December 2017 Board Meeting Summary

The Budget and Audit Committee of the Board of Trustees convened at 9 a.m. in the Retirement System offices in Jefferson City, MO, with the regular session of the Board of Trustees meeting following at 9:30 a.m. In attendance were Board members Aaron Zalis, Yvonne Heath, Beth Knes, Jason Hoffman, Scott Hunt, Chuck Bryant and Jason Steliga. Also present were 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 Retirement Services, Omar Davis; Director of Legislation and Policy, Maria Walden; 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 June 13, 2017 meeting were approved by unanimous vote. 

Budget Transfer–Information Technology

Ms. Anita Brand and Mr. Bill Betts requested a fiscal year 2018 budget transfer to allow Information Technology (IT) staff to replace critical end-of-life hardware. The project would provide a long-term efficient and effective solution to the Retirement Systems' IT infrastructure. The overall budget impact is zero. Mr. Betts reviewed in detail with the committee the anticipated changes and resulting overall efficiencies, including the timeline and the goals for a complete replacement of this hardware.

The budget transfer was approved by unanimous vote.

Review of the June 30, 2017 Audit Report

Ms. Heidi Chick, Mr. Nick Mestres and Ms. Kristen Brown of Williams Keepers discussed the recent June 30, 2017 audit of the Retirement Systems. Ms. Chick reported that Williams Keepers had issued an unqualified audit opinion on the June 30, 2017 financial statements. She explained than an unqualified audit opinion represents the following: the "highest opinion" available, that the financial statements are fairly presented in all material respects in accordance with U.S. Generally Accepted Accounting Principles, and that the financial statements can be relied upon. Ms. Chick briefly reviewed the audit process, financial statements, new accounting pronouncements and the footnotes. Ms. Chick and Mr. Mestres reviewed the management letter. They indicated no significant deficiencies or material weaknesses in internal controls were found. Ms. Chick also briefly discussed the additional procedures and audit that assists PSRS/PEERS' school district with complying with Governmental Accounting Standards Board Statement No. 68. She reviewed the roles of PSRS/PEERS' staff and Williams Keepers during this process and the joint effort made with the school districts. Ms. Chick also discussed new GASB statements that will be effective in 2018 and future years.

The audit report was approved and accepted by unanimous vote.

REGULAR BOARD MEETING

SYSTEM OPERATIONS

Minutes

The open session minutes from the November 2-3, 2017 and December 4, 2017 meetings were approved by unanimous vote.

Order of Business

Mr. Yoakum presented plaques to Phil Klapp and Kristi Graessle recognizing their recent retirements from PSRS/PEERS.

INVESTMENT REPORT

Investment Performance Report (9/30/17)

Mr. Craig Husting reviewed the investment performance for the period ended September 30, 2017. The one-year PSRS/PEERS investment return was reported as 12.7%, while the fiscal year return (July 1, 2017 through September 30, 2017) was reported as 3.1%.

Ongoing Investment Activity

Mr. Husting reviewed ongoing investment activities, which included estimated investment performance through November 30, 2017. He discussed the current asset allocation of the PSRS/PEERS portfolio, during which he reviewed the long-term strategy, portfolio themes and the broad portfolio expectations. Mr. Husting also reviewed the tentative Board investment calendar.

General Asset Consultant Selection

Mr. Husting reviewed the search process for the general asset consultant. He stated that a memo was sent to the Board of Trustees on June 22, 2017, recommending a full search for a general consultant after the announcement of Michael Hall's resignation from Willis Towers Watson (WTW) on June 7, 2017. The search process officially began in early July 2017. During this four-month search process, the staff evaluation team completed several initiatives including a review/evaluation of the written responses received from nine consulting firms; interviews with six consulting firms in Jefferson City, Missouri; and on-site meetings with four consulting firms at their offices. Staff ultimately agreed that two firms, Verus and WTW, should complete final interviews with the Board of Trustees and staff on December 4, 2017.

Following Mr. Husting's review, the Board voted to hire Verus as the general asset consultant for PSRS/PEERS by unanimous vote.

ACCOUNTING

Review of Fiscal Year 2017 Comprehensive Annual Financial Report (CAFR)

Ms. Anita Brand reviewed the purpose of the CAFR, specifically focusing on the report's five distinct sections: 1. Introductory, 2. Financial, 3. Investment, 4. Actuarial and 5. Statistical. The CAFR is prepared in compliance with the accounting requirements established by the Governmental Accounting Standards Board (GASB). The Government Financial Officers Association (GFOA) also provides guidance on the content of each section. The Systems' strive for excellence in reporting and transparency, therefore the CAFR exceeds the GFOA requirements. The Board each received a copy of the CAFR with the Board Meeting information. The full version is also found on the PSRS/PEERS website: https://www.psrs-peers.org/Investments/Annual-Report 

Report of the External Auditor: Review of the June 30, 2017 Audit Report

Ms. Heidi Chick of William Keepers reviewed the recent June 30, 2017 audit of the Retirement Systems. The full report was presented to the Budget and Audit Committee. Ms. Chick indicated that Williams Keepers had issued an unqualified audit opinion on the June 30, 2017 financial statements. Ms. Chick indicated an unqualified audit opinion represents the following: the "highest opinion" available, that the financial statements are fairly presented in all material respects in accordance with U.S. Generally Accepted Accounting Principles, and that the financial statements can be relied upon. Ms. Chick briefly reviewed the audit process, financial statements, new accounting pronouncements and the footnotes, as well as the management letter. She indicated they found no significant deficiencies or material weaknesses in internal controls. Ms. Chick also briefly discussed the Governmental Accounting Standards Board Statement No. 68 audit. She reviewed the roles of PSRS/PEERS' staff and Williams Keepers during this process and the joint effort made with the school districts. Ms. Chick also discussed GASB statements that will be effective in 2018 and future years.

The audit report was approved as recommended by the Budget and Audit Committee by unanimous vote.

MANAGEMENT REPORT

Budget Transfer–Information Technology

Ms. Anita Brand reviewed the requested fiscal year 2018 budget transfer (zero net effect on the budget) which was presented and approved during the Budget and Audit Committee meeting. The Budget transfer was approved as recommended by the Budget and Audit Committee by unanimous vote.

Legislative Update

Mr. Jim Moody updated the Board on the upcoming legislative session. Mr. Moody reported briefly on state revenue and gave an update on the November 2017 state revenue to the Board.

CPI-U Update

Mr. Steve Yoakum discussed the COLA policy that was set by the Board of Trustees at the November 3, 2017 meeting. The COLA for January 2018 will be 1.63%. Effective with the January 2019 COLA, the policy will be:

2017 Board Approved Funding Policy Effective for January 1, 2019 COLA
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%
Over 5.0% 5.0%
*Resets cumulative calculation after a COLA is approved

Mr. Yoakum 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 just 0.6973% for the first four months of fiscal year 2018.  

Raw CPI-U Index Values
Index Values
June 2017 244.955 Month To-Date
July 2017 244.786 -0.0007 -0.0690%
August 2017 245.519 0.0030 0.2302%
September 2017 246.819 0.0053 0.7610%
October 2017 246.663 -0.0006 0.6973%

The November reading for the CPI-U will not be released until December 15, 2017.

Public Comment

None

CLOSED SESSION

The Board went into closed session at 11:30 a.m.

ADJOURNMENT

The Board adjourned at 12 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.