Nevada Retirement News

Public Employees Retirement System
Spring 1999

What is the function of PERS' Internal Audit Division? Internal auditors of public funds generally describe themselves as everything from watchdogs to teachers. Here at PERS', the internal audit function is viewed as an effective management tool.

Our auditors work to achieve a level of detail in examining all administrative activities. In directly reporting to the Executive Officer and the Retirement Board, the auditors advise decision-makers about potential problems and the ways to correct them. In many cases, management makes use of audit services to monitor the effectiveness of control-related policies and procedures on an ongoing basis. In addition, auditors are prepared to assist the organization in adapting to rapidly changing environments.

With an audit universe that includes 139 contributing employers, in addition to reviewing the investment, payment and data processing activities, properly allocating audit resources becomes an essential part of audit planning. PERS instituted a program that ensures all functional areas within the agency are audited by the Internal Audit Division on a periodic basis. This program is designed to evaluate compliance with policies and procedures. It also addresses the soundness and adequacy of accounting, operations and administrative controls, which help to ensure that internal controls remain strong as management implements its growth strategy.

Contributing employers periodically are audited through questionnaires and field audits, focusing on compliance with applicable statutes and policies. These audits validate the employers reporting and compliance with statutes regarding membership in the System, and provide educational assistance to employers. Additionally, the Membership Division conducts extensive employer training on a routine basis. PERS also conducts audits on benefit recipient accounts to ensure that each retiree and beneficiary is receiving the appropriate benefit.

Recently, PERS embarked on a method to efficiently record "death matches", a process whereby the Retirement System is able to clear deceased individuals from our benefits payroll. We are taking advantage of new technologies available through electronic communication and data repositories to more effectively monitor our business. Prior to this new procedure, benefit recipients were required to return a notarized affidavit indicating they were entitled to and receiving a benefit. This new method is proving to be more efficient and less costly than the notary process.

The Internal Audit Division's objective is to assist PERS' management and the Board in the effective discharge of their responsibilities. PERS auditors perform this role by providing an independent review of business activities through review of the control environment, control activities, monitoring processes, risk assessment, information, and communication.   

Connecting
We're sure you'll find no shortage of experts happy to show you how easy it is to go on-line. Once there, look for the box at the top of your browser screen labeled "Address" or "URL." Use your mouse to highlight and delete the contents of the box. Then type:

It's important to type the address as written in lowercase letters. Press enter. You'll see the system logo and a menu of features on our web site.

Getting Around
As you move your mouse around the page, you'll see that the arrow sometimes changes to a pointing finger. Text in these areas may be a different color or may become bold or highlighted when you point at it. Clicking your left mouse button when pointing at such an area activates a "hypertext link" and will display the material to which the text refers. You can use the "back" arrow at the top of the screen to return to a previous page. Or you can use the menu at the bottom of most screens to go elsewhere in the web site.

A Return Visit
Click the "favorites" icon on the tool bar at the top of your browser page and add our web site to your list. Then you'll be able to come back without remembering and typing our address.   

In a previous newsletter, we informed you that PERS now has a web site that can be found at www.nvpers.org. When you get to the web site, the following information will help you look through the information contained there.

Home welcomes you to our official web site.

About PERS includes the History of the Retirement System, pictures and biographies of the Public Employees' Retirement Board members and PERS' executive staff, information regarding the police/fire committee of the PERS' Board, a PERS' staff organizational chart and contact information. Also in this section are maps for both the Carson City and Las Vegas offices.

Membership includes information relating to eligibility requirements and complete online versions of the Summary Plan Descriptions for Regular Members as well as Police and Fire Members.

Benefit Programs provides complete online information on Regular Plan Pre-retirement, Police & Fire Plan Pre-retirement, Disability Retirement, and Qualified Domestic Relations Orders.

Investments discusses PERS' investment objectives, asset allocation, investment return and the administration of investments.

Employer includes a list of the Nevada public employers who participate in PERS.

Legislators reviews frequently asked questions about the Legislator's Retirement System.

What's New/Current Information includes current information such as meeting agendas/minutes, legislative changes and/or updates, PERS' newsletters, and other recent changes or updates.

Site Map describes the hierarchy of the web site.

We hope you enjoy touring our new web site!

In addition to the services Nevada PERS offers on our own web page -- www.nvpers.org -- the National Council on Teacher Retirement (NCTR) developed a great web site for all public employees. It is called LIFEPLAN and you can find it www.nctr.org (directions will lead you to the section of the web site dedicated to LIFEPLAN) or call up the Nevada PERS' web site and use the hot link in our "About PERS" section to move to the NCTR web page.

LIFEPLAN is dedicated to helping public employees focus on their futures, including retirement planning (retirement calculator, Social Security basics, etc.), life issues (getting married, buying a home, become a parent, etc.), retirement transitions (leading a healthy life, preparing for retirement), investment basics (Risk and reward, how to read stock tables, etc.), and financial matters (life insurance, creating a budget, establishing credit and estate planning).

LIFEPLAN contains many interactive tools that are easy and fun to use, such as a monthly payment calculator and an "extra savings" calculator (How much can you save just by giving up one restaurant meal a week?). LIFEPLAN is free, and provides a great resource. Give it a try!   

Previous articles addressed our review of the fixed income and equity portfolios. As the final component in the Board's structure review process, we evaluated the System's real estate program.

Real estate's target allocation is 10% of the total fund. The portfolio is nationally diversified and contains 52 properties with a market value of $1,086 million. It is invested in high quality assets within the four major institutional property types: industrial, multi-family, office and retail.

The program primarily focuses on discretionary, separate account management. This is accomplished through three external real estate managers who buy and sell properties on a wholly owned basis for Nevada PERS. Leverage is not utilized.

Real estate is expected to provide a diversification benefit and a long-term total return falling between equities and fixed income. In the past, the diversification features of this asset class have in fact reduced volatility in the total fund return.

Developing a manager structure strategy similar to equities or fixed income is not an option in real estate. Style and correlation differences do not exist to the extent they can be quantified and capitalized on. As a result, policy decisions related to the program's risk/reward relationship must be implemented at the individual manager level.

Nevada's real estate policies are conservative, emphasizing diversification, existing substantially leased properties, and a focus on cash flow generation. Specifically, 2/3 of total return must be generated by income over rolling 5-year periods. The return pattern for the past ten years reflects the impact of these policies (See chart).

In effect, we have "cut the tops and bottoms" off the market. This is reflected statistically in the risk reward chart below. For the last ten years, the program has captured the NCREIF (National Council of Real Estate Investment Fiduciaries) index with less volatility.

Real estate's illiquidity creates inefficiencies that our real estate managers are expected to capitalize on. This also means market data is more difficult to obtain in a timely manner. The lack of quantitative data makes short-term monitoring even more important in this asset class. It continues to be a focus for the Board going forward.

Overall our review confirmed that the current policies contain the tools needed to achieve our goals. We found the structure and investment philosophy of the real estate program to be sound and successful. In the final analysis, the Board maintained the current structure and policies by not making any sweeping changes to the real estate program. Rather our goal continues to be to maximize performance within the framework of the existing policies and "culture."