MINUTES

Meeting of the Administration Committee

of the Board of Trustees of the State Universities Retirement System

Friday, September 14, 2018, 10:30 a.m. State Universities Retirement System

1901 Fox Drive, Main Conference Room Champaign, Illinois

The following trustees were present: Mr. Antonio Vasquez, Chair (via conference call, Mr. Aaron Ammons, Mr. Mark Cozzi, Mr. Tom Cross, Mr. Dennis Cullen, Dr. John Engstrom, Dr. Fred Giertz, Mr. Craig McCrohon (via conference call), Dr. Steven Rock, Ms. Lisa Schumacher and Mr. Collin Van Meter Others present: Mr. Martin Noven, Executive Director; Mr. Doug Wesley, Chief Investment Officer; Ms. Bianca Green, General Counsel; Ms. Kristen Houch, Legislative Liaison; Mr. Albert Lee, Assistant General Counsel; Ms. Emily Vock, Associate General Counsel; Ms. Brenda Dunn, Director of Human Resources; Ms. Suzanne Mayer, Chief Benefits Officer; Ms. Kelly Carson and Ms. Annette Ackerman, Executive Assistants; Ms. Mary Pat Burns of Burke, Burns & Pinelli, Mr. Eyal Darmon, Mr. Owen Davies and Ms. Teri Bennett of Accenture. Administration Committee roll call attendance was taken. Trustee Ammons, present; Trustee Cross, present; Trustee Engstrom, present; Trustee Rock, present; and Trustee Vasquez, present (via conference call).

APPROVAL OF MINUTES

Trustee Tom Cross presented the minutes from the Administration Committee meeting of June 7, 2018 and June 8, 2018. Trustee Steven Rock made the following motions:

• That the minutes from the June 7, 2018 Administration Committee Meeting be approved as presented.

• That the minutes from the June 8, 2018 Administration Committee Meeting be approved as presented.

Trustee Aaron Ammons seconded and the motions carried with all trustees present voting in favor. Trustee Antonio Vasquez joined the meeting via phone conference at 10:53 a.m.

APPROVAL OF CLOSED SESSION MINUTES Trustee Cross presented the Closed Session Minutes from the Administration Committee meeting of June 8, 2018. Trustee Rock made the following motion:

• That the Closed Session Minutes from the June 8, 2018 Administration Committee Meeting

be approved as presented and remain closed. Trustee John Engstrom seconded and the motion carried with all trustees present voting in favor.

CHAIRPERSON’S REPORT There was no formal chairperson’s report.

RENEWAL OF SURS INCLUSION GOAL

Ms. Tara Myers provided a brief overview of the history of the SURS inclusion policy which establishes guidelines for the inclusion of minorities, women and persons with disabilities in the SURS procurement process. Ms. Myers noted that this policy is reviewed annually and the proposed SURS procurement goal is brought before the board for approval as required by Section 1-109.1 of the statute. Ms. Myers reviewed the previous fiscal year’s goal and advised that although the stated goal was not met, she recommends the goal be maintained at 25 percent. She also advised that staff will continue to pursue increased opportunities toward attaining the stated goal. Trustee Engstrom made the following motion:

• That based on staff recommendation, the 2015 Inclusion Policy would be approved as presented.

• That the SURS goal for contracts and purchases from businesses owned by minorities, women and persons with a disability be maintained at 25 percent for fiscal year 2019.

• That the SURS goal for increasing the racial, ethnic and gender diversity of its senior staff be to promote diversity, ensure a culture of inclusivity and recruit from a diverse, qualified pool of potential applicants.

Trustee Rock seconded and the motion carried with all trustees present voting in favor. A copy of the staff memorandum titled “SURS Inclusion Goal Memo” and a copy of the State Universities Retirement System (SURS) Inclusion Policy are incorporated as part of these minutes as Exhibit 1 and Exhibit 2.

ORGANIZATIONAL REVIEW STUDY UPDATE

Mr. Eyal Darmon of Accenture presented the results of the operational review that was conducted for SURS. After pointing out the current understaffing of the organization, as well as the impact of member demographics and the implementation of the buyout option, Mr. Darmon provided his input regarding the future staffing needs to accommodate the expected increase in claims. During the space utilization study, it was determined that the current space is less than half of the government standard and that the current building is inadequate to meet the needs of the organization. Mr. Darmon proposed a few short term technology suggestions for the board to review while Accenture finalizes their long term technology recommendations. Accenture will present their proposed recommendations during the October or December meeting. Discussion ensued as staff and representatives from Accenture addressed questions from trustees.

A copy of Accenture presentation titled “SURS Operational Review Results” is incorporated as part of these minutes as Exhibit 3. Trustee Ammons physically left the meeting at 11:45 a.m. Trustee Ammons joined the conference call at 12:00 p.m.

IT STRATEGIC PLAN FY 2019-21 Mr. Jefferey Saiger presented the IT strategic plan highlighting the goals, principles and strategic imperatives that will guide the activities of the IT department for the next three years. A copy of the staff memorandum titled “IT Strategic Plan FY19-FY21” and a copy of the presentation titled “IT Strategic Roadmap” are incorporated as part of these minutes as Exhibit 4 and Exhibit 5.

IMPLEMENTATION TIMELINE FOR BUYOUT OPTION

Ms. Kristen Houch discussed the proposed timeline to implement Public Act 100-0587 which provides two voluntary buyout programs for SURS. Ms. Houch provided background on the complexity of SURS benefits, as well as the technical difficulties and administrative challenges associated with the buyout options. Ms. Houch relayed staff’s recommendations in relation to division needs and costs associated with implementing the new buyout options. A supplemental budget amount was recommended in order to provide the resources needed to begin implementation. After further discussion, Trustee Rock made the following motion:

• That a supplemental budget of $861,612 be approved for expenses related to the implementation of the buyout options, which includes the authorization to hire no more than six full-time employees and no more than six contractual employees in fiscal year 2019 to begin to address the staffing needs identified by Accenture.

Trustee Engstrom seconded and the motion was followed with a roll call vote:

Trustee Ammons aye Trustee Cozzi aye Trustee Cross nay Trustee Cullen aye Trustee Engstrom aye Trustee Giertz aye Trustee McCrohon absent Trustee Rock aye Trustee Schumacher nay Trustee Van Meter aye Trustee Vasquez aye

Motion passed.

A copy of the staff memorandum titled “Implementation Timeline for PA 100-0587” is incorporated as part of these minutes as Exhibit 6.

STAFFING AND SPACE NEEDS Mr. Noven reaffirmed the staffing needs for the organization noting the current building space has exceeded capacity, leaving no room for new employees. Mr. Noven provided details to the trustees regarding the contract and possible acquisition of the building adjacent to the current SURS location. Discussion ensued as Mr. Noven and Ms. Bianca Green addressed questions from trustees. Trustee Vasquez made the following motion:

• That staff is directed to execute the real estate purchase agreement to purchase the building at 1801 Fox Dr., Champaign, IL.

Trustee Engstrom seconded and the motion was followed with a roll call vote:

Trustee Ammons aye Trustee Cozzi nay Trustee Cross nay Trustee Cullen aye Trustee Engstrom aye Trustee Giertz aye Trustee McCrohon absent Trustee Rock aye Trustee Schumacher abstain Trustee Van Meter aye Trustee Vasquez aye

Motion passed. A copy of the staff memorandum titled “FY19 Division Needs” and a copy of the spreadsheet titled “Resource Needs” are incorporated as part of these minutes as Exhibit 7 and Exhibit 8.

VACATION POLICY

Trustee Cross discussed the current vacation policy set forth for staff and made note of his concerns with the policy. Trustee Cross reminded the group that at recent meetings the board directed staff to work with Ms. Mary Pat Burns and outside counsel to develop an agreement to revise the vacation policy. Ms. Burns stated that the guidelines have been set for the revision to the policy and will be presented in written form during the October meeting. Trustee Fred Giertz made the following motion:

• That staff is directed to work with labor counsel and fiduciary counsel to amend the vacation policy to provide that non-civil service employees hired on or after October 1, 2018, shall accrue vacation days as follows:

0-5.99 years 10 days 6-9.99 years 15 days 10-14.99 years 17 days 15-19.99 years 20 days 20-25.99 years 22 days 26 years and over 25 days

Any exceptions shall be approved by the executive director and the board chair.

• No employee hired on or after October 1, 2018, shall accrue more than 56 vacation days. Current employees shall have three years to reduce any days over 56 days or lose the excess days.

Trustee Cross seconds and was followed in a roll call vote:

Trustee Ammons aye Trustee Cozzi aye Trustee Cross aye Trustee Cullen aye Trustee Engstrom aye Trustee Giertz aye Trustee McCrohon absent Trustee Rock aye Trustee Schumacher aye Trustee Van Meter abstain Trustee Vasquez aye

Motion passed.

PERSONNEL MATTERS

Due to time constrains, this agenda item was deferred to a later date.

PUBLIC COMMENT

There was no further business before the board and Trustee Engstrom moved that the meeting be adjourned. The motion was seconded by Trustee Giertz and carried with all trustees present voting in favor.

Respectfully submitted,

Mr. Martin Noven

Secretary, Board of Trustees MMN; kc

To: Administration Committee From: Tara Myers, CFO Date: September 1, 2018 Re: Recommendation of SURS Inclusion Goal for Fiscal Year 2019

Overview The Board of Trustees of State Universities Retirement System (SURS) adopted an Inclusion Policy in December 2009 to establish guidelines for inclusion of minority, women or disabled owned businesses in SURS procurement processes consistent with 40 ILCS 5/1-109 and 40 ILCS 5/1-109.1(6). The policy was updated September 2015. The policy is reviewed and a procurement goal is approved each year. There are no updates to the policy. The procurement goal is included in the SURS Diversity Report to the Governor and General Assembly.

Fiscal Year

Board Approved Goal

Actual Purchase %

2013 25% 21.1% 2014 25% 13.8% 2015 25% 20.0% 2016 25% 17.4% 2017 25% 13.2% 2018 25% 15.1%

The plan for Fiscal Year 2019 is to maintain the goal at 25%, with the intent to continue expanding our minority-, female-, and persons with a disability-owned vendor group. The SURS staff will continue to be proactive during Fiscal Year 2019 in seeking minority-, female-, and persons with a disability-owned businesses in our procurement opportunities. In addition to the SURS Inclusion Goal, in pursuant to 40 ILCS 5/1-109.1(10), SURS has an aspirational goal of no less than 20% utilization of businesses owned by minorities, females, and persons with disabilities of contracts awarded for “information technology”, “accounting services”, “insurance brokers”, “architectural and engineering services”, and “legal services”. The actual purchases from businesses owned by minorities, females, and persons with disabilities for the aspirational goal vendors for Fiscal Year 2017 and 2018 were 15.1% and 22.5% respectively.

Exhibit 1

Recommendation Staff recommends: • No changes to the 2015 SURS Inclusion Policy, • That the SURS goal for contracts and purchases from businesses owned by minorities,

female, and persons with a disability be 25% for Fiscal Year 2019, • That the SURS goal for increasing racial, ethnic and gender diversity of its senior staff be

to promote diversity, ensure a culture of inclusivity and recruit from a diverse, qualified pool of potential applicants.

Exhibit 1

1

State Universities Retirement System (SURS) Inclusion Policy

(09/11/2015) The purpose of this policy is to establish a framework for the inclusion of businesses owned by minorities, females, and persons with a disability in SURS procurement processes and for the inclusion of increased diversity of SURS fiduciaries, consistent with 40 ILCS 5/1-109 and 40 ILCS 5/1-109.1. The goals of this policy are to:

• promote competitive utilization of businesses owned by minorities, females, and persons with a disability in SURS contracts and services; and

• advance racial, ethnic, and gender diversity of SURS fiduciaries, including consultants and senior staff.

Policy

SURS is responsible for the prudent administration of SURS members’ trust fund. SURS strives to insure that members and taxpayers receive the maximum value for each dollar spent. To this end, SURS recognizes that promoting diversity of fiduciaries and vendors provides an open, competitive and diverse business environment.

SURS procurement and employment processes will further diversity in vendors and fiduciaries, including consultants and senior staff.

SURS employment processes to promote racial, ethnic and gender diversity of SURS fiduciaries, including senior staff must be developed to work in tandem with existing State University Civil Service System law when appropriate. To this end, SURS is committed to the ongoing efforts to seek job candidates from underrepresented groups, bring them into the organization, and offer additional growth/leadership opportunities with the intent of creating mutually beneficial long-term employment partnerships.

SURS procurement process includes a concerted effort to attract qualified minority, female owned business enterprises, and businesses owned by a person with disability (as defined by the Business Enterprise for Minorities, Females, and Persons with Disabilities Act: collectively, “MWDBE”) to participate in the procurement process. SURS further commits to the objective evaluation of all qualified businesses regardless of race, gender or handicap in fair consideration of all suppliers and consultants in the acquisition of goods and services.

Exhibit 2

2

SURS stresses its goal of inclusion of MWDBE firms among prospective providers of purchased goods and services. Special efforts will be made to insure identification of eligible firms for inclusion in the bid process, including monitoring of MWDBE-related listings to identify possible MWDBE contractors and service providers. MWDBE firms will be identified using resources such as the United States Small Business Administration, Illinois Central Management Services Business Enterprise Program and other public agency resources. SURS will seek new ways to expand our efforts to do business with MWDBE suppliers and consultants.

If necessary, SURS will take proactive action to ensure that certified minority-owned, women-owned and disabled-owned business enterprises are provided notice of, and given the opportunity to demonstrate their ability to provide products and services at competitive prices. SURS staff who either directly or indirectly determine procurement needs or procurement decisions will seek and encourage MWDBE businesses to submit bids each time SURS publishes a request for bids or proposals.

SURS contracts require vendors to avoid unlawful discrimination in employment and to assure equality of employment opportunity and compliance with the Illinois Department of Human Rights' regulations concerning equal employment opportunities and affirmative action.

Pursuant to 40 ILCS 5/1-109.1 (10) SURS shall set an aspirational goal of no less than 20% utilization of businesses owned by minorities, females, and persons with disabilities of contracts awarded for “information technology”, “accounting services”, “insurance brokers”, “architectural and engineering services”, and “legal services”. This information will be tracked, but is not required to be reported.

SURS has set a goal of 25% for purchases from businesses owned by minorities, women, and persons with a disability as a share of all of its contracts and purchases. This information will be tracked by the Chief Financial Officer and reported annually as required by Public Act 96-0006.

SURS has set a goal to promote diversity from the top down and the bottom up to ensure a culture of inclusivity. SURS will also recruit from a diverse, qualified pool of potential applicants to increase the racial, ethnic, and gender diversity of its senior staff. This information will be tracked by the Director of Human Resources and reported annually as required by Public Act 96-0006.

Exhibit 2

3

(30 ILCS 575/2)

Sec. 2. Definitions.

(A) for the purpose of this Act, the following terms shall have the following definitions:

(1) "Minority person" shall mean a person who is a citizen or lawful permanent resident of the United States and who is any of the following:

(a) American Indian or Alaskan Native (a person having origins in any of the original peoples of North and South America, including Central America, and who maintains tribal affiliation or community attachment).

(b) Asian (a person having origins in any of the original peoples of the Far East, Southeast Asia, or the Indian, including, but not limited to, Cambodia, China, India, Japan, Korea, Malaysia, Pakistan, the Philippine Islands, Thailand, and Vietnam).

(c) Black or African American (a person having origins in any of the black racial groups in Africa). Terms such as “Haitian” or “Negro” can be used in addition to “Black or African American”.

(d) Hispanic or Latino (a person of Cuban, Mexican, Puerto Rico, South or Central American, or other Spanish Culture or origin, regardless of race).

(e) Native Hawaiian or Other Pacific Islander (a person having origins in any of the original peoples of Hawaii, Guam, Samoa, or other Pacific Islands).

(2) "Female" shall mean a person who is a citizen or lawful permanent resident of the United States and who is of the female gender.

(2.05) "Person with a disability" means a person who is a citizen or lawful resident of the United States and is a person qualifying as being disabled under subdivision (2.1) of this subsection (A).

(2.1) "Disabled" means a severe physical or mental disability that:

(a) results from: amputation, arthritis, autism, blindness, burn injury, cancer, cerebral palsy, Crohn's disease, cystic fibrosis, deafness, head injury, heart disease, hemiplegia, hemophilia, respiratory or pulmonary dysfunction, an intellectual disability, mental illness, multiple sclerosis,

Exhibit 2

4

muscular dystrophy, musculoskeletal disorders, neurological disorders, including stroke and epilepsy, paraplegia, quadriplegia and other spinal cord conditions, sickle cell anemia, ulcerative colitis, specific learning disabilities, or end stage renal failure disease; and

(b) substantially limits one or more of the person's major life activities.

Another disability or combination of disabilities may also be considered as a severe disability for the purposes of item (a) of this subdivision (2.1) if it is determined by an evaluation of rehabilitation potential to cause a comparable degree of substantial functional limitation similar to the specific list of disabilities listed in item (a) of this subdivision (2.1).

(3) "Minority owned business" means a business which is at least 51% owned by one or more minority persons, or in the case of a corporation, at least 51% of the stock in which is owned by one or more minority persons; and the management and daily business operations of which are controlled by one or more of the minority individuals who own it.

(4) "Female owned business" means a business which is at least 51% owned by one or more females, or, in the case of a corporation, at least 51% of the stock in which is owned by one or more females; and the management and daily business operations of which are controlled by one or more of the females who own it.

(4.1) "Business owned by a person with a disability" means a business that is at least 51% owned by one or more persons with a disability and the management and daily business operations of which are controlled by one or more of the persons with disabilities who own it. A not-for-profit agency for persons with disabilities that is exempt from taxation under Section 501 of the Internal Revenue Code of 1986 is also considered a "business owned by a person with a disability".

***

(9) "Control" means the exclusive or ultimate and sole control of the business including, but not limited to, capital investment and all other financial matters, property, acquisitions, contract negotiations, legal matters, officer-director-employee selection and comprehensive hiring, operating responsibilities, cost-control matters, income and dividend matters, financial transactions and rights of other shareholders or joint partners. Control shall be real, substantial and continuing, not pro forma. Control shall include the power to direct or cause the direction of the management and policies of the business and to make the day-to-day as well as major decisions in matters of policy, management and

Exhibit 2

5

operations. Control shall be exemplified by possessing the requisite knowledge and expertise to run the particular business and control shall not include simple majority or absentee ownership.

(10) "Business concern or business" means a business that has average annual gross sales over the three most recent calendar years of less than $31,400,000 as evidenced by the federal income tax return of the business. A firm with gross sales in excess of this cap may apply to the Business Enterprise Council for Minorities, Females, and Persons with Disabilities for certification for a particular contract if the firm can demonstrate that the contract would have significant impact on businesses owned by minorities, females, or persons with disabilities as suppliers or subcontractors or in employment of minorities, females, or persons with disabilities.

(b) When a business concern is owned at least 51% by any combination of minority persons, females, or persons with disabilities, even though none of the three classes alone holds at least a 51% interest, the ownership requirement for purposes of this Act is considered to be met. The certification category for the business is that of the class holding the largest ownership interest in the business. If 2 or more classes have equal ownership interests, the certification category shall be determined by the Department of Central Management Services.

Exhibit 2

SURS OPERATIONAL REVIEW RESULTS

SEPTEMBER 2018

Exhibit 3

CURRENT MEMBER SATISFACTION LEVELS

Were satisfied with service received while speaking with a SURS rep

Were satisfied with the rep’s ability to identify their main concerns

91% 92%

SURS CALL CENTER

“ My wife and I were very pleased with the professional manner that the SURS representative was able to address our questions regarding our upcoming retirement. She also assisted

us in completing our retirement application and are satisfied that we are as prepared as we can be.”

– SURS Member who visited the office 4

Source:1SURS Call Center FY18 Survey Data2Counselors FY18 Survey Data3Reception FY18 Survey Data

4Reception FY18 Survey Comments5FY2018 Retirement Survey Comments

Were satisfied with SURS counseling services

Were satisfied with SURS reception service

98% 95%

IN-PERSON SERVICE

“ My one-on-one meeting with a representative was most helpful. The rep was courteous and very knowledgeable. Having the rep come to my place of work was also a plus.”

– SURS Member 5

1

MEMBER COMMENTS

Overall, SURS members are very satisfied with the customer service that SURS currently provides. Members were most satisfied with in-person interactions, citing that SURS representatives were very helpful in explaining confusing retirement information.

2, 3

Exhibit 3

48% of the current active member population (80,000 members total) will be eligible for retirement within the next 10 years.

FUTURE STAFFING LEVEL IMPACTS

Increase in claims following January 2016 money purchase event

250%

Increase in claims following July 2013 money purchase event

382% ACTUARY CHANGES

Increase in counseling appointment and benefit estimate requests in FY14

280%

Increase in claims requests in FY14

350%

LEGISLATIVE CHANGES

MEMBERSHIP PROFILE

The potential addition of a buyout option could result in a sharp increase in backlog levels without an increase in staff. If 22% of SURS members opt for the buyout (as occurred in Missouri after adding a buyout option), SURS could see it’s backlog grow from 5 months to 26 months over the 3-year buyout period.

BUYOUT OPTION

Exhibit 3

SURS IS UNDERSTAFFED WHEN COMPARED TO INDUSTRY PEERS

We analyzed the staffing levels at the pension systems with 30% more and 30% fewer members than SURS (160,000 – 300,000 members). Utah Retirement Systems was at the lower end with 166,000 members, and Illinois Municipal Retirement Fund at the upperend with 298,000 members. If SURS’s staffing model was similar to that of its peers, it would need to increase its staff size to 158 FTEs, 21 more FTEs above current approved FTE count.

143 137

194

-

50

100

150

200

250

-

50,000

100,000

150,000

200,000

250,000

300,000

Pension Membership~ 160k - 230k

SURS Pension Membership ~ 230k -300k

Total

Mem

bersh

ip

Staffing Levels

Avg. Active Memb. Avg. Staff

Numb

er of

Staf

f

Analyzed staffing levels at peer groups 30% larger and 30% smaller than SURS

16 Peers

Bringing staffing up to peers’ levels would raise SURS to 158 FTEs

158 FTEs

Additional FTEs from Current levels21 FTEs

Source:SURS FY18 Board Report StatsNASRA, August 2017: Roll Call

Exhibit 3

SHORT TERM TECHNOLOGY RECOMMENDATIONS

1. IMPLEMENT A VIRTUAL AGENT FOR MEMBERS & EMPLOYERSVirtual agents are not just a new customer channel or user tool; they will power the next generation of digital experiences. We typically see three use cases for Virtual Agents in Pensions:

24/7 Customer Care Customer Advisory Staff Optimization

Level of Effort: $275-325K Implementation Timeframe: 10-14 weeks

2. ENHANCE SURS’ SOCIAL MEDIA STRATEGY TO IMPROVE MEMBER ENGAGEMENTSURS members are increasingly interacting with social media (65% of SURS members use social media more than once a week), highlighting an opportunity for SURS to engage with its members across different platforms to inform them about plan options, provide updates on SURS, and offer members additional mediums of interacting with SURS.

Level of Effort: $125-175K Implementation Timeframe: 8-10 weeks

Exhibit 3

1. Implement Short Term Technology Recommendations2. Staff increases by 23 FTEs (to reach 160 total) to accommodate the increase in claims (Legislative, Buyout, Actuarial)3. Approved FTEs would steadily decrease through normal turnover after peak period4. FTE levels would stabilize at 152 FTEs while backlog returns to stable level5. Backlog would level out at 4-6 months

OUR RECOMMENDATION: SURS STAFFINGPROFILE

Source:SURS FY18 Board Report StatsNASRA, August 2017: Roll Call

Number of FTEs needed in the long-term.

152 FTEs

Number of FTEs needed to accommodate short term increases (buyout, actuarial, legislative)

23 FTEs

130

135

140

145

150

155

160

165

Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24 Jul-24 Jan-250

2

4

6

8

10

12

FTEs

Back

log

in M

onth

s

Backlog and Staffing Projection

FTE Backlog in Months

1

2

34 5

Exhibit 3

Sources:1Government Accountability Office, March 2018: Federal Buildings – Agencies Focus on Space Utilization As They Reduce Office and Warehouse Space2Ratio Report

250

110

0

50

100

150

200

250

300

Govt Avg SURS

SqFt

Per

Per

son

Average Sq Ft Per Person

CURRENT SPACE UTILIZATION OVERVIEWOver recent years, SURS has been forced to improvise additional workspaces in order to accommodate increasing staff. Workspace size varies: some spaces are around 80 sq ft, while others are below 65 sq ft, because many offices are double stacked or storage space has been converted.

Currently available, including converted spaces

141 Spaces

SURS’ average sq ft per person is less than half of the government standard

>50%

21

Exhibit 3

CURRENT FLOOR PLAN IS COMPARTMENTALIZEDMultiple rooms that were not previously used as workstations (e.g., storage rooms, copy rooms etc.) have been converted to accommodate staffing increases, putting stress on building infrastructure, such as the HVAC system

Source:SURS Current Floor Plan

Rooms converted to workspaces=

Exhibit 3

NEXT STEP

• Accenture to finalize long term technology recommendations

• Provide long term technology recommendations to SURS Leadership and present in a future Board meeting

Exhibit 3

QUESTIONS

Exhibit 3

MEMORANDUM TO: Board of Trustees FROM: Jefferey S. Saiger Chief Technology Officer RE: IT Strategic Plan FY19-FY21 DATE: September 14, 2018 This document sets forth the goals, principles and strategic imperatives that will guide the activities of the IT department for next several years. It outlines a philosophic approach to ensure that the IT organization is meeting the needs of SURS stakeholders both today and into the near future. In an environment rife with risk, uncertainty and unpredictability, it is important that the SURS IT department recognize and strengthen those areas necessary to the continual, high-quality delivery of services to our fellow staff, employers and members. We believe that in following the IT Strategic Plan, SURS IT will be well positioned to do so. Our Strategic Plan was developed using a combination of staff feedback, emerging technology trends, business needs, industry best practices and career experience. The intent is for it to be a living document; continually modified to accommodate evolving requirements. Staff is pleased to present this to you and welcomes any questions or feedback. Thank you. Sincerely,

Jefferey S. Saiger

Chief Technology Officer

Exhibit 4

IT Strategic RoadmapFY2019-2021

Exhibit 5

Table of Contents• Executive Summary• Understanding SURS

• SURS Mission• SURS Strategic Goals• In-Flight Project Initiatives• PESTLE Analysis of Influential Factors• IT Implications from Organizational Goals

• Current State of IT• Current IT ORG Chart• IT SWOT Analysis• IT Process Maturity Analysis• Common Themes from Stakeholder Conversations• Current IT State Assessment

• Target State of IT• SURS IT's Biggest Opportunities• 3-Year Target State• 3-Year Proposed ORG Chart• IT Project Budget Allocation• IT Strategic Goals• Goals Alignment• Mapping IT Goals to Capabilities• IT Guiding Principles• IT Initiatives to Organizational Goals Mapping

• Execution• Prioritization Drivers• Program Roadmap• Risk Analysis• Communication Plan• Strategy Refresh Plan

Exhibit 5

Resolution

Situation

Complication

Executive Summary

SURS has a diverse blend of technologies within the organization’s portfolio. Some technologies are fairly contemporary, while others have been in service for decades. As with the technology, the IT staff is also a blend of recent hires as well as long-tenured staffers. The IT department is comprised of two teams. The first is Application Development and Research; tasked primarily with keeping the core retirement system updated to reflect new requirements. The second is Technical Support; responsible for the infrastructure, operations and data security. Facilities and Support Services (mailroom and imaging) also report up through to the Chief Technology Officer.

The workload of the IT department is heavily influenced by factors outside of SURS control. Any new legislative changes to the pension program requires a reprioritization of in-progress initiatives, and reallocation of programming resources. With so much emphasis placed on maintaining the core retirement system, other facets of running a successful organization have been neglected, resulting in staff implementing manual processes throughout the organization.

With renewed executive and organizational support, the IT organization has decided to create an IT strategy that considers the current and anticipated needs of the organization, industry trends, current capabilities, and regulatory expectations to create a plan that will facilitate and enable the organization’s key business objectives. This three-year roadmap will provide the IT organization with the direction needed to address urgent technology issues, while also establishing a foundation for organizational growth.

Exhibit 5

Understanding SURS

Exhibit 5

SURS MISSION

To secure and deliver the retirement benefits promised to

our members

Exhibit 5

SURS Strategic Goals• Assure the financial soundness of the system

– Secure the annual required contribution, produce risk-adjusted investment returns that exceed our investment benchmarks and manage expenses

• Achieve high levels of customer satisfaction– Deliver fast, accurate, timely, cost-effective and empathetic service by meeting or exceeding our

service standards

• Be a great place to work with an emphasis on learning, growth and diversity– Develop leaders, share our knowledge, fill skill gaps and commit to being a diverse organization

• Develop and sustain efficient, responsive, high-quality internal processes, tools and technology

– Improve our member communication, workflow processing capabilities and systems sustainability, reliability and record keeping

• Protect member assets and information through sound risk management and ethical practices

– Strengthen our internal controls and risk-management programs, and continue current ethics training and compliance efforts

Exhibit 5

In-Flight Project InitiativesAug '18 Sept '18 Oct '18 Nov '18 Dec '18 Jan '19 Feb '19 Mar '19 Apr '19 May '19

Category

In-Flight

Doc Link/PO Automation P

Required Minimum Distributions R

Employer 6% 3% Billing R

KTM Automation P

End User Computing Updates Phase 1 P

Member Website Re-Development S

Buyout program R

FIS & HCM Modernization Phase 1 P

RFP's in progress

PII Data Classification C

Building Safety Systems Refresh C

Conference Room Upgrades P

Chiller Replacement R

Categories: C=Compliance, P = Productivity/Efficiency, R = Required/Governance, S = Strategic

Final QA with users

Build, Test, Implement 3%Test & Implement 6%

Build, Test, Implement

Build, Test, Implement Back-end

Phase 1 is 27% implemented

1 Developer pulled to other projects. 1 Developer remains 100% allocated

Design, Build, Test, Implement

RFP to post 10/1 Design, Build, Test, Implement

Issue RFP, Design

Design, Build, Test, ImplementEngage Engineering Firm, Issue RFP

Issue RFP, Design, Build, Test, Implement

Functional Requirements, Issue RFP, Design, Configure/Build, Test, Implement

Exhibit 5

PESTLE Analysis of Factors Impacting SURS

Polit

ical

• Changes in politics can have a significant impact on funding sources – shifting responsibilities

• Trustee elections & appointments can impact direction of organization initiatives

• Federal or state legislation changes can result in uncertainty• Leadership changes impacts political standing• Volatility in expectations and preferences from government or

board can create sudden change for the organization

• Changes in the state legislature may impact ability to grow• Election can impact how the organization does accounting• Difficulty in always finding qualified firms for competing bid

requirements• Difficult to finance certain operations, including staff

Economic

Soci

al

• Labor market is competitive – organization has to offer more attractive packages (pay/benefits) to recruit specialized talent

• Over time, as demographics of membership changes, so will expectations of social interactions & delivery of services

• Technology labor market is very competitive• Operations are becoming more data intensive• Constituents have high expectations, including uninterrupted

connectivity and fast resolutions on technology-related issues• Change of technology outpaces organizational capacity to adapt

TechnologicalLe

gal • Constant stream of RFPs, contract renewals and purchasing

creates significant workload• Upcoming audits – need to monitor compliance• Ongoing litigation & legislative activities stretch resources

• Nearing capacity for main office – will require new space or major refurb if we require growth

• Aging building presents maintenance challenges

Environmental

Exhibit 5

IT Implications from Organizational Goals• Assure the financial soundness of

the system– IT needs to provide reliable and

actionable data to organization– IT needs to be good stewards of

finances…Run IT as a business• Achieve high levels of customer

satisfaction– IT should strive to deliver best-in-

class service to all stakeholders– New technologies should enhance

user productivity and experience• Be a great place to work with an

emphasis on learning, growth and diversity

– IT needs to invest as heavily in people as it does technologies and processes

• Develop and sustain efficient, responsive, high-quality internal processes, tools and technology

– IT needs to be able to move at the speed of business

– IT needs to deliver highly available, highly secure and highly trustworthy services, applications and data

• Protect member assets and information through sound risk management and ethical practices

– Information Security needs to be a core competency of the IT organization

– IT needs to draft, adhere to, and enforce stringent compliance policies when applicable

Exhibit 5

Current State of IT

Exhibit 5

Current IT ORG Chart

Chief Technology Officer Jefferey Saiger

Dir. Of AppDev & Research Doug Steele

T. Childress C. Galva J. Heaton A. Idom M. Ingrum M. Nagele

M. Mockus K. Oliger M. Ricketts K. Silvey T. Smith T. Kerber

M. Sebens

Dir. Of IT Infrastructure & Operations

Cindy Gones

Jim Cagle Jon Cagle M. Brewer B. Campbell A. Jordan D. Kalk B.

Ormond D. Rascher K. Meis Vacant

Manager of Support Services Dawn Blissard

H Silver M Davenport

R Epsteen

Chief Engineer Dave Scott

Project Manager Leslie Pouilliard

Exhibit 5

IT SWOT Analysis(Strengths, Weaknesses, Opportunities, & Threats)

Strengths • Customer Service/Support • Experienced and Dedicated Staff • Flexibility • Technical expertise in core platform • Virtualization of server footprint • Stability of infrastructure • Problem Solving Skills and Resourcefulness • Strong compliance posture • Modern Disaster Recovery (DR) solution • Contemporary technology portfolio for infrastructure • Own the building, so we can proceed as necessary on

renovations, changes or improvements

Weaknesses • Demands on staff often exceed capacity to execute • Lack of formalized governance framework, such as ITIL • Lack of Service Level Agreements (SLAs) • Communication amongst IT teams and organization • Bureaucracy • Lack of formal training & development program • Audio/Visual Capabilities • Lack of organizational metrics & dashboards (no single pane of

truth for performance or financials) • Lack of skill diversity • Informal Project Management • Ongoing Maintenance of building due to age and ownership • Fast Changing and Complex Technical Infrastructure • Exceedingly manual and paper-based processes • Lack of separation of duties in Application Development

(Developers are all working as project leads, business analysts, and quality assurance analysts in addition to core responsibilities)

• “Brain-drain” due to recent retirements

Opportunities • Cloud Computing • Consolidation of systems • Utilization of Intranet • We have many relationships with vendors that could be turned

into partnerships • Quantifying IT value to the organization • Process improvements & governance • Successful Financial Information System (FIS) replacement • Successful Human Capital Management (HCM)

implementation • Review sourcing strategy • Mobile engagement of membership • Business Intelligence competency

Threats • Ever-changing & increasingly hostile security environment • Budget constraints • Procurement codes misaligned to IT purchasing best practices • Delivering core services while adapting to new demands for the

changing environment • Finding resources to maintain current application stack • External factors requiring immediate shifts of focus and resources • Civil Service hiring constraints • Large number of Technical Support staff are retirement eligible • Facility loss due to catastrophic event

Exhibit 5

IT Process Maturity Analysis

00.5

11.5

22.5

33.5

44.5

Current Maturity Level 3-Year Target Maturity Level

Exhibit 5

Common Themes from Business Stakeholder Conversations

Themes Detail

Efficiency • Decreasing the time to execute initiatives• Reducing the amount of time spent doing routine tasks• Better partnership to foster better adoption of new technologies and processes• Focus on what matters most, not “new and shiny”

Growth • Focus on processes, technologies and physical workspace that supports SURS as it continues to grow to meet changing legislative demands

Data integrity and reporting

• Data integrity and security is of utmost importance to organization• Need better and faster reporting…putting it in the hands of the end user would be ideal

Technology as a business driver

• The increased use of effective technology can improve productivity• Technology can be used to engage & educate members• Technology could foster better collaboration and communication• Data reporting to aid member decisions and real-time organization activity• Increase adoption of critical technology services – training and engagement

Process automation

• Electronic time tracking, communication among employees, elimination of manual data entry or migration, reduction in paper documents, etc.

• Automation of workflow and hand-off between systems• Training of employees on how to use systems and technology to streamline processes

Quality Assurance • Ensure development work has been thoroughly tested prior to getting to end user testing• A common process used for all testing would be beneficial; standardize the QA experience and expectation• Adding efficiencies to QA process would help with time allocation issues

Standardization of project management practices

• Current processes are informal and not standardized • No formal project management tools or reporting dashboards are in use• Formal Project Management competency would help with more consistent & successful execution of key initiatives

Exhibit 5

Current IT State AssessmentCurrently, the IT organization is assessed to be a Trusted Operator in its role due to having a stable infrastructure, functional core applications and reliable data quality.

Innovator - Transforms the BusinessReliable Technology Innovation

Business Partner - Expands the BusinessEffective Execution on Business Projects, Strategic Use of Analytics and Customer Technology

Trusted Operator - Optimizes the BusinessEffective Fulfillment of Work Orders, Functional BusinessApplications, and Reliable Data Quality

Firefighter - Supports the BusinessReliable Infrastructure and IT Service Desk

Unstable - Struggles to SupportInability to Provide Reliable Business Services

Exhibit 5

Target State of IT

Exhibit 5

SURS IT’s Biggest Opportunities

Utilization of the SMAC StackProcess Automation

Formalize a Project Management Competency

The IT organization has an opportunity to address several areas of concern amongst both departmental staff as well as business stakeholders by implementing a formalized project management competency.Having a project management center of excellence would encompass business analysis, quality assurance and project management functions. This would allow developers and business users to better focus on their core responsibilities, as well as afford SURS a consistent experience when pursuing new initiatives.

The IT organization is in a position to revolutionize the manner in which SURS serves our membership and conducts its work.By leveraging the SMAC (Social, Mobile, Analytics, Cloud) stack, IT can provide instant access to real-time data, provide elasticity of operations and engage membership in a manner consistent with the other facets of their day-to-day lives.Utilizing the SMAC stack effectively could also help drive down long-term costs, provide better resiliency to the organization, and provide a key recruiting advantage.

Based on interviews with organizational stakeholders, many processes are manual, inefficient due to too many handoffs, and paper-intensive.Immediate areas for improvement are HR and Accounting. Currently, routine operational tasks such as time tracking, talent management, budgeting, forecasting and reporting are manually performed.Pursuing a comprehensive enterprise application that encompasses both Human Capital Management (HCM) and Financial Information Systems (FIS) will greatly improve the efficiency of the entire organization, as well as afford real-time insight into key areas of SURS.

Exhibit 5

3-Year IT Target StateBy the end of Fiscal Year 2021, the target state for the IT organization would be that of a high performing Business Partner, on the cusp of being an Innovator. This will be accomplished through consolidating platforms, improving processes and collaborating fully with key stakeholders throughout SURS.

Innovator - Transforms the BusinessReliable Technology Innovation

Business Partner - Expands the BusinessEffective Execution on Business Projects, Strategic Use of Analytics and Customer Technology

Trusted Operator - Optimizes the BusinessEffective Fulfillment of Work Orders, Functional BusinessApplications, and Reliable Data Quality

Firefighter - Supports the BusinessReliable Infrastructure and IT Service Desk

Unstable - Struggles to SupportInability to Provide Reliable Business Services

Exhibit 5

3-Year Proposed IT ORG Chart

Chief Technology Officer Jefferey Saiger

Manager of Enterprise Application Dev. & Support

TBD : Allocation of current staff

Manager of DevOps

TBD : Allocation of current staff

Dir. Of IT Infrastructure & Operations

Cindy Gones

Jim Cagle Jon Cagle M. Brewer B. Campbell A.

Jordan D. Kalk B. Ormond D. Rascher K. Meis Vacant

Manager of Support Services Dawn Blissard

H Silver M Davenport

R Epsteen

Chief Engineer Dave ScottProject Manager Leslie Pouilliard

QA Analyst

BA Specialist

Project Manager

QA Analyst

BA Specialist

Positions highlighted in green would represent net-new roles for the organization. This model would be achieved through role changes due to attrition, reassignments of current staff as well as new additions to the organization.

Exhibit 5

IT Project Budget Allocation• Vast majority of historical budget

allocations have focused on building-related initiatives.

• Historical trends have resulted in the current state of business operations; highly manual, little automation and stagnation in parts of the technology portfolio.

• Next 2-3 budget proposals will focus on opportunities for enhancing Productivity/Efficiency or supporting Strategic initiatives.

• As the organization gets into a more mature stature and project execution becomes consistent, the focus should shift to look for opportunities for projects that have returns on investment (ROI).

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY 2016 FY2017 FY2018 ProposedFY2019

Need To Productivity/Efficiency Strategic ROI

Exhibit 5

IT Strategic Goals

Be the trusted technology partner to the organization1

Run IT like a business2

3

Invest in talent like we do technology; smartly and with the goal of creating the best workplace possible4

The following four goals have been developed to guide IT’s journey to its target end state while also supporting and enabling the broader organization.

Treat the organization’s data and resources as if they were our own (because they are)

Exhibit 5

Goals AlignmentEach IT strategic goal supports at least one of the SURS organizational goals.

Assure the financial soundness of the system

Achieve high levels of customer satisfaction

Be a great place to work with an emphasis on learning, growth and

diversity

Develop and sustain efficient, responsive, high-quality internal processes,

tools and technology

Protect member assets and information through sound risk management

and ethical practices

Run IT like a business

Treat the organization’s data and resources as if

they were our own (because they are)

Invest in people like we do technology; smartly

and with the goal of creating the best

workplace possible

Be the trusted technology partner to

the organization

Exhibit 5

Mapping IT Goals to Capabilities

Run IT like a business

Treat the organization’s data and resources as if

they were our own (because they are)

Invest in people like we do technology; smartly

and with the goal of creating the best

workplace possible

Be the trusted technology partner to

the organization

Toolset rationalization Information security management

Service level management

Career planning & progression

Analytics based decision making Vendor managementQuality assurance Training &

development

Human capital management

Coaching & mentoring

Real-time financial management

Governance, risk and compliance mgmt.

Service portfolio standardization

Cadence of accountability

Project portfolio management

Change management

Exhibit 5

IT Guiding Principles

IT Guiding Principle Name IT Guiding Principle Statement

1. Customer service oriented We deliver the best experience possible to our stakeholders.

2. Financial value focus We aim to maximize ROI, optimize TCO and mitigate risks.

3. Fit for purpose We manage capability levels and produce solutions that are fit for purpose and scalable without over-engineering them.

4. Data management We handle data creation, modification, and usage in compliance with our data governance policy.

5. Enterprise architecture governance We control the variety of technology platforms we use & support.

6. Managed security We manage security enterprise-wide in compliance with our security governance policy.

7. Compliance to laws and regulations We operate in compliance with all applicable laws and regulations.

8. Simplicity We will choose the simplest solutions possible with the aim of reducing operational complexity in the enterprise.

9. Strategic Sourcing We maximize reuse of existing assets. If we can’t reuse, we will determine whether building or buying fits best into long-term plans.

10. Innovation We seek innovative ways to leverage technology to enhance organizational productivity and efficiency.

Exhibit 5

IT Initiatives to Organizational Goals Mapping

BusinessInitiatives

BusinessCapabilities

Business Goals

EnableEnhance

ITInitiatives

IT Capabilities

EnableEnhance IT Goals

Support Support Support

Strategy Alignment Framework

Exhibit 5

Execution

Exhibit 5

Prioritization DriversIT identified a list of criteria to use in the selection and prioritization of strategic initiatives

Prioritized Criteria Details

1. Strategic AlignmentThe initiatives must improve IT’s ability to support the organization’s dailyoperations while enabling the organization to achieve its strategic goals relating to the servicing of our members.

2. Quick WinsThe initiatives must have a higher value to effort ratio, focusing on delivering value quickly with in-flight or planned technology refresh, upgrades, or implementations.

3. Return on Investment (ROI)The initiatives must provide the best bang for the dollar spent. While cost containment is important, it is even more important that the initiatives deliver measurable value to SURS to warrant the investment or effort.

Secondary criteria used to prioritize initiatives are as follows (in no particular order): cost, competitive landscape, visibility, cultural dynamics, duration and timing, capacity to execute, risk, complexity, and dependencies.

Exhibit 5

Program Roadmap

IT Strategy FY 2019 FY 2020 FY 2021PROGRAM Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Review Organizational Design

Project Methodology Design

ITIL Process Design and Implementation

End User Cloud Enablement (O365)

Business Operations Process Automation (HCM, FIS &

Legal)

Retirement Platform Review & Modernization*

SURS Member Mobile Engagement

*= FY2020 Q3/Q4 would be for analysis, and work indicated in FY2021 assumes that some activity occurs as a result.

Exhibit 5

Risk Analysis

Risks to the Business

IT Budget Is OverkillIn completing the IT strategy, there’s no guarantee of success, so there is risk of continuing trend of budgeting items not completed.

Change FatigueIt is possible to overwhelm

stakeholders unaccustomed to technology change by not managing the velocity of initiatives properly.

Cybersecurity Is Never EnoughAs our technology footprint evolves, so too must our cyber defense posture.

When executing on the IT strategies, it is critical to consider what risks to the business may arise from the choices made.

Exhibit 5

Communication Plan

Communication Activity

Target Audience

Description Person Responsible

Communication Medium

Frequency Start Date

IT Strategy Approval SURS SeniorLeadership

Go over IT strategypresentation to gain

approval for proposed strategy

and materials

CTO and IT leaders In person meeting with PowerPoint Annual Jun, 2018

IT Strategy Discussion IT Staff

Hold large team meeting to share

the IT strategy anddiscuss how it impacts team.

CTO and IT leaders In person with PowerPoint Annual Jun,

2018

Publish IT Strategy SURS StaffPublish approved IT

strategy on the Intranet

CTO and IT leaders Intranet & PowerPoint Annual Jun, 2018

Monthly Project Portfolio Updates

SURS SteeringCommittee

Updates on status of critical projects

CTO & Project Manager

In person meeting with appropriate materials Monthly August,

2018

Quarterly Strategy Review

SURS Senior Leadership

Update on how key initiatives are progressing

CTO & IT leaders In person with appropriate materials Quarterly October,

2018

Exhibit 5

Strategy Refresh Plan

Frequency Audience Scope Timeline

AnnuallySURS Senior Leadership, IT Leadership

• Discuss the past year’s IT accomplishments• Highlight issues or lessons learned• Identify any changes to corporate strategy, goals, or

objectives• Determine impact on IT strategy (if any)

May-June

Quarterly IT Department, IT Leadership

• Demonstrate last quarter’s accomplishments or issues• Discuss upcoming quarter’s initiatives or potential

roadblocks• Identify any business or departmental changes that

may have an effect on the IT strategy

October (Q1 report),January (Q2), April (Q3), Q4 bypassed due to annual review activities

Monthly SURS Steering Committee

• Discuss strategic projects’ status, potential roadblocks, etc.

Every 3rd Wednesday of month or as schedules allow

Exhibit 5

Project Prioritization Matrix as of May 2018

COST SCALE:• <$25,000

• $25-50,000

• $50-100,000

• >$100,000

4 Strategic

ROI

Productivity/Efficiency

Need To (GRLC/KTLO)

2

11*

LOE/Implementation Complexity

HighLow

Low

HighPr

iori

ty

Project Drivers

35

6

7

8

9

14

13

1

* = Low priority until website redesign complete

Exhibit 5

Project Prioritization Matrix as of August 2018

COST SCALE:• <$25,000

• $25-50,000

• $50-100,000

• >$100,000

4 Strategic

ROI

Productivity/Efficiency

Need To (GRLC/KTLO)

2

11*

LOE/Implementation Complexity

HighLow

Low

HighPr

iori

ty

Project Drivers

35

6

7

8

9

14

13

1

* = Low priority until website redesign complete

15

16

18

17

Exhibit 5

Memorandum To: The SURS Board of Trustees From: Kristen Houch, Legislative Liaison Subject: Explanation of Public Act 100-0587 Implementation Timeline Explanation of Public Act 100-0587 Implementation Timeline: SURS has the most complex benefit provisions of the three retirement systems (SERS, SURS, and TRS). There are two tiers of benefits under the Defined Benefit Plan: Tier 1 (which applies to individuals who first participate in SURS prior to January 1, 2011) and Tier 2 (which applies to individuals who first participate in SURS on or after January 1, 2011). Unlike SERS and TRS, we are the only retirement system to offer both a Traditional Plan and a Portable Plan (each with a different set of pension benefits) under the Defined Benefit Plan. Furthermore, there are four retirement formulas under SURS: (1) the General Formula; (2) the Money Purchase Formula (for individuals who first became participants prior to July 1, 2005); (3) the Minimum Retirement Formula; and (4) the Public Safety Formula. Each SURS member is entitled to a retirement benefit under the highest formula applicable to him or her – so SURS must perform up to four different retirement calculations for each retirement-eligible member. Unlike the other retirement systems (SERS and TRS), SURS has many part-time members. We must adjust service credit for each employee to account for his or her part-time employment. Many part-time members also qualify for a supplemental retirement annuity (which requires us to perform additional calculations for those members). Moreover, each member employed on July 7, 1997 must be given the choice between (1) a potentially-reduced retirement benefit with premium-free retiree health insurance or (2) an unreduced retirement benefit without premium-free retiree health insurance. (Please note that this requires SURS to perform an additional retirement calculation for each eligible employee.) While the aforementioned provisions do not comprehensively explain the intricate nature of the pension benefits promised to employees under SURS, they help to illustrate part of the complexity behind the calculations necessary for the buyouts. Because the majority of the technical work required to implement the buyouts will be performed by IT staff, we are already operating at a disadvantage when attempting to implement the buyouts as quickly as possible, given that IT programmers comprise roughly 10% of SURS’ workforce. Furthermore, unlike SERS and TRS, we currently do not utilize external consultants to assist programmers in the development of IT infrastructure. Ultimately, the IT programming required to implement the buyouts will be labor intensive and administratively complex in that it

Exhibit 6

will require an infrastructure capable of pulling information from over 17 actuarial tables and an actuarial tool under a variety of different scenarios in order to calculate buyout payments. (Please note that when 3% bills are accounted for, the total number of actuarial tables increases to more than 30.) It should also be noted that claims processing staff will need to assist IT programmers during the building and testing of the infrastructure required for the buyouts, in addition to performing the their regular, full-time job duties. For purposes of comparison, SURS has approximately 13,000 vested inactives, SERS has approximately 4,000 vested inactives, and TRS has approximately 20,000 vested inactives. SURS and SERS each process roughly 3,000 retirements in a typical year, and TRS processes roughly 3,500 retirements in a typical year. (Please note that SURS expects to process in excess of 3,000 retirements in FY 2019 due to the change in the Money Purchase Factors.) SURS has approximately 18,000 Tier 1 members who are retirement-eligible, compared to 9,000 at SERS and 11,000 at TRS. Anticipated Delays in Buyout Payments: SURS has 61 employers. Unlike SERS and TRS, our employers all report payroll information differently (and sometimes incorrectly) to us. We do not have the staff capacity required to verify employment information as it is received, and the Illinois Pension Code requires us to presume that the information supplied by our employers is accurate and complete. As a result, we often do not find errors in payroll information until the member files a retirement claim. Furthermore, due to recent budget difficulties, many of our employers do not have the staff capacity required to verify and correct payroll information reported to SURS on an annual basis. Consequently, the time it takes to process a retirement claim is extended by the amount of time it takes for the employer to report correct information to SURS at the end of the member’s career, especially given that SURS has to verify the earnings and service credit information for each year of service used in each member’s retirement calculation. While discrepancies in employer information do not directly impact SURS’ implementation timeline for the buyouts, they are expected to result in delays of buyout payments to SURS members. For reference, it currently takes between 4-6 months to finalize a retirement claim. This delay in finalization is attributable to less-than-sufficient employee headcount in the claims division and incorrect information supplied by employers. For these reasons, given the 4-6-month finalization timeframe, it is unlikely that SURS will be able to process and issue buyout payments in State Fiscal Year 2019.

Exhibit 6

PA 100-0587 Draft Implementation Timeline:

*Major Retirements Typically Occur: January, June, July, September

• Step 1: Review Statute, Resolve Outstanding Questions, and Draft Administrative Rulemaking (June 2018 – November 2018)

o Review Statute (June 2018 – July 2018) o Resolve Outstanding Questions and Draft Administrative Rulemaking (July 2018 – November 2018) o Present Administrative Rulemaking to the SURS Board of Trustees for Approval (December 2018)

• Step 2: Finalize Actuarial Factor Tables (June 2018 – September 2018)

• Step 3: Develop Online Estimator (August 2018 – May 2019)

o Build Online Estimator (August 2018 – December 2018) o Test Online Estimator (January 2019 – May 2019) o Online Estimator Available to SURS Members (June 2019)

• Step 4: Develop Educational Materials and Applications (August 2018 – May 2019)

o Develop Notification Mailings to Eligible SURS Members (August 2018 – May 2019) o Develop Buyout Applications (August 2018 – May 2019) o Update Existing Educational Publications (August 2018 – May 2019) o Update Forms Used to Calculate Retirement Annuities (August 2018 – May 2019) o Finalization of All Forms for Buyouts (May 2019)

• Step 5: Develop IT Programming for Retirement Calculations (August 2018 – May 2019)

o Build IT Programming for Retirement Calculations (August 2018 – December 2018) o Test IT Programming for Retirement Calculations (January 2019 – May 2019) o Retirement Calculations Available for SURS Members (June 2019)

• Step 6: Educate Member Service Representatives (January 2019 – May 2019)

• Step 7: Establish Financial and Accounting Procedures (August 2018 – May 2019)

o Build Financial and Accounting Procedures (August 2018 – December 2018) o Test Financial and Accounting Procedures (January 2019 – May 2019) o Financial and Accounting Procedures Go Live (June 2019)

• Step 8: Implementation (June 2019)

o Notify Eligible Members (June 2019) o Begin Processing Applications and Payments (June 2019)

Exhibit 6

June July August September October November December January February March April May June

2018 2019

Review Statute

Public Act 100-0587 Implementation Timeline

Finalize Actuarial Factor Tables

Develop Online Estimator

Build Online Estimator

Test Online Estimator

Develop Educational Materials and Applications

Develop IT Programming for Retirement Calculations

Build IT Programming for Retirement Calculations

Test IT Programming for Retirement Calculations

Educate Member Service Representatives

Establish Financial and Accounting Procedures

Resolve Outstanding Questions and Draft Administrative Rulemaking

Build Financial and Accounting Procedures

Test Financial and Accounting Procedures

Exhibit 6

MEMORANDUM To: Martin Noven, Executive Director From: Kristen Houch, Legislative Liaison Subject: Fiscal Year 2019 Division Needs for Implementation of Public Act 100-0587 Public Act 100-0587 created two buyout options: a buyout of pension benefits for vested inactives and a buyout of automatic annual increases (AAIs) for Tier 1 retirement-eligible members. The SURS Board of Trustees must establish an implementation date for the buyouts as soon as possible after June 4, 2018, and the buyouts must remain available until June 30, 2021. The buyout for vested inactives is a lump-sum payment equal to 60% of the present value of the member’s pension benefits under SURS, in exchange for forfeiting all accrued rights and service credit under SURS. The buyout for Tier 1 retirement-eligible members is a lump-sum payment equal to 70% of the difference between the present value of the Tier 1 AAI and the present value of a reduced and delayed AAI, in exchange for applying the reduced and delayed AAI towards retirement benefits and survivor benefits. The lump-sum buyout payment must be directed into a tax-qualified retirement plan or account identified by the eligible member. There are roughly 13,000 members eligible for the buyout for vested inactives and roughly 18,000 members eligible for the buyout for Tier 1 retirement-eligible members. Furthermore, on average, SURS processes roughly 3,000 retirements per year. If the General Assembly’s estimates prove accurate and 22% of vested inactive members and 25% of Tier 1 retirement-eligible members elect the buyouts, SURS would experience nearly a 250% increase in retirement claims required to be processed during the first year of implementation. Using conservative estimates, if all of the Tier 1 vested members who took a refund in Fiscal Year 2017 were to have taken a buyout option instead, then SURS would need to calculate 33% more retirement claims than otherwise would be required in an average year. Regardless of the utilization rates for the buyouts, SURS expects the demand for counseling services to increase substantially. SURS currently counsels members who are within four years of becoming age-eligible for retirement. (For example, a member who is eligible to retire at age 55 can begin receiving counseling services at age 51.) The vested inactive buyout will necessitate the expansion of counseling services to all vested inactive members, regardless of age. Additionally, all information technology system requirements necessary to implement Public Act 100-0587 will need to be programmed regardless of the number of members who ultimately elect a buyout. Public Act 100-0587 also changed the 6% rule to a 3% rule effective for academic years beginning on or after July 1, 2018. Beginning on this date, employers must pay the present value of the resulting increase in benefits attributable to earnings increases in excess of 3% during an employee’s final rate of earnings period. An exception to this requirement is provided for earnings under contracts and collective

Exhibit 7

bargaining agreements entered into, amended, or renewed before June 4, 2018 (which remain subject to the 6% rule). On average, SURS processes roughly 372 6% bills per year. With the 6% rule being reduced to a 3% rule, the number of bills calculated and issued could double to at least 744 annually. Furthermore, approximately 142 bills are disputed each year by employers to SURS; so, assuming that the number of bills calculated and issued doubles, then the number of disputed bills could also double to at least 284 each year. Based on preliminary discussions with SURS’ Chief Benefits Officer, Chief Technology Officer, General Counsel, and Associate General Counsel in order to implement Public Act 100-0587 within the statutorily-required timeframes, SURS staff requests the authority to add the following additional resources for Fiscal Year 2019: Internal Resources:

• 6 member services representatives o 2 benefit counselors o 1 call center representative o 2 retirement processing employees o 1 pay benefits/insurance employee

• Additional overtime for existing employees • Hardware, licensing, and maintenance • Networking and bandwidth • Postage

External Resources:

• 6 contractual employees o Up to 4 Application Development consultants o Up to 5 Project Management consultants

• IRS private letter ruling on PEPs • Actuarial audit of factor tables and tools

SURS requests that the Board approve initial, estimated expenditures to begin implementation of Public Act 100-0587 not to exceed the following: $861,612 and the addition of 6 FTE employees and 6 contractual employees in Fiscal Year 2019.

Exhibit 7

TEAM INTERNAL RESOURCE

EXTERNAL RESOURCE

FY19 EXPENSE (Half-Year starting 1/2019)

EXPLANATION

Member Services Overtime $25,000 NOTE: We need an additional $25,000 beyond the $25,000 budgeted for overtime in FY 2019. Amounts for FY 2020 and FY 2021 are subject to change based on staffing. Retirement staff should begin working overtime immediately to reduce retirement claim backlog in anticipation of buyout & money purchase calculation demand. 2 benefit support team members will also work overtime to assist with claim calculations and file review. Once a high volume of claims starts to be pushed through, Pay benefits may require overtime to issue payments. Counselors will require overtime during the fall and spring, especially considering they will be providing education on both the MP change and buyouts.

Communications Postage $23,000 Amounts could range from $6,000 to $23,000. The $6,000 is based on 68% of email addresses for members eligible for the inactive buyout and 78% of email addresses for members eligible for the AAI buyout. We would send the information to those members electronically and mail paper information to the remainder of members. Alternatively, if we mail paper to all who are eligible, the cost would be $23,000.

Member Services - Education

Additional Member Service Representatives - Counselors (2)

$47,426 Educate members on buyout options (including in-house and campus visits to conduct presentations and appointments, group presentations, and webinars). Help prepare for the possibility of 2 likely counseling team retirements within the next year and the possibility of 2 additional retirements within the buyout period. While we cannot be certain of the percentage of members who may actually take a buyout, it is likely that a large percentage of members will at minimum inquire about the buyouts and require education and estimates. Also, in FY19 we already expect an increase in counseling demand due to the Money Purchase change.

Member Services - Education

Additional Member Service Representatives - Call Center (1)

$23,713 Educate members on the available buyout options when they call with inquiries. Assist other teams with duties such as calculating refunds and prepping files. Without additional call center staff, there will be increased hold times & diminished service levels. Call volume could increase significantly once the buyout options become available. Also of note, call center staff often become a "farm team" for the MSR division. With high turnover in the organization, staff often move out of the call center consistently. Getting staff into the call center and trained will help when needs arise and positions open on other teams.

Exhibit 8

TEAM INTERNAL RESOURCE

EXTERNAL RESOURCE

FY19 EXPENSE (Half-Year starting 1/2019)

EXPLANATION

Member Services - Claims

Additional Member Services Representative - Retirement (2)

$47,426 Train for and assist with the implementation of the Buyouts and 3% including member file edits and claim calculations. Buyout calculations will require a full retirement claim calculation. Note that a standard retirement claim currently has an average processing time of 4-6 months from the retirement date, buyout claims could increase this processing time even further. Retirement staff also calculate 6% bills, which should more than double with the change to 3% billing. One or more of these positions could be hired as "utility" positions and start by doing both PREP, retirement, or 3D work and later being placed where most needed/best fit.

Member Services - Claims

Additional Member Services Representative - Pay Benefits/ Insurance (1)

$23,713 1 additional position to help with the increase in payments and insurance changes/setups due to the buyouts. Additional staff on the processing team will result in additional work for Ins/Pay Ben due to an increased number of claims being processed in a shorter time period.

IT Infrastructure & Operations

Hardware & Maint. $25,000 Firewall, Wireless, Switches

IT Infrastructure & Operations

Networking Bandwidth

$12,000 Increase due to more web traffic & connectivity

IT Infrastructure & Operations

Equipping End Users $60,000 $2K ea. For hardware (PC, phone, peripherals…FY19 cost only) and $3K annually for licensing (OS, Office, MDM, VPN/Security, etc.).

IT Infrastructure & Operations

AS/400 Proc Licensing

$5,000 Increased licensing costs of AS/400 due to enabling additional processor to handle workload bump.

Application Development

Up to 4 Consultants

$300,000 4 FTE equivalent consultants to assist with workload. @$150K/yr. ea. Activities to be covered include Estimate Calculator, Retirement Calculator, Letters & Forms generation, web configuration changes and AS/400 tables. NOTE: Utilized on a rolling basis for different phases of the project.

Project Management Up to 5 Consultants

$183,334 1 PM @ $150K/yr, 2 BA & 2 QA @$100k/yr. ea. NOTE: Utilized on a rolling basis for different phases of the project.

Legal IRS Private Letter Ruling

$36,000 Private letter ruling necessary to determine whether Preliminary Estimated Payments (PEPs) for retirement annuities can be paid prior to issuance of the Tier 1 AAI Buyout Payment

Audit Actuarial Audit of Buyout Tables

$50,000 Actuarial audit of actuarial factor tables and tools used to calculate buyout payments to ensure fiscal accuracy. SURS anticipates over 30 actuarial tables and tools used to calculate buyout payments and 3% bills.

$861,612 TOTALS

Exhibit 8