By Otto Fajen, MNEA legislative director
Trustees present
Jason Steliga, Chair
Beth Knes, Vice-Chair
Allie Gassman
Katie Webb
Dr. D. Eric Park
BUDGET AND AUDIT COMMITTEE MEETING
Comprehensive Annual Financial Report - Prior to the meeting of the Board of Trustees, the Budget and Audit Committee met to review the June 30, 2023, Audit Report. Representatives of Williams-Keepers (WK) presented their audit of the Systems’ Comprehensive Annual Financial Report (CAFR) for last fiscal year. The audit reviews the Systems’ internal controls, contributions received, investment activities, payments to retirees, and member data. The committee voted to approve the audit report.
SYSTEM OPERATIONS
The Board met on December 11, 2023. The board approved the minutes from the October 29-30, 2023, meeting.
INVESTMENTS
Investment Performance Report - Craig Husting of PSRS/PEERS gave the investment report and reviewed ongoing investment activities. The investment report covered the quarter ending on September 30, 2023. The Systems’ investments continue to earn good absolute and relative returns over longer time periods. The one year returns were 8.53%, and are below benchmarks, primarily due to the lag time of private equity valuations. Over this period, public equity had high returns and the real estate portfolio was above the benchmark. The Systems’ investment approach minimizes downside risk and tends to lag public equity markets during high growth periods. The Systems continue to have more return and less risk than their peer systems. As of November 30, 2023, the calendar year returns were 7.8% and fiscal year-to-date returns were 1.6%.
The Board reviewed the current asset allocation of the Systems’ portfolio.
The Staff discussed Global Investment Performance Standards (GIPS). GIPS standards are voluntary ethical standards for calculating and presenting investment performance based on the principles of fair representation and full disclosure. GIPS are created by the CFA Institute, a not-for-profit association of investment professionals. GIPS were originally created for investment managers. The 2020 edition of the GIPS Standards were expanded with provision designed for pension funds. The Systems claim compliance with GIPS, and this has been independently verified for the last three fiscal years.
The Staff presented modifications to some of the Systems’ Investment Policies. The Investment Policies include a General Policy, eleven specific Activity Policies and five Implementation Manuals.
Staff recommended language regarding general clean-up and minor revisions to 9 Policies and Manuals. The Board approved the recommended changes.
Real Estate Portfolio Review – System staff and Townsend representatives presented a report on the Real Estate portfolio. The report showed the portfolio diversification by fund and manager. Real estate income is mostly created by the core real estate investments, while appreciation comes mainly from the high-risk investments. The portfolio is overweight in preferred asset classes, including industrial and living spaces with less investment in office and retail.
ACCOUNTING
Independent Auditor’s Report - The Board reviewed the FY 2023 Annual Comprehensive Financial Report (ACFR). An ACFR report is required by law, but the Systems’ ACFR goes beyond the minimum requirements. The ACFR serves to document the activity conducted by the Systems and ensure transparency and accountability to members. The financial section includes an unmodified or “clean” independent auditor’s opinion, indicating that the financial statements may be relied upon by all stakeholders.
The FY 2023 Annual Comprehensive Financial Report (ACFR) can be viewed at the following webpage: https://www.psrs-peers.org/About-Us
Williams-Keepers provided the independent auditor’s presentation to the Board. The Board reviewed and approved the June 30, 2023, Audit Report referred by the Budget and Audit Committee.
MANAGEMENT REPORT
LEAD Group Recognition – The Board recognized the new class of the Systems’ leadership group known as LEAD.
Legislative Report – Staff presented the legislative report. The report reviewed the activity from the 2023 session. The report also provided a review of the overall legislative context for the 2024 session, including expected issues in public education, taxation and other topics. A key issue for the legislature this session is to renew the Federal Reimbursement Allowance (FRA) tax. This healthcare provider tax allows the state to draw down a significant amount of federal funding that is essential in funding the state budget. The report also reviewed the pre-filed bills, noting the return of several retirement issues, including retirement system fiduciary duties and investment mandates. Bills pertaining to pension benefit multiplier and critical shortage positions have also been filed.
Key Accomplishments – Staff gave a brief report on recent staff activities and recognitions, including Employer Services online document requests for verification of benefit, an award for being one of the best places to work, intruder training and an in-service training on personality and communication types.
Current CPI-U Update – The Board reviewed CPI-U data. The current fiscal year CPI-U is 0.8397% through October 31, 2023. Under current policy, when the final CPI-U for a fiscal year is between 2.0% and 5.0%, the Board will make a COLA for eligible retirees of 2.0%. When the CPI-U is between 0.0% and 2.0%, the Board will make a COLA for eligible retirees of 2.0% when the cumulative CPI-U growth reaches or exceeds 2.0%.
Public Comment – No public comment was offered.
The public meeting adjourned, and the Board went into closed session.