MINUTES PUBLIC EMPLOYEES RETIREMENT ASSOCIATION Meeting of the Board of Trustees May 9, 2013 The Board of Trustees of the Public Employees Retirement Association met in regular session in the Association offices, 60 Empire Drive, Room 117, Saint Paul, Minnesota, on Thursday, May 9, 2013, at 9:30 a.m., notice having been given ten days prior thereto by the Secretary. The following members were present: Don Rambow President Paul Bourgeois Kathryn Green Bruce Jensen Leigh Lenzmeier Louise Olson Celeste Grant representing Rebecca Otto Clint Schumacher Thomas Stanley Lawrence Ward constituting a quorum. Member excused: Richard Jacobsen Staff members present: Mary Most Vanek, Executive Director; Dave DeJonge, Assistant Executive Director; Allen Eldridge, Pension Services Manager; Linda Habel, Education/Legislative Services Manager; Cheryl Keating, Manager of Account Information Management; David Andrews, Accounting Manager; Julie Leppink, Legal Director and Mary Daly, Executive Program Specialist. Attorney General Representatives: Kevin Finnerty and Rory Foley. Others present: Gladys Larsen, REAM; Patrick Kelley, Representing MPRA; Kevin Beck, Representing MPRA; Peter Mikhail, Representing City of Minneapolis; Tom Marshall, former Board Trustee; Frank Miskowiec, School Employees SEIU. 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. 1.1 Welcome New General Fund Representatives Clint Schumacher and Thomas Stanley and Introductions
Minutes, Board of Trustees - 2 May 9, 2013 New Trustee Tom Stanley stated that he works at the St. Louis County Attorney s Office and new Trustee Clint Schumacher stated that he works at the Southern Minnesota Municipal Power Agency; both were selected by the Board to fill the Representative for the General Fund vacancies. The other Trustees and staff introduced themselves. 2.0 Consent Calendar 3.0 Appeals Lenzmeier moved to accept the agenda as presented. The motion was seconded by Green and passed unanimously. 2.1 Approval of Minutes and Operational Report Finnerty stated that to more accurately represent agenda item 4.5, from the March 14, 2013, meeting, the minutes should be amended to say, Green moved to accept the ALJ s orders concerning fees in the Duluth case and not appeal, instead of, Green moved to accept the ALJ s recommendation for settlement of the Duluth case. Bourgeois moved to accept the consent calendar as amended. The motion was seconded by Green and passed unanimously. 3.1 In the Matter of Pensioners and Beneficiaries of the Former Minneapolis Police Relief Association Reference was made to Petitioners Request for Reconsideration, from Patrick Kelly dated March 22, 2013, and Responses from Julie Leppink, PERA, dated March 25, 2013, and from Peter Mikhail, City of Minneapolis, dated March 28, 2013 [Trustees Ward and Grant (representing Otto) recused themselves from discussion in this matter and left the room.] Foley addressed the Board stating that the Petitioners Request for Reconsideration should be broken into the following parts. Should the Board reconsider the request? Is the petition permitted by the Board statute? Should the Board undertake the merits of the petition? Patrick Kelley, representing Petitioners, addressed the Trustees requesting reconsideration of the Board s past order (from the March 14, 2013, Board Meeting) pursuant to Minnesota Statutes Section 14.64. Kelly stated that the Board should reconsider its decision on three grounds: first, there was no privity between Petitioners and the former MPRA, so Petitioners were not bound by the settlement agreement between the former MPRA and the City of Minneapolis; and second, the settlement agreement between the City of Minneapolis (City) included a provision stating that the Parties agreed that nothing in the Settlement Agreement would affect, adds to, or subtract from the rights or claims of any individual pensioner or beneficiary; and third, the merger legislation should not be interpreted to be retroactive. Petitioners requested that the Board reconsider the case and noted that the Administrative Law Judge s (ALJ) recommendation did not address these particular issues.
Minutes, Board of Trustees - 3 May 9, 2013 Foley noted that this case arose under Minnesota Statutes chapter 356, so it was a fact-finding conference where there is no provision for reconsideration, not as a contested case under Minnesota Statutes Section 14.64. Peter Mikhail, representing the City of Minneapolis addressed the Board stating that there is no need for the Board to reconsider the merits of this case; he then described the process of this case, further noting that since the March 14, 2013, PERA Board meeting, there have been no new developments or anything further to add for Board consideration. He continued that the Petitioners in this case do not represent all of the members of the former MPRA. The Petitioners number approximately twenty-five. In response to Trustees inquiries, Leppink and Foley noted that chapter 356, does not provide for reconsideration by the Board and that Petitioners sole option is to appeal the Board s decision to the Court of Appeals. 4.0 Policy Decision Items Lenzmeier moved that the PERA Board of Trustees deny the Petitioners Request for Reconsideration. The motion was seconded by Green and passed by majority with Ward and Grant (representing Otto) abstaining. 4.1 PERA s Operating Budget FY14 4.1.1 Brief Review of FY13 Accomplishments Vanek presented some membership statistics; accomplishments and objectives and performance measurements. 49 percent of active members in the General Plan are 50 years of age or older 33 percent of active members in the Police and Fire Plan are 45 years or older and 54 percent are 40 and older In FY 2013, PERA staff numbered 96.5 (FTE), and the ratio of members to staff is 3,186 members to every 1 staff; in FY 2000 the ratio was 2,631 to 1. In addition, work has been added, such as satellite offices in Duluth and Mankato, creation of OPEB accounts for 25 employers, creation of the Statewide Volunteer Firefighter Retirement Plan (currently for 63 fire departments), the consolidation of MERF and the merger of Minneapolis Police & Fire and Virginia Fire and Fairmont Police Compared to other pension systems in the U.S., PERA has one of the lowest administrative expense ratios per active member -- $70.94; the average is approximately $150.00 The number of active, inactive and retirees who are using the self-service web page, MyPERA, has increased; members are generating their own estimates The number of employer salary deduction payments submitted electronically (EFT) instead of by paper check has increased dramatically since 2003; this makes the process more secure with less lost payment checks
Minutes, Board of Trustees - 4 May 9, 2013 More salary deduction reports from employers are being submitted through a secure website and only a small number are paper reports; more new enrollments are also coming in electronically Staff is now offering group counseling members receive the same information as in individual counseling sessions; it has been very well received Some of the accomplishments in FY13 include: - Automated first and final payment processes - Conducted research and developed a membership study for the legislature - As the result of the Duluth lawsuit, processed DIE refunds and adjusted benefit amounts - Worked with several groups to develop legislation that will help shore up the Police and Fire Plan - Participated with GASB and other public funds to develop implementation guidelines for new accounting requirements Some business plan initiatives for FY14 are: Develop and implement a knowledge management system Develop a better way to exchange data with MSRS and TRA for Combined Service Annuitants (CSA) Educate employers on GASB 68 requirements Complete the technological infrastructure needed for a disaster recovery hot site Further automate benefit estimate requests Workforce Planning assess human resource needs at PERA to position us for the transition of retiring long-service staff members Review the use of overtime among members and discuss possible policy changes with the Board 4.1.2 FY Operating Budget DeJonge reviewed the FY14 proposed operating budget. He noted that while the budget will increase almost nine percent this year, since 2002, it has only increased 2.5 percent annually. Personal Services increasing 9.14 percent 2 percent COLA effective January 1, 2013 first in four years. Not budgeting for a COLA in FY14 Request for two new positions Knowledge-Based Management System Coordinator; Education/Communications Department Supervisor Merit Increases 39 employees eligible Severance payout for four retiring PERA employees. Employer paid Benefits Insurance is increasing 9 percent January 1, 2014
Minutes, Board of Trustees - 5 May 9, 2013 Two satellite office positions approved by Board during FY13 salary savings from FY13 budget covered the cost of adding the positions in last quarter of FY13, but these additions do add two additional positions for the entire FY14 budget Supplies & Services - increasing 11.08 percent Supplies & Equipment decreasing 15.54 percent Includes software & licensing, non-capitalized hardware, equipment & maintenance, office supplies, paper, envelopes, materials, publications File room and computer equipment purchased in FY13 one-time expense Disaster Recovery Hot Site equipment purchased in FY13 is being configured and tested one-time expense Office equipment maintenance agreements; electricians; carpenters; workstations; furniture repair Begin replacing some carpet squares (12-15 year expected life) areas are worn Reconfigure call center into a team environment Communications decreasing 2.28 percent No change in phone costs Mail and printing costs two Guardian newsletters instead of four; members can elect to receive newsletters and other information via email or website Professional Services increasing 24.4 percent Severance for SBI Executive Director and Assistant Director; search firm for new Executive Director; LIBOR lawsuit all are one-time expenditures Preliminary numbers; paid at beginning of year; settle up at end of year Financial Services no change Auditor, banking services like EFT for contribution and remote deposit Management Services increasing 42.01 percent $69,100 increase due to Statewide Indirect Cost billing from Minnesota Management and Budget, representing our allocation of statewide costs for central mail; materials management; central payroll; financial reporting; personnel admin; Executive Budget Officer; MMB; SWIFT (purchasing, account transactions, warrants) Actuarial Services increasing 11.11 percent GASB 67 & 68 implementation likely to increase again next year Medical Services increasing 6.9 percent More retirements = more disability applicants Qualified Rehabilitation Counseling costs increasing Independent Medical Examiner costs are decreasing slightly Legal Services - increasing 7.14 percent Hired in-house counsel in 2012, costs have been cut in half
Minutes, Board of Trustees - 6 May 9, 2013 5.0 Informational Items Still finishing up Duluth and Minneapolis lawsuits so Attorney General legal representation costs increasing slightly Other Costs increasing 20.11 percent Training consultant/facilitator for management training on new coaching methodology; succession planning & strategic/business plan; begin GASB training for employers Travel new Statewide Volunteer Firefighter workshops; new board members Operating Costs doubling number of staff in Duluth & Mankato offices; also includes miscellaneous costs like insurance, membership fees, room rental for workshops, special expenses, etc. Building Costs decreasing 0.21 percent Bond Principal and Interest is decreasing due to the refinancing of the bonds at true interest cost of 1.6 percent the payments are the same as before the refinancing, but reduced the time that the bonds will be paid off by five years Building Operating Costs are increasing 1.54 percent 4.1.3 Conclusion and Recommendation to Board of Trustees DeJonge concluded that the total proposed FY14 operating budget is increasing 8.99 percent. Vanek cautioned that although many items in this year s budget are one-time expenditures, it is not expected that next year s budget will decrease because of the actuarial costs associated with implementation of GASB 68, requiring calculation of the costs to be allocated across all employers. Rambow noted that this budget is a synopsis of government as a whole; you are asked, and you do more with less for a while, but there comes a point when you can no longer continue to provide more and more services without additional costs. Bourgeois moved that the PERA Board approve the FY14 budget as presented. The motion was seconded by Green and passed unanimously. 5.1 Amortizing Unfunded Actuarial Liabilities Reference was made to a memo from Mary Most Vanek dated May 1, 2013 Vanek mentioned that at the March 5, 2013, Legislative Commission on Pensions and Retirement (LCPR) meeting, the LCPR s actuary from Milliman pointed out that the payroll growth assumptions that are currently used are not being attained in most of the Plans. The only Plan that met the assumptions is PERA s Police and Fire.
Minutes, Board of Trustees - 7 May 9, 2013 The payroll growth assumption is important for the determination of the portion of the total contribution rate that is needed to pay off the unfunded liability of each of our plans. Vanek continued that normally PERA would be addressing this in the experience study which would have been completed this coming fall, but the study has been delayed two years so that there could be more data collected to look at the benefits from the assumption rate change in 2012. Our actuary from GRS will be putting together some information so that the Board can discuss this further at the September workshop. 5.2 Legislative Update Reference was made to a memo from Mary Most Vanek dated May 7, 2013 Vanek reported that Omnibus Pension Bill I (administrative/technical changes) was passed by the Senate. She noted that the only item in the bill that did not come before the Board for discussion was a provision that allows the Board to determine how the factor table changes are to be implemented. She continued that Omnibus Pension Bill II is still waiting to be heard on the Senate floor. This bill includes the Police and Fire Plan modifications and changes an existing law that allows the retirement systems to withhold retiree organization dues for union retiree chapters from twice a year to monthly. This bill also includes aid for Duluth and St. Paul Teachers; the funding level for these Funds is different in the House version, so the Senate will either adopt the House version or it will go to conference committee. The Senate has put funding for additional aid for Police and Fire into the tax bill as direct State aid from the General Fund; this would be cut off in 2020. The House has put it into the tax bill as a surcharge. The funding method for the aid will be decided at a later date. 6.0 Other Business Educational Sessions Available from our Actuarial Consultants Educational sessions are offered to the Board Trustees as part of the contract with Gabriel, Roeder, Smith and Co (GRS). The Trustees were asked to rank their choices for sessions at the September workshop. Board Resolution for former PERA Board Trustee Ross Arneson President Rambow read the following resolution for former Board Trustee Ross Arneson. WHEREAS, ROSS E. ARNESON, has been a long-serving Trustee on the Board of Trustees of the Public Employees Retirement Association, elected as an active member of the PERA General Plan, for four successive terms, from February 18, 1999 through February 28, 2013; and
Minutes, Board of Trustees - 8 May 9, 2013 WHEREAS, ROSS E. ARNESON oversaw many changes in the benefit plans entrusted to the management of the PERA Board of Trustees, was a staunch defender of maintaining the provisions of the defined benefit plans for active, inactive and retired members of PERA s plans, and proactively engaged in crafting the 2008 Post Fund and the 2010 benefit reforms needed to ensure the integrity of all of PERA s retirement plans; and WHEREAS, the hard work, dedication and unselfish commitment that ROSS E. ARNESON contributed to the quality of PERA s work, and his thoughtful approach to ensuring the Board asked for sufficient information to make well-informed, careful decisions affecting all members and beneficiaries; and WHEREAS, ROSS E. ARNESON s personal integrity, diligence, and sincere dedication to ensuring a successful retirement for each and every PERA member and retiree have earned him the respect of his 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 9 th day of May 2013, takes this means as an expression of heartfelt gratitude and appreciation for unselfish devotion and service ROSS E. ARNESON provided to the members and beneficiaries of the Association; and 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 ROSS E. ARNESON. Jenson moved to adopt the resolution. The motion was seconded by Lenzmeier and passed unanimously. 7.0 Date of Next Meeting The next meeting of the PERA Board of Trustees will be held Thursday, June 13, 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, Green moved to adjourn the meeting at 11:41 a.m. The motion was seconded by Lenzmeier and passed unanimously. Mary Most Vanek, Executive Director Saint Paul, Minnesota