June 2020 Board Meeting

The June 9, 2020 meeting of the Budget and Audit Committee of the Public School and Education Employee Retirement Systems of Missouri (PSRS/PEERS) Board of Trustees convened at 8 a.m. in the Retirement System offices in Jefferson City, MO, with the regular session of the Board of Trustees meeting following at 10 a.m. In attendance were Board members Aaron Zalis, Jason Hoffman, Scott Hunt, Yvonne Heath, Beth Knes and Jason Steliga. Board member Sharon Kissinger was absent. Also in attendance were newly elected Board of Trustees, Dr. Melinda Moss and Dr. Kyle Collins. 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 6, 2020 meeting were approved by unanimous vote.   

Annual Banking Resolution
Chief Financial Officer Ms. Anita Brand 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. 

Discussion and Approval of the Fiscal Year 2021 Budget
Assistant Executive Director, Operations Mr. Dearld Snider and Ms. Brand led a compensation and budget discussion in preparation for the fiscal year 2021 budget. Mr. Snider reviewed the Board of Trustees' compensation strategy by highlighting the purpose, principles and overall approach of strategy. Mr. Joe Rice of CBIZ presented the results of the compensation study which is conducted every three years to ensure the System maintains external competitiveness and internal equity. Overall, the study results concluded that most employees fell within their respective pay ranges and only marginal adjustments were recommended. CBIZ commended the Systems' reliance on their compensation strategy. They see the approach as good governance and best practice to keep compensation at or near the market.

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 5.0% from the fiscal year 2019-2020 adjusted budget. The overall increase is driven by an expected 5.3% increase in benefit payments to members.

The investment expenses are comprised of investment fees and investment administrative expenses. Budgeted investment fees increased by 1.9% compared to the prior year. This is a result of continued funding of private risk assets, partially offset by recent marked declines and volatility. 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 two investment officers and a merit compensation pool for staff. 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 2021 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 approved the building expansion and renovation project at their December 2018 meeting to ensure 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 increased by 3.2% from fiscal year 2020. The increase is attributed to the addition of three full-time positions and the completion of a comprehensive compensation study in accordance with the Board of Trustees' compensation strategy. Throughout the proposed budget request, the Systems have decreased the budget where appropriate. However, the overall proposed budget request has increased in order to meet the Systems' long-term goals and strategic objectives. The Systems' administrative expenses are funded through investment earnings.

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

Internal Audit Report
Internal Auditor Mr. Jeff Hyman presented the internal audit annual report to the committee. The internal audit department completed 14 audit engagements and performed consulting services in various areas in accordance with, and in addition to, the fiscal year 2020 PSRS/PEERS audit plan. Mr. Hyman also reviewed the internal audit plan for fiscal year 2021.

Regular Board Meeting 

System Operations

Minutes
The open session minutes from the April 6, 2020 meeting were approved by unanimous vote.   

Order of Business
Executive Director Mr. Steve Yoakum presented Yvonne Heath with a plaque in honor of her years of service and dedication to the PSRS/PEERS Board of Trustees. Mr. Yoakum also presented Dr. Aaron Zalis with a plaque thanking him for his leadership over the past ten years on the PSRS/PEERS Board of Trustees.

Investment Report

Investment Performance Report (March 31, 2020)
Assistant Executive Director, Investments Mr. Craig Husting reviewed the investment performance for the period ended March 31, 2020. The 1-year PSRS/PEERS investment return was reported as -1.0% while the fiscal year return (July 1, 2019 thru March 31, 2020) was reported as -4.3%.

Ongoing Investment Activity
Mr. Husting reviewed ongoing investment activities, which included estimated investment performance through May 31, 2020. The estimated fiscal year investment return (July 1, 2019 thru May 31, 2020) was reported as approximately 1.8%. Mr. Husting discussed the investment markets, rebalancing activity in March and April and the current PSRS/PEERS asset allocation.

Custodial Review and Contract
JP Morgan was hired as the custodian for PSRS/PEERS in September 2010 after a formal RFP process. Consultant RVK was hired in 2015 to conduct a Custodial and Related Services Review. The result of the RVK review was an extension of the JP Morgan custody contract (under a new compensation structure) through September 2020. 

Mr. Husting reported that RVK was retained by PSRS/PEERS again in February 2020 to conduct a second Custodial and Related Services Review. As part of the review, RVK evaluated specifics of the PSRS/PEERS relationship with JP Morgan including cost drivers, levels of complexity and changes over time. Following discussion, the Board voted unanimously to allow staff, with assistance from RVK, to negotiate new contract terms with JP Morgan (through September 2025) based on the results of the Custodial Review.

Investment Policy Changes
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 October 2019. 

Mr. Husting discussed proposed Investment Policy changes. The recommended changes were primarily to bring the policy in accord with Board action from April 6, 2020 to adopt a new long-term asset allocation. Following discussion, the proposed investment policy changes were approved by unanimous vote.

Management Report

Certification of Election
Mr. Yoakum shared the trustee election results as certified by Election-America. The Board approved the certified election results by unanimous vote. Mr. Yoakum welcomed Dr. Kyle Collins and Dr. Melinda Moss to the PSRS/PEERS Board of Trustees.

Coronavirus COVID-19 Update
Mr. Snider presented a timeline of actions that have been taken since the onset of COVID-19, as well as the precautions the office still has in place. He also shared with the Board some important statistics to highlight the high level of service we were still able to provide to our members and employers while staff was working remotely.

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 approved the resolution by unanimous vote.

Fiscal Year 2021 Budget Approval
The proposed fiscal year 2021 budget, as presented to the Budget and Audit Committee, was approved by the Board by unanimous vote.

Legislative Update
Director of Legislation and Policy Ms. Maria Walden updated the Board on the 2020 Missouri Legislative Session. Ms. Walden reviewed the 2020 Missouri legislative statistics, as well as the upcoming important 2020 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.

Senate Substitute (SS) Senate Committee Substitute (SCS) House Bill (HB) 1467 and House Bill (HB) 1934 state 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.

Senate Committee Substitute (SCS) Senate Bill (SB) 739 creates the "Anti-Discrimination Against Israel Act"

• Prohibits public entities from entering into certain contracts with a company unless the contract includes written certification that the company is not currently engaged in, and agrees for the duration of the contract not to engage in, a boycott of goods or services from the State of Israel or any company, or person or entity, doing business with or in the State of Israel.

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 reviewed the COLA policy that was set by the Board 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:

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 0.0960% through April 30, 2020.

The total cumulative is 1.7445% for the 22 month period through April 30, 2020.

The May reading for the CPI-U will not be released until June 10, 2020.

Board Meeting Dates for Fiscal Year 2020
The fiscal year 2021 Board of Trustees meeting dates were reviewed and approved by unanimous vote. The following dates were set for fiscal year 2020 meetings: August 31, 2020; October 26, 2020; December 7, 2020; February 8, 2021; April 12, 2021 and June 7-8, 2021.

Closed Session

The Board went into closed session at 12 p.m.

Adjournment

The Board adjourned at 2:00 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.