"As evidenced by the recent self-review (attached) completed at the request of Ohio Auditor Betty Montgomery, there is much good news at OP&F. Collectively we have a lot that we can be proud of, including achievements such as:

Experiencing strong member participation in the Deferred Retirement Option Plan (DROP),
Continuing to keep administrative costs under control even as important new programs are implemented to benefit our members,
Planning for the upcoming dedication of the Memorial Park for Ohio's fallen police officers and firefighters with donations collected exceeding $287,000, and
The value of our investment portfolio has grown by over $730 million year-to-date through August, which represents an investment return of over 12% for this period. Our portfolio is now valued at a strong $8.15 billion.

At the same time, newspapers in Ohio have raised questions regarding travel and trustee expense policies at OP&F. With all five state retirement systems under the microscope right now, your Board is taking a hard look at how to continue OP&F's successes while also making improvements that ensure the Fund continues to be well-managed and positioned for growth.

At this month's Board of Trustees meeting, the Board's Administrative Committee chaired by Trustee Ken Gehring reviewed the current trustee policies. Our challenge is to ensure the amount spent on travel and expenses is reasonable while also recognizing the ongoing need for Board members to continue their hard work to be well educated in financial matters-a duty that is both mandated by our Board Governance Policy, as well as expected by our members. As a result of discussions in that committee meeting, the Board voted to adopt a Wireless Cell Phone Procedure relating to our existing Cell Phone Policy. At our October meeting, the Board will reconvene to continue our discussions on Trustee travel and adopt a new Trustee Travel Policy.

As we work through these and other important issues, please be assured that your Board will continue to work tirelessly to make informed decisions that benefit the short- and long-term interests of OP&F and its entire membership."

Ohio Police & Fire Pension Fund Expenditures

The OP&F management team has continued to be good stewards of our member's money by exercising excellent fiscal responsibility

OP&F experienced the lowest budget operating increase in many years in 2002

This was impressive considering OP&F conducted many special projects during the year including DROP, health care funding, data clean-up, building construction, etc.

The growth of the Administrative Operating Budget for Fiscal Year 2003 was limited to only a 4% increase, or $1,572,909, over the 2002 budget

The increase is primarily a result of costs associated with the implementation of the OP&F New Pension Administration System (NPAS), the cost of which will amount to $4,733,379 in 2003
Without the implementation of NPAS, our budget would have actually decreased in 2003

Overall, in the period from 2000 through 2003 (projected), OP&F has spent less than its approved budget by an average of 11.6% each year.
On July 1, 2003, OP&F removed the 140 E. Town Street property from the Lend Lease portfolio and placed the property under the in-house management of the Chief Operating Officer, which will save $79,728 per year by the elimination of the asset management fee currently paid to Lend Lease.

Personnel maintained at manageable level

During the last three years, OP&F has spent less than its approved budget for personnel expenses

In 2000, OP&F spent 7.5% less than budgeted in this category; 6.8% less in 2001; and 10.8% less in 2002
Personnel expenses for 2003 are expected to be approximately 6% below budget
Prior to filling an open position, OP&F management conducts operational reviews seeking opportunities to use technology and streamline existing processes-this has resulted in the cancellation of plans to refill certain vacancies

Overall headcount increase has been limited to only 2% over the last three years-a net increase of only four additional positions

This was despite OP&F's need to add employees to support the Deferred Retirement Option Plan (DROP), which was implemented in January 2003

In 2002, OP&F conducted a review of employee compensation utilizing benchmarking tools to ensure that compensation is consistent with the marketplace

Even with the review and necessary adjustments, compensation increases for staff were limited to 3% overall in 2003, which was down from 4% in 2002

In 2003, employee bonuses consisted of only 1% of total personnel expense (approx. $120,000), which were held to 2002 levels
Total personnel costs represent approximately 29% of total administrative expenses

In 2003, OP&F budgeted $12,075,273 for personnel costs including salaries, employee benefits and employer payroll expense.
OP&F currently employs 180 full-time and 4 part-time employees; there are 190 positions budgeted for 2003

Other controllable administrative expenses reduced since 2000

Since 2000, OP&F has reduced its net spending for travel, business conferences and training by 35%

In 2000, $596,762 was spent in this category, compared to our projected 2003 spending level of $386,945
OP&F management has re-evaluated each opportunity to travel and attend conferences to ensure the most appropriate staff attend and that the travel meets OP&F business needs

In 2002, OP&F employees began to contribute toward the cost of their health care, which will result in the collection of approximately $157,000 for 2002 and 2003

In 2004, OP&F will increase employee contributions and copays to further offset health care costs

OP&F's mailing expenses have remained the same during the last few years despite postal rate increases and increased needs to communicate new benefits to members
Between 2000 and 2003, telephone expenses will be reduced by approximately $113,478 or 10% by negotiating favorable telephone rates and upgrading telephone equipment
Between 2000 and 2003, personnel recruitment costs will be reduced by approximately $65,000 or 90% by bringing most recruitment activities in-house instead of subcontracting to external search firms
Between 2000 and 2003, legal fees will decrease by approximately $212,000 or 48% by redirecting legal work from outside firms to OP&F's in-house legal counsel
In May 2003, OP&F implemented an optional Section 125 plans to employees, which will provide up to $5,221 in tax savings to OP&F

The savings for 2004 are projected to be over $8,000 since the plan will run for a full year and OP&F will offer additional benefits through the Section 125 plan
The annual tax savings for employees is anticipated to be $159 per employee in 2003 and over $243 per employee in 2004

Costs of necessary large special projects kept down

The building renovation project was completed in December 2002, which was two months ahead of the original construction schedule and $1.0 million under budget.

OP&F saved $1,257,686 in furniture costs by reusing the existing modular furniture in the renovation of the 6th, 7th, and 8th floors. The original furniture contract of $3,256,618 included the replacement of the existing modular furniture with new furniture.
OP&F saved $139,723 by using traditional construction methods rather than using demountable wall construction and eliminating the 6-week lead time necessary for demountable walls.
The renovation resulted in a more efficient workspace for all departments and room to accommodate future growth.
The actual cost of the renovation was $7.3 million.

The Data Scrubbing project was completed on time and had a cost savings of $1.2 million under the original cost estimate.

After conducting 100 data tests, Peterson Consulting identified 25 OP&F data issues requiring resolution before the new pension administration system could be implemented.
The Peterson cost estimate for the project was $1,713,178 and the actual project cost was $479,529.

OP&F saved $10 million by selecting the Vitech Systems as the vendor to implement a new pension administration system

The Vitech system replaces costly, outdated legacy systems inherited in the 1980's from STRS
Vitech's contract for the V3 system is written not to exceed $7,265,846 over the 30-month implementation period
The original estimate for a new system developed internally placed the cost at $17 million