2016 OPERS Investment Return Review

For over 80 years, OPERS has invested through strong, poor and indifferent markets. As a long-term investor, the OPERS Board of Trustees recognizes market cycles can be volatile and adheres to a strategic investment process that diversifies assets, using target allocations and allowing for ranges around them. Staff works to maintain the balance so risk is mitigated and opportunities are maximized, remaining diligent in the funding process. OPERS’ philosophy works - for the last eight decades, OPERS has consistently provided timely benefit payments as well as achieved overall investment returns necessary to fund future benefits within the 30 year statutory requirement. For the Defined Benefit assets, the OPERS Board provides investment options appropriate to long-term strategies. The 2016 investment year was positive overall.

As of Dec. 31, 2016, OPERS total investment portfolio is comprised of the Defined Benefit portfolio, the 115 Health Care Trust portfolio, and the Defined Contribution portfolio assets.

Defined Benefit

The Defined Benefit portfolio assets originate from Traditional Pension Plan member and employer contributions, employer contributions to the Combined Plan, and funds transferred from defined contribution accounts for defined benefit annuities. The management of these assets is the responsibility of the OPERS Investment staff, adhering to the policies approved by the OPERS Board.

Health Care

The consolidated health care assets in the 115 Health Care Trust portfolio are segregated from the pension portfolio for investment purposes and invested with a shorter term asset-allocation strategy. The 115 Health Care Trust portfolio is comprised of assets set aside to provide post-employment health care for retirees.

Defined Contribution

Defined Contribution portfolio assets originate from member contributions to the Combined Plan and both member and employer contributions to the Member-Directed Plan. The investment of Defined Contribution portfolio assets is self-directed by members of the Combined and Member-Directed plans, but is primarily limited to investment options approved by the Board unless the “brokerage window” is selected by the member.

Annual Returns

As of Dec. 31, 2016, the annual investment returns for the portfolios managed by OPERS were (net of fees):

• 8.3 percent Defined Benefit portfolio
• 7.6 percent combined return for the health care assets in the Health Care Trust portfolios
• 9.5 percent Defined Contribution portfolio

The rolling five-year returns for the Defined Benefit and combined health care portfolios are:

• 8.8 percent Defined Benefit portfolio
• 7.0 percent combined health care return, combined Health Care Trust portfolios

These both exceed the assumed investment rates of return for pension and health care.