April 2022 Board of Trustees Meeting Summary

The Public School and Education Employee Retirement Systems of Missouri (PSRS/PEERS) Board of Trustees convened on April 10 and April 11, 2022. In attendance were Board members Jason Steliga, Beth Knes, Dr. Kyle Collins, Sharon Kissinger, Dr. Melinda Moss and Dr. Eric Park. Also present were Executive Director Dearld Snider; Assistant Executive Director, Operations Bill Betts; Assistant Executive Director, Investments Craig Husting; General Counsel Sarah Swoboda; Chief Financial Officer Anita Brand; Chief Technology Officer Lisa Scheulen; Director of Human Resources Kim Harris; Director of Member Services Nicole Hamler; Director of Employer Services Stacie Verslues; Director of Communications Susan Wood; Director of Internal Audit Jeff Hyman; Director of Executive and Board Administration Jennifer Martin; and various other PSRS/PEERS staff members.

Budget and Audit Committee  

Minutes

The open session minutes from the December 6, 2021 Budget and Audit Committee meeting were approved by unanimous vote.

Preliminary 2022-2023 Budget Discussions

Ms. Anita Brand and Mr. Bill Betts from PSRS/PEERS and Mr. Joe Rice from CBIZ led a compensation and budget discussion in preparation for the upcoming fiscal year. Mr. Betts reviewed the Board of Trustees' compensation strategy by highlighting the purpose, principles and overall approach of the strategy. As part of the Board of Trustees’ compensation strategy, an independent compensation study is conducted every three years to ensure the Systems maintain external competitiveness. Due to the current labor market and competition to recruit and retain employees, the Systems performed the operation compensation study off cycle. Mr. Joe Rice of CBIZ presented the results of the compensation study which included a review of the salary range structure and the adoption of a career level framework. Overall, the study results concluded that modest adjustments were necessary to implement the adoption of a career level framework. 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 described the annual budgeting process, which begins in the second quarter of each calendar year. The budget includes two broad categories: investment expenses and administrative expenses, inclusive of capital assets.

The annual budget is prepared with consideration of the necessary expenses to ensure the Systems continue to meet their goals and objectives in an efficient and effective manner.

Final detailed budget requests will be presented to the Budget and Audit Committee and the Board of Trustees during the June 2022 meeting.

External Auditor RFP Review

The Systems issued a Request for Proposals (RFP) for Professional Auditing Services. The RFP requested proposals from qualified firms of certified public accountants to audit the Systems’ financial statements for each of the fiscal years ending June 30, 2022, June 30, 2023, and June 30, 2024. The Systems also requested proposals to audit the Systems’ Schedules of Pension Information for Participating Employers, inclusive of employer allocations, net pension liability, total deferred outflows of resources, total deferred inflows of resources and total pension expense. Based on the RFP responses, staff recommended awarding the external audit contract to Williams-Keepers, LLC. The Budget and Audit Committee approved staff's recommendation by unanimous vote.

Investments

Private Equity and Private Credit Program Review

Mr. John Tuck, Mr. Dan Case, Mr. Ben Frede and Ms. Brenna Noble 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 December 31, 2021 was 26.1% and the five-year annualized return for the Private Credit composite for the same period was 11.0%. Staff also discussed the Private Equity co-investment program and the Private Credit direct investment program.

Regular Board Meeting

System Operations

Minutes

The open session minutes from the February 7, 2022, and March 4, 2022, Board meetings were approved, as amended, by unanimous vote.

Order of Business

Executive Director Dearld Snider presented plaques to Sandy Coleman and Stacey McNally for their dedication, service and retirement from PSRS/PEERS.

Certification of Election

Mr. Snider shared the trustee election results. The Board approved the certified election results by unanimous vote. Mr. Snider congratulated Jason Steliga and thanked him for his continued service. He also welcomed Allie Gassmann to the PSRS/PEERS Board of Trustees. 

Election of Chair and Vice Chair

Mr. Jason Steliga was elected to serve as chair of the Board and Ms. Beth Knes as vice chair of the Board for the period of July 1, 2022 through June 30, 2023. Both were elected by unanimous vote.

Interest Credit Rate

Each June 30, interest is credited to the accounts of active members at the rate set by the Board of Trustees. If a member requests a refund of his or her contributions, any accumulated interest is paid as part of this refund. If a member retires from the Systems, the amount of interest credited to the membership will not affect the retirement benefit calculation. In the event that there is an unused balance in the membership at the death of the member and any Joint-and-Survivor benefit plan beneficiary, the remainder is paid in a lump sum to the residual beneficiary. Ms. Brand presented information on current member account balances, as well as historical interest rates and payments. Staff recommended the interest rate credited to the accounts of active members be 2.0% for fiscal year 2022-2023. This rate will be utilized throughout the fiscal year to facilitate necessary member account corrections and will be utilized to credit active member accounts on June 30, 2023. The Board of Trustees approved staff's recommendation by unanimous vote.

Purchase Interest Rate

Ms. Anita Brand presented information to the Board of Trustees on the purchase interest rate. According to Board Regulation (16 CSR 10-4.012 (4)), prior to July 1 each year, the Board of Trustees shall establish a "purchase rate" of interest based on the actuarially assumed rate of return on invested funds of the Retirement Systems. The purchase interest rate shall apply to any amount due for reinstatement of service or for the purchase of service, except as otherwise specified by law. Staff recommended the purchase interest rate be set at the current assumed rate of return of 7.3%. The Board of Trustees approved staff's recommendation by unanimous vote.

Other

None

Investment Report

Ongoing Investment Activity

Mr. Craig Husting from PSRS/PEERS and Mr. Michael Hall from Russell provided a market overview including detailed investment returns for several stock and bond indices for the calendar and fiscal years through March 31, 2022. Mr. Husting provided a broad overview of the PSRS/PEERS’ portfolio structure, including an estimated asset allocation for PSRS/PEERS as of March 31, 2022. Mr. Husting stated that the PSRS/PEERS preliminary (unaudited) investment return for the fiscal year (July 1, 2021 through March 31, 2022) was approximately 4.0%.

Asset Liability Study

Mr. Husting and Mr. Hall presented the Asset/Liability study. The presentation included a review of historical PSRS/PEERS’ Asset/Liability studies, a review of the PSRS/PEERS’ investment philosophy, capital market expectations and an asset allocation recommendation. Mr. Husting and Mr. Hall provided 10-year expected risk and return estimates for the current asset allocation and then for the recommended asset allocation. 

Mr. Husting and Mr. Hall recommended a new asset allocation of 45% Public Risk Assets, 15% Safe Assets and 40% Private Risk Assets. The Board voted on and approved the recommendation. 

Management Report

Selection of External Auditor

Ms. Brand reviewed the Request for Proposals (RFP) for Professional Auditing Services for the fiscal years ending June 30, 2022, June 30, 2023, and June 30, 2024. Based on the RFP responses, staff recommended awarding the external audit contract to Williams-Keepers, LLC, which was unanimously approved by the Budget and Audit Committee. The Board of Trustees approved the Budget and Audit Committee’s recommendation by unanimous vote.

Disability Reg Update

Ms. Sarah Swoboda and Ms. Nicole Hamler from PSRS/PEERS presented proposed amendments to disability regulations 16 CSR 10-5.020 (PSRS) and 16 CSR. 10-6.070 (PEERS).  Ms. Hamler reviewed the program objectives and recent management decision to add a medical consultant to the disability approval process. Due to the implementation of the consultant, staff recommended a change in the definition of livelihood which is set by the PSRS/PEERS Board of Trustees and used to determine disability benefit eligibility. The definition of a livelihood used to determine allowable income once disabled would not be impacted by this change. It was also recommended to include a vocational analysis as part of the disability eligibility review process. The Board approved the staff’s recommendation to the definition of livelihood by unanimous vote. 

Ms. Swoboda reviewed the necessary amendments to the disability regulation to codify the Board’s definition of livelihood. The proposed regulation also outlines PSRS/PEERS definition of permanence and allows for the vocational analysis as part of the approval process. The Board of Trustees approved amendments to the regulation by unanimous vote.  

Legislative Update

Ms. Swoboda and Mr. Jim Moody, legislative consultant, updated the Board on the current Missouri legislative session. Mr. Moody reported briefly on state revenue and gave an update on March 2022 revenue to the Board. Ms. Swoboda reported that the systems are currently tracking 458 bills and reported in detail on some of the bills currently being tracked including:

• HB 2161 and HB 2430 – increase the PSRS benefit factor to 2.55% for retirees with 32 or more years of service; provision also added to HB 2799
• HB 1881 – increases the time a retiree may serve in Critical Shortage Employment to four years
• HB 2114 – increases the time a retiree may serve in Critical Shortage Employment to four years and increases the working after retirement salary limit for PSRS retirees working in non-certificated positions to the Social Security earnings limit
• SB 999 and HB 2089 – increase the time a retiree may serve in Critical Shortage Employment to four years and allow superintendents to work in Critical Shortage Employment in certain circumstances
• SB 712 – allows for a benefit pop-up for same sex relationships (similar to current divorce pop-up) in certain circumstances
• HB 2304, HB 1750, HB 1753, and HB 1998 – allow for a waiver of certain working after retirement limits for retirees who are substitute teaching; contain a sunset of July 1, 2025
• HB 2799 – allows for a waiver of certain working after retirement limits through 2025; also contains the increase to four years for Critical Shortage Employment and the 2.55% PSRS benefit factor for 32 or more years of service
• HB 2194 and HB 2216 – increase the working after retirement salary for PSRS retirees working in non-certificated positions to 60% of the average teacher salary for the primary district for which the retiree works
• HB 2787 – changes the working after retirement limits for PSRS/PEERS retirees to 25% of the retiree’s final average salary; also increases the time a retiree may serve in Critical Shortage Employment to four years and increases the working after retirement salary limit for PSRS retirees working in non-certificated positions to the Social Security earnings limit
• SB 767 – modifies a provision of law related to PSRS survivor benefits
• SB 836 – modifies eligibility for retirement benefits resulting from membership in multiple defined benefit plans
• SB 1048 – prohibits public entities from contracting with entities who discriminate against gun manufacturers
• SB 1239 – prohibits public entities from contracting with companies who do business in Russia
• SB 1171 – prohibits public entities from contracting with entities who discriminate based on Environmental, Social and Governance scores (ESG)
• HB 2825 – requires retirement systems to ensure that 20% of venture capital and real estate investments to be located in Missouri
• HB 2897 – allows new state employees to opt out of the Missouri State Employees’ Retirement System (MOSERS)
• HB 1170, HB 2357, HB 2876 – provide for increases to the minimum teacher salary

CPI-U Update

Mr. Snider 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:

Mr. Snider 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 4.4241% through February 28, 2022. 

Public Comment

None

Other

None

Closed Session

The Board went into closed session at 11:12 a.m.

Adjournment

The Board adjourned at 2:46 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.