governance manual review 2019 - colorado pera · summary of suggested edits to charters and...

RON BAKER, EXECUTIVE DIRECTOR

ADAM FRANKLIN, GENERAL COUNSEL

GOVERNANCE MANUAL REVIEW 2019

Strategic Plan Project for Goal 3

» Goal 3: Strengthen organizational health and performance

» Objective D: Protect and sustain the quality of Board governance

» Objective D. iv:

• Measure: Enhanced alignment of Committees and Board Governance to

strategic initiatives

• Target: Refreshed Governance Manual by 2020

» Project Team

• Joshua Neugebauer, Assistant Director of Investment Administration

Karl Paulson, Director of Planning, Policy, and Budget

Jennifer Schreck, Senior Staff Attorney

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Governance Manual Review Objectives

»Review Governance Manual Charters and Policies to align with

current practice

»Assess whether current practices meets:

• The Board’s objectives for operational functionality

• Proper monitoring and reporting

• Best practices

• Fiduciary duties

»General clean up and review for conciseness

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Governance Manual—History

» First established as a comprehensive document in 2001 from isolated

committee charters and policies

» Partial revisions in 2005, 2006, 2007, 2009, 2013, 2014, 2018, and 2019

» Comprehensive review and streamlining 2011–12

» Complete review of all policies and charters 2015–2017

» Currently this review is within the mandated period for all policies and charters

under the Governance Manual framework

» The Governance Manual has been recognized by third parties as a model

manual, including by the Colorado State Auditor’s Office

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Principles Underlying the Governance Manual

» Should promote risk management and a proactive approach focusing the

Board’s attention on important items

• Board’s role is to set policy

• Staff’s role is to provide policy analysis and recommendations, implement

policy and manage day-to-day operations

» Support effective exercise of fiduciary duties along with facilitating strong Board

operational functionality and organizational performance

» Practical

» User-friendly, clear and concise

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Governance Manual Review Timeline Estimate

» March 2019

• Staff and the Board’s Governance Consultant, Cortex Applied Research began review

» September 11, 2019

• Staff presents preliminary suggestions to the Board

» September–November 2019

• Incorporate Board adjustments into the Governance Manual

» November 15, 2019

• Cortex and staff present adjusted Governance Manual to the Board for adoption or further

revisions, if necessary

» January 2020

• Present any proposed revisions for consideration and/or adoption by the Board, if necessary

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Summary of Proposed Policy

Changes to the

Governance Manual

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Principles for Designing Effective Committees

» Cortex provided guidance on effective committee structures with the following main principles:

• Standing Committees should be effective and efficient in supporting the Board’s mission and

strategic priorities

» Committee duties should be meaningful and warrant meeting multiple times annually;

and

» Committee structure should facilitate the business of the Board and help promote

efficient work of the Board. Committees are designed to be focused on an area of

expertise and take on work to avoid repetition at the Board level

• Special tasks that fall outside the normal committee structure can be delegated to ad hoc

committees if warranted

» The Board Chairman is responsible for creating ad hoc committees and the Board

approves the creation and mandates

» PERA currently has eight standing committees. Is this the proper approach moving forward?

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Investment Committee Changes

» Investment decisions are currently split between three committees:

• Investment Committee: Oversight of the assets in the Combined Investment

Fund (CIF)

• Benefits Committee: Oversight of the assets in the PERAdvantage Funds/Capital

Accumulation Plans (CAP)

• Shareholder Responsibility Committee: Oversight of the proxy voting of both

the CIF and CAP assets

» Goal is to consolidate all investment decisions into the Investment Committee

• Allows for a more efficient and effective Board operating structure

• Shareholder Responsibility Committee will be dissolved and all duties rolled into

the Investment Committee

• Investment oversight of the CAP will move to Investment Committee. Benefits

Committee will retain oversight of the benefit plan design as well as other current

benefit related reviews

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Investment Committee Changes (continued)

» With all investment oversight residing in Investment Committee, goal is to align

processes between CIF and CAP:

• Investment Committee will recommend the CIF Strategic Asset Allocation and the

CAP lineup to the full Board for approval

» Legacy language related to active/passive, internal/external, mandates, etc.

has been removed. The Executive Director’s Charter will contain

implementation language

» Investment-related reporting has been refreshed to better align with Board’s purview,

focusing on long-term performance, costs, and overall implementation of the Strategic

Asset Allocation

10

Benefits Committee Changes

» Move CAP investment duties to the Investment Committee

• Allows Benefits Committee to focus on matters related to plan design and

allows Investment Committee to focus on investment decisions

» Keep CAP design and recordkeeper selection duties in the Benefits Committee

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Governance Related Changes to

Communication Strategies

» Eliminate the Stakeholder Relations Committee and delegate the

communications strategies to the Executive Director who will report to the full

Board regularly

» Currently, the Stakeholder Relations Committee recommends to the Board the

adoption of a Stakeholder Relations Plan focused on external strategic

communications and any stakeholder communications policies developed by

management, and reviews the Plan annually

» If changes adopted, Board oversight of communications will mainly be part of

the Executive Director’s duties

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Monitoring and Reporting Policy Updates

» A Cybersecurity Program update has been added to the Monitoring and Reporting

Policy as a report that occurs at least semi-annually

» The Defined Benefit Funding Policy and OPEB Funding Policy have been added

for on-going monitoring and review every five years along with conforming

changes throughout the Manual

» Investment reporting has been updated to reflect current best practices and has

been streamlined and consolidated, where possible

» Add reporting and monitoring of Plan Participant and stakeholder communications

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Summary of Suggested Edits to

Charters and Policies

Summary of Suggested Edits to Charters and Policies

Governance Manual Section (Tab 1 and 2)—Introduction and Defined Terms

1. Added PERA Mission and Vision Statements to front of Manual and out of Board Charter

2. Will update these sections after overall Governance Manual Review for conformity

and/or additions

3. Will update document hyperlinks after overall Governance Manual Review

4. New defined term of the “PERA Investment Program” for directives and responsibilities

related to both the PERA Hybrid Defined Benefit program and the CAP program

Standards of Professional and Ethical Conduct for the Board of Trustees (Tab 3)

1. Conform Gift Standards to revised staff policy

2. Minor clarifications and edits

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Summary of Suggested Edits to Charters and Policies(continued)

Charter for the Board of Trustees (Tab 4)

1. Minor clarifications, edits, and streamlining

2. Conform to other suggested changes

3. Update duties to conform to the provisions of SB 18-200

4. Update for current practice

Charter for the Investment Committee (Tab 5)

1. Integrate the Shareholder Responsibility Committee duties and responsibilities into the Committee

2. Integrate CAP investment duties from the Benefits Committee into the Committee

3. Clarify and simplify language of duties and responsibilities regarding the Combined Investment

Fund, CAP, and shareholder responsibility functions

Charter for the Shareholder Responsibility Committee (Tab 6)

1. Committee eliminated with duties and responsibilities integrated into the Investment Committee

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Charter for the Audit Committee (Tab 7)

1. Minor edits for conformity, streamlining, and current practice

2. Delete all references to Chief Financial Officer and change to Controller

3. Explicitly authorize Outside Members of the Audit Committee to vote on matters before the Committee

Charter for the Benefits Committee (Tab 8)

1. Move CAP investment duties to the Investment Committee

2. Keep CAP plan design and recordkeeper selection duties in Committee

Charter for the Compensation and Budget Committee (Tab 9)

1. Minor edits and clarifications

2. Move Board Education compliance functions to the Executive Committee for administrative ease

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Charter for the Executive Committee (Tab 10)

1. Add Board Education functions to Committee’s duties and responsibilities from the

Compensation and Budget Committee

2. Acknowledge duty related to Trustee requests for information to conform with the

Board Communications Policy

Charter for the Stakeholder Committee (Tab 11)

1. Eliminate the Committee and integrate the duties and responsibilities into Executive

Director Charter and the Monitoring and Reporting Policy

Charter for the Evaluation Committee (Tab 12)

1. Minor clarifications

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Charter for the Board Chair (Tab 13)

1. Minor grammatical edits

2. Specify the timing of reviewing expenditures of the Executive Director from unsaid to

the current practice of annually

Charter for the Vice Chair (Tab 14)


Charter for Committee Chairs (Tab 15)


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Charter for the Executive Director (Tab 16)

1. Streamlines the description of the Executive Director’s duties in relation to guidance on

the timing of posting agendas and materials. Cortex suggests that such guidance, if

wanted, should reside more appropriately in the Board’s Operations Policy

2. Clarifies the current practice of delegating the authority to approve employer disaffiliations

Board Operations Policy (Tab 17)

1. Minor edits and grammatical changes

2. Conform to new suggested Governance Manual provisions

3. Clarify minute recording procedures

4. Clarify that no proxy voting is allowed on Board business

5. Clarifies the process for determining who will preside over Board meetings when the

Board Chair and Vice Chair are absent

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Board Officer Election Policy (Tab 18)

1. Grammatical edits

Board Communications Policy (Tab 19)

1. Grammatical edits

Service Provider selection Policy (Tab 20)

1. Conforming edits

2. Recognize process for Board input on Board-appointed Service Providers’ evaluations

Selection Procedures for Elected Trustee Vacancies Policy (Tab 21)

1. Streamlining and minor edits

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Strategic Planning Policy (Tab 22)

1. Conforming edits

2. Removed reference to prior strategic plan, as other duties throughout the Manual

stipulate Board updates and reviews of the current strategic plan

Budget Approval Process (Tab 23)

1. Minor edits

Succession Planning Policy (Tab 24)

1. Minor edits

2. Conforming additions

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Monitoring and Reporting Policy (Tab 25)

1. Remove reference to CFA GIPS in investment performance reporting

2. Streamline investment cost reporting

3. Conforming edits

4. Added Funding Policies for ongoing monitoring and review

5. Add Cybersecurity Program for ongoing monitoring and review

6. Add Plan Participant and stakeholder communication updates and monitoring

Executive Director Performance Evaluation Policy (Tab 26)


Board Performance Evaluation Policy (Tab 27)

1. Minor clarifying edits

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Board Education Policy (Tab 28)

1. Add that any Health Care Education Workshop satisfies a new trustee education

requirement related to the health care education

2. Conforming edits related to the Board Expense Reimbursement Policy

3. Remove an appendix referencing education materials that will be on the Board’s

website. Current technology provides that all of these materials and more are

permanently retained and accessible to Trustees

Board Expense Reimbursement Policy (Tab 29)

1. Significantly revised and adopted in June 2019 to align the policy with new Travel

Reimbursement System

PERA Ethics Line Recusal Policy (Tab 30)

1. Adopted by the Board in June 2019

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Next Steps

» Incorporate suggested edits and address any significant Board input between

now and November with Cortex

» Prepare a revised Governance Manual for adoption at the November or January

Board meeting

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