COMPREHENSIVE ANNUAL FINANCIAL REPORT · Comprehensive Annual Financial Report (CAFR) for the fiscal year ended ... serve as a useful indicator of whether the financial position of

A Component Unit of the City of Richmond, Virginia

Philip R. Langham, Executive Director

COMPREHENSIVE ANNUAL FINANCIAL REPORT

For the Fiscal Year Ended June 30, 2011


Philip R. Langham, Executive Director

Vision:Our vision is to be a recognized leader in pension fund management and administration,

the standard by which others measure their progress and success. Every employee of the

Richmond Retirement System (System) displays a devotion to maintaining excellence in

public service and embraces the highest standards of excellence, accountability, depend-

ability, and integrity. All participating employers, along with active, former and vested

members, should take pride in knowing that the System provides the best retirement

services available and is an exemplary steward of their pension funds.

Mission:To deliver timely and effective communications and retirement services with integrity

and professionalism to the members of the Richmond Retirement System, its Board of

Trustees, City officials, departments, and City Council.

RICHMONDRETIREMENT SYSTEM


COMPREHENSIVE ANNUALFINANCIAL REPORT

For the Fiscal Year Ended June 30, 2011

A Publication of the Richmond Retirement System

RICHMOND RETIREMENT SYSTEM

6 INTRODUCTORY SECTION7 Awards8 Letter of Transmittal

12 Organizational Chart13 Board of Trustees13 Executive Director14 Investment Advisory Committee14 Benefits Advisory Committee15 Professional Services15 Medical Examiners15 Investment Managers

16 FINANCIAL SECTION17 Independent Auditors’ Report18 Management’s Discussion and Analysis

22 Statement of Fiduciary Net Assets23 Statement of Changes in Fiduciary Net Assets24 Notes to Financial Statements

36 Required Supplementary Information37 Schedule of Funding Progress (Unaudited)37 Schedule of Employer Contributions (Unaudited)38 Notes to the Schedules of Trend Information

39 Supporting Schedules40 Schedule of Administrative Expenses41 Schedule of Investment Expenses41 Schedule of Payments to Investment Consultant

42 INVESTMENT SECTION43 Investment Consultant Report47 Investment Policy50 Schedule of Investment Results51 Asset Allocation52 Schedule of Investments53 Schedule of Fees54 Schedule of Brokerage Commissions55 Investment Summary

56 ACTUARIAL SECTION57 Actuary’s Report61 Actuarial Assumptions and Methods63 Schedule of Active Members Valuation Data64 Schedule of Beneficiaries Added To and Removed From Rolls65 Solvency Test67 Analysis of Financial Experience

68 STATISTICAL SECTION69 Schedule of Changes and Growth in Net Assets70 Schedule of Retirees and Beneficiaries by Type of Retirement71 Schedule of Participating Employers72 Schedule of Average Benefit Payments73 Schedule of Membership

TABLE OF CONTENTSFinancial and Statistical Highlights — Pension Trust Fund

Year Ended June 30 2011 2010 2009 2008 2007 2006

Activity for the Year:Contributions $42,190,881 $34,615,705 $35,820,567 $34,825,752 $33,434,344 $31,870,083Investment Income

(Net of Investment Expenses) $93,769,914 $59,127,994 ($97,506,731) ($27,346,695) $82,272,875 $49,635,139Retirement Benefits and Refunds $62,473,713 $61,339,970 $62,937,234 $54,188,709 $52,119,231 $49,188,269Administrative Expenses

(Net of Miscellaneous Income) $1,169,442 $1,093,710 $1,095,480 $1,162,248 $1,113,554 $1,057,512Increase (Decrease) in Net Assets

Held in Trust for Pension Benefits $72,317,640 $31,310,019 ($125,718,878) ($47,871,900) $62,474,434 $31,259,441

Net Assets Held in Trust forBenefits at Fiscal Year End: $489,986,647 $417,669,008 $385,938,003 $511,656,880 $559,528,781 $497,054,347Contributions as a Percentage

of Benefit Payments 67.5% 56.4% 56.9% 64.3% 64.1% 64.8%Investment Income as a Percentage

of Benefit Payments 150.1% 96.4% (154.9%) (50.5%) 157.9% 100.9%

Investment Performance:One-Year Return 23.1% 15.7% (18.4%) (3.8%) 17.0% 11.4%Three-Year Return 5.2% (3.2%) (2.8%) 7.8% 13.3% 13.4%Five-Year Return 5.5% 3.4% 2.7% 10.4% 12.0% 6.8%

Members/Retirees:Active DB Plan Members 2,498 2,616 2,782 2,878 3,056 3,526Terminated Vested DB

Plan Members 1,778 1,763 1,781 1,810 1,864 1,791Retirees and Beneficiaries 4,078 3,997 3,963 3,921 3,841 3,775Active DC 401(a) Plan Members 1,656 1,632 1,614 1,402 1,059 494

TOTAL Members/Retirees: 10,010 10,008 10,140 10,011 9,820 9,586

INTRODUCTORYSECTION

INTRODUCTORYSECTION

AWARDS

Certificate of Achievement for Excellence inFinancial ReportingThe Government Finance Officers Association of the United States andCanada (GFOA) awarded a Certificate of Achievement for Excellence inFinancial Reporting to the Richmond Retirement System (System) for itsComprehensive Annual Financial Report (CAFR) for the fiscal year endedJune 30, 2010. This was the 20th consecutive year that the System achievedthis prestigious recognition.

To be awarded the certificate, a government unit must publish an easilyreadable and efficiently organized comprehensive annual report. This reportmust satisfy both generally accepted accounting principles and applicablelegal requirements. The certificate is valid for a period of one year. TheSystem’s CAFR for FY 2011 continues to conform to the Certificate ofAchievement Program requirements and will be submitted to GFOA todetermine its eligibility for another certificate.

Public Pension Coordinating CouncilAchievement AwardThe System received the 2010 Achievement Award from the Public PensionCoordinating Council (PPCC) in recognition of the agency's excellence inmeeting the Public Pension Standards. Developed by PPCC, these standardsare the benchmark for measuring excellence in defined benefit plan fundingand administration.

This is the first award from the PPCC. The purpose of the award is to promotehigh professional standards for public employee retirement systems andpublicly commend systems that adhere to these standards. The PPCC is acoalition of the National Association of State Retirement Administrators(NASRA), National Conference on Public Employee Retirement Systems(NCPERS) and the National Council on Teacher Retirement (NCTR).

Introductory Section 7

8 Richmond Retirement System CAFR FY 2011 Introductory Section 9

LETTER OF TRANSMITTALLETTER OF TRANSMITTAL


LETTER OF TRANSMITTALLETTER OF TRANSMITTAL

12 Richmond Retirement System CAFR FY 2011

CITY COUNCILAppoints five

Board members

MAYORAppoints two

Board members

BOARD OF TRUSTEESFive citizens andtwo employees

INVESTMENT ADVISORYCOMMITTEE

Selected by Board

BENEFITS ADVISORYCOMMITTEE

Selected by Board

RRS EXECUTIVE DIRECTOR

Appointed by Board

ACTUARY

LEGAL COUNSEL

MEDICAL EXAMINERS

STAFF

INVESTMENT CONSULTANT

INVESTMENT MANAGERS

INVESTMENT CUSTODIAN

Introductory Section 13

BOARD OF TRUSTEESORGANIZATIONAL CHART


Jacquelyn E. StonePartner

McGuire Woods

Kenneth N. Daniels, Ph.D., Vice ChairmanProfessor of Finance

Virginia Commonwealth University

Ronald L. Tillett, ChairmanManaging Director

Morgan Keegan & Co.

William H. LeightyPartner

Decide Smart, LLC

Lawrence GlidewellBattalion Chief

Fire & Emergency ServicesCity of Richmond

Clara B. Woody, AIF®City of Richmond (Retired)

Philip R. LanghamExecutive Director

Garland W. WilliamsSr. Assistant to the

Chief Administrative OfficerCity of Richmond

EXECUTIVE DIRECTOR

From left to right: Garland W. Williams, Lawrence Glidewell, Ronald L. Tillett, William H. Leighty, Jacquelyn E. Stone,Kenneth N. Daniels, Ph.D., Clara B. Woody, W. Massie Meredith, Jr.

W. Massie Meredith, Jr.Chief Executive Officer

AlphaLife Funds Group, LLC


SERVICES, EXAMINERS AND MANAGERSADVISORY COMMITTEES

BENEFITS ADVISORY COMMITTEEWilliam H. Leighty

ChairmanBoard of Trustees

Lawrence Glidewell Michael Hultzapple, CPA, CFA Garland W. WilliamsBoard of Trustees Managing Director Board of Trustees

Alpha Performance Verification Services

PROFESSIONAL SERVICESConsulting Actuary Investment Consultant

SageView Consulting Group, LLC NEPC, LLCWilliam M. Dowd, FCA, EA, MAAA Kevin Leonard, Partner

4421 Cox Road One Main Street, 8th FloorRichmond, VA 23060 Cambridge, MA 02142

Independent Auditor Investment CustodianCherry, Bekaert & Holland, LLP State Street Corporation

200 South 10th Street, Suite 900 Robert Taylor, Vice President, Public Fund ServicesRichmond, VA 23219 2 Avenue de Lafayette, 6th Floor

Boston, MA 02111

MEDICAL EXAMINERSCardiopulmonary Eye, Ear, Nose and Throat PsychiatricDr. Philip B. Duncan Dr. Nicholas G. Tarasidis Dr. Elliot J. Spanier

Dr. Carolyn Burns Dr. Merritt Foster

General Medicine Orthopedic Vascular SpecialistDr. Roderick E. Haithcock Tuckahoe Orthopedic Associates, Ltd. Dr. Broadie G. Newton

Dr. George Maughan West End Orthopedic Clinic, Inc. The Vascular GroupDr. Barrington H. Bowser, Jr. Dr. William Fleming

Dr. Robert S. Adelaar

INVESTMENT MANAGERSAcadian Asset Management, Inc. Aladdin Credit Partners, LLC Audax Mezzanine Fund III, L.P.

One Post Office Square, 20th Floor Six Landmark Square, 6th Floor 101 Huntington AvenueBoston, MA 02109 Stamford, CT 06901 Boston, MA 02199

BlackRock Financial Management, Inc. Brandywine Global Investment Mgmt., LLC Cadogan Management, LLC40 E. 52nd Street 2929 Arch Street, 8th Floor 149 Fifth Avenue, 15th Floor

New York, NY 10022 Philadelphia, PA 19104 New York, NY 10010

Chartwell Investment Partners Grantham, Mayo, Van Otterloo & Co. LLC Hughes Capital Management, Inc.1235 Westlakes Drive, Suite 400 40 Rowes Wharf 916 Prince Street, 3rd Floor

Berwyn, PA 19312 Boston, MA 02110 Alexandria, VA 22314

J. P. Morgan Global Real Assets K2 Advisors, LLC Lexington Partners, Inc.270 Park Avenue, 7th Floor 300 Atlantic Street, 12th Floor 111 Huntington Avenue, Suite 3020

New York, NY 10017 Stamford, CT 06901 Boston, MA 02199

Loomis, Sayles & Co. LSV Asset Management Parish Capital Advisors, LLPOne Financial Center 155 North Wacker Drive, Suite 4600 5915 Farrington Road, Suite 202

Boston, MA 02111 Chicago, IL 60606 Chapel Hill, NC 27517

Pine Grove Asset Management, LLC Private Advisors, LLC State Street Global Advisors25 De Forest Avenue 1800 Bayberry Court One Lincoln Street

Summit, NJ 07901 Richmond, VA 23226 Boston, MA 02111

Stone Harbor Investment Partners, LP Urdang Investment Management, Inc. Westwood Trust31 West 52nd Street, 16th Floor 630 West Germantown Pike, Suite 321 200 Crescent Court, Suite 1200

New York, NY 10019 Plymouth Meeting, PA 19462 Dallas, TX 75201

INVESTMENT ADVISORY COMMITTEEKenneth N. Daniels, Ph.D. Ronald L. Tillett Donald A. Steinbrugge, CFA

Chairman Vice Chairman Managing MemberBoard of Trustees Board of Trustees Agecroft Partners, LLC

Michael Hultzapple, CPA, CFA Garland W. Williams Gregory A. SchnitzlerManaging Director Board of Trustees Managing Partner

Alpha Performance Verification Services Ascential Equity, LLC

Basil L. Hurst Eric Tucker W. Massie Meredith, Jr.Managing Director Deputy Chief Administrative Officer Board of Trustees

Plural Investments, LLC of Finance & AdministrationCity of Richmond

Ex-Officio Member

Philip R. LanghamExecutive Director

INDEPENDENT AUDITOR’S REPORT

Financial Section 17

FINANCIALSECTION

FINANCIALSECTION


FINANCIAL STATEMENTSThe basic financial statements are designed to provide readers with a broadoverview of the System’s finances in a manner similar to a private-sectorbusiness and in accordance with U.S. Generally Accepted AccountingPrinciples (GAAP).

The Statement of Fiduciary Net Assets on (page 22) presents information onall of the System’s assets and liabilities, with the difference between the tworeported as net assets. Over time, increases or decreases in net assets mayserve as a useful indicator of whether the financial position of the System isimproving or deteriorating.

The Statement of Changes in Fiduciary Net Assets (page 23) displays thechanges in the System’s net assets that occurred during the fiscal year. Allchanges in net assets are reported as soon as the underlying event giving riseto the change occurs, regardless of the timing of related cash flows. Thus,revenues and expenses are reported in the statement for some items that willresult in cash flows in future fiscal periods (for example, administrative expensesand investment expenses).

The City’s basic financial statements present information about the Systemas a fiduciary pension trust fund. A fiduciary fund is used to account forresources held for the benefit of parties outside the government. Fiduciaryfunds are not available to support the City’s programs.

PLAN HIGHLIGHTSThe investment return on the actuarial value ofassets was 12.34% versus the expected rate ofreturn of 8%. The actuarial value of assets whichis used to determine the contribution rate forthe participating employers of the System forthe following fiscal year, is determined using amethod that is designed to smooth the impactof market fluctuations.

Unlike the market value which immediatelyreflects all realized and unrealized appreciationduring the year, the actuarial value recognizes thedifference between actual earnings on invest-ments and expected earnings on investments(using an 8% investment return assumption) overa five year period, with the stipulation that theactuarial value cannot be less than 90% or morethan 110% of the market value. The net gain forthe fiscal year ended June 30, 2011 will berecognized gradually, a portion recognized in thisyear’s asset value and the remainder recognizedover the next four years.

NOTES TO THE FINANCIALSTATEMENTSThe notes to the basic financial statementsprovide additional information essential for a fullunderstanding of the information provided in theSystem’s financial statements.

ANALYSIS OFFINANCIAL STATEMENTSThe System’s net assets increased by approximately$72.3 million to $489,986,647 during fiscal year2011. The total assets were $552,179,936 and thetotal liabilities were $62,193,290. The market valueof the investment portfolio increased by approxi-mately $71.8 million.

The major components of the System’s additionswere contributions of $42.2 million and $93.8million in net investment gains.

The primary deductions of the System were theretirement, survivor, and disability benefit pay-ments to members and their beneficiaries;additional deductions were for administrativecosts. Deductions for fiscal year 2011 totaled$63,643,155, an increase of 1.94% over fiscal year2010. Thirty-six retirees exited the DROP programin fiscal year 2011 with total payouts of $4.34million, a decrease of $0.9 million compared tothe prior year. The condensed financial data of netassets, additions, and deductions for the fiscalyears ended June 30, 2011 and 2010 appears onthe next page.

PLAN MEMBERSHIPThe table on the next page reflects the System’s membership, includingDefined Benefit Plan Participants and Defined Contribution 401(a)Plan Participants, as of the beginning and end of the year. Please see theSchedule of Membership on page 73 for a complete listing of active membersby department.

The following table demonstrates the changes in retirees and beneficiariesduring the period.

Count as of 6/30/2010 ............................. 3,997

New Retirees ................................................... 217

Benefits Terminated ................................... (136)

Count as of 6/30/2011 ........................... 4,078


MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS

Plan Membership

Increase/ PercentFY 2011 FY 2010 (Decrease) Change

Active DB Plan Members:

Vested 2,203 2,195 8 .4%

Non-vested 295 421 (126) (30%)

Retirees & Beneficiaries 4,078 3,997 81 2%

Terminated VestedDB Plan Members 1,778 1,763 15 (.9%)

Active DC 401(a)Plan Members 1,656 1,632 24 1.5%

Total: 10,010 10,008 2 0.0%

The System’s basic financial statements are

designed to provide readers with a broad

overview of the System’s finances in a manner

similar to a private-sector business

T he discussion and analysis of the Richmond Retirement System’s (System) pension fund financial performance providesan overview of its financial activities and funding condition for the fiscal year ended June 30, 2011.


Increase/FY 2011 FY 2010 Decrease PercentageMillions Millions Millions Change

Total Assets 552.18 486.43 65.75 13.52%Total Liabilities (62.19) (68.76) 6.57 (9.55%)

Net Assets 489.99 417.67 72.32 17.32%

Contributions 42.19 34.62 7.58 21.88%Investment Earnings, Net 93.77 59.13 34.64 58.58%

Total Additions 135.96 93.74 42.22 45.03%

Contribution RatesGeneral 27.83% 21.16%Police/Fire 33.31% 25.54%

Benefit payments 62.47 61.34 1.13 1.85%Administrative Expenses 1.17 1.09 0.08 7.34%

Total Deductions 63.64 62.43 1.21 1.94%

Total Additions 135.96 93.74 42.22 45.03%Total Deductions (63.64) (62.43) 1.21 1.94%

Net Change 72.32 31.31 41.01 130.97%


SUMMARY OF FINANCIAL STATEMENTS ASSET ALLOCATION

FUNDING STATUSOf primary concern to most pension planparticipants is the amount of money availableto pay benefits. The City has traditionally contrib-uted the annual required contribution (ARC) asdetermined by the System’s actuary. Therefore, anet pension obligation has never existed for theSystem. This is due in large part to the City Coderequirement that contributions to the Systemconsist of a normal contribution plus an accruedliability contribution which, combined, equalthe ARC.

An indicator of funding status is the ratio of theactuarial value of the assets to the actuarialliability when using the Projected Unit CreditMethod. An increase in this percentage over timeusually indicates a plan is becoming financiallystronger. However, a decrease will not necessarilyindicate a plan is in financial decline. Changes inactuarial assumptions can significantly impact theactuarial liability. Performance in equity and fixedincome markets can have a material impact onthe actuarial value of assets.

Schedule of Funding Progress

As of June 30, 2011

TARGET TARGETASSET CLASS ALLOCATION RANGE

U.S. EQUITY TOTAL: 32.00%

Large Cap Passive 11.00% 6-16%

Large Cap Growth 5.00% 0-10%

Large Cap Value 5.00% 0-10%

Long/Short Equity 4.00% 0-9%

Small/Mid Cap Growth 3.5% 0-7%

Small/Mid Cap Value 3.5% 0-7%

INTERNATIONAL EQUITY TOTAL: 15.00%

Developed Markets 10.00% 5-15%

Emerging Markets 5.00% 0-10%

FIXED INCOME TOTAL: 34.50%

Core Plus 13.50% 8.5-18.5%

Global Fixed Income Hedge 8.00% 3-13%

High Yield 6.00% 1-11%

TIPS 4.00% 0-9%

Credit Opportunities 2.00% 0-7%

Core 1.00% 0-6%

ALTERNATIVES TOTAL: 17.00%

Hedge Funds 8.00% 0-8%

Private Equity 5.00% 0-10%

Private Real Estate 2.00% 0-9%

REITS 2.00% 0-9%

CASH TOTAL: 1.50% 0-5%

ASSET ALLOCATIONThe above table indicates the policy target asset allocation as of June 30,2011. In identifying the optimal asset mix strategy for the System, the Boardhas adopted the aforementioned asset allocation policy. To ensure compli-ance with the policy, a rebalancing strategy is employed which requiresperiodic rebalancing for each asset class.

INVESTMENT ACTIVITIESInvestment income is vital to the System’s current and continued financialstability. Therefore, the Board has a fiduciary responsibility to act prudentlywhen making investment decisions. To assist the Board in this area, acomprehensive formal investment policy is updated periodically.

As managers and asset classes have been added, specific detailed investmentguidelines have been developed, adopted, and included as an addendum toeach Investment Manager’s Professional Service Contract.

The Board and its consultants, New England Pension Consultants, reviewportfolio performance quarterly. Performance is evaluated individually by

money manager style, collectively by investmenttype and for the aggregate portfolio.

The System’s Total Fund return outperformed theactuarial return assumption. The fund’s investmentreturn of 23.1% (gross of fees) outperformed thelong-term 8% actuarial return assumption targetfor the year. The System’s Total Fund gained 5.5%on an average annual basis in the five-year periodending June 30, 2011, which exceeded the TotalFund benchmark for the same period. The TotalFund returns are reported gross of fees.

A schedule of investment results of one-year,three-year and five-year average performance,with comparable benchmarks, is available in theInvestment Section (see page 50).

ECONOMIC FACTORSIn terms of economic outlook, two factors primarilyimpact the System: (1) the employer/employeecontributions; and (2) the return on investments.These factors directly impact the primary functionsof the pension trust, which are to (a) appropriatelyaward and pay benefits and (b) manage investments.

CONTACTING THE SYSTEM’SFINANCIAL MANAGEMENTThe financial report is designed to provide citizens,taxpayers, plan participants and the marketplace’scredit analysis with an overview of the System’sfinances and the prudent exercise of the Board’soversight.

If you have any questions regarding this reportor need additional financial information, pleasecontact the Richmond Retirement System, 900 E.Broad Street, Room 400, Richmond, Virginia 23219.

Investment Performance

1 YEAR 3 YEARS 5 YEARS

25%

20%

15%

10%

5%

0%

TOTAL FUND

BENCHMARK

23.1% 23.9%

4.8%5.5% 5.1%5.2%

100%

80%

60%

40%

20%

0%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

FUNDED STATUS

85.3%

89.4%94.8%

98.6%

82.1%

73.9% 63.3%

60.2%69.5%

71.1%

58.3%

58.6%

69.3%

54.4%

71.2%

22 Richmond Retirement System CAFR FY 2011 Financial Section 23

STATEMENT OF FIDUCIARY NET ASSETS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS

Defined Benefit Pension Trust FundAs of June 30, 2011

ASSETS

Cash and Short Term Investments (Note II) ................................ $ 12,087,165

Receivables:

Receivables for Security Transactions ...................................... 3,283,415

Contributions from

Participating Employers ................................................................ 1,440,901

Interest and Dividends .................................................................. 1,077,836

Other Receivables ........................................................................... 15,226

Total Receivables .................................................................. 5,817,378

Investments, at Fair Value (Note II):

Common Stock ................................................................................ 162,573,106

International Stock ......................................................................... 83,591,430

Corporate Bonds and Notes ........................................................ 73,229,535

International Bonds and Notes .................................................. 44,408,117

Hedge Funds ..................................................................................... 40,631,380

Mutual Funds .................................................................................... 18,944,240

US Government and Agency Obligations .............................. 18,554,568

Private Real Estate ........................................................................... 16,459,034

REITS .................................................................................................... 11,217,095

Private Equity .................................................................................... 7,565,969

Emerging Market Debt ................................................................. 7,056,773

Total Investments ................................................................ 484,231,247

Cash Collateral Received Under

Securities Lending Program ........................................................ 50,044,146

TOTAL ASSETS ......................................................................................... $552,179,936

LIABILITIES

Payable for Security Transactions .............................................. 10,203,396

Accounts Payable and Accrued Expenses .............................. 1,215,481

Investment Expenses Payable .................................................... 433,465

Retirement and Death Benefits Payable ................................. 296,802

Total Accounts Payable ..................................................... 12,149,144

Payable for Collateral Received Under

Securities Lending Program ........................................................ 50,044,146

TOTAL LIABILITIES ................................................................................. $ 62,193,290

NET ASSETS HELD IN TRUST FOR BENEFITS .............................. $489,986,646

Defined Benefit Pension Trust FundFor the Fiscal Year Ended June 30, 2011

ADDITIONS

Contributions:City of Richmond Contributions (Note V) .............................. $ 38,148,680Richmond Behavioral Health Authority .................................. 1,147,687Richmond Public Schools ............................................................. 421,397Revenue for DC Plan Expenses ................................................... 52,133

Employer Contributions ................................................... 39,769,897Member Contributions ................................................................. 2,420,983

Total Contributions .............................................................................. $ 42,190,880

Investment Income:Net Appreciation in Fair Value of Investments (Note II) .... 83,282,420Dividends ........................................................................................... 7,687,459Interest ................................................................................................ 4,628,767

Net Investment Gain ........................................................... 95,598,646

Investment Activity Expenses:Investment Management Fees .................................................. (1,402,915)Investment Consulting Fees ........................................................ (276,152)Investment Custodial Fees ........................................................... (250,398)

Total Investment Expenses ............................................. (1,929,465)Net Gain from Investing Activities ..................... 93,669,181

Security Lending Income:Gross Income .................................................................................... 216,284Less Borrower Rebates and Agent Fees .................................. (115,552)

Net Security Lending Income ............................... 100,732

Total Net Investment Gain ................................................................ 93,769,913

Total Additions ....................................................................................... 135,960,793

DEDUCTIONSRetirement Benefits ........................................................................ 62,392,336Refunds of Member Contributions ........................................... 81,377Administrative Expenses .............................................................. 1,169,442

Total Deductions .................................................................................... (63,643,155)

NET INCREASE ......................................................................................... 72,317,638

NET ASSETS HELD IN TRUST FOR BENEFITSBeginning of Year ..................................................................................... 417,669,008

End of Year ................................................................................................ $489,986,646

The accompanying Notes to Financial Statements are an integral part of this statement.


NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTS

I. SUMMARY OF SIGNIFICANT FINANCIAL POLICIES

(A) Financial Reporting EntityThe Richmond Retirement System (System) is a component unit of theCity of Richmond, Virginia (City). The System’s operations are accountedfor as a blended component unit in the City’s financial reporting entitybecause it provides services for the benefit of the City’s employees. Itsoperations are included in the City’s basic financial statements as afiduciary pension trust fund.

(B) Administration and ManagementThe System is governed by the Board of Trustees (Board), which adminis-ters the retirement program according to the requirements of the Code ofthe City of Richmond, and other governing law. The Board is responsiblefor the general administration and operation of the Defined Benefit plan.The Board has full power to invest and reinvest the trust funds of theSystem through the adoption of the investment policies and guidelinesthat fulfill the Board’s investment objectives to maximize long-terminvestment returns while targeting an acceptable level of risk.

The Board consists of seven members. The City Council appoints fivemembers and the Mayor appoints two members of the Board. The Boardof Trustees appoints an Executive Director to administer and transact theSystem’s business. The Board also retains outside investment managers,and consultants to advise and assist in the implementation of thesepolicies. The Board appointed State Street Corporation as the custodianof designated assets of the System.

Investment Standard of Care — As stated in Section 78-82(d) ofthe City of Richmond Code ”…the Board shall dischargetheir duties with respect to the System solely in the interest of themembers and beneficiaries of the System and shall invest the assetsof the System with the care, skill, prudence, and diligence under thecircumstances then prevailing that a prudent person acting in a likecapacity and familiar with such matters would use in the conduct ofan enterprise of a like character and like aims. “ Accordingly, the Boardmust diversify the portfolio to minimize the risk of large losses unless,under the circumstances, it is clearly prudent not to do so. Primaryrisk measures are volatility in the plan’s assets, funded status, andcontribution rates.

The provisions of Chapter 78 of the Code of the City of Richmond governsthe actual operations of the System.

The Board has oversight and limited administrative responsibility, butno investment responsibility, for the Defined Contribution 401 (a) planestablished for employees of participating employers who were hired orrehired on or after July 1, 2006. Because the Board neither owns nor hascustody of the assets, their financial transactions are not recorded in theSystem’s accounting system. Therefore, these programs are not includedin the System’s basic financial statements. Additional information aboutDefined Contribution 401(a) Plan is provided in the Statistical Section.

and any changes in unfunded actuarial liability due to changes in benefitprovisions, actuarial gains and losses and changes in methods andassumptions, is amortized over a period not more than 30 years, withcontributions increasing 4% per year for Police and Fire employees andlevel contributions for General Employees.

Actuarial valuations estimate the value of reported amounts and assump-tions about the probability of occurrence of events in the future. Theactuarial assumptions include mortality, turnover, and the use of benefits.Actuarially determined amounts are subject to revision as actual resultsare compared with past expectations and new estimates are made aboutthe future. The Required Supplemental Schedules of funding progress andemployer contributions, which follow the Notes to Financial Statements,present historical information about the increase or decrease of theactuarial values of the plans’ assets over time relative to the unfundedactuarial accrued liability.

(E) Administrative Expenses and BudgetThe Board of Trustees approves expenses related to the administrationand management of the System. These expenses are included in a budgetprepared using the full accrual basis of accounting. Administrativeexpenses are funded exclusively from the investment income. Expensesfor goods and services received but not paid for prior to the System’s fiscalyear end are accrued for financial reporting purposes in accordance withGAAP. Administrative expenses for the fiscal year ended June 30, 2011, arepresented in the Schedule of Administrative Expenses in the SupportingSchedules Section following the Required Supplementary Information.

(F) Governmental Accounting Standard Board (GASB)Statements

GASB Statement No. 28, Accounting and Financial Reporting for SecuritiesLending Transactions, establishes accounting and financial reportingstandards for securities lending transactions. In these transactions,governmental entities transfer their securities to broker-dealers and otherentities for collateral which may be cash, securities, or letters of credit andsimultaneously agree to return the collateral for the same securities in thefuture. This statement requires governmental entities to report securitieslent (the underlying securities) as assets in their balance sheets. Cashreceived as collateral on securities lending transactions and investmentsmade with that cash should be reported as assets. Additional informationabout the securities lending program is presented in Section H and inNote II.

GASB Statement No. 40, Deposits and Investment Risk Disclosures, requiresdisclosures related to credit risk, concentration of credit risk, interest raterisk, custodial credit risk and foreign currency risk. The statement alsorequires disclosure of custodial credit risk and foreign currency risk fordepository accounts. Information about the System’s deposit and invest-ment risk is provided in Note II.

GASB Statement No. 50 Pension Disclosure, an Amendment to GASBStatements No. 25 and No. 27, enhances information disclosed in the notesto the financial statements or presented as required supplementary

(C) Accounting BasisThe basic financial statements are presented inaccordance with U.S. Generally Accepted Account-ing Principles (GAAP) using the accrual basis ofaccounting and the economic resources measure-ment focus.

Under the accrual basis, revenues are recognizedwhen earned and expenses are recognized whenliabilities are incurred, regardless of the timing ofrelated cash flows. Member and employer contribu-tions are recognized as revenue, when due, in theperiod in which employees’ services are performedpursuant to the City of Richmond Code (the Code).

Investment income is recognized as earned by theplan. Benefits and refunds are recognized when dueand payable in accordance with the Code. The costof administering the plan is primarily financed bycontributions.

(D) Actuarial Basis and Contribution RatesThe funding policy for the pension plan providesfor periodic employer contributions at actuariallydetermined rates, as a percentage of payroll andwill accumulate sufficient assets to meet the costof all benefits when due. Member and employercontributions are required by Sections 78-111 –78-113 of the Code.

The actuarial cost method utilized in determiningannual required contribution rates is the projectedunit credit method. The unfunded actuarial liability,

information by pension plans. Information aboutthe pension plan administered by the System ispresented in Notes IV and V.

GASB Statement No. 53, Accounting and FinancialReporting for Derivative Instruments, establishesaccounting and financial reporting standardsfor governments that enter into derivative instru-ments. Derivative instruments are often complexfinancial arrangements used by governmentsto manage specific risks or to make investments.The objective of the statement is to enhance theusefulness and compatibility of derivative financialinstruments information reported by state andlocal government. It provides a comprehensiveframework for the measurement, recognition, anddisclosure of derivative instruments transaction.Additional disclosures resulting from the implemen-tation of this statement are presented in Note II.

(G) InvestmentsThe investments of the System are reported at fairvalue as determined by the System’s custodian,State Street Corporation. The fair value is based oneither quotations obtained from national securityexchanges or on the basis of quotations providedby a pricing service, which uses information withrespect to transactions on bonds, quotations frombond dealers, market transactions in comparablesecurities and various relationships between securities.

The System has modified the investment categoriesfor commingled funds from those provided by thecustodian to accurately present the underlyinginvestments.

Security transactions and related gains and lossesare recorded on a trade date basis. The cost ofinvestments sold is the average cost of the aggre-gate holding of the specific investment sold.Dividend income is recorded on the ex-dividenddate and interest income is accrued as earned.

Futures contracts are valued daily, with the resultingadjustment recorded as realized gains or lossesarising from the daily settlement of the variationmargin. Gains and losses related to forwardcontracts and options are recognized at the timethe contracts are settled. Investments in limitedpartnerships are accounted for on the equitymethod of accounting, and their earnings or lossesfor the period are included in investment incomeusing the equity method.



(H) Securities Lending ProgramThe System lends securities to firms on a temporary basis through itscustodian bank, State Street Corporation (Custodian). During the fiscalyear, the Custodian loaned its securities at the direction of the System andreceived cash, U.S. government securities, and irrevocable bank letters ofcredit as collateral. The Custodian did not have the ability to pledge or sellcollateral securities delivered absent a borrower’s default.

Borrowers were required to deliver collateral for each loan in amountsequal to not less than 100% of the market value of the loaned securities.The System did not impose any restrictions during the fiscal year on theamount of the loans that the Custodian made on its behalf, and theCustodian indemnified the System by agreeing to purchase replacementsecurities, or return the cash collateral, in the event the borrower failed toreturn the loaned security. There were no such failures by any borrowersduring the fiscal year, nor were there any losses during the fiscal yearresulting from a default of a borrower or the Custodian.

The System and the borrowers maintain the right to terminate all securitieslending transactions on demand. The cash collateral received on eachloan was invested, together with the cash collateral of other qualifiedtax-exempt plan lenders, in a collective investment pool.

The average duration of the short term investments in the duration poolwhich includes securities with a remaining maturity of 91 days or greaterfor the year ended June 30, 2011 was 484 days with weighted averagematurity of 36 days. The average duration of the short term investments inthe liquidity pool which primarily includes securities with the remainingmaturity of 90 days or less for the year ended June 30, 2011 was 62 dayswith weighted average maturity of 32 days. As the loans are terminable atwill, the duration of the investments generally did not match the durationof the investments made with the cash collateral.

As of June 30, 2011, the market value of the securities on loan was$49,181,151. This balance is composed of U.S. government and agencysecurities of $4,788,908, common stock of $32,972,878, and corporatebonds of $11,419,366. Securities on loan are included with investmentson the Statement of Fiduciary Net Assets and the invested cash collateralis included as an asset and corresponding liability. At June 30, 2011,the invested cash collateral had market value of $50,044,146 and wascomposed of U.S. government and agency securities of $4,902,106,common stock of $33,516,675 and corporate bonds of $11,625,365.

The System cannot sell or pledge the collateral received absent a borrowerdefault. At June 30, 2011, the System had no credit risk exposure toborrowers because the amounts it owes the borrowers exceeds theamounts the borrowers owe it.

II. DEPOSITS AND INVESTMENTS

(A) DepositsOn June 30, 2011, the carrying amount of theSystem’s deposits with financial institutions was$432,789 and the bank balance was $1,268,695. Allfunds deposited in banks are protected under theprovisions of the Virginia Securities for PublicDeposit Act (the Act).

The Act requires financial institutions holding publicdeposits in excess of amounts insured by the FederalDeposit Insurance Corporation to pledge collateralin the amount of 50% of excess deposits, and savingsand loans to pledge collateral in the amount of100% of excess deposits to a collateral pool in thename of the State Treasury Board.

The State Treasury Board can assess additionalcollateral from participating financial institutions tocover collateral shortfalls in the event of default, andis responsible for: (1) monitoring compliance withthe collateralization, (2) reporting requirements ofthe Act, and (3) notifying local governments ofcompliance by financial institutions.

(B) Investments1. Authorized Investments

The System invests in obligations of the U.S.government or its agencies, approved moneymarket funds, other banks and savings and loanassociations not exceeding federal insurancecoverage, and commercial paper rated A-1 byStandard & Poor’s or P-1 by Moody’s.

The System is also authorized to invest in fixedincome securities; domestic and internationalequities; Real Estate Investment Trusts (REITs);private equity; private real estate and hedgefund-of-funds. Each investment manager isauthorized to invest no more than 5% of itsholdings, at market value, in equity securities ofa single issuer excepting the U.S governmentand agencies and sovereign nations andtheir agencies.

The System has eleven types of investments:common stock, international stock, corporatebonds and notes, international bonds and notes,hedge funds, mutual funds, U.S. government andagency obligations, private real estate, REITS,private equity, and emerging market debt.

Cost and Fair Value of Investments

June 30, 2011COST FAIR VALUE

Common stock ................................................... $ 143,661,832 $ 162,573,107

International stock ........................................... 78,896,485 83,591,430

Corporate bonds and notes .......................... 68,355,190 73,229,534

International bonds and notes .................... 38,201,894 44,408,117

Hedge funds ....................................................... 37,871,849 40,631,380

Mutual funds ...................................................... 18,478,924 18,944,240

US government and agency obligations . 18,210,954 18,554,568

Private real estate .............................................. 14,994,015 16,459,035

REITS ................................................................ 9,162,722 11,217,095

Private equity ..................................................... 7,153,743 7,565,969

Emerging market debt .................................... 6,460,727 7,056,772

Total long-term investments ............ 441,448,336 484,231,247

Collateral held for securities on loan ......... 50,044,146 50,044,146

Total investments .................................. $491,492,481 $534,275,393

Net Change in Position of Fair Value of Investments

Year Ended June 30, 2011CHANGE

Common stock ............................................................................................. $ 10,151,710

International stock ..................................................................................... 18,297,282

Corporate bonds and notes .................................................................... 19,256,601

International bonds and notes .............................................................. 2,994,744

Hedge funds ................................................................................................. 2,288,987

Mutual funds ................................................................................................ 236,968

U.S. government and agency obligations .......................................... $2,517,989

Private real estate ........................................................................................ 16,459,035

REITS .......................................................................................................... (7,721,718)

Private equity ............................................................................................... 6,299,118

Emerging market debt .............................................................................. 1,032,986

Net change .......................................................................................... $71,813,702

2. Credit RiskCredit risk is the risk that an issuer or othercounterparty to an investment will not fulfillits obligation to the System. As of June 30,2011, the system’s fixed income assets that arenot government guaranteed represent 88% ofthe fixed income assets

The System has an investment policy for creditrisk. The domestic fixed income investmentsshould emphasize high-quality and reasonablediversification. Investments shall not be ratedbelow BAA3, as rated by Moody’s, or anequivalent rating agency, and the overallweighted average quality shall be A or higher.The ratings in the policy statement are forguidance only; the investment managers areresponsible for making an independentanalysis of the credit worthiness of securitiesand their suitability as investments regardlessof the classifications provided by rating agencies.

For purposes of calculating compliance withthe credit constraints, if split rated, the lowestrating will apply. The System’s fixed incomeportfolio credit quality and exposure levels asof June 30, 2011 are summarized in the CreditQuality and Exposure Levels of Nongovern-ment Guaranteed Securities table on page 28.

� Concentration of Credit RiskThis is the risk of loss that may be attrib-uted to the magnitude of a government’sinvestment in a single issue. The System’sinvestment guidelines for each specificportfolio limits investments in any corpo-rate entity to no more than 5% of themarket value of the account for boththe internally and externally managedportfolios. There is no concentration ofinvestments in any one organization thatrepresents 5% or more of plan net assetsavailable for benefits.

� Custodial Credit RiskThis is the risk that in the event of thefailure of the counterparty, the Systemwill not be able to recover the value of itsinvestment or collateral securities that arein the possession of an outside party.

The System does not have exposure tocustodial credit risk because the cashcollateral received in each loan was investedtogether with the cash collateral of other


qualified tax-exempt plan lenders in a collective investment pool.At June 30, 2011, the market values of securities on loan and cashcollateral, which are included in the amounts on page 27, wereas follows:



SECURITIES CASHON LOAN COLLATERAL

U.S. Government and agency obligations 4,788,908 4,902,106

U.S. stock .............................................................. 32,972,878 33,516,675

U.S. bonds ............................................................ 11,419,366 11,625,365

Total ................................................................ $49,181,151 $50,044,146

3. Foreign Currency RiskForeign currency risk is the risk that changes in exchange rates willadversely affects the fair value of an investment. The System’s currencyrisk exposures, or exchange rate risk, primarily exist in the internationaland global equity investment holdings. From time to time, the System’sexternal managers may hedge their portfolios’ foreign currency expo-sures with currency forward contracts, depending on their views abouta specific foreign currency relative to the U.S. dollar.

The System has an Investment Policy for international investments whichis presented on pages 47-49. At June 30, 2011, the System has no foreigncurrency risk exposure because it did not have any foreign currencyholdings in its portfolio.

4. Interest Rate RiskInterest rate risk is the risk that changes in interest rates will adverselyaffect the fair value of an investment.

The System does not have a specific investment policy governinginterest rate risk. The Effective Duration of Debt Securities by InvestmentType table on page 29 shows the System’s interest rate exposure atJune 30, 2011.

III. LITIGATIONThe System, including its Board of Trustees, officers and employees, is notinvolved in any ongoing claims or lawsuits that would have an adverse effecton the System’s financial conditions.

Credit Quality and Exposure Levelsof Nongovernment GuaranteedSecurities

As of June 30, 2011

INVESTMENT CREDITTYPE RATING LEVEL FAIR VALUE

U.S. GOVERNMENT AGENCIESFNMA 5,483,481FHLMC 3,046,149GNMA 1,667,281

$ 10,196,911

CORPORATE BONDS AND NOTESAAA $ 3,243,673AA1 – AA3 1,424,843A1 – A3 6,614,747BAA1-BAA3 10,707,138BA1 – BA3 7,132,321B1 – B3 8,539,241Below BAA3 5,798,505NA 845,762NR 28,720,026WR 203,278

$ 73,229,534

FOREIGN BONDS AND NOTESAA1 – AA3 $ 438,869A1 – A3 1,156,484BAA1-BAA3 1,945,890BA1 – BA3 30,375B1 – B3 250,476Below BAA3 168,263NA 527,501NR 39,890,260

$ 44,408,117

REITSNA $ 5,790,958NR 5,426,137

$ 11,217,095

HEDGE FUNDSNR $ 40,631,380

$ 40,631,380

Total $179,683,037

The System used Moody’s ratings for this presentation.A large portion of the securities are not rated by Moody’sbut are rated by other agencies.

Effective Duration of Debt Securitiesby Investment Type

Investment Type Market Value Effective Duration

Corporate $37,847,323 5.91

Mortgage Pass- Through* 9,047,071 3.70

US Government 8,357,658 5.09

CMO 5,288,788 8.56

CMBS 4,261,394 3.82

Asset Backed 2,013,574 6.70

Agency 1,221,264 3.40

Convertible Bond 1,066,419 19.70

Preferred Stock** 115,099 –

SWAPS (189,524) –

Total Fixed Income $69,029,064 5.79

* All mortgage pass-through securities held by the System as of June 30, 2011 were issued byU.S. Government Agencies.

** Preferred stocks do not pay interest, and are therefore not impacted by effective duration.

IV. PLAN DESCRIPTIONThe System was established by action of the Richmond City Council onFebruary 1, 1945. The City Council appoints five members and the Mayorappoints two members of the Board of Trustees to administer the System.However, City Council retains the authority to establish or amend benefitprovisions. The System is currently not subject to the provisions of theEmployee Retirement Income Security Act of 1974.

The System is of the agent multiple-employer Defined Benefit variety.The System has two participating employers — the City and the RichmondBehavioral Health Authority — covering all full-time, permanent employees,with the exception of those elected officials and persons eligible formembership in the Judicial Retirement System and the Virginia RetirementSystem. Members are vested after five years of creditable service. The Planis contributory for employees.

The City also offers a Defined Contribution 401(a) Plan as another retirementoption. This plan is mandatory for general employees hired on/or afterJuly 1, 2006, and optional for senior executives and public safety officers. TheSystem is the Trustee for this Plan and has contracted with an independent,not-for-profit financial services organization to administer the Plan. The Citycontributes a percentage of an employee’s creditable compensation, basedon years of service, to a portable account for investment by the employee.This Plan is non-contributory for employees.

Vested members in the Defined Contribution401(a) Plan who terminate employment areentitled to the account balance. The accountbalance of non-vested members who terminateemployment is forfeited unless a member isreemployed with a participating employer beforea five year lapse and remains in service untilvesting. Members of the Defined Contribution401(a) Plan are eligible for disability retirementbenefits under the System.

Membership in the System at June 30, 2011 isas follows:

Retirees and Beneficiaries CurrentlyReceiving Benefits:

General 2,888

Public Safety 1,186

City Council Members 4

Total 4,078

Active DB Plan Members:

Vested:

General 1,491

Public Safety 712

Non-Vested:

General 19

Public Safety 276

Total 2,498

Terminated Vested DB Plan Members:

General 1,587

Public Safety 190

City Council Members 1

Total 1,778

Active DC 401(a) Plan Members:

General 1,597

Public Safety 59

Total 1,656

Total Members 10,010



A) Summary of Benefit and Contribution ProvisionsOutlined on the following pages are the principal features of the Systemreflected in the 2011 valuation.

1. Definitions:Average Final CompensationThe average annual creditable compensation of a member during themember’s 36 consecutive months of creditable service in which suchcompensation was at its greatest amount or during the entire period ofthe member’s creditable service, if less than three years.

Creditable CompensationThe base compensation payable to an eligible employee working in a full-time position, plus shift differentials, bonuses, severance pay and educationalincentive pay but excluding overtime pay, imputed income under Section 79of the Internal Revenue Service Code, and lump-sum payments for unusedsick or vacation leave

Creditable ServiceTotal service as an employee, whether or not continuous, but excludingany separate periods of service less than nine months in duration and anyperiods of leave without pay unless otherwise required by law. Effective July1, 1999, 50% of unused sick leave counts as creditable service at retirementfor current employees. Vested members who terminated City employmentbetween July 1, 1998 and June 30, 1999 received 25% of unused sick leaveas creditable service.

Normal Retirement DateThe first day of the month following the sixtieth (60th) birthday of a swornpublic safety employee or the (65th) birthday of a general employee.

2. Retirement Plan Options:a) Defined BenefitThe Defined Benefit Plan pays a monthly benefit at retirement based onthe member’s years of creditable service and average final compensation.General and public safety employees are required to pay contributions of1% and 1.5% respectively, of their creditable compensation.

The Defined Benefit Plan formula has a multiplier of 1.75% for generalemployees and 1.65% for public safety employees. In addition, theformula includes a pre-65 supplement of .75%, up to a maximum oftwenty-five (25) years for public safety employees.

The benefit level is set by formula, regardless of the retirement fund’sinvestment performance. Participating employers contribute an amounteach year that varies according to the contribution rate as determined bythe System’s actuary. The participating employers’ contributions areinvested by outside investment firms with the primary objective ofensuring the security, stability and continued growth of assets formembers’ future benefits.

The Code of the City of Richmond requires that the Plan be maintainedon an actuarially sound basis.

b) Enhanced Defined BenefitThe Enhanced Defined Benefit Plan option pays a monthly benefit at retirement based on themember’s years of creditable service and averagefinal compensation.

General employees are required to make contri-butions of 4.57% of their creditable compensation,and public safety employees are required tomake contributions of 5.45% of their creditablecompensation, until they terminate employmentor retire in order to receive the benefits of theEnhanced Option.

For general members, the Enhanced Optionformula has a multiplier of 2%.

For public safety employees, the Enhanced Optionallows eligibility for an unreduced early serviceretirement upon the completion of twenty (20)years of creditable service, regardless of age.

The benefit level for the Enhanced Option is setby formula, regardless of the fund’s investmentperformance. Participating employers contributean amount each year that varies according tocalculations by the actuary. The participatingemployers’ contributions are invested by outsideinvestment firms with the primary objective ofensuring the security, stability, and continuedgrowth of assets for members’ future benefits. TheCode of the City of Richmond requires that thePlan be maintained on an actuarially sound basis.

c) Defined Contribution PlanThe Defined Contribution Plan is a 401(a) accountwhich grows through contributions from theparticipating employers and investment earnings.The Defined Contribution Plan is funded entirelyby employer contributions, and no employeecontributions are required. Participating employerscontribute a percentage of the member’s salary toan account each pay period in accordance with thefollowing schedule, which is based on years ofcreditable service:

� Less than 5 years of service — 5%

� 5-10 years of service — 6%

� 10-15 years of service — 8%

� 15 or more years of service — 10%

Once a vested member (5 years of creditableservice) terminates employment, the benefit is alump sum amount equal to the account balance.

It may also be payable in installment payments, rolled over to anotherqualified investment plan, or used to purchase a lifetime annuity.

3. Deferred Retirement Option Program (DROP):Effective October 1, 2003, the DROP was implemented for public safetyemployees eligible for an unreduced retirement allowance. Eligible membersmay elect to participate for a maximum of five years, deferring receipt ofunreduced retirement benefits while continuing employment with the Citywithout loss of any other employee benefits.

Upon a member’s election to participate in the DROP, the amount of credit-able service and the average final compensation becomes frozen forpurposes of determining pension benefits. The participant is consideredretired for all purposes related to the System and does not accrue additionalretirement benefits, except for annual benefit cost-of-living adjustments,if applicable.

The DROP participant’s monthly pension is paid into a DROP account inlieu of being paid to the participant. Upon termination of employment, theparticipant will receive the DROP account balance and will begin receivingthe monthly pension directly.

4. Assets of System:All of the funds and assets of the System are credited to a single retirementaccount. This account is credited with all income from the assets of theSystem, and all of the System’s benefits are paid from this account.

5. Retirement Eligibility:A member is eligible for normal retirement upon attaining their normalretirement date (general employees — age 65; public safety employees —age 60). Early retirement is permitted at any time within the ten-year periodprior to the normal retirement date, provided the member has completedfive or more years of creditable service or at any age with 30 years of credit-able service (general employees) or 25 years of creditable service (publicsafety employees participating in defined benefit plan) or 20 years ofcreditable service (public safety employees participating in the enhanceddefined benefit plan option).

6. Retirement Allowance:Upon retirement, a member becomes eligible to receive an annual allow-ance, payable in equal monthly installments. The annual allowance iscomputed as follows:

a) Normal Retirement Allowance:General Employees: 1.75% (2% Enhanced option) of the member’saverage final compensation, multiplied by the number of years ofcreditable service up to 35 years.

Public Safety Employees: 1.65% of the member’s average final compensa-tion, multiplied by the number of years of creditable service up to 35years. In addition, a supplement of .75% of the member’s average finalcompensation, multiplied by the number of years of creditable service upto 25 years is payable from retirement until age 65.

b) Early Retirement Allowance:If a member retires prior to their normalretirement age, the allowance is determinedas described in letter a). For general employees,the benefit is reduced by 5/12 of 1% for eachcomplete month by which retirement precedesthe earlier of age 65 or the date on which theemployee would have completed 30 years ofservice had the member remained employed.For public safety employees, the benefit isreduced by 5/12 of 1% for each completemonth by which retirement precedes eitherage 60 or the date on which the employeewould have completed 25 years of servicehad the member remained in service, which-ever is earlier.

c) Workers’ Compensation Offset:In no instance may a member who receivesboth (a) a compensation award pursuant tothe Virginia Workers’ Compensation Act, and(b) a retirement allowance before the attain-ment of age 65 from the System, receive abenefit which would cause the sum of theWorkers’ Compensation award and retirementallowance to exceed the member’s averagefinal compensation at the time the memberseparated from active service. After attainmentof age 65, the member shall be entitled to thefull retirement allowance.

If a member in receipt of a retirement allow-ance elects to receive a lump-sum settlementin lieu of periodic payments for disabilityunder the Virginia Workers’ Compensation Act,the member’s service retirement allowanceshall continue to be reduced in the sameamount required by Section 78-206(5) for thenumber of months equivalent to the lump-sum award amount divided by the amount ofthe original Workers’ Compensation award.

7. Retirement Benefit Payment Options:The member may elect, with the approval of theBoard, one of the following options, in which casethe amount payable is the actuarial equivalent ofthe Basic Benefit otherwise payable.

a) Joint and Survivor Option:A reduced allowance is payable to themember during their lifetime; with the sameamount or a designated fraction thereof



continued after the member’s death to a designated contingent benefi-ciary, if living.

b) Pop-Up Joint and Survivor Option:A reduced allowance is payable to the member during their lifetime; withthe same amount or a designated fraction thereof continued after themember’s death to a designated contingent beneficiary, if living. If thedesignated contingent beneficiary predeceases the member, the allow-ance is increased to the amount that would have been payable in theabsence of the election of an optional form of benefit.

c) Smooth-Out Option:An increased retirement allowance is paid prior to age 65 and a decreasedretirement allowance thereafter. The purpose of this option is to providefor a more nearly level total retirement income before and after age 65,taking into account the primary federal Social Security benefits.

d) Level Option:A reduced allowance is paid prior to age 65 and an increased retirementallowance thereafter. The allowance remains level for the lifetime of themember. This option is available to current public safety employees andto former vested general employees who terminated service prior toMarch 1, 1997.

8. Disability Retirement Eligibility:Any member in service who has 5 or more years of creditable service mayretire, or may be retired by the member’s appointing authority, at any timeprior to the member’s normal retirement date on account of permanentdisability, provided that the medical examiners certify that the member hasbeen completely incapacitated by reason of sickness or injury from perform-ing the duties required by the participating employers, and provided furtherthat if the disability is service connected (i.e., if it arises from a cause thatwould be compensable under the Virginia Workers’ Compensation Act), thefive-year service requirement does not apply. The service requirement is alsowaived for public safety employees if the disability arises from respiratory orheart disease or from hypertension, unless it is certified that such disabilitywas not suffered in the line of duty.

9. Disability Retirement Allowance:a) Non-Service Connected DisabilityThe annual allowance, payable monthly, is computed in the same way as anormal retirement allowance prior to the changes effective March 1, 1997,with the following modifications:

� “Disability Average Compensation” is used in place of Average FinalCompensation. In essence, this is the annual rate of compensation ineffect at the date of disability, graded into average final compensationfor members who become disabled within three years of their normalretirement date.

� Creditable Service is replaced by “Disability Credited Service,” which isthe smaller of:

i. The number of years of creditable service the member would have

completed at age 60 if the member hadremained in service until that time, or

ii. The larger of:

a. 20 years, or

b. Twice the member’s actual years ofcreditable service except that if thedisability occurs after age 60, disabilitycredited service is equal to the number ofyears of creditable service.

� A deduction for Social Security is madeprior to age 65 if the member is entitledto total and permanent disability benefitsunder Social Security.

� The early service reduction factor of 5/12of 1% per month early retirementreduction is not imposed.

� The additional pre-age 65 allowance forpublic safety employees is not payable.

� In no instance may a member who receivesa compensation award pursuant to theVirginia Workers’ Compensation Act and anon-service connected disability retirementallowance from the City receive a benefitwhich would cause the sum of the disabilityretirement allowance and Workers’ Compen-sation award to exceed the member’saverage final compensation at the time thenon service connected disability causedseparation from active service.

b) Service Connected DisabilityThe annual allowance payable monthly, iscomputed in the same way as a normalretirement allowance prior to the changeseffective March 1,1997, with the followingmodifications:

� The disability retirement allowance iscomputed as 2/3 of the member’s disabilityaverage compensation. This allowance shallbe reduced dollar for dollar by the amountof compensation, if any, awarded to themember under the Virginia Workers’Compensation Act for as long as suchcompensation is payable.

� If any member who retired on or after July 1,1989, elects to receive a lump-sum settle-ment in lieu of periodic payments fordisability under the Virginia Workers’Compensation Act, the member’s retirement

� An allowance for life, as described in thepreceding paragraphs, is also payable to thewidow or widower of a member who retiredfor disability after attaining early retirementage but dies before reaching normal retire-ment age. In this case, the member’s averagefinal compensation as of the disabilityretirement date is used, but it is assumed themember’s service continued to the last dayof the month in which the member died.

13. Cost-of-Living Allowances (COLA):Retirement allowances are periodically supple-mented to reflect increases in the ConsumerPrice Index. The amounts of future COLAs aredetermined by action of City Council. Any suchCOLAs are subject to the same conditions ofpayment as the regular allowances.

14. City Council Benefits:Effective July 1, 1991, any member of City Councilserving 10 or more years on City Council shall beentitled to a retirement benefit under the System.The amount of the benefit is 50% of final compen-sation, payable at age 65. Early retirement isallowed at age 62, with benefits reduced 5% peryear prior to the earlier of age 65 or the age thatthe City Council member would have had 15 yearsof creditable service. This provision was repealedfor active members of City Council effectiveFebruary 2, 1996.

15. Benefits for City Officials andDepartment Heads:Effective March 1, 1997, certain City officials anddepartment heads can make additional contribu-tions to the System in order to receive two yearsof credit for each year of service in a coveredposition (up to a maximum of 15 additional years).

16. Purchase of Prior Service:Any Defined Benefit Plan member in service whohas completed 5 or more years of creditableservice may purchase credit for service for all orpart of: (1) certified creditable service in theretirement system of another state or of a politicalsubdivision, and (2) any period of full-time servicerendered to a participating employer on atemporary, seasonal, provisional, ComprehensiveEmployment Training Act (CETA) or contractualbasis, provided that such period has not been

allowance shall continue to be reduced in the same amount and forthe number of months equivalent to the lump-sum award divided bythe amount of the original Workers’ Compensation award.

� A deduction for Social Security is made prior to age 65 if the member isentitled to total and permanent disability benefits under Social Security.

� The early service reduction factor of 5/12 of 1% per month earlyretirement reduction is not imposed.

� The additional pre-age 65 allowance for public safety employees isnot payable.

10. Withdrawal of Benefits:If termination occurs after five years of service, a member is entitled to aretirement allowance commencing on the member’s earliest retirement dateor later, based on the years of creditable service and average final compensa-tion as of the member’s termination date. If benefit payments commenceprior to the member’s normal retirement date, benefits are reduced by 5/12of 1% for each complete month by which retirement precedes the normalretirement date.

11. Death Benefits Before Retirement:� If a member who became an employee of the City on or before June 13,

1988 and has one or more years of creditable service dies beforeretirement, a death benefit is payable equal to $16.67 multiplied by thenumber of months of creditable service of the member, subject to amaximum of $1,000.

� If a member who is eligible for an early or normal retirement dies prior toactual retirement and no benefit of the type described in the paragraphbelow is payable, the surviving spouse is entitled to receive an allowancefor life equal to that amount which would have been paid if the full Jointand Survivor Option had been in effect at the time of the member’s death.The additional allowance paid from retirement to age 65 to public safetyemployees is not included in this benefit.

� If a member dies at any time before retirement from a cause that wouldbe compensable under the Virginia Workers’ Compensation Act, anallowance is payable to the surviving spouse or to the member’s childrenunder the age of 18 equal to that which would have been payable if thefull Joint and Survivor Option had been in effect at the time of themember’s death. The allowance is calculated by projecting creditableservice to that which the member would have earned had they remainedin service until age 65 with the same final average compensation in effectat the time of their death. The benefit is reduced by any compensationawarded under the Virginia Worker’s Compensation Act.

12. Death Benefits after Retirement:� The beneficiary of a retired member with at least one year of creditable

service will receive, at the member’s death, a death benefit of $16.67multiplied by the number of months of creditable service of the member,subject to a maximum of $1,000.


previously included in the creditable service. Service purchased under thissection shall not be considered in determining eligibility for an unreducedearly retirement, if the member’s retirement is within 5 years of the date ofpurchase of service credit.

17. Portability:Effective April 1, 1999, the System entered into a reciprocal agreement withthe Virginia Retirement System (VRS) that allows vested members to transferthe value of their retirement benefits between VRS and the System. EffectiveMay 1, 2001 and August 30, 2007 the System also entered into reciprocalagreements with the Newport News Employee Retirement Fund (NNERF)and the Norfolk Employee Retirement System (NERS), respectively. Systemmembers must have a vested benefit with VRS, NNERF, or NERS. VRS, NNERF,and NERS members must have deferred vested benefits with their System.The election period is eighteen (18) months from the date of eligibility.

V. CONTRIBUTIONS REQUIRED ANDCONTRIBUTIONS MADE

Employer contributions to the System are based on a percentage of thecreditable compensation of the active members. This percentage is calcu-lated annually by the System’s actuary using the projected unit creditmethod. The annual contribution percentages include amortization of theunfunded actuarial liability.

The City Code requires that contributions to the System consist of a normalcontribution plus an accrued liability contribution, which, combined, equal



the annual required contribution. Employercontribution rates and amounts for the yearsended June 30th of 2011, 2010, and 2009, areshown in the table below.

Contributions totaling $42,190,881, including$2,420,983 in member contributions, were madefrom July 1, 2010 to June 30, 2011 in accordancewith the actuarially determined contributionrequirements stated above.

Funding PolicyThe Richmond City Code of 1993, as amended,requires the City to contribute to the System,annually, an amount as determined by the actuary,expressed as a percentage of payroll, equal to thesum of the “normal contribution” and the “actuarialliability contribution.”

The actuarial liability contribution is determinedas that amount necessary to amortize the unfundedactuarial liability and any increase or decrease inthe unfunded actuarial liability in future years dueto changes in actuarial assumptions, changes inSystem provisions, including the granting of COLAincreases, or actuarial gains or losses amortizedover a closed period not to exceed 30 years, withpayments increasing up to 4% per year.

Contributions Required and Contributions Made

Plan Funding Status

Actuarial Liability UAAL as aActuarial Value (AAL) Projected Unfunded AAL Percentage Covered Percentage of

Actuarial of Assets Unit Credit (UAAL) Funded Ratio Payroll Covered PayrollValuation Date [a] [b] [b]-[a] [c] [c] [UAAL]/[c]

7/1/2011 $493,374,901 $841,362,079 $347,987,178 58.64% $130,970,696 265.70%

Actuarial assumptionsThe information presented in the plan funding status was determined aspart of the actuarial valuation on July 1, 2011. The Projected Unit Creditactuarial cost method was used. The amortization method used was a levelpercent of pay over a closed period not to exceed 30 years for police and fireemployees, and a level dollar amount over a closed period not to exceed 30years for general members. The remaining amortization period is 20 yearsfor remaining unfunded accrued liability as of July 1, 2006 and 20 years forsubsequent changes.

The asset valuation method was a five-year spread of actual over expectedinvestment earnings with the restriction that the resulting value must bewithin 90%-110% of market value. An 8% investment rate of return wasassumed, as was a 2.5% payroll growth rate attributable to inflation. Nocost-of-living adjustment was assumed. Projected salary increases were0.5%-3.5% for general employees and 0.5%-4.0% for police and fireemployees. The funded status increased to 58.6% as of June 30, 2011.The required Schedule of Funding Progress immediately following thenotes to the financial statements presents multi-year trend informationabout whether the actuarial value of plan assets is increasing or decreasingrelative to the actuarial liability for benefits over time.

Potential effects of legal and contractual limitations are not explicitlyincorporated in benefits for financial reporting purposes.

System TerminationIn the event the System is terminated, the net assets of the System will beallocated generally to provide the following benefits in the order indicated:

(a) For the benefit of the then existing beneficiaries and persons alreadydesignated by former members who are then beneficiaries under oneof the options provided for in the System, to the extent of the actuarialvalue of their retirement allowances. If any funds remain, then:

(b) For the benefit of members and persons, if any, designated by themembers under one of the options provided for in the System, to theextent not provided under the preceding paragraph (a) of the actuarialvalue of their accrued retirement allowances, based on years of creditableservice, average final compensation and anticipated social securitybenefits as of the date of termination of the pension plan. The allocationunder this paragraph (b) shall be on the basis of the “oldest agesfirst” method.

GENERAL EMPLOYEES POLICE & FIRE EMPLOYEES2011 2010 2009 2011 2010 2009

Normal Costs Rate 6.87% 7.10% 6.79% 10.34% 10.75% 10.87%

Amount $ 5,257,967 $ 5,821,723 $ 6,293,960 $ 5,441,656 $ 5,832,164 $ 5,447,190

Accrued Liability Rate 20.96% 14.06% 12.48% 22.97% 14.79% 14.08%

Amount 16,041,774 11,528,651 11,568,279 12,088,477 8,023,972 7,055,790

Additional for COLA Rate N/A* N/A* N/A* N/A* N/A* N/A*

Amount 503,818 503,818 1,544,032 436,206 419,429 1,331,877

Employer Contributions Rate 27.83% 21.16% 19.27% 33.31% 25.54% 24.95%

Amount 21,803,559 17,854,192 19,406,271 17,966,339 14,275,565 13,834,857

Employee Contributions Rate 1.71% 1.67% 1.64% 2.12% 2.06% 2.12%

Amount 1,304,944 1,369,584 1,519,156 1,116,039 1,116,364 1,060,283

Total Contributions Rate 29.54% 22.83% 20.91% 35.43% 27.60% 27.07%

Amount $23,108,503 $19,223,776 $20,925,427 $19,082,378 $15,391,929 $14,895,140

* Additional contributions for COLA’s are paid in annual lump sum payments by the City and are not included in the contribution rates shown above.

The Richmond City Code of 1993, as amended,states: “In the event the assets at such date ofrepeal are insufficient to provide all the benefitsof preceding paragraph (a), then the employer willcontribute to the assets from time to time, as andwhen required, the amount necessary to make upsuch insufficiency.”

The Code of Virginia of 1950, as amended, requiresthat “on or before July 1, 1977, every county, city,and every town, having a population of fivethousand or more, shall provide a retirementsystem for those officers and employees eligiblefor coverage under Section 51-111.31(a) of theState Code.” The City is included in this provision.Participants in the System are not guaranteed anybenefits by the Pension Benefit Guaranty Corpo-ration because this is a public pension trust.

Tax StatusThe System has received a favorable determinationletter from the Internal Revenue Service statingthat it is qualified in form under the InternalRevenue Service Code.


FINANCIAL SECTIONREQUIRED SUPPLEMENTARY

INFORMATION

REQUIRED SUPPLEMENTARY INFORMATION

Schedule of Employer Contributions (Unaudited)

Excludes member contributions

Year Ended Annual Required PercentageJune 30 Contribution Contributed

2011 $39,769,898 100 %

2010 $32,129,757 100 %

2009 $33,241,128 100 %

2008 $32,026,054 100 %

2007 $30,889,221 100 %

2006 $30,712,306 103 %*

* The City of Richmond contributed $ 1 Million beyond the required contribution in 2006.

Analysis of the dollar amounts of actuarialvalued assets, actuarial liability, andunfunded actuarial liability in isolation can

be misleading. Expressing actuarial valued assetsas a percentage of the actuarial liability providesone indication of the System’s funding status on agoing-concern basis. Analysis of this percentageover time indicates whether the system is becom-ing financially stronger or weaker. Generally, thegreater this percentage, the stronger the System.

Trends in the unfunded actuarial liability andannual covered payroll are both affected byinflation. Expressing the unfunded actuarialliability as a percentage of annual covered payrollapproximately adjusts for the effects of inflationand aids in the analysis of the System’s progressmade in accumulating sufficient assets to paybenefits when due. Generally, the smaller thispercentage, the stronger the System.

Actuarial UAAL as aActuarial Liability (AAL) Percentage Percentage ofValuation Actuarial Value Projected Unfunded AAL Funded Covered Covered

Date of Assets Unit Credit (UAAL) Ratio Payroll Payroll

(a) (b) (b)-(a) (a)/(b) (c) (UAAL)/(c)

7/1/2011 $493,374,901 $841,362,079 $347,987,178 58.64% $130,970,696 265.70%

7/1/2010 459,435,909 787,931,429 328,495,520 58.31% 137,472,694 238.95%

7/1/2009 424,531,802 779,824,836 355,293,034 54.44% 145,867,862 243.57%

7/1/2008 544,771,727 765,417,461 220,645,734 71.17% 144,832,611 152.35%

7/1/2007 526,201,340 740,465,173 214,263,833 71.06% 147,897,543 114.87%

7/1/2006 497,450,211 716,031,378 218,581,167 69.47% 163,193,191 133.94%


FINANCIAL SECTIONREQUIRED SUPPLEMENTARY

INFORMATION

Schedule of Funding Progress (Unaudited)


FINANCIAL SECTIONSUPPORTING SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

Notes to the Schedules of Trend Information

The information presented in the required supplementary information schedules was determined aspart of the actuarial valuations at the dates indicated. Additional information as to the latest actuarialvaluation follows:

Valuation date ........................................................ July 1, 2011

Actuarial cost method ......................................... Projected Unit Credit

Amortization method ......................................... Level percent of pay over a closed period not to exceed 30years for Police/Fire employees Level dollar amount over aclosed period not to exceed 30 years for general members

Remaining amortization period ...................... 20 years for remaining unfunded accrued liability as ofJuly 1, 2006; 20 years for subsequent changes.

Asset valuation method ..................................... Five-year spread of actual over expected investmentearnings with the restriction that the resulting value mustbe within 90%–110% of market value.

ACTUARIAL ASSUMPTIONS:

Investment rate of return ......................... 7.50%

Payroll growth rate,attributable to inflation ............................ 2.50%

Annual cost-of-living adjustment ................... No cost-of-living adjustment granted.

PROJECTED SALARY INCREASES:

General employees ..................................... 0.50% to 3.50%

Police and Fire .............................................. 0.50% to 4.00%

FINANCIAL SECTIONSUPPORTING SCHEDULES


SUPPORTING SCHEDULESSUPPORTING SCHEDULES

Schedule of Administrative Expenses

Year Ended June 30, 2011

PERSONAL SERVICES:

Staff Salaries ...................................................................................................................................... $ 944,040

PROFESSIONAL SERVICES:

Actuarial .............................................................................................................................................. 70,910

Audit ..................................................................................................................................................... 26,245

Medical Examiners .......................................................................................................................... 5,521

Legal Services ................................................................................................................................... 4,242

Total Professional Services ............................................................................................. 106,918

COMMUNICATIONS:

Printing & Publications .................................................................................................................. 31,988

Telephone & Postage ..................................................................................................................... 19,966

Total Communications ...................................................................................................... 51,954

MISCELLANEOUS:

Stipends to Board Members ....................................................................................................... 17,800

Conferences ....................................................................................................................................... 17,638

Supplies .............................................................................................................................................. 5,608

Recruitment ....................................................................................................................................... 1,624

Other .................................................................................................................................................... 23,860

Total Miscellaneous ........................................................................................................... 66,530

TOTAL ADMINISTRATIVE EXPENSES: ........................................................................................... $1,169,442

Schedule of Investment Expenses


INVESTMENT MANAGERS:

Westwood .......................................................................................................................................... $ 175,929

Loomis, Sayles & Co. (Large Cap) ................................................................................................ 147,715

Loomis, Sayles & Co. (High Yield) ............................................................................................... 145,522

Stone Harbor Investment Partners ........................................................................................... 113,154

Urdang Investment Management, Inc. .................................................................................... 111,449

Chartwell Investment Partners (Mid Cap) .............................................................................. 103,414

LSV Asset Management ................................................................................................................ 100,261

Chartwell Investment Partners (Small Cap) ........................................................................... 88,271

Loomis Sayles & Co. (Credit Opportunistic) ........................................................................... 42,834

State Street Global Advisors ........................................................................................................ 19,125

Hughes Capital ............................................................................................................................... 5,887

Commingled Funds:

Brandywine Global Investment Management, LLC .................................................... 178,432

Acadian Asset Management ............................................................................................... 170,923

TOTAL INVESTMENT MANAGERS’ EXPENSES* ........................................... $1,402,915

INVESTMENT CUSTODIAN:

State Street Corporation ............................................................................................................... $250,398

TOTAL INVESTMENT EXPENSES ........................................................................ $1,653,313

*This list excludes investment management fees for Audax Mezzanine Fund III, L.P., BlackRock, Cadogan Management, LLC,Grantham, Mayo, Van Otterloo & Co., K2 Advisors, LLC, Lexington Partners, Inc., and Pine Grove Associates, Inc. Fees for thesemanagers are deducted from the assets under management.

Schedule of Payments to Investment Consultant


INVESTMENT CONSULTANT:

New England Pension Consultants .......................................................................................... 276,152

TOTAL CONSULTANT EXPENSES ..................................................................... $ 276,152

During the fiscal year ended June 30, 2011, the Richmond Retirement System did not direct any soft dollartransactions.

42 Richmond Retirement System CAFR FY 2011 Investment Section 43

INVESTMENTSECTION

INVESTMENTSECTION

INVESTMENT CONSULTANT REPORT


INVESTMENT CONSULTANT REPORTINVESTMENT CONSULTANT REPORT


INVESTMENT POLICYINVESTMENT CONSULTANT REPORT

INTRODUCTION

This policy statement is issued for theguidance of fiduciaries, including themembers of the Board of Trustees and

investment managers, in the course of investingthe assets of the System.

Policy guidelines may be amended by the Boardof Trustees both upon their own initiative andupon consideration of the advice and recommen-dations of the investment managers and fundprofessionals. Proposed modifications should bedocumented in writing to the System.

STATEMENT OF GOALSAND OBJECTIVESThis statement of investment goals and objectivesis set forth in keeping with the fiduciary require-ments under existing federal laws. Its purpose isto set forth an appropriate set of goals and objec-tives for the System’s assets and to define guidelineswithin which the investment managers mayformulate and execute their investment decisions.

1. Total return, consistent with prudent invest-ment management, is the primary goal ofthe System. The total return target is 8% netcompounded annually, which considers theactuarial rate of return of 8%. Total return,as used herein, includes income plus realizedand unrealized gains and losses on assets. Inaddition, assets shall be invested to ensurethat principal is preserved and enhancedover time.

2. The total return shall meet or exceed the PolicyIndex. As a secondary comparison, the Systemshall also be compared with comparable publicpension funds as represented by the Consult-ants Public Pension Fund peer group universe(ICC Universe), with the understanding thatthe funded status and overall investment riskprofile may differ from the average publicpension fund in that universe.

3. Total portfolio risk exposure and risk-adjustedreturns will be regularly evaluated andcompared with a universe of similar funds forthe System and each investment manager.Total portfolio risk exposure should generallyrank in the mid-range of comparable funds.Risk-adjusted returns are expected to consis-tently rank in the top-half of comparable funds.

It is expected that each asset class portfolio will

exceed the return of the designated benchmark index and rank in the top-half of the appropriate asset class and style universe.

4. The Board is aware that there may be deviations from these performancetargets. Normally, results are evaluated over a three- to five-year timehorizon, but shorter-term results will be regularly reviewed and earlieraction taken if in the best interest of the System.

INVESTMENT GUIDELINES The overall capital structure targets and permissible ranges for eligibleasset classes are detailed in Asset Allocation Schedule located in theFinancial Section.

Full discretion, within the parameters of the guidelines described herein,is granted to the investment managers regarding the asset allocation, theselection of securities, and the timing of transactions.

1. Equity investments, i.e., common stocks, convertibles, warrants and rightsare permitted subject to the guidelines identified in the Investment PolicyStatement. Equity specialists may vary equity commitment from 90% to100% of assets under management. The managers should determine thatthe securities to be purchased are of an investment grade. AmericanDepository Receipts, which are dollar denominated foreign securitiestraded on the domestic U.S. stock exchanges, e.g., Reuters, Nestle, Sony,may be held by each domestic stock manager in proportions which eachmanager shall deem appropriate.

2. Domestic fixed income investments are permitted, subject to the guide-lines identified in the Investment Policy Statement, and may include U.S.Government and Agency obligations, mortgage backed securities;including non-agency mortgages and commercial mortgage-backedsecurities; asset-backed securities; corporate bonds; debentures; commer-cial paper; and taxable municipals.

3. The minimum quality rating of any fixed income issue held in an invest-ment grade portfolio shall be B as rated by Moody’s, or an equivalentrating agency, and the overall weighted average quality shall be A orhigher. The ratings in this Policy Statement are for guidance only; theinvestment managers are responsible for making an independentanalysis of the credit worthiness of securities and their suitability asinvestments regardless of the classifications provided by rating agencies.

4. The average duration (interest rate sensitivity) of an actively managedfixed income portfolio shall be within +/- 30% of its benchmark index.

5. Securities of an individual issuer, excepting the U.S. government andagencies and sovereign nations and their agencies, shall not constitutemore than 5% of an investment manager’s portfolio at any time, atmarket value.

6. Investment managers may maintain reserve and cash equivalent invest-ments. However, these investments should be made on the basis of safetyand liquidity, and only secondarily by yield available. Such securities shallcarry the equivalent of S&P A1 or A2 ratings. Cash reserves will be limitedto cash equivalent instruments of maturities less than one year; thepooled cash fund of the custodian bank and commingled funds meetingthis requirement are permitted.


7. There shall be no specific limitation to turnover. However, modestturnover is preferred.

Ineligible InvestmentsUnless specifically approved certain securities, strategies and investmentsare ineligible for inclusion within separately managed accounts in theSystem’s asset base. Among these are:

� Derivative instruments except as specifically provided for in individualmanager guidelines.

� Privately-placed or other non-marketable debt, except securities issuedunder Rule 144a of the Securities Act of 1933.

� Lettered, legend or other so-called restricted stock.

� Commodities.

� Straight preferred stocks and non-taxable municipal securities should notnormally be held unless pricing anomalies in the marketplace suggestthe likelihood of near-term capital gains when normal spread relation-ships resume.

� Short sales.

� Direct investments in private placements, real estate, oil and gas andventure capital.

� Any transaction prohibited by Employee Retirement Income SecurityAct (ERISA)

Benefit PaymentsInvestment managers will be given adequate notice of cash needs and anestimation of the liquidity requirements from their funds. They will beexpected to manage their funds to provide for anticipated withdrawalswithout impairing the investment process.

Proxy VotingResponsibility for the exercise of ownership rights through proxy solicita-tions shall rest solely with the investment managers, who shall exercise thisresponsibility strictly for the economic benefit of the portfolios. Managersshall annually report to the Plan standing policies with respect to proxyvoting, including any changes that have occurred in those policies.

Commingled FundsMutual funds and other types of commingled investment vehicles provide,under some circumstances, lower costs and better diversification than canbe obtained with a separately managed fund pursuing the same investmentobjectives. However, commingled investment funds cannot customizeinvestment policies and guidelines to the specific needs of individual clients.The Board is willing to accept the policies of such funds in order to achievethe lower costs and diversification benefits of commingled funds therefore,commingled investment vehicles selected by the Board are exempt from thepolicies and restrictions specified herein.

Alternative InvestmentsThe Board recognizes that certain AlternativeInvestment strategies (such as hedge fund,absolute return and private equity strategies) doin fact make use of derivatives and other instru-ments which may not be in full compliance withthe guidelines set out for separately managedportfolios. Given that virtually all alternativeinvestment strategies will be in a commingledformat, the above Guidelines for Pooled Fundswill apply. To the extent that the Board selects anAlternative Investment manager offering aseparately managed account, the Board may useits discretion in terms of granting exceptions tothese guidelines to that manager.

Hedge Fund InvestmentsThe Board of Trustees has determined that astrategic allocation to hedge fund strategies mayimprove the overall performance characteristicsof the Fund’s investment program by enhancingexpected returns, reducing risk, or a combinationof both. The objective of the hedge fund programis to reduce the volatility of the total fund whileattempting to maximize returns in a variety ofmarket conditions.

Manager ProbationInvestment Managers may be placed on a watchlist in response to the Board’s concerns about theManager’s recent or long-term investment results,failure of the Investment Manager to comply withany of this Investment Policy Statement, signifi-cant changes in the Investment Manager’s firm,changes in the Manager’s investment strategy,anticipated changes in Fund structure, or anyother reasons which the Board deems appropri-ate. A Manager may be placed on probationarystatus if:

� Performance fails, over eight consecutivequarters or any eight quarters during a tenquarter period, to achieve median same styleuniverse performance levels, and

� During this same period the return does notmeet the return of the benchmark index.

This does not preclude the Board from placing aManager on the watch list for performance in alesser time period or taking other actions ifdeemed appropriate.

ROLES AND RESPONSIBILITIESBoard of TrusteesThe Board of Trustees (Board) shall review thetotal investment program. The Board shall approvethe investment policy and provide overall directionto the staff in the execution of the investmentpolicy. The Board, with the assistance of theinvestment consultant, are responsible for evaluat-ing, hiring, and terminating investment managers,consultants and custodian banks.

Investment ConsultantThe Investment Consultant shall assist theTrustees in developing and modifying policyobjectives and guidelines, including thedevelopment of asset allocation strategies,recommendations on long term asset allocationand the appropriate mix of investment managerstyles and strategies. The consultant shall alsoprovide assistance in manager searches andselection, and in investment performancecalculation, evaluation, and analysis. The consult-ant shall provide timely information, written and/or oral, on investment strategies, instruments,managers and other related issues, as requestedby the Board.

Investment ManagersThe duties and responsibilities of each of theinvestment advisors include:

1. Managing the System’s assets in accordancewith the policy guidelines and objectivesexpressed herein.

2. Meeting with the Board at their request. Eachmanager shall report to the Board and theInvestment Consultant as outlined in theInvestment Policy Statement. Quarterly reportsshould be submitted in writing within 30 daysat the end of a quarter.

3. Working with the custodian bank to verifymonthly accounting reports.

4. Acknowledging in writing to the Board theinvestment manager’s intention to complywith this Statement as it currently exists or asmodified in the future.

INVESTMENT POLICYINVESTMENT POLICY

Investment Section 49

Custodian BankIn order to maximize the System’s return, no money should be allowed toremain idle. Dividends, interest, proceeds from sales, new contributions andall other monies are to be invested or reinvested promptly.

The custodian bank will be responsible for performing the following functions:

1. Accept daily instructions from designated staff.

2. Notify investment managers of proxies, tenders, rights, fractional sharesor other dispositions of holdings.

3. Resolve any problems that designated staff may have relating to thecustodial account.

4. Safekeeping of securities.

5. Collection of interest and dividends.

6. Daily cash sweep of idle principal and income cash balances.

7. Processing of all investment manager transactions.

8. Collection of proceeds from maturing securities.

9. Disbursement of all income or principal cash balances as directed.

10. Collect asset values from pooled accounts, hedge funds, private equityinvestments and other alternative asset classes not custodized by the bankfor inclusion in the System’s comprehensive monthly valuation reports.

11. Providing monthly statements by investment account and a consoli-dated statement of all assets.

12. Working with the investment consultant and the System’s accountant toensure accuracy in reporting.

13. Provide written statements revealing monthly reconciliation of custodyand investment managers’ accounting statements.

OTHER CONSIDERATIONIt is the intent of the Board to revise this statement of goals and objectivesto reflect modifications and revisions, which may develop from time to time.It is also the policy of the Board to review these goals and objectives at leastonce per year and to communicate any material change thereto to theinvestment managers.

This Policy statement is prepared to provide appropriate guidelines forthe investment managers, consistent with the System’s return objectives andrisk tolerances.

Should any investment manager believe that the guidelines are undulyrestrictive or inappropriate; the Board expects to be advised accordingly.

Investment Managers will be expected to include “most favored nations”clauses within their contracts when working on behalf of the System.


ASSET ALLOCATIONSCHEDULE OF INVESTMENT RESULTS


� 37.25% U.S. Equity

� 34.23% Fixed income

� 15.98% International Equity

� 12.31% Alternatives

� 1.50% Cash

Investment Performance (Gross of Fees)

One, Three, & Five Years Ending June 30, 2011

Benchmarks:(a) Russell 3000

(b) 71% Morgan Stanley Capital International Euro Australia Far East / 29% MSCI ACWI ex US net

(c) 73% Russell 3000 / 19% Morgan Stanley Capital International Euro Australia Far East / 8% QJ1-MSCI ACWI ex US net

(d) 56% Barclays Capital Aggregate / 22% US TIPS/ 22% Citigroup High Yield

(e) 40% Barclays Capital Aggregate/30% BC Global AGG Unhedged/ 15% Citigroup High Yield Index/ 15% Barclays US TIPS

(f ) Wilshire RESI

(g) 90-Day Treasury Bills

(h) Policy Index:

i. 12/2009 – present Total Fund Index: 45% Russell 3000/ 13% BC Aggregate/ 12% MSCI EAFE/ 10% LB Global AGG Unhedged/5% MSCI ACWI ex US net/ 5% US TIPS/ 5% Citi High Yield/ 5% NAREIT Eq REIT

ii. 11/2008 – 11/2009 Total Fund Index: 45% Russell 3000/ 13% BC Aggregate/ 12% MSCI EAFE/ 10% LB Global AGG Unhedged/5% MSCI ACWI ex US net/ 5% US TIPS/ 5% Citi High Yield/ 5% Dow Jones Wilshire Real Estate

iii. 2/2008 – 10/2008 Total Fund Index: 45% Russell 3000/ 13% BC Aggregate/ 12% MSCI EAFE/ 10% LB Global AGG Unhedged/5% IFC Invest/ 5% US TIPS/ 5% Citi High Yield/ 5% Dow Jones Wilshire Real Estate

iv. Inception – 1/2008 Total Fund Index: 45% Russell 3000/ 13% BC Aggregate/ 12% MSCI EAFE/ 10% Non US WGBI ex US/ 5% IFCInvest/ 5% US TIPS/ 5% Citi High Yield/ 5% Dow Jones Wilshire Real Estate

Source: State Street Plan Performance Report as of June 30, 2011. The rates of return as reflected on the accompanying schedule were calculated using thetime-weighted rate of return using an approximation of the Daily Valuation Method called the Modified Dietz Method.

1 YEAR 3 YEARS 5 YEARS% % %

Rate of % Rate of % Rate of %ASSET CATEGORY Note Return Benchmark Return Benchmark Return Benchmark

U.S. Equity (a) 34.2 32.4 3.6 4.0 3.0 3.4

International Equity (b) 33.1 30.2 (1.6) (1.4) 3.4 3.3

Total Equity (c) 33.8 31.8 2.1 3.1 3.1 3.8

U.S. Fixed Income (d) 11.6 7.2 9.7 7.6 8.4 7.3

Total Fixed Income (e) 12.4 11.1 9.6 9.0 9.2 8.9

Hedge Funds 6.7 N/A 0.1 N/A N/A N/A

REITs (f ) 37.6 33.6 10.3 4.4 6.5 1.4

Private Real Estate 9.0 N/A N/A N/A N/A N/A

Private Equity 12.0 N/A N/A N/A N/A N/A

Total Alternative Assets 16.7 N/A 3.9 N/A 3.9 N/A

Cash (g) 0.2 0.2 0.7 0.4 2.5 2.0

TOTAL PLAN (h) 23.1 23.9 5.2 4.8 5.5 5.1

TARGET ACTUALASSET CLASS ALLOCATION ALLOCATION*

U.S. EQUITY

Large Cap Passive 11.00% 10.91%

Large Cap Value 5.00% 7.79%

Large Cap Growth 5.00% 7.77%

Long/Short Equity 4.00% 3.11%

Small/Mid Growth 3.50% 4.01%

Small/Mid Value 3.50% 3.66%

Total 32.00% 37.25%

INTERNATIONAL EQUITY

Developed Markets 10.00% 10.27%

Emerging Markets 5.00% 5.71%

Total 15.00% 15.98%

FIXED INCOME

Core Plus 13.50% 12.99%

Global Fixed Income Hedged 8.00% 8.13%

High Yield 6.00% 6.20%

TIPS 4.00% 3.86%

Credit Opportunities 2.00% 2.00%

Core 1.00% 1.05%

Total 34.50% 34.23%

ALTERNATIVES

Hedge Fund 8.00% 5.20%

Private Equity 5.00% 1.54%

Private Real Estate 2.00% 3.35%

REITS 2.00% 2.21%

Total 17.00% 12.31%

CASH 1.50% 0.24%

Total 1.50% 0.24%

TOTAL 100.00% 100.00%

*Actual allocation based upon fair market value presented in the Statement of FiduciaryNet Assets.


SCHEDULE OF FEESSCHEDULE OF INVESTMENTS

Ten Largest Equity Holdings at June 30, 2011

DESCRIPTION SHARES/PAR FAIR VALUE

Amazon.com Inc. 12,681 $ 2,593,138

Visa Inc. Class A shares 28,570 2,407,308

Oracle Corp. 63,846 2,101,172

Google Inc. CL A 3,826 1,937,410

Qualcomm Inc. 32,775 1,861,292

CISCO Systems Inc. 116,952 1,825,621

American Express Co. 32,255 1,667,584

SEI Investments Company 68,758 1,547,743

Amgen Inc. 25,620 1,494,927

United Parcel Service CL B 19,995 1,458,235

Total Ten Largest Equity Holdings $ 18,894,429

Fair Value of cash, short-term investments,and investments, June 30, 2011 $540,096,603

Percentage of Ten Largest Equity Holdings 3.5%

A complete listing of the holdings at June 30, 2011 is available at the System’s executive office.

ASSETS UNDER RELATEDMANAGEMENT FEES

Investment Managers’ Strategy:

Corporate stock $ 162,573,107 $ 601,621

International stock 83,591,430 201,155

Corporate bonds and notes 73,229,534 221,918

International bonds and notes 44,408,117 188,455

Hedge funds 40,631,380 0

Mutual Funds 18,944,240 0

U.S. government and agency obligations 18,554,568 33,671

Private Real Estate 16,459,035 0

Cash 11,654,375 31,485

REITS 11,217,095 113,294

Private Equity 7,565,969 0

Emerging market debt 7,056,773 11,316

Total Long-Term Investments $495,885,623 $1,402,915

Short-term 4,803,694 0

Cash Collateral for Securities Lending 50,044,146 0

Payables (10,636,861) 0

Total Assets Under Management $540,096,603

Total Related Fees* $1,402,915

Other Investment Service Fees:

Consultant 276,152

Custodian 250,398

Securities Lending Agent 63,614

Total Investment Service Fees $1,993,079

* This list excludes investment management fees for Audax Mezzanine Fund III, L.P., BlackRock, Cadogan Management, LLC,Grantham, Mayo, Van Otterloo & Co., K2 Advisors, LLC, Lexington Partners, Inc., and Pine Grove Associates, Inc. Fees for thesemanagers are deducted from the assets under management.


For fiscal year ending June 30, 2011


June 30, 2011

FAIR VALUE PERCENT OF TOTAL

U.S. Stock:

Information technology $ 20,752,650 3.8%

Consumer 18,345,381 3.4%

Financial 15,578,639 2.9%

Healthcare 14,362,708 2.7%

Industrials 9,176,608 1.7%

Energy 6,477,492 1.2%

Telecommunications 1,929,220 0.4%

Utilities 1,895,828 0.4%

Materials 1,777,806 0.3%

Other 72,276,775 13.4%

Total U.S. Stock 162,573,107 30.1%

Fixed Income:

Corporate bonds 73,229,534 13.6%

U.S. government and agency obligations 18,554,568 3.4%

Total Fixed Income 91,784,102 17.0%

Alternative Investments:

International stock 83,591,430 15.5%

Global bonds 44,408,117 8.2%

Hedge funds 40,631,380 7.5%

Mutual funds 18,944,240 3.5%

Private real estate 16,459,035 3.0%

REITS 11,217,095 2.1%

Private equity 7,565,969 1.4%

Emerging market debt 7,056,773 1.3%

Total Alternative Investments 229,874,039 42.6%

Short-Term Investments:

Short term 12,087,165 2.2%

Cash collateral (Securities Lending) 50,044,146 9.3%

Total Short-Term Investments 62,131,311 11.5%

Receivables and Payables:

Due from brokers on sale of securities 3,283,415 0.6%

Interest and dividends receivable 1,077,836 0.2%

Other investment receivables 9,653 0.0%

Due to brokers on purchase of securities (10,636,861) (2.0%)

Total Receivables and Payables (6,265,957) (1.2)

Total Investments: $540,096,602 100.0%


INVESTMENT SUMMARYSCHEDULE OF BROKERAGE COMMISSIONS

BROKER NAME SHARES/PAR COMMISSION PER SHARE

Broadcort Capital (Through Merrill Lynch) 1,619,724 $ 63,667 $0.04

Redemption 812,736 17,269 0.02

Pacific American Securities, LLC 412,838 16,366 0.04

Merrill Lynch Pierce Fenner + Smith Inc. 1,445,356 10,345 0.01

Other* 521,941,155 83,647 0.00

Total Commissions 526,231,809 $191,294

Commissions in excess of $10,000 for the fiscal year ended June 30, 2011

*Other includes all commissions to brokerage firms receiving less than $10,000 during the fiscal year.

� 42.6% Alternatives

� 30.1% U.S. Stocks

� 17.0% Fixed Income

� 10.3% Short-Term InvestmentsReceivables andPayables

56 Richmond Retirement System CAFR FY 2011 Actuarial Section 57

ACTUARY’S REPORT

ACTUARIALSECTION

ACTUARIALSECTION


ACTUARY’S REPORTACTUARY’S REPORT


Retirement:General Employees — A select andultimate table with the following typicalrates; 25% for the first year in which theemployee is eligible for unreducedimmediate retirement benefits, and:

Age Rate

55-57 .050

58-59 .090

60 .045

61 .150

62 .250

63 .150

64 .250

65 .400

66-70 .300

71-74 .500

75 1.000

Police and Fire Employees — A selectand ultimate table with the followingtypical rates; 40% for the first year inwhich the employee is eligible forunreduced immediate retirementbenefits, and:

Age Rate

50 .150

51-54 .200

55-56 .250

57-58 .150

59-63 .500

64 1.000

Actuarial Section 61

ACTUARIAL ASSUMPTIONS AND METHODSACTUARY’S REPORT

ACTUARIAL ASSUMPTIONSInterest:7.5% per annum, compounded annually.

Mortality:Active Lives and Service RetirementsGeneral Employees — RP–2000Mortality Table with 2 year set-forwardfor males

Police and Fire Employees — RP–2000Mortality Table

Disabled LivesGeneral Employees — PBGC disabledlife table for retirees receiving SocialSecurity.

Police and Fire Employees — PBGCdisabled life table for retirees notreceiving Social Security

Turnover:General Employees — An attained agetable with the following typical rates:

Age Rate

25 .2383

35 .1484

45 .0820

55 .0313

60 .0195

Police and Fire Employees — Anattained age table with the followingtypical rates:

Age Rate

25 .0709

35 .0387

45 .0085

55 .0013

60 .0000

ACTUARIAL COST METHOD

The actuarial cost method used todetermine the actuarial liability andthe normal cost is the Projected

Unit Credit (PUC) Method. The accruedliability and the normal cost are usedto determine the City’s contributionrequirement. Under this method, a PUCaccrued benefit is determined for eachactive member in the System on thebasis of the member’s average finalcompensation projected to the assumeddate of retirement and the member’screditable service at the valuation date.

The actuarial liability for retirementbenefits is the sum of the actuarialpresent value of the PUC accruedbenefit for each active member. Thenormal cost for retirement benefits isthe sum of the actuarial present valueof the expected increase in the PUCaccrued benefit during the Systemyear for each active member underthe assumed retirement age.

The actuarial liability and normal costfor termination benefits, disabilitybenefits, and pre-retirement spouse’sdeath benefits are determined in asimilar manner by projecting themember’s average final compensationto each assumed date of termination,disablement, or death. The actuarialliability for inactive members isdetermined as the actuarial presentvalue of the benefits expected to bepaid; no normal cost is determined forthese members.

With the exception of the asset valua-tion method, the following actuarialassumptions and methods were adoptedJuly 1, 2009.


General Defined Benefit Plan MembersPERCENT

VALUATION ANNUAL AVERAGE INCREASEDATE MEMBERS PAYROLL SALARY (DECREASE)

6/30/2011 1,510 $ 76,521,175 $50,676 1.1

6/30/2010 1,644 82,410,714 50,128 1.0

6/30/2009 1,778 88,213,697 49,614 3.7

6/30/2008 1,886 90,249,523 47,852 4.7

6/30/2007 2,071 94,687,950 45,721 5.3

6/30/2006 2,570 111,636,820 43,438 3.6

6/30/2005 2,651 111,177,522 41,938 2.1

6/30/2004 2,704 111,085,679 41,082 3.0

6/30/2003 3,064 122,152,893 39,867 4.2

Police and Fire Defined Benefit Plan MembersPERCENT


6/30/2011 988 $54,449,521 $55,112 (2.7)

6/30/2010 972 55,061,980 56,648 (1.4)

6/30/2009 1,004 57,654,165 57,424 4.4

6/30/2008 992 54,583,088 55,023 1.9

6/30/2007 985 53,209,593 54,020 0.2

6/30/2006 956 51,556,371 53,929 7.7

6/30/2005 956 47,871,274 50,075 1.6

6/30/2004 950 46,804,367 49,268 0.0

6/30/2003 1,020 50,254,201 49,269 4.1

Defined Contribution 401(a) Plan MembersPERCENT


6/30/2011 1,656 $78,861,163 $47,621 1.2

6/30/2010 1,632 76,819,165 47,071 1.4

6/30/2009 1,614 74,938,394 46,430 3.1

6/30/2008 1,402 63,161,018 45,051 4.2

6/30/2007 1,059 45,800,995 43,249 0.6

6/30/2006 494 21,247,551 43,011 3.8

6/30/2005 470 19,469,474 41,424 0.2

6/30/2004 361 21,247,551 43,011 N/A*

* The Defined Contribution 401(a) plan was initiated in fiscal year 2004.


SCHEDULE OF ACTIVE MEMBERS VALUATION DATAACTUARIAL ASSUMPTIONS AND METHODS

Disability:General Employees — An attained agetable with the following typical rates:

Age Rate

25 .000623

35 .000623

45 .001670

55 .004898

60 .007000


Age Rate

25 .000344

35 .000344

45 .001231

55 .005414

Duty Disability:General Employees — An attained agetable with the following typical rates:

Age Rate

25 .000073

35 .000073

45 .000260

55 .001147

60 .004063


Age Rate

25 .000163

35 .000244

45 .000871

55 .003835

Salary Increases:General Employees — An attained agetable with the following typical rates:

Age Rate

25 .060

35 .050

45 .050

55 .040

60 .040


Age Rate

25 .065

35 .065

45 .050

55 .050

60 .050

Cost-of-Living Adjustments:None assumed.

Asset Valuation Basis:Five-year spread of the differencebetween actual investment earnings andassumed investment earnings at 8.0%.The resulting actuarial asset value cannotbe less than 90% or greater than 110% ofmarket value.


Retireesas Percent

Annual Annual Average of Active

Allowances Allowances Annual Percent Annual Members

Ended Added Added Removed Removed Total Allowances Change Allowances Number Pay

6/30/2011 217 $4,037,612 136 $1,462,354 4,078 $63,085,991 4.3 $15,470 163.3 48.2

6/30/2010 205 3,579,993 171 $1,580,761 3,997 60,510,733 3.4 15,139 152.8 44.0

6/30/2009 159 1,702,764 117 1,123,352 3,963 58,511,501 1.0 14,764 142.5 40.1

6/30/2008 239 3,628,028 159 1,525,441 3,921 57,932,089 3.8 14,775 136.2 40.0

6/30/2007 186 3,538,627 120 1,119,763 3,841 55,829,502 4.5 14,535 125.7 37.7

6/30/2006 235 3,318,474 180 1,431,352 3,775 53,410,638 3.7 14,149 107.1 32.7

6/30/2005 248 3,709,327 160 1,469,229 3,720 51,523,516 4.5 13,850 103.1 32.4

6/30/2004 289 6,231,257 112 936,539 3,632 49,283,418 12.0 13,569 99.4 31.2

6/30/2003 193 2,805,840 123 1,027,288 3,455 43,988,700 4.2 12,732 84.6 25.5

6/30/2002 198 4,764,757 146 931,578 3,385 42,210,148 10.0 12,470 82.2 25.3

6/30/2001 218 3,425,083 139 990,519 3,333 38,376,969 6.8 11,514 81.1 24.3

6/30/2000 197 3,420,615 122 790,710 3,254 35,942,405 7.9 11,046 77.4 23.3

6/30/1999 167 2,659,390 122 787,590 3,179 33,312,500 6.0 10,479 76.2 23.4

6/30/1998 218 N/A 145 N/A 3,134 31,440,700 12.4 10,032 73.3 22.4

6/30/1997 138 N/A 100 N/A 3,061 27,966,167 5.2 9,136 71.3 20.6

6/30/1996 144 N/A 122 N/A 3,023 26,580,127 7.6 8,793 71.0 20.6

6/30/1995 140 N/A 118 N/A 3,001 24,713,360 1.8 8,235 67.3 18.7

The System’s funding objective is to meet long-term benefit obligations through contributions thatremain approximately level for general employees and approximately level as percentage of pay forpublic safety employees. If the contributions to the System are level in concept and soundly executed,the System will pay all promised benefits when due, thus providing the ultimate test of financialsoundness. Testing for level contribution rates is the long-term test.

A short condition test is one means of checking a plan’s progress under its funding program. In a shortcondition test, the System’s present assets (cash and investments) are compared with: (1) the liabilitiesfor future benefits to present retired lives, and; (2) the liabilities for service already rendered by activemembers. In a plan that has been following the discipline of level percent of payroll financing, theliabilities for future benefits to present retired members (Liability B) will be fully covered by presentassets, except in rare circumstances. In addition, the liabilities for service already rendered by activemembers (Liabilities A and C) will be at least partially covered by the remainder of present assets.

The relationship between accrued liabilities and net assets of the System for the fiscal years ended June30, 1998 through June 30, 2011 are presented as follows:


SOLVENCY TESTSCHEDULE OF BENEFICIARIES ADDED TOAND REMOVED FROM ROLLS

AGGREGATE ACTUARIAL LIABILITY PORTION OF ACCRUED(A) (B) (C) (D) (E) LIABILITIES COVERED

Retirees & Non- BY ASSETS (%)Terminated Vested Active Vested Active Actuarial

Valuation Active Vested DB Plan DB Plan Value ofDate Contributions Beneficiaries Members Members Total Assets* (A)+(B)+(C) (D)

6/30/2011a $10,395,439 $548,220,188 $243,767,983 $38,978,469 $841,362,079 $493,374,901 61.5 0.0

6/30/2010 9,322,085 $508,047,417 231,011,569 39,550,358 787,931,429 459,435,909 61.4 0.0

6/30/2009b 7,624,367 490,003,629 242,613,542 39,583,298 779,824,836 424,531,802 57.4 0.0

6/30/2008c 5,620,594 490,402,468 229,226,961 40,167,438 765,417,461 544,771,727 75.1 0.0

6/30/2007d 3,697,892 471,134,007 222,146,774 43,486,500 740,465,173 526,201,340 75.5 0.0

6/30/2006e 3,252,978 440,704,038 227,405,897 44,668,465 716,031,378 497,450,211 74.1 0.0

6/30/2005f 2,095,201 425,835,796 224,769,201 44,002,596 696,702,794 419,185,192 64.2 0.0

6/30/2004g 739,491 403,803,168 227,355,488 46,225,297 678,123,444 429,316,772 67.9 0.0

6/30/2003h N/A 349,576,189 241,014,865 44,044,977 634,636,031 439,599,024 74.4 0.0

6/30/2002i N/A 329,764,528 235,597,379 43,316,752 608,678,659 413,928,571 73.2 0.0

6/30/2001j N/A 303,280,354 217,729,469 39,282,477 560,292,300 481,407,801 92.4 0.0

6/30/2000k N/A 268,127,775 221,410,222 39,965,595 529,503,592 586,296,247 100.0 100.0

6/30/1999l N/A 251,171,482 194,221,855 39,934,868 485,328,205 516,781,993 100.0 100.0

6/30/1998m N/A 245,189,269 212,579,928 N/A 457,769,197 458,856,909 100.0 100.0

a) Includes $38,327.753 attributable to changes in actuarial assumptions. Prior to this change, the portion of vested liabilitiescovered by assets was 64.4%.

b) Includes ($8,533,088) attributable to changes in actuarial assumptions. Prior to this change, the portion of vested liabilitiescovered by assets was 56.6%.

c) Includes $6,170,310 attributable to changes in benefit provisions (COLA in current year). Prior to this change, the portionof vested liabilities covered by assets was 75.8%.

d) Includes $3,157,901 attributable to changes in benefit provisions (COLA in current year). Prior to this change, the portionof vested liabilities covered by assets was 75.8%.

e) Includes $49,745,021 increase in actuarial value of assets as a result of restarting the actuarial smoothing method. Priorto this change, the portion of vested liabilities covered by assets was 66.7%.

f ) Includes $0 attributable to changes in benefit provisions (COLA in current year and benefit enhancements and assumptions).

g) Includes $29,155,694 attributable to changes in benefit provisions (COLA in current year and benefit enhancements andassumptions. Prior to these changes, the portion of these liabilities covered by assets was 21.7%).

h) Includes $11,551,454 attributable to changes in benefit provisions (COLA in current year and benefit enhancements andassumptions. Prior to these changes, the portion of these liabilities covered by assets was 39.4%).

i) Includes $9,055,310 attributable to changes in benefit provisions (COLA in current year and benefit enhancements andassumptions. Prior to these changes, the portion of these liabilities covered by assets was 37.4%).

j) Includes $5,477,641 attributable to changes in benefit provisions (COLA in current year and benefit enhancements andassumptions. Prior to these changes, the portion of these liabilities covered by assets was 73.1%).

k) Includes $6,366,113 attributable to changes in benefit provisions (COLA in current year and benefit enhancements andassumptions. Prior to these changes, the portion of these liabilities covered by assets was 122.9%).

l) Includes $5,461,284 attributable to changes in benefit provisions (COLA in current year and benefit enhancements andassumptions. Prior to these changes, the portion of these liabilities covered by assets was 114.0%).

m) Includes $12,790,318 attributable to changes in benefit provisions (COLA in current year and benefit enhancements andassumptions. Prior to these changes, the portion of these liabilities covered by assets was 106.2%).

* Market value used for years prior to 2003. Actuarial value used in 2003 and later to be consistent with Schedule of Funding Progress.


ANALYSIS OF FINANCIAL EXPERIENCESOLVENCY TEST

ACCUMULATED PLAN BENEFITS 2011 2010 2009 2008 2007 2006

FOR RETIREES ANDDEPENDENTS

Reserves $518,118,196 $481,577,268 $464,429,412 $465,316,816 $446,321,598 $417,894,018

Net assets available 493,374,901 459,435,909 424,531,802 465,316,816 446,321,598 417,894,018

Unfunded reserves 24,743,295 22,141,359 39,897,610 – – –

FOR ACTIVE AND TERMINATEDVESTED EMPLOYEES

Reserves 269,827,873 251,243,528 255,795,683 238,127,139 232,326,012 233,543,029

Net assets available – – – 79,454,911 79,879,742 79,556,193

Unfunded reserves 269,827,873 251,243,528 255,795,683 158,672,228 152,446,270 153,986,839

Excess assets available – – – – – –

TOTAL

Reserves 787,946,069 732,820,796 720,225,095 703,443,995 678,647,610 651,437,047




% funded (solvency test) 62.6% 62.7% 58.9% 77.4% 77.5% 76.4%

CREDITED PROJECTED BENEFITS

For projected future salary increases 53,416,010 55,110,633 59,599,741 61,973,506 61,817,563 64,594,331

Net assets available – – – – – –



TOTAL

Reserves 841,362,079 787,931,429 779,824,836 765,417,501 740,465,173 716,031,378




% funded (solvency test) 58.6% 58.3% 54.4% 71.2% 71.1% 69.5%

REASONS FOR CHANGEIN THE UNFUNDEDACTUARIAL LIABILITYThe unfunded actuarial liability was $347,987,178as of June 30, 2011. The increase from the prioryear was primarily due to a change in theexpected investment return on the actuarialvalue of assets.

REASONS FOR CHANGEIN FUNDED STATUSThe funded status increased from 58.3% as ofJune 30, 2010 to 58.6% as of June 30, 2011. Theincrease is primarily due to investment return onthe actuarial value of assets, which was greaterthan assumed.

REASONS FOR CHANGE INCONTRIBUTION RATESThe overall employer contribution rate, as of thebeginning of the year, increased from 21.95% forthe fiscal year ending June 30, 2010 to 28.85% forthe fiscal year ending June 30, 2011. The increaseof 6.9% is due to the following reasons:

Increase due to investment loss on actuarial value of assets ..................... 7.80%

Decrease due to changes in assumptions ........................................................ (0.65%)

Increase due to changes in benefit provisions ................................................ 0.00%

Decrease due to other experience factors ........................................................ (0.25%)

Total ...................................................................................................................... 6.90%


SCHEDULE OF CHANGES AND GROWTH IN NET ASSETSPENSION TRUST FUND

STATISTICALSECTION

STATISTICALSECTION

The Statistical Section presents detailed historical information regarding the pension

plans administered by the System. This information includes a 10-year overview of

changes in net assets, plan membership, contributions, plan additions and deductions,

benefits and refunds. Included in this analysis is statistical information regarding retirees

2011 2010 2009 2008 2007

Net Assets Available —Beginning of Year $ 417,669,008 $ 386,358,988 $ 511,656,880 $ 559,528,781 $ 497,054,347

ADDITIONS

Employer Contributions 39,717,764 32,079,142 33,191,988 31,936,379 30,889,221

Member Contributions 2,420,983 2,485,948 2,579,439 2,799,698 2,545,123

Investment Income (Loss) 93,769,913 59,127,994 (97,506,731) (27,346,695) 82,272,875

DC Contribution Revenue 52,133 50,615 49,141 89,675 —

Total additions 135,960,793 93,743,699 (61,686,164) 7,479,057 115,707,219

DEDUCTIONS

Benefit Payments: *

Pension Payments 55,240,297 53,933,881 55,126,855 45,207,337 —

Disability Payments 5,288,811 5,438,321 5,599,315 7,497,306 —

Survivor/Death Payments 1,863,228 1,849,664 1,688,228 1,429,587 —

Total Benefit Payments 62,392,336 61,221,866 62,835,414 54,134,230 51,584,373

Refunds 81,377 118,104 101,820 54,479 534,858

Administrative expenses 1,169,442 1,093,710 1,095,480 1,162,248 1,113,554

Total deductions 63,643,155 62,433,679 64,032,714 55,350,958 53,232,785

Change in Net Assets 72,317,639 $31,310,020 ($125,718,878) ($47,871,901) $62,474,434Net Assets Available —

End of Year $ 489,986,646 $ 417,669,008 $ 386,358,988 $ 511,656,880 $ 559,528,781

2006 2005 2004 2003 2002

Net Assets Available —Beginning of Year $ 465,794,906 $ 440,933,854 $ 399,635,476 $ 413,928,571 $ 481,407,802

ADDITIONS

Employer Contributions 30,712,306 23,386,747 21,448,527 18,572,856 14,514,753

Member Contributions 1,157,777 1,313,818 728,563 120,049 109,735

Investment Income (Loss) 49,635,139 48,523,918 65,062,063 10,859,160 (40,613,936)

Total additions 81,505,222 73,224,483 87,239,143 29,552,065 (25,989,448)

DEDUCTIONS

Benefit Payments 49,188,269 47,394,595 44,980,930 43,078,571 40,723,279

Administrative expenses 1,057,512 968,835 960,187 766,589 766,504

Total deductions 50,245,781 48,363,430 45,940,765 43,845,160 41,489,783

Change in Net Assets 31,259,441 24,861,053 41,298,378 (14,293,095) (67,479,231)Net Assets Available —End of Year $ 497,054,347 $ 465,794,906 $ 440,933,854 $ 399,635,476 $ 413,928,571

* Prior to 2008, benefit payments were presented in a lump sum. Beginning in 2008, this sum is disaggregated to present payments by type of benefits.

Statistical Section 69

For the year ended June 30, 2011

70 Richmond Retirement System CAFR FY 2011 Statistical Section 71

SCHEDULE OF PARTICIPATING EMPLOYERSCURRENT YEAR AND TEN YEARS AGO

SCHEDULE OF RETIREES AND BENEFICIARIESBY TYPE OF RETIREMENT

*TYPES OF RETIREMENTA Normal Retirement

A general employee age 65 or a sworn public safety officer age 60 or older.

B Early ServiceA general employee at least age 55, with five years of creditable service, or a swornpublic safety officer at least age 50, with five years of creditable service.

C Deferred ServiceA former vested general employee age 65 or older or a former vested sworn publicsafety officer age 60 or older.

Deferred Early ServiceA former vested general employee at least age 55 but less than age 65or a sworn public safety officers at least age 50 but less than age 60.

D Beneficiary (normal, early, deferred retirement)Surviving beneficiary of a deceased retiree who is receiving a retirement allowancepayable monthly for life.

E Compensable DisabilityAn employee who retires from active service due to a job-related disability.

F Ordinary DisabilityA vested employee who retires from active service due to a non-job-related disability.

G Beneficiary (disability)Beneficiary of a deceased disability retiree who is receiving a retirement allowancepayable monthly for life.

June 30, 2011

Amount of Number TYPE OF RETIREMENT* OPTION SELECTED**Monthly ofBenefit Retirees A B C D E F G LIFE 1 2 3 4 5

$ 1 - $100 323 0 29 274 12 5 2 1 287 9 0 4 0 23

101 - 200 356 11 73 252 12 1 3 4 306 17 1 1 0 31

201 - 300 246 16 84 127 4 1 9 5 203 7 0 4 1 31

301 - 400 221 10 102 71 17 0 13 8 154 13 0 3 1 50

401 - 500 199 19 89 48 13 3 23 4 150 8 0 0 0 41

501 - 600 196 16 84 55 10 8 16 7 145 5 1 2 1 42

601 - 700 158 13 82 38 7 3 14 1 118 3 0 2 0 35

701 - 800 116 12 61 19 10 3 9 2 74 2 1 2 1 36

801 - 900 127 16 77 8 8 7 9 2 79 2 0 1 2 43

901 - 1,000 117 19 58 15 3 8 13 1 75 4 0 2 4 32

Over 1,000 2,019 257 1,484 23 33 117 103 2 1,245 100 30 98 75 471

Total 4,078 389 2,223 930 129 156 214 37 2,836 170 33 119 85 835

� 55% Early Service

� 23% Deferred

� 10% Normal for Age and/or Service

� 5% Ordinary Disability

� 3% Compensable Disability

� 3% Beneficiary — Normal,Early, or Deferred

� 1% Beneficiary — Disability

� 70% Basic Benefit

� 20% Social Security(Smooth-Out)

� 4% 100% Joint andSurvivor Benefit




Type of Retirement

Retirement Options

BENEFIT PAYMENT OPTIONS

� Basic BenefitThis form of payment provides a monthly benefitfor life. However, when member dies, all benefitsstop. There are no monthly payments to abeneficiary after death.

� Social Security (Smooth-Out) OptionThis form of payment provides an increasedmonthly benefit prior to age 65. When a mem-ber reaches age 65, retirement benefits willbe reduced by the projected amount of theirprimary Social Security benefit. The purpose ofthis option is to provide for a more level totalretirement income before and after age 65,taking into account the federal Social Securitybenefits. There are no monthly payments to abeneficiary after your death. Note: This optionis not available for service retirements.

� Joint and Survivor Benefit OptionThis form of payment provides a reduced benefitduring a member’s lifetime. Upon the member’sdeath, the same amount or a designated fraction(25%, 50%, 75% or 100%) will continue to bepaid to a designated beneficiary, if living. Thebenefit remains reduced if the designatedbeneficiary precedes the member in death.

**OPTION SELECTEDLIFE Basic Benefit

Opt. 1 100% Joint and Survivor Benefit




Opt. 5 Social Security (Smooth-Out)

2011 2001

Percentage PercentageCovered of Total Covered of Total

PARTICIPATING EMPLOYERS Employees Rank System Employees Rank System

City of Richmond 2,435 1 97.48% 3,861 1 93.94%

Richmond Behavioral Health Authority 63 2 2.52% 248 2 6.06%

Total 2,498 100.00% 4,110 100.00%

72 Richmond Retirement System CAFR FY 2011 Statistical Section 73

SCHEDULE OF MEMBERSHIPSCHEDULE OF AVERAGE BENEFIT PAYMENTS

Retirements Effective July 1, 2001 to June 30, 2011

YEARS OF SERVICE CREDIT0 - 5 5 - 10 10 - 15 15 - 20 20 - 25 25 - 30 30+

Retirement Effective Dates

FY 2002Average monthly benefit $ 1,980 $ 226 $ 286 $ 646 $ 850 $ 2,040 $ 2,495Average final salary $43,590 $29,563 $24,322 $31,854 $30,287 $43,062 $45,344Number of retired members 1 28 23 17 19 36 62

FY 2003Average monthly benefit $0 $ 138 $ 276 $ 618 $ 891 $ 1,974 $ 2,223Average final salary $0 $19,809 $27,376 $29,631 $36,672 $43,203 $42,525Number of retired members 0 29 19 17 20 32 59

FY 2004Average monthly benefit $0 $ 161 $ 294 $ 622 $ 1,014 $ 2,110 $ 2,703Average final salary $0 $18,300 $21,327 $33,155 $34,500 $46,127 $48,692Number of retired members 0 33 24 16 24 65 116

FY 2005Average monthly benefit $0 $ 236 $ 384 $ 777 $ 1,235 $2,189 $ 2,459Average final salary $0 $23,867 $25,595 $42,767 $39,350 $48,364 $47,119Number of retired members 0 38 26 13 26 61 83

FY 2006Average monthly benefit $ 151 $ 174 $ 634 $ 520 $ 1,320 $2,145 $ 2,458Average final salary $33,120 $20,592 $32,286 $28,257 $41,150 $46,932 $45,775Number of retired members 2 53 26 19 21 40 52

FY 2007Average monthly benefit $0 $ 325 $ 564 $ 639 $ 854 $2,137 $ 2,579Average final salary $0 $35,270 $29,671 $35,828 $53,399 $47,612 $48,148Number of retired members 0 32 20 16 37 30 54

FY 2008Average monthly benefit $ 102 $ 229 $ 593 $ 695 $ 1,653 $2,088 $ 2,500Average final salary $19,692 $21,941 $40,280 $34,364 $48,623 $45,546 $48,974Number of retired members 1 51 16 25 29 27 50

FY 2009Average monthly benefit $ 0 $ 177 $ 538 $ 812 $ 1,307 $2,674 $ 2,396Average final salary $ 0 $22,323 $34,916 $37,829 $42,471 $60,212 $46,044Number of retired members 0 41 21 17 16 20 36

FY 2010Average monthly benefit $ 105 $ 204 $ 472 $ 709 $ 2,007 $ 3,122 $ 2,766Average final salary $28,580 $25,991 $35,365 $33,647 $55,308 $64,977 $51,989Number of retired members 1 33 18 16 27 37 48

FY 2011Average monthly benefit $ 26 $ 285 $ 562 $ 1,041 $ 1,884 $ 3,026 $ 2,814Average final salary $30,691 $29,926 $29,721 $51,322 $55,280 $64,226 $52,330Number of retired members 1 43 22 23 28 34 62

June 30, 2011

ACTIVE DEFINED BENEFIT PLAN MEMBERS — BY DEPARTMENTS AND AGENCIESAssessor of Real Estate ................................................................................................... 11City Auditor .......................................................................................................................... 2City Clerk ............................................................................................................................... 4City Council .......................................................................................................................... 5Department of Budget & Strategic Planning ........................................................... 5Department of Community Development ............................................................. 52Department of Economic Development ................................................................. 16Department of Finance .................................................................................................. 47Department of Fire and Emergency Services ..................................................... 381

General Employees ........................................................................... 9Firefighters ...................................................................................... 372

Department of General Services .................................................................................. 7Department of Health ...................................................................................................... 3Department of Human Resources ............................................................................. 10Department of Information Technology ................................................................. 41Department of Parks, Recreation & Community Facilities ...............................136Department of Procurement Services ........................................................................ 3Department of Public Utilities .................................................................................. 349Department of Public Works ..................................................................................... 262Department of Real Estate .............................................................................................. 0Department of Social Services ................................................................................. 207Juvenile Justice Services ................................................................................................ 66Law Department .............................................................................................................. 16Minority Business Enterprise ......................................................................................... 2Office of the Chief Administrative Officer ................................................................. 3Office of the Mayor ............................................................................................................ 3Port of Richmond ............................................................................................................... 1Public Library ..................................................................................................................... 44Richmond Behavioral Health Authority ................................................................... 63Richmond Police Department .................................................................................. 728

General Employees ....................................................................... 112Police Officers ................................................................................. 616

Richmond Public Schools .............................................................................................. 26Richmond Retirement System ...................................................................................... 2Youth Services ..................................................................................................................... 3Total ........................................................................................................................... 2,498

TERMINATED VESTED DEFINED BENEFIT PLAN MEMBERSGeneral Employees ............................................................................................ 1,587Police & Fire Employees ...................................................................................... 190City Council Member ................................................................................................ 1Total ........................................................................................................ 1,778

ACTIVE DEFINED CONTRIBUTION 401(a) PLAN MEMBERSGeneral Employees ............................................................................................ 1,597Police & Fire Employees ......................................................................................... 59Total ........................................................................................................ 1,656

RETIRED MEMBERSGeneral Employees .................................................................................................... 2,888Police & Fire Employees ........................................................................................... 1,186City Council Members ...................................................................................................... 4Total ........................................................................................................................... 4,078

TOTAL MEMBERSHIP ...................................................................................... 10,010


NOTES

RICHMOND RETIREMENT SYSTEM900 East Broad Street • Room 400 • Richmond, VA 23219

Phone: 804-646-3830 • Fax 804-646-5299

www.richmondgov.com/retirement

COMPREHENSIVE ANNUAL FINANCIAL REPORT · Comprehensive Annual Financial Report (CAFR) for the fiscal year ended ... serve as a useful indicator of whether the financial position of

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