June 2017 Board Meeting Summary

The Public School and Education Employee Retirement Systems of Missouri (PSRS/PEERS) Board of Trustees met for an investment symposium beginning June 11, 2017, and concluding on June 13, 2017. The symposium included educational sessions with internal investment staff and external investment managers in compliance with Missouri statute section 105.666, RSMo.

The Budget and Audit Committee of the Board of Trustees convened at 10:30 a.m. at Embassy Suites, 2 Convention Center Plaza, St. Charles, MO, with the regular session of the Board of Trustees meeting following at 12:30 p.m. In attendance were Board members Aaron Zalis, Yvonne Heath, Jason Hoffman, Chuck Bryant, Scott Hunt and Jason Steliga. Also present were PSRS/PEERS Executive Director, M. Steve Yoakum; Assistant Executive Director, Investments, Craig Husting; Assistant Executive Director, Operations, Dearld Snider; General Counsel, Alan Thompson; Chief Financial Officer, Anita Brand; Director of Member Services, Ronda Peterson; Director of Employer Services, Omar Davis; Director of Legislation and Policy, Maria Walden; Internal Auditor, Jeff Hyman; Chief Technology Officer, Bill Betts; Director of Administrative Planning and Design, Nicole Hamler; and various other PSRS/PEERS staff members.

Budget and Audit Committee

Minutes

The open session minutes from the April 10, 2017 meeting were approved by unanimous vote.

Fiscal Year 2017 Budget Transfer

Ms. Anita Brand discussed a proposed budget transfer related to legal fees for the investment department. This is an internal budget transfer, so the net effect to the budget is zero. The Budget and Audit Committee approved the budget transfer by unanimous vote.

Banking Resolution

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 2017-2018 Budget

Ms. Anita Brand reviewed the 2017-2018 proposed budget request. Mrs. 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. Mrs. Brand provided the following budget highlights and provided detailed discussion on significant changes from the prior year.

The total budget request increased by 6.5% from the fiscal year 2017 adjusted budget. The overall increase is driven by an expected 6.3% increase in benefit payments to members. The investment expenses are comprised of investment fees and investment administrative expenses. Investment fees are budgeted at a relatively flat amount compared to the prior year. Actual expenses will be directly dependent on the market environment. The budget request included a 4.4% decrease in 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 budget for these two areas has decreased by 13.1%, or $2,775,504, from fiscal year 2017. The decrease is attributed to the suspension of the "2020" building renovation project.

Mr. Scott Hunt expressed that staff should continue the planning of the 2020 project to ensure that the Systems' needs are adequately taken care of as membership and asset size continue to grow. Mr. Yoakum explained that while the project itself is on hold, staff will continue to develop a strategy as to when to implement the project.

In general, the Board discussed looking at alternative ways to most efficiently run the Board election for the coming year. Staff will work with the vendors to develop some additional information and options for the Board.

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

Internal Audit Report

Mr. Jeffrey Hyman presented the internal audit annual report to the committee. The Internal Audit department completed 12 audit engagements and performed consulting services in various areas in accordance with, and in addition to, the fiscal year 2017 PSRS/PEERS audit plan. Mr. Hyman also reviewed the internal audit plan for fiscal year 2018.

Regular Board Meeting

System Operations

Minutes

The open session minutes from the April 10, 2017 meeting were approved by unanimous vote.

Investment Report

Investment Performance Report (March 31, 2017)

Mr. Craig Husting from PSRS/PEERS and Mr. Michael Hall from Willis Towers Watson (the Systems' investment consultant), reviewed the investment performance for the period ended March 31, 2017. The one-year PSRS/PEERS investment return was reported as 11.1%, while the fiscal year return (July 1, 2016 through March 31, 2017) was reported as 8.9%.

Ongoing Investment Activity

Mr. Husting and Mr. Hall reviewed ongoing investment activities, which included estimated investment performance through May 31, 2017. 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 reviewed the tentative Board investment calendar.

Management Report

Board Meeting Dates for Fiscal Year 2018

The fiscal year 2018 Board of Trustees meeting dates were reviewed and approved by unanimous vote. The following dates were set for fiscal year 2018 meetings: August 28, 2017; October 30, 2017; December 11, 2017; February 12, 2018; April 9, 2018 and June 11-12, 2018.

Dr. Zalis informed the Board that the Board educational meeting June 11-12, 2018 will be held in Branson, Missouri. At this meeting, staff will focus on discussions regarding disaster recovery and operations.

Fiscal Year 2017 Budget Transfer

Ms. Anita Brand discussed a proposed budget transfer, which was unanimously approved earlier in the day by the Budget and Audit Committee, related to legal fees for the investment department. This is an internal budget transfer so the net effect to the budget is zero. The Board of Trustees approved the budget transfer by unanimous vote.

Banking Resolution

Ms. Anita 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 of Trustees approved the resolution by unanimous vote.

CEM Benchmarking Report

PSRS/PEERS participated in the CEM benchmarking study based on fiscal year 2016 performance. Mr. Dearld Snider and Ms. Kam Mangat, with CEM Benchmarking Inc., presented a summary of the resulting report. CEM benchmarked PSRS/PEERS' service and costs compared to 67 leading global pension systems, including 11 in our peer group that are similar in size.

The results were very positive, with an overall service score of 89 out of 100. PSRS/PEERS service level was second in the peer group, and top quartile among the CEM universe. This high level of service was provided in a cost-efficient manner with total administration costs just above the peer average, yet 49% below the average cost of the CEM Universe.

Mr. Snider explained to the Board that this study recognizes the great work being performed by the PSRS/PEERS staff, while also identifying opportunities for continuous improvement.

2017-2018 Budget Approval

The proposed 2017-2018 budget, as presented to the Budget and Audit Committee, was approved by the Board of Trustees by unanimous vote.

Legislative Update

Ms. Maria Walden and Legislative Consultant, Mr. Jim Moody, updated the Board on the 2017 legislative session. Mr. Moody reported briefly on state revenue and gave an update on May 2017 revenue to the Board. He also discussed sales tax growth and Missouri income from capital gains and dividends.

Ms. Walden reviewed the upcoming important 2017 legislative dates, as well as the 2017 legislative statistics. She also reviewed bills that passed with a direct impact on the Systems.

Ms. Walden also presented a detailed list of the bills that did not pass this legislative session.

Consumer Price Index (CPI) Update

Mr. Yoakum discussed the Consumer Price Index (CPI) as calculated by the Bureau of Labor Statistics (BLS). The CPI 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 used for the CPI calculation be from June to June. Based on the values provided by the BLS, the Consumer Price Index for Urban Consumers or CPI-U, which is used for cost-of-living adjustment (COLA) calculations, is up 1.4462% through April 30, 2017.

The May reading for the CPI will not be released until June 14, 2017.

Raw CPI-U Index Values
 

 

Index Values

Jun-16

241.038 Month To-date

Jul-16

240.647 -0.0016 -0.1622%

Aug-16

240.853 0.0009 -0.0768%

Sep-16

241.428 0.0024 0.1618%

Oct-16

241.729 0.0012 0.2867%

Nov-16

241.353 -0.0016 0.1307%

Dec-16

241.432 0.0003 0.1635%

Jan-17

242.839 0.0058 0.7472%

Feb-17

243.603 0.0031 1.0641%

Mar-17

243.801 0.0008 1.1463%

Apr-17

244.524 0.0030 1.4462%

Mr. Yoakum also discussed the COLA resolution, passed by the Board in December 2016, which states that that the Board will "annually analyze the financial impact of revisions to the COLA assumptions as part of the annual actuarial valuations." He reviewed the timeline for the full analysis:

He also reviewed the different COLA options that will be fully analyzed by the Board in the fall of 2017, and prior to setting the COLA for January 2018, which include:

Public Comment

None

Closed Session

The Board went into closed session at 2 p.m.

Adjournment

The Board adjourned at 2:45 p.m.

This summary is not the 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, scheduled for August 28, 2017 and will posted to our website at that time.