 225,000 75,000 525,000 Notebook Computers 11,400 — 11,400 15,000 — — 26,400 Network Printers 13,000 10,905 2,095 5,905 8,000 8,000 24,000 Scanners for Imaging 5,000 — 5,000 5,000 10,000 5,000 25,000 Next Generation Threat Prevention Appliance 48,000 33,951 — — — — — Sub-Total $268,400 $183,954 $70,397 $249,003 $443,000 $113,000 $875,400

Computer Software

V3 Change Orders $250,000 $17,760 $232,240 $17,760 $250,000 $250,000 $750,000 V3 Browser Version Upgrade 300,000 200,000 — — — — —- Identity Finder Replacement 200 200 — — — — — Share Point Upgrade 60,000 50,500 — — — — — Higher Level of Vmware Commitment 35,600 20,500 — — — — — Fraudline Software 3,800 — — — — — — PAM Upgrade 57,000 — 57,000 — — — 57,000 Electronic Records Management (ERM) 90,000 23,285 66,715 — — — 66,715 V3 Browser Co-Development 55,000 — 55,000 — — — 55,000 Network Device Management Software 10,720 — 10,720 25,000 — — 35,720 Security Information Event Management Log Mgr. 35,400 — 35,400 — — — 35,400 Protocol Analyzer/Packet Filtering Appliance 52,200 52,200 — — — 52,200 OCRA Cash Management Software Upgrade — — — — — — — Create a Linux/BoardVantage Test Environment — — — — — — — Replace Web Log Explorer — — — — — — — MS Dynamics — — — 300,000 — — 300,000 HelpStar Replacement — — — 25,000 — — 25,000 Test Network — — — 83,800 — — 83,800 Microsoft Offi ce Upgrade — — — 48,000 — — 48,000 Two-Factor Authentication — — — 25,000 — — 25,000 Oracle WebLogic Licensing — — — 132,960 — — 132,960 Sub-Total $949,920 $312,245 $509,275 $657,520 $250,000 $250,000 $1,666,795

TOTALS $1,586,320 $504,611 $939,260 $926,935 $723,000 $393,000 $2,982,195

OP&F • page 39


Th e capital outlay budget allows OP&F to plan and manage for the fi nancing of major fi xed assets and capital projects by segregating these activities from the administrative operating budget. Th e budget is projected over a rolling three-year period beginning in 2015 and ending in 2017, the fi rst capital budget was approved in 2005. Th e budget will be reviewed annually for changes based on priorities, technological advances and needs assessments.

While 2005 is the fi rst year for the creation of the capital outlay budget, previous years capital budgets have been reallocated to this separate budget for comparison.

Capital assets will be recorded at cost and managed according to OP&F’s internal Fixed Asset Accounting & Inventory Policy. Each asset will then be expensed through depreciation over a useful life period using the straight-line method. Th e useful life is determined based on warranty terms, historical experience, and expected experience.

Capital expenditures include purchases of computer hardware and soft ware, projects, furniture, equipment, building improvements and other related items. Items costing $5,000 or greater or have an estimated useful life in excess of one year will be budgeted to the capital accounts and depreciated on a straight-line basis. Major capital projects are also capitalized and typically involve soft ware and hardware initiatives.

Purpose of Separate Capital BudgetTh e dynamic nature of a capital budget will assist management with issues that previously arose when capital assets were planned in static administrative operating budget. Historically, OP&F experienced budget-spiking, delays in updating technology with the annual budget cycle and lacked the ability to communicate replacement cycles in dollars. Th e new environment will benefi t OP&F long-term with assessing the needs of the organization, making timely adjustments, and planning for future acquisitions and cash requirements.

Obligations for future infrastructure needs will be segregated from routine operations and OP&F management will be able to keep priorities and adjust priorities as needs and emergencies arise. In addition, cash outlays can be anticipated and projected for communication with the Investment Department.

Th is capital budget will meet OP&F’s technology requirements and allow for fi nancial planning of necessary

purchases for our current personal computers (PCs) and server equipment. OP&F can purchase and maintain warranties on computer hardware items to extend the life cycle and eliminate the need for staff resources to make repairs and rebuild.

Within the timeframe of the capital budget, PCs will be on a fi ve-year replacement schedule with the fi rst three years being under warranty and the last two years on a replace-as-needed basis. Th is fi ve-year schedule will allow OP&F to stay in the forefront of technology advances while at the same time decrease unnecessary spending and therefore save money. Due to security and technological advances in servers, all servers will be on a three-year replace-as-needed schedule.

Planning for capital outlay needs will help ensure that an eff ective inventory is kept on existing capital assets and replacement cycles. Th is will also help identify items that may not be living up to their expected life cycle due to wear, technology changes and reliability.

Priorities for 2015OP&F sets priorities for capital outlay based on the direction of the Executive Director, the Deputy Executive Director and the Board of Trustees. Factors that impact those priorities include the economy, technological needs and the work environment.

• Work on V3 Browser change orders as required • Replace computer hardware according to the

schedule or changes in priorities• Upgrade soft ware as requested to keep a secure and

up-to-date work environment for staff • Monitor the inventory of existing assets to determine

remaining service levels and establish a replacement cycle for existing capital assets

Capital Outlay Budget

OP&F • page 40


Status of Capital Projects:New Initiatives for 2015

Microsoft Dynamics (MS Dynamics) new Financial and Procurement System RequestMS Dynamics will be purchased and installed as a replacement to the current CODA System (purchased in 1996). An RFP was conducted and the MS Dynamics presentation best suited OP&F’s fi nancial and procurement needs and vision for the future. It will allow for newer technology and more user friendliness to be embedded into our accounting processes. Th e system is promoted to public sector clients. IS feels that the new system will carry OP&F into the future in providing quality reporting and greater system functionality.

ResultTh e soft ware and hardware will be put into place and then set up to meet the needs of the organization. Th e chart of accounts and historical balances will be imported from the existing system. One of the goals is to have more timely fi nancial analysis and greater effi ciencies. A project team will be assigned from Tyler Technologies and OP&F to begin planning, implementing and training on the product. Th e estimated cost for this is $300,000.

• MS Dynamics ......................................... $300,000

HelpSTAR ReplacementRequestTh e request is to fi nd and purchase a best in class problem tracking soft ware application. Th e HelpSTAR soft ware used to log and track issues and the resolutions was implemented in 1999.

ResultExplore other problem tracking solutions and determine potential benefi ts over existing product. Purchase of a new product should result in effi ciencies.

• Problem tracking soft ware replacement ................................................$25,000

Replace Web Log ExplorerRequestTo build a permanent test environment to test any new soft ware, including patches, before installing on the production network, as well as determining the impact of network and security device confi guration changes. Th e following items are needed:

• Internet Service - $5,000 annually• 1 ASA5520 with IPS - $16,000• 1 Cisco Catalyst 3750 48 ports switch - $4,000• 1 FortiGate 800C - $14,500• 1 FortiMail VM - $1,600• 1 CodeGreenNetworks DLP (repurpose old

appliance) – No cost• 1 UPS - $4,500

Depreciation Methods, Estimated Usefull Lifes and Salvage ValuesCapitalized assets will be adjusted for accumulated depreciation over their economic useful lives based on the following schedule. Special consideration will be given to unusual assets or assets with particular circumstances surrounding their acquisition. Any special consideration will be fully documented in the accounting and inventory records.

Salvage

Asset Type # of Years Method Values

Automobiles 5 years Straight-Line $0Copiers 6 years Straight-Line $0Computer Hardware 2- 3 years Straight-Line $0Computer Software 3-10 years Straight-Line $0Land improvement 20 years Straight-Line $0Equipment 10 years Straight-Line $0Furniture and Fixtures 10 years Straight-Line $0Building and Improvements 40 years Straight-Line $0Other assets 2-6 years Straight-Line $0

OP&F • page 41


• 1 ESXi Server for the virtual environment (hardware plus VMware licensing) - $30,000

• 1 Windows Server 2012 DataCenter edition - $5,000• 1 MSDN Platforms subscription - $2,200 (will

require yearly subscriptions costs of roughly $700 aft er the fi rst year.

• 1 Dell Workstation similar to current production model - $1,000

ResultTh is would provide a test environment that emulates our production network as closely as possible, but would be completely separate from our organization’s Local Area Network (LAN) so as to not aff ect day to day activities.

• Build a Test Network ..............................$83,300• Annual hardware

maintenance and support ......................... $7,220• Annual T-1 circuit cost ............................. $5,000• Annual MSDN renewal ............................... $700• Total recurring annual costs ....................$12,920

Microsoft Offi ce UpgradeRequestPurchase newest version of Offi ce. Our current version of Offi ce is nearly eight years old. Offi ce 2007 is still being supported by Microsoft from a security standpoint, but there are no new soft ware updates for hardware or soft ware issues that may be encountered. Th e newest version of Offi ce will provide much better integration with SharePoint 2013, Dynamics AX and Electronic Records Management.

ResultPurchase of the newest version of offi ce will allow for extended capabilities in other products used at OP&F, as well as be fully supported by Microsoft .

• Microsoft Offi ce upgrade .........................$48,000

Two-Factor AuthenticationRequestIdentify and implement dual security mechanisms for enhanced remote access security.

Result Passwords are not as secure as they were in the past. When a password is compromised, account access and Personally Identifi able Information (PII) are within reach. Even

having a strong password does not completely protect the organization. Two-factor authentication helps provide an additional layer of security by asking for more than a password. It requires both something you know (like a password) and something you have (like your phone). Aft er the user enters their password, they will have a code sent to their phone. Only aft er it is entered will they gain access to the resource. Th is would be implemented for remote access initially.

• Two-factor authentication ......................$25,000

Oracle WebLogic Licensing RequestReplace current Oracle Application Server licensing with Oracle WebLogic licensing.

ResultTh is would allow Vitech to transition OP&F from Oracle Application Server to Oracle WebLogic which is Oracle’s current application server soft ware environment. Premier support for Oracle Application Server ended in June 2014 as Oracle expects customers to migrate to Oracle WebLogic. OP&F is paying an increased amount to receive Extended support. Extended support for Oracle Application Server is slated to end in 2017.

If Oracle allows some type of migration credit, this cost could be less, but we must assume full price for budgeting purposes.

• WebLogic server standard edition – processor perpetual license – ($10,000 per license x 6 processor licenses...................$60,000

• WebLogic server standard edition – processor soft ware update license and support ($2,200 per license x 6 processor licenses)enes) ...........................$13,200

• WebLogic server standard edition – named user plus – ($200 per license x 40 named user plus licenses) ..................... $8,000

• WebLogic server standard edition – named user soft ware update license and support – ($44 per license x 40 licenses) ................................................ $1,760

• Soft ware Licensing ...................................$82,960• Vitech Migration Services ......................$50,000• Total .......................................................... $132,960

OP&F • page 42


Status of Capital Projects: Review of 2014 InitiativesOf the 16 planned initiatives for 2014, six were completed, one is scheduled for completion, seven were carried over to 2015, two were cancelled and four are on a three-year cycle.

Completed: Hire a Linux/Windows Systems Administrator RequestRequest addition of one full time employee in the role of Systems Administrator.

ResultTh is person is required to have Linux experience to support the BoardVantage system. Additionally, having another System Administrator on staff will allow for segregation of tasks resulting in a faster turnaround and will also provide much needed redundancy to the position. Currently, some items must wait if our Systems Administrator is unavailable to address due to higher priorities, or if out of the offi ce.

• Linux/Windows Systems Administrator ....$75,000(BoardVantage was migrated to Windows, so a Systems Administrator without Linux background was hired. )

Completed: SharePoint UpgradeRequestUpgrade from SharePoint 2007 to SharePoint 2012. Microsoft free mainstream support for SharePoint 2007 ends in October 2012, and paid extended support ends October 2017. To ensure that we provide a high level of uptime and service for the knowledge management process and procedures and Intranet (EmployeeNet) sites, we should upgrade to the latest version of SharePoint. Th is will entail purchasing the latest version of SharePoint and paying a consultant company to assist with the migration from 2007 to 2012.

ResultWill allow OP&F personnel to continue to use the knowledge management process and procedures and Intranet (EmployeeNet) sites on a vendor maintained platform.

• SharePoint upgrade ..................................$60,000(actual amount was $50,500)

Completed: Higher Level of VMware CommitmentRequestOP&F has been utilizing a free version of VMware on four servers that will soon be fi ve years old. Th is version is limited in its scope of use, support and utility. OP&F must commit to a more robust and capable platform. Virtualization also impacts Microsoft licensing. In order to run a virtual Windows server, the base hardware must have a Windows license as well, even when not installed.

ResultTh is commitment will assure that OP&F is better prepared to utilize the latest version of VMware virtual technology, including support, monitoring and proper Windows licensing.

• VMware vSphere with Operations Management Standard, vCenter Server Foundation and Windows 2012 DataCenter edition licenses ...................$32,900

• First year maintenance and support ........ $2,700• Total .............................................................$35,600

(actual amount was $20,500)

Completed: Next Generation Th reat Prevention Appliance in Redundant ModeRequestCompare, assess and then purchase a pair of redundant next generation Th reat Prevention Appliances. Th is application layer solution, including training, would help increase visibility and expand control over traffi c to prevent threats, reduce costs and simplify support by consolidating the following existing network components into one set of devices:

• Blue Coat Internet proxy server• Websense website whitelisting soft ware• Code Green Networks Data Leakage Prevention

(DLP) appliance• Symantec Spam Email Gateway Appliance• Th e Intrusion Prevention System components of the

Cisco ASA fi rewalls• Th e proposed Botnet fi lter components of the Cisco

ASA fi rewalls• Th is appliance will not replace the existing Cisco

ASA fi rewalls, which play a critical role in OP&F’s layered security approach of defense in depth.

OP&F • page 43


ResultTh is solution will provide for more granular protection against the advanced persistent threats of today’s cyber warfare and is line with the Cyber Security Framework initiative.

• Next generation threat prevention appliance in redundant mode ................$75,000

• Training ......................................................$10,000• First year maintenance and support ......$13,500• Total .............................................................$98,500

(actual amount was $33,950)

Completed: Disability Anti-Fraud Hot LineRequestTh is initiative will establish a dedicated toll-free number for OP&F members and the general public to use to report suspected abuse of the OP&F disability benefi ts and the granting process.

ResultSoft ware purchased will allow for a central data collection and processing point for allegations of disability benefi t fraud.

• Disability anti-fraud hotline ..................$25,000(A decision was made not to purchase the soft ware)

Completed: Replace Indentity FinderRequestPerform a search for a new product to replace Identity Finder. Identify Finder is the soft ware currently used to verify fi les sent via our secure online system to outside associates do not contain Social Security numbers. Th e soft ware is several years old and newer products on the market will provide more protection.

ResultA more current product will aid in protecting OP&F from a possible future breach. Th e newer products on the market do a better job of fi nding Social Security numbers within a document or fi le and provide less false positives (the soft ware thinks the fi le has an Social Security numbers in it but it does not). OP&F also was looking for a product that could identity if the fi le contains other personnel information like addresses and members names.

• Replace Identity Finder ............................. $9,000(actual amount was $200)

Planned for completion:Initiative: PAM UpgradeRequestPrinceton Financial Systems (PFS) is requiring OP&F to replace the current PAM for Securities application that was implemented in 2000 with their new product, PAM for Investments. Th is product, built around the Windows.NET platform, has a Windows-based interface and a Microsoft Offi ce-like navigation.

ResultAccording to PFS, PAM for Investments off ers the following enhancements to the PAM for Securities that we currently use:

• Risk Management• Web-based reporting with user-defi ned dashboards• Full Net Asset Value (NAV) calculations for single or

multi-class funds

• Implementation and training .................$12,500• Travel expenses for two consultants ........ $2,000• Total .............................................................$57,000

(When this initiative was prepared, it wasn’t known that Pervasive SQL was being dropped from support by PFS in 2015. Th is will result in as much as an additional $40,500 being spent on the project to migrate to MS SQL.)

Cancelled:Replace Web Log Explorer RequestIdentify and purchase a replacement for Web Log Explorer.

ResultTh e current version of Web Log Explorer is several years old. When pursuing an upgrade, it was discovered that the soft ware is based out of Russia. Purchasing a new product will allow us to provide detailed level reporting of Internet Web traffi c for trending and analysis.

• Web Log Explorer Replacement ............$10,000

OP&F • page 44


Cancelled:Create a Linux/BoardVantage Test EnvironmentRequestPurchase and install soft ware to create a Linux test environment.

ResultHaving a Linux test environment will allow us to perform modifi cations and explore features in a non-production instance of BoardVantage. Additionally, operating system upgrades and security enhancements can be applied and tested without impacting functionality.

• Linux/BoardVantage Test Environment .. $15,500

Carryover:Information Services Development ToolsRequestCompare, assess and purchase a Protocol Analyzer/Packet Filtering Appliance to help troubleshoot latency, confi guration problems and more.

ResultSince this device will sit on the core switch, it will log and monitor every packet traversing it. It has the capability of being confi gured to store, replay and analyze transactions, with alerting functionality. It can be used in this fashion or in an investigative method in helping pinpoint trouble before users see it.

• Protocol analyzer/packet fi ltering appliance .....................................$40,000

• Training ........................................................ $5,000• First year maintenance and support ........ $7,200• Total .............................................................$52,200

Carryover (and increase by $25,000):Network Device Management Soft wareRequestTh e ability to utilize soft ware tools to automate the confi guration, administration, and backup of OP&F’s Cisco networking assets.

ResultTh ese tools will provide enhanced troubleshooting and problem management capabilities as well as confi guration management that will assist in recovery situations and increase the overall security stature of OP&F’s internal and external networking devices.

• Network device management soft ware ...$60,000• First year maintenance and support ........... $720• Total .............................................................$35,720

Carryover:Security Information Event Management (SIEM) Log Manager RequestCompare, assess and then purchase a SIEM log manager to aggregate and analyze logs from the corporate infrastructure.

ResultTh is tool will be a single pane dashboard into the health of the network. In order to drill down into an issue, logs from various infrastructure components need to be correlated to comprehend the root cause and assist in resolving the problem.

• SIEM log manager ....................................$30,000• First year maintenance and support ........ $5,400• Total .............................................................$35,400

Cancelled:OCRA Cash Management Soft ware UpgradeRequestTh is initiative would provide Investment staff with the latest version of this soft ware and additional training needed to create effi ciencies through electronic integration between data sources (i.e. Huntington Bank, CODA, Excel, and OCRA). Th is will also include the establishment of reports for forecasting and historical analysis. Th is soft ware was originally budgeted in 2009 for $120,000, and was purchased and implemented in 2010 for approximately $40,000.

ResultTh rough the upgrade of this tool, Investment staff will be able to continue to accurately forecast, track and verify cash fl ows as well as more effi ciently and timely identify and invest short-term assets.

• OCRA upgrade ........................................$12,000

OP&F • page 45


Moved to baseline:RFP for Financial and Procurement SystemRequestTh e current CODA System used at OP&F was purchased in 1996. In 2009, OP&F upgraded to the browser version of the soft ware which added improved procurement capabilities. Th is fall there is an upgrade potential with CODA. Since it has been a while that OP&F has conducted an RFP on what other soft ware is available for comparison, an RFP is requested in the latter part of 2014 to determine what is benefi cial for OP&F

ResultA RFP will allow OP&F the ability to review other soft ware packages to determine other capabilities compared to the CODA soft ware. If a decision to go with another product is made it would be part of the 2015 budget request. Th e upgrade on CODA could be done in 2014 or moved to 2015 as well. Th is initiative is to conduct a RFP for fi nancial soft ware.

Th e CODA upgrade would cost approximately $30,000. We will have to wait on responses to see the range of costs for any new soft ware.

Carryover:Electronic Records Management RequestIn 2014, OP&F successfully implemented an Electronic Records Management (ERM) proof of concept (POC) system. Th e POC implemented four diff erent document policies with rules to determine the disposition of a document once they had reached the end of their retention period. Th e business analysts have been using the system for a number of weeks now and have verifi ed that the document policies are working according to the rules that were defi ned. Th e next step would be to expand the proof of concept into an ERM pilot. Th e ERM pilot would be rolled out to the entire Information Systems Department and the department would use the systems forsix months to determine ERM feasibility at a department level.

Several tasks will need to be completed to move from our current POC environment to the pilot environment. Th ese tasks would include:

• Engage an outside consulting fi rm to assist in the implementation of pilot system

• Defi ne major functional requirements for implementation of the pilot

• Departmental ERM• Audit reporting of document disposition• Determine records policies to be implemented

• Defi ne a project plan and timeline for the pilot system

• Design an ERM environment• Implement and test the ERM environment• Training of IS Staff on the ERM system

Th is initiative will involve researching products, determining feasibility and implementation of the pilot. Electronic Records Management (ERM) will be an extension of our current paper records management process. Th e goal of ERM is to classify and manage electronic records by assigning them a records retention category. Th e classifi ed record will then follow the rule of the category it has been classifi ed in.

ResultAn ERM pilot will be implemented for the IS Department to further prove the system’s ability and robustness and to determine any procedure or policy issues that may need to be addressed. Lessons learned from the pilot will then determine the feasibility of rolling out ERM to the entire organization.

Th ese are some of the possible benefi ts of using ERM for the organization:

• ERM could replace the OP&F common and shared drives. Th is should reduce the amount of duplicate and old data stored.

• ERM is fully searchable; it will make it much easier for our users to fi nd documents.

• ERM will help with e-discovery for litigation because documentation is categorized and searchable. Finding specifi c documents will be much easier.

• OP&F will only keep documents for as long as they are needed based on the retention policy. Currently the common drives are fi lled with old and redundant data.

• Th e ERM system will have enhanced security features that provide OP&F with more fl exibility than we currently have with our current network storage.

• Electronic Records Management ..........$66,700

OP&F • page 46


Carryover:V3 Browser Co-Development RequestTh e request is to work with Vitech to create a Co-Development contract. Once the contract has been completed, the IS Department will train OP&F development resources in the new technology. Once training has been completed, OP&F development will be able to work on many of the requests that would normally be submitted to Vitech as change orders.

Th e IS Department spent the fi rst half of 2012 researching V3 Co-Development,including discussions with customers of the product and with Vitech. Based on what we learned, we believe Co-Development will be benefi cial to OP&F.

Here are some of the benefi ts discovered:

• Cost: OPF can control its overall expenses because our hourly cost for internal resources is a fraction of Vitech’s cost per hour.

• Priority: OPF’s fi rst priority is not necessarily Vitech’s top priority. With internal resources, OP&F can control what is worked on and in what order.

• Urgency: Vitech’s ability to react to emergency situations is not as fl exible as OP&F’s. Critical items can still take weeks in the Vitech process. In emergencies, OP&F will have the ability to assign resources to the task and make sure it is taken care of promptly.

• Flexibility: Co-Development will improve support capabilities via faster response times and direct end-user access to new tools and information. Th ese enhancements will positively aff ect members’ experience and improve our internal processes.

ResultCo-development enhances OP&F’s ability to deliver new capabilities to both members and employees in ways that are not currently available. OP&F can be both inventive and creative in providing new solutions to our customers.

• V3 Browser Co-Development ...............$55,000

Th ree-year planning cycle:V3 contingency for change orders RequestTo include a contingency plan for required programming of pension administration system needs.

ResultTh is contingency is for legislative changes and change orders.

• V3 change orderscontingency ............. $750,000

Th ree-year planning cycle:Computer hardware replacement cycleRequestTh is recurring budget item represents Capital computer hardware related to PC, servers, scanners, network replacements, notebook computers and switch replacements.

Result To include a contingency plan for computer hardware as replacements become necessary.

• Computer hardware replacement cycle ................................... $875,400

Th ree-year planning cycle:New carpet for all OP&F fl oorsRequestTo furnish the necessary labor and material to demolish and haul from the existing carpet area, prep and skim sub fl oor. Furnish and install, by direct installation, new commercial 30 ounce, 12-foot wide carpet with new four-inch vinyl base as required. Th e existing wood base will remain.

ResultTh is will allow for an improved appearance of worn out carpet over the next three years.

• New carpet for all OP&F fl oors ......... $353,081

Th ree-year planning cycle:Offi ce Furniture Replacement RequestTo include a budget allocation for furniture replacement as departmental needs arise. Th ere are no specifi ed furniture purchases at this time.

ResultTh is will allow for improved function and appearance by replacing old and damaged furniture under a three-year cost replacement cycle.

• Offi ce furniture replacement ..................$90,000

OP&F • page 47

Annual Budget for Fiscal Year 2015 • ADMINISTRATIVE OPERATING BUDGET

Administrative Operating BudgetAnnual Budget for Fiscal year 2015


OP&F • page 48

ADMINISTRATIVE OPERATING BUDGET • Annual Budget for Fiscal Year 2015

OP&F Organizational Chart

OP&F Members

Information ServicesMail Services

Records CenterPurchasing

J. HarvilleMember Services

Department

T. HallInvestment

Department

Benefi t PaymentsCustomer Service

ComputationsPrior Service and

Refunds ProcessingCompliance and

Project ManagementHealth CareOperations

Asset OversightCompliance

Investment AccountingInvestment Management

Financial ReportingGeneral Accounting

InsuranceBudgeting

Tax ReportingEmployer ServicesBuilding Services

Memorial Park

Board of Trustees

J. GallagherExecutive Director

M. FoleyGeneral Counsel

Administration Department

CommunicationsHuman Resources

Legal Services

M. JordanInternal Auditor

M. GatewoodInformation Services

Department

S. MillerFinance

Department

OP&F • page 49


2015 Total Administrative Operating Budget (in thousands)

2015 2014 Variance $ Variance % 2014 2014 2014 2013

Budget Category Budget Forecast 2014 Forecast 2014 Forecast Budget Variance $ Variance % Actual

Personnel Services

Salaries $9,061 $8,813 $247 2.8% $8,912 $148 1.7% $8,519 Employee Benefi ts 2,801 2,457 344 14.0% 2,684 117 4.4% 2,762 Employer Payroll Expense 1,498 1,434 65 4.5% 1,473 26 1.7% 1,366 Sub-Total $13,361 $12,704 $655 5.2% $13,069 $291 2.2% $12,648

Work Environment Offi ce Rent $1,242 $1,227 $15 1.2% $1,242 $- 0.0% $1,208 Maintenance and Repairs 1,053 1,130 (77) –6.8% 1,045 8 0.8% 748 Legislative Expenses — — — — — — — — Mailing Expense 264 210 54 25.7% 264 0 0.1% 140 Printing and Publications 100 73 27 36.9% 109 (9) –8.3% 59 Offi ce Supplies 114 85 29 34.1% 114 — 0.0% 100 Offi ce Equipment 112 91 20 22.2% 127 (15) –12.1% 75 Insurance Administrative 244 219 25 11.6% 240 4 1.7% 213 Recovery Plan and Contingency 157 41 116 281.4% 156 1 0.5% 47 OP&F Sponsored Seminars 13 11 2 17.8% 10 3 30.7% 11 Business Travel 95 65 30 46.4% 89 6 6.4% 49 Business Expense 58 45 12 27.3% 58 (0) –0.3% 49 Trustee Training 18 14 4 29.5% 18 — 0.0% 13 Employee Training 130 75 55 73.3% 106 25 23.5% 46 Telephone Services 70 63 7 11.1% 80 (10) –12.8% 69 Dues and Subscriptions 110 76 33 43.7% 89 21 23.5% 77 Miscellaneous Expenses 33 22 11 49.7% 31 1 4.1% 26 Sub-Total $3,813 $3,448 $364 10.6% $3,778 $34 0.9% $2,931

Outside Services Investment Services $45,050 $44,313 $737 1.7% $42,206 $2,844 6.7% $41,207 Bank Custody Fees 960 800 160 20.0% 1,140 (180) –15.8% 960 Actuarial Services 444 426 18 4.1% 507 (63) –12.4% 428 Audit Services 134 106 28 25.9% 109 25 23.0% 103 Legal Services 417 211 206 97.8% 494 (78) –15.7% 328 Disability Medical Service 667 683 (17) -2.4% 683 (17) –2.4% 501 Public Relation Consultants — 4 (4) –100.0% 5 (5) –100.0% 6 Bank Charges 89 86 3 3.1% 89 — 0.0% 88 Ohio Retirement Study Coouncil 53 57 (4) –6.6% 53 — 0.0% 43 Legislative Consultants 86 85 2 1.9% 84 2 2.9% 84 Personnel Recruitment 16 7 8 118.2% 15 0 3.0% 12 Temporary Employees — — — — — — — — Contract Staffi ng — — — — — — — — Health Care Consultants 25 — 25 — — 25 — — Other Professional Service 316 67 249 373.6% 243 73 29.9% 92 Sub-Total $48,255 $46,845 $1,410 3.0% $45,627 $2,628 5.8% $43,852

TOTAL OPERATING $65,427 $62,998 $2,430 3.9% $62,474 $2,953 4.7% $59,431

*Figures may not add due to rounding dollars to the nearest thousand.

OP&F • page 50


Th is review will outline the recommended administrative operating budget for 2015. Th is analysis will highlight the formulation of the budget and the variances between the 2015 budget against the 2014 actual forecast and 2014 approved budget.

Th e 2014 Actual forecast column represents the anticipated actual expenditures for 2014. Th e 2015 Budget column includes new activities for 2015 and items that are anticipated or estimated to be spent in 2015, regardless of the spending level in 2014. Both comparisons must be shown to explain the entire set budget variances and changes. Th e actual forecast is calculated one of two ways; 1) by the department reviewing and calculating what is projected to be spent by the end of the year or 2) for routine operating categories the fi rst seven months actual was divided by seven and multiplied by twelve to obtain an annualized calculation.

Th ere is a 4.7 percent budget increase in the Administrative Operating Budget in 2015 to $65.4 million compared to $62.5 million in 2014 or $2.9 million increase. Operating costs are budgeted at a 0.9 percent increase or by $204,662 and investment management fees are budgeted to increase 6.7 percent or by $2.7 million in 2015.

By category the 4.7 increase can be broken down as 2.2 percent increase in personnel services, 0.9 percent increase related to work environment, and 5.8 percent decrease in outside/professional services. OP&F is anticipating a 3.9 percent increase in the overall operating costs compared to the 2014 actual forecast.

SalariesEach year the Human Resources Manager calculates the salary and wage spending for the budget. Th is process begins in August by calculating the base wage spending level as of a pay date (Sept. 17, 2014 was used for 2015 budget) for all fi lled positions. Th is fi gure is then adjusted for vacant positions that are not going to be eliminated in the following budget cycle. An amount is then calculated for the wage spending levels for merit, on-call pay, promotions, overtime, attrition, vacation and sick termination payouts and an amount for equity adjustments based on the Executive Directors direction. Th ese items are as follows for the 2015 budget:

Employee Benefi tsAn increase of 14 percent is anticipated from the 2014 year-end actual forecast related to the health care costs and increases in buyback program levels for existing staff .

Benefi t Description Estimate

Health insurance $2,351,366 Group life insurance 47,149 Sick leave buyback program 248,277 Vacation buyback program 90,699 Parking/bus passes 6,120 Tuition reimbursement 40,000 Employee Activity Expense 17,340 Total Employee Benefi ts $2,800,951

2015 Total Administrative Operating Budget Review

Salary and Wage Spending $ Estimate Spending

2014 Base Wage Spending Level

$8,708,218 Wage Spending Level as of Sept. 17, 2014 (143 full-time)2015 Additional Adjustments to Wage Spending Level

259,786 3.0 percent average merit budget for eligible staff 2,600 On–call pay for Information Services support 22,638 Overtime estimate based on actual 2014 forecast and 2015 needs (129,893) Attrition savings for timing of open positions in 2015 and turnover 178,217 Longevity ($100 per year of OP&F service, per staff member) 9,000 High performer/profi ciency promotion, limited to known items in 2015 10,000 2015 Equity budget for compensation studies $ 352,348 Total 2015 additional adjustments to wage spending level (143 employees)

$9,060,966 GRAND TOTAL 2015 WAGE SPENDING LEVEL

Th e 2014 actual forecast salaries are refl ecting a 5.2 percent increase, which refl ects the wage spending level for open positions throughout the year being fi lled by 2015, the proposed merit increase and one new headcount being added.

OP&F • page 51


Employer Payroll Expense Th ere is a 4.5 percent increase from the year-end forecast refl ected due to increases in OPERS and Medicare costs due to the merit budget and one additional position in 2015. Th is line also includes claims from workers compensation and unemployment.

Offi ce RentIncludes an allowance for common area maintenance, plus additional amounts expected for end-of-year true up of building work orders and an additional amount to ensure increases in operating expenses (based on tenant occupancy rate) and utilities costs are covered if needed. Th e budget is fl at from 2014.

Maintenance and Repairs Th is category is budgeted to decrease 6.8 percent compared to the 2014 budget. Th e reduced budget is for maintenance and repairs that were under multi-year contracts not due in 2015. Th e goal is to pay for maintenance agreements and only pay for repairs as a last resort. In addition, the budget contains maintenance agreements for new capital purchases that will be covered for the fi rst time.

Legislative Expense No money is being budgeted for legislative receptions or mailings.

Mailing ExpenseMailing expenses are showing an 25.7 percent increase from the 2014 actual forecast. Th e budget represents a 0.1 percent change from the 2014 budget refl ecting the overall eff orts to reduce physical mailings and replace with electronic notifi cations whenever possible.

Printing and PublicationsPrinting fees are expected to increase by 36.9 percent from the actual forecast for 2014. Th ere is a 8.3 percent decrease in the budget from 2014.

Offi ce SuppliesA 34.1 percent increase over our 2014 actual forecast. Th is is due to actual spending/ordering levels in 2014 being better than expected.

Offi ce Equipment Th e 22.2 percent increase over our 2014 actual forecast variance refl ects the fact that equipment is not purchased unless needed or broken. Areas will budget for various equipment need under their management, however,

purchases are not incurred unless necessary. Th e budget in this category has been reduced by $15,354.

Insurance Administrative A 11.6 percent increase from the 2014 actual forecast. Th is is directly related to the insurance market conditions.

Recovery Plan and ContingencyTh e $100,000 contingency is being budgeted.

OP&F Sponsored Seminars Seminars are estimated each year based upon expected training and site locations. Th e 17.8 percent increase over our 2014 actual forecast is due to adding in employer seminars in 2015 and increased lodging costs.

Business Travel Th e amount of travel in 2015 and is expected to increase 46.4 percent over the 2015 budget. Th is is related to reallocating travel needs that have been taken out of previous budgets. Th ere is still a thorough approval process before any trips are taken.

Business Expense Business expenses are estimated so that funds are available based upon needs for the upcoming year. Th ere is a 0.3 percent decrease in the budget lines.

Trustee Training Estimates are used to ensure that money is available when trips are approved. Th ere is no change in the budget; however, the budget refl ects a 29.5 percent increase over the actual costs for 2014 due to the actual trips that are taken.

Employee Training Education, certifi cation and conference travel were held to a minimum in the past several years. Th is account is expected to increase over 2014 actual forecast by 73.3 percent. Th ere is a 23.5 percent increase from the 2014 budget due to the planned activities for 2015.

Telephone Services Telephone services are budgeted based upon averages for local, long-distance and dial-up services. Th is expense line is being increased by 11.1 percent based on the 2014 actual forecast being more accurate recent refl ection of usage.

Dues and Subscriptions Expected to be 43.7 percent higher than the 2014 actual forecast.

OP&F • page 52


Miscellaneous Expense Estimated based upon the number of member/retiree guest visits and other miscellaneous items as necessary.

Investment Services Th e 1.7 percent increase between the 2015 budget and the actual forecast is related to some fee arrangements going from direct pay which is considered on budget to indirect pay which is off budget. Each investment category was carefully reviewed to establish the 2015 budget.

Bank Custody Th ere is a 20.0 percent increase in fees compared to the 2014 actual forecast due to the estimated banking activity in 2015.

Actuarial Services Services in this area are budgeted at 4.1 percent higher than the 2014 actual forecast due to the new GASB 67 and 68 requirements will mainly be done in 2015.

Audit Services Audit services are expected to increase by 25.9 percent over the 2014 forecast due to the audits of member census data that will be required due to GASB 67 and 68.

Legal Services Th is category refl ects a 97.8 percent increase over the actual forecast due to the items that have timing diff erences and other items identifi ed by the legal area that could occur in 2015.

Disability Medical Services Th is item is based on the number of members sent for exams and the consulting done by outside doctors.

Public Relations ConsultantsNo spending in this category is being allocated to the 2015 budget at this time.

Bank Charges Commercial banking services are estimated based upon the prior year’s averages and changes predicted in banking transactions. OP&F is expecting a 3.1 percent increase from the 2014 actual forecast.

Ohio Retirement Study Council ORSC fees based on the percentage of OP&F’s plan assets compared to the total of the other Ohio Retirement Systems total plan assets.

Legislative Consultants Retainer services are not expected to change over the 2014 level.

Personnel Recruitment Th is account is used for advertising job vacancies in local newspapers and reference check services. We estimate each year the number of advertisements that may be needed based on historical turnover.

Health Care Consultants Related to outside services required for health care data. Th ere are no consultants planned in 2015.

Other Professional ServicesAn increase of 373.6 percent in the actual forecast in this area is being refl ected due to anticipated one time projects in 2015. Th ere is an estimate for four trustee elections, a full compensation study for staff , and an increase for the work study program in the 2015 budget. Other professional services also contain items for consulting, soft ware consulting, records retention, and other outside service provider fees.

OP&F • page 53


Operating Budget Highlights

Investment Services Fees$45,049,654 represents an increase of 6.7 percent from the 2014 budget. Th anks to a general upturn in the markets from this time last year, this increase is driven by the use of an asset base that is more than 12 percent higher than a year ago to project 2014 management fees. Additionally, projections include shift ing assets from lower fee strategies such as passive equity into more expensive strategies such as master limited partnerships, high yield, and global infl ation protected securities. Furthermore, fees relating to consulting, research and analytical services will increase by $106,944. Some of the items behind this increase are: the addition of Private Market consulting fees; infl ation adjustments to consulting fees and research services; and an increase in service fees for our Bloomberg terminals and Iran/Sudan data feeds.

Custodial FeesTh e $960,000 budgeted amount represents a decrease of 15.8 percent from the 2014 budget. Th ese fees represent costs associated with the custody of our portfolio accounts and are generally based on the market value of the underlying securities and/or the level of account activity. Th e decrease is attributed mainly to lower international custody fees. Since the conversion in 2012, staff has been working with our international custodian to clear up inconsistencies with billing. Th is has allowed us to better forecast expenses going forward based on actual reconciled billings. We project international custody fees of $660,000 for JPMorgan Chase Bank, and domestic custody fees of $300,000 for Huntington National Bank.

Actuarial Services$444,000 – Th e budget for this service has decreased by 8.9 percent primarily due to the elimination of some services and other services that have been combined with the monthly retainer service charge.

Disability Services and Pharmacy Benefi t Consultant$699,120 - Th is total represents costs related to the independent medical and vocational evaluation of disability applicants, annual mandatory medical evaluations of disability benefi t recipients, and DEP\Board Advisor physicians and vocational experts. Although the volume of disability applications is down, the 1.2 percent increase results from a rate increase paid to OP&F appointed medical and vocational evaluators and OP&F advisor fees. Th e addition of Advanced Pharmacy Concepts as pharmacy benefi t consultant also contributes to the increase.

2015 Budget SummaryTOTAL OPERATING BUDGET $65,427,264 4.7% increase over 2014

Operating Costs $21,860,690 0.9% increase over 2014Investment Mangment Fees $43,566,574 6.7% increase over 2014TOTAL OPERATING BUDGET $65,427,264 4.7% increase over 2014

2015–2017 Th ree–Year Capital Budget SummaryTOTAL BUDGET $2,982,195 3-YEAR CAPITAL BUDGET

Offi ce Building $350,000 11.7% of overall capital budgetFurniture and Equipment $90,000 3.0% of overall capital budgetV3 Costs –Software $750,000 25.2% of overall capital budgetComputer Hardware $875,400 29.3% of overall capital budgetComputer Software $916,795 30.8% of overall capital budgetTOTAL CAPITAL BUDGET $2,982,195 100% of 3-Year Capital Budget

OP&F • page 54


Initiative Highlights

MS DynamicsMS Dynamics will be purchased and installed as a replacement to the current CODA System (purchased in 1996). An RFP was conducted and the MS Dynamics presentation best suited OP&F’s fi nancial and procurement needs and vision for the future. It will allow for newer technology and more user friendliness to be embedded into our accounting processes. Th e system is promoted to public sector clients. We feel that the new system will carry us into the future in providing quality reporting and greater system functionality.

Comprehensive Compensation StudyIn order to maintain a competitive compensation program, it is OP&F’s goal to complete a comprehensive compensation study about every fi ve years. With the last compensation for non-management staff occurring in 2010 and in 2011 for exempt staff , a study is due in 2015. Th e purpose of the study is to determine if OP&F’s compensation structure and pay rates have been keeping up with the market and to off er suggested changes where appropriate on wages relevant to the market data, wage structure, and pay practices.

Website search capabilityIn an eff ort to make the OP&F website more user-friendly, this initiative proposes adding search capabilities to op-f.org. Th e new capability would allow users to type into a search box on any page on the website in order to locate information or fi les on a specifi c subject. With the expansion of the website to include a large number of documents, reports, forms and publications, this feature is needed to better manage the use of the site.

HelpStar Replacement$25,000 – Th e request is to fi nd and purchase a best in class problem tracking soft ware application. Th e HelpStar soft ware used to log and track issues and their resolutions was implemented in 1999. Purchase of a new product should result in effi ciencies.

Test Network$83,800 – To build a permanent test environment to test any new soft ware, including patches, before installing on the production network, as well as determining the impact of network and security device confi guration changes. Th is would provide a test environment that emulates our production network as closely as possible, but would be completely separate from our organization’s Local Area Network(LAN) so as to not aff ect day to day activities.

Microsoft Offi ce Upgrade$48,000 – Purchase newest version of Offi ce. Our current version of Offi ce is nearly eight years old. Offi ce 2007 is still being supported by Microsoft from a security standpoint, but there are no new soft ware updates for hardware or soft ware issues that may be encountered. Th e newest version of Offi ce will provide much better integration with SharePoint 2013, Dynamics AX and Electronic Records Management.

Two-Factor Authentication$25,000 – Identify and implement dual security mechanisms for enhanced remote access security. Passwords are not as secure as they were in the past. When a password is compromised, account access and Personally Identifi able Information (PII) are within reach. Even having a strong password does not completely protect the organization. Two-factor authentication helps provide an additional layer of security by asking for more than just the password. It requires both something you know (like a password) and (something you have), like your phone. Aft er the user enters their password, they will have a code sent to their phone. Only aft er the code is entered will they gain access to the resource. Th is would be implemented for remote access initially.

Oracle WebLogic Licensing$132,960 – Replace current Oracle Application Server licensing with Oracle WebLogic licensing. Th is would allow Vitech to transition OP&F from Oracle Application Server to Oracle WebLogic which is Oracle’s current application server soft ware environment. Premier support for Oracle Application Server ended in June 2014 as Oracle expects customers to migrate to Oracle WebLogic. OP&F is paying an increased amount to receive Extended support. Extended support for Oracle Application Server is slated to end in 2017.

OP&F • page 55


PAM Upgrade$57,000 - Princeton Financial Systems (PFS) is requiring OP&F to replace the current PAM for Securities application that was implemented in 2000 with their new product, PAM for Investments. According to PFS, Pam for Investments off ers the following enhancements to the PAM for Securities that we currently use:

• Risk Management• Web-based reporting with user-defi ned dashboards• Full Net Asset Value (NAV) calculations for single or

multi-class funds

Pensionomics Study In conjunction with Ohio’s other public retirement systems, OP&F will participate in this comprehensive study that aims to measure the positive impact Ohio’s pension funds have on the state’s economy. OP&F estimates its share of the study to be $33,000.

Personnel Highlights

Personnel Services$13,359,746 is budgeted and represents an increase of 2.2 percent increase from 2014. Included in the increase, a proposed average 3 percent merit increase for eligible staff and an increase in expected employee health care costs of 4.2 percent. Full time headcount is 143 up one from 2014.

Administrative Operating Budget and Actual ComparisonBudget Actual Revised Budget Budget Budget % Change % Overall

Category 2013 2014 2015 2014–2015 Budget

Personnel Services $12,647,679 $13,068,795 $13,359,746 2.2% 20.4%Work Environment $2,931,318 $3,778,063 $3,812,504 0.9% 5.8%Outside Services $43,851,794 $45,627,200 $48,255,014 5.8% 73.8%TOTAL $59,430,791 $62,474,058 $62,427,264 4.7% 100.0%

Administrative Operating Summary Totals by Department 2015 Budget 2014 Budget $ Change % Change

Operating Budget $62,474,058 $62,592,043 $(117,985) –0.2% Administration Department $7,216,495 $6,913,663 $302,832 4.4% Finance Department $2,813,834 $2,792,414 $21,421 0.8% Investment Department $4,116,799 $4,007,909 $108,890 2.7% Investment Management Fees $40,905,530 $41,608,132 $(702,602) –1.7% Member Services Department $3,405,280 $3,619,415 $(214,135) -5.9% Information Services Department $3,920,961 $3,556,025 $364,936 10.3% Trustees $95,159 $94,485 $674 0.7%Total Proposed Budget Including Management Fees $62,474,058 $62,592,043 $(117,985) –0.2%

Total Proposed Operating Budget 2015-2017 $21,568,528 $20,983,911 $584,617 2.8%

Total Proposed Capital Budget 2014-2016 $2,820,320 $3,364,800 $(544,480) –16.2%

Investment Management Fees $40,905,530 $41,608,132 $(702,602) –1.7%

Executive Summary of OP&F Budget

OP&F • page 56


Personnel Highlights

Personnel Position Changes, 2013-2015 (full–time only)

Year Department Budgeted Position # of Positions

2015 Administration Deputy Director –12015 Information Services Information Services Director 12015 Member Services Prior Service Support Specialist 12015 Administration Member Education/CSR’s (transfer) -112015 Member Services Member Education/CSR’s (transfer) 11 Position changes in 2015: 1

2014 Information Services Network Administrator 12014 Administration Member Education Representative 12014 Member Services Contributions Manager –12014 Member Services Processing Supervisor 12014 Finance Accounting Specialist –1 Position changes in 2014: 1

2013 Investment Assistant Investment Offi cer –12013 Member Services Financial Compliance Supervisor –12013 Member Services Financial and Compliance Manager –12013 Member Services Processing Supervisor –12013 Member Services Processing Specialist –12013 Administration Records and Imaging Specialist 12013 Administration Paralegal 1 Position changes in 2013: –3

Position Summary by Department (full-time equivalents)

Administration Finance Investment Information Services Member Services Total Full Time

2015 36 21 14 26 46 143

2014 48 21 14 25 34 142

2013 47 22 14 24 34 141

OP&F • page 57

Annual Budget for Fiscal Year 2015 • DEPARTMENTAL REVIEW

Departmental ReviewAnnual Budget for Fiscal year 2015


Administration DepartmentFinance Department

Information Services DepartmentInvestment Department

Member Services DepartmentBoard of Trustees

OP&F • page 58

DEPARTMENTAL REVIEW • Annual Budget for Fiscal Year 2015

Administration Department

J. GallagherExecutive Director

Director Manager/Supervisor

Staff

Y. McElroyExecutive Assistant

K. PointerHuman

ResourcesManager

S. MillerFinancial Services Director

D. GrahamCommunications

Manager

M. FoleyGeneral Counsel

OpenDocument

Processing Coord.

C. HardenAdministrative

Assistant

K. O’NealAdministrative

Assistant

(open)Administrative

Assistant

L. HertaEmployee Benefi ts

Counselor

E.EramoCommunications

Coordinator

A. HensleyDesign Specialist

B. HolodnakSr. Staff Attorney

T. RankinStaff Attorney,

Associate

S. GrotskyLegal

Secretary

A. GoldenLegal

Secretary

J. DukesPurchasing Assistant

B. BonnerRecords and

Imaging Spec.

N. MotleyRecords and

Imaging Spec.

H. BrumRecords &

Imaging Spec.

M. MooreMail Services

Specialist

T. LindseySr. Records and Imaging Spec.

R. NurRecords and

Imaging Spec.

M. BlandRecords and

Imaging Spec.

R. ByrdRecords and

Imaging Spec.

A. BruceRecords and

Imaging Spec.

Y. TubmanRecords,

Imaging and Mail Manager

A. GatlingPurchasing Agent

J. EdwardsSr. Records and Imaging Spec.

P. RajkumarRecords and

Imaging Supervisor

S. SchmittAdministrative

Support Services Manager

C. HallMail Services

Specialist

J. BaggsRecords and

Imaging Spec.

C. HershnerParalegal

T. HallChief

InvestmentOffi cer

J. HarvilleMemberServices Director

M. JordanInternal

Auditor/ Privacy and

Ethics Offi cer

Board of Trustees

M. GatewoodInformation

Services Director

J. MayeskyPurchasingManager

OP&F • page 59


Administration Department Budget (in thousands)* 2015 2014 Variance $ Variance % 2014 Variance $ Variance % 2013

Budget Category Budget Forecast 2014 2014 Budget 2014 2014 Actual

Personnel Services Salaries $2,222 $2,884 $(662) –23.0% $2,869 $(647) –22.6% $2,721 Employee Benefi ts 784 842 (58) –6.9% 976 (192) –19.7% 1,062 Employer Payroll Expense 402 485 (83) –17.0% 506 (103) –20.4% 452 Sub-Total $3,408 $4,211 $(803) –19.1% $4,351 $(942) –21.7% $4,234

Work Environment

Offi ce Rent $1,242 $1,227 $15 1.2% $1,242 $- 0.0% $1,208 Maintenance and Repairs 54 25 29 115.6% 59 (5) –9.0% 6 Legislative Expenses — — — — — — — — Mailing Expense 264 210 54 25.7% 264 0 0.1% 140 Printing and Publications 100 73 27 36.9% 109 (9) –8.3% 66 Offi ce Supplies 114 85 29 34.1% 114 - 0.0% 100 Offi ce Equipment 7 33 (26) –77.8% 32 (25) –77.2% 11 Insurance Administrative — — — — — — — — Recovery Plan and Contingency 148 33 115 344.7% 146 2 1.4% 39 OP&F Sponsored Seminars — 11 (11) –100.0% 10 (10) –100.0% 11 Business Travel 24 15 9 58.4% 18 6 34.9% 15 Business Expense 8 4 4 81.8% 8 (0) –0.5% 8 Trustee Training — — — — — — — — Employee Training 70 49 22 44.4% 50 20 40.9% 35 Telephone Services — — — — — — — (0) Dues and Subscriptions 52 35 17 48.6% 40 13 31.8% 37 Miscellaneous Expenses 19 14 4 29.9% 21 (2) –8.5% 19 Sub-Total $2,104 $1,816 $288 15.8% $2,113 $(9) –0.4% $1,696

Outside Services Investment Services $— $— $— — $— $— — $— Bank Custody Fees — — — — — — — — Actuarial Services — — — — — — — — Audit Services — — — — — — — — Legal Services 417 211 206 97.8% 494 (78) –15.7% 328 Disability Medical Service — — — — — — — — Public Relation Consultants — 4 (4) –100.0% 5 (5) –100.0% 6 Bank Charges — — — — — — — — Ohio Retirement Study Council 53 57 (4) –6.6% 53 — 0.0% 43 Legislative Consultants 86 85 2 1.9% 84 2 2.9% 84 Personnel Recruitment 16 7 8 118.2% 15 0 3.0% 12 Health Care Consultants — — — — — — — — Other Professional Service 203 38 165 432.6% 102 101 99.6% 30 Sub-Total $774 $402 $373 92.9% $753 $21 2.9% $504

TOTAL OPERATING $6,286 $6,429 $(142) –2.2% $7,216 $(930) –12.9% $6,434

* Figures may not add due to rounding dollars to the nearest thousand.

OP&F • page 60


Administration BudgetOP&F’s Administration Department provides a wide variety of services to the Board of Trustees and other OP&F departments in the areas of \ human resources, legal, communications, internal audit, purchasing, records, imaging and mail services. In addition to leading the entire organization, the Executive Director also oversees the Administration Department and coordinates external outreach with legislators and member organizations. He also serves as the direct line of contact between the Board of Trustees and OP&F staff .

Th e specifi c responsibilities of each area within the department include:

Human ResourcesResponsible for all personnel matters and human resources functions, including staffi ng, payroll, employee compensation and benefi ts, employee relations, performance management, training, and the Employee Activity Committee.

General CounselTh e General Counsel serves as legal counsel to the Board of Trustees, Executive Director and all divisions of OP&F. General Counsel draft s and/or reviews all contracts entered into by OP&F as well as documents for the investment of OP&F funds. Legal oversees all litigation brought by or against OP&F, draft s and reviews rules and legislation and processes all court orders, powers of attorney and domestic property orders. General Counsel serves as the liaison to the offi ce of the Ohio Attorney General and coordinates all special counsel assigned to the Board of Trustees.

Building ServicesResponsible for the management of building operations, leasing activity and building maintenance.

Internal AuditResponsible for auditing department procedures and processes and recommending alternative solutions and practices to lower risk or to increase effi ciency.

CommunicationsTh e Communications Group is responsible for public relations and media relations eff orts. In addition, Communications produces all OP&F publications, forms and also is responsible for the content and updates to the OP&F website. Communications ensures that a consistent message and image is conveyed throughout these materials.

PurchasingTh e Purchasing Group is a centralized function for all fund wide purchases with a few exceptions (i.e., Executive Director and Board travel) and is staff ed by the Purchasing Manager, one Purchasing Agent and one Purchasing Assistant.

Memorial ParkResponsible for the maintenance of the Ohio Police and Fire Memorial Park, established to honor the memory of Ohio’s fallen police offi cers and fi refi ghters.

Records, Imaging and Mail (RIM) CenterTh e RIM Center is responsible for handling all member, employer and applicable business records, received in the mail via paper, fax, electronic mail and in person. Th e RIM Center provides OP&F with timely, accurate and best practice effi ciencies associated to the OP&F’s business information through creation, receipt, distribution, maintenance, use, protection, retention and preservation.

OP&F • page 61


Goals and Objectives1. Goal: Coordinate eff ective outreach eff orts with

legislators and member organization leaders. Objective: Provide OP&F information to all interested parties to keep them informed about OP&F activities.

2. Goal: Coordinate monthly meetings for full Board and Board committees.Objective: Coordinate the timely production and distribution of all Board materials.

3. Goal: Monitor status of pending legislation and legislation that has been enacted.Objective: Evaluate potential impact of pending legislation on OP&F operations and assist with the draft ing or review of internal procedures or administrative rules to comply with all new legislation.

4. Goal: Maintain a work environment that supports teamwork and continued learning. Objective: Encourage participation in professional development activities that include in-house training, online learning, position specifi c seminars and workshops, and professional certifi cations as appropriate.

5. Goal: Provide legal oversight on all OP&F matters. Objective: Conduct legal reviews of all pending cases and make recommendations as needed to internal procedures and processes.

6. Goal: Preserve the assets of OP&F through risk management and internal controls.Objective: Conduct internal audits on OP&F processes and procedures, recommend improvements, and monitor implementation of recommendations.

7. Goal: Provide a work environment that promotes a high performance workplace and the satisfaction of OP&F’s staff with the work environment.Objective: Monitor building operations with the contracted building manager to maintain effi cient building operations and a safe work environment.

8. Goal: Promote a consistent business image for OP&F based on member satisfaction and quality service. Objective: Develop communication materials that present a consistent image and message for all OP&F publications.

9. Goal: To provide proper protection and fi le integrity of all member and employer fi les, regardless of the medium created or stored—paper or electronic.Objective: Preservation of member and employer related records through the vital records protection program.

10. Goal: To provide accessibility to reliable and accurate member and employer related information once records are collected, scanned and indexed with proper quality controls to the various OP&F departments.Objective: Retrieval of member and employer–related records in a timely and accurate manner for service to other departments.

11. Goal: To provide prompt and effi cient mail room services to all departments.Objective: Ensure all incoming and outgoing mail are processed in an effi cient and timely manner to the proper department.

12. Goal: Th e Purchasing Area strives to obtain quality goods and services, at the lowest reasonable cost, while operating at the highest standards of ethical conduct. Objective: Utilize various bidding methods that foster a fair and open bidding process.

OP&F • page 62


Performance MeasurementsSupports Goal #4 Actual 2013 Estimated 2014 Expected 2015 Type

In a given year, performance evaluations and feedback will be conducted for all OP&F staff hired prior to 9/30 of that year 100% 100% 100% Output

Online Learning Center available for all staff 100% 100% 100% Output

Supports Goal #5 Actual 2013 Estimated 2014 Expected 2015 Type

80% of Division of Property Order Acknowledgements sent 100% 100% 100% Outputwithin three days

95% of Division of Property Orders processed within 50 days. 100% 100% 100% Effi ciency(10 days less than statutory deadline)

Number of Division of Property Orders reviewed 200 210 205 Effi ciency

50% of Powers of Attorney entered within two days of approval 100% 100% 100% Effi ciency

75% of special counsel information updated within two days of receipt 100% 100% 100% Effi ciency

80% of contract information entered same day as the contract number is issued 100% 100% 100% Output.

Supports Goal #6 Actual 2013 Estimated 2014 Expected 2015 Typee

Number of Internal Audits and Projects Conducted 10 10 10 Output


Number of publications revised and newly developed 52 44 45 Output


Processing of Member File requests (minutes/group) <1 <1 <1 Effi ciency


Number of Member Files out to departments at reconciliation time <11 <8 <2 Output

Number of imaged documents available for viewing on Vitech system 33.66 million 3.75 million 3.8 million Output

Amount of correspondence received, scanned and fi led per two-week period 3,364 5,500 5,500 Output

OP&F • page 63



Turnaround time for off –site records 24 hours 24 hours 24 hours Output 24 hours on standard request

Processing of Incoming mail (Letters/hour) 109 100 100 Output

Response time to outgoing mail pickup requests from 10 10 10 Outputdepartments (minutes)


Purchase Orders processed 1,077 1,150 1,150 Output

Request for Information issued 0 0 0 Output

Request for Proposals issued 1 2 2 Output

OP&F • page 64


Budget Category Summary Actual Revised Budget Budget % Change

Budget Category 2013 2014 2015 2014-2015

Personnel Services $4,233,884 $4,350,796 $ 3,408,444 –21.7%Work Environment $1,696,119 $2,112,740 $2,103,593 0.4%Outside Services $503,586 $752,959 $774,430 2.9%TOTAL: $6,433,589 $7,216,495 $6,286,467 –12.9%

Budget Category Explanations

Personnel Services Th is category refl ects the salaries, employee benefi ts, and employer payroll expense of all Administration Department employees. For 2015, there is a 21.7 percent decrease from the 2014 budget. Th e increase/decrease can primarily be attributed to the move of the Customer Service and Member Education Groups from Administration Department to the Member Services Department.

Work Environment Th is category represents all expenses related to the Administration Department’s work environment including; maintenance and repairs, equipment, supplies, training and travel, printing and publications and mailing costs.

Outside Services Th is category refl ects all external professional services for the Administration Department.

Personnel ProjectionsCategory 2013 2014 2015

Exempt Salary 16 16 13Non-Exempt Salary 31 32 23TOTAL FULL-TIME 47 48 36

OP&F • page 65


Administration 2015 Initiatives

Comprehensive Compensation StudyIn order to maintain a competitive compensation program, it is OP&F’s goal to complete a comprehensive compensation study about every fi ve years. With the last compensation for non-management staff occurring in 2010 and in 2011 for exempt staff , a study is due in 2015.

Th is will be a review of all benchmark positions and slotting for positions where relevant data is not available in the market. It is expected the chosen vendor will benchmark jobs against Ohio retirement systems, other relevant public employers, private employers for extremely common jobs (accountant, business analyst, customer service, etc), and nationally for some of the executive-level jobs.

Th e purpose of the study is to determine if OP&F’s compensation structure and pay rates have been keeping up with the market and to off er suggested changes where appropriate on wages relevant to the market data, wage structure, and pay practices. $50,000 is budgeted for this study.

Website search capabilityIn an eff ort to make the OP&F website more user-friendly, this initiative proposes adding search capabilities to op-f.org. Th e new capability would allow users to type into a search box on any page on the website in order to locate information or fi les on a specifi c subject.

With the expansion of the website to include a large number of documents, reports, forms and publications, this feature is needed to better manage the use of the site. Th e Communications Group will work with Information Services to implement this project in 2015. Th e estimated cost of this initiative is $5,000.

.

Review Of Administration Department’s 2014 InitiativesTh is section highlights the initiatives budgeted for the department in 2013 and explains how the department met the anticipated results of each.

OP&F Fraud HotlineTh is initiative established a dedicated toll-free number for OP&F members and the general public to use to report suspected abuse of the OP&F disability benefi ts and the granting process. Th e Fraud Hotline became available on April 15, 2014, as scheduled. As of Oct. 1, 2014, OP&F has received 13 allegations of fraud and required four members to be reexamined. Legal staff is managing the hotline data with available resources and additional soft ware is not necessary at this time.

Establish OP&F Facebook pageIn 2014, staff revisited the possibility of having an OP&F a Facebook page, along with the associated advantages and disadvantages. Aft er discussions with the Executive Director and the Board, it was decided to not to establish a page at this time.

Addition of Member Education Representative One full-time Member Education Representative was added to the Member Education Group as a result of this 2014 budget initiative. Th e position is responsible for conducting member pre-retirement interviews, assisting with member walk-ins, preparing pension estimates for interviews, mail out requests, and assist with OP&F pre-retirement seminars and special request meetings as needed. Th e addition has enhanced service to OP&F membership by increasing interview appointments as needed and also improved effi ciency within the department by decreasing turnaround time for preparation of mail out pension estimate requests.

Pensionomics study With the release of the nationally-conducted Pensionomics study, the executive directors of the fi ve Ohio public retirement systems decided not to proceed with an Ohio-specifi c report.

OP&F • page 66


Finance Department


Staff

A. RhodesController

T. O’BrienAccounting

Manager

A. MaloneEmployer Services

Supervisor

B. HarnessAccountant

L. GdulaAccountant

K. Highfi eldAccounting

Specialist

(open)Accounting

Specialist

L. AdkinsSr. Accountant

M. TessemaAccountant

F. AllmanSr. Accounting

Specialist

M. KellerFinancial Reporting

Accountant

N. BowenEmployer

Services Auditor

D. AdamsSr. Employer

Services Specialist

B. HaylesEmployer Services

Specialist

L. PerkinsEmployer

Services Auditor

K. SzlasaSr. Employer

Services Specialist

B. MillsEmployer Services

Specialist

J. GreshSr. Employer

Services Specialist

S. MillerFinancial Services Director

A. DuchAdministrative

Assistant

J. DavisEmployer Education Manager

OP&F • page 67


Finance Department Budget (in thousands)* 2015 2014 Variance $ Variance % 2014 Variance $ Variance % 20132


Personnel Services Salaries $1,278 $1,270 $8 0.6% $1,267 $11 0.9% $1,244 Employee Benefi ts 394 353 41 11.6% 376 18 4.8% 366 Employer Payroll Expense 205 202 3 1.3% 202 3 1.3% 197 Sub-Total $1,876 $1,825 $51 2.8% $1,844 $32 1.7% $1,808

Work Environment

Offi ce Rent $— $— $— — $— $— — $— Maintenance and Repairs — — — — — — — — Legislative Expenses — — — — — — — — Mailing Expense — — — — — — — — Printing and Publications — — — — — — — — Offi ce Supplies — — — — — — — 0 Offi ce Equipment 1 — 1 — 1 — 0.0% — Insurance Administrative 244 219 25 11.6% 240 4 1.7% 213 Recovery Plan and Contingency — — — — — — — — OP&F Sponsored Seminars 1 - 1 — — 1 — — Business Travel 6 5 1 18.8% 4 1 30.6% 2 Business Expense 3 1 2 340.7% 3 (0) –7.1% 1 Trustee Training — — — — — — — — Employee Training 10 4 6 134.8% 9 1 7.4% 3 Telephone Services — — — — — — — — Dues and Subscriptions 6 6 1 11.0% 7 (1) –11.2% 4 Miscellaneous Expenses — — — — — — — 0 Sub-Total $271 $234 $37 15.6% $265 $6 2.1% $224

Outside Services

Investment Services $— $— $— — $— $— — $— Bank Custody Fees — — — — — — — — Actuarial Services 444 426 18 4.1% 507 (63) –12.4% 428 Audit Services 134 106 28 25.9% 109 25 23.0% 103 Legal Services — — — — — — — — Disability Medical Service — — — — — — — — Public Relation Consultants — — — — — — — — Bank Charges 89 86 3 3.1% 89 - 0.0% 88 Ohio Retirement Study Council — — — — — — — — Legislative Consultants — — — —- — — — — Personnel Recruitment — — — — — — — — Health Care Consultants — — — — — — — — Other Professional Service — — — — — — — — SUB-TOTAL $666 $619 $48 7.7% $704 $(38) –5.4% $619

TOTAL OPERATING $2,813 $2,678 $136 5.1% $2,814 $(0) 0.0% $2,650


OP&F • page 68


FinanceTh e Finance Department manages the accounting, budgeting, taxes, insurance, audit and fi nancial reporting functions of OP&F. Th e strong fi nancial stewardship of our member’s money and the employer’s contributions is our overriding concern as we are a service provider to our members, employers and employees of the Fund. Th ese responsibilities encompass:

Accounting• Maintaining internal controls over plan assets• Recording and reconciling fi nancial transactions in

the general ledger system and subsidiary systems• Financial reporting (internal and external)• Reporting pension distributions and tax withholdings• Paying vendor invoices and pension distributions• Maintaining proper insurance coverage• Forecasting plan assets and liabilities• Reviewing the annual actuarial report and supporting

assumptions• Overseeing external audits ensuring compliance with

statutory funding requirements. Employer Services Group

• Maintains a high working knowledge of the Ohio Revised Code related to employer requirements

• Reviews, posts and releases monthly contributions to members’ participant accounts

• Reviews each payroll for any exceptions and works with the employer to correct any defi ciencies

• Sends 30 day letters to employers regarding payroll defi ciencies

• Calculates, audits and processes employer refunds and credits

• Updates employer information and corrects and maintains information in the agreement and import modules

• Calculates penalties on a monthly basis for late and/or missing payroll and payment items.

Employer Education• Provides training and outreach to the employer

community on all OP&F reporting requirements• Serves as a point of contact for general employer

inquiries• Researches and administers special penalty provisions• Identifi es and corrects recurring employer reporting

and payment defi ciencies

Goals and Objectives1. Goal: Maintain an accurate and effi cient general ledger

system to ensure proper collection, reconciliation, and reporting of fi nancial data.Objective: Record all fi nancial data in the general ledger properly and ensure timely and accurate fi nancial reporting.

2. Goal: Achieve the highest standards of fi nancial and budgetary reporting.Objective: Attainment of the Government Finance Offi cers Association (GFOA) Certifi cate of Achievement for Excellence Award in Financial Reporting for our Comprehensive Annual Financial Report (CAFR) and Distinguished Budget Presentation Award for our annual budget.

3. Goal: Ensure full statutory and regulatory reporting compliance for pension and vendor distributions. Objective: Meet all reporting deadlines for tax deposits, annual forms reporting and avoid penalties for non-compliance from outside agencies.

4. Goal: Provide excellent customer service to our employers, members, and employees. Objective: Ensure we meet the needs of our primary customers (external and internal).

5. Goal: Create a partnership with our employers to help ensure an eff ective exchange of matters as required by the ORC. Th is includes improving processing times and avoiding penalty situations whenever possible.Objective: Notify employers about upcoming due dates prior to penalties being assessed.

6. Goal: Processing employer payroll reports in a timely and accurate manner.Objective: Release member payroll details reported by the employers within 30 days of the date received or the due date of the payroll.

7. Goal: To provide training to employer community on all OP&F reporting requirements.Objective: Th rough targeted onsite and telephonic training, seminars and written material have employers acknowledge that they have received training on proper, accurate and timely reporting/payment, consistent with ORC/OAC requirements.

OP&F • page 69



Accounting close of general ledger system by the 15th business day each month 8 8 11 Effi ciency

Batch deposits are broken down and recorded to proper general ledger account within fi ve business days of receipt 99% 100% 100% Output

General ledger accounts are reconciled by the 20th business day 12 12 12 Outcome

Process general ledger coding corrections and inquiries within fi ve business days of notifi cation or request 100% 100% 100% Effi ciency

General ledger interfaces are completed within fi ve busiess days Yes No Yes Effi ciencyincluding the employee payroll, pension and DROP


Submit and receive the Certifi cate of Achievement for Excellence in Financial Reporting from the Government Fincance Offi cers Association Yes Yes Yes Outcome

Submit and receive annual Distinguished Budget Presentation Award Yes Yes Yes Outcome


Forward all member, retiree and survivor tax withholdings within Federal and State timetable Yes Yes Yes Effi ciency

Mail all eligible vendor Form 1099-Ms by Jan. 31 of each year Yes Yes Yes Output Mail all member, retiree, and survivor Form 1099–Rs by Jan. 31 of each year Yes Yes Yes Output


Process employer refunds within 10 business days of receipt 90% 90% 90% Output Mail employer penalty bills timely and accurately each quarter Yes Yes Yes Output


Provide courtesy calls on the monthly member contribution 12 months 12 months 12 months Effi ciencyreports and payments by the second to the last business day of each month, before penalties

Provide courtesy calls to delinquent employers in an eff ort to Yes Yes Yes Effi ciencyavoid penalty escalation on billing related items

OP&F • page 70



Employer payroll reports processed and released within 89% 54% 80% Output 30 days of the date received

Employer payroll reports processed and released within 30 days 97% 64% 85% Outputof the payroll due date Complete the year-end close process for employer payroll reports by Yes Yes Yes Effi ciencythe end of following February for items in our control


Number of Employers that have undergone training on 100 110 150 OutputOP&F reporting and payment requirements


Update employer organizations on OP&F reporting issues 6 2 5 Outputthrough conference participation

OP&F • page 71



Budget Category 2013 2014 2015 2014–2015

Personnel Services $1,807,625 $1,844,432 $1,876,255 1.7%Work Environment $223,814 $265,302 $270,931 2.1%Outside Services $618,881 $704,100 $666,300 –5.4%TOTAL $2,650,320 $2,813,834 $2,813,486 0.0%


Personnel ServicesTh is category refl ects salaries, employee benefi ts, and employer payroll expenses for all Finance department employees. For 2015, there is a proposed average merit increase of 3.0 percent for all eligible staff . Th e number of personnel (21) for the Finance Department will remain the same in 2015.

Work EnvironmentTh is category represents all expenses related to the Finance department work environment including equipment, training, travel, dues and subscriptions. Th e overall Work Environment category for 2015 has increased 2.1 percent primarily due to the costs in the insurance market. In addition, dues and subscriptions and training fees slightly decreased due to the elimination of materials obtained in 2014.

Outside ServicesTh is category refl ects external professional services such as actuarial services, audit fees, legal fees, and bank charges. For 2015, the Actuarial Services has signifi cantly decreased due to the elimination of some services and other services that have been combined with the monthly retainer service charge. Due to the expected costs of audit hours associated with GASB 67 and 68, audit services were increased. Th e Bank Service Charges and Warrant Fees will remain the same in 2015.



OP&F • page 72


Information Services Department

M. GatewoodInformation

ServicesDirector


Staff

S. BucherSoft ware

Development Manager

J. BreecknerSystems and

Network Manager

T. GreenBusiness Analyst

T. EdwardsBusiness Analyst

R. LaneBusiness Analyst

J. DawsonBusiness Analyst

R. LadyBusiness Analyst

K. TennantAdministrative

Assistant

P. FickBusiness Systems Analyst

D. GanjehsaniSystems and

Network Support Technician

J. ChubakSystems and


(open)Systems and


M. ChadwellSystems and


J. MillerTechnical Support

Coordinator

A. ZedekSecurity and

Network Administrator

D. WoodsSystem

Administrator

D. JamesDatabase

Administrator

M. Taff eSoft ware

DevelopmentSupervisor

P. GreggSoft ware

DevelopmentSupervisor

D. SewardSoft ware

Developer

B. WalumSoft ware

Developer

D. DaughertySoft ware

Developer

J. HornbergerSoft ware

Developer

B. AldridgeSoft ware

Developer

S. BreechSystems

Administrator

OP&F • page 73


Information Services Department Budget (in thousands)* 2015 2014 Variance $ Variance % 2014 Variance $ Variance % 2013



Work Environment Offi ce Rent $— $— $— — $— $— — $— Maintenance and Repairs 999 1,105 (106) -9.6% 985 14 1.4% 742 Legislative Expenses — — — — — — — — Mailing Expense — — — — — — — — Printing and Publications — — — — — — — — Offi ce Supplies — — — — — — — — Offi ce Equipment 101 58 42 72.4% 91 9 10.2% 63 Insurance Administrative — — — — — — — — Recovery Plan and Contingency 9 8 1 13.3% 10 (1) –11.9% 8 OP&F Sponsored Seminars — — — — — — — — Business Travel 10 1 9 618.1% 14 (4) –25.1% 5 Business Expense 1 0 1 493.3% 1 - 0.0% - Trustee Training — — — — — — — — Employee Training 32 13 19 148.9% 29 4 12.2% 8 Telephone Services 70 63 7 11.1% 80 (10) –12.8% 69 Dues and Subscriptions 4 3 1 42.2% 4 0 11.0% 4 Miscellaneous Expenses — (0) 0 –100.0% — — — — Sub-Total $1,226 $1,251 $(25) –2.0% $1,214 $12 1.0% $898

Outside Services

Investment Services — — — — — — — — Bank Custody Fees — — — — — — — — Actuarial Services — — — — — — — — Audit Services — — — — — — — — Legal Services — — — — — — — — Disability Medical Services — — — — — — — — Public Relation Consultants — — — — — — — — Bank Charges — — — — — — — — Ohio Retirement Study Council — — — — — — — — Legislative Consultants — — — — — — — — Personnel Recruitment — — — — — — — — Temporary Employees — — — — — — — — Contract Staffi ng — — — — — — — 0 Health Care Consultants — — — — — — — — Other Professional Service 71 — 71 — 105 (34) –32.4% 5 Sub-Total $71 $— $71 — $105 $(34) –32.4% $5

TOTAL OPERATING $3,921 $3,702 $219 5.9% $3,556 $365 10.3% $3,276


OP&F • page 74


Information Services Th e Information Services (IS) department is divided into Business Systems, Systems and Network, and Development staff . IS is ultimately responsible for all of OP&F’s computer and computer-related equipment and the programs running on them.

Business Systems• Responsible for collection and proper

communication of OP&F staff needs to appropriate IS technical teams, including follow-through to ensure user satisfaction aft er completion of each request. Th is team serves as the fi rst step in new soft ware development.

• Responsible for training and documentation.• Responsible for quality assurance testing and

coordination of user acceptance testing of new soft ware development as well as changes to existing soft ware.

Systems and Network • Help Desk: responsible for inputting and tracking

user requests, while assisting staff with computer-related needs. Th e group ensures the proper and effi cient operation of end-users’ personal computers, including hardware and soft ware operations.

• Network and Security Administration: responsible for providing secure and reliable connectivity between all OP&F computer resources and the Internet; includes wiring, network devices and security appliances.

• System Administration: responsible for correct and effi cient operation of all computer server resources and the programs running on them; includes installation and maintenance of hardware and operating system as well as virtual servers.

• Telecommunications: responsible for control and maintenance of the telephone system including connectivity of phones, and facsimile machines. Completes physical moves and changes of telecommunication devices. Troubleshoots all telephone wiring problems and administration and support for the phone system soft ware and hardware.

Development• Development: responsible for the correct and

effi cient development of computer programs to meet stated user requirements.

• IS fundamentally serves as a resource to other OP&F departments to provide or assist in the use or creation of tools and systems designed to improve

effi ciency and productivity. It also serves as a resource for the evaluation and determination of fi tness for use of purchased soft ware for various projects and departmental needs.

Goals and Objectives1. Goal: Ensure timely and accurate monthly

benefi t payments.Objective: Adhere to monthly check run procedures to generate monthly benefi t statements; monitor for effi ciency and improvement; continually implement improvements to increase eff ectiveness and effi ciency.

1. Goal: Maintain a stable and available computing environment.Objective: Monitor network and operating environment; perform system maintenance as scheduled; monitor for effi ciency, security and improvement; continually implement improvements to increase eff ectiveness, integrity and effi ciency.

1. Goal: Properly assist users with computer related tasks.Objective: Provide Help Desk support as listed in the OP&F departmental service level agreements.

1. Goal: Create computer-based tools and systems to assist in pension processing to end-user satisfaction and on schedule.Objective: Ensure user approval of requirements and prototype documentation; conduct user acceptance testing as listed in the OP&F Service Development life cycle (SDLC); conduct follow-up of user satisfaction on all IS requests.

1. Goal: Eff ectively assist staff in evaluating third-party computer-based applications and systems.Objective: Ensure user approval of requirements for third-party computer-based applications and provide fi nal recommendations to user; provide pros and cons of various recommendations of third-party computer-based tools.

1. Goal: Increase the number of cities reporting employer data electronically.Objective: All city employers capable of sending data electronically, either via self-service web or FTP, should submit using those methods.

1. Goal: Plan the number of server and PC replacements.Objective: Install server and PC hardware on schedule according to budget plan.

OP&F • page 75



Monthly benefi t checks on time 12 12 12 Output


Level 1 support request time–to–completion 2.77 days 1.47 days 2.12 days Outcome




Number of requests opened within 15 minutes of receipt 6,269 6,179 6,224 Output

Percent opened per Service Level Agreement (SLA) 100% 100% 100% Output


Number of development requests received 192 171 181 Outcome

Number of development requests completed 148 167 158 Output

Percent completed 77% 98% 87% Outcome


Products reviewed 39 12 22 Effi ciency

Products acquired 33 11 26 Effi ciency


Number of cities reporting via electronic format (Self-Servide Web or FTP) 636 654 700 Effi ciency


Servers installed or replaced 9 physical, 7 physical 3 physical Output 11 virtual 13 virtual 10 virtual

PCs installed or replaced 1 1 1 Output

OP&F • page 76



Budget Category 2013 2014 2015 2014–2015

Personnel Services $2,444,105 $2,602,317 $2,841,656 9.2%Work Environment $898,122 $1,213,644 $1,225,592 1.0%Outside Services $5,000 $105,000 $71,000 –32.4%TOTAL $3,347,227 $3,920,961 $4,138,248 5.5%


Personnel Services$2,841,656 – Th e 9.2 percent increase is related to the addition of the new IS Director to the IS budget as well as a 3% merit increase for eligible staff . Increases to employee health care costs, and employer share contributions to OPERS also contribute to the increase.

Maintenance and Repairs$998,794 – Th is is a 1.2 percent increase from the 2014 budget, this increase is due to the addition of Hardware/Soft ware Maintenance and Support for Fortinet, Pitney Bowes and BoardVantage.

Other Professional Services$71,000 – Th is decrease is due to the carryover of both the 2014 Outside Security Assessment initiative and Kofax initiative at reduced rate.

Business Travel$10,494 – Th is 25.1 percent decrease from the 2014 budget is due to cuts in the Business Travel Budget.



OP&F • page 77


Information Services 2015 InitiativesAll Information Services initiatives have been allocated to the Capital Budget.

Review Of Information Services Department’s 2014 Initiatives

Kofax Training and Implementation Services (Carryover)Request Th is initiative is to request three things: training of a technical resource, training for our imaging personnel and implementation/problem solving services. Th ere is a new technical resource that needs to be trained on how to develop and administer the Kofax Capture system. Training is needed for the imaging personnel. Th is training would cover daily use of the Kofax Capture product as well as groom one or two people to become super users. Finally, money is needed for implementation and/or technical support to provide consulting on upgrades and problem solving for issues.

ResultTh e goal is to reduce downtime due to implementation issues and to train the Kofax users on how to better take advantage of the product.

Outside Security Assessment (Carryover) RequestContract with a company to perform a security assessment of our network and websites. Th is would involve a full review of all security equipment currently installed, a complete checkup of the corporate infrastructure and recommended fi xes, and specifying an industry standard of security. Th e last assessment was done in 2007.

ResultTh is assessment would assure OP&F that best practices are in place for network security, identify any possible issues or concerns that need to be addressed, and will enable to demonstrate that OP&F is complying with NIST Special Publication 800-122 regulations.

Additional CommVault Disk to Disk (DDO) Licensing (Completed) RequestPurchase additional CommVault disk to disk (DDO) licensing to keep up with OP&F data growth.

ResultAllow OP&F to continue business as usual. Th e reason OP&F can perform restores from the previous week without calling back off site tapes is that the most recent backups are on DDO storage. As the amount of data at OP&F has grown, additional DDO licensing is required so that recent backups can still be kept online in DDO storage. Besides providing quicker fi le recoveries, having adequate DDO licensing helps to save OP&F money by enabling use of a less expensive tape library as the DDO storage acts as a buff er before streaming to tape. A tape library for OP&F with only two tape drives is needed when DDO storage acts as an intermediate buff er before backups are written to tape, whereas the current, soon to be replaced, tape library was confi gured with four tape drives at a time before DDO licensing was purchased.

OP&F • page 78


Investment Department

T. HallChief

InvestmentOffi cer


Staff

R. Th ellerSenior

Investment Offi cer

B. LukeSenior

Investment Offi cer

J. YeboahInvestment Operations

Offi cer

M. AbankwahAssistant

Investment Offi cer

K. HoustonPortfolio Specialist

A.Mahan-HowardPortfolio Specialist

H. PothorskiAdministrative

Assistant

E. EichhornBudget and Compliance

Assistant

M. FeniceCash Manager

J. WestonAssistant

Investment Offi cer

V. Th omasSenior

Accountant

J. AufderhaarSenior

Accountant

G. PryorInvestment

Operations Auditor

OP&F • page 79


Investment Department Budget (in thousands)* 2015 2014 Variance $ Variance % 2014 Variance $ Variance % 2013



Work Environment

Offi ce Rent $— $— $— $— $— $— $— $ — Maintenance and Repairs — — — — — — — — Legislative Expenses — — — — — — — — Mailing Expense — — — — — — — — Printing and Publications — — — — — — — — Offi ce Supplies — — — — — — — — Offi ce Equipment — — — — — — — — Insurance Administrative — — — — — — — — Recovery Plan and Contingency — — — — — — — — OP&F Sponsored Seminars — — — — — — — — Business Travel 25 21 4 19.2% 23 1 5.8% 3 Business Expense 0 — 0 — 0 — 0.0% — Trustee Training — — — — — — — — Employee Training 9 7 2 32.8% 9 (0) –1.8% 1 Telephone Services — — — — — — — — Dues and Subscriptions 39 28 11 40.4% 33 6 16.8% 27 Miscellaneous Expenses 0 0 0 50.0% 0 — 0.0% — Sub-Total $73 $55 $18 31.8% $66 $7 10.3% $30

Outside Services

Investment Services $45,050 $44,313 $737 1.7% $42,206 $2,844 6.7% $41,207 Bank Custody Fees 960 800 160 20.0% 1,140 (180) –15.8% 960 Actuarial Services — — — — — — — — Audit Services — — — — — — — — Legal Services — — — — — — — 38 Disability Medical Services — — — — — — — — Public Relation Consultants — — — — — — — — Bank Charges — — — — — — — — Ohio Retirement Study Council — — — — — — — — Legislative Consultants — — — — — — — — Personnel Recruitment — — — — — — — — Health Care Consultants — — — — — — — — Other Professional Service 35 21 14 64.3% 29 6 19.4% 51 Sub-Total $46,044 $45,134 $910 2.0% $43,374 $2,670 6.2% $42,218

TOTAL OPERATING $47,730 $46,758 $972 2.1% $45,022 $2,708 6.0% $43,776


OP&F • page 80


InvestmentTh e Investment department is comprised of several functional areas, including investment management, oversight and operations. Th e role of the Investment department is to eff ectively and prudently invest the assets of the Fund so as to maximize total return while staying within statutory and policy guidelines. Th is is accomplished by investing in a number of diff erent asset classes utilizing both internal staff and multiple external managers. Th is responsibility encompasses:

• Maintaining the asset allocation decisions of the Board of Trustees by shift ing assets among asset classes and among managers.

• Implement existing policy actions, and recommend new policies, new ideas and new managers, when appropriate.

• Manage cash equivalent assets for the Fund.• Monitor our managers, their investment activity, their

compliance with guidelines and their performance.• Report to the Board on investment activity and costs,

policy guideline compliance and performance.• Record and authorize investment activity to maintain

accurate Fund records and to facilitate settlement of investment transactions.

Goals and ObjectivesTh e goals and objectives have been established in conjunction with a comprehensive review of the current and projected fi nancial requirements. Th ese goals and objectives are:

1. Goal: To have the ability to pay all benefi t and expense obligations when due.Objective: To maintain an investment portfolio structure consistent with guidelines and that also provides the necessary liquidity for near-term cash needs as well as the income and growth to meet future obligations.

2. Goal: To maintain the purchasing power of the current assets and all future contributions by effi ciently maximizing the rate of return on Fund assets at a reasonable level of risk.Objective: Tomaintain a diversifi ed portfolio structure with a focus on asset class risk contributions to help minimize total portfolio risk while at the same time implementing a portfolio with the highest level of return consistent with the Board’s risk tolerance. Th e Investment Department will study and possibly implement new methods of reducing portfolio risk.

3. Goal: To ultimately achieve and then maintain a fully funded status with regard to the accumulated benefi t obligation. Objective: To work toward and then maintain Board approved asset allocation targets in an eff ort to earn over the long-term a rate of return in excess of actuarial requirements.

Goal: To control costs of administering the Fund and managing the investments.Objective: To explore new investment ideas and trading approaches in an attempt to improve the effi ciency of and reduce the cost of our operations. Th e Investment Department will also monitor the costs of our investment operations through the use of industry surveys such as Cost Eff ectiveness Measurement.

Goal: Maintain effi cient systems to ensure proper recording and reconciliation of investment data.Objective: To maintain all investment data in the investment accounting system and ensure timely and accurate fi nancial reporting. Th e Investment Department will upgrade and enhance investment systems as necessary to help monitor investment information.

Th e most important expectation is the achievement of results consistent with this Policy Statement and the analysis set forth in a prior asset liability study completed in Dec. 2012 and updated in May 2014. Th e investment performance goal for the Total Portfolio is to meet or exceed the return of the Total Portfolio policy benchmark over a full market cycle, generally measured over three to fi ve years, without taking on additional risk as measured by standard deviation of returns. Th e Total Portfolio policy benchmark is a weighted average based on the allocation targets of each asset class benchmark.

OP&F shall also strive to achieve a long-term rate of return, which is equal to or greater than OP&F’s actuarial rate assumption of 8.25 percent.

OP&F shall attempt to achieve these return goals without unnecessary risk to principal. Th e risk/return characteristics of the portfolio shall be reviewed on a periodic basis (no less than every fi ve years) through a comprehensive asset allocation and liability study. Th e goal of the study shall be to formulate an Asset Allocation policy that maximizes return while minimizing overall risk through the most effi cient combination of acceptable asset classes under the prudent person standard.

OP&F • page 81


As a result of pension reform legislation that impacts OP&F’s liabilities and the historically low level of interest rates that aff ects asset class expected returns, beginning in mid-year 2012, staff and consultant began providing education and initial asset liability data as part of a new asset liability study that was ultimately completed in December 2012. Th e resulting allocation incorporates the total portfolio risk reduction concept known as “risk parity” that was initially adopted by the Board in early 2010. Based on the results of the study, staff and consultant started working to implement the new asset

allocation structure. Th is structure included a 5.0 percent allocation to Master Limited Partnerships (MLPs). Over the past year, MLPs have proven to be a great addition to the portfolio. In early 2014, the Board asked staff and consultant to revisit the asset allocation model to consider a higher allocation to MLPs. In mid 2014, based on the results of this review, the Board approved a revised asset allocation structure increasing the target to MLPs while further reducing equity exposure. Th e new structure is expected to reduce risk, increase returns and improve the risk balance across the portfolio.


Fund all benefi t and expense obligations 100% 100% 100% Outcome


Outperform the Fund’s policy benchmark Yes No Yes Outcome


Achieve and maintain fully funded status with regard to the accumulated benefi t obligation No No No Outcome

Meet or exceed the return of the Total Portfolio Policy Yes Yes Yes OutcomeBenchmark over a full market cycle


Participate in the Cost Eff ectiveness Measurement survey each year Yes Yes Yes Effi ciency

Investment OperationsInvestment Operations is responsible for processing and accounting for the fund’s investment related assets, liabilities, income, and expenses. This group accounts for the collection of income, as well as administering the fund’s investment accounting system. Investment Operations also provides monthly journal entries to the general ledger and creates numerous reports needed within the department, by other departments or outside sources for informational and decision making purposes.


Process standard purchase and sale transactions by T+1 99% 99% 99% Effi ciency

Complete month-end portfolio valuation within fi ve business days 99% 99% 99% Effi ciency

Complete month-end reconciliations for all portfolios and provide journal entries to the G/L within 10 business days 65% 96% 100% Effi ciency

Th e drop in the performance rate for 2013 is due to being short staff ed and unanticipated bottlenecks that arose fr om the custodial bank conversion fr om State Street Bank & Trust Co.

to J.P. Morgan Chase as mandated by the Treasurer of the State of Ohio.

OP&F • page 82


Alternative InvestmentsPrivate MarketsThe private markets allocation is designed to provide an attractive risk-adjusted rate of return to the overall OP&F investment portfolio. The diversifi cation of the private markets portfolio helps to achieve the performance objectives set forth in the Private Markets Investment Policy.

Supports Goals #2 and #3 Actual 2013 Estimated 2014 Expected 2015 Type

Achieve investment returns of the overall Private Markets portfolio to exceed No Yes Yes Outcomethe Wilshire 5000 Index + 300 bps net of fees over a 10-year rolling basis Manage the Private Markets portfolio to be compliant with the investment Yes Yes Yes Outcomeguidelines contained within the Private Markets Investment Policy

Achieve the Private Markets target exposure set forth by the Asset Allocation Policy Yes Yes Yes Outcome

Real EstateThe real estate allocation is designed to provide (i) an infl ation hedge, (ii) a total return that has a low or negative correlation with stock and bond returns, (iii) a total return that is competitive on a risk-adjusted basis with stocks and bonds; and (iv) a total return that is accretive to OP&F achieving its long-term target rate of return. The diversifi cation of the real estate portfolio helps to achieve the performance objectives set forth in the Real Estate Strategic Plan.


Generate a total return net of investment management fees equal to the NCREIF Fund Index – Open End Diversifi ed Core Equity (ODCE) net of fees over three-year and fi ve year rolling periods Yes Yes Yes Outcome

Generate a total return net of investment management fees in excess of the NCREIF ODCE net of fees plus 50 bps over a full market cycle Yes Yes Yes Outcome

Achieve the real estate target exposure set forth by the Asset Allocation Policy Yes Yes Yes Outcome

TimberlandThe timberland allocation is designed to preserve capital while generating an attractive risk-adjusted rate of return as a function of cash yield and capital appreciation as well as to provide diversifi cation benefi ts, a hedge against infl ation, and relative non-correlation to other asset classes. The diversifi cation of the timberland portfolio helps to achieve the performance objectives set forth in the Timberland Investment Policy.


Achieve investment returns of the overall Timberland portfolio that exceed a real rate of return of 5% net of fees, over rolling 10-year periods N/A N/A N/A Outcome

Manage the Timberland portfolio to be compliant with the investment Yes Yes Yes Outcomeguidelines contained within the Timberland Investment Policy

Conduct due diligence on potential timberland investment management organizations and present recommendations to the Board for consideration Yes Yes Yes Outcomein order to achieve Timberland target exposure set forth by the Asset Allocation Policy

Achieve the Timber target exposure set forth by the Asset Allocation Policy Yes Yes Yes Outcome

OP&F • page 83


Public Markets InvestmentCash ManagementThe Cash Management STIF portfolio is designed to provide eff ective cash management when investing cash balances, with an emphasis on the protection of principal through the purchase of high quality money market instruments, while at the same time attempting to achieve the highest available return.

Supports Goals #1, #2 and #3 Actual 2013 Estimated 2014 Expected 2015 Type

Achieve investment returns that should exceed the 91-day Treasury bill rate of return over rolling 12-month periods Yes Yes Yes Outcome

Perform credit reviews of approved issuers of commercial paper on a regular basis, but no less than every six months for issuers rated A1/P1 and every three months for issuers rated A2/P2 or split rated Yes Yes Yes Outcome

Maintain commercial paper exposure limits within the policy ranges of OP&F’s Short Term Cash Management Policy Yes Yes Yes Outcome

Domestic EquityThe domestic equity allocation is focused on companies headquartered and/or domiciled in the United States. The structure of the domestic equity allocation will be divided between passive and active managers with further diversifi cation across the capitalization spectrum. In addition, a portion of the domestic equity allocation will be implemented via a pool of alpha transfer strategies (i.e. Portable Alpha Program).


Achieve investment returns for the Domestic Equity Portfolio thatexceed the return of the Wilshire 5000 Index over a three-year period on an annualized basis Yes No Yes Outcome

Achieve excess returns on the Portable Alpha Program that exceed the return of the Standard & Poor’s 500 Index annually Yes Yes Yes Outcome

Achieve the Domestic Equity target exposure set forth by the Asset Allocation Policy Yes Yes Yes Outcome

Non-U.S. EquityThe Non-US equity allocation is focused on companies headquartered or domiciled in the MSCI ACWI-ex-US countries. The Non-US equity allocation will be managed solely on an active basis in order to exploit the perceived ineffi ciencies in the Non-US equity markets.


Achieve investment returns of the Non-US Equity Portfolio that exceed the return of the Morgan Stanley Capital International All Country World Index ex-US Iran/Sudan over a three-year period on an annualized basis. Yes No Yes Outcome

Achieve the Non-US Equity target exposure set forth by the Asset Allocation Policy Yes Yes Yes Outcome

Master Limited PartnershipsThe Master Limited Partnership allocation is focused on active, long-only investments in publicly traded partnership units of energy focused MLP companies. A Master Limited Partnership is a public partnership that is traded on a stock exchange.


Achieve investment returns in the Master Limited Partnership composite portfolio that exceed the return of the Alerian MLP Index over a three-year period on an annualized basis. Yes No Yes Outcome

Achieve the MLP target exposure set forth by the Asset Allocation Policy Yes Yes Yes Outcome

OP&F • page 84


Fixed Income: Investment GradeThe Fixed Income Investment Grade allocation is primarily focused on U.S. dollar denominated fi xed income securities. A new, unconstrained alternative fi xed income allocation has yet to be fully implemented and requires further asset class structure work to ensure that OP&F is comfortable with the risk/return basis for the eventual asset mix


Achieve investment returns in the investment grade fi xed income composite portfolio which exceed the return of the Barclays Aggregate Index over a three-year period on an annualized basis. Yes Yes Yes Outcome

Achieve the Fixed Income Investment Grade target exposure set forth by the Asset Allocation Policy Yes Yes Yes Outcome

Fixed Income: Global Infl ation Protected Securities (GIPS)The GIPS composite portfolio is intended to provide OP&F with a strategic allocation to an infl ation hedged investment strategy and may include bonds from any country issuing Infl ation Linked bonds with a sovereign local currency credit rating (S&P) of A- or better. The GIPS allocation will be levered in keeping with OP&F’s risk parity asset allocation approach, will be managed on an active basis in order to exploit the perceived ineffi ciencies in Infl ation Protected Securities markets and will have a long-term target of 20% (on a 2x levered basis) of total fund assets.


Achieve investment returns in the GIPS composite portfolio which exceed the return of a custom weighted-average mix of the Barclays country indexes within the Global Infl ation-Linked Bond Index over three-year period on an annualized basis. Yes Yes Yes Outcome

Achieve the Global Infl ation Protected Securities target exposure set forth by the Asset Allocation Policy Yes Yes Yes Outcome

Fixed Income: Commercial MortgagesThe Commercial Mortgage portfolio may include any commercial mortgage whole loans that provide for fi xed income payments derived from underlying property cash fl ows. Risk shall be controlled through diversifi cation strategies and the retention of qualifi ed managers with acceptable loan underwriting and/or commercial mortgage acquisition experience.


Achieve investment returns in the Commercial Mortgage composite portfolio that exceed the return of the Barclays Mortgage Index Yes Yes Yes Outcome

Fixed Income: High YieldThe high yield fi xed income composite allocation is focused on below investment grade fi xed income securities issued by U.S. corporations. Non-U.S. dollar denominated securities are prohibited. The high yield fi xed income allocation will be managed solely on an active basis in order to exploit the perceived ineffi ciencies in the high yield markets and to minimize the probability of exposure to securities in default. A new Private Direct Lending allocation has yet to be fully implemented, but is anticipated to be fi nalized in 2015.


Achieve investment returns in the high yield fi xed income composite portfolio which exceed the return of the CS First Boston High Yield Index, Developed Countries Only over a three-year period on an annualized basis. No No Yes Outcome

Achieve the High Yield composite target exposure set forth by the Asset Allocation Policy No Yes Yes Outcome

OP&F • page 85


Securities LendingThe Securities Lending program is focused on lending securities to facilitate market liquidity. The program provides domestic securities to borrowers through a third party lending agent, and international securities through a custodial agent. Securities are loaned in exchange for cash or in-kind collateral of a suffi cient percentage over the market value of the securities delivered

Supports Goals #4 Actual 2013 Estimated 2014 Expected 2015 Type

Maintain a minimum of 102% collateral. Yes No Yes Outcome


Budget Category 2013 2014 2015 2014–2015

Personnel Services $1,528,021 $1,581,850 $1,612,982 2.0%Work Environment $30,240 $66,058 $72,866 10.3%Outside Services $42,218,168 $43,374,421 $46,044,164 6.2%TOTAL $43,776,429 $45,022,329 $47,730,012 6.0%


Personnel ServicesTh is category represents the salaries, benefi ts, and employer payroll expense for all department employees. Th e 2.0 percent increase from our 2014 budget is mainly due to increased cost for wages and employer payroll expense. Th ese increases are off set by a decline in the vacation buyback program.

Work EnvironmentTh is category represents all expenses related to the investment department work environment including: furniture, equipment, supplies, training and travel, and dues & subscriptions. Th e projected 10.3 percent increase in 2015 versus our 2014 budget is explained by an increase in Business Travel from additional due diligence trips to new and potential managers and employee training and registration fees. Dues and subscriptions also contributed to the increase due to increases in certifi cation program expenses, membership dues, and multi-year subscription renewals.

Outside ServicesTh is category represents all external professional services for the investment department. Th e 6.2 percent increase versus the 2014 budget is primarily explained by a $2.7 million, or 6.7 percent, projected increase in investment management fees. Th is increase is partially driven by the use of an August 2014 asset base that is more than 12 percent higher than the August 2013 asset value used to project 2014 management fees. Th e asset allocation policy, approved in December 2012, called for a reduction in domestic and international equities, a change from long duration fi xed income to core fi xed income, an increase to private markets and timber and the addition of master limited partnerships (MLPs). Since then, OP&F

conducted structure reviews to assess potential changes within each asset class. In mid 2013, the Board of Trustees approved moving a portion of the core fi xed income assets into a multi-product fi xed income solution. Th is new optimized solution is projected to improve upon the risk/return characteristics of a 2-times levered core fi xed income portfolio, which is a key part of our overall risk-balanced asset allocation. OP&F recently completed the funding of the new multi-strategy fi xed income solution and expects to continue due diligence to add to private markets, timber, and MLP portfolios. In early 2014, the Board of Trustees asked staff and consultant to analyze increasing the MLP allocation. In May 2014, based on the results of this review, the Board approved a revised asset allocation structure increasing the target to MLPs while further reducing equity exposure. Th e new structure is expected to reduce risk, increase returns and improve the risk balance across the portfolio. Staff and consultant will work over the next few years to implement the new asset allocation structure. Aside from investment management fees, custody fees are projected to decrease by 15.8 percent due to lower international custody costs. OP&F will experience increases in consulting, analytical, and research expenses, which is due to vendors adding contractually allowed infl ation escalators as well as the addition of a new Private Markets consultant.



Review of 2014 Investment Dept. InitiativesTh e Investment Department did not have any initiatives in 2014.

OP&F • page 86


Member Services Department


Staff

L. DoughtyBudget and Compliance

Support Specialist

L. FothergillAdministrative

Assistant

J. BowlbyMember

TransactionsManager

J. BreecknerHealth Care

Support Specialist

V. CuppContract and Data Analyst

C. BuellBenefi t

Payment Support Specialist

K. JohnsonBenefi t

Payment Coordinator

D. GrandyBenefi t

Payment Coordinator

H.JordanSr. Disability Case

Manager

L. FoleyDisability and

Processing Support Specialist

Vicki WhiteSurvivor Benefi t

Specialist

S. JohnsonDisabilitySpecialist

J. Montez Th omas

Prior Service Specialist

L. SpencleyPrior Service

Specialist

M. BradyMembership Transaction

Auditor

T. Edgell-LaCavaPension

Contributions Specialist

T. MayPension


A. TranPension

Contributions Auditor

R. GochenourPension


R. BallPension

Contributions Auditor

R. SheskeyPayroll

Contributions Supervisor

C. McNamaraSr. Pension


L. HagermanSr. Pension


J. PriceQuality Control

Coordinator

J. JewellMember

Account and Benefi t Manager

P. FinnProcessing Supervisor

B. GatesPension

Contribution Supervisor

Y. KellamTransaction

Specialist

K. ClarkBenefi t

PaymentSupervisor

T. MiddletonMember

Education Manager

M. NardiCustomer

Service Supervisor

P. HarrisReceptionist

D. AlbrechtMember

Education Rep.

H. TranMember

Education Rep.

J. EdwardsCustomer

Service Rep.

L. BallardCustomer

Service Rep.

R. MaynardCustomer

Service Rep.

J. ColesSr. Customer Service Rep.

D. SteeleCustomer

Service Rep.

C. DeYarmonCustomer

Service Rep.(new)

Prior Service Support Specialist

G. KohlerDisability Specialist

M. PawlowskiDisability Case

Manager

Kim PennMembership

Specialist

G. PleasantSurvivor Support

Specialist

J. HarvilleMemberServices Director

OP&F • page 87


Member Services Department Budget (in thousands)* 2015 2014 Variance $ Variance % 2014 Variance $ Variance % 2013


Personnel Services Salaries $2,404 $1,737 $667 38.4% $1,814 $590 32.5% $1,754 Employee Benefi ts 834 560 274 48.9% 588 246 41.8% 603 Employer Payroll Expense 383 276 107 38.7% 288 95 33.2% 277 Sub-Total: $3,620 $2,573 $1,048 40.7% $2,689 $931 34.6% $2,634

Work Environment

Offi ce Rent $ — $ — $— — $ — $ — — $— Maintenance and Repairs — — — — — — — — Legislative Expenses — — — — — — — — Mailing Expense — — — — — — — — Printing and Publications — — — — — — — (7) Offi ce Supplies — — — — — — — — Offi ce Equipment 3 0 2 900.0% 3 — 0.0% 1 Insurance Administrative — — — — — — — — Recovery Plan and Contingency — — — — — — — — OP&F Sponsored Seminars 12 — 12 — — 12 — — Business Travel 9 2 7 286.2% 9 (0) –0.8% 0 Business Expense 2 0 2 3050.0% 1 1 107.2% — Trustee Training — — — — — — — — Employee Training 9 3 6 217.1% 9 0 4.5% — Telephone Services — — — — — — — — Dues and Subscriptions 2 1 1 174.4% 1 1 108.2% 1 Miscellaneous Expenses 6 1 5 650.8% 3 3 117.3% 0 Sub-Total: $43 $7 $36 503.1% $25 $18 70.0% $(5)

Outside Services

Investment Services $ — $ — $— — $ — $ — — $— Bank Custody Fees — — — — — — — — Actuarial Services — — — — — — — — Audit Services — — — — — — — — Legal Services — — — — — — — — Disability Medical Services 667 683 (17) –2.4% 683 (17) –2.4% 501 Public Relation Consultants — — — — — — — — Bank Charges — — — — — — — — Ohio Retirement Study Comm — — — — — — — — Legislative Consultants — — — — — — — — Personnel Recruitment — — — — — — — — Health Care Consultants 25 — 25 — — 25 — — Other Professional Service 8 8 — 0.0% 8 — 0.0% 5 Sub-Total $699 $691 $8 1.2% $691 $8 1.2% $506

TOTAL OPERATING $4,362 $3,271 $1,092 33.4% $3,405 $957 28.1% $3,136


OP&F • page 88


Member Services Th e Member Services Department serves active and retired OP&F members and their families, from entry into the system, through retirement and beyond. Th e Department is comprised of the following teams: Benefi t Payments and Compliance, Customer Service, Pension Contributions, Prior Service and Processing. Th ese teams work together to deliver superior service to members, and ensure accurate administration and swift payment of service pension and disability benefi ts and health care benefi ts. Th ey also administer survivor benefi ts, death fund benefi ts and sponsor health care programs for eligible retirees, survivors, spouses, children and dependent parents.

Benefi t Payment and ComplianceTh e Benefi t Payment and Compliance (BPC) team’s primary role is to ensure timely and accurate payment of benefi ts through initiation of the monthly check run. Th ey are responsible for all direct deposit transactions, court order processing, and overpayments. BPC works closely with OP&F’s healthcare vendor and oversees the retiree health care program to ensure compliance with federal regulations and OP&F’s funding policy. Th ey act as liaison between retirees and OP&F’s healthcare vendor, monitor trends, costs and effi ciency of the plan to make recommendations to the Board of Trustees at the monthly Health Care Committee meeting.

Customer ServiceTh e Customer Service team provides superior service to OP&F members and employers. Th ey are responsible for conducting member seminars and benefi t counseling sessions and serve as the frontline for all incoming calls and interviews.

Pension ContributionsTh e Pension Contributions team calculates service and disability benefi ts at the time of retirement. Th ey also administer the Deferred Retirement Option Plan (DROP) distributions, division of property orders, pension recalculations and annual cost of living adjustments. Th e Pension Contributions team provides data for the annual actuarial process and prepares reports for distribution to the Board of Trustees at the monthly Benefi ts Committee meeting.

Prior ServiceTh e Prior Service team computes the cost of military and civilian service credit purchases. Th ey work with the other Ohio retirement systems to calculate and verify amounts to be transferred among the funds and handle the granting of military time.

ProcessingTh e Processing team is responsible for receipt of all incoming application transactions related to new member enrollment, service and disability retirement, DROP and survivor and death fund benefi ts. In addition to performing the initial system set-ups, the team works closely with members and their families to ensure swift initiation of benefi t payments. Th is team also works closely with physicians and vocational experts to compile disability case fi les for review with the Board of Trustees at the monthly Disability Committee meeting.

Goals and Objectives 1. Goal: Provide quality service to members by

establishing and maintaining acceptable turnaround times for core processes.Objective: Ensure we meet the needs of internal and external customers.

2. Goal: Maintain accurate fi nancial and indicative data in all areas of production.Objective: Record all system data timely and accurately to ensure accurate records and reliable reporting.

3. Goal: Pay healthcare vendors timely and accurately for delivery of administrative services.Objective: Review invoices for reasonableness, address issues promptly and reply swift ly to health care billing inquiries.

4. Goal: Ensure accurate and timely health care deductions from pension checks to minimize the number of suspended checks.Objective: Validate\maintenance system changes based on UHC deduction fi le within 3-5 days.

5. Goal: Oversee required fi lings and fee payments with CMS and ACA.Objective: Successfully obtain Med D reimbursements quarterly and payment of required PCORI and Transitional Reinsurance fees.

6. Goal: Provide healthcare coverage and wellness incentives that meet member needs with the best possible value.Objective: Account for all healthcare expenses and analyze data to deliver meaningful programs.

OP&F • page 89


7. Goal: Ensure healthcare vendors meet contractual obligations through analysis of rebates and performance guarantees.Objective: Account for all healthcare reimbursments and credits.

8. Goal: Provide quality service in a courteous and responsive manner to members, retirees, benefi ciaries, employers, associations and staff .Objective: Develop resources, training, and work environment to enable and empower OP&F staff to provide courteous and responsive service to all internal and external customers.

Performance MeasurementsSupports Goal #1 and 8 Actual 2013 Estimated 2014 Expected 2015 Type

Service applications acknowledged per month 107 80 94 OutputDisability applications acknowledged per month 12 15 14 OutputSurvivor applications acknowledged per month 26 30 28 OutputDROP applications acknowledged per month 68 78 73 OutputPay Lump Sum DROP disbursement within 90 days of termination date N/A 300 335 OutputAd hoc disbursements & EFT processed in 4 days 4,986 4,800 5,000 OutputCorrection of EFT returns in four days 72 72 70 OutputVerifi cation of invoice within three days 912 875 900 OutputCustomer Service calls answered within 30 seconds or less 67% 70% 85% OutputCustomer Service quality assurance measurements maintained at 98% or better 99% 99% 99% Outcome

Supports Goals #2 Actual 2013 Estimated 2014 Expected 2015 Type

DROP calculations in less than 90 days from payrolls being released 449 of 621 0 of 464 425 of 425 OutputService credit/contribution transfers to OP&F per month 8 6 6 OutputWithdrawals/rollovers processed per month 17 18 18 OutputPrior service costs processed per month 77 41 41 OutputInterim payments processed in 14 days 296 of 307 287 of 287 300 of 300 OutputPartial DROP disbursements paid within 14 days of receiving disbursement request N/A 1,968 2,025 OutputService credit/contribution transfers out per month 2 1 1 OutputPre-Employment Pysicals processed per month 174 186 180 Output


Invoices reconciled and submitted for payment within contractual due dates Yes Yes Yes Effi ciency


V3 system changes updated and verifi ed within 3 business days Yes Yes Yes Effi ciencyBi-annual eligibility fi le validated to for vendor accuracy N/A Yes Yes Effi ciency


Med D materials timely fi led for quarterly reimbursements Yes Yes Yes Outcome


Programs evaluated to provide savings through healthier behavior patterns and disease prevention Yes Yes Yes Outcome


Rebates and performance guarantees analyzed Yes Yes Yes Outcome

OP&F • page 90



Budget Category 2013 2014 2015 2014–2015

Personnel Services $2,634,044 $2,689,400 $3,620,408 34.6%Work Environment $(4,535) $25,160 $42,764 70.0%Outside Services $506,159 $690,720 $699,120 1.2%TOTAL $3,135,667 $3,405,280 $4,362,292 28.1%


Personnel ServicesTh isTh is category refl ects employee salaries, benefi t costs, and employer payroll expenses of the Member Services Department. Th e overall increase of percent is attributable to the addition of the Customer Service team, one new FTE and one position upgrade. Th ere is also a proposed average merit increase of 3 percent included for eligible staff .

Work Environment Th is category refl ects the amount needed for offi ce equipment, training, conferences, business travel, dues and subscriptions and in house food expenses. Th e percent increase is due to the addition of OP&F sponsored seminars, anticipated reimbursement of HOST representative mileage, replacement of outdated offi ce equipment and expected due diligence travel for 2015.

Outside Services Th is category refl ects expenses for the disability process and other professional services. Th e disability process includes evaluation fees, consultant fees for doctors and vocational experts, and occasional fees for out of state physician locators. Although the volume of disability applications is down, the 1.2 percent increase results from a rate increase paid to OP&F appointed medical and vocational evaluators and OP&F advisor fees. Th e addition of Advanced Pharmacy Concepts as pharmacy benefi t consultant also contributes to the increase.



OP&F • page 91


Member Services Proposed 2015 InitiativesExciting changes occur when the Customer Service team merges with the Member Services Department. Alignment of these groups will result in added effi ciency and expertise, improved communication and streamlined work. Other changes in the department include the addition of a Support Specialist position to the Prior Service team, adding needed support and depth to this group. In the Processing team, one of the three Disability Case Manager positions is upgraded to a senior designated position to help coordinate new, high profi le work routines within the group. Finally, the Benefi t Payment and Compliance team will work with Advanced Pharmacy Concepts (APC) to provide industry insight and an additional level of pharmacy benefi t support.

Restructure Reporting Lines of Customer Service GroupTh e Customer Service team joins the Member Services Department to add effi ciency and expertise to the Department. Th is change will improve communication and streamline work, improving service to internal and external customers. Th e Customer Service team is comprised of eleven staff members, including one Manager, one Supervisor, two Education Representatives two Senior Customer Service Representatives, four Customer Service Representatives and one Receptionist.

Addition to Budget: Prior Service Support SpecialistMember Services is adding one new headcount due to the V3 system design and data analysis that is in process and is a current focus for OP&F. A Prior Service Support Specialist position is being added to prepare for the coming changes, growth and succession planning within this team. It will also make the structure and support similar to other groups within the department.

Position Upgrade: Disability Case Manager–SeniorA Disability Case Manager position in the Processing team is being upgraded to include a senior designation. Th is change is needed to recognize the senior level responsibilities required as one of the three Disability Case Managers coordinates several new fraud related functions for the unit, and takes on responsibility for the death benefi t fund case fi le work that is shift ing to this team in 2015.

Advanced Pharmacy Concepts ConsultingIn 2014, APC performed an extensive audit of UHC’s administration of OP&F’s pharmacy benefi t program, along with an audit of the transition to pharmacy benefi t manager OptumRx. In 2015, APC will provide ongoing pharmacy benefi t support by making contract and performance guarantee recommendations, analyzing claims data to identify cost drivers, off ering insight on industry trends, and making recommendations on benefi t design and clinical programs. Th e estimated cost of this work is $25,000.

Retiree Health Plan WellnessOP&F will continue to promote retiree wellness through incentives along with knowledge based communication via e-mail, newsletters, and the web.

Review Of Member Services 2014 Initiatives

Departmental ReorganizationIn January 2014, the Processing Supervisor position was reestablished and the Contributions Manager position was eliminated due to retirement. Th e Member Transactions Manager’s role was expanded when the Pension Calculations team and Prior Service team became part of the Transactions group. Additional movement among the department was made to streamline reporting lines, recognize a promotional opportunity and consolidate work routines within the department.

Addition to Budget - Member Education Representative A Member Education Representative position was added as a result of this 2014 Administration budget initiative. Th e position is responsible for conducting member pre-retirement interviews, assisting with member walk-ins, preparing pension estimates for interviews, and assisting with pre-retirement seminars and other meetings as needed. Th is new position has increased interview capacity, enhanced effi ciency within the group, and improved response times for pension estimates.

OP&F • page 92


Board of Trustees Budget (in thousands)* 2015 2014 Variance $ Variance % 2014 Variance $ Variance % 2013


Personnel Services Salaries — — — — — — — — Employee Benefi ts — — — — — — — — Employer Payroll Expense — — — — — — — — Sub–total — — — — — — — —

Work Environment

Offi ce Rent — — — — — — — — Maintenance and Repairs — — — — — — — — Legislative Expenses — — — — — — — — Mailing Expense — — — — — — — — Printing and Publications — — — — — — — — Offi ce Supplies — — — — — — — — Offi ce Equipment — — — — — — — — Insurance Administrative — — — — — — — — Recovery Plan and Contingency — — — — — — — — OP&F Sponsored Seminars — — — — — — — — Business Travel 21 20 0 1.4% 20 0 1.5% 24 Business Expense 44 40 4 10.9% 45 (1) -1.6% 40 Trustee Training 18 14 4 29.5% 18 - 0.0% 13 Employee Training — — — — — — — — Telephone Services — — — — — — — — Dues and Subscriptions 6 4 2 51.2% 4 2 55.8% 4 Miscellaneous Expenses 8 6 1 23.2% 8 - 0.0% 7 Sub-Total $97 $85 $12 14.4% $95 $2 1.7% $88

Outside Services

Investment Services — — — — — — — — Bank Custody Fees — — — — — — — — Actuarial Services — — — — — — — — Audit Services — — — — — — — — Legal Services — — — — — — — — Disability Medical Service — — — — — — — — Public Relation Consultants — — — — — — — — Bank Charges — — — — — — — — Ohio Retirement Study Council — — — — — — — — Legislative Consultants — — — — — — — — Personnel Recruitment — — — — — — — — Health Care Consultants — — — — — — — — Other Professional Service — — — — — — — — Sub total — — — — — — — —

TOTAL OPERATING $97 $85 $12 14.4% $95 $2 1.7% $88


Board of Trustees

OP&F • page 93


Board of Trustees

Th is department is used by OP&F to track the costs and activities of the Board of Trustees.


Budget Category 2013 2014 2015 2014–2015

Personnel Services $0 $0 $0 0.0%Work Environment $87,558 $95,159 $96,758 1.7%Outside Services $0 $0 $0 0.0%TOTAL $87,558 $95,159 $96,758 1.7%


Personnel ServicesTh e Trustees do not receive any compensation or employee benefi ts.

Work EnvironmentTh is category represents all expenses that are paid for by OP&F for the purpose of accommodating and training the Board of Trustees. Th ere is a 1.7 percent increase in this budget category for 2015.

Outside ServicesNo outside services are related to this department.

Capital OutlayNo capital outlay is required for this department.

Personnel ProjectionsTh ere are no personnel projections related to this department, as all Trustees are elected or appointed into non–compensated positions.

OP&F • page 94


Th is page intentionally left blank.

OP&F • page 95

Annual Budget for Fiscal Year 2015 • SUPPLEMENTAL AND GLOSSARY OF TERMS

Supplemental and Glossary of TermsAnnual Budget for Fiscal year 2015


Supplemental SectionGlossary

OP&F • page 96

SUPPLEMENTAL AND GLOSSARY OF TERMS • Annual Budget for Fiscal Year 2015

Active Member Valuation Data Percentage of

Number of Number of Average Average Annual Annual

Employers Active Members* Annual Salary Salary Increases Payroll

Year Police Fire Total Police Fire Total Police Fire Police Fire (Millions)

2013 531 380 911 14,841 12,764 27,605 $68,724 $70,087 0.8% 1.0% $1,942.32012 537 380 917 14,745 12,699 27,444 68,163 69,359 1.6% 1.0% 1,913.42011 537 380 917 14,854 12,769 27,623 67,094 68,663 2.2% 1.6% 1,897.42010 533 384 917 15,293 12,929 28,222 65,649 67,559 2.0% 2.0% 1,868.52009 536 385 921 15,581 13,038 28,619 64,373 66,223 1.4% 1.7% 1,895.22008 539 382 921 15,889 13,173 29,062 63,480 65,097 3.1% 3.3% 1,900.92007 538 385 923 15,829 13,035 28,864 61,545 62,989 1.5% 2.4% 1,831.42006 540 384 924 15,646 12,963 28,609 60,638 61,512 0.1% –1.3% 1,782.92005 536 376 912 15,304 12,722 28,026 60,573 62,326 3.1% 4.5% 1,756.22004 537 368 905 15,270 12,609 27,879 58,744 59,617 4.7% 3.9% 1,683.6

* Includes rehired retirees

Active Members Number of Percentage Total Annual Percentage

Active Change in Payroll Change in

Year Members * Membership (Thousands) Payroll

2013 27,605 -0.07% $1,942,269 1.49%2012 27,444 -2.76% 1,913,383 0.83%2011 27,623 -3.48% 1,897,413 1.55%2010 28,222 -1.39% 1,868,502 -1.41%2009 28,619 -1.52% 1,895,196 -1.71%2008 29,062 0.69% 1,900,935 3.79%2007 28,864 0.89% 1,831,438 2.73%2006 28,609 2.08% 1,782,851 1.52%2005 28,026 0.53% 1,756,230 4.32%2004 27,879 -1.98% 1,683,554 2.38%

* Includes rehired retirees

Retirees and Benefi ciaries added to and removed from rolls (dollars in thousands)

Added to rolls Removed from rolls Rolls, end of year Percentage Average Percentage

Valuation Annual Annual Annual Change in Annual Change in

as of Jan. 1 Number Allowances Number Allowances Number Allowances Allowance Allowances Membership

2013 1,362 $44,842 1,044 $23,851 27,561 $890,288 4.42% $32.30 1.17%2012 1,390 48,249 1,225 19,469 27,243 852,602 5.58% 31.30 0.61%2011 1,783 65,572 779 16,397 27,078 807,550 8.52% 29.82 3.85%2010 1,165 34,553 803 15,721 26,074 744,144 4.74% 28.54 1.41%2009 1,128 30,920 733 14,566 25,712 710,463 4.52% 27.63 1.56%2008 1,046 25,590 607 12,825 25,317 679,769 4.18% 26.85 1.76%2007 1,128 27,877 933 14,586 24,878 652,474 3.55% 26.23 0.79%2006 1,186 32,147 762 12,701 24,683 630,080 4.70% 25.53 0.92%2005 916 19,803 797 12,132 24,459 601,775 3.64% 24.60 0.49%2004 963 22,166 759 11,407 24,340 580,645 4.00% 23.86 0.85%

Active and Retired Member Statistics

OP&F • page 97


Retired Membership By Type Of Benefi t (Source: Actuarial Valuation) Service Disability Survivors

Year Police Fire Police Fire Police Fire Total

2013 7,623 5,784 3,820 2,588 4,395 3,351 27,5612012 7,459 5,683 3,834 2,594 4,352 3,321 27,2432011 7,204 5,540 3,825 2,577 4,543 3,389 27,0782010 6,762 5,185 3,772 2,566 4,479 3,310 26,0742009 6,546 5,060 3,721 2,496 4,300 3,194 25,3172008 6,523 5,036 3,682 2,470 4,090 3,077 24,8782007 6,459 5,012 3,594 2,436 4,067 3,115 24,6832006 6,419 5,045 3,521 2,403 3,982 3,089 24,4592005 6,452 5,101 3,931 3,063 3,429 2,364 24,3402004 6,459 5,173 3,912 3,001 3,291 2,300 24,136

Average Monthly Benefi t Payments* for Members Placed on Retirement Rolls

Service RetirementYear Normal Service Commuted Age Commuted Age/Service

2013 $3,530 $1,292 — $2,5902012 3,466 1,241 — 2,3412011 3,442 1,282 — 2,6992010 3,339 1,374 — 3,0162009 3,301 1,460 — 2,3592008 3,266 1,222 — 2,3152007 3,251 1,265 — 1,9282006 3,274 1,068 — 1,6652005 3,125 1,102 — 1,2312004 3,128 1,081 — 1,673

Disability RetirementYear Permanent and Total P and T Presumptive Partial Partial Presumptive Off Duty

2013 $3,997 $5,038 $2,865 $2,599 $2,7312012 4,276 3,717 2,928 3,338 2,7702011 3,838 3,870 2,963 2,983 2,5102010 3,495 3,886 2,827 3,659 2,7852009 3,626 3,810 2,807 2,966 2,6972008 3,509 3,424 2,874 2,696 2,5112007 3,301 3,611 2,846 2,959 2,6342006 3,341 2,930 2,793 2,939 2,3062005 3,327 3,254 2,624 3,160 1,9242004 3,209 3,163 2,712 3,080 2,167

* Source: Numbers calculated by taking an average of fi nal placements for retirees as listed in OP&F Board of Trustees monthly reports.

Revenues by Source (dollars in millions)

Employer

Member Contributions as Investment and

Emploer Contributions a percentage of Securities Health Care Other Total....

Year Contributions and purchases Covered Payroll Lending Income Contributions Revenues Revenues

2013 $418.2 $187.6 21.9% $2,053.0 $66.6 $28.5 $2,753.9 2012 417.0 177.5 22.0% 1,657.9 65.1 30.7 2,348.2 2011 407.5 176.8 21.8% 229.6 62.5 40.5 916.9 2010 414.0 175.5 21.8% 1,651.8 58.9 25.8 2,326.0 2009 404.3 168.4 21.3% 1,894.9 59.1 24.3 2,551.0 2008 405.9 172.5 22.2% (3,832.9) 57.0 26.0 (3,171.5)2007 400.0 165.1 22.4% 1,163.1 56.0 22.3 1,806.5 2006 374.0 167.4 21.3% 1,629.8 58.5 25.1 2,254.8 2005 357.0 167.8 21.2% 847.3 55.2 11.4 1,438.7 2004 349.4 165.9 21.2% 1,152.4 55.7 18.8 1,742.2

Average Benefi t Payments

OP&F • page 98


Expenses By Type (dollars in millions) Benefi t Administrative Refund of Member Other Total....

Year Payments Expenses Contributions Expenses Expenses

2013 $1,286.4 $15.9 $16.0 $— $1,318.3 2012 1,236.4 15.4 26.5 0.0 1,278.32011 1,204.2 15.4 22.0 0.0 1,241.62010 1,132.1 15.1 15.8 0.0 1,163.02009 1,085.1 16.3 15.7 0.0 1,117.12008 1,021.0 16.0 17.7 0.0 1,054.72007 965.0 16.3 15.1 0.0 996.42006 945.0 16.8 18.0 0.0 979.82005 876.8 15.9 16.4 0.0 909.12004 821.1 15.8 15.3 0.0 852.2

Benefi t Expenses by Type (dollars in millions) Year Service DROP** Disability Health Care Survivor Total Benefi ts

2013 $563.2 $216.1 $239.0 $191.3 $76.8 $1,286.4 2012 529.9 212.1 232.8 187.4 74.2 1,236.4 2011 490.2 241.1 225.0 176.3 71.6 1,204.2 2010 444.4 241.0 217.8 159.9 69.0 1,132.1 2009 423.7 215.4 211.1 168.8 66.1 1,085.1 2008 407.4 194.9 202.1 153.4 63.1 1,021.0 2007 391.5 172.0 191.7 149.2 60.6 965.0 2006 377.0 147.5 183.4 178.8 58.3 945.0 2005 367.4 117.7 172.6 163.3 55.8 876.8 2004 360.0 86.5 162.2 157.8 54.5 821.2

** Implementation date of Jan. 1, 2003.

Number of Employer Units Municipalities Townships Villages Total Total.

Year Police Fire Police Fire Police Fire Police Fire Both

2013 249 223 0 124 282 33 531 380 9112012 249 225 0 122 288 33 537 380 9172011 250 227 0 123 283 34 533 384 9172010 252 229 0 123 284 33 536 385 9212009 252 229 0 121 287 32 539 382 9212008 251 228 0 123 287 34 538 385 9232007 251 229 0 122 289 33 540 384 9242006 252 225 0 119 284 32 536 376 9122005 251 224 0 113 286 31 537 368 9052004 252 225 0 109 288 29 540 363 903

OP&F • page 99


A short-term solvency test is one means of checking a system’s progress under its funding program. In a short-term solvency test, the plan’s valuation assets are compared with:

1. Active member contributions on deposit; 2. Th e liabilities for future benefi ts to present retired lives; 3. Th e liabilities for service already rendered by active members.

In a system that has been following the discipline of level percent of payroll fi nancing, the liabilities for active member contributions on deposit (Liability 1) and the liabilities for future benefi ts to present retired lives (Liability 2) will be fully covered by present assets (except in rare circumstances). In addition, the liabilities for service already rendered by active members (Liability 3) will be partially covered by the remainder of present assets. Generally, if the system has been using level cost fi nancing, the funding portion of liability 3 will increase over time. Liability 3 being fully funded is very rare.

Accrued Liabilities ($ Amounts in Th ousands)

(1) (2) (3) Portion of Accrued

Active Retirants Active Members Liabilities Covered

Valuation Member and (Employer Financed Valuation by Reported Assets

Year Contributions Benefi ciaries Portion) Assets (1) (2) (3)

Police 2014 $1,171,496 $5,368,637 $2,583,711 $6,088,816 100% 92% 0%Fire 2014 $1,028,465 $3,924,388 $2,501,058 $4,974,383 100% 100% 1%

Police 2013 $1,131,664 $5,166,808 $2,532,580 $5,670,069 100% 88% 0%Fire 2013 $974,362 $3,751,279 $2,451,195 $4,607,962 100% 97% 0%

Police 2012 $1,100,146 $4,960,051 $2,969,900 $5,694,783 100% 93% 0%Fire 2012 $965,598 $3,581,800 $2,769,204 $4,614,176 100% 100% 2%

Police 2011 $1,100,251 $4,368,659 $3,008,219 $5,885,449 100% 100% 14%Fire 2011 $956,559 $3,132,521 $2,818,228 $4,795,563 100% 100% 25%

Police 2010 $1,067,209 $4,216,219 $2,832,235 $5,163,648 100% 100% 24%Fire 2010 $916,033 $3,004,267 $2,700,815 $4,818,972 100% 100% 33%

Police 2009 $1,026,597 $4,077,113 $2,832,235 $5,163,648 100% 100% 2%Fire 2009 $874,756 $2,895,243 $2,601,180 $4,145,508 100% 100% 14%

Police 2008 $985,169 $3,992,482 $2,671,816 $6,248,107 100% 100% 48%Fire 2008 $830,439 $2,827,320 $2,420,526 $4,964,761 100% 100% 54%

Police 2007 $934,517 $3,850,347 $2,444,583 $5,654,396 100% 100% 36%Fire 2007 $796,751 $2,757,853 $2,297,575 $4,503,573 100% 100% 43%

Police 2006 $894,963 $3,654,099 $2,297,575 $5,364,003 100% 100% 35%Fire 2006 $747,714 $2,572,229 $2,023,823 $4,186,577 100% 100% 43%

Police 2005 $840,875 $3,510,610 $2,152,500 $5,260,325 100% 100% 42%Fire 2005 $691,252 $2,497,311 $1,852,502 $4,077,137 100% 100% 48%

Police 2004 $792,449 $3,390,164 $1,911,501 $5,269,436 100% 100% 57%Fire 2004 $639,074 $2,448,043 $2,448,043 $4,067,667 100% 100% 61%

Short-Term Solvency Test

OP&F • page 100


Schedule of Contribution Rates

Employer Rates

Time Frame of Rates Employer Rates

Police Fire

Jan. 1, 1967 - Dec. 31, 1967 13.55 13.13Jan. 1, 1968 - Dec. 31, 1968 13.66 13.50Jan. 1, 1969 - Dec. 31, 1969 14.68 14.49Jan. 1, 1970 - Dec. 31, 1970 15.52 15.52Jan. 1, 1971 - Dec. 31, 1971 12.81 12.96Jan. 1, 1972 - Dec. 31, 1972 12.96 13.26Jan. 1, 1973 - Dec. 31, 1973 12.85 13.41Jan. 1, 1974 - Dec. 31, 1974 12.88 13.60Jan. 1, 1975 - Dec. 31, 1975 12.49 13.78Jan. 1, 1976 - Dec. 31, 1976 14.02 15.57Jan. 1, 1977 - Dec. 31, 1977 15.34 16.77Jan. 1, 1978 - Dec. 31, 1978 17.53 18.90Jan. 1, 1979 - Dec. 31, 1979 18.40 20.11Jan. 1, 1980 - Dec. 31, 1980 15.70 19.87Jan. 1, 1981 - Dec. 31, 1981 15.60 20.72Jan. 1, 1982 - Dec. 31, 1982 16.62 22.39Jan. 1, 1983 - Dec. 31, 1983 18.45 23.57Jan. 1, 1984 - Dec. 31, 1984 21.35 24.59Jan. 1, 1985 - Dec. 31, 1985 20.03 24.59Jan. 1, 1986 - Present 19.50 24.00

Member Rates

Time Frame of Rates Member Rates

Police Fire

Jan. 1, 1967 to Dec. 31, 1967 6.00 6.00Jan. 1, 1968 to Feb. 28, 1980 7.00 7.00March. 1, 1980 to July 31, 1986 8.50 8.50Aug. 1, 1986 to Sept. 8, 1988 9.50 9.50Sept. 9, 1988 to July 1, 2013 10.00 10.00July 2, 2013 to July 1, 2014 10.75 10.75July 2, 2014 to July 1, 2015 11.50 11.50July 2, 2015 and thereafter 12.25 12.25

Schedule of Actuarial Interest RatesTime Frame of Rates Actuarial Interest Rates

Jan. 1, 1967 - Dec. 31, 1969 4.250Jan. 1, 1970 - Dec. 31, 1971 4.625Jan. 1, 1972 - Dec. 31, 1973 4.750Jan. 1, 1974 - Dec. 31, 1978 5.000Jan. 1, 1979 - Dec. 31, 1979 6.000Jan. 1, 1980 - Dec. 31, 1982 6.375Jan. 1, 1983 - Dec. 31, 1985 7.500Jan. 1, 1986 - Dec. 31, 1988 7.750Jan. 1, 1989 - Present 8.250

Health Care allocation from employer ratesTime Frame of Rates Rate

Jan. 1, 1974 - Dec. 31,1991 Rate = to $ of benefi ts paid Jan. 1, 1992 - Dec. 31, 1998 6.50%Jan. 1, 1999 - Dec. 31, 1999 7.00%Jan. 1, 2000 - Dec. 31, 2000 7.25%Jan. 1, 2001 - Dec. 31, 2002 7.50%Jan. 1, 2002 - Dec. 31, 2006 7.75%Jan. 1, 2007 - Dec. 31, 2012 6.75%Jan. 1, 2013 - May 31, 2013 4.69%June 1, 2013-Dec. 31, 2013 2.85%Jan. 1, 2014 - Present 0.50%

Contribution and Actuarial Interest Rate History

Jan. 1, 1986 - Present 19.50 24.00

July 2, 2014 to July 1, 2015 11.50 11.50July 2, 2015 and thereafter 12.25 12.25

Jan. 1, 2014 - Present 0.50%Jan. 1, 1989 - Present 8.250

OP&F • page 101


Demographics and Economic Impact

Membership Residence Total Ohio Non- % of

Type of Member Persons Residents Residents Non-Residents

Active Members 23,740 23,516 224 0.94%Retirees 20,722 17,381 3,341 16.12%Survivors 6,746 5,473 1,273 18.87%DROP Participants 3,468 3,435 33 0.95%TOTAL 54,676 49,805 4,871 8.91%

Based on Dec. 31, 2014 data

Direct Impact on Ohio’s Economy* Dollar

Category Amount

Benefi t Payments to Retirees and Survivors ..........$495,923,807

OP&F Health Insurance Expenditures ........................ 149,162,338

DROP Withdrawals ................................................................. 4,847,766

OP&F Administrative Expenditures ...............................15,120,000

TOTAL DIRECT ECONOMIC IMPACT ............... $665,053,911

* Based on Dec. 31, 2006 data

Impact on Economic Output* Dollar

Category Amount

Benefi t Payments to Retirees and Survivors ..........$738,628,918

OP&F Health Insurance Expenditures ........................ 330,155,792

DROP Withdrawals ................................................................. 7,220,263

OP&F Administrative Expenditures ...............................32,343,192

TOTAL DIRECT ECONOMIC IMPACT ............ $1,108,348,165

* Based on Dec. 31, 2006 data

Economic Impact Early in 2006, OP&F commissioned an independent and comprehensive economic study to determine the impact of pension benefi ts, health care spending and other dollars spent eff ected Ohio’s economy. While this study is now fi ve years old, the results remain relevant and show the importance of OP&F’s fi scal impact on the state. Two of the principle fi ndings of the study show that in 2006:

• OP&F activity resulted in more than $1.1 billion in economic output across Ohio• OP&F activity resulted in 11,059 jobs in Ohio

When OP&F makes direct payments to retirees and survivors, this income is spent and re-spent on goods and services produced in the local and regional economy where the benefi ciaries reside. Th is spending (oft en termed “induced” impact by economists) in turn creates additional jobs in the sectors where the benefi ciaries spend their benefi t payments.

OP&F creates additional economic impact by providing health care and medical prescription insurance to retirees and survivors. Again, the consumption of health care by OP&F benefi ciaries leads to ripple eff ects throughout the local and regional economy as a result of the increased demand for these services. Finally, OP&F contributes to Ohio’s economy by paying salaries to OP&F employees and purchasing goods and services that are needed to carry out the day-to-day operations and management of the pension fund.

Th ese economic eff ects are oft en referred to as multiplier eff ects. In other words, any new dollar that is spent will have multiple economic eff ects throughout the local and regional economy as it leads to new jobs, which through typical economic inter-relationships then lead to other jobs. To provide a comprehensive estimate of the total economic impact of OP&F, both the direct and indirect eff ects of OP&F expenditures must be captured.

OP&F • page 102


Account A term used to identify an individual asset or record of the fi nancial transactions relating to a specifi c asset, liability, income item, expense item, or net-worth item.

Accrual Basis of Accounting A method of accounting that recognizes the fi nancial eff ect of transactions and events when they occur, regardless of the timing of related cash fl ow.

Accrue A process in which income and expenses are recorded on the fi nancial statements without the actual exchange of money occurring.

Actuarial Investment Rate of ReturnTh e rate of return used by the actuary to project future outcomes based on a long-term expectation.

Actuarial Valuation An annual examination of a pension plan’s fi nancial solvency, including a determination of the actuarial liabilities, assets and employer contribution required to ensure suffi cient assets will be available to pay benefi ts when due.

ActuaryA person whose work is to calculate statistical risks, premiums and life expectancies.

Agency FundAssets held in a fund under an agency relationship for another entity.

AggregateConsidering the whole or sum of all referred activities.

Amortization To account for expenses by prorating over a fi xed period.

Annual Membership Payroll Th e aggregate amount of payroll dollars earned by contributing members in one year used as a base for calculating member and employer contributions. Th is amount is also used for projecting future contribution levels for the membership body.

Assets Refers to anything that has monetary value to a plan. Usually states the entire resources of an entity at any given point-in-time.

Asset allocation A process that determines the optimal distribution of funds among various types of assets that off er the highest probability of consistently achieving investment objectives within the confi nes of predetermined level of risk. Th e process oft en includes the use of a computer model program to assist in the process of a myriad of data.

Benchmark A standard or point of reference in measuring or judging quality.

Biennial An occurrence every two years.

Board of TrusteesA group of persons who manage or control a business.

Budget A plan used to project or estimate the revenue and expense fl ows of an entity for any given period of time, normally one fi scal year. Primarily used as a management tool to forecast expectations and analyze actual results.

Budget MessageA general discussion of the proposed budget as presented in writing to budget making authorities.

Budgetary Control Th e control or management of entity in accordance with an approved budget for the purpose of keeping expenditures within the limitations of available funds.

Capital A term used to describe an asset purchased by an entity with a useful life of more than one year and cost above a predetermined dollar amount. Th ese assets are then depreciated over that useful live and recorded as an expense to the entity.

Category A classifi cation of logical basic concepts or activities.

Comprehensive Annual Financial Report (CAFR) A fi nancial report that encompasses all funds of a governmental unit.

Contingency A thing or event that depends on or is incidental to another event.

Contribution A term used to describe the amount of money received by an entity for a specifi c purpose.

Cost Eff ective Management Group (CEM) An entity providing cost eff ective comparison information to OP&F by measuring activities against other benchmark entities with similar interests.

Deferred Retirement Option Plan (DROP)Th e Deferred Retirement Option Plan is a benefi t option that allows eligible members to defer actual retirement for up to eight years, once they have achieved an eligible retirement status, and continue working. During this extended service their calculated pension is credited to a DROP accrual account, along with their current contributions and interest. Th ese funds are then available to the member once a minimum of three years has passed or other criteria are met.

Department A section of an entity housing specialized functions. Each section has budget allowances and specialized goals.

Glossary of Terms

OP&F • page 103


Disability Evaluation Panel (DEP) Th is is a group of the Board of Trustees’ Disability Committee and four expert physicians and they meet once a month to review applications for disability benefi ts and to prepare written recommendations for action. From the date an application is fi led with OP&F, it may take anywhere from three to fi ve months before the application is heard by OP&F’s Board of Trustees.

Discretionary benefi ts Benefi ts off ered at the discretion of the Board of Trustees. Authority is not fi xed based on state statute.

Encumbrances Obligations in the form of purchase orders, which are committed against a budget until they are received and paid in full. Th is may include products or services.

Enterprise Risk Management A process designed to identify areas of organizational risk and how to approach those areas based on the level of risk.

Environment All the conditions, circumstances and infl uences surrounding and aff ecting the development of an entity.

Equity Th at portion of a company’s net worth belonging to its owners and shareholders.

Expenses Charges or costs for running a business or doing one’s work. Usually results in a reduction of plan net assets, which may include cash, or non-cash reductions.

Fiscal year A period of time including the beginning and ending of a business cycle and encompasses twelve-months of activities.

Fixed Assets Assets of a long-term character in which the intent is to continue to be held or used, such as land, building, machinery, furniture and other equipment.

Forecast An estimation and/or calculation in advance used to predict actual expense levels for the current year.

Fund An independent fi scal and accounting entity with a self-balancing set of accounts, recording cash and/or other resources, together with all related liabilities, obligations, reserves and equities which are segregated for the purpose of carrying on specifi c activities or attaining certain objectives in accordance with any special regulations or restrictions.

Fund Balance A sum of money set aside for a particular purpose as specifi ed law.

Goal A statement of broad direction, purpose or intent based on the needs of the stakeholders that are directly impacted.

Governmental Accounting Standards Board (GASB) Th e ultimate authoritative accounting and fi nancial reporting standard settings body for state and local governments. Th e GASB was established in June 1984 to replace the National Council on Governmental Accounting (NCGA).

Governmental Accounting Standards Board - GASB Statement No. 14 Th e Financial Reporting Entity - A Statement issued by the Governmental Accounting Standards Board (GASB) that establishes standards for defi ning and reporting on the fi nancial reporting entity. Th e concept underlying the defi nition of the fi nancial reporting entity is that elected offi cials are accountable to their constituents for their actions. Fiscally independent governments have the ability to complete certain essential fi scal events without substantive approval by a primary government. Th is includes determining its annual budget without another government’s having the authority to approve and modify that budget.

Health Insurance Portability and Accountability Act (HIPAA) HIPAA is the Health Insurance Portability and Accountability Act of 1996. It may also be referred to as the Kennedy-Kassebaum Act. HIPAA was enacted by the federal government on August 21, 1996, with the intent to assure health insurance portability, reduce health care fraud and abuse, guarantee security and privacy of protected health information, and enforce standards for health information.

Income Th e money or other gain received from an individual activity. Th ese activities normally result in an increase of plan net assets, which may include cash, or non-cash increases.

Initiative Th e characteristic of originating new ideas or methods.

Liability Debts or commitments of a person or business that are unpaid.

Med B Abbreviation for the Social Security program, which requires recipients to make a monthly payment for Medicare coverage. OP&F then reimburses eligible members for this expense. A member with Medicare coverage reduces the overall OP&F medical costs.

Net Plan AssetsAssets remaining aft er a reduction for liabilities or outstanding obligations and accounts payable. Assets include cash, cash equivalents, receivables, investments at fair value and capital assets. Liabilities include payables, unpaid accured benefi ts and obligations to other entities.

OP&F • page 104


Ohio Retirement Study Council (O.R.S.C.)Th is council was created in 1968 to assist the state legislature, governor, and other public offi cials in the formation of sound public pension policy, and is one of the oldest public oversight councils in the country. Th e general purpose of the Council is to advise and inform the state legislature on all matters relating to the benefi ts, funding, investment, and administration of the fi ve statewide retirement systems in Ohio. In addition, the council provides legislative oversight with respect to the Ohio Public Safety Offi cers Death Benefi t Fund, a state-funded program providing death benefi ts to the survivors of law enforcement and public safety offi cers killed in the line of duty, and the Volunteer Fire Fighters’ Dependents Fund, a program providing benefi ts to disabled volunteer fi refi ghters and their survivors. Th e Cincinnati Retirement System is the only municipal retirement system in Ohio, and falls outside the jurisdiction of the Council.

Ohio Revised Code (O.R.C. or R.C.) Contains the laws of Ohio, which the legislature enacts. Th e Ohio Police & Fire Pension Fund can be found in Title [7] VII, Section 742 of the O.R.C.

Operating budget Th e annual budget of an activity stated in terms of Budget Classifi cation Code, functional/sub-functional categories and cost accounts. It contains estimates of the total value of resources required for the performance of the operation including reimbursable work or services for others. It also includes estimates of workload in terms of total work units identifi ed by cost accounts.

In the United States, businesses along with state and local governments divide their budgets into two types: the operating budget and capital budget. Th e operating budget is used to keep track of maintenance operations, salaries, and interest payments.

Parameter A term used to identify a characteristic, a feature, a measurable factor that can help in defi ning a particular system. It is an important element to take into consideration for the evaluation or for the comprehension of an event, a project or any situation.

Pension A non-wage payment made periodically to a person who has fulfi lled certain conditions of service, reached a certain age or meets requirements set forth by other policy or law.

Performance MeasurementsMeasurements established to track the quality of business matters.

PlanRefers to the entire structure of an entity encompassing all business activities into one body.

Portable AlphaPortable alpha is an investment strategy that refers to separating the active manager’s excess return from the base market return and transporting the alpha to some other market index for investment purposes.

PortfolioAll the securities held for investment as by an individual, bank, investment company, etc.

Prudent To be capable of exercising sound judgment in practical matters as someone would for their own interest. Also, to be cautious and discreet in relation to business matters.

Return on Investments (ROI) Th e ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested. Th e amount of money gained or lost may be referred to as interest, profi t/loss, gain/loss, or net income/loss. Th e money invested may be referred to as the asset, capital, principal, or the cost basis of the investment. ROI is usually expressed as a percentage.

Revenues Th e fi nancial return from performing individual business activities. A source of income.

Risk Parityis an alternative approach to investment portfolio management which focuses on allocation of risk rather than allocation of capital. Th e risk parity approach asserts that when asset allocations are adjusted (leveraged or deleveraged) to the same risk level, the risk parity portfolio has the same expected rate of return as the portfolio with traditional asset allocations.

Segregate To set aside from others or from the main mass or group.

Statutory Benefi ts Benefi ts that are fi xed, authorized or established by state statute.

Trust Fund An arrangement to provide sustained benefi ts for a person or entity.

Unfunded Liability When the actuarial determined fi nancial liabilities of an entity exceed the amount of assets available.

Unrealized Appreciation/DepreciationOverall gains or losses related to investment assets that remain held as assets in the investment portfolio. Gains and losses are not realized until they are sold or traded.

VolatileSomething that is likely to shift quickly and unpredictably.

W-2 based formula A formula for determining pensionable earnings from member payroll that coincides closely with the Internal Revenue Code formula for determining taxation of wage/salary earnings. Member contributions toward pensions would be paid on the same fi gures as reported wage and tax statement in most circumstances.

Prudence • Integrity • Empathy

140 East Town StreetColumbus, Ohio 43215

Customer Service: 888-864-8363General Information: 614-228-2975

TTY: 614-221-3846Facsimile: 614-628-1777

E-mail: [email protected]

www.op-f.org

Copyright © 2015 by Ohio Police & Fire Pension Fund. All Rights Reserved.

Securing the future for Ohio’s Police & Firefighters · OP&F • page vi EXECUTIVE SUMMARY •...

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