PSRS Retiree News

A quarterly newsletter for members of the The Public School Retirement System of Missouri

Second Quarter 2006

In this issue:

Paying at the Pump Could Be Fuel for Your Investment Portfolio
What You Should Know Before Working After Retirement
What is the Critical Shortage Full-Time Employment Exception, and can I use it?
Tip for Retirees
Has Your Address Recently Changed?
Helpful Information for Seniors on the MO Secretary of State’s Web Site
Facts About PSRS Retirees
RetiResources


Paying at the Pump Could Be Fuel for Your Investment Portfolio

The recent press has been focused on concerns about high gasoline prices and the impact on consumers and their spending patterns. Specifically, crude oil rose to $75.35 a barrel on April 21 and the average price of regular gasoline subsequently jumped to $2.91 a gallon in the United States. Thus, virtually every consumer has felt the negative affects of higher gas
prices. However, PSRS, as an institutional shareholder of energy stocks and as an investor in emerging countries that produce energy, has benefited in terms of strong investment earnings.

The short-term affect of higher energy prices appears to have been a boost to investment returns. For the one-year period ending April 30, 2006, the PSRS investment portfolio returned just over 16%. As we break down both the good and the bad aspects of that 16% return, the effects of rising energy prices can be felt throughout the portfolio:

• U.S. Stocks (positive): The U.S. stock portion of the PSRS portfolio has returned over 21% in the last 12 months. Approximately one-tenth of that U.S. stock portfolio is invested in energy related stocks that returned in excess of 45% over that time period.

• International Stocks (positive): The energy ‘impact’ on the PSRS international stock portfolio was even more pronounced
than in the U.S. as the portfolio returned 39% in the last 12- month period with energy-related stocks increasing almost 80%.

• Emerging Market Stocks (positive): The emerging market stock portion of the PSRS portfolio increased just over 56% in the last 12 months. The asset growth in many emerging countries is directly related to their ability to produce commodities.

• Bonds (negative): The inflationary conditions in the market have been negative for the PSRS fixed income investments as the bond portfolio returned just 1.5% over the last year.

Higher energy prices are comparable to an additional tax on consumers and are widely believed to be a drag on overall economic activity. We do not know how consumer stocks (for instance) might have performed if consumers had lower costs related to energy and more to spend on other items, such as cars or retail-oriented products. Additionally, higher energy prices have clearly been to the detriment of auto stocks, airline stocks and producers of
almost all products that must be transported to end users. In total, we cannot know whether the overall stock market would have done better or worse with lower energy prices. However, we know that higher energy prices do not create wealth; instead, they simply redistribute wealth from consumers and businesses with high transportation costs to energy-related companies and
others that benefit from high prices. For a number of years, oil companies plodded along with modest returns as they were the victims of low commodity prices. Most recently, oil companies have been the beneficiaries of high commodity prices. That is not a particularly good outcome or a bad outcome – it is just the reality of the business cycle.

Will the current boom in oil prices be followed by a severe and long-lasting correction (as occurred in the 1980’s) or has there been a structural change in the industry which will lead to permanently stronger commodity prices? We believe that the following long-term structural factors will keep energy prices above historical averages. For example:

1. Rising global demand: A larger share of the world’s oil is being consumed by (Fuel for Your Investment Portfolio, continued from page 1) rapidly growing Asia and other developing markets. For instance, China’s oil imports have been growing at double
digit rates for the last several years.

2. Changing consumer and investor preferences:An increasing amount of the world’s oil is being used for transportation.

3. Growing oil dependency: The U.S. is becoming increasingly reliant on imports to meet its growing demand for oil. Specifically, over 60% of U.S. oil consumption is now met through imports today as compared to 40% in the early 1980’s.

4. Under-investment in energy infrastructure: U.S. energy companies have under-invested for decades in infrastructure, exploration, pipelines and engineers. The net result has been increased costs of production.

5. Shrinking spare capacity: In total, maybe the most important issue is that the world has likely reached the point where global demand is surpassing the world’s ability to supply incremental oil. This is a result of surging demand from developing countries and continued healthy demand from developed countries.


Today, as with the period from 1964 to 1980, many outstanding investment opportunities in capital markets will be related to the distribution and production of energy and raw materials. The Systems will capitalize on these opportunities by continuing to invest in the energy sector through global stocks and potentially through direct investments in energy-related partnerships and infrastructure to provide a hedge against inflation. As a long-term institutional investor, PSRS is focused on maintaining
consistent investment returns. While the last one-year time period has produced strong equity returns for PSRS (potentially as a partial result of strong energy prices), the five-year total fund annual investment return remains below 8.0%. Thus, we will continue to analyze all investment opportunities (including energy related investments) within a total portfolio context to allow
PSRS to continue to maintain a well diversified and prudent long-term portfolio.

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What You Should Know Before Working After Retirement

If you want to work after you retire and avoid any interruptions in your monthly PSRS benefit payments, you need to consider:
          • Will I work for a PSRS-covered employer?
          • How many hours will I work?
          • How much will I earn?


Will I work for a PSRS-covered employer?

If the answer is NO:
There is no impact on your PSRS benefit, regardless of how many hours you work or how much you earn.

If the answer is YES:
There are some rules you must follow in order to continue to receive your retirement benefit payments without interruption. This is true of employment in any position, even those that do not require a teaching certificate, like bus driver, secretary, etc.
The limitations are:
1. You can work up to 550 clock-hours in a school year (July through June), and
2. You can earn up to 50% of the annual compensation payable under your employing district’s salary schedule for the post-retirement position (not the position you held before retirement) given your level of experience and education.
You must notify PSRS if/when you exceed either of these two limits. Contact us at (800) 392-6848 when this occurs.

What is a covered employer?
Covered employers are any that participate in PSRS. Covered employers include:
• Public school districts in Missouri except the St. Louis city and the Kansas City school districts
• Public junior college districts in Missouri that have elected to join
• Statewide non-profit educational associations that have elected to join

You can work up to 550 clock-hours in a school year.
Both you and your employer should track your clock-hours worked. However, you are responsible for notifying PSRS when you
reach either the 550-hour or the 50% earnings limit, whichever comes first.

What “hours” count toward the 550-hour per school year limit?
If the work is something that you are expected to do as part of your job, if you are responsible for it as part of your job, or if you are getting paid for it as part of your job, then you should count it toward your 550 hours. There are no hard and fast guidelines in this regard. Therefore, we highly recommend that you discuss with your employer up-front what will be considered working hours.

In general, if you will be teaching, count both classroom hours and any other hours for which you are compensated and during which your employer requires your attendance. Depending on your particular situation, this could mean that planning periods, time spent grading papers at home and travel to and from extracurricular activities count toward your 550 hours. Again, check with your employer.

Example: You take a part-time teaching position post-retirement. You get ½-hour for lunch each day you work. If you have this -hour
as free time to do as you wish, then it is not“work” time and should not be counted. If, however, you are expected to spend that ½-hour
in the school cafeteria monitoring student activity during the lunch period, then it is considered“work” time and should be counted.

Note to those considering post-retirement work at the college level: If the post-secondary institution at which you are working is a PSRS-covered employer, you must count the number of clock-hours you work, not the number of credit hours you are teaching. Most such employers will be able to tell you how many clock-hours they consider equivalent to one credit hour. If the institution is a not a PSRS-covered employer, no restrictions apply to your post-retirement work there.