Minutes of the OHIO PUBLIC EMPLOYEES RETIREMENT SYSTEM The monthly meeting of the Ohio Public Employees Retirement Board was held in the offices of the Board, Ohio Public Employees Retirement System building, 277 East Town Street, Columbus, Ohio at 9:35 a.m., Wednesday, March 19, 2014. Members present: Ms. Sharon Downs; Ms. Heather Link; Mr. Sean Loftus; Mr. John Maurer; Mr. David Payne, representing Mr. Robert Blair, Director, Department of Administrative Services; Mr. Matthew Schulz; Ms. Cinthia Sledz; Mr. Robert Smith; Mr. Ken Thomas; and Mr. Jim Tilling. Member absent: Mr. Frank Ciotola. Also present: Ms. Julie Becker, General Counsel; Ms. Karen Carraher, Executive Director; Ms. Carol Drake, Chief External Affairs Officer; Mr. Allen Foster, Director Benefits Administration; Mr. Greg Januszewski, Director Internal Audit; Mr. Walt Knox, Enterprise Chief Risk Officer; Mr. Chuck Quinlan, Director Information Technology; Mr. Blake Sherry, Chief Operating Officer; Ms. Jenny Starr, Chief Financial Officer; Ms. Marianne Steger, Director, Health Care; Ms. Shelley Wilson, Director Human Resources; and Mr. Matthew Green, Attorney General s Office. The statute does not require an excused absence for Investment Expert Mr. Ciotola. Mr. Thomas moved, Mr. Tilling seconded, to approve the minutes of the meeting held February 19, 2014, and the disability report, (see Appendix to the Minutes for report). 1
Chair Sledz asked for the report from the Personnel and Salary Review Committee. The Board reviewed the following report from the Personnel and Salary Review Committee meeting: Personnel and Salary Review Committee Minutes February 19, 2014 The meeting of the Ohio Public Employees Retirement Board Personnel and Salary Review Committee was held in the offices of the Board, Ohio Public Employees Retirement System building, 277 East Town Street, Columbus, Ohio at 2:50 p.m., Wednesday, February 19, 2014. Members present: Mr. Sean Loftus; Mr. Matthew Schulz; Ms. Cinthia Sledz; Mr. Ken Thomas; Mr. Jim Tilling; and Ms. Sharon Downs. Member absent: Ms. Heather Link. Also present: Mr. John Maurer; Mr. Robert Smith; Ms. Julie Becker, General Counsel; Ms. Karen Carraher, Executive Director; Mr. Greg Januszewski, Director Internal Audit; Mr. Walt Knox, Enterprise Chief Risk Officer; Mr. John C. Lane, Chief Investment Officer; Mr. Blake Sherry, Chief Operating Officer; Mr. Greg Slone, Manager Internal Audit; Ms. Jenny Starr, Chief Financial Officer; Ms. Shelley Wilson, Director Human Resources; and Ms. Mindy Bailey, Manager, Human Resources. The Committee Chair called the meeting to order. Ms. Wilson reviewed changes to Appendix B in the Investments Incentive Compensation Plan. Appendix B lists the positions that participate in the Investments Incentive Compensation Plan along with their maximum award opportunity. After discussion, Mr. Thomas moved, Ms. Sledz seconded, to recommend approval to the full Board the changes to Appendix B in the Investments Incentive Compensation Plan, effective beginning with the plan year 2014, as reviewed and discussed with staff. Roll call vote was taken as follows: Mr. Loftus, aye; Mr. Schulz, aye; Ms. Sledz, aye; Mr. Thomas, aye; Mr. Tilling, aye; Ms. Downs, aye. 2
Ms. Wilson reviewed Appendix C in the Investments Incentive Compensation Plan. Appendix C is reviewed and approved by the Board each year and indicates how each individual s potential incentive compensation award will be calculated from a total fund, asset class and/or portfolio level. Once the alpha goals are approved as part of the Annual Investment Plan, staff creates Appendix C which then becomes part of the Incentive Compensation Plan for the year. For 2014, Appendix C also includes the new individual goals piece with their associated weightings. After discussion, Ms. Sledz moved, Mr. Schulz seconded, to recommend approval to the full Board to approve Appendix C including the individual component goals and weightings, as reviewed and discussed with staff. Roll call vote was taken as follows: Mr. Loftus, aye; Mr. Schulz, aye; Ms. Sledz, aye; Mr. Thomas, aye; Mr. Tilling, aye; Ms. Downs, aye. Mr. Tilling moved, Mr. Thomas seconded, to adjourn the Committee meeting. The motion passed without dissent. The Committee meeting was adjourned at 3:30 p.m. Ms. Downs moved, Mr. Smith seconded, to approve the changes to Appendix B in the Investments Incentive Compensation Plan, effective beginning with the plan year 2014 as reviewed and recommended in the Personnel and Salary Review Committee report. 3
Ms. Downs moved, Mr. Loftus seconded, to approve Appendix C including the individual component goals and weightings as reviewed and recommended in the Personnel and Salary Review Committee report. Chair Sledz asked for the report from the Investment Committee. The Board reviewed the following report from the Investment Committee meeting: Investment Committee Minutes March 18, 2014 The regular monthly meeting of the Ohio Public Employees Retirement Board Investment Committee was held in the offices of the Board, Ohio Public Employees Retirement System building, 277 East Town Street, Columbus, Ohio at 12:30 p.m., Tuesday, March 18, 2014. Members present: Ms. Sharon Downs; Ms. Heather Link; Mr. Sean Loftus; Mr. David Payne, representing Mr. Robert Blair, Department of Administrative Services; Mr. Matthew Schulz; Mr. Robert Smith; Ms. Cinthia Sledz; Mr. Ken Thomas; and Mr. Jim Tilling. (Mr. John Maurer entered the meeting later.) Member absent: Mr. Frank Ciotola. Also present: Ms. Julie Becker, General Counsel; Ms. Karen Carraher, Executive Director; Mr. Greg Januszewski, Director Internal Audit; Mr. Walt Knox, Enterprise Chief Risk Officer; Mr. John C. Lane, Chief Investment Officer; Mr. Rick Shafer, Deputy Chief Investment Officer; Mr. Blake Sherry, Chief Operating Officer; and Ms. Jenny Starr, Chief Financial Officer. Mr. Craig Svendsen from NEPC introduced a new member of the NEPC service team to OPERS, Chenae White. 4
I. Action Items: There were no action items. II. Discussion Items: A. Mr. Tim McCusker and Mr. Svendsen from NEPC reviewed 4 th quarter investment performance. (Mr. Maurer entered the meeting during the discussion.) (Ms. Link left the meeting during the discussion.) B. Mr. Lane provided an update on efforts to increase the utilization of Ohio-qualified and minority-owned managers in the OPERS Defined Benefit and Health Care Funds using the Emerging Manager Program. C. The Committee had a discussion with NEPC. III. Administrative/Informational Items: Included in the Committee packet were the following informational items: A. Division-wide Items: Update on investment performance for February 2014. Update on securities lending program activities during 2013. Investment Plan update ending December 31, 2013. Update on Investment Forum scheduled for June 17, 2014. B. External Public Markets: Update on key activities in the External Public Markets group. Update on hedge funds activities. C. Real Estate Items: Update on real estate activities. D. Private Equity Items: Private equity activities update. E. Fund Management: Update on the recent asset allocation activities associated with moving toward the new asset allocation Policy Targets approved by the Board. Update on the OPERS Target Date Funds asset allocation. 5
F. Other: The transactions for the month of February 2014 have been made in accordance with the Board s statutory authority and policy. Mr. Schulz moved, Mr. Thomas seconded, to adjourn the Committee meeting. The motion passed without dissent. The Committee meeting was adjourned at 1:25 p.m. Chair Sledz asked for the report from the Health Care Committee. The Board reviewed the following report from the Health Care Committee meeting: Health Care Committee Minutes March 18, 2014 The Ohio Public Employees Retirement Board Health Care Committee met in the offices of the Board, Ohio Public Employees Retirement System building, 277 East Town Street, Columbus, Ohio at 1:40 p.m., Tuesday, March 18, 2014. Members present: Ms. Sharon Downs; Mr. Sean Loftus; Mr. John Maurer; Mr. David Payne, representing Mr. Robert Blair, Director, Department of Administrative Services; Mr. Matthew Schulz; Ms. Cinthia Sledz; Mr. Robert Smith; Mr. Ken Thomas; and Mr. Jim Tilling. Members absent: Mr. Frank Ciotola and Ms. Heather Link. Also present: Ms. Karen Carraher, Executive Director; Ms. Julie Becker, General Counsel; Mr. Greg Januszewski, Director Internal Audit; Mr. Walt Knox, Enterprise Chief Risk Officer; Mr. Blake Sherry, Chief Operating Officer; Ms. Jennifer Starr, Chief Financial Officer; Ms. Marianne Steger, Director Health Care; and Ms. Shelley Wilson, Director Human Resources. The Committee Chair called the meeting to order. Ms. Steger provided an update on the focus group meetings that were recently held on the connector. 6
Ms. Steger made a presentation on the health care connector subsidy. She discussed the types of Medicare plans on the individual market and reviewed the current Medicare plan design/cost and how it compares to plans in the individual market place. She reviewed and discussed several subsidy examples for the committee s consideration. The committee directed staff to cost out examples for the connector subsidy and will continue discussions with the committee and staff. Mr. Smith moved, Mr. Schulz seconded, to adjourn the committee meeting. The committee meeting adjourned at 3:50 p.m. Ms. Starr and Mr. Anthony Lange, Assistant Counsel, presented the 2014 Board election schedule (see attached). Mr. Maurer moved, Ms. Link seconded, to approve the 2014 Board election schedule as presented by staff. Ms. Cathy Blalock, Assistant Director, Financial Reporting and Mr. Craig Hallermann, OPERS Actuary, made a presentation on the qualified excess benefit arrangement (QEBA). They reviewed the background on the establishment of the QEBA for all the Ohio retirement systems. In June 2011, the Board reviewed the QEBA and directed staff to retain the QEBA plan and continue to work with the actuary to address the issues brought to the Board s attention. Based on the advice of tax counsel, staff is recommending a portion of the employer contribution rate of 7
each member of the Traditional Pension Plan be allocated to fund the QEBA. OPERS staff worked with the actuaries to determine an appropriate rate to provide sufficient funding for an annual level of benefit payments as the QEBA balance should not be carried over year to year. Based on the recommendation of the actuary, OPERS is requesting the Board approve 0.05% of the employer contribution rate be allocated to fund the QEBA trust. The new allocation would be effective July 2014 and the Board would review annually and establish the appropriate QEBA rate based on the recommendation of the actuary. After discussion, Mr. Smith moved, Ms. Downs seconded, to approve the allocation of 0.05% of the employer contribution rate to fund the QEBA beginning July 2014 as reviewed and discussed with staff. Ms. Link, aye; Mr. Loftus, aye; Mr. Maurer, nay; Mr. Payne, The motion passed with nine ayes and one nay. Mr. Foster and Mr. Greg McLaughlin, Manager Health Care Communications, made a presentation on the impact of Milestone 2015, which is the implementation of health care eligibility changes, and staffing. They reviewed the analysis of the 2012 Rush to the Door, provided a forecast of potential volume increases with the implementation of Milestone 2015 and reviewed the actions being taken to prepare. In order to meet the projected volume increases, staff is requesting to add five additional headcount in the Member Services Department. The additional headcount will be added without requesting additional budget funds. Mr. Payne moved, Mr. Smith seconded, to authorize staff to add five additional staff to the Member Services Department as reviewed and discussed with staff. 8
The state and federal reports were included in the board packet. The Executive Director s monthly report was provided in advance to the Board. Mr. Schulz moved, Mr. Loftus seconded, to enter executive session to discuss threatened and pending litigation. By acclamation, the Committee came out of executive session. Mr. Smith moved, Ms. Downs seconded, the meeting be adjourned until the next regular meeting to be held Wednesday, April 16, 2014 at 9:00 a.m. in the offices of the Board. The motion passed without dissent. The meeting adjourned at 12:05 p.m. 9