June 2019 Board Meeting Summary

The Budget and Audit Committee of the Public School and Education Employee Retirement Systems of Missouri (PSRS/PEERS) Board of Trustees convened at 9 a.m. on June 10, 2019 at the Retirement System offices in Jefferson City, MO, with the regular session of the Board of Trustees meeting following at 10:15 a.m.

In attendance were Board members Aaron Zalis, Jason Hoffman, Chuck Bryant, Jason Steliga, Beth Knes and Yvonne Heath. Board Member Scott Hunt was absent. Also present were Executive Director, M. Steve Yoakum; Assistant Executive Director, Investments, Craig Husting; Assistant Executive Director, Operations, Dearld Snider; General Counsel, Sarah Swoboda; Chief Financial Officer, Anita Brand; Director of Member Services, Nicole Hamler; Director of Employer Services, Omar Davis; Director of Internal Audit, Jeff Hyman; Director of Legislation and Policy, Maria Walden; Director of Communications, Susan Wood; Chief Technology Officer, Bill Betts; Human Resources/Benefit Plan Administrator, Kim Harris; Director of Administrative Planning and Design, Stacie Verslues; and various other PSRS/PEERS staff members.

Budget and Audit Committee

Minutes
The open session minutes from the April 15, 2019 meeting were approved by unanimous vote.

Banking Resolution
Ms. Anita Brand of PSRS/PEERS reviewed a memo regarding a banking resolution. The resolution provides continuing authority to Mr. Steve Yoakum, Mr. Dearld Snider and Mr. Craig Husting to make necessary changes related to our banking relationship with Central Bank. The banking resolution authorizes appropriate individuals to execute documents with the bank without additional approval by the Board of Trustees. The resolution automatically expires each June 30 or when a new resolution is received by Central Bank. The Budget and Audit Committee approved the resolution by unanimous vote. 

Strategic Plan Policy
Mr. Dearld Snider of PSRS/PEERS reviewed with the Board our current Strategic Plan Policy and the four focus areas: System and Financial Stability, Culture of Excellence, Engagement and Innovation. Mr. Snider shared the departmental tactics and goals developed by the management team and how each of these goals supports the strategic plan. Each tactic and goal listed is unique to the 2019-2020 fiscal year and does not include annual events, regular processes or routine projects such as Member Statements, the Comprehensive Annual Financial Report, legislative monitoring, 1099's etc. Based on these objectives, Ms. Anita Brand was able to incorporate the projects into the 2019-2020 budget.

Discussion and Approval of the 2019-2020 Budget
Ms. Brand reviewed the 2019-2020 proposed budget request. Ms. Brand provided information regarding the processes utilized to develop the budget. The budget was compiled based on the Systems' mission of providing retirement security to Missouri's educators and public school employees in the most efficient and cost-effective manner possible. Ms. Brand provided the following budget highlights and provided detailed discussion on significant changes from the prior year.

The total request has increased by 3.1% from the fiscal year 2018- 2019 adjusted budget. The overall increase is driven by an expected 3.1% increase in benefit payments to members.

The investment expenses are comprised of investment fees and investment administrative expenses. Budgeted investment fees increased by 5.4% compared to the prior year. This is a result of continued funding of private risk assets. Investment fees are aggressively negotiated when the Investment Management Contract is executed and continuously monitored for possible revision. Investment fees are paid and budgeted in accordance with current legal contracts. Actual expenses will be directly dependent on the market environment. The budget request also includes an increase in investment administrative expenses. The increase is attributed to the addition of an investment officer, a merit compensation pool for staff and market adjustments based on the most recent comprehensive compensation study. Investment returns are reported net of investment fees and investment administrative expenses.

The total administrative budget is made up of the capital asset budget (items over $10,000 that are capitalized) and the administrative budget. The fiscal year 2020 budget request for capital assets is inclusive of the current building expansion and renovation project. The Board of Trustees and staff spent three years evaluating the Systems' current facility and anticipated growth in membership, employees and invested assets under management. The Board of Trustees approved the building expansion and renovation project at their December 2018 meeting to insure the Systems continue to deliver a high level of service to all current and future members. The proposed budget request included a separate section providing additional details on the building expansion and renovation project and capital assets in total.

Administrative expenses decreased by 5.1% or $1,000,000 from fiscal year 2018-2019. The overall decrease in administrative expenses is due to the completion of several significant projects during fiscal year 2019, including the implementation of the new financial and human resources system. The merit compensation pools for investment and administrative staff are in accordance with the Board of Trustees' Compensation Strategy and the April 2019 Compensation and Budget Discussion presented to the Board of Trustees.

Throughout the proposed budget request, the Systems have decreased the budget where appropriate. However, the budget requests continue to include valuable investments in the System's infrastructure and staff to allow the Systems to continue to meet their goals and strategic objectives in an efficient and effective manner.

The Budget and Audit Committee approved the budget as presented by staff by unanimous vote.

Internal Audit Report
Mr. Jeff Hyman of PSRS/PEERS presented the internal audit annual report to the committee. The Internal Audit department completed 13 audit engagements and performed consulting services in various areas in accordance with, and in addition to, the fiscal year 2019 PSRS/PEERS audit plan. Mr. Hyman also reviewed the internal audit plan for fiscal year 2020.

Regular Board Meeting

System Operations  

Minutes
The open session minutes from the April 15, 2019 meeting were approved by unanimous vote.    

Investment Report

Investment Performance Report (March 31, 2019)
Mr. Craig Husting of PSRS/PEERS reviewed the investment performance for the period ended March 31, 2019. The one-year PSRS/PEERS' investment return was reported as 5.0% while the fiscal year return (July 1, 2018 through March 31, 2019) was reported as 3.4%.

Ongoing Investment Activity
Mr. Husting reviewed ongoing investment activities, which included estimated investment performance through May 31, 2019. Mr. Husting discussed the current asset allocation of the PSRS/PEERS portfolio, in which he reviewed the long-term strategy, portfolio themes and the broad portfolio expectations. Mr. Husting also reviewed the tentative Board investment calendar.

Management Report

Board Meeting Dates for Fiscal Year 2020
The fiscal year 2020 Board of Trustees meeting dates were reviewed and approved by unanimous vote. The following dates were set for fiscal year 2020 meetings: August 26, 2019; October 28, 2019; December 9, 2019; February 10, 2020; April 6, 2020 and June 8-9, 2020. The Board also set the August 31, 2020 meeting date. 

Annual Banking Resolution
Ms. Brand reviewed a memo regarding a banking resolution, which was unanimously approved earlier in the day by the Budget and Audit Committee. The resolution provides continuing authority to Mr. Steve Yoakum, Mr. Dearld Snider and Mr. Craig Husting to make necessary changes related to our banking relationship with Central Bank. The Board of Trustees approved the resolution by unanimous vote.

Strategic Plan Policy
Mr. Snider reviewed briefly with the Board our current Strategic Plan Policy and the four focus areas. Mr. Snider shared the department tactics and goals developed by the management team, how each help support the Strategic Plan, and how Ms. Brand was able to incorporate these projects into the 2019-2020 budget.

2019-2020 Budget Approval
The proposed 2019-2020 budget, as presented to the Budget and Audit Committee, was approved by the Board of Trustees by unanimous vote.

Facility Renovation
Mr. Snider presented on the current renovation timeline. As the Systems continue to finalize construction documents, the first Bid Package has been advertised for competitive bid. Bid Package 1 includes the new west parking lot, geothermal bore fields, geothermal pipe installation, demolition of the maintenance building and a three-lane south exit. Construction work on this bid package is set to begin in late July. Mr. Snider shared with the Board the Systems' intent to keep all employees on site throughout the construction process by utilizing a phased approach during renovation.

Member Services – Information Center Update
Ms. Nicole Hamler of PSRS/PEERS and Information Center Supervisor Ms. Nichole Williams presented an update on the information center, a section within the member services department. Ms. Hamler gave a general overview of the section and discussed the primary responsibilities of the information center:  handling phone calls and responding to incoming emails.  Ms. Williams shared with the Board the recent transition and implementation of the new phone system, RingCentral, and how this has improved the member and user experiences. Ms. Hamler discussed two new communication enhancements made possible by RingCentral that will be implemented in the next year; the chat feature and telecommuting.

Ms. Hamler discussed future plans for the information center and explained that while continuing to look to the future, it is crucial to always keep the section's goals at the forefront. These goals include exceptional customer service, providing timely, thorough and accurate information and continuing to find innovative ways to meet members' communication needs. 

Ms. Hamler also explained to the Board that these goals not only provide a foundation to operate, but also support and foster the overall strategic plan of PSRS/PEERS. The information center contributes to the key focus area of culture of excellence by keeping member-centric thinking as the primary focus of every duty, whether it is phone calls, emails or, soon to be, chat.  The information center also supports innovation by utilizing different way to meet the needs of members with a focus on offering a variety of communication avenues.  These avenues allow us to continue to provide the exceptional customer service members have come to expect when interacting with PSRS.   

Website Refresh
Ms. Susan Wood of PSRS/PEERS walked the Board through a refresh of the current public website. She highlighted and demonstrated new features and functionality of the site and shared statistics about usage. The refreshed website is set to go live in July.

Administrative Rule Review
Ms. Sarah Swoboda of PSRS/PEERS and Staff Attorney Ms. Heather Conway reported to the Board on a statutory requirement to review our Administrative Rules every five years.  Ms. Swoboda and Ms. Conway have recently completed this review and will be filing a report with the Joint Committee on Administrative Rules and posting the report on the PSRS website by June 30, 2019, as required by statute.

Legislative Update
Ms. Maria Walden of PSRS/PEERS updated the Board on the 2019 Missouri Legislative Session. Ms. Walden reviewed the 2019 Missouri legislative statistics, as well as the upcoming important 2019 legislative dates. She also reviewed bills that passed with a direct impact on the Systems. Internal implementation teams were established and have been working on steps to ensure a smooth transition if those bills are signed by the governor. The governor has until July 14 to sign or veto truly agreed to and finally passed legislation. The Systems will provide additional information to members who are impacted.

HB 77 – Sponsor: Representative Black

• Allows all PSRS retirees who would return to work for community colleges to be covered under the 550 hours and 50% salary statutory restrictions (exempt from the $15,000/no hourly limitation). Signed by the governor on April 16, 2019. This bill contained an emergency clause, which means it took effect the date the bill was signed into law.

SS#2 SCS HCS HB 604 – Sponsor: Representative Henderson

• Establishes the School Turnaround Act.
• This bill provides a definition for "teacher externship" and requires that the Department of Economic Development and DESE shall adopt requirements for teacher externships along with an equivalency schedule to allow externships hours to be considered for increases similar to graduate-level coursework on the salary schedule for districts before July 1, 2020.

CCS SB 17 – Sponsor: Senator Romine

• Modifies provisions relating to various retirement plans for public employers.

Ms. Walden also presented a detailed list of the bills that did not pass this legislative session and other legislative issues of interest to the Systems.

CPI-U Update
Mr. Steve Yoakum of PSRS/PEERS reviewed the current COLA policy. The COLA policy was last updated by the Board at their November 3, 2017 meeting. The COLA for January 2019 was 2.0%.

Mr. Yoakum explained that the Consumer Price Index for Urban Consumers (CPI-U) is calculated by the Bureau of Labor Statistics (BLS). The CPI-U is the measure of the change in prices of goods and services purchased by urban consumers between any two time periods. PSRS/PEERS' regulation requires that the time period for the CPI-U calculation used in the determination of a COLA be from June to June. Based on the values provided by the BLS, the CPI-U is up 1.4124% for the first ten months of the fiscal year 2019.

The May reading for the CPI-U will not be released until June 12, 2019. 

Closed Session

The Board went into closed session at 1 p.m.

Adjournment

The Board adjourned at 1:45 p.m.

This summary is not official minutes of the PSRS/PEERS Board of Trustees Meeting. The official minutes will be approved at the next PSRS/PEERS Board of Trustees meeting and will posted to our website at that time.