TERS benefits are funded by employer and employee contributions, as well as investment earnings. The Board of Administration’s funding policy is intended to promote inter-generational fairness by establishing contribution rates that are tied to the benefits currently being accrued. Contributions for active members are currently 20% of pay, shared by the employer and the employee.

A pension fund is considered well-funded when it is projected to have sufficient assets to meet expected future benefit obligations to its members. The TERS actuarial accrued liability is determined by calculating the present value of all future benefits promised to past and present members. The funding ratio measures the relationship between the smoothed actuarial value of assets in the pension trust and the actuarial accrued liability. As of 1/1/2013, the funded ratio for TERS was 90.9%.

The following table provided historical information on actuarial valuations.

Mayor and Chair / Marilyn Strickland
Director of Finance / Andrew Cherullo
Designee of the City Manager / Tansy Hayward
Tacoma Public Utilities Director / William A. Gaines
Employee Representatives / Gordon Cavanaugh
Samuel Benscoter
John O’Loughlin
Retired Representative / James Curley
Citizen Representative / Matthew Hedges, CFA, CAIA
Alternate Board Member / Wayne Reed
Administrative Staff
Retirement System Director / Monica Butler
Chief Investment Officer / Timothy Allen, CFA
Financial Supervisor / Catherine Agnes Marx
Accountant / Trina Ealey
Accountant / Linh Nguyen
Administrative Assistant / Kathleen Mason
Benefits Specialist / Melanie Panui
Benefits Specialist / Marni Moore
Office Assistant / Cecilia Moullet
Professional Consultants
Legal Consultant / Davis Wright Tremaine, LLC
Consulting Actuaries / Milliman
Custodian Bank / The Northern Trust Company
Investment Consultant / Wilshire Consulting
Investment Managers / Adelante Capital Management
BlackRock
Dimensional Fund Advisors
Eaton Vance Management
INTECH
INVESCO
Hamilton Lane
HarbourVest Partners
Metropolitan West Asset Management
Neuberger Berman
Northern Trust Global Investments
Pantheon
Prudential Trust Company
Research Affiliates
Tortoise Capital Advisors, LLC
Investment Advisory Committee / Dr. Alva Butcher
Joseph E. Cook, CFA, CPA
Dr. Lynda Livingston
Dr. Kevin K. Boeh

Tacoma Employees’ Retirement System

3628 S. 35th St., Tacoma, Washington 98409

(253) 502-8200 • www.cityoftacoma.org/ters

This summary annual report has been designed to provide a summary of information for the Tacoma Employees’ Retirement System (TERS), as of December 31, 2013. It includes a summary of the Plan, financial and actuarial information, asset allocation, investment activities, as well as the administrative organization.

The year 2013 marked the System’s 73rd year of operation. At year-end there were 2,119 retirees and beneficiaries receiving benefits, 434 vested terminated employees entitled to future benefits, and 2,881 active members. The retirement fund net position at December 31, 2013 was $1,388.9 million.

The Board of Administration conducts its monthly Retirement meetings on the second Thursday of the month. These Retirement meetings are held at 1:00 p.m. in the Tacoma Public Utilities Building, Room ABN-LT1 and are open to the public.

If you have any questions regarding the Retirement Plan, please feel free to contact the Retirement
Office at (253) 502-8200 or, by email at . The entire 2013 CAFR is available through our website at www.cityoftacoma.org/ters.

Marilyn Strickland
Mayor and Chair of the Board of Administration

The Tacoma Employees’ Retirement System (TERS) is . . .

*  Organized under the official code of the City of Tacoma for the purpose of providing a uniform program of retirement, disability and death benefits for its eligible members.

*  At the direction of the City Council, the System is administered by the Board of Administration (The Board) consisting of nine regular members and one alternate member. The members of the Board are the Mayor, who serves as Chair, the Director of Finance, the City Manager (or designee), the Public Utilities Director (or designee), three elected employee representatives, one elected retired representative, and one City resident (not employed by the City) elected by the other eight members. The nine regular Board members appoint a TERS member, either active or retired, as an alternate Board member. The Board, subject to City Council approval, appoints the Director who is responsible for managing the daily operations of the System.

2013 Key Statistics

2013 / 2012
Cash and Short-Term Investments / $ 23,438,670 / $ 27,602,356
Receivables / 4,405,809 / 4,952,768
Investments / 1,382,922,998 / 1,195,252,693
Securities Lending Collateral / 61,506,083 / 37,423,421
Capital Assets / 13,505 / 14,349
Total Assets / 1,472,287,065 / 1,265,245,587
Refunds Payable and Other Accrued Expenses / 1,477,847 / 1,166,352
Investments Purchased / 20,432,182 / 7,939,824
Securities Lending Collateral / 61,506,083 / 37,423,421
Total Liabilities / 83,416,112 / 46,529,597
Net Assets Held in Trust for Pension Benefits / $1,388,870,953 / $1,218,715,990

2013 / 2012
Total Contributions / $ 43,234,541 / $ 43,106,449
Net Investment Income / 190,678,515 / 151,955,042
Total Additions / 233,913,056 / 195,061,491
Benefits and Refunds of Contributions / 62,097,620 / 57,545,419
Administrative Expenses / 1,660,473 / 1,705,598
Total Deductions / 63,758,093 / 59,251,017
Net Increase / 170,154,963 / 135,810,474
Net Position Beginning of Year / 1,218,715,990 / 1,082,905,516
Net Position End of Year / $1,388,870,953 / $1,218,715,990

efits and Refunds Paid

Year / Service / Survivor / Disability / Refunds / Totals
2013 / $53,569,453 / $5,220,958 / $488,362 / $2,818,847 / $62,097,620
2012 / 49,574,663 / 4,791,021 / 474,964 / 2,704,771 / 57,545,419
2011 / 44,798,313 / 4,570,973 / 466,864 / 2,437,385 / 52,273,535
2010 / 41,349,194 / 4,600,258 / 456,801 / 2,247,556 / 48,653,809
2009 / 38,497,122 / 4,382,819 / 428,254 / 1,280,863 / 44,589,058

1-Year / 3-Year / 5-Year
Total Fund / 16.10% / 10.16% / 14.21%
Custom Policy Benchmark Index / 15.48% / 10.09% / 13.72%
Domestic Equities / 33.76% / 16.26% / 18.43%
Custom Domestic Equity Index / 33.56% / 16.24% / 18.36%
International Equities / 18.12% / 5.37% / 10.80%
Custom International Equity Index / 18.25% / 6.49% / 12.11%
Core Fixed Income / -0.82% / 4.95% / 8.51%
Barclays Capital Aggregate Index / -2.02% / 3.26% / 4.44%
TIPS / -8.65% / # / #
Barclays Capital U.S. TIPS Index / -8.61% / 3.55% / 5.63%
High Yield / Bank Loans / 6.61% / 8.13% / 14.55%
Custom High Yield Index / 7.41% / 9.15% / 18.54%
Emerging Markets Debt / -5.02% / # / #
JPM EMBI Global Diversified Index / -5.22% / 6.11% / 11.73%
Real Estate / 8.05% / 11.01% / 17.29%
Custom Real Estate Index / 7.39% / 11.27% / 17.55%
Private Equity / 27.80% / 15.73% / #
Custom Private Equity Index / 30.12% / 17.17% / #
Real Assets / 36.23% / # / #
Custom Real Assets Index / 27.58% / 15.03% / 29.54%

Additional Information:

#=performance for full period not applicable

Note: Performance calculations were prepared by Wilshire Consulting using time-weighted rates of return. Performance is net of investment management fees.

Total returns include cash income plus gains and losses due to changes in fair value, whether realized or unrealized.

Supplemental Benchmark Information:

The Custom Policy Benchmark Index at year-end 2013 was 46.5% Russell Global Equity Index (50% Hedged on Developed ex-US Countries), 17% Barclays US Aggregate Index, 2.5% Barclays TIPS Index, 9%Merrill Lynch High Yield Master II Constrained Index, 4% JP Morgan EMBI Global Diversified Index, 4% Wilshire REIT Index, 4% NCREIF ODCE Index, 3% Alerian MLP Index and 10% Custom Private Equity Index.

The Custom Domestic Equity Index from January 2010 is the Russell 3000 Index; prior to that date, the Domestic Equity Index was the S&P 500 Index.

The Custom International Equity Index from January 2012 is the Russell Global Equity ex-US Index (50% Hedged on Developed Countries).

The Custom International Equity Index from October 2010 to December 2011 was 38.5% MSCI EAFE Index, 38.5% MSCI EAFE Index Currency hedged and 23% MSCI EM Index.

The Custom International Equity Index from April 2009 to September 2010 was 40% MSCI EAFE Index, 40% MSCI EAFE Index Currency hedged and 20% MSCI EM Index.

The Custom International Equity Index from April 2006 to March 2009 was MSCI ACWI ex-US Index.

The Custom High Yield Index from June 2012 is the Merrill Lynch High Yield Master II Constrained Index, from January 2010 to May 2012 is was the Merrill Lynch High Yield BB/B Constrained Index; prior to that date the Custom High Yield Index was the Merrill Lynch High Yield Master II Index.

The Custom Real Estate Index starting from January2013 is 50% NCREIF ODCE and 50% Wilshire REIT Index; from October 2010 to December 2012 the custom index was 50% NCREIF Property Index and 50% Wilshire REIT Index; from April 1988 to September 2010 the custom index was the Wilshire REIT Index.

The Custom Private Equity Index is dynamically calculated based on the actual weights of the private equity investments and the private equity source fund.

To coincide with private equity investments reporting, 1-quarter lagged market values are used for the private equity component in the custom benchmark calculation.

The Custom Real Assets Index from October 2011 is the Alerian MLP Index.