February 2020 Board Meeting Summary
The February 10, 2020 meeting of the Public School and Education Employee Retirement Systems of Missouri (PSRS/PEERS) Board of Trustees convened at 9 a.m. In attendance were Board members Aaron Zalis, Jason Hoffman, Scott Hunt, Yvonne Heath, Beth Knes, Jason Steliga and Sharon Kissinger. 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.
Regular Board Meeting
The open session minutes from December 9, 2019 meeting were approved by unanimous vote.
Investment Performance Report (12/31/19)
Mr. Craig Husting from PSRS/PEERS and Mr. Barry Dennis from Verus reviewed the investment performance for the period ended December 31, 2019. The one-year PSRS/PEERS investment return was reported as 16.2%, while the fiscal year return (July 1, 2019 through December 31, 2019) was reported as 5.4%.
Ongoing Investment Activities
Mr. Husting and Mr. Dennis reviewed ongoing investment activities, which included estimated investment performance through January 31, 2020. Mr. Husting discussed the current asset allocation of the PSRS/PEERS portfolio, including a review of the long-term strategy, portfolio themes and the broad portfolio expectations. Mr. Husting also reviewed the tentative Board investment calendar.
Anti-Terrorism Policy Review
Mr. Husting and Mr. Dennis reviewed the Systems' Anti-Terrorism and Economic Sanction Investment Policy. The policy was adopted by the Board in 2005 and last reviewed with the Board in February 2019. The policy requires PSRS/PEERS staff to provide a report to the Board on an annual basis that identifies any investment actions taken due to links to terrorist or sanction-related activities.
Mr. Husting stated that the Systems have several safeguards in place to ensure compliance with the Policy, including:
- On an annual basis, staff sends letters to selected federal officials requesting any information they can provide on companies that, in their opinion, have terrorist links.
- Based on guidance from the U.S. Department of Commerce and other sources, staff monitors several websites, including the Specially Designated Nationals List. The list is compared to the PSRS/PEERS active holdings on a monthly basis.
- The Systems' custodian bank (J.P. Morgan) is required by federal law to monitor all individual security holdings in the Systems' investment accounts.
- The Systems have amended contracts with traditional external investment managers to require annual confirmation that each manager maintains appropriate policies, procedures, and controls to comply with all U.S. and applicable non-U.S. economic sanction programs.
At the end of the report, Mr. Husting stated that both staff and General Counsel recommended that no investment action be taken this year with regard to the Anti-Terrorism and Economic Sanctions Investment Policy.
Affirmative Action Policy Review
Mr. Husting and Mr. Dennis reviewed the Systems' Affirmative Action Policy and Procurement Action Plan. The policy was last revised in October 2014, and last reviewed with the Board in February 2019. The policy requires PSRS/PEERS staff to provide a report to the Board on an annual basis regarding the Systems' efforts to assure equal opportunities for minorities and women as money managers, brokers and investment counselors. Mr. Husting stated that the Systems were in compliance with the policy.
Sections 104.621, 105.702 and 169.573, RSMo require the Systems to make an annual report to the Governor's Minority Advocacy Commission and the Joint Committee on Public Employee Retirement regarding the progress made in the area of utilization of minority and women money managers, brokers and investment counselors. Staff submitted the required reporting on January 28, 2020.
At the end of the report, Mr. Husting stated that both staff and General Counsel recommended that no investment action be taken this year with regard to the Affirmative Action Policy and Procurement Action Plan.
U.S. Equity Program Review
Mr. Husting provided a broad overview of the Public Equity Composite. Mr. John Tuck and Mr. Travis Allen from PSRS/PEERS reviewed the Systems' U.S. Public Equity portfolio including program objectives, guidelines and long-term results. The five-year annualized returns for the Large-Cap and Small-Cap U.S. Public Equity composites for the period ended December 31, 2019 were 10.5% and 7.4% respectively.
Non-U.S. Equity Program Review
Mr. Frank Aten and Mrs. Jessica Wilbers from the PSRS/PEERS investment staff reviewed the Systems' Non-U.S. Equity portfolio including program objectives, guidelines and long-term results. The five-year annualized return for the Non-U.S. Equity composite for the period ended December 31, 2019 was 7.6%.
Asset Liability Study
Mr. Husting from PSRS/PEERS and Mr. Dennis, Margaret Jadallah and John Meier from Verus reviewed the Asset/Liability study. The presentation included a review of historical PSRS/PEERS Asset/Liability studies, a review of the PSRS/PEERS investment philosophy, the results of an Enterprise Risk Tolerance Survey conducted by Verus, capital market assumptions, deterministic return projections, asset allocation themes, the results of a liquidity study, asset allocation recommendations and a discussion of the assumed rate of return.
A decision regarding the Asset/Liability study was not made at the February Board meeting. An action item on the study is expected at the Board meeting on April 6, 2020.
Mr. M. Steve Yoakum from PSRS/PEERS presented the Board Governance Report recently completed by Cortex Applied Research, Inc (Cortex). Cortex conducts a general review of the extent to which the Board is operating in accordance with its governance policies and charters. The process involves reviewing Board and committee meeting minutes and related documentation, as well as follow-up discussions with senior management. Mr. Yoakum explained that the primary goal of the annual review is to ensure that the Board's governance policies and charters are living documents that truly guide how the Board functions, while also evolving to meet the changing needs of the Board and the Systems over time.
In preparing the annual Board Governance Report, Cortex identified only a small inconsistency in terminology. To address the inconsistency, Cortex recommends that the Board approve a minor revision changing the "Pending Issues List" to "Annual Tactics List" in the Board of Trustees Charter, Executive Director Charter, Planning and Budgeting Process Policy and Review and Reporting Policy. The Board voted unanimously to approve the report with suggested changes.
Mr. Dearld Snider from PSRS/PEERS shared with the Board an update on the facility renovation and new addition. Mr. Snider shared pictures of the progress on Bid Package 2 (new addition and renovation) and reported that the budget remains on track.
Member Services – Disability
Member Services Director Ms. Nicole Hamler and Benefits Supervisor Ms. Nichole Williams from PSRS/PEERS presented on the disability retirement program. Ms. Hamler provided the Board with an overview of the program review. Mr. Yoakum then discussed the history and objectives of the review. Mr. Yoakum explained to the Board that this review started many years ago but the objectives have remained constant. We do not have to enrich the program to entice members to retire under disability, but we want to ensure the programs provide a sufficient level of protection and financial assistance. Ms. Williams reviewed the current PSRS/PEERS disability population and gave a detailed overview of the current plans. Ms. Hamler then went through the various program enhancements including the policy, regulation and possible statutory enhancements. The policy enhancements consist of adding additional medical advisors and also implementing an annual income verification process. The regulation enhancements lower the annual income earnings limit for disability retirees under the age of 60 and also remove the automatic approval for PEERS disability based on Social Security disability approval. The regulation amendments will be brought back for Board approval at the April 2020 Board Meeting. Ms. Hamler will discuss the possible statutory enhancements in detail at the April Board Meeting, which include modifying eligibility requirements, implementing duty-related plans, and modifying the disability calculation, as well as working after retirement restrictions for disability retirees.
Ms. Maria Walden from PSRS/PEERS and Mr. Jim Moody, legislative consultant, updated the Board on the current legislative session. Mr. Moody reported briefly on state revenue and gave an update on January 2020 revenue to the Board. He also discussed sales tax growth and Missouri income from capital gains and dividends.
Ms. Walden reviewed the upcoming important legislative dates, the legislative statistics and new legislation filed. Several bills have been filed this year that have a direct impact on the Systems:
- House Bill (HB) 1298 allows active members who have more than 31 years of service to retire with a benefit factor of 2.55% instead of the current benefit factor of 2.5%.
- This bill repeals the July 1, 2014 termination date of a provision allowing PSRS members who have 31 or more years of service to have their retirement allowance calculated using a multiplier of 2.55%.
- House Bill (HB) 1934 and Senate Bill (SB) 755 states information pertaining to the salaries and benefits of the executive director and employees of the Board of PSRS shall not be considered confidential individually identifiable information.
- HB 1934 was voted do pass in House Rules – Administrative Oversight on January 30th. It was perfected on the House Floor February 4th, 2020.
- House Bill (HB) 2174 and Senate Bill (SB) 830 modify provisions to workforce development in elementary and secondary education and include changes to the PSRS/PEERS critical shortage statute.
- House Bill (HB) 2291 increases the duration of time that a retired teacher may teach without losing their benefit under the critical shortage statute from two years to four years.
Ms. Walden also discussed other legislation the Systems are monitoring, but which does not have a direct impact on the Systems.
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 Consumer Price Index for Urban Consumers (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 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' regulations require 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 0.3244% through December 31, 2019.
The total cumulative is 1.9729% through December 31, 2019.
The January reading for the CPI-U will not be released until February 13, 2020.
MNEA Legislative Director Mr. Otto Fajen addressed the Board on behalf of the National Public Pension Coalition regarding the recent request by the Missouri Department of Transportation (MoDOT) for funds to be used to implement a program which would give new hires the ability to opt out of the department's defined benefit pension plan in exchange for higher salaries. Mr. Fajen wanted to bring awareness to the issue.
The Board went into closed session at 1:15 p.m.
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 be posted to our website at that time.