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

SYSTEM OPERATIONS

The Board convened on October 28, 2024. The Board approved the minutes from the August 25-26, 2024, meeting and established the order of business. With the resignation of Dr. Jason Steliga from the Board on October 15, 2024, Beth Knes was selected as the Board Chair. The Board elected Dr. Eric Park as the Board Vice Chair and elected Katie Webb as a member of the Budget and Audit Committee.

INVESTMENTS

Investment Performance Report - Craig Husting and Michael Hall from PSRS staff reviewed the Systems' unofficial returns for the quarter ending September 30, 2024. The Systems' returns for the quarter were +3.9% net of all fees and expenses. Returns for the calendar year 2024 through September 30 were 10.7% net of all fees and expenses.

The Systems have shown 1.4 % of annualized alpha (the excess return over policy benchmarks) over the last five years. The Systems' 5- and 10-year investment performance remains in the top quartile relative to other large public plans.

The report addressed the recent market and investment environment. Current issues include lowered interest rates, continuing inflation, the election cycle, and volatility in stock markets. Strong earnings in public equity required Systems to reduce that portion of the portfolio by $450 million last quarter.

The Systems' investment policy seeks to provide important downside protection. This means the Systems' experience less of a loss in declining markets. Correspondingly, the policy means the Systems' investments are slower to increase during rising markets.

Total System assets are $60.3 billion. The investment report provided a broad overview of how the PSRS/PEERS' portfolio is structured, including estimated asset allocation for PSRS/PEERS.

Public Equity - PSRS Staff reviewed the Public Equity Portfolio, including both U.S. Equity and Non-U.S. Equity. PSRS emphasizes risk management and downside protection. The U.S. Equity is very efficient, so it is difficult for active management to generate excess returns, while non-U.S. markets tend to be less efficient and provide opportunities for active management to gain excess returns.

Private Equity - Pathway Capital Management staff gave an overview of the Private Equity Portfolio performance. The Systems' Private Equity portfolio continues to achieve high earnings since the program's inception in 2003. The Systems have contributed $11.2 billion since inception and the portfolio has a market value of $19.7 billion. This represents an annual return of 13.6%, which is 3.7% higher than the private equity benchmark. The overview included discussion of the Systems' co-investment and direct credit portions of the portfolio.

REPORT OF ACTUARY

June 30, 2024, Valuation - Representatives from PricewaterhouseCoopers (PwC) presented the results of the June 30, 2024, actuarial valuations for the Systems. The System's asset returns were 10.6% for the fiscal year. The June 30, 2024, preliminary pre-funded status based on the actuarial value of assets of PSRS was 87.2% and PEERS was 88.1%.

The valuation indicates that the Actuarially Determined Contribution (ADC) rates are now just below the current contribution rates at 27.98% for PSRS and 13.22% for PEERS. If future assumptions are met, the unfunded liability will be eliminated in about 15 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. PwC analyzed the impact of new legislation including SB 727. SB 727 will have minimal effect on the Systems, and these relate to the reduction of the financial penalty for exceeding the working after retirement limitations and the increase of minimum teachers' salaries.

PwC recommendations:

1. The Systems maintain the current total contribution rates at 29% for PSRS and 13.72% for PEERS.
2. The Systems grant a 2% COLA in January 2025, per the existing COLA policy.
   

MANAGEMENT REPORT

Board Election Schedule: The Board approved the election schedule for selecting a new Trustee to fill the remainder of the term vacated by Dr. Jason Steliga, who resigned from Board service on October 15, 2024, to become the Executive Director for the Kansas City Public School Retirement System.

Petition forms will be available on November 4, 2024, and nominating petitions must be postmarked by December 18, 2024. A committee will audit and certify nominating petitions during the week of January 20, 2025. If an election is required, ballots will be mailed on February 18, 2025, and must be returned with a postmark no later than March 20, 2025. If enough verified petitions are returned for only a single candidate by the December 18 deadline, the nominated candidate will be elected as Trustee without sending ballots to System members.

Key accomplishments - Staff reviewed recent staff work in the key areas, including the Employer Services Fall Conference and IT informational newsletters and activities.

CPI update/COLA review - The Board reviewed the COLA policy and COLA history for the current fiscal year. The FY 25 CPI-U was up 0.36 % through September 30, 2024. Based on FY24's CPI-U increase of 2.97%, the Board approved a 2.0% COLA for eligible retirees beginning in January 2025.

Public Comment - None.

The public meeting adjourned, and the Board went into closed session.

Read past reports at www.mnea.org/psrs.

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