October 2019 Board Meeting Summary
The Public School and Education Employee Retirement Systems of Missouri (PSRS/PEERS) Board of Trustees convened on October 27 and 28, 2019. In attendance were Board members Aaron Zalis, Jason Hoffman, Chuck Bryant, Scott Hunt, Yvonne Heath, Beth Knes and Jason Steliga. 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 Legislation and Policy, Maria Walden; Director of Communications, Susan Wood; Director of Administrative Planning and Design, Stacie Verslues; and various other PSRS/PEERS staff members.
Budget and Audit Committee
The open session minutes from the June 10, 2019 Budget and Audit Committee meeting were approved by unanimous vote.
Fiscal Year 2019-2020 Budget Adjustment
Ms. Anita Brand of PSRS/PEERS led a budget amendment discussion. 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 and approved the preliminary budget for this project at their June 2019 meeting. The Systems were in the design development stage of the project in June 2019, and therefore information was still considered preliminary. As indicated in June, budget adjustments would be prepared for the Board of Trustees’ consideration upon the completion of construction documents and receipt of final competitive bids for the project. The Systems’ have received final competitive bids and the Guaranteed Maximum Price (GMP) from the Systems’ Construction Manager at Risk. Based on the final GMP, Ms. Brand requested a budget reduction of approximately $1.3 million. The budget amendment was approved and recommended for acceptance by unanimous vote by the Budget and Audit Committee.
Regular Board Meeting
The open session minutes from the August 26, 2019 meeting were approved by unanimous vote.
Ongoing Investment Activity
Mr. Craig Husting of PSRS/PEERS and Mr. Barry Dennis from Verus (the Systems’ investment consultant) reviewed ongoing investment activities, which included estimated investment performance through September 30, 2019. The estimated return for the first quarter of fiscal year 2020 (July 1, 2019 through September 30, 2019) was approximately 0.9%. 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 discussed the potential for an Asset/Liability study in the spring of 2020.
Public Credit Program Review
Mr. Frank Aten and Mrs. Jessica Wilbers from the PSRS/PEERS investment staff reviewed the Systems' Credit portfolio including program objectives, guidelines and long-term results. The five-year annualized return for the Credit composite for the period ended June 30, 2019 was 3.9%.
Private Equity and Private Credit Program Review
Mr. John Tuck, Mr. Dan Case, Mr. Ben Frede and Ms. Shradha Shrestha from the PSRS/PEERS investment staff reviewed the Systems’ Private Equity and Private Credit portfolios including program objectives, guidelines and long-term results. The five-year annualized return for the Private Equity composite for the period ended June 30, 2019 was 14.5% and the five-year annualized return for the Private Credit composite for the same period was 5.6%. Staff also discussed the potential for a new Private Credit Direct Investment program.
Proxy Voting Policy
Mr. Husting reviewed the Systems’ Proxy Voting Policy. The Systems’ active public equity investment managers are each responsible for voting proxies in the best interests of the members of the Systems. The managers are required to provide an annual report to the investment staff detailing how their proxies were voted during the year on behalf of PSRS/PEERS. Mr. Husting reported that the Systems received proxy voting reports from all public equity managers for fiscal year 2019. The internal PSRS/PEERS staff has not identified any operational issues with the proxy voting process during the review that was conducted this year and all investment managers are in compliance with the Policy.
Investment Policy Changes
The Investment Policy was originally adopted in 1995. The investment staff periodically conducts a full review of the Investment Policy and recommends changes to the Board. The last full review was conducted in June 2018.
Mr. Husting discussed proposed Investment Policy changes. The recommended changes were primarily to bring the Policy in accordance with Board action over the last year, to add language for clarity, and to incorporate benchmark updates. The Policy changes also included language to specifically allow a Private Credit direct investment program. Following discussion, the proposed investment policy changes were approved by unanimous vote.
Real Estate Annual Review
Mr. Jack Koch and Mr. Seth Marcus from Townsend (the Systems’ Real Estate Consultant) presented several items to the Board, including a Real Estate Market Overview and details of the PSRS/PEERS real estate portfolio. Townsend reported that the PSRS/PEERS’ Real Estate portfolio had produced an annualized return of 9.6% (net of all fees) for the five-year period ended June 30, 2019.
Report of Actuary Audit
Ms. Pat Beckham, Ms. Wendy Ludbrook and Mr. Larry Langer from Cavanaugh Macdonald (CM) were present to discuss the recent actuarial audit. State statute requires the Systems to have an actuarial audit at least every 10 years. The Board of Trustees have recently implemented a policy to conduct an actuarial audit every five years. The audit included a full replication of the June 30, 2018 valuations and a review of the most recent actuarial experience study performed by the Systems’ Actuary, PricewaterhouseCoopers (PwC). Mr. Langer discussed the purpose of an audit and the actuarial audit process with the Board. CM concluded the actuarial work provided by PwC provides a fair and reasonable assessment of the financial position of the Systems and that their work was actuarially sound. CM provided suggestions for the next experience study and the actuarial valuation process. None of the suggestions are expected to a have a significant impact on future actuarial results. CM states there is no urgency for change and believe such suggestions and recommendations can be considered when the next experience study is performed or when the 2020 valuation is prepared. The Board of Trustees approved the actuarial audit by unanimous vote.
Report of Actuary
June 30, 2019 Actuarial Valuations
Mr. Brandon Robertson and Ms. Rebecca Brenza from PricewaterhouseCoopers (PwC) were present to discuss the results of the June 30, 2019 actuarial valuations for the Systems.
Mr. Robertson provided an overview of the purpose of the annual actuarial valuations and the key components. Ms. Brenza reviewed the June 30, 2019 actuarial valuation information prepared by PwC. Ms. Brenza reviewed the changes in membership, assets, liabilities, and the pre-funded status of each System. She reported that the June 30, 2019, preliminary pre-funded status based on the actuarial value of assets of PSRS was 84.4% and PEERS was 86.4%. The funded status of both Systems is viewed to be healthy and a result of appropriately set actuarial assumptions, consistent funding of the required contributions and diligent plan governance. The current market value of assets approximates the actuarial value of assets for both Systems. Mr. Robertson discussed projections of contribution rates, funded status and the sensitivities of both to the overall investment returns for the plans.
Mr. Robertson also addressed the recent actuarial audit by Cavanaugh Macdonald, indicating that PwC had implemented suggestions where appropriate in the June 30, 2019 valuations and there was no significant financial impact to the Systems.
Set Contribution Rates for 2020-2021
The Board voted unanimously to maintain the contribution rate for PSRS at 29% and PEERS at 13.72% as recommended by the actuary.
Set January 2020 Cost-of-Living-Adjustment (COLA)
In accordance with the System’s Funding Policy, the Board voted unanimously not to grant a COLA for January 2020.
Schedule for Board Election
Mr. Steve Yoakum of PSRS/PEERS presented to the Board the 2020 Board Election Schedule. Effective July 1, 2020, there will be two positions available on the PSRS/PEERS Board of Trustees. Both of these positions must be filled by an active member of PSRS. Following discussion, the proposed election schedule was modified and approved by unanimous vote.
Mr. Dearld Snider of PSRS/PEERS provided a high-level recap of the construction timeline of Bid Package 1 (geothermal bore fields, pipe installation, demolition of the maintenance facility, three-lane south exit and new west parking lot) which will be completed on November 1. Bid Package 2 (new addition and renovation) will begin during the week of November 4 and will last approximately 24 months. He also shared with the Board the companies who were awarded contracts for Bid Package 2 based on the competitive bidding process.
Fiscal Year 2019-2020 Budget Adjustment
Ms. Anita Brand of PSRS/PEERS led a budget amendment discussion. 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 and approved the preliminary budget for this project at their June 2019 meeting. The Systems were in the design development stage of the project in June 2019 and therefore information was still considered preliminary. As indicated in June, budget adjustments would be prepared for the Board of Trustees’ consideration upon the completion of construction documents and receipt of final competitive bids for the project. The Systems’ have received final competitive bids and the Guaranteed Maximum Price (GMP) from the Systems’ Construction Manager at Risk. Based on the final GMP, Ms. Brand requested a budget reduction of approximately $1.3 million. The Board of Trustees approved the budget amendment as recommended by the Budget and Audit Committee by unanimous vote.
Member Services Report – Benefits
Ms. Nicole Hamler of PSRS/PEERS and PSRS/PEERS Benefits Supervisor Ms. Amanda Bryant presented an update on the benefits section within member services. Ms. Hamler gave a general overview of the section and discussed the primary responsibilities of the benefits section: processing benefit estimates, service retirements, and purchases as well as providing one-on-one counseling of members who visit the office. Ms. Bryant shared with the Board the number of years of service purchased in fiscal year 2019. She also walked the Board through the detailed process of purchasing Social Security-covered employment, one of the three main service purchases used by members. For most members who have a purchase application on file, the cost for purchasing service is recalculated each October 1, and the benefits section is responsible for the mailing of recalculation statements.
Ms. Hamler discussed future plans for the benefits section 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 accurate benefit and purchase estimates and continuing to be a reliable and trusted resource for our members.
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 benefits section contributes to the key focus area member engagement by maintaining positive relationships with members at all career stages. Benefits also supports innovation by interacting with our members in a variety of formats and continuing to provide different avenues to best meet members’ needs and expectations.
Mr. Steve Yoakum reviewed the COLA policy that was set by the Board of Trustees at their November 3, 2017 meeting. According to the policy, COLAs may be granted based on the CPI-U as follows:
|CPI-U||COLA per Board-Approved Funding Policy|
|Less than 0.0%||0.0%|
|0.0%-2.0%||0.0% when CPI-U is cumulatively below 2.0%|
|0.0%-2.0%||2.0% when CPI-U cumulatively reaches 2.0% or more*|
|2.0%-5.0%||2.0% when the CPI-U is at least 2.0%, but less than 5.0%|
|5.0% or more||5.0%|
|*resets cumulative calculation after a COLA is provided|
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 0.2405% through September 30, 2019.
The total cumulative is 1.8890% through September 30, 2019.
The October reading for the CPI-U will not be released until November 13, 2019.
Carol Weatherford commented on behalf of herself as a benefit recipient. Carol expressed her thanks to the Board and to the staff of PSRS/PEERS for their continued hard work and dedication to the Systems.
The Board went into closed session at 12:20 p.m.
The Board adjourned at 1:15 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.