MINUTES PUBLIC EMPLOYEES RETIREMENT ASSOCIATION. Meeting of the Board of Trustees. December 13, 2012

Transcription

1 MINUTES PUBLIC EMPLOYEES RETIREMENT ASSOCIATION Meeting of the Board of Trustees December 13, 2012 The Board of Trustees of the Public Employees Retirement Association met in regular session in the Association offices, 60 Empire Drive, Room 106, Saint Paul, Minnesota, on Thursday, December 13, 2012, at 9:30 a.m., notice having been given ten days prior thereto by the Secretary. The following members were present: Don Rambow President Ross Arneson Paul Bourgeois Kathryn Green Dawn Hulmer Richard Jacobsen Bruce Jensen Leigh Lenzmeier Louise Olson Rebecca Otto\ Celeste Grant Lawrence Ward constituting a quorum. Staff members present: Mary Most Vanek, Executive Director; Dave DeJonge, Assistant Executive Director; Allen Eldridge, Pension Services Manager; Cheryl Keating, Manager, Account Information Management; Tim Grundtner, Pension Services Assistant Manager; Lance LaFrombois, Pension Services Director; Jody Kortus, Retirement Services Program Coordinator; Shana Jones, Management Analyst; John Paulson, State Program Administrator Principal; Jim Vanek, State Program Administrator Senior; Susan Barbieri, Communications Specialist; Sandy Stolt, Administrative Assistant; Julie Leppink, Legal Director and Mary Daly, Executive Program Specialist. Attorney General Representatives: Kevin Finnerty and Rory Foley. Others present: Michael O Keefe, SPFD; Gladys Larsen, REAM; Brian Rice, MPFA/MPFF/POFM; Paul Ford, MPPOA; David Titus, SPPF; Brian D. Wilson, PERA Member ; Candi Hektner, Counsel for Mr. Wilson; Todd Axtell, SPPD; Xiong Yang, SPPD; MaryJo Webster, Pioneer Press; Bonnie Wurst, GRS; Brian Murphy, GRS; Sheri Woblewski, GRS; Patrick Hynes, LMC; Anne Finn, LMC; Jeff Van Wychen, Governor s Office; Gene Ranieri, City of Minneapolis and Keith Carlson, MICA. 1.0 Call to Order President Rambow called the meeting to order at 9:30 a.m. The agenda was taken in the following order.

2 Minutes, Board of Trustees - 2 December 13, Consent Calendar 3.0 Appeals 2.1 Approval of Minutes and Operational Report Arneson moved to accept the consent calendar as presented. The motion was seconded by Green and passed unanimously. 3.1 Application for Continuation of Total and Permanent Disability Benefits Brian Wilson [9:33 a.m.] Otto moved to close the meeting in order to discuss private medical information as required by Minnesota Statutes, section 13D.05, subd. 2(a)(4). The motion was seconded by Arneson and passed unanimously. [10:19 a.m.] Green moved to open the meeting. The motion was seconded by Arneson and passed unanimously. Green moved that the Board of Trustees support staff s recommendation and deny Brian Wilson s Application for Continuation of the total and permanent component of his Police and Fire Plan disability benefits because he is no longer totally and permanently disabled pursuant to Minn. Stat , subd. 19. Staff also recommends that the Board adopt the ALJ s Findings of Fact, Conclusions and Recommendation as modified by the Proposed Findings of Fact and Conclusions of Law in Staff s Amended Exceptions and Memorandum of Law in Support of Exceptions. The motion was seconded by Lenzmeier. Otto stated that she will be voting against the motion because she does not believe that PERA met the burden of proof in this case. Jensen agreed with Otto and thinks the Board should adopt the Administrative Law Judge s ruling. Green stated that there are two levels of disability benefits in the Police and Fire Plan and that Mr. Wilson does not meet the total and permanent level because he has been employed. She is also concerned with the Doctor s report. She continued that this is a difficult situation, but as fiduciaries, the Board needs to protect the funding of the Plan. Rambow called the question which failed with Green, Jacobsen, Lenzmeier and Rambow voting yes and Arneson, Bourgeois, Hulmer, Jensen, Olson, Otto and Ward voting no. Otto moved that the Board of Trustees approve the Continuation of Total and Permanent Disability Benefits to Mr. Wilson because PERA did not meet the burden of proof. The motion was seconded by Jensen and passed by majority, with Arneson,

3 Minutes, Board of Trustees - 3 December 13, Policy Decision Items Bourgeois, Hulmer, Jensen, Olson, Otto and Ward voting yes and Green, Jacobsen, Lenzmeier and Rambow voting no. 4.1 Salary Definition Proposal Revised for Performance Pay Reference was made to a memo dated December 4, 2012, from Mary Most Vanek Vanek stated that last month staff presented to the Board language to clarify the definition of salary for pension purposes, and staff was asked to modify the definition of salary specific to bonus payment language. Language was added to define job performance or merit based payments as salary. Bourgeois moved that the Board of Trustees approve the draft bill to clarify the definition of salary for purposes of making contributions to and calculating benefits from the PERA benefit plans. The motion was seconded by Green. In response to questions from Jensen, Vanek stated that PERA has never recognized the cash out of unused sick or vacation time at the end of employment as salary for pension purposes; the language as presented is intended to clarify long-standing procedures and to recognize that employers use different names for hours provided to employees for various leaves or time-off. In response to a concern from Jensen regarding employers mandating overtime be paid in compensatory time, Keating noted that employers do vary in whether they require an annual payout of compensatory time or let it be carried year after year. If it is the case where they carry it year after year, it cannot be placed as salary in the final year of employment as this would inflate the salary for pension purposes. Otto noted that putting long-standing positions and procedures into policy is an administrative process to make sure policy is clear for staff, employees, employers and others. Rambow called the question which passed by majority, with Jensen and Ward voting no Actuarial Valuation Results Reference was made to PERA s 2012 Actuarial Valuation Reports Wurst and Murphy from Gabriel Roeder Smith & Company (GRS) presented a summary of the 2012 actuarial valuation results of PERA s Plans. Wurst summarized significant changes since the 2011 results: o Assets earned less than expected on both a market value and smoothed basis during fiscal 2012 o The investment return assumption changed from 8.5 percent for all years to 8.0 percent for July 1, 2012 through June 30, 2017 and 8.5 percent thereafter

4 Minutes, Board of Trustees - 4 December 13, 2012 o The Minneapolis Police, Minneapolis Fire, Virginia Fire and Fairmont Police Relief Associations were merged into the Police and Fire Plan o The salary scale rates for the General Plan were reduced o Economic and demographic assumptions were updated for the Local Government Correctional Plan o The amortization period was extended for the Police and Fire and Local Government Correctional Plans Wurst continued with the changes in the Police and Fire Plan since the 2011 valuation date. The following changes include assumption changes, method changes, and mergers, but no proposed plan changes: - Actuarial Accrued Liability from $6.4 billion to $7.4 billion - Actuarial Value of Assets from $5.3 billion to $5.8 billion - Unfunded Actuarial Accrued Liability from $1.1 billion to $1.6 billion - Funding Ratio from 82.9 percent to 78.3 percent - Normal Cost plus Expenses (% of pay) from 19.9 percent to 20.7 percent - Amortization of Unfunded Liability (% of pay) from 8.9 percent to 12.7 percent - Total Required Contribution from 28.8 percent to 33.4 percent - Employee plus Employer Contributions from 24.0 percent to 25.4 percent - Contribution Sufficiency/(Deficiency) from (4.8) percent to (8.0) percent Wurst clarified that the merger of the other police and fire funds into this Plan does have some impact, but it is not the reason for the deficiency. The cities of Minneapolis, Virginia and Fairmont are contributing enough funds for their portion of the unfunded liabilities Police and Fire Coalition s Recommendation to Address Deficiency Reference was made to a memo dated December 5, 2012, from Mary Most Vanek and to the 2012 Police and Fire Plan actuarial valuation results Wurst summarized the following changes and the impact these changes would have on the Plan: Increase member contribution rate from 9.6 to 10.8 percent over 2 years and increase employer contribution rate from 14.4 to 16.2 percent over 2 years Change the early retirement reduction from 1.2 percent per year (2.4 percent if hired after June 30, 2007) to 5.0 percent per year, phased in over 5 years Change annual post-retirement benefit increase to 1.0 percent (currently inflation up to 1.5 percent) and delay first increase for new retirees for 2 years Cap initial benefit at 99 percent of average salary for new hires Change vesting schedule for new hires to 50 percent vesting at 10 years of service, grading to 100 percent vesting at 20 years of service Current contribution deficiency is 8.0 percent of pay; proposed plan changes estimated to decrease deficiency by approximately 8.2 percent of pay 3.0 percent of pay increase in statutory contributions

5 Minutes, Board of Trustees - 5 December 13, percent of pay decrease in required contributions due to changes in early retirement factors for active members and post-retirement benefit adjustments for all members Changes affecting new hires only may reduce costs modestly in the future; no immediate savings Wurst presented a graph that shows the projection of the funded status of the Plan over the next 27 years. Without any changes to this Plan, it shows the funded status starting at 78 percent funded and falling to 61 percent funded. With the proposed changes, the funded status will immediately rise to 83 percent funded and have a stable funded ratio over the period to 81 percent funded in Wurst later clarified that the funded level of 83 percent includes the reduced benefit changes, but does not include the contribution increases. The contribution increases would start the funded level moving toward 100 percent funded. She indicated she would forward to PERA an updated projection chart including the contribution increases. Ward stated that a working group made up of police and fire representatives contributed to the results in addressing the deficiency of the Plan. They had many contentious meetings trying to attend to the various interests of people all over the state. Not everyone was happy with the final proposal, but they were looking at a solution with a shared sacrifice for everyone. He continued that the group came to a consensus to stabilize the Plan. Jensen added that one of the driving forces in addressing the funding issue was to make the fund fully stable, and not take partial measures. Brian Rice addressed the Board stating that he participated in the meetings representing the Police Officers Federation of Minneapolis, Minnesota Professional Fire Fighters and the Minneapolis Police Fraternal Association. He added that another component that was discussed at the meetings is to seek additional funding from the state in some form, the details of which are yet to be formulated. St. Paul police officer Todd Axel addressed the Board. He expressed concern with some of the language for pre-55 retirement. Currently the benefit reduction is 1.2 percent per year for those who retire before age 55; he is requesting a less severe reduction than is being suggested for members with 30 years of service that are close to retirement age because they will not have as much time to recalibrate their financial plans. Dave Titus, President of St. Paul Police Federation, addressed the Board. He stated that they held an informational meeting and there were concerns, like the early retirement change for pre-55, but the vast majority, after understanding how the changes affect them and why the changes are needed, fully support the changes in order to have a healthy plan.

6 Minutes, Board of Trustees - 6 December 13, 2012 In response to a question from Otto, Jensen stated that there is a change of 1.1 percent with the early retirement changes. Vanek reported that there have been concerns with the pre-55 retirement changes and many requests to look at modifying it, from changing the effective date to having no reductions for those with 30 years of service who retire before age 55. Jensen noted that early retirement is subsidized by 8 percent per year and those that don t retire until age 55 or later, are subsidizing those who choose to retire early. People still have the option to retire before age 55, but must pay more towards the cost of early retirement. The Trustees thanked the members of the coalition for the tough task of putting together the recommendations and they also acknowledged the thoughtful letters and s they received from the members. Lenzmeier moved that the Board of Trustees support the package that the coalition has recommended be advanced this legislative session. The motion was seconded by Hulmer and passed unanimously Correctional Plan Retiree Adjustment Reference was made to a memo dated December 6, 2012, from Mary Most Vanek and to the 2012 Local Government Correctional Service Plan actuarial results Wurst continued with the valuation results in the Local Government Correctional Service Plan since the 2011 valuation date. The following changes include assumption changes and method changes: - Actuarial Accrued Liability from $285 million to $343 million - Actuarial Value of Assets from $275 million to $306 million - Unfunded Actuarial Accrued Liability from $10 million to $37 million - Funding Ratio from 96.5 percent to 89.3 percent - Normal Cost plus Expenses (% of pay) remained at 12.8 percent - Amortization of Unfunded Liability (% of pay) from 0.6 percent to 1.7 percent - Total Required Contribution from 13.4 percent to 14.5 percent - Employee plus Employer Contributions remained at 14.6 percent - Contribution Sufficiency/(Deficiency) from 1.2 percent to 0.1 percent Wurst reported that this Plan has lost some of its margin due to the changes, but is still healthy with a 90 percent funding ratio. She continued the report by discussing the following post-retirement benefit increases of this Plan:

7 Minutes, Board of Trustees - 7 December 13, 2012 In 2010, annual post-retirement benefit increases changed from 2.5 percent per year to 1.0 per year effective January 1, 2011, with the benefit increase reverting to 2.5 percent upon attainment of a 90 percent funding ratio. In 2011, the funding ratio was percent and the benefit increase on January 1, 2012 reverted to 2.5 percent. In 2012, the funding ratio is percent (market value of assets basis), triggering a benefit increase of 1.0 percent on January 1, GRS recommends that the process for determining benefit increases be reviewed, and changes considered, before next year s valuation Vanek told the Trustees that she will present some options for the Board to consider in January Actuarial Valuation Results - General Plan Wurst continued with the valuation results in the General Plan since the 2011 valuation date. The following changes include assumption changes and method changes: - Actuarial Accrued Liability from $17.9 billion to $18.6 billion - Actuarial Value of Assets from $13.5 billion to $13.7 billion - Unfunded Actuarial Accrued Liability from $4.4 billion to $4.9 billion - Funding Ratio from 75.2 percent to 73.5 percent - Normal Cost plus Expenses (% of pay) from 6.9 percent to 7.1 percent - Amortization of Unfunded Liability (% of pay) from 6.6 percent to 7.4 percent - Total Required Contribution from 13.5 percent to 14.5 percent - Employee plus Employer Contributions from 13.5 percent to 13.5 percent - Contribution Sufficiency/(Deficiency) from 0.0 percent to (1.0) percent 2012 Actuarial Valuation Results - Minneapolis Employees Retirement Fund Wurst concluded the presentation with the Minneapolis Employees Retirement Fund. She stated that even though the funding ratio of this fund is only at 69.1 percent, the goal of this Fund is to become fully funded in nineteen years and because it is receiving additional outside contributions it is on track towards reaching that goal. 5.0 Informational Items 5.1 SBI Quarterly Report for period ending September 30, 2012 Reference was made to a memo dated December 6, 2012, from Mary Most Vanek and to the SBI Report Highlights 5.2 Government Finance Officers Association Certificate for Achievement for Excellence in Financial Reporting for fiscal year ended June 30, 2011 Reference was made to a news release dated August 8, 2012

8 Minutes, Board of Trustees - 8 December 13, FYI Rambow presented the GFOA Certificate of Achievement plaque to DeJonge for excellence in financial reporting. This is the 27 th year that PERA s financial staff has received this honor. Vanek reported that PERA received favorable IRS determination letter for all of its plans. 7.0 Other Business Board Resolution for Retiring PERA Board Trustee Dawn Hulmer President Rambow thanked Trustee Dawn Hulmer for her many years of service on the Board and presented to her the following Board Resolution. WHEREAS, DAWN M. HULMER, has been the longest serving Trustee on the Board of Trustees of the Public Employees Retirement Association, elected as an active member of the PERA Basic and Coordinated Plan, and consistently receiving the most votes for five successive terms, from February 21, 1991 through December 13, 2012; and WHEREAS, DAWN M. HULMER oversaw many changes in the benefit plans entrusted to the management of the PERA Board of Trustees, including the addition of the Local Correctional Retirement Plan, the merger of the consolidated funds into the Police and Fire Plan, the addition of the Statewide Volunteer Firefighter Plan, as well as the modifications to plan benefits, and the 2010 reforms needed to ensure the integrity of all of PERA s retirement plans; and WHEREAS, the hard work, dedication and unselfish commitment that DAWN M. HULMER contributed to the quality of PERA s work, particularly encouraging legislative initiatives to ensure the long-term sustainability of the retirement plans for all and supporting quality personalized customer service to enhance members retirement planning needs; and WHEREAS, DAWN M. HULMER s personal integrity, diligence, and sincere concern for the well-being of each and every PERA member and retiree have earned her the respect of her fellow Trustees, PERA members, the staff and the public; NOW THEREFORE BE IT RESOLVED that the Board of Trustees of the Public Employees Retirement Association, in regular session in the City of St. Paul, Minnesota, this 12 th day of December 2012, takes this means as an expression of heartfelt gratitude and appreciation for unselfish devotion and service DAWN M. HULMER provided to the members and beneficiaries of the Association; and

9 Minutes, Board of Trustees - 9 December 13, 2012 BE IT FURTHER RESOLVED that this resolution be formally included in the minutes of the Board of Trustees and the Secretary be instructed to transmit a formal copy of this resolution to DAWN M. HULMER. 8.0 Date of Next Meeting The next meeting of the PERA Board of Trustees will be held Thursday, January 10, 2013, 9:30 a.m. in room 117 of the Retirement Systems of Minnesota Building. 9.0 Adjournment There being no further business to come before the Board Hulmer moved to adjourn the meeting at 12:30 p.m. The motion was seconded by Olson and passed unanimously. Mary Most Vanek, Executive Director Saint Paul, Minnesota