business plan - calstrs

BUSINESS PLAN

C A L I F O R N I A S T A T E T E A C H E R S ’ R E T I R E M E N T S Y S T E M

FISCAL YEAR 2015–16

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TABLE OF CONTENTS

Introduction ..................................................................04

SWOT Analysis ...............................................................06

Mission, Vision & Core Values ........................................12

Strategic Goals .............................................................13

Strategy Map ................................................................14

Goal 1—Financial ..........................................................16

Goal 2—Risk Management ............................................22

Goal 3—Member/Customer ...........................................28

Goal 4—Workforce & Process Improvement ...................32

Budget & Resources ......................................................38

TABLE OF CONTENTS

4 | CALSTRS BUSINESS PLAN | FISCAL YEAR 2015–16

I N TRODUCT ION

This May, CalSTRS became the first U.S. public pension plan to embark upon sustainability reporting consistent with Global Reporting Initiative, or GRI, G-4 guidelines. Our inaugural 2013–14 Sustainability Report: The Next 100 Years, evaluates CalSTRS initiatives around retirement security, the economic impact of our investments on California, transparency and privacy in our business practices, CalSTRS headquarters environmental efforts and performance, as well as other key issues of the year.

Completion of this report demonstrates our commitment to progressive environmental, social and governance practices. By incorporating sustainability performance reporting into our strategic planning and business practices, we ensure the integrity of our system and strengthen the fund and the long-term viability of CalSTRS.

To create the report consistent with GRI guidelines, CalSTRS solicited the input of our stakeholders, including members, key business partners and our employees, through a materiality survey to help us prioritize the most critical issues in meeting our mission.

CalSTRS’ Business Plan for Fiscal Year 2015–16 reflects the areas of concern for our stakeholders beginning with our priority to address member services through the replacement of our pension administration system. The new system will provide a more comprehensive and modern tool to address the legacy technology risks, internal control weaknesses, and incomplete functionality of the current system.

Additionally, CalSTRS is focused on reaching our members early in their career and educating all members on the role they play in achieving a secure retirement. To this end, we will increase communication channels as well as promote our financial literacy workshops. Our member service centers will extend their reach beyond counseling sessions and workshops by conducting outreach activities. We will strive to ensure all members understand the benefits of a CalSTRS Pension2 voluntary defined contribution plan with its low fees and expenses.

| 5INTRODUCTION

Information is a valuable asset to be protected from unauthorized access, inspection, use, disclosure or modification. CalSTRS is committed to protecting the confidentiality, integrity and availability of the information assets of CalSTRS and our members and does so via a dedicated Information Security Office. In order to address the concern over member privacy and information security raised by our stakeholders and members, staff will place an increased focus on cybersecurity. Assessing current controls and identifying strategies to mitigate risks will continue to be our focus this year and into the future.

With one year of the funding legislation behind us and contribution rates gradually increasing, this business plan has considerable focus on the investment returns and attaining the long-term investment goal of 7.5%. A variety of activities are anticipated for the year that will impact investments, including completion of an extensive asset allocation study, an actuarial experience study, enhancement of the risk management platform, increase in diversity of external investment managers, and a shift to the internal management of some assets.

This year, the Teachers’ Retirement Board and CalSTRS’ staff will embark on the development of a new strategic plan beginning in 2016–17. More than ever, CalSTRS will look to engage with members, business partners and staff to design a long-term plan that ensures our mission to California’s educators is diligently carried out in every aspect of our business. Understanding how to best manage long-term risks is foundational to all of CalSTRS’ strategic goals.

Jack EhnesChief Executive Officer


A common exercise in strategic planning is a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis that assists in evaluating an organization’s current strategic position. The purpose of this exercise is to help guide discussions on what goals are achievable and what new ideas reasonably can be pursued given the organization’s resources and circumstances. A SWOT analysis addresses the following questions:

SWOT ANALYS IS

STRENGTHS � What do we do well? � What are our core competencies? � Where do we excel?

WEAKNESSES � What could be improved? � What is hindering us from performing? � What are our deficiencies?

OPPORTUNITIES � What has changed in our environment that can help us improve? � What can we take advantage of? � What unique circumstances exist?

THREATS � What external factors might hurt us or stand in the way? � What should we watch out for? � Where are the risks?

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STRONG BOARD AND EXECUTIVE LEADERSHIP � Responsive board members with a commitment to demonstrated excellence in

plan governance. � Board and management relationships that rest on effective policy formulation

and adherence. � Board committees dedicated to thorough examination of issues and

accomplishment of key strategies. � Well-managed and responsible organization.

IMPROVED RISK MITIGATION � Board visibility and executive oversight of strategic and operational risk strategies

and system of internal controls. � Avoidance of many of the characteristic issues that have plagued and tarnished

other large state pension plans.

SOLID REPUTATION � Strong relationships with key stakeholder organizations and expansive multichannel

communications approach. � Transparency in investment decisions, focus on value, environmental, social and

governance factors, and high ethical standards for investment partners. � Consistent national recognition and strong global reputation of the investment

program and corporate governance initiatives. Focused on market conditions with agile and diversified investment strategies.

STRONG ORGANIZATION AND CULTURE � Dedicated and experienced senior leadership team with deep understanding of the

business model. � Commitment to sound planning and decision-making based on performance and

accountability. � Solid ethical foundation and adherence to core values by committed and capable

employees and board members who value fiduciary responsibility, transparency and customer service.

� Emerging performance management system that aligns competencies to organizational performance.

� Commitment to a sustainable workforce and dedicated resources to support implementation of best practices in employee engagement, including a positive work environment in a sustainable building and an internationally honored employee recognition program.

� Cost-efficient investment structure producing positive returns.

STRENGTHS

SWOT ANALYSIS


EFFECTIVE TECHNOLOGY DEVELOPMENT METHODS � Increased collaboration and communication capabilities through technology,

fostering greater employee engagement. � Experience in delivering mid-sized technology projects, including use of best

practices for external oversight.

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INCOMPLETE BOARD REPRESENTATION � Lingering board vacancy underscores missing direct voice of retirees and strained

stakeholder relations.

STRAINED RESOURCES � The many simultaneous critical initiatives and the urgency with which they must be

accomplished strain resources and increase workloads. � Pressing needs for significant process and technology changes to improve internal

controls, customer service and operational efficiency, and lower administrative costs. � Continued reliance on a suboptimal technology solution to run the pension

business. � Lack of a centralized, enterprise-wide compliance program results in increased

risk exposure. � Maturation of Information Security Office processes and procedures are progressing,

but not yet complete. � Inconsistent or weak business processes affect confidence and cause delays. � Current inability to adapt systems quickly to changes threatens responsiveness to

comply with changes in regulations and law. � Build-out of framework to assess the cost of operations and inform decision-making

is only in the initial stage. � Inability to reliably and efficiently procure external services and hire and

compensate staff impacts ability to manage routine work and advance the CalSTRS strategic plan.

� The gradual shift to a more analytical work environment causes a mismatch with the current transaction-oriented workforce.

� BusinessRenew implementations are placing more demands on available resources affecting employee morale and engagement.

� Inability to meet critical business functions due to the retirement of executive staff and senior leaders currently and within the next five years.

� Lack of comprehensive information to validate the completeness of member census and contribution data.

WEAKNESSES

SWOT ANALYSIS


OPPORTUNITIES

EVOLVING INVESTMENT ENVIRONMENT � Institutional investors working together to lower fees and improve legal terms. � Diverging global monetary policy actions reflecting varying economic growth rates. � Opportunities for growth in environmental adaptations and technology in response

to climate change. � Emerging managers expanding expertise to reflect increasing interest in new

investment strategies.

IMPROVED REPUTATION AND RELATIONSHIPS � Enactment of Public Employees’ Pension Reform Act enhances anti-spiking efforts. � Educating the public regarding the genuine and compelling needs of CalSTRS’

membership. � Unique characteristics of CalSTRS’ membership and benefit structure compared to

other plans. � Strong reputation and leadership among membership, business partners, industry

professionals, the public, media and peers, which facilitates consensus building.

EXPANDED USE OF TECHNOLOGY � Improved customer service, system agility and operational efficiency, with the

prioritization, funding and implementation of technology initiatives. � E-service capabilities established for members and business partners. � Positive relationships with employers, including school districts and county offices of

education, and the use of technology to improve ongoing interactions. � Lessons learned from recent implementation efforts at CalSTRS and other pension

systems enhance awareness of the need for additional internal controls to reduce operational risk.

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THREATS

CONTINUED TURMOIL OF PUBLIC PENSION PLANS � Ongoing scrutiny nationwide of public pension funding, governance and benefits

could affect future plan designs and financial security of educators. � Changes in economic assumptions increase unfunded liability, increasing skepticism

of long-term viability of defined benefit plans.

INCREASED REGULATION � Financial weaknesses that spawn further federal efforts to regulate the activities of

public pension plans. � Rapidly evolving information security environment makes it difficult to build and

maintain an internal program that stays ahead of the curve.

VOLATILE INVESTMENT ENVIRONMENT � Increasingly complex and dynamic global environment makes it increasingly difficult

to manage portfolio risk. � The potential for a governmental or monetary policy misstep leading to either a

prolonged environment of low investment returns or high inflation. � Divestment and other external pressures on the investment process.

INCREASED RISK EXPOSURE � Lack of progress on the development of a national energy policy and the reduction

of environmental threats at a global level, which increases the portfolio’s risk exposure to climate change and stranded carbon assets.

� Ongoing potential risk of cyber-terrorism or computer hacking resulting in information security, financial, operational and/or reputational loss.

� Fluctuating workload due to demographic changes in the membership and driven by changing economic conditions, which creates additional demands on staff to maintain service levels while also supporting BusinessRenew projects.

� State civil service system that does not keep pace with the changing skill sets required of staff, particularly as more e-service and technology enhancements evolve to support employers, members and business partners.

SWOT ANALYSIS


M ISS ION , V IS ION & CORE VALUES

MISSIONSecuring the financial future and sustaining the trust of California’s educators.

VISIONYour Reward—A Secure RetirementOur Reward—Getting You There

CORE VALUESThe CalSTRS core values are a set of attitudes, beliefs and behaviors that define CalSTRS and its employees.

CUSTOMER SERVICEWe never compromise on quality as we strive to meet or exceed the expectations of our customers.

ACCOUNTABILITYWe operate with transparency and accept responsibility for our actions.

LEADERSHIPWe model best practices in our industry and innovate to achieve higher standards.

STRENGTHWe ensure the strength of our system by embracing a diversity of ideas and people.

TRUSTWe conduct ourselves with integrity, acting ethically in every endeavor.

RESPECTWe respect the needs of our members, co-workers and others, treating everyone with fairness, honesty and courtesy.

STEWARDSHIPWe recognize our fiduciary responsibility as the foundation for all decision-making.

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BOARD S TRATEG IC GOALS

GOAL 1–FINANCIALEnsure a financially sound retirement system.

GOAL 2–RISK MANAGEMENTResponsibly manage risk to the organization.

GOAL 3–MEMBER/CUSTOMEREnhance services to members and customers.

GOAL 4–WORKFORCE & PROCESS IMPROVEMENTImprove the work environment and internal efficiency.

BOARD STRATEGIC GOALS

GOAL 1Ensure a financially sound retirement system.

GOAL 2Responsibly manage risk to the organization.

GOAL 3Enhance services to members and customers.

GOAL 4Improve the work environment and internal efficiency.

VISION

MISSIONSecuring the financial future and sustaining the trust of

California’s educators.

Your Reward—A secure retirementOur Reward—Getting you there

Long-termInvestmentPerformance

S U S T A I NA

BI L

IT

Y

BusinessRenew


S TRATEGY MAP

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The CalSTRS Business Plan represents a commitment of accountability toward execution of our strategic plan. Two strategies continue to be our focal points: long-term investment performance and BusinessRenew. Through these strategies, we as an organization are committed to creating a sustainable future for our members through participation of stakeholders, the community at large, global partners and employees. We listen to input from these groups and align our planning with a top-down approach across four goal areas: Financial, Risk Management, Member/Customer, and Workforce & Process Improvements. Our strategy map is a visual description of how these goals interrelate in support of CalSTRS’ mission and vision.

Objectives, initiatives and activities identified in our business plan provide the framework that represents a cause and effect relationship across each of our four goals. Performance is measured through a combination of short- and long-term objectives across these goal areas, creating visibility of the drivers of performance. For example, financial outcomes respond to risk management the same way that risk management and service to our members impacts our internal capabilities, such as having a strong workforce and managing processes, knowledge, tools and technologies.

Each year, CalSTRS’ business strategy is reviewed and fine-tuned to represent the current focus of our organization, allowing us to use our continuous assessments of the changing environment. The integration of these strategies is essential to maintaining visibility of our desired outcomes, managing our progress, and understanding external and internal impacts to make successful course corrections. Our determination to continuously respond to the changing needs and desires of our members and the environment reflects our desire to be seen as a sustainable, world-class organization, committed to securing the financial future and sustaining the trust of California’s educators.

STRATEGY MAP


F INANC IAL

GOAL 1Ensure a financially sound retirement system.

OBJECTIVE ASecure and implement legislation to adjust contributions and establish long-term financial viability of the CalSTRS benefit programs.

INITIATIVE 1Be an expert resource in working with stakeholders to develop and implement a plan that provides long-term funding for the CalSTRS Defined Benefit Program. (Completed June 2015)

MeasureBy June 30, 2015, components of the adopted funding plan will be aligned with the information provided by CalSTRS.

» The newly adopted AB 1469 (June 2014) provides for full funding to the Defined Benefit Program in 32 years. CalSTRS provided more than 250 funding scenarios to ensure the needs of CalSTRS and our stakeholders were represented in the bill. As a result, the new funding plan contains several provisions, including shared incremental contribution increases by the state, employers and members; vesting of the 2 percent Annual Benefit Adjustment for future retirees; and limited authority for the Teachers’ Retirement Board to adjust the contribution rates.

Key Activities: 3 Submit funding scenarios to Legislature. (Completed 2012–13) 3 Conduct in-depth analysis on impacts from any further delays to the funding

improvements. (Completed 2013–14) 3 Upon request, provide information to stakeholders developing the funding plan.

(Completed 2013–14) 3 Implement enacted funding legislation. (Completed 2014–15) 3 Communicate funding changes to all members and employers.

(Completed 2014–15)

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INITIATIVE 2Educate new stakeholders and policymakers on the value of the CalSTRS Defined Benefit Program in achieving retirement security. (July 2012–16)

MeasuresA. By June 30, 2015, a bill will be introduced to address CalSTRS funding, passed

through legislative committees and signed by the Governor, resulting in a projected change in funded status.

» The funding plan, AB 1469, passed the Legislature and was signed by Governor Brown in June 2014. The new law fully funds the Defined Benefit Program over 32 years and provides financial stability to the plan.

B. By June 30, 2016, present to the board the results of the independent study of the suitability of the Defined Benefit Program as the retirement program for educators.

Key Activities for 2015–16: 3 Continue to meet with legislators about the CalSTRS Defined Benefit Program.

(Completed 2013–14) � Complete an independent study of the suitability of the Defined Benefit Program as

the retirement program for educators.

INITIATIVE 3Educate stakeholders and policymakers on the economic impact of CalSTRS benefit payments and investments on the California economy. (Completed June 2015)

MeasureBy June 30, 2015, translate economic impact of investment study into legislative district specific analyses and provide to legislators.

» Staff presented the Impact of CalSTRS’ Investments on California’s Economy Report to the board in February 2015. The impact cannot be identified for each specific legislative district, but fact sheets given to each legislator currently include the Executive Summary of the impact report in the briefing materials, along with legislative district-level data from the Economic Impact of CalSTRS Benefits Payments in California Report, to inform and educate legislators on an annual basis.

Key Activities: 3 Complete study of economic impact of benefits. (Completed 2013–14) 3 Develop communication materials on economic impact of benefits study.

(Completed 2013–14) 3 Complete study of economic impact of investments and present findings to board.

(Completed 2014–15) 3 Develop communication materials on economic impact of investments study.


FINANCIAL


OBJECTIVE BAchieve the long-term performance objectives established within the Investment Policy and Management Plan.

INITIATIVE 1Manage the investment portfolio within the strategic and tactical asset allocation ranges. (July 2012–16)

MeasuresA. Earn an absolute return above 7.5 percent for the five-, 10- and 20-year time

periods ending June 30, 2016. B. Achieve an extra 40 basis points above the total fund policy benchmark return for

the three years ending June 30, 2016.

OBJECTIVE CImplement the Diversity in the Management of Investments business plan.

INITIATIVE 1Develop a process whereby emerging global equity managers in manager-of-manager structures can be hired directly. (Completed June 2015)

MeasureBy June 30, 2015, finalize and begin implementing the project plan to hire emerging global equity managers directly.

» The documentation is in place and a process established to transition successful emerging global equity managers into the Global Equity portfolio. Staff tested the new process with our recent U.S. manager search and one of our prior emerging managers is now in our global equity manager pool and another is a finalist for funding.

Key Activities: 3 Implement 3D, the Diverse Director Database. (Completed 2012–13) 3 Complete a comprehensive review of diversity in real estate managers.

(Completed 2012–13) 3 Develop an action plan to expand the use of diverse investment managers for Real

Estate. (Completed 2012–13) 3 Develop options and a plan to consider the transition of emerging global equity

managers to a direct management structure. (Completed 2013–14) 3 Gain consensus from all stakeholders on the most viable plan to transition emerging

global equity managers to a direct management structure. (Completed 2014–15) 3 Develop process and procedure documentation for the new structure.


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INITIATIVE 2 Develop a process to increase the diversity of the firms providing brokerage services. (July 2015–16)

MeasureBy June 30, 2016, commission a study of best practices in brokerage trading and how to best increase use of women- and minority-owned brokerage services.

Key Activities for 2015–16: � Gather input from all stakeholders to develop an action plan for the approach and

scope of the study on brokerage trading best practices with a focus on how to best increase the use of women- and minority-owned brokerage services.

� Retain a project consultant to conduct the study and complete a report that includes implementation options.

OBJECTIVE DIncrease participation in global securities litigation.

INITIATIVE 1Develop a monitoring and evaluation process for global securities litigation opportunities. (Completed June 2015)

MeasuresA. By December 31, 2014, evaluate all foreign securities litigation cases as

recommended by external counsel.

» CalSTRS hired a law firm to provide monitoring of the entire CalSTRS equities portfolio for asynchronous movement indicating significant loss of value to the fund in connection with available information concerning publicly traded companies. The law firm also provides monitoring and evaluation for foreign securities litigation cases, including negotiation with foreign counsel for contingency terms favorable for CalSTRS.

B. By June 30, 2015, develop standardized foreign securities litigation terms in cooperation with other public pension plans.

» Public pension plan efforts in foreign securities litigation remains nascent and participation in these cases has not yet reached a level to develop standardized approaches or terms and conditions.

Key Activities:

3 Engage internal partners. (Completed 2012–13) 3 Participate in the National Association of Public Pension Attorneys benchmarking

group to establish external partnerships. (Completed 2012–13)

FINANCIAL


3 Develop standardized terms for engagement of counsel and funding entities for foreign securities litigation in collaboration with a working group of plan general counsels. (Completed 2014–15)

3 Develop a reliable and comprehensive process to monitor foreign securities cases in collaboration with law firms and security litigation monitoring services. (Completed 2014–15)

INITIATIVE 2Revise the Securities Litigation Policy in the Teachers’ Retirement Board Policy Manual to address foreign securities litigation. (Completed February 2014)

MeasureBy February 28, 2014, finalize a board-approved policy.

» Board approved the Corporate Governance Policy on February 5, 2014.

Key Activity: 3 Revise the Corporate Governance Policy to address foreign security opt-in/loser-pay

cases. (Completed 2013–14)

OBJECTIVE EEducate regulatory standard-setting organizations, policymakers and stakeholders on the unique characteristics of the CalSTRS benefit programs.

INITIATIVE 1Educate CalSTRS’ employers on the impact of proposed and actual changes to Governmental Accounting Standards Board statements and similar changes by other entities, such as rating agencies, to accounting and financial reporting of pensions through a broad spectrum of communication channels. (Completed June 2015)

MeasureBy June 30, 2015, present results of a survey of employers and other stakeholders on their understanding of changes to accounting for pensions implemented through GASB 67 and 68.

» Staff surveyed employers and other stakeholders in May 2015 regarding their familiarity and confidence with implementing the accounting changes required by GASB 67 and 68, as well as awareness of information provided by CalSTRS. Results from the survey found that more than half of the 146 respondents were somewhat confident in their ability to implement the new GASB 68 reporting standards and over 30 percent were confident or very confident. With the commentary provided by the respondents, staff will assist employers by updating the educational and informational materials for the 2014–15 financial reports.

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Key Activities: 3 Monitor and update communication plan focused on employers and other

stakeholder groups. (Completed 2014–15) 3 Implement communication plan through employer and other stakeholder

interactions and delivery of communication and educational materials. (Completed 2014–15)

INITIATIVE 2Participate as necessary in the analysis, review, comment and implementation of accounting standards for multiemployer cost-sharing plans and pensions. (July 2012–16)

MeasureBy June 30, 2016, comment directly or through a national organization on relevant GASB proposed changes.

Key Activities for 2015–16: 3 Participate as a stakeholder in implementation guide discussions for GASB 67.

(Completed 2013–14) 3 Participate as a stakeholder in implementation guide discussions for GASB 68.

(Completed 2013–14) 3 Implement changes to CalSTRS financial statements to conform to GASB 67

standards and provide information for state and employer financial statements. (Completed 2013–14)

3 Provide input to GASB on project related to fair valuation of investment assets. (Completed 2013–14)

3 Assess impact of GASB 68 on CalSTRS financial statements, including CalSTRS’ proportionate share of net pension liability for state employees, associated deferred inflows and outflows of resources, and pension expenses. (Completed 2014–15)

3 Implement financial reporting changes to present assets by investment type. (Completed 2014–15)

� Hire consultant and develop project plan to address requirements of GASB 72. � Implement changes to CalSTRS financial statements to conform to GASB 72

standards.

FINANCIAL


R I SK MANAGEMENT

GOAL 2Responsibly manage risk to the organization.

OBJECTIVE ACreate a culture of risk awareness by incorporating enterprise risk management into business operations.

INITIATIVE 1Ensure that all levels of the organization have a formalized, appropriate framework and training to continually assess and manage risk. (July 2012–16)

MeasureBy June 30, 2016, ensure that all levels of the organization have a framework to continually assess and manage risk.

Key Activities for 2015–16: 3 Develop formal risk management plans to address CalSTRS’ highest risks, with

regular reports to the board. (Completed 2012–13) 3 Deliver internal controls awareness training to employees. (Completed 2012–13) 3 Revise board policy and committee charters. (Completed 2013–14) � Refine risk management framework and tools to identify and align risk at the

program level. � Revise quarterly risk management meeting structure to include the review of

program risks. � Establish an annual program to refresh and assess staff internal control awareness. � Establish processes to ensure completeness of external vendor, Statement

on Standards for Attestation Engagements 16 (SSAE) reporting, and internal assessment of reporting results.

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INITIATIVE 2Enhance a risk-intelligent culture for information security through education and communication opportunities. (July 2013–16)

MeasureBy June 30, 2016, provide biannual updates to information security training to reflect the latest information security threats.

Key Activities for 2015–16: 3 Develop and deliver an annual mandatory training course for all employees.

(Completed 2013–14) � Develop and deliver supplemental education, communications and materials to

support ongoing awareness of information security. � Continue information security oversight activities regarding data analysis and data

preparation for conversion to the new pension system. � Report to the board information security findings.

INITIATIVE 3Strengthen cybersecurity controls. (July 2015–16)

MeasureBy June 30, 2016, correct deficiencies in high-risk cybersecurity assessment findings.

Key Activities for 2015–16: � Complete assessment of cybersecurity controls. � Develop internal controls and strategies to effectively mitigate identified risks. � Validate effectiveness of mitigation activities.

INITIATIVE 4Enhance the completeness, accuracy and timeliness of member data available for determination of contributions and CalSTRS’ liabilities for pension benefits to members and their beneficiaries. (July 2015–16)

MeasureBy June 30, 2016, eliminate material weakness finding in financial reporting associated with member data.

Key Activities for 2015–16: � Complete a plan to address the risks associated with incomplete, inaccurate and

delayed reporting of member demographic and compensation data over the next five years.

� Incorporate processes to validate the completeness, accuracy and timeliness of member data required to determine contributions due and benefit payment liabilities into the design of the new pension solution system.

� Implement a quality assurance program over contribution data using tools implemented as a part of the Full Funding project.

RISK MANAGEMENT


� Enhance the review of benefit payments to include sampling and analysis of new and changed payment amounts.

� Implement processes to compare creditable compensation and associated contributions reported by employers to employer payroll records.

� Enhance employer training curriculum to include methods to verify the completeness, accuracy and timeliness of member data.

OBJECTIVE BEnhance CalSTRS audit activities so that the quality of audits is in line with best practices.

INITIATIVE 1Provide education and training to employers with systemic compliance issues. (July 2014–16)

MeasureBy June 30, 2016, 100 percent of audited employers with systemic issues provided training and education to address systemic issue.

Key Activities for 2015–16: � Develop enhanced employer training and education on systemic compliance issues. � Deliver employer training and education on systemic compliance issues.

INITIATIVE 2Enhance the audit process to effectively monitor corrective actions. (Completed June 2015)

MeasureBy June 30, 2015, achieve 100-percent coverage in monitoring corrective actions.

» Implemented a comprehensive audit follow-up program over employer audits, internal audits, investment audits, and information technology audits.

Key Activities: 3 Include corrective active monitoring in reports to the Audits and Risk Management

Committee. (Completed 2014–15) 3 Implement audit follow-up program for investment audits and information

technology audits. (Completed 2014–15)

INITIATIVE 3Engage in an external quality audit review of Audit Services. (July 2014–March 2016)

MeasureBy June 30, 2016, obtain results of the quality audit review.

Key Activities for 2015–16: 3 Finalize the scope of the audit review for the development of the Request for

Proposal and create a vendor pool of independent auditors. (Completed 2014–15)

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� Complete internal self-assessment to determine conformance with The Institute of Internal Auditors’ standards.

� Engage a qualified, independent assessor or assessment team and coordinate the assessment.

� Conduct an external quality review to evaluate an internal audit activity. � Present report to executive management and the Audits and Risk Management

Committee.

OBJECTIVE CEnhance the investment risk management platform and reporting capabilities.

INITIATIVE 1Evaluate the existing investment enterprise risk management system. (July 2012–16)

MeasureBy June 30, 2016, develop a risk framework that covers the total investment portfolio.

Key Activities for 2015–16: 3 Develop a long-horizon performance attribution report for the Tactical Asset

Allocation Committee. (Completed 2013–14) 3 Implement the investment enterprise risk management system.

(Completed 2014–15) 3 Extend the existing risk management system contract to December 2017.

(Completed 2014–15) � Evaluate the existing investment enterprise risk management system in anticipation

of the preparation and release of a competitive search for a long-term solution.

OBJECTIVE DDemonstrate the value of integrating environmental, social and governance opportunities into CalSTRS’ culture and strategies.

INITIATIVE 1Engage stakeholders on sustainability policies and expectations. (July 2013–16)

MeasureBy June 30, 2016, increase employee and external stakeholders’ awareness of CalSTRS’ corporate sustainability policies.

Key Activities for 2015–16: 3 Develop an organizational sustainability policy and educate staff.

(Completed 2013–14) 3 Revise the Investments Responsible Contractor Policy for board approval.

(Completed 2014–15) 3 Update CalSTRS.com to reflect new Sustainability Policy. (Completed 2014–15) 3 Develop external stakeholder engagement plan. (Completed 2014–15) � Develop a supply chain policy with environmental, social and governance criteria for

the procurement process.

RISK MANAGEMENT


INITIATIVE 2Establish an internal planning and reporting framework using Global Reporting Initiative sustainability principles. (Completed May 2015)

MeasureBy June 30, 2017, issue Global Reporting Initiative report.

» The 2013–14 Sustainability Report: The Next 100 Years, released May 11, 2015, ensures the long-term viability of CalSTRS by incorporating sustainability performance reporting into our strategic planning and business practices. The report, designed with input from members, employees and other stakeholders, documents our commitment to environmental, social and governance principles.

Key Activities: 3 Engage sustainability business leads in key areas of the organization to develop

goals, objectives and performance metrics toward measuring sustainable progress. (Completed 2014–15)

3 Identify and prioritize material sustainability issues affecting CalSTRS to address in the initial Global Reporting Initiative report. (Completed 2014–15)

3 Develop initial Global Reporting Initiative report. (Completed 2014–15)

INITIATIVE 3Continue to integrate the management of CalSTRS’ environmental, social and governance risk factors across the entire investment portfolio. (Completed June 2015)

MeasureBy June 30, 2015, complete a review of CalSTRS’ environmental, social and governance risk factor evaluation process across the entire investment portfolio.

» Each of the asset classes shared its approach to the oversight of the risk factor evaluation process. The outcome resulted in the development of an annual certification of compliance for both internally and externally managed strategies.

Key Activities: 3 Research and share best practices regarding the evaluation of the 21 risk factors

across each of the asset classes. (Completed 2014–15) 3 Assess the existing 21 risk factors evaluation and reporting process for compliance

and process improvement. (Completed 2014–15)

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INITIATIVE 4Centralize the management of CalSTRS’ environmental, social and governance-focused investment strategies. (July 2015–16)

MeasureBy June 30, 2016, transition the existing sustainable global equity strategies to the Corporate Governance team.

Key Activities for 2015–16: � Create a working group to include internal and external stakeholders to vet the

potential risks and desired benefits of centralizing the management of the ESG-focused investment strategies.

� Develop a transition plan for the movement of the assets. � Implement the transition strategy.

RISK MANAGEMENT


MEMBER/CUSTOMER

GOAL 3Enhance services to members and customers.

OBJECTIVE AIncrease members’ understanding of the role of the CalSTRS hybrid benefit program elements in achieving financial security for retirement.

INITIATIVE 1Enhance communication channels to improve use of the CalSTRS benefit programs in achieving retirement security. (July 2012–16)

MeasureBy June 30, 2016, meet or exceed the targeted participation in CalSTRS’ voluntary defined contribution programs.

Key Activities for 2015–16: 3 Train counselors on the value of the Defined Benefit Supplement Program,

and the comprehensive benefits of the CalSTRS retirement hybrid system. (Completed 2013–14)

3 Integrate hybrid messaging around the comprehensive nature of the CalSTRS retirement system into all CalSTRS communication materials. (Completed 2013–14)

3 Refresh CalSTRS.com and all subsites to include hybrid messaging. (Completed 2013–14)

3 Develop marketing strategy for defined contribution programs. (Completed 2014–15)

3 Complete transition of Pension2 and Los Angeles United School District 457 plans to new recordkeeper. (Completed 2014–15)

� Complete upgrade to 403bCompare.com website by June 2016. � Secure salary reduction agreements for the Pension2 accounts that were opened in

which the employee did not complete the agreement. � Integrate CalSTRS demographic data into online participant enrollment.

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� Increase member awareness of supplemental retirement savings and Pension2 through expanded web-based education.

� Research the viability of offering the entire CalSTRS Defined Benefit investment portfolio as an investment option for the CalSTRS Pension2 457 plan.

INITIATIVE 2Educate members on their roles in achieving retirement security. (July 2013–16)

MeasureBy June 30, 2016, develop a benchmark for measuring member awareness about the importance of receiving income from sources other than their CalSTRS defined benefit pension in order to achieve financial security.

Key Activities for 2015–16: 3 Develop a comprehensive marketing plan. (Completed 2012–13) 3 Develop training curriculum for counselors. (Completed 2012–13) 3 Complete eight educational videos for members. (Completed 2012–13) 3 Expand Member Education Fairs to all appropriate member service centers.

(Completed 2013–14) 3 Revise the Retirement Income Management workshop. (Completed 2013–14) � Refresh CalSTRS on Campus as a model for allocating staff assigned to member

service centers who conduct outreach activities for members and school-affiliated organizations.

� Develop two member education webinars. � Train CalSTRS counselors to deliver a revised retirement income management

workshop on a pilot basis.

OBJECTIVE BExpand member and business partner e-services.

INITIATIVE 1Establish business partner e-services for vendors through implementation of the CalSTRS vendor portal. (October 2012–16)

MeasureBy June 30, 2016, achieve 75-percent active vendor registration.

Key Activities for 2015–16: � Continue communication with vendors regarding access to CalSTRS through the

vendor portal. � Educate internal contract managers on electronic portal capabilities.

MEMBER/CUSTOMER


INITIATIVE 2Achieve electronic data exchange with vendor business partners. (October 2013–16)

MeasureBy June 30, 2016, enroll 20 percent of vendor business partners in electronic data exchange.

Key Activity for 2015–16: � Require electronic submission of invoices to CalSTRS, where practical.

INITIATIVE 3Expand e-service capabilities to additional member communications materials and responses. (July 2013–16)

MeasureA. By June 30, 2016, register 430,000 members in myCalSTRS access.B. By June 30, 2016, complete 50 percent total specified transactions, as determined

by the Benefits and Services Committee, through self-service.

Key Activities: 3 Implement system modifications to support online Retirement Progress Report

default. (Completed 2013–14) 3 Communicate Retirement Progress Report delivery change to members.


OBJECTIVE CComplete transition of contracted counseling services to CalSTRS’ internal operations.

INITIATIVE 1Open the Irvine Member Service Center. (June 2014)

MeasureBy June 30, 2014, open on time, on budget and adequately staffed.

» The Irvine Member Service Center opened on June 30, 2014, with a staff of eight and projected saving of $335,500.

Key Activities: 3 Select site and negotiate lease. (Completed 2013–14) 3 Complete design and construction. (Completed 2013–14) 3 Recruit member service center employees. (Completed 2013–14) 3 Open center. (Completed 2013–14)

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INITIATIVE 2Open the Inland Empire Member Service Center. (July 2014–16)

MeasureBy July 30, 2015, open on time, on budget and adequately staffed.

Key Activities for 2015–16: 3 Select site and negotiate lease. (Completed 2014–15) 3 Complete design and construction. (Completed 2014–15) 3 Recruit member service center employees. (Completed 2014–15) � Open center.

INITIATIVE 3Open the San Diego Member Service Center. (July 2014–16)

MeasureBy June 30, 2016, open on time, on budget and adequately staffed.

Key Activities for 2015–16: 3 Pending budgetary authority, initiate site search activities. (Completed 2014–15) � Select site and negotiate lease. � Complete design and construction. � Recruit member service center employees. � Open center.

MEMBER/CUSTOMER


WORKFORCE & PROCESS IMPROVEMENT

GOAL 4Improve the work environment and internal efficiency.

OBJECTIVE ASuccessfully implement all scheduled phases of BusinessRenew.

INITIATIVE 1Review, standardize and prepare member records prior to Pension Solution data conversion. (July 2012–16)

MeasuresA. By March 31, 2016, adopt recommendations for data preparation, archive and

purge activities to be implemented before, during and after the Pension Solution data conversion.

B. By June 30, 2016, specify data preparation, archive and purge activities necessary for the conversion of active and inactive member accounts to the new Pension Solution.

Key Activities for 2015–16: � Develop solicitation and award contract for data strategy design and policy

implementation. � Develop policies and prepare decision documents for data anomalies identified by the

data analysis effort completed in 2014. � Incorporate data strategy into approach for preparation, archive, and purge of

information in the legacy Pension Administration system (START). � Test data preparation, archive and purge approach for various START data anomalies.

INITIATIVE 2Complete the Pension Solution project procurement. (Completed June 2015)

MeasureBy April 30, 2015, successfully engage a Pension Solution implementation vendor.

» The board approved CGI Technologies and Solutions Inc. as the Pension Solution vendor at the February 2015 board meeting. Final contract executed and vendor started onboarding in June 2015.

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Key Activities: 3 Publish Pension Solution RFP document. (Completed 2013–14) 3 Complete organizational readiness assessments. (Completed 2014–15) 3 Complete RFP evaluations. (Completed 2014–15) 3 Award and negotiate contract. (Completed 2014–15)

INITIATIVE 3Initiate Pension Solution project implementation. (July 2014–16)

MeasureA. By September 30, 2015, complete project Phase 1: Project Planning and

Startup Activities. B. By March 31, 2016 complete project Phase 2: Requirements Confirmation and

Conceptual System Design. C. By May 30, 2016, complete project Phase 3: Pension System Infrastructure Build. D. As of June 30, 2016, meet or exceed targeted program measures (on schedule,

within budget, scope and quality).

Key Activities for 2015–16: � Complete onboarding activities for the Pension Solution vendor, CalSTRS subject

matter experts and associated backfill resources for 2015–16. � Initiate and complete all project management and system development planning

deliverables and use these deliverables for tracking project progress. � Prepare CalSTRS’ facilities for project resources and project activities. � Complete system requirements and infrastructure design and build. � Implement organizational change management and communication plans. � Assess change readiness against baseline metrics. � Initiate planning and design activities for pension system Release 1: Enrollment

and Contributions.

INITIATIVE 4Implement the Enterprise Information Management program. (July 2014–16)

MeasureBy June 30, 2016, ensure program coverage and compliance for pension administration.

Key Activities for 2015–16: 3 Complete and adopt final EIM implementation roadmap and business cases.

(Completed 2013–14) � Execute EIM roadmap implementation initiatives for pension administration.



OBJECTIVE BDevelop and maintain a workforce plan for an evolving organization.

INITIATIVE 1Implement recommendations of the Leadership Development and Succession Plan. (July 2013–16)

MeasureBy June 30, 2016, complete all approved recommendations.

Key Activities for 2015–16: 3 Implement the Executive Development Program. (Completed 2013–14) 3 Implement the Emerging Leader series to prepare staff and specialists for leadership.

(Completed 2014–15) � Implement Master Series Development Program. � Identify and incorporate mission critical functions into Leadership Development

and Succession Plan. � Pilot knowledge transfer program for leadership positions. � Develop lead person training.

INITIATIVE 2Establish additional statutory positions under the board’s authority as appropriate. (July 2012–2016)

MeasureBy June 30, 2016, successfully establish the Chief Financial Officer and Chief Operating Officer as statutory positions.

Key Activities for 2015–16: 3 Formalize Deputy Chief Investment Officer position within Investments Branch.

(Completed 2013–14) � Secure statutory approval to include the Chief Financial Officer and Chief Operating

Officer positions in board’s compensation setting authority.

INITIATIVE 3Establish and/or modify classification specifications to align with needed competencies within the organization. (July 2012–16)

MeasureBy June 30, 2016, modify or create needed classifications and integrate them into the organizational framework.

Key Activities for 2015–16: 3 Complete organizational assessment of the Investments Branch. (Completed 2014–15) 3 Formalize the Associate Portfolio Manager classification. (Completed 2014–15) � Complete classification and salary study and job analysis of Pension Program series. � Formalize the Pension Financial Accountant classification. � Formalize the statewide Actuarial classification.

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INITIATIVE 4Implement the recommendations of the Workforce Strategy Plan. (July 2013–16)

MeasureBy June 30, 2016, complete all approved recommendations.

Key Activities for 2015–16: � Implement the Professional Development Program projects identified. � Develop manager onboarding process. � Pilot knowledge transfers for subject matter experts. � Improve selection screening process. � Evaluate and update separation policy and procedures.

INITIATIVE 5Develop a strategy to attract and support a diversified workforce. (July 2013–16)

MeasureBy June 30, 2016, establish a diversity and inclusion baseline at CalSTRS.

Key Activities for 2015–16: 3 Continue to research and apply best practices in workforce diversity to strengthen

and sustain an inclusive and diverse work environment. (Complete 2014–15) 3 Continue to collect, analyze and assess workforce profiles and identify relevant gaps.

(Completed 2014–15) � Assess organization’s current diversity and inclusion climate. � Communicate diversity and inclusion concepts to CalSTRS’ employees. � Continue proactive outreach efforts through career fairs and other recruitment

avenues.

INITIATIVE 6Ensure adequate workspace based on current business needs and expected long-term growth. (July 2014–16)

MeasureBy June 2016, develop a plan to address short-term space needs.

Key Activities for 2015–16: 3 Conduct current workspace analysis (Completed 2014–15) � Implement optimization opportunities/recommendations.



OBJECTIVE CDevelop strategies to manage the portfolio in an efficient and cost-effective manner.

INITIATIVE 1Continue to develop, implement and report progress on the internally managed investment strategies. (July 2012–16)

MeasureBy June 30, 2016, shift a portion of the Europe, Australasia and Far East equity assets to internal management.

Key Activities for 2015–16: 3 Update the Investment Committee on the internal asset management plan.

(Completed 2013–14) � Recruit a Portfolio Manager and any other team resources necessary for the

oversight and support of the internally managed global equity assets. � Form a working group of internal and external stakeholders to consider and mitigate

the operational and management risks for implementing this strategy.

INITIATIVE 2Develop and implement a more streamlined and relevant process to hire asset managers and other investment-related services designed to help meet our investment performance objectives. (July 2015–16)

MeasureBy June 30, 2016, have a new process in place whereby new investment managers, strategies and services can be sourced and contracted within six months.

Key Activities for 2015–16: � Secure enactment of legislation to permit streamlined contracting of investment

managers, including emerging managers with prior experience in CalSTRS manager-of-manager structure, and other investment related services that may be impacted.

� Create a working group of internal and external stakeholders to develop an action plan for developing an effective and efficient investment procurement process.

� Document the new process; including any necessary policy changes.

OBJECTIVE DDevelop better ways to evaluate the success of the organization.

INITIATIVE 1Identify appropriate performance benchmarks for all major responsibilities within CalSTRS. (July 2014–16)

MeasureBy June 30, 2016, finalize a plan that identifies performance benchmarks for all major responsibilities and determines the approach to measuring those responsibilities.

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Key Activities for 2015–16: 3 Implement performance review for internal operations. (Completed 2014–15) 3 Document and define all major responsibilities of CalSTRS. (Completed 2014–15) � Map functions that support the major responsibilities of CalSTRS. � Research and recommend successful outcome measures and supporting tools for

the major responsibilities.

OBJECTIVE EAnalyze and adopt ways to become more cost-effective while still achieving the board’s desired level of service to members and business partners.

INITIATIVE 1Identify the largest direct and indirect cost expenditure areas. (July 2014–16)

MeasureBy June 30, 2016, identify cost metrics for all key business areas.

Key Activities for 2015–16: � Develop a cost-accounting framework to measure the direct and indirect costs

associated with pension administration and investment portfolio management. � Establish a baseline of the direct and indirect costs of pension administration,

investment portfolio management as well as supporting services business areas. � Participate in CEM Benchmarking annual survey and monitor cost trends and peer

comparisons across cost centers.

INITIATIVE 2Analyze and develop plan to prioritize cost-efficiency opportunities. (July 2014–16)

MeasureBy June 30, 2016, finalize plan to implement cost-effective efficiencies linked to improving desired levels of service to members and customers.

Key Activities for 2015–16: � Determine baseline costs of current pension administration technology platform for

comparison to ongoing costs under new pension solution. � Develop estimates to determine how planned technology investments are

expected to create cost efficiencies relative to largest pension administration expenditure areas.


34.40%

15.9

6%

8.28%

33.06%


$93,665,707

$43,444,523

$22,535,024

3.51% | $9,560,622

$90,018,185

3.05% | $8,313,534

1.74% | $4,738,405

Salaries 1

Staff Benefits

General Expense/Travel/Training 2

Facilities Operations

Consulting and Professional Services 3

Central Administrative Services (Pro Rata)

Consolidated Data Services (OTECH)

BUDGET & RESOURCES

1 Includes salaries for authorized FTEs ($75.2M), incentives ($4.4M), overtime ($500K), and temporary help ($13.6M, includes Pension Solution costs).

2 Includes Training, Travel, Postage, Communications, Printing, Insurance, Data Processing/IT, Equipment more than $5,000 and Special Items of Expense.

3 Includes significant IT Consulting Resources for Business Renew and other enterprise projects. Pension Solution amount is $54.6M.

2015–16 Operating Budget (In Thousands) | $272,276,000

OVERVIEW OF FISCAL YEAR 2015–16 CALSTRS PLANNED SPENDINGOperating Budget $272,276,000.00 Tech Project Reappropriation $25,600,000.00 Investment Expense Budget $360,773,423.00

CalSTRS Adminstrative Budget $658,649,423.00

9.27

%

11.54%

35.20%8.

70%

12.76%

9.92%

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1 Includes blanket positions for Pension Solution projects and for other administratively approved purposes.

4.63% | 57.0

114.0

142.0

107.0

157.0

433.0

3.33% | 41.0

2.76% | 34.0

122.0

1.87% | 23.0

Audit Services

BusinessRenew

Executive Office

General Counsel

Plan Design & Communication

Administrative Services

Investments

Financial Services

Technology Services

Benefits and Services

BUDGET & RESOURCES

2015–16 FTES BY BRANCH

Total Positions | 1,230.0 1

(Percent of Total)

P.O. Box 15275Sacramento, CA 95851-0275800-228-5453CalSTRS.com

business plan - calstrs

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