Report submitted by Otto Fajen, MNEA Director of Legislative Policy
Trustees present
Beth Knes, Chair
Chuck Bryant
Dr. Nathan Moore
Amanda Perschall
Katie Webb
Trustees absent
Dr. D. Eric Park, Vice Chair
Allie Gassman
BUDGET AND AUDIT COMMITTEE MEETING
Prior to the meeting of the Board of Trustees, the Budget and Audit Committee met at 8:30 a.m. The Committee recommended the Annual Banking Resolution that allows the administrators of the Systems to work with Central Bank without requiring further Board action on the details of each action.
The staff presented the FY 2027 budget proposal, and the Committee approved the budget for recommendation to the Board. The largest part of the budget is the payment of member benefits. The budget also includes investment fees and expenses, and administrative expenses. Investment expenses are increasing as the Systems make more private equity investments. The Board reviewed the various expense categories within the broad categories of personnel, professional services, and operations.
The total budget request has increased by 4.1% from the fiscal year 2025-2026 budget. An expected 2.2% increase in benefit payments to members is driving the increase, which includes a projected January 1, 2027, cost-of-living adjustment (COLA), the 2% COLA granted on January 1, 2026, and the addition of benefits for new retirees. The Systems' actuary will present the recommended January 1, 2027, COLA at the October 2025 Board of Trustees meeting. The budget also reflects a $115 million increase in investment fees due to an increase in invested funds.
SYSTEM OPERATIONS
The Board approved the minutes of the April 19, 2026, meeting and established the order of business.
INVESTMENTS
Investment Performance Report - Craig Husting from PSRS/PEERS reviewed March 31, 2026, investment results and estimated investment performance through May 31, 2026. The Systems’ fiscal year return for FY 2026 through March 31, 2026, was 5.4%, while the Systems saw significant investment increases in April and May with an increase in total assets of $4 billion. The Systems’ estimated FY 2026 return rose to 12.4% as of May 31, 2026. Craig Husting reviewed the investment market conditions and the Systems’ asset allocation.
Real Estate Portfolio – Staff provided the annual review of the Real Estate Portfolio. Real Estate is part of the Private Credit Portfolio. The role of Real Estate in the PSRS/PEERS portfolio is to provide a stable income stream, capture property appreciation, serve as a hedge against inflation, and provide diversification in the portfolio. The 10-year annualized return for the Systems’ Real Estate Portfolio through March 31, 2026, was 6.23%.
MANAGEMENT REPORT
Banking Resolution – The Board approved the Annual Banking Resolution that allows the administrators of the Systems to work with Central Trust Bank to make needed changes to their banking relationship without requiring further Board action of the details of each action.
Budget – The Board approved the Systems’ FY 2027 budget as recommended by Staff and approved by the Budget and Audit Committee. The largest part of the budget is the payment of member benefits. The budget also includes investment fees and expenses, and administrative expenses.
Changes to Actuarial Assumptions – The Board adopted the recommended changes to the Systems’ actuarial assumptions based on the new experience study. The Board also adopted the other recommendations, including timing lag method changes, AVA method changes, and phased UAAL amortization method changes. The net effect of the changes to actuarial assumptions based on the experience study will produce a slight increase in estimated system cost. However, these changes are not expected to require an increase in contribution rates.
Legislative Report – Mike Moorefield gave the legislative report. The Systems tracked 158 bills, filed 10 fiscal note requests, and tracked eleven priority bills. The legislature passed seventeen appropriations bills and eighty-four policy bills and joint resolutions. No bills passed that would affect the Systems.
The legislature is deficit spending in the FY 27 budget by using one-time funds and will face at least a $1.7 billion structural deficit in FY 28. Meanwhile, state revenues are currently down 2.6% with two weeks remaining in the current fiscal year, which is below the 2.1% Consensus Revenue Estimate. State general revenue fund balances are estimated to drop to $600 million by the end of the next fiscal year, assuming 3.8% ($500 million) revenue growth next year. The legislature will not have one-time funds to bolster spending for FY 28 and will be forced to cut spending drastically to balance the budget.
CPI update/COLA review – The Board reviewed the COLA policy and COLA history for the current fiscal year. The current CPI-U is up 3.89% through May 31, 2026. Under current policy, the Board will make a COLA for eligible retirees for next year if the cumulative figure at the end of this fiscal year exceeds 2.0%. At this point, it appears likely that eligible retirees will receive a 2.0% COLA in January 2027.
Public Comment – None.
The public meeting adjourned, and the Board went into closed session.