Regular Board Meeting
May 15, 2007
Minutes
Chair Sandy Matheson called the meeting to order at 9:30 am. Board members present: Claude Burfect, Michael Coleman, Chet Griffith, Robert Lenigan, Gene Otis, Judi Owens, Brian Talbott, Staci Vesneske and Kathy Whitlock.
Staff/resource personnel present: Assistant Attorney General Anne Hall, Kris Heurich, Joe Dear, Diana Will, Jeff Wickman, George Pickett and Wilma Eby. (Names of other attendees are not included in the minutes but are listed in the permanent record.)
Chair Sandy Matheson announced that Gene Otis is leaving the board at the end of his term in June. She thanked him for his participation on the board. She also announced that Jason Zenk’s term on the board ends at the end of June and due to scheduling conflicts he will not continue as a board member.
Gene Otis made a motion, seconded by Judi Owens, to approve the January 23, 2007 meeting minutes as submitted. The motion passed unanimously.
John Kvamme, representing the school principals and school administrators associations shared issues they are asking the Select Committee on Pension Policy (SCPP) to consider in preparation for the next legislative session
Kris Heurich, Senior Vice President, ICMA Retirement Corporation (ICMA-RC), provided a status report of the record keeping services for the Plan 3 programs. She reported an increase of 10.5 percent in member calls to the ICMA-RC call center compared to the same period in 2006, most likely due to an increase in the number of members, members receiving their annual statements in January and possibly because of the stock market. Calls were answered in an average of 14 seconds - ICMA-RC’s goal is to answer all calls within 25 seconds. Members asked questions about disbursement options and how the disbursement process works, investment options and program transfers between the Washington State Investment Board (WSIB) Total Allocation Portfolio (TAP) and the self-directed program. Ms. Heurich reported a decrease of 8.5 percent in fund transfers within the self directed program compared to the same time in 2006. The dollar impact of fund transfers is similar to 2006, with the exception of the bond fund which took in $3 Million and a decrease in dollars going into the international fund. She reported more money movement into the horizon funds and an increase of 14 percent for requests to move money from the self directed program to the TAP fund – for the quarter nearly $8.3 Million compared to $6.6 Million for the same quarter in 2006.
Joe Dear, Washington State Investment Board (WSIB) Executive Director, provided an investment report for the Plan 3 and Deferred Compensation programs for the quarter ended March 31, 2007. He reported positive capital market returns for the quarter, one year, five year and ten year periods. The strongest performance was in the EAFE funds at 4.1 percent for the quarter and 20.2 percent for the year. Mr. Dear noted that value stocks outperformed growth stocks 16.2 percent to 6.5 percent. The one year performance for the TAP is 16.2 percent, nearly four percentage points over its benchmark.
Mr. Dear stated that the WSIB tries to measure implementation value added, which is to identify the component of the return that is due to skill - superior selection of managers and the distribution of the assets to meet the targets. Chair Matheson suggested a presentation on the subject at the September ERBB meeting.
The Social Balanced Fund is underperforming on the one year and three year basis. Mr. Dear noted the fund manager is screening out commodity based funds, particularly energy, and has a bias toward quality stocks. There is a slight underperformance in the horizon funds, mainly due to the performance of the bond fund. However, on a three year basis the horizon funds are meeting their benchmarks. Mr. Dear reported the bond market fund is underperforming by 40 basis points on the one year time period.
The Teachers’ Retirement System (TRS) Plan 3 fund total is $3.7 Billion, the School Employees’ Retirement System (SERS) Plan 3 total is $985 Million and the Public Employees’ Retirement System (PERS) total is $1.26 Billion.
The Deferred Compensation Program (DCP) fund totals $2.4 Billion with the largest component in the savings pool. The one year returns for the majority of the DCP funds are meeting or exceeding their benchmarks. Exceptions are the Active Core Fund and Fidelity’s Growth Company fund. However, the three year returns exceed their benchmarks for both funds.
Jeff Wickman, Strategic Initiatives Manager at the Department of Retirement Systems (DRS), reported that Legislation passed during the 2007 session impacts new teachers hired on or after July 1, 2007. Changes to the education program, communication material and automated systems at DRS and ICMA-RC are underway. Mr. Wickman’s written report also provided information about Plan 3 membership in the different contribution rate choices and contribution rates selected by new hires.
Jeff Wickman, Strategic Initiatives Manager, also provided a report on legislation passed in the 2007 session that will impact Plan 3 members. House Bill 1262 makes changes to the retiree return to work laws for TRS Plan 1 members. The changes make TRS laws consistent with PERS Plan 1 return to work laws.
• Prohibits prior re-employment agreements, and requires documentation of need and of the hiring process
• Increases the waiting period to work 1,500 hours for a TRS Plan 1 retiree to one and a half months
• Implements a lifetime limit of 1,900 hours that a TRS Plan 1 retiree can work in excess of 867 hours while receiving a pension
House Bill 2391 removes the gain sharing benefit after the January 1, 2008 gain sharing distribution, if any, and provides the following new benefits.
• Beginning in July 1, 2009, PERS and TRS Plan 1 retirees will receive a cost of living adjustment of $.40 per month, per year of service, minus the 2008 gain sharing increase to the COLA. The adjustment cannot decrease the annual amount of the COLA and cannot exceed $.20 per month, per year of service.
• Beginning July 1, 2007, newly hired TRS and SERS members will have 90 days to choose between Plan 2 and Plan 3.
• PERS, TRS and SERS Plan 2 and Plan 3 members with 30 years of service who have reached age 62 will be able to retire with no reduction in benefit. The change in early retirement reduction factors is effective July 1, 2008 for PERS Plan 2 and 3 members and September 1, 2008 for TRS and SERS Plan 2 and 3 members. Additionally, any member who retires under the new reduction factors cannot return to work for a public employer, without forfeiting his or her benefit payment, until age 65. That includes any work performed under a personal service contract, as a temporary or project employee, or under any other similar compensated relationship with a public employer.
Board member Judi Owens questioned when the ERBB would consider issues that are important to Plan 3 members and make recommendations about legislation. Assistant Attorney General Anne Hall responded that the statute governing the ERBB does not give this board discretionary authority to advocate on issues. RCW 41.50.088 spells out the duties of the ERBB – to recommend to the WSIB types of investment options for the Plan 3 programs and DCP, to determine the basis for administrative charges to the self directed investment fund and to offer a TAP annuity payment option.
Chair Matheson discussed the Washington Voluntary Accounts Program and the role DRS will play. The budget appropriated general fund dollars for DRS to design a plan that would make state sponsored retirement savings vehicles available to private employers. DRS is authorized to develop and submit the plan to the Internal Revenue Service for approval and report back to the Legislature on the progress of the work in December 2008. DRS will discuss the program with private sector providers, the idea is not to compete but to enhance savings options. This comes out of a growing concern across the country about the savings rate and individuals not being prepared for retirement. Congress also introduced a bill recently that would mandate savings plans by any employer with ten or more employees.
Joe Dear summarized the Plan 3 and DCP management fees that will take effect July 1, 2007. The fee is increasing slightly, from .0123 percent to .0124 percent effective July 1, 2007, due to increased WSIB staffing levels - adding a second internal auditor, a compliance officer and five investment officers, and a major technology project to build a data warehouse for a more robust risk management system. On an investment base of $4.7 Billion, last year the WSIB charged $577,00 in investment management fees. The proposed increase for the next year brings the investment management fees to a total of $582,000 or a net increase of $4,600.
Judi Owens made a motion, seconded by Michael Coleman, to ratify the WSIB investment management fee of 0.124 percent. The motion passed unanimously.
Chair Sandy Matheson reviewed the proposed agenda for the September 18, 2007 meeting. The presentation by Joe Dear about the best measure of performance will be added to the agenda. Chair Matheson also suggested other education from the WSIB would be beneficial for the board. With no further business, the meeting adjourned at 10:52 a.m.
With no further business, the meeting adjourned at 10:52 a.m
Approved:
Sandra J. Matheson