Regular Board Meeting
September 25, 2007
Minutes
Chair Sandy Matheson called the meeting to order at 9:35 am. Board members present: Claude Burfect, Michael Coleman, Chet Griffith, Dorothy Kiest, Robert Lenigan, Sheila Marcy, Judi Owens, Brian Talbott, Staci Vesneske and Kathy Whitlock.
Staff/resource personnel present: Assistant Attorney General Anne Hall, Assistant Attorney General Lara Zimmermann, Kris Heurich, Nancy Calkins, Tom Ruggels, 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 Matheson introduced new board member, Dorothy Kiest, appointed by the Governor for a three-year term to represent retired Public Employees’ Retirement System (PERS) members. Chair Matheson also announced Department of Retirement Systems (DRS) management transitions – Dave Nelsen, Assistant Director of the Retirement Services Division has left the agency and is working for the State Actuary’s Office. Cathy Cale is now the Assistant Director of the Retirement Services division and George Pickett has been appointed as the Assistant Director of the Administrative Services division.
Robert Lenigan made a motion, seconded by Judi Owens, to approve the May 15, 2007 meeting minutes as submitted. The motion passed unanimously.
Two meeting attendees provided comments about investment options. Erik Johansen discussed the returns on the Walden Social Balanced Fund and requested a change in the socially balanced fund option. Michael Savoca discussed the Money Market Fund option for Plan 3 members and advocated for an investment option that has no risk to principal
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 highlighted the member contacts to ICMA-RC through their call center, voice response unit and the Internet. Although the percentage of contacts through each of these mediums has remained stable, the number of contacts have increased by 17 percent. That compares with an 8 percent increase in members. Most of the contacts are made via the internet. Ms. Heurich reported a continuing trend in the decrease of fund transfers, members moving their money between funds. She reported members continue to invest in the International Fund, although at a lesser pace than in 2006, and continue to move money out of the Small Stock Fund. Additionally, in 2006 members were taking money out of the bond fund while 2007 shows an increase in bond fund investments. As in the past, money continues to move from the Self-Directed program into the Total Allocation Portfolio (TAP) fund. Through August 2007, nearly $19 million has moved to the TAP.
Ms Heurich asked whether members have a preference for how the ICMA-RC information is reported, either as combined Plan 3 data or continuing to report on the separate Plan 3 systems. Board members requested continuing to report as separate programs. Ms. Heurich asked that board members give suggestions for any additional data they would like to see. Chair Matheson suggested it would be helpful to see a brief description of the purpose of the graphs in the report.
Nancy Calkins, Senior Investment Officer of Public Equity at the Washington State Investment Board (WSIB), provided an investment report for the Plan 3 and Deferred Compensation programs for the quarter ended June 30, 2007. She reported that returns were very positive through June. While the July through September quarter will not look as good, the five and ten year returns are all positive. She noted that funds are designed to track a specific index. The fund return should be very close to the index. The Social Balanced Fund is underperforming its index.
Several board members had questions about how investment options are chosen. Chair Matheson suggested that the next meeting include a presentation on why these specific Plan 3 and DCP investment options are offered.
Jeff Wickman, Senior Assistant Director of Policy at DRS, provided an update on the Lifecycle Funds investment option procurement. DRS and WSIB staff have been working together on the schedule for transitioning the Horizon Funds to new Lifecycle based funds. The target date for the transition is July 1, 2008. The timeline is still draft and subject to potential change based on the procurement process, approval by the WSIB and notification and education for Plan 3 members and Deferred Compensation Program (DCP) participants.
Mr. Wickman also reported that DRS successfully implemented optional membership provisions passed in the 2007 legislative session – House Bill 2391. Effective July 1, 2007 newly hired teachers and classified school employees have 90 days to choose between Plan 2 and Plan 3. Plan Choice publications, Web sites and seminar presentations were reviewed and revised to include the new choice information. DRS worked closely with school districts to successfully modify their reporting systems, as well as make the changes necessary to DRS’ internal data collection systems.
DRS is currently working on the system modifications and communications for the January 2008 gain sharing distribution. In October, DRS will provide the Office of the State Actuary with the data necessary to calculate the gain sharing amount. DRS is also working on updating the online benefit estimator for the early retirement reduction factors that go into effect in July and September of 2008.
Jeff Wickman also reported on Plan 3 issues being discussed by the SCPP. Issues presented to the full committee include:
• The waiting period for purchasing public education service. Teachers’ Retirement System (TRS) Plan 3 members may purchase service credit for periods of public education experience outside of Washington State. Under the current statutes members must have five years of TRS service before they can purchase the out-of-state service at the full actuarial cost. The issue before the SCPP is whether to decrease the waiting period from five to two years of service in order to make the purchase. The SCPP has also discussed eliminating the waiting period.
• The $150,000 Death Benefit Enhancement. Survivors of Plan 3 members who die as a result of injuries or illnesses contracted in the course of employment are eligible to receive a lump sum death benefit of $150,000. The amount is set in statute and has not changed since being established in 1996. The issue before the SCPP is whether the amount should be automatically adjusted for inflation by indexing the benefit to changes in the Consumer Price Index. In 2007 the SCPP recommended legislation that would have made this change.
Issues presented to the SCPP Executive Committee include:
• In TRS and School Employees’ Retirement System (SERS), service credit is awarded based on twelve-months, six-months, or month-by-month time worked. The service credit statutes accommodate individuals who work half-time for an entire school year by awarding them six months of service credit. However, there is no provision to accommodate individuals who work full time for half of the school year. These employees can only use the “month-to-month” method for determining their service credit. The Executive Committee is considering a change to service credit statutes to better accommodate an individual who works full time in a job-sharing arrangement for five months of a school year. The change would grant this person 6 months of service credit.
Tom Ruggels, WSIB Private Equity Senior Investment Officer, provided education about the state’s private equity program. His presentation covered information about the structure of the funds, history of the private equity program and WSIB’s management of the program. He reported a net internal rate of return of 15.4 percent since the program’s inception in October 1981. Five WSIB staff are dedicated to the private equity program. Mr. Ruggels noted the program’s keys to success are long-term perspective, diversification and general partner selection.
Chair Sandy Matheson reviewed the proposed agenda for the December 11, 2007 meeting. Board members requested additional education sessions from WSIB staff about investment options. With no further business, the meeting adjourned at noon.
With no further business, the meeting adjourned at 12:00 pm
Approved:
Sandy Matheson