December 2018 Board Meeting SummaryDecember 12, 2018
The Budget and Audit Committee of the Board of Trustees convened at 9 a.m. on Monday, December 10 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, Jason Steliga and Chuck Bryant. Board Member Scott Hunt attended the Management portion of the regular meeting and the closed session via teleconference. 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 Legislation and Policy, Maria Walden; Director of Internal Audit, Jeff Hyman; Director of Communications, Susan Wood; Chief Technology Officer, Bill Betts; Director of Administrative Planning and Design, Stacie Verslues; and various other PSRS/PEERS staff members.
Budget and Audit Committee
The open session minutes from the June 12, 2018 meeting were approved by unanimous vote.
Review of June 30, 2018 Audit Report
Ms. Heidi Chick, Mr. Nick Mestres and Ms. Kristen Brown of Williams Keepers discussed the recent June 30, 2018 audit of the Retirement Systems. Ms. Chick indicated that Williams Keepers had issued an unqualified audit opinion on the June 30, 2018 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 the U.S. Generally Accepted Accounting Principles, and the financial statements can be relied upon. Ms. Chick briefly reviewed the audit process, financial statements, new accounting pronouncements and all the footnotes. Mr. Mestres reviewed the audit communications letter to the Board of Trustees. He 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.
The audit report was approved and recommended acceptance by unanimous vote by the Budget and Audit Committee.
Regular Board Meeting
The open session minutes from the October 29, 2018 meeting were approved by unanimous vote.
Order of Business
PSRS/PEERS Executive Director Mr. Steve Yoakum presented a plaque to Charlene Porter recognizing her recent retirement from PSRS/PEERS.
Investment Performance Report (9/30/18)
Mr. Craig Husting from PSRS/PEERS and Mr. Barry Dennis from Verus reviewed the investment performance for the period ended September 30, 2018. The one-year PSRS/PEERS investment return was reported as 8.3%, while the fiscal year return (July 1, 2018 through September 30, 2018) was reported as 2.5%.
Ongoing Investment Activity
Mr. Husting and Mr. Dennis reviewed ongoing investment activities, which included estimated investment performance through November 30, 2018. 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.
Safe Assets Program Review
Mr. Frank Aten and Mrs. Jessica Wilbers from the PSRS/PEERS investment staff reviewed the Systems' Safe Assets portfolio including program objectives, guidelines and long-term results. The five-year annualized return for the Safe Assets composite for the period ended September 30, 2018 was 1.1%.
Private Equity and Private Credit Program Review
Mr. John Tuck, Mr. Dan Case and Mr. Ben Frede 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 June 30, 2018 was 16.4% and the five-year annualized return for the Private Credit composite for the same period was 8.0%.
Review of Fiscal Year 2018 Comprehensive Annual Financial Report (CAFR)
Ms. Anita Brand reviewed the purpose of the CAFR. The CAFR is an accumulation of all activity conducted by the Systems during the fiscal year and becomes a historical document for current and future users. 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 the CAFR. The Systems' strive for excellence in reporting and transparency, therefore the CAFR exceeds the GFOA requirements. Ms. Brand focused on the report's five distinct sections: 1. Introductory, 2. Financial, 3. Investment, 4. Actuarial and 5. Statistical. 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 External Auditor: Review of the June 30, 2018 Audit Report
Ms. Heidi Chick of Williams Keepers reviewed the recent June 30, 2018 audit of the Retirement Systems. Ms. Chick indicated that Williams Keepers had issued an unqualified audit opinion on the June 30, 2018 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 the U.S. Generally Accepted Accounting Principles, and the financial statements can be relied upon. Ms. Chick briefly reviewed the audit process, financial statements, new accounting pronouncements and all the footnotes. Mr. Mestres reviewed the audit communications letter to the Board of Trustees. He 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.
The audit report was approved as recommended by the Budget and Audit Committee by unanimous vote.
Ms. Maria Walden from PSRS/PEERS updated the Board on the 2019 pre-filed legislation. The Missouri General Assembly allows elected officials to pre-file legislation starting on December 1 for the upcoming legislative session.
Ms. Walden reviewed the upcoming important legislative dates, the legislative statistics and new pre-filed 2019 legislation. Several bills have been pre-filed this year that have a direct impact on the Systems:
- HB 69 was pre-filed this year by Representative Dinkins and it repeals the July 1, 2014 termination date of the 2.55% benefit factor provision allowing members of the Public School Retirement System of Missouri who have 31 or more years of service to have their retirement allowance calculated using a multiplier of 2.55%. This bill contains an emergency clause.
- HB 77 was pre-filed this year by Representative Black. HB 77 would allow all PSRS retirees who return to work for community colleges to be covered under the 550 hours and 50% of salary statutory restrictions only (exempt from the $15,000/no hourly limitation). No contributions would be required from the employer or retiree nor refunds of previous contributions to employers. This bill contains an emergency clause.
PricewaterhouseCoopers is currently working on the actuarial cost statement for both HB 69 and HB 77. The Board went on record unanimously in support of HB 77 as long as there is no significant cost to the systems.
Mr. Steve Yoakum discussed the current COLA policy:
|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*|
|more than 5.0%||5.0%|
|*resets cumulative calculation after a COLA is provided|
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 0.3556% for the first four months of fiscal year 2019.
|The November reading for the CPI-U will not be released until December 14, 2018.|
Facility Analysis and Planning Presentation
Mr. Dearld Snider of PSRS/PEERS presented information about facility and planning needs for PSRS/PEERS. Nick Borgmeyer of Simon Oswald Architecture was also in attendance to answer questions on the most recent cost analysis. Mr. Snider recapped areas of concern with the present building regarding our ability to continue to provide exceptional service to our members in line with our System's goals.
Based on the demographics of PSRS/PEERS members and the design of the investment portfolio, the overall growth of the system will continue. On the membership front, our actuaries can predict the growth of the Systems participants with relative certainty. The retiree population (currently almost 92,000) will grow by approximately 50% over the next 10 years before reaching its peak of over 175,000 retirees and beneficiaries in about 2040. During this same time period, the invested assets of the Systems ($43.8 billion as of June 30, 2018) will grow to approximately $100 billion before reaching a plateau.
With 136 PSRS/PEERS employees our current building is at capacity. In order to account for future growth and maintain our current high level of service to our members, more space will be needed. In addition, our Investment staff maintains over 370 relationships with investment managers around the globe. The number of relationships and the complexity of our portfolio will continue to grow as the assets increase, which will require additional staff.
Mr. Snider reviewed options based on direction of the Board at the August 2018 Board meeting:
- Renovate current facility and build an addition onto the back of the building
- Construct a new facility on the adjacent land we currently own
Cost projections were provided for both options as well as a comparison of operating costs of a new facility versus a renovated facility. At the request of the Board, a memo was provided focusing on energy efficiency and the savings which can be achieved by replacing the current HVAC system along with a transition to LED lights. He also reviewed the budgeting schedule and provided a high level look at the timing of the project which would likely span through 2021. After an in-depth discussion regarding all aspects of the project as well as the pros and cons of each option, the Board voted unanimously to approve the renovation and new addition to the current building.
The Board went into closed session at 1 p.m.
The Board adjourned at 3:15 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.