7.10.1 Investment Policy

The Board of Regents’ Retiree Health Benefit Fund (“the Benefit Fund”) is established by Georgia state law to provide a steady stream of support for the mission of the Benefit Fund. Its assets are to be invested in a prudent manner that seeks to ensure that the Benefit Fund assets grow to support the spending requirements of the Benefit Fund. This policy provides a set of guidelines that govern the investment of these assets.

The minimum funding requirements of OCGA § 47- 20-10 shall not apply to prefunding, in whole or in part, of anticipated future costs of providing other post-employment benefits as defined by Governmental Accounting Standards Board Statements for retired employees of a political subdivision, including those presently retired and those anticipated to retire in the future, as provided in OCGA § 47-20-10.1.

7.10.1.1 General Investment Objectives

Investments shall be made for the sole benefit of the Board of Regents’ Retiree Health Insurance Benefit Fund. The portfolio should be guided by the following objectives:

1. The assets must be invested with the skill, care, and diligence that a prudent investor would use in a similar capacity.
2. The Benefit Fund should seek to earn the projected spending rate plus inflation over a full market cycle.
3. The Benefit Fund should seek to outperform relevant market indices over a full market cycle.

7.10.1.2 Responsibilities

The Board of Regents has oversight regarding all trust fund decisions and has delegated the oversight role to the Board Committee on Finance and Business Operations, which has the responsibility to ensure that the Benefit Fund assets are managed:

1. For the exclusive benefit of the Benefit Fund;
2. Prudently and in compliance with applicable laws and regulation; and,
3. Effectively so that the assets will increase over time, on an inflation adopted basis.

Responsibilities include:

1. Developing investment goals, objectives, and performance measurement standards that are consistent with the needs of the Benefit Fund;
2. Determining how the Benefit Fund assets should be allocated among asset classes; and,
3. Communicating the investment goals, objectives, and standards to the professional money managers, as noted below, including any material changes that may subsequently occur.

The Committee, with the consent of the Board, has the power to appoint professional money managers to execute the Benefit Fund’s investment strategy. The Committee will also review and evaluate the results of the professional money managers in the context of mutually accepted standards of performance.

7.10.1.3 Monitoring of Objectives

The Benefit Fund shall be monitored for adherence to investment philosophy, returns relative to objectives, and investment risk as measured by asset concentration, exposure to extreme economic conditions, and volatility. The Committee will conduct periodic reviews of the professional money manager in order to confirm that the factors underlying the performance expectations remain in place. The Committee shall meet with the professional money managers at least semi-annually.

7.10.1.4 Short-term Investment Portfolio

The Benefit Fund’s short-term portfolio should seek to provide preservation and enhancement of capital. The Benefit Fund will need liquidity and income annually and, therefore, will only accept minimal short-term volatility in those assets providing income. However, a portion of short-term assets may be invested for the longer term and volatility in these asset categories is to be expected and managed.

The short-term investment objective is to consistently outperform selected weighted market indices and is expected to rank at or above the median when compared to a universe of its peers managing similar portfolios and following a similar investment style such as the Georgia One Fund or the Georgia Extended Asset Pool.

The long-term investment objective for the Fund’s short-term portfolio is to achieve an average annual total rate of return in excess of the inflation rate (as measured by the Consumer Price Index) plus one percent for the aggregate investments under this investment policy evaluated over rolling three- to five-year periods, net of investment management and advisory fees. This is based on targeting allocations in fixed income assets and cash equivalents to meet the current period plan obligations, as outlined in the investment statement. A secondary objective to be considered is diversification and risk management. A third objective is to invest principally in liquid and marketable instruments consistent with anticipated cash requirements.

7.10.1.5 Long-term Investment Portfolio

The Benefit Fund’s long-term investment portfolio should seek to provide annual income growing in line with inflation with the secondary investment objective to seek growth of principal over time. The Benefit Fund will need liquidity and income annually and, therefore, will only accept minimal short-term volatility in those assets providing income. However, the majority of assets are to be invested for the long-term and some volatility in these asset categories is to be expected and managed.

The long-term investment objective for the Benefit Fund’s long-term portfolio is to achieve an average annual total rate of return in excess of the inflation rate (as measured by the Consumer Price Index) plus five percent for the aggregate investments under this Investment Policy Statement evaluated over rolling three- to five-year periods. This return, which is to be net of investment management and advisory fees, is based on targeting allocations in equities, fixed income, and other assets and cash equivalents, as outlined in the investment statement.

The short-term investment objective is to consistently outperform selected weighted market indices. The overall short-term objective is the preservation and enhancement of capital. A secondary objective to be considered is diversification and risk management. A third objective is to invest principally in liquid and marketable instruments.

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7.10.2 Other Post-Employment Benefits Funding Policy

The Board of Regents establishes this Funding Policy to state the intent for accumulation of reserve funding for the Other Post-Employment Benefits (OPEB) liability of the Board of Regents’ Health Benefit Plan and to help ensure the systematic funding of future benefit payments for members of the Board of Regents’ Health Benefit Plan. The plan’s OPEB liability (the actuarially calculated liability for retiree benefits) is a significant liability that will increase absent control strategies such as advance funding. Therefore, the Funding Policy outlined herein shall be implemented and remain unchanged unless changed by subsequent Board action.

7.10.2.1 General Fund Objectives

The general objectives for the Benefit Fund (OPEB Trust Fund) are as follows:

1. To achieve long-term funding of the cost of benefits provided by the Board of Regents’ Health Benefit Plan;
2. To seek reasonable and equitable allocation of the cost of benefits over time;
3. To minimize volatility of employer contributions to the extent reasonably possible, consistent with other policy goals; and,
4. To maintain a policy that is both transparent and accountable to the stakeholders of the Board of Regents’ Health Benefit Plan.

7.10.2.2 Sources of Funding

Organizational units of the University System of Georgia pay the employer portion for group insurance for eligible retirees. The employer portion of the health insurance for its eligible retirees and retiree premium rate is based on the rates that are established annually by the Board of Regents for the upcoming plan year. With regard to life insurance, the employer covers the total costs for $25,000 basic life insurance.

Assets are to accumulate under the guidelines described in the Reserve Funding Levels and OPEB Trust Fund Allocation Section so that investment income can be earned on assets not needed to pay current year retiree health benefit payments.

7.10.2.3 Reserve Funding Levels and OPEB Trust Fund Allocation

Any reserve funds in the Board of Regents’ Health Benefit Plan remaining after allowing for the plan’s Incurred But Not Reported (IBNR) liability plus 20 percent of plan benefit claims expense shall be transferred to the Benefit Fund (OPEB Trust Fund) annually upon completion of the financial audit. Additional one-time contributions may be made on a discretionary basis in connection with derisking and other objectives upon approval of the Board of Regents.

7.10.2.4 Monitoring of Objectives

On an annual basis, the University System Office of Fiscal Affairs shall report to the Board of Regents the amounts accumulated in the Benefit Fund (OPEB Trust Fund). The policy should be periodically reviewed in conjunction with the most recent version of the Report of the Actuary on the Retiree Medical Valuations that has been submitted to the Board of Regents and any revisions to governmental accounting standards or statutory changes.

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