By Otto Fajen, MNEA legislative director
Trustees present:
Beth Knes, Chair
Chuck Bryant, Vice Chair
Allie Gassman
Dr. Nate Moore
Dr. D. Eric Park
Katie Webb
BUDGET AND AUDIT COMMITTEE MEETING
Annual Comprehensive Financial Report - Prior to the meeting of the Board of Trustees, the Budget and Audit Committee met to review the June 30, 2024, Audit Report. Representatives of Williams-Keepers (WK) presented their audit of the Systems’ Annual Comprehensive Financial Report (ACFR) 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 16, 2024. The board approved the minutes from the October 28, 2024, meeting. Board Chair Knes announced that the Systems received the Pensions and Investments 2024 award for being one of the “best places to work in money management.” The Board also recognized the service of retiring staff members Frank Aten and Ren Reiske.
INVESTMENTS
Investment Performance Report - Craig Husting of PSRS/PEERS gave the investment report and reviewed ongoing investment activities. The investment report updated the quarter ending on September 30, 2024. The Systems’ investments continue to earn good absolute and relative returns over longer time periods. As of September 30, 2024, the one-year returns were 16.82% and fiscal year-to-date returns were 3.85%. Updated returns as of November 30, 2024, show calendar year returns of 12.1% and fiscal year-to-date returns of 5.2%. The returns are below benchmarks, primarily due to high growth in U.S. equities during these time periods. 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.
The Board reviewed the current asset allocation of the Systems’ portfolio.
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, as standards for investment managers. CFA Institute expanded the GIPS in 2020 with provisions designed for pension funds. The Systems have complied with GIPS standards for the last three fiscal years. Currently, PSRS/PEERS is the only pension system in Missouri that complies with GIPS.
Investment and Governance Policy - 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 clarifications and enhancements, general clean-up, and governance revisions to several 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 Real Estate Portfolio provides income across market cycles and balances against the volatility of equities. Real estate transaction volume is down from the pandemic peak. Vacancies are low, except for office space. Most sectors expect growth more than inflation over the next few years.
The report showed the portfolio diversification by fund and manager. Real estate income is created by the core real estate investments, while appreciation comes from the high-risk investments. The portfolio is overweight in preferred asset classes, including industrial and alternative properties, with less investment in office space and apartments. Going forward, the portfolio will maintain infrastructure investments and target opportunities in alternative sectors such as residential, digital infrastructure, and global supply chain.
ACCOUNTING
Independent Auditor’s Report - The Board reviewed the FY 2024 Annual Comprehensive Financial Report (ACFR). Missouri law requires pension plans to create an ACFR report, 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 2024 Annual Comprehensive Financial Report (ACFR) can be viewed at the following webpage:
https://www.psrs-peers.org/PSRS/Resources/Publications
Williams-Keepers provided the independent auditor’s presentation to the Board. The Board reviewed and approved the June 30, 2024, Audit Report referred by the Budget and Audit Committee.
MANAGEMENT REPORT
Audit Committee for Election Petition Certification - The Board approved the Audit Committee for Election Petition Certification and delegated organization of the committee to Executive Director Dearld Snider. MNEA members, leaders, and staff have collected and delivered signature petitions to elect Amanda Pershall as a Trustee to replace Dr. Jason Steliga, who resigned from the Board on October 15, 2024. Dr. Steliga left the Board to take over as Executive Director for the Kansas City Public School Retirement System. The Audit Committee will meet next month to review the collected signature petitions and confirm that enough signatures have been gathered to qualify Amanda Perschall as elected to the Board of Trustees.
LEAD Group Recognition – The Board recognized the new class of the Systems’ leadership group known as LEAD.
Legislative Report – Staff presented the legislative report. With the recent elections, there are new statewide officials and new legislators. Both chambers will also have new leadership in both parties. The report reviewed the pre-filed bills, noting the return of several retirement issues, including retirement system fiduciary duties and investment mandates.
Overall session issues will include cutting income and property taxes, St. Louis City police governance, abortion restrictions, IP changes, energy, healthcare, judiciary changes, MoDOT accountability, limits on foreign interference, and the state budget. Revenue increases this year, if any, will be modest at around 1-2%. Budget difficulties will be a new experience for most legislators. Also, there are recently enacted bills calling for funding increases, such as public education funding increases from SB 727.
There are two types of bills regarding investment mandates and proxy policies. One option revises law specific to public pension systems, while the broader version involves general government procurement. SB 389 (Rusty Black) would create a proxy requirement on pension plans that is the same as PSRS board proxy policy. HB 196 (Brian Seitz) mandates “foreign adversary” divestment and would be cumbersome and harmful to the Systems’ investment process.
Bills regarding pension benefits include SB 474 (Maggie Nurrenbern) to create a 2.6% multiplier for 33+ years of service. Actuarial analysis of previous versions of this bill show that it does not increase System cost. Also, HB 329 (Willard Haley) would increase the lifetime COLA cap when System earnings are more than 2% over the assumed rate of return. The Systems will do an analysis to estimate how much this proposal would increase System costs.
At the federal level, WEP/GPO repeal legislation has passed the U.S. House, and staff reported that there is still a chance that the U.S. Senate could bring the bill up for a vote before the end of this term later this week.
Key Accomplishments – Staff gave a brief report on recent staff activities and recognitions, including the new paperless online service retirement flyer, the 2025 LEAD class, the transition of staff 457(b) investment plans to Sundvold Financial, the PPCC award for meeting standards for both funding and administration, the Pensions and Investments 2024 award for being one of the best places to work in money management, and the first expansion the new Horizon investment management platform to include public risk assets.
Current CPI-U Update – The Board reviewed CPI-U data. The current fiscal year CPI-U is 0.42% through November 30, 2024. 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.