Nevada Retirement News

Public Employees Retirement System
Fall 1998

Many people have called the Retirement System to ask about how prepared we are for the year 2000. By now you probably have read or heard many accounts of potential computer glitches caused by the failure of many computers to recognize the year 2000 (also known as Y2K or the millennium issue). Our electrical grids, telephone systems, even home appliances may be affected.

What is PERS doing to make sure we are ready for the year 2000? As we have reported to you in past issues, PERS began a computer conversion project over a year ago. The planning for that project began a full year prior with a review of our current system. We identified where the most critical areas related to the millennium issue and resolved to stage our project to remove the most critical systems from concern. PERS Financial Accounting System was replaced with a new year 2000 compliant system as of July 1998.

Regarding the rest of our internal systems, we have almost completed remediation (fixing) our computer code and systems for both our Membership and Benefit systems. We are using an independent firm familiar with our platform and systems to complete this remediation and will test the code and systems using both a third party testing organization, as well as internal acceptance testing. Complete remediation and testing is scheduled to be completed by the end of February 1999.

The Retirement System is not only working on making sure our own systems are millennium compliant, we are taking steps to insure that our contractors and other who interface with PERS are moving toward millennium compliance as well. We are requesting certification letters from all PERS contractors as to the steps they are taking to insure millennium compliance. All employers will also be asked to inform us of their millennium efforts.

We will keep you informed as to our progress in upcoming issues of Retirement News.
  

Mark your calendar! The Retirement System is migrating to a new membership system the first few weeks of July 1999. There will be minimal disruption to member services. We ask for your patience as we move through this conversion. Some services, such as refunds, and purchase of service estimates may be slightly delayed. The good news is the new system will help the Retirement System keep even more detailed records and provide enhanced member statements and benefit estimates. We'll provide more information in upcoming newsletters, as the conversion date arrives.
  

We recently completed our fall counseling in rural Nevada. We visited with members in Battle Mountain, Elko, Ely, Fallon, Goldfield, Hawthorne, Tonopah and Yerington. Although we did not visit Austin, Eureka, Caliente and Pioche, these towns may be included for future counseling trips. We are also increasing the number of trips to rural Nevada and the regularity of those trips. We plan to travel to rural Nevada four times each year as long as our response is favorable. Look for us in a town near you the first week of February, May, August and November. Watch for our notices and/or advertisement in your local paper in January 1999.

Attention: Liaison Officers -- Contact us about providing a program for your employees while we are there.
  

With the retirement of Bill Bunker PERS welcomes new board member Earl A. Greene. Chief Greene is chief of the Clark County Fire Department, and began his career as a Fire Fighter in 1973. Chief Greene was promoted to Deputy Fire Chief in 1991 and Fire Chief in 1996. He is Chairman of the Police and Fire Executives of Southern Nevada, past Chairman of the Southern Nevada Fire Prevention Council, Past Chairman of the State Fire Chiefs' Code Committee, a member of the International Association of Fire Chiefs, the Western Fire Chiefs Association, the International Fire Code Institute and the National Fire Protection Association.

He received his bachelor degree from Southwestern State College in Weatherford, Oklahoma. Chief Greene and his wife Gail reside in Las Vegas. We welcome his insight and participation on the Retirement Board.
  

The five-member Police and Firemen's Retirement Fund Advisory Committee (Committee) was established by NRS 286.227, in 1977, for the purpose of making recommendations to the Retirement Board on all matters pertaining to the Police and Firemen's Retirement Fund (Fund).

By Board policy, the Committee is composed of two fire fighters, two police officers, and one management member. Members are appointed from nominations made by their respective associations or individual members of the Fund. The policy also provides that the management position alternates between police and fire every two terms.

Law Enforcement Management Position

The Retirement Board appointed the City of Henderson Chief of Police Tommy Burns to the Police and Firemen's Retirement Fund Advisory Committee effective July 1, 1998. Chief Burns has twenty-four years of law enforcement experience. He served in a variety of positions and divisions, including the narcotics task force and gang suppression units. He has ten years of law enforcement management experience. Chief Burns also served eight years as President of the City of Henderson Police Officer Union and was part of the POST committee.

Chief Burns stated that the Committee is responsible for determining the eligibility of police/fire positions for the police/fire fund and making recommendations to the Board. He feels the most important issue facing the Committee is the 20 years-and-out issue and health insurance after retirement issue. He feels that he would bring a lot of varied experience to the Committee, including his knowledge regarding POST requirements.

Fire Fighter Position The Retirement Board reappointed Washoe County Airport Authority Fire Fighter Driver/Operator Bill Loncar to the Police and Firemen's Retirement Fund Advisory Committee effective July 1, 1998. Mr. Loncar has served on the Committee since 1989, and brings a tremendous amount of experience and knowledge to the Committee. He has eighteen years experience as a career fire fighter and is an active member of the International Association of Fire Fighters, Local 2955, and the Professional Fire Fighters of Nevada. He is knowledgeable about policies and procedures and is aware of the many issues facing the Committee and the Board.   

An important determinant of investment return (after asset allocation) is "manager structure." The mix of management styles within each asset class and the managers who invest the assets are integral to the investment program. Recently, the Retirement Board conducted such an examination within PERS' stock portfolio.

At the time of the review, forty percent of the fund was invested in stocks (32.4% U.S. stocks and 7.6% international equities). On an annualized basis, the U.S. stock market has dominated overall global equity returns. In the 1990's, the S&P 500 has returned 19.8% annually, in comparison to our long-term assumption of 10.5% per year. Even so, during the last eight years, the U.S. stock market has not been the best performing market in any given year as compared to individual international markets defined in the Morgan Stanley Europe, Australia and Far East (MS EAFE) index.

Since the U.S. and international stock markets continue to perform differently over various time frames, non-U.S. equity continues to provide a meaningful diversification benefit. As a result, the international stock allocation was slightly increased to 8% of the total fund in order to stabilize equity returns long term.

Within a domestic (U.S.) equity structure, the use of complementary management styles add diversification to the portfolio. The stocks of larger companies and smaller companies tend to perform differently over various time frames. Additionally, value stocks (securities considered undervalued versus the market) such as Chevron or General Motors will not exhibit the same performance pattern as growth stocks (securities with higher than average earnings growth prospects) such as Microsoft or Home Depot.

PERS domestic stock portfolio contained a bias toward large stocks when compared to the broad market (as defined by the Callan Broad Index). It also was "tilted" slightly towards value, with less exposure in growth securities.

Alternative structures were reviewed with an eye toward diluting this bias. Our goal was to create a "market neutral" portfolio to minimize the risk of underperforming when specific styles are out of favor. A market neutral structure contains approximately 80% large and 20% mid/small capitalization (a term used to describe the size of a company) stocks, and is balanced 50/50 between value and growth styles. Some of the alternatives reviewed considered different index mandates, adding active managers in place of existing index funds and adding small capitalization management.

The new structure, shown below, increases active management in the growth and value areas and decreases the large cap index fund allocation, resulting in an increase in the mid/small cap exposure. Active managers typically exhibit more mid/small cap exposure than the S & P 500 Index. Active portfolios tend to be equal weighted (an equal amount of each position is held) versus the index which is capitalization weighted (larger stocks impact performance more).
  

Non-U.S. active managers have generally been successful in outperforming their benchmark, unlike their domestic peers. The EAFE index ranks in the 81st percentile versus active international management. This implies some active strategies may be successful going forward.

In summary, the new equity structure provides enhanced style and management diversification that also positions the portfolio for future asset growth. The Retirement Board continues to remain focused on maintaining a well diversified investment program from all perspectives. These changes support that goal.

Security--Reduces the risk of loss, theft, or forgery of your benefit payments.

Convenience--Provides immediate and uninterrupted deposits when you are away from home.

Trouble-free--Eliminates inconveniences such as standing in line or traveling to your financial institution.

Easy--and you receive a monthly EFT statement showing the gross and net amount of your benefit and all deductions.

Worry-free--Relieves you of the uncertainty of the mail delivery service. If you decide EFT is a good choice for you, please contact us for an authorization form to initiate this service.

Please contact our office directly if you have questions about PERS benefits. We know that PERS members have been approached by financial advisors who allege some affiliation with us. These advisors may provide a service for members, providing investment and estate planning information. Be aware, however, they do not represent PERS. We do not contract with any private financial advisors at this time.

The end of the year is almost upon us and it's time for you to think about your instructions for federal income tax withholding. Unless we receive written instructions to do otherwise, we will continue to withhold (or not withhold) according to your previous instructions. If we are calculating your withholding based on your marital status and number of exemptions, you can expect to see a recalculated deduction from your January benefit. If we are taking a flat dollar amount, that amount will continue to be deducted. If you have questions or wish to change your deduction, please call the Benefits Division.