A component unit of the State of Louisiana

2016 Popular Annual Financial Report

for fiscal years ended June 30, 2016 and 2015

Remembering Our Roots

2 Fiscal Year 2015 - 2016

Message from the DirectorDear TRSL Members and Benefit Recipients:It is my privilege to present the 2016 Popular Annual Financial Report (PAFR) for the Teachers’ Retirement System of Louisiana (TRSL). This report is an overview of TRSL’s financial position and investment performance for the fiscal year ended June 30, 2016, and represents the combined efforts of the TRSL staff and its advisors. This year marked the beginning of new executive leadership in Louisiana with the election of Gov. John Bel Edwards, but uncertainty about state finances lingered. In addition to the regular session, Gov. Edwards called two special sessions to tackle the state’s budget. While there were no bills impacting TRSL in the special sessions, a number of retirement-related bills were filed in the regular session, including a trio of bills that enabled TRSL to pay a 1.5% cost-of-living adjustment (COLA) to eligible retirees and beneficiaries on July 1. Act 93 granted the COLA, but its fate hinged on passage of Acts 94 and 95. Act 94 requires TRSL’s administrative expenses to be funded directly through employer contributions as long as those expenses are cost-neutral to employers; and Act 95—a pension reform bill—prioritizes the System’s level of funding over allocations to an account that funds cost-of-living adjustments (COLAs) as well as establishes requirements for paying down debt. Sen. Barrow Peacock sponsored all three bills and guided them through to final passage. A second COLA bill, Act 512 sponsored by Rep. Sam Jones, also passed. This legislation reaffirmed the COLA granted by Act 93; it did not provide for an additional benefit increase.Other bills sought to diminish benefits for new hires, affect board governance, and allow K-12 employers to withdraw from TRSL after paying their share of the unfunded accrued liability (UAL). These bills failed to pass. You’ll find a complete list of retirement-related legislation that did pass on page 7.The System continued the important work of providing benefits to 75,828 retirees and beneficiaries, and critical retirement services to 84,068 actively working members. More than $2.0 billion in benefits were paid during the period ended June 30, 2016. I’m also pleased to report that the System’s funding level increased to 62.4% in Fiscal Year 2016, up from 60.9% last fiscal year. And, in another piece of good news, the unfunded accrued liability (UAL)—debt the state owes the retirement system—decreased by $171 million during FY 2016.This fiscal year TRSL earned a 1.60% return on investments (gross of fees) in a difficult market. The System’s investment assets totaled $17.5 billion at the end of June 30, 2016. As a long-term investor, TRSL has sustained annualized returns of 10.76% over the past seven years, giving the retirement system a top (best) eleventh percentile ranking compared to other public plans with assets greater than $1 billion, according to the Wilshire Trust Universe Comparison Service (TUCS).We are also proud of the efficiencies our staff members achieved this year. Through our online Member Access, members with DROP accounts can view all of their quarterly statements in one secure place. Members can also take

comfort in the fact that these electronic records are always available to them, unlike paper records that they may misplace or lose in a flood or fire. Our transition to providing more member communications through electronic means highlights our commitment to “going green.” We updated our member publications and several of our most-used forms to simplify our communication materials for members. TRSL also completed more than 200 external and internal audits, recouping more than $1 million in employer underpayments and benefit overpayments. And, in planning for the future, executive management and department managers have engaged in critical strategic planning and the transfer of knowledge—from identifying key skills and abilities future leaders will need, to growing those skills and abilities in existing staff. Our accomplishments are a result of the hard work and dedication of our talented staff who continually seek ways to have a positive impact on our members, employers and other stakeholders.In this year's summary report, we celebrate some of our oldest existing school buildings and their unique stories, many of which are listed on the National Register of Historic Places maintained by the Louisiana Office of Cultural Development. They are important reminders that getting an education hasn’t always been easy—whether the obstacles to attending school were societal or geographical. They have a deep and lasting impact on us—even to this day. To view more of Louisiana’s historical schools, visit the “Reports” web page on our website, www.TRSL.org.The TRSL Board of Trustees and I encourage you to review the information in this report. Its financial statements have been prepared in accordance with Generally Accepted Accounting Principles of the United States, and have been audited by an independent certified public accounting firm on behalf of the Louisiana Legislative Auditor’s Office. More detailed information can be found in our 2016 Comprehensive Annual Financial Report (CAFR), available at www.TRSL.org.Sincerely,

Maureen H. WestgardTRSL Director

For the last 14 years, the Government Finance Officers

Association of the United States and

Canada (GFOA) has recognized TRSL for

preparation of its summary annual

report.

3 Fiscal Year 2015 - 2016

Financial Information

TRSL earned a 1.6% market rate of return on investments (gross of fees) at the end of Fiscal Year 2016 with $17.5 billion in net assets. The chart immediately below shows TRSL’s assets and liabilities over the past three years, as well as the net assets held in trust. The second chart details the additions to and deductions from the plan net assets for the same three-year period.

Condensed Comparative Statements of Fiduciary Net Position2016 2015 2014

Cash and cash equivalents $ 5,279,450 $ 236,026,000 $ 205,397,273Receivables 1,679,296,945 1,690,795,593 1,834,434,326Investments (fair value) 17,450,175,745 17,522,558,265 17,512,657,748Securities lending collateral 2,553,584,462 3,435,153,677 2,257,226,730Property and equipment, at cost (net) 3,710,875 4,051,370 4,100,275Total assets 21,692,047,477 22,888,584,905 21,813,816,352

Deferred Outflows of Resources 2,395,528 3,580,678 0Accounts payable and other liabilities 1,602,693,981 1,558,387,832 1,656,554,164Securities lending collateral 2,553,584,462 3,435,153,677 2,257,226,730Total liabilities 4,156,278,443 4,993,541,509 3,913,780,894

Deferred Inflows of Resources 213,607 2,244,396 0Net position restricted for pensions $ 17,537,950,955 $ 17,896,379,678 $ 17,900,035,458

Condensed Comparative Statements of Changes in Fiduciary Net Position2016 2015 2014

Additions

Member contributions $ 330,773,315 $ 324,920,644 $ 326,007,091Employer contributions 1,157,901,123 1,217,466,676 1,174,540,866Non-employer contributions 38,193,328 37,425,629 35,927,881LSU Co-Operative Extension 1,830,995 1,851,985 2,028,819Other operating revenues 2,951,433 12,180,753 8,491,868Total net investment income 177,640,776 443,364,220 2,815,090,995Total additions 1,709,290,970 2,037,209,907 4,362,087,520

Deductions

Benefits, refunds, and other 2,050,906,604 2,011,269,710 1,935,192,090LSU Co-Operative Extension 1,873,303 1,754,855 1,746,982Administrative expenses 14,532,681 14,259,428 15,026,969Depreciation expense 407,105 384,426 322,881Total deductions 2,067,719,693 2,027,668,419 1,952,288,922

Net increase (decrease) (358,428,723) 9,541,488 2,409,798,598Net position restricted for pensions beginning of year 17,896,379,678 17,900,035,458 15,490,236,860Cumulative effect of change in accounting principle1 0 (13,197,268) 0Net position after accounting principle beginning balance restatement 17,896,379,678 17,886,838,190 15,490,236,860

Net position restricted for pensions end of year $ 17,537,950,955 $ 17,896,379,678 $ 17,900,035,4581Change in Accounting Principle: The System adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions during the fiscal year ending June 30, 2015. The adoption of this statement required the System to record a beginning net pension liability and the effects on net position of the contributions made by the Sys-tem during the measurement period (fiscal year ending June 30, 2014). As a result, beginning net position decreased by $13,197,268 for the earliest year presented. The change in accounting principle consisted of the System’s proportionate share of the collective net pension liability as of the beginning of the initial period of implementation of $14,538,436 and was offset by deferred outflows of resources for contributions to the pension plan made between the measurement date of the beginning net pension liability and the begin-ning of the System’s fiscal year of $1,341,168. The System did not restate beginning balances relating to all other deferred inflows of resources or deferred outflows of resources related to pensions as it was not practical to determine these amounts.

4 Fiscal Year 2015 - 2016

Investment Information

In seeking to maximize returns and minimize risk over the long run, TRSL continuously monitors and adjusts its mix of investment assets, creating an efficient and diversified portfolio. As a long-term institutional investor, TRSL spreads its investments across a variety of asset classes, including stocks, bonds, real estate, and private equity to manage the impact of changing market conditions. Over the past seven-year period, TRSL’s investments sustained annualized returns of 10.76%. When compared to other public plans with assets greater than $1 billion, this gives the System a top 11th percentile ranking, according to the Wilshire Trust Universe Comparison Service (TUCS).

Investments at Fair Value2016 2015 2014

Domestic bonds $ 1,828,132,715 $ 1,775,656,703 $ 1,770,055,139

International bonds 1,413,994,202 1,489,882,945 1,667,920,752

Domestic stocks 5,161,381,152 5,478,561,612 5,201,856,937

International stocks 3,166,197,700 3,429,594,486 3,688,369,407

Short-term investments 1,307,428,499 990,777,882 871,504,691

Alternative investments 4,573,041,477 4,358,084,637 4,312,950,822

Total investments $ 17,450,175,745 $ 17,522,558,265 $ 17,512,657,748

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2016201520142013201220112010200920082007

19.7%-4.8% -22.3%

12.6% 26.8% 0.1% 13.9% 19.9% 3.1% 1.6%

AlternativeAssets25.5%

Total Equities46.0%

Total FixedIncome18.5%

Total Real Estate10.0%

Target Asset Allocation

When it opened in 1895, Louisiana Tech, then named Industrial Institute and College of Louisiana, was the only state-supported, four-year college in North Louisiana. Between 1933 and 1937, enrollment at Louisiana Tech surged by almost 60% with little additional state revenue to support the growth. During this time, President Franklin D. Roosevelt enacted the New Deal—a series of social programs in response to the Great Depression. A massive building program, financed largely with New Deal funds, helped transform the school’s grounds into an impressive university campus. There was never a period in the university’s history (1936-40) when so many large and important buildings were built within such a short period of time.

Louisiana Tech UniversityEstablished 1895 • Ruston

10-Year Rates of Return (gross of fees)

5 Fiscal Year 2015 - 2016

Actuarial Information

To fund retirements, TRSL must project how much it will take to pay benefits years into the future. To do this, the TRSL actuary calculates the System's long-term liabilities, taking into account many assumptions of future events, including mortality and disability rates, salary increases, and termination and retirement rates. These assumptions are based upon TRSL’s past experience and help project future funding needs.The actuary also calculates the actuarial value of TRSL assets. Keep in mind that actuarial value and market value are not the same. Market value is based on what assets could be sold for on a specific date, which can change daily. Actuarial value is based on a technique that “smooths” short-term market gains and losses over a five-year period. While it approximates market value, the actuarial value removes much of the volatility global markets experience by incrementally recognizing market highs and lows over the course of five years. Using the actuarial value provides a reliable way to estimate the System's assets and liabilities that is not tied to day-to-day market fluctuations and helps TRSL better meet its long-term funding needs. As of June 30, 2016, the System’s actuarial value of assets was $18.2 billion, and its actuarial funded ratio was 62.4%, up from FY 2015 when TRSL’s actuarial value of assets was $17.4 billion and its actuarial funded ratio was 60.9%. The actuarial funded ratio of 62.4% means that TRSL has 62.4 cents to cover the present value of every dollar expected to be paid in future retirement benefits.

Summary of Actuarial Valuation2016 2015 2014

Membership censusRetirees 75,828 75,259 73,195Active 84,068 83,602 82,886DROP 2,504 2,283 2,291Terminated vested 6,687 6,606 6,336

Actuarial investment return 6.7% 11.3% 13.1%Actuarial funded ratio 62.4% 60.9% 57.4%Annual benefits paid $ 2,001,145,698 $ 1,956,857,437 $ 1,877,113,903

The Plaisance School has both state and national significance because it is one of the last remaining Rosenwald Schools in Louisiana. The Rosenwald rural school building program, started by Sears and Roebuck president and philanthropist Julius Rosenwald, was a major initiative that sought to provide public education to African Americans in the early 20th century South. Out of 393 Rosenwald Schools built in Louisiana between 1914 and 1932, only two survive in recognizable form—one is the Plaisance School. Additionally, the Plaisance School is one of a very few Rosenwald Schools still in use as an actual elementary school.

Plaisance SchoolEstablished 1920 • Plaisance

0%

20%

40%

60%

80%

100%

2016201520142013201220112010200920082007

60.9%57.4%56.4%55.4%55.1%54.4%

59.1%

70.2%71.3%

62.4%

Funded Ratio (2007-2016)

6 Fiscal Year 2015 - 2016

Revenues and Expenses

Revenues

Investment earnings and contributions from members and employers fund the TRSL defined benefit plan. The System pools and invests member and employer contributions, and retirement benefits are paid from TRSL investment earnings. The retirement system provides retirees with a lifetime monthly benefit based on length of service, final average compensation, and a benefit accrual factor. Some employees in higher education choose to participate in the Optional Retirement Plan (ORP), a defined contribution plan similar to a 401(k) account. These accounts are credited with employee contributions (less 0.05% administrative fee) and employer "normal cost" contributions. The UAL portion of the employer contribution is reflected in the "Employer" column in the "Revenues by Type" table below.Income from miscellaneous receipts related to operation of the pension plan, such as litigation settlements and processing fees, is listed in the table below as “Other Operating Revenues.”

Expenses

In Fiscal Year 2016, TRSL paid more than $2.0 billion in retirement benefits. These dollars provide a reliable, monthly income to more than 75,000 retirees and beneficiaries, the majority of whom live in Louisiana. As shown in the pie chart to the right, 96.8 cents of every dollar went toward benefit payments in Fiscal Year 2016. Administrative expenses account for less than one penny out of that same dollar. Furthermore, self-generated funds from investment earnings pay for administrative expenses.

Revenues by Type

Fiscal Year Member Employer Non-

Employer*Acts of the Legislature

NetInvestment

Income

OtherOperating Revenues

Total

2013-2014 $ 326,007,091 $ 1,174,540,866 $ 37,956,700 $ 5,578,791† $ 2,815,090,995 $ 2,913,077 $ 4,362,087,520

2014-2015 324,920,644 1,217,466,676 39,277,614 10,384,806‡ 443,364,220 1,795,947 2,037,209,907

2015-2016 330,773,315 1,157,901,123 40,024,323 – 177,640,776 2,951,433 1,709,290,970

*Refers to the sheriff tax collections and LSU Co-Op Extension. †Act 7 of 2008. ‡Act 55 of 2014.

Expenses by TypeFiscal Year Benefits* Pension

Expense Refunds/Other AdministrativeExpenses†

DepreciationExpense Total

2013-2014 $ 1,878,161,735 $ – $ 58,777,337 $ 15,026,969 $ 322,881 $ 1,952,288,922

2014-2015 1,958,543,273 2,078,530 52,402,762 14,259,428 384,426 2,027,668,419

2015-2016 2,001,121,694 1,773,559 49,884,654 14,532,681 407,105 2,067,719,693

*Includes Other Post-Employment Benefits (OPEB) expense and LSU Co-Op Extension.†Investment administrative expenses are excluded from this total in accordance with GASB 67.

Refunds/Other2.4%

Benefits96.8%

Administrativeand PensionExpenses

0.8%

FY 2016 Expenses by Type

7 Fiscal Year 2015 - 2016

Summary of 2015-2016 Legislation• Act 93 (Sen. Barrow Peacock) authorized payment of a 1.5% cost-of-living adjustment (COLA) to eligible TRSL

retirees and beneficiaries. The COLA was paid on the first $60,000 of the retirement benefit. Sen. Barrow Peacock, chairman of the Senate retirement committee, sponsored the COLA legislation along with Act 94 and 95, whose passage was necessary in order to pay the COLA.

• Act 94 (Sen. Barrow Peacock) requires TRSL’s non-investment related administrative expenses to be funded directly through employer contributions beginning the first fiscal year in which these expenses will not increase the projected employer contribution rate.

• Act 95 (Sen. Barrow Peacock) clarifies provisions created in Act 399 of 2014 regarding excess investment earnings, employer contributions, and COLAs. Act 95 also addresses the System’s amortization period for changes, gains, losses and allocations to the experience account, and authorizes re-amortization at certain times.

• Act 159 (Sen. Barrow Peacock) gives the TRSL Board of Trustees flexibility in determining its meeting schedule.

• Act 176 (Sen. Barrow Peacock) requires actuarial notes for pre-filed bills to be filed at least five days prior to the beginning of the regular session.

• Act 460 (Rep. Barry Ivey) requires the legislative auditor to report on the actuarial assumptions and funded ratios of each of the four state public retirement systems, and determine the appropriateness of these assumptions at least every five years.

• Act 512 (Rep. Sam Jones) reaffirms the COLA granted by Act 93; it does not grant an additional benefit increase.

• Act 621 (Rep. Kevin Pearson) allows the House speaker to appoint any member of the House retirement committee to serve on the TRSL Board of Trustees as an ex officio trustee. Previously the chair of the House retirement committee automatically served in this capacity.

• Act 679 & Act 639 (Rep. Walt Leger, III) proposes that a constitutional amendment be placed before voters on the November ballot to establish the Revenue Stabilization Trust Fund and to provide for the allocation of mineral revenues. A portion of the mineral revenues allocated in the proposed constitutional amendment would be dedicated to the unfunded accrued liability (UAL) after certain thresholds are reached. Act 639 is companion legislation to Act 679. The legislation becomes effective only if voters approve the constitutional amendment set forth in Act 679 in the November election.

• House Study Request 6 (Rep. Barry Ivey) requests a study of practices used in adopting actuarial assumptions and reporting standards for the state and statewide retirement systems and an investigation of potential legislative improvements for the increased sustainability of the systems.

• House Concurrent Resolution 12 (Rep. A.B. Franklin) would ask Congress to consider eliminating the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) Social Security reductions.

At over 80 years old, Harahan Elementary School is a stunning example of early 20th century architecture thanks to the unique design of its entrance way. Most of Louisiana’s surviving school buildings from the 1920s have a central entrance leading to internal corridors. The Harahan Elementary School entrance, however, features a two-story domed rotunda with a large curving staircase. The state’s office of historic preservation notes that no other school in Louisiana has a comparable entrance, making Harahan Elementary one of a kind.

Harahan Elementary SchoolEstablished 1926 • Harahan

To view more of Louisiana's historical schools, visit the "Reports" web page on our

website,www.TRSL.org.

Physical address (use for certified mail): 8401 United Plaza Boulevard, Suite 300

Baton Rouge, LA 70809-7017

Mailing address: PO Box 94123

Baton Rouge, LA 70804-9123

Telephone: (225) 925-6446 Toll free (outside Baton Rouge area):

1-877-ASK-TRSL (1-877-275-8775) Fax: (225) 925-4779

Email: web.master@trsl.org Website: www.TRSL.org

Business hours: 8 a.m. - 4:30 p.m. (Monday-Friday, excluding holidays)

No appointment required

Facebook: www.facebook.com/TRSLonline Twitter: @TRSLonline

TRSL is an equal opportunity employer and complies with the Americans with Disabilities Act.

Remembering Our Roots

Front cover photo sources:

Top Row: McKinley High School, Baton Rouge

Harahan Elementary School, Harahan

Bayou Boeuf Elementary School, Thibodaux

Bottom Row: Louisiana Tech University, Ruston

A look at historical Louisiana schools, past and present.

This is an electronic document. The Teachers' Retirement System of Louisiana (TRSL) did not incur any printing costs.