CalSTRS Report – March 4,5, 2021

By Pat Geyer, CalRTA Liaison

Client Advisory Committee

Jack Ehnes reported that the State supports CalSTRS extra funding.  As long as CalSTRS investments continue CalSTRS funding statis is great.  Progress has been made with Exon and climate change.  CalSTRS has lost some staff to COVID.  There have been changes in financial services due to changes in technology.

Diane Alsup reported that Service Retirements are up but no more than 2.6% over last year.  When retirees were asked why they retired early most said it was because of COVID.  This may be the largest retirement year.

Pension Solution introduced their new system.  They will have an employer website and offer computer training on the new system.

Joycelyn Martinez-Wade gave the legislative update.  CalSTRS sponsored legislation is AB539 (Cooley) Investment Procurement, AB551 (Rodriquez)  CalSTRS IRA, and SB634 CalSTRS housekeeping bill.

Other legislation of interest is:

AB845 a COVID bill for disability retirement,

AB1019 and SNB457 a Turkish Divestment which CalSTRS opposes.

SB294 elected officer service, credit limit removed.  CalSTRS is neutral on SB294.

SB449 on climate risk will be reviewed by CalSTRS in May.

HR82 is the legislation for WEP and GP offset repeal.

Investment Committee

Jennifer Urdan was introduced as a new CalSTRS Board member.

The Committee reviewed the Sustainable Investment and Stewardship Strategies (SISS) Program.  (1) Clarify language, (2) Include a reference to Innovative Strategies in addition to its Private Equity, Real Estate, Inflation Sensitive, (3) Private Portfolio have a blended performance benchmark comprised of the underlying strategies and their benchmarks.  (4) Remove Geographic Parameters for Diversification.  (5) Include additional reporting.

The Committee reviewed the Risk Mitigating Strategies.  A second reading of the Risk Mitigating Strategies will be heard in May.

The Committee reviewed the Semi-Annual Performance Report for Real Estate and Private Equity.  Meketa reported that CalSTRS has outperformed its peers by some 20 basis points over the last 10 years.  At the present time there are low interest rates, but Real Estate is not now an active market.

Chris Ailman gave the CIO Report.  There is a decline in demand for office buildings because so many employees enjoy working from home and will continue.  This beings into question the need for the new CalSTRS building.

Teachers’ Retirement Board

Jocelyn Martinez-Wade reported on SB 294 which removes the limitation for service credit for elected officials.  Board position is neutral.  HR 82 eliminates the Government Pension offset.  Board supports.  Positions on future bills will be voted on in the May meeting.

Board reviewed the Long Term Incentive Plan for CalSTRS staff.  This is an annual award which will pay out after 4 years – an incentive for retention.  Recommended plan changes will be brought to the Board at a future meeting.

The Pension Solution (computer) Project staff is working from home.  The Employer Readiness tests are 99% completed.  Data conversion is on schedule.  COVID has had a small impact on the project.  The Project is scheduled to go live in the fall or winter of 2022.

The Board hears the Enterprise Risk Management Report.  (1) Pension Fund Investments had no change, (2) Pension Funding – Actuarial increase by 1 point, (3) Pension Fund –Contribution Rate, Pension Administration, Pension Reform, Information Security, Operational, and Reputational had no change.  (10) Transformational Change increased due to delays in testing and a higher number of defects.

Jack Ehnes presented the Annual GRI Sustainability Report.  CalSTRS members live longer than average.  CalSTRS has 410 members over 100 years a 13% increase.

Under the CEO Report Jack Ehnes reported that CalSTRS had 250 COVID related member deaths through January 2021.  Progress on the new building is within budget.  September 16 is the date for completion.  There are now ads for the rental of building space, but we do not know how COVID will affect working.  Teachers are retiring earlier because of the challenges of COVID.

Audits and Risk Management Committee

The Committee heard a progress report on the recommendations to improve control over financial reporting.  Challenges are (1) reporting fair value of certain Private Equity co-investments, (2) accurate and complete member data, (3) Medicare Premium completeness and accuracy of data, (4) Completeness and accuracy of financial statements.

Crowe LLP is to perform 3 audits by June 2021 – (1) Basic Financial Statements, (2) Other Pension Information, (3) Other Postemployment Benefits.  The audit final is scheduled for November 2021.

Under employer audits the percentage for audit errors declined except for reporting of employer earnings.  More than half of the employers audited had at least one systemic finding.   Present audits will be of limited scope because of the COVID crisis.