Cloquet schools look to the futureDistrict changes investments, takes first step toward building assessments
By: Jeff Papas, Pine Journal
The Cloquet School Board has changed the district’s investment policy to allow portfolio managers to more aggressively manage the district’s Other Post-Employment Benefits (OPEB) trust fund.
The move, which was made at the board’s Monday night meeting, will allow fund manager PMA Financial Network and its partner, Associated Bank of Green Bay and Madison, to position up to 30 percent of the trust’s $6.128 million into equity assets for the potential of greater investment return.
The trust fund, which is used to pay health benefits for retired employees until they reach age 65, would be depleted in 2028 at present interest rates.
“That assumes no future growth and flat amounts of withdrawals,” said PMA’s Kent Johnson, who addressed the board before its regular meeting.
“You try to earmark money that will stay in the equity market longer to give a greater chance for growth and to recoup any losses,” he said.
Estimates provided to the board by PMA show that approximately $2.376 million of the fund balance would qualify as being in the trust for longer than 10 years – but since that figure is 38 percent of the current balance, not all of it could be invested under the new policy.
The approved investment policy gives investment advisors freedom to assist in deciding the actual percentage to be invested.
Currently, the entire trust fund balance is either liquid or in fixed investments such as certificates of deposit or municipal bonds.
And, given the naturally volatile nature of equity investments, long-term investing is the goal.
“If we have a large negative year like 2008, it would be very difficult to recover in a short term investment,” Johnson added.
However, the money wouldn’t be invested as a lump sum anyway, according to John Duffy of Associated Bank, who also spoke to the board.
“Typically a portfolio like this would be constructed over a period of three to six months,” Duffy said. “Having that money in an equity position is a big change for you, so it’s best to get going, but it should be done prudently.”
Duffy said that a dollar-cost averaging strategy, which would invest money in smaller, regular amounts for greater stability, would be utilized.
“This way you do buy less when stocks are high and more when stocks are low, which is what you’re supposed to do,” he said.
“The percentage between stocks and bonds is the most important thing,” Duffy added. “Ninety-five percent of it is going to the dance and 5 percent is who you’re dancing with.”
Managing the fund requires a portion of the fund to be liquid so withdrawals can be made. Approximately $400,000 a year is taken from the fund to pay costs, spread over two annual disbursements.
“Money needs to mature in investments at those times to be available for withdrawal,” Johnson said. “You don’t want to withdraw liquid money from equity markets for a number of reasons.”
Business Manager Kim Josephson also said that pressure on the fund balance may ease due to later retirements by some district employees, which may reduce the amounts needed in payout.
“We used to look at people retiring at 57 to 58,” Josephson said. “It’s hard to put an average age on retirements now but it is definitely moving up.”
In other board news, Superintendent Ken Scarbrough received permission to draft a Request for Proposals (RFP) document for a facility needs assessment, the first step in what may eventually be a bonding request for new bricks and mortar.
“We need to do a needs assessment and match that with our programming needs,” Scarbrough said. “I think we need a new middle school, but that needs to be part of an assessment. How do our programs work in the new facilities as we move forward? Can we share facilities? A group helping us would be involved in a grass-roots discussion with the community.”
In other actions, the board:
- Accepted the annual report from Cloquet Community Education. Director Ruth Reeves reported that Community Ed served 39,903 users over the last year in all programs.
- Received thanks from Washington School Principal Connie Hyde for community help on the school’s new playground, which is now finished. “It was fun to connect with people who drove by and offered to help,” Hyde said. “It was cool that people would stop by and just offer.”
- Changed the district’s policy on visitors to classrooms during the school day. Visitors must now pre-arrange visits with the school’s office before being allowed to visit a classroom. “Every so often we have a parent or someone else creating a disruption,” Scarbrough said. “We had one incident this year and one last year. They are very rare but our lawyer indicated we needed a strong policy. We want to be open to our community but we need some order there.”
- Voted to accept Josephson’s recommendation to reject all five bids received to provide the district’s new Wireless Local Area Network (WLAN) system. Five bids were received, but the low bid did not include cabling costs and thus could not be considered. “We want to go back and redo the bid,” Josephson said. New bids are expected in time for the board’s first December