Outlook for Bill S.F. 1249

The Board of Trustees for the St. Paul Teachers’ Retirement Fund (SPTRFA) recently offered testimony to the State Legislature’s Commission on Pensions and Retirement (LCPR) on a proposal to narrow the funding deficiency identified in its most recent valuation report (7/12).  The proposal before this Session of the Legislature would involve increased contributions from both the employer (Saint Paul Public Schools) and active employees, a modification to the early retirement reduction tables, an improved multiplier for determining the percentage of average salary for benefit payments, adjustments to the Plan’s Return to the Work Program and requesting increased State aid by $7 million annually over the next twenty five period or upon the Fund achieving full funding, whichever is sooner.

The steps are considered integral to the Board’s continuing efforts at best insuring the future sustainability of the Fund.  The contribution increases and improvements to the multiplier will bring active teachers into parity with the State Teachers’ Retirement System.  Nothing in the Bill impacts annuitants.  However, the projected improvements to the Plan’s funding ratio, an expected result of the requested State aid and increased contributions, would potentially make achieving the trigger for an increased COLA more likely.  An 80% funded ratio is required for the added COLA.  Another key factor in achieving that 80% funding target would be strong investment performance above the 8.0% target return.

The Bill’s outlook remains favorable with LCPR Chairman Sandy Pappas DFL-Saint Paul acting as our lead sponsor along with Representative (and LCPR member) Mike Nelson,  DFL-Brooklyn Park.  We’re hopeful the Bill, SF 1249, will emerge from the Commission by early April with several other Committees, including Government Operations, Finance and Ways and Means, required to hear the Bill before it reaches both floors of the Legislature.  It’s a long and winding path but the Board remains optimistic that sufficient support among Legislators exists for taking the necessary steps to strengthen the State’s Defined Benefit Plans, such as SPTRFA.

As to the important component of the current investment, the Fund is getting solid help there as well.  For the current fiscal year through February, the portfolio’s return is ahead nearly 11%.  For calendar year 2012, the Fund’s performance was a bit over 13%, placing it within the top quartile of similar funds.  Market value stands at $922 million, at the end of February, an increase of approximately $40 million from the start of the fiscal year, this past July 1. It’s important to remember that in order to meet monthly benefit payments the Plan is required to draw on average about $5 million from the portfolio.   Therefore, recent performance has allowed the fund to grow significantly while absorbing the impact of approximately $60 million/year in withdrawals.

An encouraging feature of this improving performance is that the Plan’s active managers have been demonstrating their value add over the benchmark (index) returns.  This is important from the standpoint of allowing the Fund to achieve its long term investment goals.  The Board’s recently adopted investment strategy is to seek, through its recent and ongoing adjustments, a portfolio able to remain competitive during good market times while evidencing dampened portfolio volatility and risk reduction to allow it to better cushion the more challenging market environments.   An indication of this is seen in comparing the portfolio’s fiscal year to date return (net of fees) of 10.5% compared to the Fund’s policy index return of 9.7%.  As to the Fund’s three year return through February, it stands at 10.4% return compared to the index at 10.0%.   The Fund’s annual target investment return stands at 8.0%