By Otto Fajen, MNEA legislative director
Trustees present: Jason Steliga, Chair; Dr. Kyle Collins; Beth Knes, Vice-Chair; and Dr. D. Eric Park
Trustees absent: Sharon Kissinger; Dr. Melinda Moss
The Board meeting started at 8:30 a.m. The Board approved the minutes from the December 6, 2021 meeting and established the order of business.
Investment Performance Report - Craig Husting and other staff reviewed the December 31, 2021, investment update and provided more recent information. The first half of FY 2022 showed growth of 6.3%. Updated figures showed 4.0% growth through January 31, 2022. The Systems still have experienced overall growth of 19.45% over the 12-month period ending on December 30, 2021, including excess returns of 7.21% over passive policy benchmarks.
Husting discussed the current asset allocation of the PSRS/PEERS portfolio, and reviewed the long-term strategy, portfolio themes and the broad portfolio expectations. The Systems continue to manage total assets with less risk and more return than other comparable plans.
Generally, the Systems’ staff noted that inflation continues to be a negative factor, though distribution varies widely among market sectors. Transportation has experienced high annual inflation of 21%, while other market sectors were near or below the overall average figure.
Anti-Terrorism Policy - Mr. Husting reviewed the Systems’ Anti-Terrorism and Economic Sanction Investment Policy. The Policy requires PSRS/PEERS staff to provide a report to the Board on an annual basis that identifies any investment actions taken due to links to terrorist or sanction-related activities.
Affirmative Action Policy - Mr. Husting reviewed the Systems’ Affirmative Action Policy and Procurement Action Plan. The Policy requires PSRS/PEERS staff to provide a report to the Board on an annual basis regarding the Systems’ efforts to assure equal opportunities for minorities and women as money managers, brokers and investment counselors. The Systems are complying with the policy.
Non-U.S. Equity Review - PSRS/PEERS investment staff reviewed the Systems’ Non-U.S. Equity portfolio including program objectives, guidelines and both short-term and long-term results. Performance over the last year has been excellent at 15.4%. The 5-year annualized return for the Non-U.S. Equity composite for the period ended December 31, 2021 was 12.9%.
Asset Allocation Review – The Systems’ staff presented a review of asset allocation targets and discussed Private Risk Assets. Staff expect a lower return market going forward. Moving more toward private equity could help the Systems maintain higher earnings. The PSRS/PEERS 35% target allocation to private (illiquid) assets is high relative to the average public plan but much closer to larger, sophisticated institutional investors (both public plans and endowments).
The Systems’ mature private equity program is itself a major asset that allows the Systems to effectively and efficiently increase allocations to that program. Also, private equity adds operational complexity, fees and staff cost. A relevant concern is managing liquidity if private equity allocation is increased. The report included a discussion of liquidity and analysis of how the Systems would maintain liquidity in several situations of market stress. Thus, staff recommend that they conduct an Asset Liability Study and present it to the Board in April.
Member Education and Communication – Staff presented an update on member education and communication, two sections within the member services department.
Members often want to connect with the Systems to address life events, such as marriage, having children, divorce, career change and location change. Also, the Systems need to interact with members to address their career stages, such as new hires, early and mid-career, pre-retirement and retirement.
Staff showed a video that schools can use to introduce new hires to their participation in the Systems.
Member education goals are to provide exceptional service to members as the face of PSRS/PEERS, reach as many members as possible, offer many different educational platforms and evolve with technology to meet members’ needs.
In the spring of 2020, the member education group created virtual tools to serve the membership due the onset of COVID-19. The team is now back to providing in-person training and counseling, both at the HQ and in-district. However, the virtual tools are also still being used by members.
Employer Services – Staff presented a report on the services that the Systems provide to employers, primarily to school districts, community colleges and associations. The staff educate and communicate with employers and review submitted information. They also do the GASB68 report and year-end audit reports.
Legislative Update – Jim Moody gave a report on state fiscal news. December state data reported incorrect data by including $200 million in non-state revenues in state sales taxes. Note that both monthly reports for the state will remain incorrect. Even after correction, sales are up 16%. Cash balances are about $3 billion in GR. Collections are very good. Gov rec budget is $47 billion, by far the biggest ever. Still with $1.5 billion ending balance.
Income remains very high. Three income tax cuts in three years are likely. There will be another tax cut in 2023 based on revenue growth. Recent legislation will reduce the tax rate in 2024. By 2024, the top rate will be 5.1%. Ultimately, it will reach 4.8% based on legislation already enacted.
Sarah Swoboda gave the legislative report. The Board reviewed its policy resolutions on defined benefit plans, benefit increases, Board control of investment decisions, and COLA policy.
Regarding working after retirement (WAR), the Governor did not extend the waiver beyond Dec. 31, 2021.
The Board reviewed additional information regarding policies on Working After Retirement. The system tracks historical usage of WAR. Relatively few bills pertaining to school retirement were filed in the first round of bills filed by December 1, 2021.
Other legislative topics:
1) Adding a 2.55% benefit factor for extended service of 32 years or more. The Board approved a motion to support 2.55% for service beyond 30 years.
2) Increasing critical shortage option from 2 years to 4 years. The Board approved a motion to support this change.
3) Critical shortage change to allow a superintendent for 2 years after 1 year or in emergency.
4) Critical shortage flexibility between PSRS and PEERS provisions.
5) For PSRS retirees in non-certified positions, increase allowed earnings from $15,000 to SS earnings limit. Since this may change, the Board did not yet take a position in support. Other versions would increase to 60% of district average salary.
6) Benefit pop-up for same sex relationships. The Board approved a motion to support this change.
7) HB 2494 waives WAR limits for four years. The Systems have pointed out technical concerns with the bill. There is not a complete actuarial analysis, and it could affect behavior. The sunset provision should be a mitigating factor.
8) HB 2304 (Lewis) includes waiver of WAR restriction on substitute teaching until December 31, 2025. The Systems believe there are technical issues with this language.
9) HB 1998 (Davidson) would allow district-issued certificates.
10) SB 767 (O’Laughlin) is a placeholder bill. This bill is not moving.
11) SB 836 (O’Laughlin ) would limit participation in a second DB plan in Missouri. Districts might have to set up a DC plan. This bill is not moving.
12) Investment restrictions with companies that require COVID vaccine for employees. Hard to know and track.
13) SB 871 (Eigel) pension deduction.
Board Election Update – Two Board positions are up for election, including Jason Steliga, an MNEA member and Chair of the Board of Trustees. Petitions are due in February.
Current CPI-U Update – The Board reviewed CPI-U data. The current fiscal year CPI-U is 2.6154% through December 21, 2021. 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 – Maria Walden, the former lobbyist for the Systems, offered thanks for support from the Systems during her time of service.
The public meeting adjourned, and the Board went into closed session.