CGFO Finanical Administration

  1. Alpha
    Measure of risk-adjusted performance
  2. Beta
    The measure of a fund's or a stock's risk in relation to the market or to an alternative benchmark
  3. Gamma
    The ratio of a change in the option delta to a small change in the price of the asset on which the option is written
  4. PERS
    Public Employee Retirement System
  5. CAFR
    Comprehensive Annual Financial Report
    A CAFR for a PERS
  7. Yield
    The percentage rate of return paid on a stock in the form of dividends, or the effective rate of interest paid on a bond or note
  8. Yield Curve
    The graphic depiction of the relationship between the yield on bonds of the same credit quality but different maturities
  9. Sharpe Ratio-
    A measure of a portfolio's excess return relative to the total variability of the portfolio.
  10. Small-cap
    A stock with a small capitalization, meaning a total equity value of less than $500 million
  11. Actuary
    A Person or company that estimates the value of claims pending and the estimated reserves needed
  12. Actuarial Valuation
    Is the process of assessing the viability of a PERS
  13. NPO
    Net Pension Obligation
  14. Defined Benefit Plan-
    A pension plan obliging the sponsor to make specified dollar payments to qualifying employees. The pension obligations are effectively the debt obligation of the plan sponsor
  15. Defined Contribution Plan
    A pension plan where a sponsor is responsible only for making specified contributions into theplan
  16. Defined Contribution Plan-
    A pension plan where a sponsor is responsible only for making specified contributions into theplan
  17. Jensen Index-
    An index that uses the capital asset pricing model to determine whether a money manager outperformed a market index
  18. Return on equity (ROE)–
    An indicator of profitability. Determined by dividing net income for the past 12 months by common stockholder equity (adjusted for stock splits). Investors use ROE as a measure of how a company is using its money
  19. Return on investment (ROI)-
    Generally, book income as a proportion of net book value
  20. ARC
    Annual Required Contribution
  21. Chapter 175
  22. Chapter 185
  23. FS 175.021
    • Cover firefighters that perform state and municipal function
    • Firefighters entitled to benefits in state
    • Established minimum benefits and standards for operating and funding (Pension Trust Fund
  24. Average Finanl Compensation Definition
    5 best years of the last 10 years of credible service
  25. Local law plan
    • Can override statutes
    • *Statute can cover public safety officers that include officers responsible for both police and fire
    • *Described in 175.351
  26. Firefighters Pension Trust Fund
    • Special FundƒíRecord Additions and Deductions
    • ƒíNPO ¡
    • VNet Pension Obligation.Calculated by actuary.
    • Arises when ARC (Annual Required Contribution) is not fully funded
    • ¡VSee GAAFR Chapter 12.NotUAAL
    • ¡VUnfunded Actuarial Accrued Liability.Future value ¡VPresent value of assets
  27. 175.061 Board of Trustees
    • Five Members.
    • Two .full-time Firefighters (175.032).
    • Two .legal residents appointed by a governing body.
    • One .chosen by majority of the other four members
    • .Each serve a two-year term .may succeed himself
  28. Board Responsibilities
    • A legal entity that maintains Retirement Plan Assets.
    • Employer .deposit quarterly
    • .Employee .deposit immediately.
    • State .excise tax (1.85% on real and personal property insurance).
    • Must be deposited with trustwithin 5 days of receipt.
    • Investment income.
    • Meet at least quarterly
  29. 175.071 Boad Duties Investing
    • Invest ¡ not more than 5% in common stock or capital stock from any one company, not more than 5% of aggregate
    • ƒíInvest ¡Vnot more than 25% in foreign securities.
    • ƒíHire professional consultants to assist
  30. Paid from Trust Fund - 6 things
    • Actuary.
    • Legal Counsel.
    • Technical Advisors.
    • Performance Review .at least every 3 years.
    • Money Manager .can have more than one
    • .Custodians .reports, pay retirees
  31. Retirement 175.162
    • 10 years age 55
    • 25 years age 52
    • 2% x years of credited service x average final compensation
    • .Received first day of the month
  32. 175.171 Retirement Income Options
    • Some options may reduce monthly income
    • Payable based on option selected
    • Death before eligible (175.201)
    • Contributions .100% of employee contributions.
    • Based on early or normal retirement age (at least 10 years)
  33. 175.171 Retirement Income Options- Continued
    • Separation before eligible (175.211).
    • Prior to 10 years (accumulated aggregate) 100% of employee contributions.
    • Greater than 10 years .after age 50 become eligible based on 175.162
    • .Impairment of health (175.231).
    • Disease in line of duty .presumption.Accident suffered in the line of duty, tuberculosis, hypertension, heart disease
  34. Annual Report 175.261
    • Send to Division of Retirement
    • Actuarial valuation –every 3 years
    • Actuarial impact for plan changes
    • Agree with CAFR –part of entity or separate report21
  35. Pension Investment Policy
    • Long-term investors
    • Virtually perpetual
    • Articulate specific goals
    • ◦Is plan mature or new?
    • ◦Is the plan under funded or fully funded?
  36. Why Pension Policy
    • Exercise due diligence
    • Key risk management tool.
    •     * Can respond to sudden legislative changes
    • Express asset allocation strategy to manage external and internal risks
  37. Policy Provision
    • Statement of goals, purpose, mission –100%
    • 2.Identification of decision makers –100%
    • 3.Performance measurement (benchmark
    • )4.Manage risk on individual securities
    • 5.Manage risk on overall portfolio
    • 6.Money manager guidelines
    • 7Guidelines for other investment professionals
    • 8.Legal standards.
    • 9.Cost management
    • 10.Transacting or brokering trades 
  38. Determine Performance
    • Asset allocation -overall portfolio
    • Manage risk -part of asset allocation
    • .Strategy, level of risk.
    • Can tolerate.
    • Single security vs. diversification
  39. GFOA Guidelines for Pension Policy
    • 1.Purpose
    • 2.Roles/responsibilities
    • 3.Standard of care
    • 4.Asset allocation
    • 5.Rebalancing
    • 6.Investment guidelines
    • 7.Reporting and monitoring
    • 8.Corporate government
  40. Calculate Retirement Income
    • *Based on age, years of services and compensation
    • *At a future date, use mortality table28
  41. Risk Management
    • Process of managing an organization’s activities to minimize adverse effects of certain types of losses◦
    • GASB 10
  42. Risk Retention
    • Claims > Premiums = Loss
    • Claims < Premiums = Gain
  43. Risk Transfer - Insurer
    Assumes the risk and sets premiums accordingly
  44. Risk Pool
    • Premium = Revenue
    • Catastrophic losses minus revenue plus reserve pool equity
    • IBNR-incurred but not reported claims
  45. IBNR
    • 1.Record when event triggers coverage under policy
    • 2.Based on estimate to settle claim
    • 3.Accrue based on probable loss that can be reasonably estimated, record expense/liability
  46. Claims Liability
    • ƒíUse experience factors
    • ƒíImpact of inflation and other economic factors
    • ƒíAllowed to discount to present value
    • ƒíFixed amount on structured or contract settlements
  47. Why Risk Management
    • *Create a safe workplace
    • *Prevent financial losses
    • *Provide stability (budget)
  48. Program Benefits
    • ƒíReduce lost workdays
    • ƒíPrevent day for accidental losses
    • ƒíEliminate concerns associated with future projects
  49. Risk Management Program
    • Risk identification
    • Risk evaluation
    • Risk treatment
    • Implementation
  50. Enterprise Risk Management
    • Approach to managing operational and financial risk.
    • *Investment portfolio policies (long-and short-term).
    • *Diversification strategies (spread risk).
    • *Custody of assets (procedures)
  51. Identify and Evaluate Risk - Acronym

    • .Physical.
    • Legal.
    • Operational.
    • Political.
    • Social.
    • Economic.
    • Cognitive
  52. Tort Reform
    • Legislation that aims to curb the growing number of civil lawsuits and their attendant costs
    • ƒíAttempt to make the legal environment more favorable (Caps or Limits)
  53. Moral Hazard
    Change in behavior due to purchase of insurance

    • Industry has incentive
    • ◦Require deductible
    • ◦Higher deductible -reduce premium
    • ◦Loss control program
  54. Tools to Minimize Risk
    Risk transfer –shift burden to another, purchase insurance or risk pool

    Risk retention –assume risk responsibilities internally

    Risk avoidance –Do not provide service

    Loss Prevention and Control
  55. Shift Risk to Contractor
    • Protect and indemnify City against:
    • Direct loss (garbage disposal)
    • Indirect loss (workers’ compensation)

    • Hold-harmless provisionNon-insurance risk
    • Certain situations in contract Negligence
    • Joint negligence

    Agreements are not the panacea to transfer risk
  56. Risk Management Committee
    • Create risk management policy
    • Develop inspection programs
    • Design safety
    • Create claims investigation system
    • Identify safety measures
    • Develop disciplinary procedureEstablish review boards
  57. Why Risk Managment Committee
    Get staff involved

    Gain employee "buy-in"

    Investigate serious injury and accidents to provide safer environment and reduce risk
Card Set
CGFO Finanical Administration
CGFO Financial Administration FY2011