October Board of Trustees Meeting Summary

The Public School and Education Employee Retirement Systems of Missouri (PSRS/PEERS) Board of Trustees convened on October 28, 2024. In attendance were Board members Beth Knes, Dr. Eric Park, Allie Gassmann, Katie Webb, Chuck Bryant, and Dr. Nate Moore. Also present were Executive Director Dearld Snider, Chief Operating Officer Sarah Swoboda, Chief Investment Officer Craig Husting, Chief Counsel Mike Moorefield, Chief Financial Officer Anita Brand, Deputy Chief Financial Officer Tory Brondel, Director of Human Resources Michelle Varcho, Director of Employer Services Stacie Verslues, Director of Member Services Nicole Hamler, Director of Internal Audit Jeff Hyman, Director of Communications Susan Wood, Chief Technology Officer Lisa Scheulen, Chief Information Security Officer Joe Susai, Director of Executive and Board Administration Jennifer Martin and various other PSRS/PEERS staff members.

Regular Board Meeting - Monday, October 28, 2024

System Operations

Approval of Minutes

The open session minutes from the August 25-26, 2024, Board meeting were approved by unanimous vote.

Order of Business

The order of business was approved with no changes.

Election of Vice Chair

Dr. Eric Park was elected to serve as vice chair of the Board for the period of October 28, 2024, through June 30, 2025. He will complete the remaining portion of Dr. Steliga's term. Dr. Park was elected by unanimous vote.

Election of Budget & Audit Committee Member

Ms. Katie Webb was elected to serve on the Budget & Audit Committee to fill the vacancy of Dr. Jason Steliga. The other two current members of the Committee are Ms. Beth Knes and Dr. Eric Park. Ms. Webb was elected by unanimous vote.

Other

None

Investment Report

Ongoing Investment Activity

Mr. Craig Husting and Mr. Michael Hall from Russell reviewed ongoing investment activities, which included estimated investment performance through September 30, 2024. The estimated return for the first quarter of fiscal year 2025 (July 1, 2024, through September 30, 2024) was approximately 3.9%. Mr. Husting discussed the current asset allocation of the PSRS/PEERS portfolio, reviewing the long-term strategy and broad portfolio expectations.

Mr. Husting reviewed the Systems' Proxy Voting Policy. The Systems fully direct the proxy voting process for public equity managers (where the Systems have authority). The internal PSRS/PEERS staff did not identify any operational issues with the proxy voting process during the review that was conducted for fiscal year 2024 and all investment managers were in compliance with the Policy. Additionally, the State Auditor recently conducted a review of the proxy voting process of public fund institutional investors in Missouri. The PSRS/PEERRS proxy voting policies and procedures were recognized as ideal.

Public Equity

Mr. Frank Aten, M. Jessica Wilbers and Mr. Dan Lane from the PSRS/PEERS investment staff reviewed the Systems' Public Equity portfolio including program objectives, guidelines and long-term results. The 5-year annualized return for the U.S. Equity composite for the period ended September 30, 2024, was 13.1%. The 5-year annualized return for the Non-U.S. Equity composite for the period ended September 30, 2024, was 9.7%.

Private Equity Annual Review with Pathway

Mr. Vincent Dee, Mr. Wayne Smith, Mr. Derrek Ransford and Mr. Matthew Spader from Pathway Capital Management presented a number of items to the Board, including a Pathway organizational update and a review of the PSRS/PEERS' Private Equity, Private Equity Co-investment, and Direct Credit programs. Pathway reported that the PSRS/PEERS Private Equity portfolio (that Pathway consulted on) had produced an annualized return of 15.1% for the 10-year period ended June 30, 2024. By comparison, the public equity benchmark returned 10.2% over this period. The Co-investment and Direct Credit portfolios have shorter track records. Pathway reported that the PSRS/PEERS Co-investment portfolio had produced an annualized return of 17.3% for the 5-year period ended June 30, 2024. By comparison, the public equity benchmark returned 12.1% over this period. Pathway reported that the PSRS/PEERS Direct Credit portfolio had produced an annualized return of 10.8% since the inception of the program in October 2019 through September 30, 2024. By comparison, the public credit benchmark returned 3.8% over this period.

Report of the Actuary

June 30, 2024, Actuarial Valuations

Ms. Cindy Fraterrigo, Mr. Brandon Robertson and Ms. Becky Brenza from PwC US (PwC), the Systems' actuary, were present to discuss the results of the June 30, 2024, actuarial valuations for the Systems.

Ms. Fraterrigo provided an overview of the purpose of the annual actuarial valuations and the key components. Mr. Robertson reviewed key developments during fiscal year 2024, including asset returns, inflation and cost-of-living impacts, overall member experience, recently passed legislation and the recently completed actuarial audit.

Ms. Brenza and Mr. Robertson reviewed the June 30, 2024, actuarial valuation information prepared by PwC. They reviewed the changes in membership, assets, liabilities, maturity of the plans, cashflows and the pre-funded status of each System. They reported that the June 30, 2024, preliminary pre-funded status based on the actuarial value of assets of PSRS has increased to 87.2% from 85.9% for the prior year and for PEERS increased to 88.1% from 87.3%. The funded status of both Systems is viewed to be healthy and a result of appropriately set actuarial assumptions, consistent funding of the recommended contributions and diligent plan governance.

Mr. Robertson and Ms. Fraterrigo reviewed preliminary projections, risks and considerations. They specifically identified the Systems' investment return, inflation, and cost-of-living-adjustment (COLA) assumptions as the most sensitive assumptions in determining the overall financial health of the Systems and future actuarially determined contribution rates. They discussed the continuing maturity of the member population and leverage inherent in both Systems and the possibility of future adverse experience. Future adverse experience, such as not meeting the assumed rate of return or COLAs in excess of current assumptions, or changes to the assumptions could increase contribution rates in the future. However, if all assumptions are met, the current contributions will continue to be sufficient in the near-term.

Funding Policies

There were no proposed changes to the Funding Policies.

Set Contribution Rates for Fiscal Year 2025-2026

The Board voted unanimously to maintain the contribution rate for PSRS at 29% and PEERS at 13.72% for fiscal year 2025-2026, as recommended by the actuary. This was the fifteenth year for the actuary to recommend the rates to be 29.0% for PSRS and 13.72% for PEERS. The consistency of contribution rates for a long duration illustrates significant financial stability, strong governance and long-term planning.

Set January 2025 Cost-of-Living-Adjustment (COLA)

In accordance with the Systems' Funding Policies and the recommendation of the actuary, the Board voted unanimously to grant a 2% COLA for January 2025.

Management Report

Approval Special Board Election Schedule

The Board approved the following trustee election schedule by a unanimous vote:

Key Accomplishments

Ms. Sarah Swoboda reviewed key accomplishments since the August Board Meeting.

Ms. Swoboda informed the Board that employer services held their annual fall conference at Margaritaville September 25-26. Over 220 contacts from our 535 covered-employers registered to attend the conference. Ms. Swoboda provided the Board with a summary of the various educational sessions offered to our employers.

Ms. Swoboda next explained to the Board the information technology department has started sending weekly Tuesday Tech Tips to all staff. These emails provide quick tips and tricks for a variety of programs. In addition, the security team is now sending monthly emails to staff with reminders and tips on staying safe online. As October is Cybersecurity Awareness month, and the security team is also offering weekly emails to staff and providing additional cybersecurity trainings.

Next, Ms. Swoboda informed the Board there have been two more projects completed in the OASIS modernization project; the 1099-R tax form process and the Employer Statement of Account. Finally, Ms. Swoboda ended her presentation by informing the Board the second phase of Observe.AI went live in August 2024. This phase introduced automated call evaluations for both the member services and employer services staff. 

CPI-U Update

Mr. Dearld 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 0.36% through September 30, 2024. The October CPI-U update will be released November 13, 2024.

Public Comment

None

Other

None

Closed Session

The Board went into closed session at 11:45 a.m.

State of the Systems Address

The Board voted to go back into Open Session at 1:05 p.m., with the Board starting the State of the Systems' and Associations Meeting at 1:45 p.m.

Mr. Dearld Snider provided an update on the State of the Systems. Mr. Snider discussed how total Systems' membership has grown 11% over the past five years, active population membership has grown by 2%, and the retirement population has grown by 12.6%. Service retirement for PSRS/PEERS has remained steady for the last five years.

Mr. Snider also discussed how many PSRS and PEERS members retired in 2023-2024 versus the total members who are eligible to retire. For the 2023-2034 school year, there were 2,826 PSRS members who retired. This is only 16% of the 17,873 members that were eligible to retire. For PEERS, 2,158 members retired in 2023-2024, which is only 13% of the 16,748 members who were eligible to retire.

Mr. Snider then discussed the Systems' Board and Management Team. The Systems currently have one vacant position on the Board; a PSRS elected position. The Systems will administer an election beginning October 29, 2024. Mr. Snider also highlighted the different forms of communication and educational opportunities offered to members. He also talked about the different types of service and communication offered by career state and topics.

Mr. Snider next discussed PSRS/PEERS investments and the Investment Department. Mr. Craig Husting, Chief Investment Officer, oversees a staff of 30 investment staff between the St. Louis and Jefferson City offices. The investment staff oversees 187 managers and maintains 750 relationships. The staff manage over $60 billion in assets. PSRS/PEERS is currently the 44th largest defined benefit plan in the United States and the 98th largest retirement fund in the World.

Lastly, Mr. Snider discussed the Systems' government relations. The Missouri State Auditor's office completed an audit on the Missouri Retirement Systems' Proxy Voting Policies in September 2024. PSRS/PEERS was included in the audit. The audit "recommends that all public retirement systems consider improving proxy policies by including more specific guidance on how the system wants proxy votes cast, similar to the polices used by MOSERS and PSRS/PEERS." Mr. Snider congratulated the Board and staff on a successful audit.

Mr. Mike Moorefield from PSRS/PEERS then asked those in attendance from the education associations to share any concerns or goals they have for the upcoming legislative year. Representatives from MNEA (Missouri National Education Association), MSTA (Missouri State Teachers Association), MRTA (Missouri Retired Teachers Association), MASA (Missouri Association of School Administrators), and MARE (Missouri Association Rural Education) were all present on behalf of their Associations.

Adjournment

The Board adjourned at 2:32 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.