Trustees present
Jason Steliga, Chair
Beth Knes, Vice-Chair
Kyle Collins
Allie Gassman
Sharon Kissinger
Eric Park
SYSTEM OPERATIONS
The Board met on October 23, 2022, for a report on private equity case studies and U.S. equities. The Board met again on October 24, 2022. The board approved the minutes from the August 27-28, 2022, 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 have declined this calendar year, and the Systems have an estimated return for the first quarter of fiscal year 2023 of approximately -3.4% compared to a benchmark of -4.8%. The Board reviewed the current asset allocation of the Systems’ portfolio.
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 were voted on behalf of PSRS/PEERS.
Most of the PSRS/PEERS active managers utilize a third-party service (ISS, Glass Lewis) to vote proxies. Blackrock votes proxies according to BlackRock’s voting policy using BlackRock’s voting infrastructure. System Staff will bring back a recommendation in December on a third-party provider and a proxy policy.
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 $9.8 billion to private assets and the portfolio now has a total value of $17.8 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, 2022, Valuation - Representatives from PricewaterhouseCoopers (PwC) presented the results of the June 30, 2022, actuarial valuations for the Systems. The System’s asset returns were -3.05% for the fiscal year. The June 30, 2022, preliminary pre-funded status based on the actuarial value of assets of PSRS was 85.2% and PEERS was 87.7%. The preliminary valuation indicates that the Actuarially Determined Contribution (ADC) rates are now just above the current contribution rates at 29.22% for PSRS and 13.74% 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%, high near-term 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 margin for adverse experience has been eliminated by market returns below the assumed rate and the additional 5.0% COLA for 2023. PwC noted that the current waiver of Working After Retirement hour limits cannot be maintained over the long term without weakening the Systems.
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 5% COLA in January 2023, 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 2023 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 5.0% COLA increase for January 2023. The final FY 2022 CPI-U figure is +9.03%. Under current policy, when the CPI-U is 5.0% or higher for the prior fiscal year, the Board will make a COLA for eligible retirees of 5.0% beginning with the following January.
MANAGEMENT REPORT
2023 Board Election Schedule – The Board reviewed the proposed election schedule for electing a new PSRS Board member to replace Melinda Moss.
Key election dates include:
October 24, 2022 - Petition forms become available
December 8, 2022 – Petition forms must be postmarked
January 13, 2023 – Ballots sent to members
January 28, 2023 – Ballots must be postmarked for return to PSRS
February 15, 2023 – Election results certified
Current CPI-U Update – The Board reviewed CPI-U data. The current fiscal year CPI-U is 0.1677% through September 30, 2022. 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.