By Otto Fajen, MNEA legislative director
Trustees present
Jason Steliga, Chair
Beth Knes, Vice-Chair
Allie Gassman
Katie Webb
Dr. D. Eric Park
SYSTEM OPERATIONS
The Board met on October 29, 2023, for a review of Board governance policies and a report on the Systems’ Public Equity portfolio. The Board met again on October 30, 2023. The board approved the minutes from the August 30-31, 2023, meeting.
INVESTMENTS
Investment Performance Report - Craig Husting of PSRS/PEERS reviewed ongoing investment activities. The investment report was brief, since there was not a final report for first quarter investment performance. Markets had moderate growth in the first and second quarters of this calendar year, and the Systems have an estimated return of 4.6% for the calendar year through Sept. 30. Markets have declined during the first quarter of fiscal year 2023, and the Systems have seen a decline of approximately -1.5% compared to a benchmark of -2.9%. The Board reviewed the current asset allocation of the Systems’ portfolio.
Staff noted some issues affecting markets, including conflict in Ukraine and the Middle East, U.S. politics, inflation and the possibility of a recession. Also, the Federal Reserve has the yield on the 10-year U.S. Treasury Bond moved 3.3% in April to 5.0% in October. Returns in various sectors have required some rebalancing, including a $670 million reduction in public equity at the end of June and $400 million reduction in public equity in the first quarter of FY 24.
Proxy Voting Policy - The Board reviewed the Systems’ proxy voting policy. The Systems’ active public equity investment managers are each responsible for voting proxies in the best interests of the members of the Systems. These investment managers report annually to the staff on how their proxies voted on behalf of PSRS/PEERS.
The Systems use the Glass Lewis Governance-Focused Thematic Policy for proxy voting with passive managers (BlackRock) and for all actively managed public equity separate accounts. This voting policy will vote in favor of governance structures that will drive positive performance and enhance shareholder value.
Private Equity Review – System staff and Pathway representatives presented a report on the Private Markets Equity portfolio. Pathway works exclusively in private equity. The report included an update on Direct Credit investments.
The Systems have committed $12.2 billion to private assets and $10.5 billion of that amount has been committed. The portfolio now has a total value of $18.6 billion. The Private Markets’ portfolios have produced higher returns relative to public markets and stronger risk-adjusted returns since the inception of the program. The Systems’ private assets portfolio has also consistently outperformed industry benchmarks for the private asset class.
REPORT OF ACTUARY
June 30, 2023, Valuation - Representatives from PricewaterhouseCoopers (PwC) presented the results of the June 30, 2023, actuarial valuations for the Systems. The System’s asset returns were 6.2% for the fiscal year. The June 30, 2023, preliminary pre-funded status based on the actuarial value of assets of PSRS was 85.9% and PEERS was 87.3%.
The valuation indicates that the Actuarially Determined Contribution (ADC) rates are now just below the current contribution rates at 28.78% for PSRS and 13.67% for PEERS. If assumptions are met in the future, the unfunded liability will be eliminated in about 20 years. PwC mentioned the risks and considerations of asset returns below the assumed 7.3%, uncertainty about inflation and increases in long-term inflation.
The funded status of both Systems is viewed to be healthy. Based on PwC’s recommendation, the Systems are now assuming a 7.3% expected return on assets. However, the Systems have little margin for adverse experience. PwC noted that the current waiver of Working After Retirement hour limits cannot be maintained over the long term without weakening the Systems. PwC also analyzed the impact of new legislation including SB 75 and SB 20. The primary effect on the Systems comes from reenacting the 2.55% factor for 32 or more years of PSRS, and this change is estimated to reduce System liability by about $242 million.
PwC recommendations: 1) that the Systems maintain the current total contribution rates at 29% for PSRS and 13.72% for PEERS, and 2) that the Systems grant a 2% COLA in January 2024, per the existing COLA policy.
Contribution Rates for 2023-2024 - The Board voted unanimously to maintain the total contribution rate for PSRS at 29% and PEERS at 13.72% as recommended by the actuary. Employee contribution rates are half of the total rate.
January 2024 Cost-of-Living-Adjustment (COLA) – Based on last year’s CPI-U figure and in accordance with the System’s Funding Policy, the Board voted unanimously to grant a 2.0% COLA increase for January 2024. The final FY 2023 CPI-U figure is +2.97%. Under current policy, when the CPI-U is between 2.0% and 5.0%, the Board will make a COLA for eligible retirees of 2.0% beginning with the following January.
MANAGEMENT REPORT
2024 Board Election Schedule – The Board reviewed and adopted the proposed election schedule for electing a new PSRS Board member to replace Kyle Collins.
Key election dates include:
November 17, 2023 – Notices to organizations and employers
January 12, 2024 – Petition forms become available
February 26, 2024 - Postmark deadline for nominating petitions
March 11, 2024 - Petition signature audit and certification
April 18, 2024 - Ballots mailed to members (if the election is contested)
May 4, 2024 - Electronic voting deadline and ballots due
May 17, 2024 - Official count and certification
Revisions to Board Governance Policies – Staff presented proposed updates to the Board policies. The updates include suggestions from Funston, the Systems’ governance consultant, and others based on updating current practices and staff suggestions. New sections have been added to accumulate relevant governance policies, statutory and regulatory requirements and other information into one document for ease of use and reference. The Board approved the Board policy updates as presented by Staff.
Revisions to State Regulations – Staff presented proposed rule changes to implement the various provisions of Senate Bills 20 & 75. These changes address Working After Retirement earnings limits for noncertificated positions and critical shortage positions.
Sunshine Law Resolution Update – The Board approved an updated resolution regarding compliance with Missouri’s open records law. The resolution specifies that the Board’s official custodian of records will be Jennifer Martin, the Director of Executive and Board Administration. The resolution maintains the Systems’ discretion to charge fees, as provided by law, for requested copies of records.
Key Accomplishments – Staff gave a brief report on recent staff activities, including Employer Services Regional Fall Conferences, HR Activities, United Way Fundraising, Cybersecurity Awareness Training, and opening of the St. Louis Office.
Current CPI-U Update – The Board reviewed CPI-U data. The current fiscal year CPI-U is 0.8784% through September 30, 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 a closed session.