2012 Year in Review

Board members re- elected:  Mike McCollor, Karen Odegard and as a New Trustee:  Lori Borgeson replacing six term incumbent, Dr. Erma McGuire

Reorganized the Board’s Committee structure to more efficiently address Board business

Conducted first of several video conferences with portfolio managers realizing significant time and cost savings.  Installed Apple TV component to facilitate Board presentations and education.

Established various new Board policies governing:  iPad usage; payments to Alternate Payees;  commingled portfolio managers compliance reporting; receipt of gifts and gratuities; calculation of certain elements related to Final Average Salary;  a new Securities Litigation Counsels program;  the Securities Lending Program capped at 35% of eligible assets, among other investment related matters,

Approved a new Asset Liability Study and adopted new portfolio Asset classes aimed at dampening portfolio volatility

Undertook examination of existing Custody relationship and agreed to rebid Master Custody services which resulted in the hiring of US Bank, replacing incumbent Bank of New York/Mellon with major cost savings and improved returns from US Bank’s Securities Lending Program.

Completion of the long overdue planned Investment Technology upgrade of office hardware and software, including new wiring, phone system and network server.

Continued improvements to the presentation of the Annual Budget process and the Board’s Website.

Hosted the Annual Meeting of the nation’s Public Small Plan Sponsors  “Pow-wow”.

Completed the update and consolidation of the Board’s policies, By-laws, operating statutes, together with historic summaries of contributions, portfolio assets and beneficiary payments, within one consolidated format in both hard copy and electronic form for Board member use.

Undertook program for cross training staff to insure efficient operations maintain during planned and unplanned staff shortages

Enjoyed Legislative success during the 2012 session with the Fund, among other items, achieving expanded investment authority and a revised target Investment Rate of Return while successfully defeating certain proposals that would have negatively impacted the System.

Approved several changes to the Investment Portfolio, including: replacing one incumbent manager, increasing assets with two long standing small/mid cap equity managers,  shifting assets among existing managers to increase the portfolio’s commitment to global equity strategies, shifting core real estate assets to greater diversification within the inflation hedged category of assets;   funding two new investment categories, (high yield fixed income and Treasury Inflation Protected Securities TIPS), increasing investments within private equities,  and retaining the consulting firm of Franklin Park LLC of BalaCynwyd, PA to guide the Board’s expanded commitment to private equity investments.

Approved engaging with MN based firm Sagitec Solutions, llc, to establish a much needed new pension administration system that will not only realize major operating efficiencies for staff in calculating and handling member benefit issue but also incorporating programs to address the critical areas of data storage and handling and disaster recovery capabilities.

Received IRS Re-qualification of its tax qualified status, the result of an extensive and somewhat costly and periodic assessment.  It also obtained IRS clarification requirements regarding the filing of future annual Tax Exempt qualifying Form 990s, after an extremely protracted process.

Approved the FY 2013 Operating Budget which included annual benefit payments exceeding the $100 million mark for the first time in the Fund’s history.

Our actuary, Gabriel Roeder Smith, with newly relocated offices now in Minneapolis, completed a periodic Experience Study of the System’s demographics, the last having been undertaken in 2006.  The Study involved a detailed assessment of the System’s assets and liabilities and compared past projections of demand on the system with actual events over the past several years. It then applied those findings to modify key forward looking assumptions to project future System obligations.  A result of the Experience Study supported the lowering of the Fund’s Discount Rate and other adjustments to demographic assumptions, such as mortality, and resulted in an increase in the Board’s funding deficiency from 2% to over 5% of salary.

The Office of the State Auditor annually examines our books and reported another “clean audit” for the past fiscal year as well as complimenting Board members for their audit work through the year and the staff for its efforts in helping the State’s audit team in preparing the annual assessment.

The Board successfully transitioned to a new Master Custodian on July 1.  It also retained Asset Consulting Group of Saint Louis, MO to provide Investment Performance Measurement services, replacing incumbent firm, Callan and Associates, in that important role.

Board members attended the Annual National Council on Teachers’ Retirement (NCTR) Conference in Tucson, AZ.  The three day event provides an excellent opportunity for Trustees to remain current on topics related to their fiduciary duties as well as to network with other teacher system trustees from around the country.

Authorized the hiring of a second outside legal counsel to employ tactically and realize meaningful cost savings in this area.  Similarly, the Board modified its prior approach to its handling of litigation involving a potential financial loss within the investment portfolio resulting from corporate malfeasance.

Held discussions with members of the Saint Paul Schools Administration to advise about the impacts on the Retirement System of certain Board of Education actions, such as Early Retirement Incentives, as well as upcoming financial reporting requirements now required of retirement system employers, such as the SPPS, which were recently issued by the General Accounting Standards Board (GASB).

Investment staff conducted two due diligence visits with existing and prospective portfolio managers to Dallas/Austin, area of Texas and to New York City, which completed the planned on-site meetings with all of the Fund’s incumbent managers.

The Board approved a contract with ‘eVestment Alliance’, a  software services firm  which provides extensive data bases on current and prospective managers, a critical resource for conducting cost saving, targeted searches by in-house staff, as well as providing manager performance  reports.

The Board examined a prospective legislative package which included a number of steps aimed at System cost savings, possible contribution increases and adjustments to the investment lineup to best assure its ability to achieve the proposed investment annual return target of 8%.  During 2012, the Plan’s investments returned 13.5%.

Staff and legislative Counsel, Brian Rice, held meetings with some key Chairmen of the newly elected Legislative Leadership team to discuss possible initiatives and the Legislative outlook.

Finally, the Board, with its five year occupancy lease expiring later this year, began exploring various real estate options including renewal of the existing accommodations or considering the financial merits and member benefit to owning its own building as a component of its portfolio’s real assets allocation.

Please note that our office has recently relocated and our new address is: 2550 University Ave W STE 312 N Saint Paul, MN 55114.

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