2013 nmrhca day two board book

Annual Meeting of the

NEW MEXICO RETIREE HEALTH CARE AUTHORITY

9:00 AM

July 10, 2013

Sagebrush Inn & Conference Center

1508 Paseo Del Pueblo Sur

Taos, New Mexico

Call to Order Mr. Santistevan, President PAGE

Roll Call to Ascertain Quorum Ms. Beatty, Recorder 138

Open Meetings Act Resolution (Action) Mr. Santistevan, President 139

Operational Update Mr. Tyndall, Executive Director

Customer Service 143

Information Technology 145

FY2013 End-of-year Projections 249

Attestation of Intent Mr. Santistevan, President 161

with Regard to Excise Tax (Action)

Approval of CY2014 Plan Designs Mr. Santistevan, President 161

and Member Rates (Action)

Date & Location of the next Regular Board Meeting Mr. Santistevan, President

August 6, 2013, 9:30 AM, NMRHCA Board Room,

2nd Floor Suite 207, 4308 Carlisle Blvd. NE,

Albuquerque, New Mexico.

Other Business Mr. Santistevan, President

Adjourn

Board of Directors Annual Meeting July 9 & 10, 2013 137

Regular Meeting

ROLL CALL

July 10, 2013

Member in Attendance

Mr. Santistevan, President

Mr. Sullivan, Vice-President

Mr. Montaño, Secretary

Mr. Baca

Mr. Crandall

Ms. Goodwin

Ms. Jeffreys

Mr. Johnson

Mr. Linton

Ms. Padilla-Jackson

Mr. Propst

Ms. Sucher


1162723.3


RESOLUTION NO. ____

WHEREAS the Board of Directors of the New Mexico Retiree Health Care Authority

(NMRHCA) met in a regular meeting at 9:30 a.m. on July __, 2013, and

WHEREAS, Section 10-15-l(B) of the Open Meeting Acts (NMSA 1978, Section 10-15-

1 to 4) states that, except as may be otherwise provided in the Constitution of the State of

New Mexico or in the provisions of the Open Meetings Act, all meetings of a quorum of

members of any board, commission, administrative adjudicatory body or other policy-making

body of any state agency, any agency or authority of any county, municipality, district or any

political subdivision, held for the purpose of formulating public policy, including the

development of personnel policy, rules, regulations or ordinances, discussing public

business or for the purpose of taking any action within the authority of or the delegated

authority of such body, are declared to be public meetings open to the public at all times;

and

WHEREAS, any meeting subject to the Open Meetings Act at which the discussion or

adoption of any proposed resolution, rule, regulation or formal action occurs shall be held

only after reasonable notice to the public; and

WHEREAS, Section 10-15-1(D) of the Open Meetings Act requires the NMRHCA Board

to determine at least annually in a public meeting what constitutes reasonable notice of its

public meetings;

NOW, THEREFORE, BE IT RESOLVED by the NMRHCA that the following is determined

to constitute reasonable notice to the public of its meetings:

1. Location and Time of Meetings: Unless otherwise specified by the

NMRHCA Board, regular meetings will be held on the first Tuesday of every

month. All regular meetings may be held at a location in Albuquerque or Santa

Fe beginning at 9:30 a.m. or as indicated in the meeting notice.

2. Meeting Notice and Agenda: A meeting notice shall be prepared by the

NMRHCA for each board meeting. Each meeting notice shall include either the

agenda of the meeting or information on how the public may obtain a copy of

the agenda of the meeting. Each meeting agenda shall consist of a list of

specific items of business to be discussed or transacted at the meeting.

Except for emergency matters, the NMRHCA shall take action only on items

appearing on the agenda.

Except in the case of an emergency meeting, the agenda will be available to

the public at least seventy-two (72) hours prior to the meeting from the

Executive Director, whose office is located at 4308 Carlisle Blvd. NE, Suite

104, Albuquerque, NM 87107. In the case of an emergency meeting, the

agenda shall be made available to the public as soon as is reasonably

possible.


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3. Regular Meetings: Notice of regular meetings will be made at least ten

(10) days in advance of the meeting date.

4. Special Meetings: A special meeting of the board is a meeting other

than a regular or emergency meeting and may be called by the president,

vice-president or any three (3) board members at least seventy-two (72) hours

prior to the meeting date for the specific purposes specified in the call.

5. Emergency Meetings: An emergency meeting of the board is a meeting

other than a regular or special meeting and may be called by the president,

vice-president, or any two (2) board members only under unforeseen

circumstances which demand immediate action to protect the health, safety

and property of citizens or to protect the NMRHCA from substantial financial

loss. Within ten (10) days of taking action on an emergency matter, the

NMRHCA shall report to the New Mexico Attorney General's office the action

taken and the circumstances creating the emergency; provided that the

requirement to report to the attorney general is waived upon the declaration

of a state or national emergency.

6. Notification Process:

A. Regular Meetings: For the purposes of regular meetings

described in paragraph 1 of this resolution, notice requirements are

met if notice of the date, time, place and agenda (or information on

how the public may obtain a copy of the agenda) is submitted to one

newspaper of general circulation in the state and posted in the

office(s) of the NMRHCA not less than ten (10) calendar days before

the time the regular meeting is to commence. Within the same time

frame, a copy of the notice must be mailed to broadcast stations

licensed by the Federal Communications Commission and newspapers

of general circulation that have made a written request for notice of

public meetings.

B. Special and Emergency Meetings: For the purpose of special

meetings and emergency meetings described in paragraphs 4 and 5 of

this resolution, notice requirements are met by posting notice of the

date, time, place and agenda in the offices of the NMRHCA.

Additionally, if practicable, notice of the date, time, place and agenda

(or information on how the public may obtain a copy of the agenda)

may be placed in one newspaper of general circulation in the state.

Within the same time frame, telephonic notice will be provided to

broadcast stations licensed by the Federal Communications

Commission and newspapers of general circulation that have made a

written request for notice of public meetings.

7. Accommodation of Individuals with Disabilities: In addition to the

information specified above, all notices shall include the following language:


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"If you are an individual with a disability who is in need of

a reader, amplifier, qualified sign language interpreter, or any

other form of auxiliary aid or service, contact the NMRHCA at 1-

800-233-2576, at least one week prior to the meeting or as

soon as possible. Public documents, including the agenda and

minutes, can be provided in various accessible formats. Please

contact the NMRHCA at 1-800-233-2576 if a summary or other

type of accessible format is needed."

8. Closed Meetings: The NMRHCA Board may close a meeting to the

public only if the subject matter of such discussion or action is exempted from

the open meeting requirement under Section 10-15-1(H) of the Open

Meetings Act or by the New Mexico Constitution.

A. If any meeting is closed during an open meeting, such closure

shall be approved by a majority vote of a quorum of the NMRHCA Board

taken during the open meeting. The authority for the closure and the

subjects to be discussed shall be stated with reasonable specificity in

the motion for closure and the vote on closure of each individual

member shall be recorded in the minutes. Only those subjects

specified in the motion may be discussed in a closed meeting.

B. If the decision to hold a closed meeting is made when the

NMRHCA Board is not in an open meeting, the closed meeting shall not

be held until public notice, appropriate under the circumstances,

stating the specific provision of law authorizing the closed meeting and

the subjects to be discussed with reasonable specificity is given to the

members and to the general public.

C. Following completion of any closed meetings, the minutes of the

open meeting that was closed, or the minutes of the next open meeting

if the closed meeting was separately scheduled, shall state whether

the matters discussed in the closed meeting were limited only to those

specified in the motion or notice for closure.

D. Except as provided in Section 10-15-1(H) of the Open Meetings

Act, any action taken as a result of discussions in a closed meeting

shall be made by vote of the NMRHCA in an open public meeting.

9. Annual Meeting of NMRHCA Board: Pursuant to NMAC 2.81.1.12, the

Board shall hold an annual meeting at such time as the Board determines.

Passed by the NMRHCA Board this __th day of July 2013.


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____________________________________ ____________________________________

Alfredo Santistevan Mark Tyndall

Board Chair Executive Director


RHCA Operations Status Report

New Mexico Retiree Health Care Authority Board Updates

2012 Average Length of Incoming Call: 3 minutes & 2 seconds

Changes & Enrollment (21%) are the most common reasons with Benefits (20%) following

2012 Wrap Up Codes

Enrollment

Medicare

Life Ins.

Rx

Changes

Business

Billing

Benefits

Outbound

0

5000

10000

15000

20000

25000

30000

35000

2012 TotalCalls

2011TotalCalls

ABQ CALLS

SF CALLS

2013 2nd Quarter

2013 1st Quarter

2012 4th Quarter

2012 3rd Quarter

2012 2nd Quarter

2012 1st Quarter

Incoming Calls:

8699 8711 13,493 8683 6152 7271

Abandoned Rate

5.4% 3.3% 8.7% 2.7% 2.4% 1.8%

Average Delay Time

9 seconds 9 seconds 9 seconds 8 seconds 8 seconds 11 seconds

2013WALK INS ABQ SANTA FE 2012 WALK INS ABQ SANTA FE

1ST QUARTER 1263 841 1ST QUARTER 1074 925

2ND QUARTER 1460 981 2ND QUARTER 1260 875

3RD QUARTER 1311 791

4TH QUARTER 2085 1191

TOTAL 2723 1822 TOTAL 5730 3782


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Request for Proposal RFP# 30-343-13-00467

Medical Coverage for Medicare Eligible Retirees

Medicare Advantage Plans

SEQUENCE OF EVENTS

Action Date

1. Issue of RFP May 3, 2013

2. Signed Acknowledgement May 13, 2013

3. Distribution List Response May 17, 2013

4. Deadline To Submit Additional

Questions

May 24, 2013

5. Response to Written Questions/RFP

Amendments

May 31, 2013

6. Submission of Proposal June 13, 2013

3:00 pm MDT

7. Proposal Evaluation July 1 -3, 2013

8. Selection of Finalists July 3, 2013

9. Best and Final Offers from Finalists July 12, 2013

3:00 pm MDT

10. Oral Presentation and/or Product

Demonstrations by Finalists

July 16 & 17,

2013

11. Finalize Contract July 31, 2013

12. Contract Award August 1, 2013

13. Protest Deadline 15 Days after

the Contract

Award

*Largest counties listed by population of membership.

Count by County (Age 65 and Over)

*CountyName MemberCount

BERNALILLO 8258

CHAVES 1236

DONA ANA 1832

EDDY 814

OUT-OF-STATE 3424

RIO ARRIBA 976

SAN JUAN 1145

SAN MIGUEL 1202

SANDOVAL 1353

SANTA FE 3516

VALENCIA 1123

Total Members at 65 & Over 32117


IT AccomplishmentsTomas Rodriguez, IT DirectorJuly 2013

P: 505.222.64204308 Carlisle Blvd. NE Suite 104Albuquerque, NM 87107

www.nmrhca.org


Accomplishments2

Improved the NMRHCA Network Environment By: Upgraded the Albuquerque Firewall which is used to secure the

agencies network providing improved security and greater throughput. Model CISCO ASA5540.

Upgraded the Santa Fe Firewall which is used as the secure the connection between the Albuquerque and Santa Fe offices. Model - CISCO ASA5010.

Upgraded the Albuquerque's office main switch used to connect all of the agencies network devices . Model – CISCO SGE2010P.

Installed the latest Windows Network Server software and software patches.

Upgraded all user PC’s from Windows XP to Windows 7 improving PC reliability.

IT Systems Uptime REBIS Uptime – 99% Network Uptime – 99% Scan Station – 99% Website Uptime – 99% Phone System Uptime – 97%


Accomplishments3

Successfully converted the Presbyterian HIPPA transaction files from the 4010 EDI standard format to 5010 standard format. Data elements that were found to no longer be

needed were removed, streamline the data. For example the requirement to report sensitive patient health information that was not need for the transaction purpose was removed.

Transactions were revised to allow the reporting of ICD-10 diagnosis and procedure codes.

Converted the Lovelace manual eligibility process to an electronic process. Worked with Lovelace so to move from a manual

eligibility process to an electronic eligibility process saving CSR’s time, they no longer fax information to Lovelace.


Challenges4

The integration of the Santa Fe phone system into the Albuquerque Call Center System.

The agency has been trying to integrate the two systems together so to have the ability to add Santa Fe CSR’s to the 1-800 call tree and to extract call statistics for the Santa Fe office.

Technically supporting the REBIS project as well as the agencies operational needs.

With a staff of three supporting the REBIS project and the daily operations of the agency is, and will continue to be, a challenge until the project is completed.

To improve the technical knowledge of staff in the areas of: IT Security The C #Programing language Microsoft Virtual Server Software


REBIS PROJECT STATUSTomas Rodriguez, IT DirectorJuly, 2013

P: 505.222.64204308 Carlisle Blvd. NE Suite 104Albuquerque, NM 87107

www.nmrhca.org


REBIS PROJECT STATUS6

Sprints 7/8 completed (focus on Release 0 items). In product development, a sprint is a set period of time during which

specific work has to be completed and made ready for review.

Regular Project Management Oversight activities to include meetings with minutes and monthly status reporting, as well as weekly updated to the project cadence workbook reflecting status.



Created business process documentation for current processes.

Subject Matter Experts participated in Joint Access Development (JAD) sessions with the contractor POD Inc. JAD sessions helped refine high-level requirements and assisted with the building of the business use cases

Milestone met for completion of the Initial Requirements and Design definitions

Draft and Final Test Plan Completed and approved

Delivered Draft Requirements Specification document



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3 Enroll Retiree Data Entry Prototype 1 Jan 24 am x x x x x3 Benefit Plan Data Entry 1 Jan 24 am x x x x x3 BizTalk 2012 Application 2 Jan 25 pm x x x4 Payment System 3 Feb 6 am x x x x x x x4 Admin System 4 Feb 7 am x x x x5 Database Migration 5 Feb 8 pm x x x4 Retiree Web Data Entry Interface 5 Feb 8 pm x x x5 Image Migration 6 n/a x x x x5 New Image Input and Storage 6 n/a x x x x

Employer Payments / Quickbooks 6 Feb 13 am x x x x x x x6 Executive Dashboard 7 Feb 15 pm x x x x x6 Reports including Letters and Forms 8 Feb 20 am x x x x x x x6 Online Help System 9 Feb 21 am x x x x x

Data Entry - Santa Fe 10 Feb 27 am x x x x x

Website Design 11 Feb 28 am x x x x x

Cancelled Sessions

AM/PM - 10:00 - 3:00 w/break for lunchAM -- 9:00 - 1:30 w/break for lunchPM -- 1:00 to 5:00AM -- 10:00 - 12:00



Enroll Retiree Data Entry Prototype

Benefit Plan Data Entry

BizTalk 2012

Application Payment System

Administrator System

Database Migration

Retiree Web Data Entry Interface

Employer Payments / QuickBooks

Executive Dashboard Reports including Letters and Forms

Online Help System

Data Entry - Santa Fe Website Design



• RHCA provided POD with outlined business documentation that documents workflow processes as the system currently stands and for future features.

• Discussed accessibility to outside applications that will need to interact with the new REBIS system.

• Information attained in the JAD session is being currently put into detail design and requirements.

• Provided baseline for mock-ups for iterations/sprints.


REBIS PROJECT STATUS

In product development, a sprint is a set period of time during which specific work has to be completed and made ready for review.

An iteration is a series of sprints to accomplish a specific functionality as defined by the customer

11



Sprint Stages for this project have been defined as follows:



Visual Studio 2012 and TFS work with reporting services to allow fully displaying project metrics.

If a story has a story board, POD developer will send an e-mail with a link to the SharePoint and TFS connect site.

RHCA staff will review/edit and send back to POD developer.

This process will be the same for bugs when the prototype is ready for review.


15

Outside Vendor Meetings with POD

Website Focus for them to do design only / no programming

IV&V First deliverable will be 30 days from sign of contract Subsequent reports are targeted bi-monthly

Imaging Software RHCA in process of obtaining the software. Software will be installed at ABQ and Santa Fe offices Vendor will take care of the front end and POD will be able to

grab information from the database.

Future Phases


Future Phases16

Section Release Functionality

4.1 Release Zero REBIS Software Architecture and Database Development such as framework, design, workflows, and software selections

4.2 Release One Administration System for REBIS

4.3 Release Two Current Website Transitioned to SharePoint

4.4 Release Three Include the following modules: Payment System Image Storage/Retrieval Reports/Letters/Forms (partial delivery) Data Migration (partial delivery)

4.5 Release Four Includes the following modules: Enroll Retiree Data Entry Benefit Plan Data Entry BizTalk 2013 Reports/Letters/Forms (partial delivery) Data Migration (partial delivery)

4.6 Release Five Includes the following modules: Executive Dashboard Reports/Letters/Forms (partial delivery) Retiree Web Data Entry Interface Online Help

4.7 Release Six This would potentially include the following activities: Image Link Database Data Migration (partial delivery)


–

-

Rationale: NMRHCA’s long-term solvency projections include annual 8% rate increases as part of their base line assumptions in order to keep pace with rising medical costs. Changes to this rate of increase in any given year are based on an evaluation of NMRHCA’s overall loss ratio (how closely NMRHCA rates match actual costs). NMRHCA’s loss ratio has improved slightly from 104% to 103%. Most of this improvement is the result of federal funds specifically associated with the Medicare part D plan attached to the Medicare Supplement. As such, it is recommended that pre-Medicare plans adjust with trend and the Medicare Supplement be given due consideration of its improved position. Projected Savings: N/A Total Members Impacted: 40,261 Average Impact Per Retiree: Varies According to Plan (Avg. $14 per month) Impact on Solvency: Already part of valuation 2013 2014 $ Difference Premier – Retiree $134.77 $145.55 $10.78 Premier – Spouse $250.24 $270.26 $20.02 Premier Plus – Retiree $251.88 $272.03 $20.15 Premier Plus – Spouse $389.96 $421.16 $31.20 Medicare Supplement – Retiree $150.84 $159.89 $9.05 Medicare Supplement – Spouse $226.26 $239.84 $13.58

Adopt Attestation of Intent to Preclude Payment of Excise Tax Beginning in 2018, federal health care reform will require any plans with an actuarial value above a certain level to pay a 40% excise tax on any excesses. The current annual value for a retiree plan is $11,850 but it is uncertain if that figure will be indexed. It is possible (even likely) that NMRHCA may have plans that will be excess of this figure by 2018. The latest GASB valuation is calculated without consideration being given to this variable. Without any acknowledgement of future plan adjustments, the excise tax would cause the current UAAL to increase to $3.8 billion. With the board’s stated intent that it will adjust plans to avoid the excise, tax the current UAAL will be reduced to $3.4 billion. As such, staff requests that the board adopt the following attestation of intent: “NMRHCA’s Board of Directors hereby states its intent to modify plan designs as necessary to preclude the payment of any excise tax established by 2010’s Patient Protection and Affordable Care Act (PPACA) beginning in 2018.”

“ ”

Rationale: NMRHCA’s general policy is to allow dependent children to participate on a guaranteed-issue basis up until the age of 26, but without the provision of any premium subsidy. However, “Family” coverage subsidies have remained in place that are contrary to this policy. Subsidies for multiple children were reduced from 100% of premium to 50% of premium in 2013. The remaining subsidy will be phased out over the next 4 calendar years. Projected Savings: $150,000 in 2014 Total Members Impacted: 536 retirees / 670 members Average Impact Per Retiree: $35 per month Impact on Solvency: Already part of valuation


Regular Meeting of the


INVESTMENT COMMITTEE

10:15 AM

June 12, 2013

4308 Carlisle Blvd., NE, Suite 104

Albuquerque, NM

Participant Passcode: 473289

Phone Number: Toll free: 1-888-205-5513

AGENDA

Attendees: Mr. Alfredo Santistevan, Chair

Mr. Doug Crandall

Ms. Jan Goodwin

Ms. Olivia Padilla-Jackson

Mr. Joe Montaño

Mr. Tom Sullivan

Staff: Mr. Mark Tyndall, Executive Director

Mr. David Archuleta, Deputy Director

Mr. Rudy M. Bantista, Communications and Board Recording Secretary

Call to Order Mr. Santistevan, Chair

Roll Call to Ascertain Quorum Mr. Bantista, Recorder

Approval of Agenda Mr. Santistevan, Chair

FY2012, 2013 Returns Mr. Santistevan, Chair

Recent Returns Mr. Santistevan, Chair

Long Term Returns (10-year) Mr. Santistevan, Chair

1. Fees Mr. Santistevan, Chair

A. Current Fees ($) Mr. Santistevan, Chair

B. Future Fee Structures Mr. Santistevan, Chair

2. Alternative Investment Possibilities Asset Mr. Santistevan, Chair

Allocation (SIC Vs. NMRHCA)

A. Passive Vs. Active Mr. Santistevan, Chair

B. International Mr. Santistevan, Chair

C. Rebalancing Mr. Santistevan, Chair

Open Discussion Mr. Santistevan, Chair

Executive Director’s Report Mr. Tyndall, Executive Director

President’s Report Mr. Santistevan, Chair

Other Business Mr. Santistevan, Chair

Date and Location for the Next Regular Meeting

The Date and Location for the next Committee meeting is to be determined.

Adjourn


Large Core Large Non U.S. Non U.S. Mid/Small

Cap Active Bonds Cap Index Developed Emerging Cap Total

Market Value February 28, 2013 $36,260,993.92 $94,752,319.28 $35,346,009.69 $39,328,462.36 $31,612,410.84 $27,249,738.71 $264,549,934.80

Prior Month Adjustment 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Contributions 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Distributions/Withdrawals 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Fees 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Income Earned 50,229.60 307,958.50 27.29 175,976.36 43,524.10 34,340.92 612,056.78

Capital Appreciation/Depreciation 1,081,070.00 41,252.90 1,363,417.00 162,019.14 (603,898.28) 1,268,401.07 3,312,261.82

Market Value March 31, 2013 $37,392,293.52 $95,101,530.67 $36,709,453.98 $39,666,457.86 $31,052,036.66 $28,552,480.71 $268,474,253.40


CHANGE IN NET ASSET VALUE

FOR THE MONTH ENDED MARCH 31, 2013

$0

$25,000,000

$50,000,000

$75,000,000

$100,000,000

$125,000,000

$150,000,000

$175,000,000

$200,000,000

$225,000,000

$250,000,000

31

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New Mexico Retiree Health Care Authority Market Value of Investment

Fiscal Year 2013

Emerging Markets Non US Developed Large Cap Index Core Bonds Large Cap Active


Long-term PolicyInvestment Market Value % of Total Target Range

Equity Domestic Large Cap Active 37,392,293.52$ 14% 12.5% 20-30% Large Cap Index 36,709,453.98 14% 12.5% Mid/Small Cap 28,552,480.71 11% 10% 5-15%

38% 35%

International Non US Developed 39,666,457.86 16% 15% 10-20% Emerging Markets 31,052,036.66 11% 15% 10-20%

26% 30%

Fixed Income Core Bonds 95,101,530.67 35% 35% 30-40%

35% 35%

Total 268,474,253.40$ 100% 100%


PORTFOLIO ALLOCATIONFOR THE MONTH ENDED MARCH 31, 2013

14% Large Cap Active

37% Core Bonds

12% Large Cap Index

16% Non US Developed

11% Emerging Markets

10% Mid/Small Cap

Asset Allocation


New Mexico State Investment CouncilInvestment Performance Analysis

1211 SW 5th Ave, Suite 900Portland, OR 97204

503.221.4200www.rvkuhns.com

Quarter EndedMarch 31, 2013


Retiree Health Care Authority

Page 1Board of Directors Annual Meeting July 9 & 10, 2013 166

Asset Allocation vs. Target Allocation

Comparative Performance

Comparative Performance

Market Value($)

Allocation(%)

Target(%)

Large Cap US Equity 74,101,622 27.60 25.00

Small/Mid Cap US Equity 28,552,399 10.64 10.00

Non-US Developed Markets 39,666,387 14.77 15.00

Non-US Emerging Markets 31,051,954 11.57 15.00

US Core Bonds 95,101,475 35.42 35.00

Total Fund 268,473,838 100.00 100.00

QTD CYTD1

Year3

Years5

Years10

Years2012 2011 2010

Retiree Health Care Authority Total Fund 4.66 4.66 8.74 7.65 4.31 8.76 13.66 -3.74 13.56

Total Fund Benchmark (Retiree Health Care Authority) 4.44 4.44 8.96 8.24 4.45 8.77 13.02 -0.89 12.43

New Mexico State Investment Council

Retiree Health Care Authority

As of March 31, 2013

Allocations shown may not sum up to 100% exactly due to rounding. Performance shown is gross of fees.


Allocation

MarketValue ($)

%

Performance (%)

QTD CYTD FYTD1

Year3

Years5

Years10

Years2012 2011 2010 2009

Domestic EquityNMSIC US Equity Composite 6,549,046,267 38.45 10.58 10.58 18.25 12.54 10.83 6.57 9.64 16.02 -4.34 19.00 38.89

R 3000 Index 11.07 11.07 18.29 14.57 12.97 6.32 9.15 16.42 1.03 16.93 28.34

NMSIC US Large Cap Equity Composite 4,902,831,720 28.79 10.15 10.15 16.86 12.04 10.07 6.86 9.32 16.14 -4.63 17.00 41.95

R 1000 Index 10.96 10.96 18.11 14.43 12.93 6.15 8.97 16.43 1.50 16.10 28.43

IM U.S. Large Cap Equity (SA+CF) Median 10.66 10.66 17.74 13.89 12.61 6.27 9.40 15.93 1.12 15.13 27.91

NMSIC US Large Cap Active Pool 2,528,750,482 14.85 9.42 9.42 15.70 10.10 8.59 6.16 8.77 15.45 -6.46 16.12 42.92

R 1000 Index 10.96 10.96 18.11 14.43 12.93 6.15 8.97 16.43 1.50 16.10 28.43

IM U.S. Large Cap Equity (SA+CF) Median 10.66 10.66 17.74 13.89 12.61 6.27 9.40 15.93 1.12 15.13 27.91

Wellington Management Company 782,118,243 4.59 10.87 10.87 18.23 N/A N/A N/A N/A N/A N/A N/A N/A

R 1000 Value Index 12.31 12.31 21.44 18.76 12.74 4.85 9.18 17.50 0.39 15.51 19.69

IM U.S. Large Cap Value Equity (SA+CF) Median 11.56 11.56 20.40 15.85 12.49 6.01 10.04 15.77 0.20 14.54 25.66

Brown Brothers Harriman 545,024,707 3.20 11.35 11.35 21.00 N/A N/A N/A N/A N/A N/A N/A N/A

R 1000 Index 10.96 10.96 18.11 14.43 12.93 6.15 8.97 16.43 1.50 16.10 28.43

SIC Managed Large Cap Active 499,549,439 2.93 8.17 8.17 12.61 6.71 10.09 6.06 9.04 13.76 -0.02 16.15 33.60

Large Cap Custom Index 10.96 10.96 18.11 14.86 12.97 5.98 8.62 16.54 2.11 15.06 26.46

IM U.S. Large Cap Core Equity (SA+CF) Median 10.70 10.70 17.75 13.97 12.67 6.34 9.31 15.73 1.87 14.87 26.64

J.P. Morgan Asset Management 463,621,823 2.72 6.64 6.64 9.25 N/A N/A N/A N/A N/A N/A N/A N/A

T. Rowe Price 238,436,269 1.40 8.56 8.56 14.99 N/A N/A N/A N/A N/A N/A N/A N/A

R 1000 Growth Index 9.54 9.54 14.70 10.09 13.06 7.30 8.62 15.26 2.64 16.71 37.22

IM U.S. Large Cap Growth Equity (SA+CF) Median 9.24 9.24 15.29 9.04 12.25 6.63 9.09 15.35 -0.01 16.20 34.53

NMSIC US Large Cap Index Pool 2,374,081,238 13.94 10.95 10.95 18.05 14.14 12.70 7.88 9.76 16.09 1.18 17.30 38.40

NT Russell 1000 Index Fund 2,373,684,532 13.94 10.95 10.95 18.05 14.34 N/A N/A N/A 16.31 N/A N/A N/A

R 1000 Index 10.96 10.96 18.11 14.43 12.93 6.15 8.97 16.43 1.50 16.10 28.43


NMSIC US Large Cap Enhanced Index Pool 530,386,565 3.11 11.70 11.70 20.60 N/A N/A N/A N/A N/A N/A N/A N/A

PanAgora Asset Management 530,386,565 3.11 11.70 11.70 21.13 N/A N/A N/A N/A N/A N/A N/A N/A

R 1000 Index 10.96 10.96 18.11 14.43 12.93 6.15 8.97 16.43 1.50 16.10 28.43



Asset Allocation & Performance - Composites & Managers


Performance shown is gross of fees, except for Credit & Structured Finance, Absolute Return, Real Estate, Real Asset, and Private Equity investments, which are shown net of fees. Performance is annualized for periods greater than one year. RVK endorses GIPS and calculates performance for composites and investment managers using different methodologies. For additional information, please see the Glossary. Fiscal year ends June 30.





Allocation

MarketValue ($)

%

Performance (%)

QTD CYTD FYTD1

Year3

Years5

Years10

Years2012 2011 2010 2009

NMSIC US Small/Mid Cap Pool 792,776,193 4.65 11.85 11.85 22.84 12.62 12.79 5.73 11.15 13.70 -2.65 25.04 30.93

R 2500 Index 12.85 12.85 22.82 17.73 14.59 9.02 12.30 17.88 -2.51 26.71 34.39

IM U.S. SMID Cap Equity (SA+CF) Median 12.60 12.60 22.35 16.03 14.86 9.51 12.93 16.21 -1.54 26.33 36.36

Seizert Capital Partners 262,301,852 1.54 13.57 13.57 35.00 23.38 N/A N/A N/A 22.61 N/A N/A N/A

R Mid Cap Index 12.96 12.96 22.70 17.30 14.62 8.37 12.27 17.28 -1.55 25.47 40.48

IM U.S. Mid Cap Equity (SA+CF) Median 11.84 11.84 20.28 13.91 14.34 8.46 12.26 16.18 -1.54 24.66 37.79

Donald Smith & Company 270,146,919 1.59 8.92 8.92 27.61 19.33 N/A N/A N/A 19.90 N/A N/A N/A

R 2000 Value Index 11.63 11.63 21.76 18.09 12.12 7.29 11.29 18.05 -5.50 24.50 20.58

IM U.S. Small Cap Value Equity (SA+CF) Median 12.56 12.56 23.18 18.09 14.11 9.78 13.45 17.59 -3.26 27.77 34.28

Cortina Asset Management 260,327,422 1.53 13.25 13.25 13.50 4.22 N/A N/A N/A 7.72 N/A N/A N/A

R 2000 Growth Index 13.21 13.21 19.22 14.52 14.75 9.04 11.61 14.59 -2.91 29.09 34.47

IM U.S. Small Cap Growth Equity (SA+CF) Median 13.01 13.01 19.18 13.50 15.78 9.66 12.68 14.67 -1.83 29.04 37.86

NMSIC US Small/Mid Cap Index Pool 58,694,861 0.34 9.60 9.60 N/A N/A N/A N/A N/A N/A N/A N/A N/A

NT Russell 2500 Index Fund 58,694,861 0.34 9.60 9.60 N/A N/A N/A N/A N/A N/A N/A N/A N/A

R 2500 Index 12.85 12.85 22.82 17.73 14.59 9.02 12.30 17.88 -2.51 26.71 34.39


NMSIC US Small/Mid Cap Enhanced Index Pool 264,356,928 1.55 12.78 12.78 N/A N/A N/A N/A N/A N/A N/A N/A N/A

BlackRock Alpha Tilts 264,175,637 1.55 12.79 12.79 24.27 19.68 N/A N/A N/A N/A N/A N/A N/A

R 2000 Index 12.39 12.39 20.48 16.30 13.45 8.24 11.52 16.34 -4.18 26.86 27.18







Allocation

MarketValue ($)

%

Performance (%)

QTD CYTD FYTD1

Year3

Years5

Years10

Years2012 2011 2010 2009

International EquityNMSIC Non-US Equity Composite 2,461,625,926 14.45 2.44 2.44 15.70 5.26 3.73 -0.16 11.83 16.27 -14.99 12.13 56.12

MSCI ACW Ex US Index (Net) 3.17 3.17 17.29 8.36 4.41 -0.39 10.93 16.83 -13.71 11.15 41.46

NMSIC Non-US Developed Markets Equity Pool 1,486,874,701 8.73 5.19 5.19 19.91 11.65 6.15 -0.54 8.97 17.61 -11.38 9.74 29.00

Alliance Bernstein MSCI EAFE Int'l Index 1,486,232,863 8.73 5.19 5.19 19.77 11.51 5.57 -0.61 7.05 17.53 -11.44 8.42 31.40

MSCI EAFE Index (Net) 5.13 5.13 19.80 11.25 5.00 -0.89 9.69 17.32 -12.14 7.75 31.78

IM International Large Cap Core Equity (SA+CF) Median 4.92 4.92 19.89 12.11 6.84 0.45 11.06 19.08 -12.00 11.12 32.40

NMSIC Non-US Emerging Markets Equity Pool 974,751,226 5.72 -1.48 -1.48 9.85 -2.96 -0.62 -0.70 18.21 14.10 -21.95 15.17 101.57

Alliance Bernstein Emerging Markets Index 974,751,226 5.72 -1.48 -1.48 N/A N/A N/A N/A N/A N/A N/A N/A N/A

MSCI Emg Mkts Index (Net) -1.62 -1.62 11.91 1.96 3.28 1.09 17.05 18.23 -18.42 18.88 78.51

IM Emerging Markets Equity (SA+CF) Median 0.32 0.32 14.62 5.31 4.74 2.00 18.21 20.06 -18.63 21.27 79.73

Fixed Income

NMSIC Fixed Income Composite 4,027,548,162 23.65 1.36 1.36 7.95 10.90 10.48 6.60 4.64 12.78 6.65 17.12 4.74

Fixed Income Custom Index 0.03 0.03 1.90 0.12 5.04 3.05 1.93 0.69 6.25 10.89 6.04

NMSIC US Core Bonds Pool 3,360,180,505 19.73 0.76 0.76 6.20 9.06 8.09 6.16 5.52 11.29 4.92 11.07 -0.33

Barclays US Agg Bond Index -0.12 -0.12 1.68 3.77 5.52 5.47 5.02 4.21 7.84 6.54 5.93

PIMCO Barclays US Universal 1,650,425,023 9.69 0.96 0.96 6.26 9.11 N/A N/A N/A 11.44 N/A N/A N/A

Prudential Barclays US Universal 856,732,369 5.03 0.81 0.81 6.47 9.23 N/A N/A N/A 11.23 N/A N/A N/A

Loomis Sayles Barclays US Universal 847,386,054 4.98 0.32 0.32 5.49 8.48 N/A N/A N/A 10.77 N/A N/A N/A

Barclays US Unv Bond Index 0.08 0.08 2.67 4.72 6.01 5.86 5.41 5.53 7.40 7.16 8.60

IM U.S. Broad Market Core + Fixed Income (SA+CF) Median 0.37 0.37 4.28 6.43 7.24 7.26 6.13 7.94 7.46 8.97 14.90

NMSIC Credit & Structured Finance Pool 667,367,657 3.92 4.48 4.48 16.63 19.98 21.76 8.91 N/A 19.67 16.03 46.02 37.65

Credit & Structured Finance Benchmark 0.79 0.79 3.03 -13.00 2.60 -8.56 N/A -12.07 -2.18 31.02 4.64

NMSIC Cash Equivalent Composite 84,206,693 0.49 0.71 0.71 0.71 0.71 1.11 1.10 2.48 0.00 2.52 0.20 0.56

BofA ML 3 Mo US T-Bill Index 0.02 0.02 0.09 0.12 0.11 0.34 1.75 0.11 0.10 0.13 0.21






Allocation

MarketValue ($)

%

Performance (%)

QTD CYTD FYTD1

Year3

Years5

Years10

Years2012 2011 2010 2009

Absolute ReturnNMSIC Absolute Return Composite 1,034,725,710 6.08 3.53 3.53 6.72 6.45 2.90 0.35 N/A 6.48 -3.93 4.65 11.43

Mariner Matador, LLC 333,230,426 1.96 5.12 5.12 8.67 7.71 2.64 2.87 N/A 6.01 -5.34 3.99 10.37

AAM High Desert Fund 318,872,986 1.87 4.54 4.54 10.03 9.32 N/A N/A N/A 10.31 -3.98 N/A N/A

Crestline Enchantment Fund Class A 304,016,196 1.78 1.89 1.89 3.40 3.75 2.58 0.03 N/A 3.84 -1.52 6.03 11.09

Crestline Enchantment Fund Class B 48,508,123 0.28 -0.40 -0.40 0.20 1.22 3.64 -0.54 N/A 3.54 0.71 9.10 5.37

Crestline Offshore Recovery 12,943,397 0.08 2.05 2.05 2.44 3.79 6.82 N/A N/A 5.35 -3.07 17.82 N/A

Austin Capital Safe Harbor QP Fund 10,700,814 0.06 0.00 0.00 -2.30 -2.39 -8.77 -7.21 N/A -2.27 -16.86 -5.06 14.28

CT Preferred Investors Management LLC 6,062,878 0.04 0.00 0.00 0.85 -0.69 1.90 -3.73 N/A 2.85 0.21 3.76 10.15

Altair Stars LTD Class ZII US 201,095 0.00 0.00 0.00 0.00 0.00 -14.93 -13.11 N/A 0.00 -33.13 -9.92 8.79

ARS Pool (Cash Account) 189,796 0.00 1.10 1.10 1.10 1.10 0.38 0.50 N/A 0.00 0.00 -0.30 0.37

HFRI FOF Comp Index 3.35 3.35 7.25 4.77 2.10 -0.24 3.85 4.79 -5.72 5.70 11.47

Private Equity

NMSIC Private Equity Composite (Ex. State) 1,598,086,150 9.38 2.19 2.19 6.91 11.80 11.20 4.77 8.55 14.86 10.03 11.02 -11.25

Private Equity Pooled Funds 1,597,885,904 9.38 2.19 2.19 6.93 13.52 N/A N/A N/A 16.22 N/A N/A N/A

80/20 Cambridge PE Index (Lagged 1 Qtr) 3.00 3.00 6.85 12.45 14.30 5.55 13.40 14.12 15.20 16.36 -9.94

Venture Econ All Prvt Eq Index (Lagged 1 Qtr) 1.73 1.73 5.66 11.12 12.91 5.36 12.49 14.42 12.02 15.85 -6.71

Real Estate

Townsend Reported Real Estate 862,722,938 5.07 1.89 1.89 5.59 8.01 7.62 -6.08 N/A 10.03 10.49 -6.53 -31.78

NCREIF ODCE Index (Net) (Lagged 1 Qtr) 2.08 2.08 7.06 9.79 13.31 -1.99 N/A 10.47 17.18 6.01 -35.70

NCREIF/Townsend Weighted Benchmark (Lagged 1 Qtr) 2.40 2.40 7.36 9.91 13.17 -3.94 N/A 10.40 17.36 3.10 -37.98

Real Asset

NMSIC Real Asset Pool 93,639,959 0.55 3.09 3.09 7.67 N/A N/A N/A N/A N/A N/A N/A N/A

Real Asset Custom Index 0.34 0.34 3.77 4.11 5.44 1.97 6.24 4.90 2.77 7.53 8.92






Allocation

MarketValue ($)

%

Performance (%)

QTD CYTD FYTD1

Year3

Years5

Years10

Years2012 2011 2010 2009

ETINMSIC Economically Targeted Investments 54,119,170 0.32 0.15 0.15 -0.57 0.57 -2.05 -3.02 -0.65 -0.32 -2.12 -4.87 -0.73

BofA ML 3 Mo US T-Bill Index 0.02 0.02 0.09 0.12 0.11 0.34 1.75 0.11 0.10 0.13 0.21

Severance Tax State PE Program 203,629,235 1.20 -0.99 -0.99 3.57 12.45 8.02 -2.07 -4.25 13.11 11.39 2.37 -19.16

Cambridge VC Index (Lagged 1 Qtr) 1.15 1.15 2.33 7.10 11.30 3.55 6.62 7.54 20.66 8.66 -12.77

Venture Econ All Prvt Eq Index (Lagged 1 Qtr) 1.73 1.73 5.66 11.12 12.91 5.36 12.49 14.42 12.02 15.85 -6.71

NMSIC Total Fund Composite 17,032,469,164 100.00 4.93 4.93 12.08 9.77 8.95 4.36 7.84 14.26 -0.93 14.55 18.69

The Global Equity Custom Index consists of 70% R 3000 Index, 18% MSCI EAFE Index (Net), 12% MSCI Emg Mkts Index (Net).

The Large Cap Custom Index consists of the S&P 500 Index (Cap Wtd) through 6/30/2012 and the R 1000 Index thereafter.

Credit & Structured Finance Benchmark consists of 45% ABX.HE.BBB-06-1, 45% S&P/LTSA 1100 Names Index & 10% CDX 15 lagged by 1 month.

Absolute Return market values are lagged 1 month and provided by J.P. Morgan. Performance for Absolute Return is preliminary and shown as of the most current month end.

Historical performance for Crestline Enchantment Fund Class A shares prior to January 2011 consists of Crestline Partners LP. Class B shares before this date consists of Vintage Classic LLC.

Performance for Mariner Matador, LLC prior to August 2008 consists of Mariner Select LP.

80/20 Cambridge Private Equity Index is lagged 1 quarter and is a blend of 80% Cambridge Private Equity Index and 20% Cambridge Venture Capital Index.

Venture Economics All Private Equity Index is lagged 1 quarter.

NCREIF/Townsend Weighted Benchmark is calculated by Townsend, is lagged 1 quarter, and is a weighted benchmark based on the target allocation to each real estate sector using the investable universe.

Real Estate and Private Equity investments are lagged 1 quarter and assume a 0.00% return during interim months.

Real Asset investments assume a 0.00% return during interim months.

Real Asset Custom Index consists of 35% Barclays US Treasury: US TIPS Index, 25% Dow Jones-UBS Commodity Index, 20% NCREIF Timberland Index, and 20% Consumer Price Index + 3%.

R.V. Kuhns & Associates began calculating performance in May 2011 using data provided by J.P. Morgan. Historical performance prior to this date was provided by NEPC.



2011 5-7 Year Correlations

20

Asset Class Cash Treas Credit MBS TIPSHigh Yield

Glob Bonds (U)

Glob Bonds (H)

EMD Ext

EMD Lcl

Lg Cap Eq

Sm/Mid Cap

EqInt'l Eq

(U)Int'l Eq

(H)Emerg

EqPrivate

EqPrivate Debt

Real Estate Comm

HF Low

HF Mod

Cash 1.00 0.20 0.15 0.25 0.00 -0.05 0.10 0.10 0.10 0.10 0.05 -0.05 -0.10 -0.10 -0.10 -0.10 0.00 0.40 0.10 0.40 0.10Treas 0.20 1.00 0.95 0.90 0.80 0.35 0.55 0.90 0.10 0.15 0.20 0.10 0.15 0.15 0.00 0.05 -0.25 -0.05 -0.05 0.05 0.10Credit 0.15 0.95 1.00 0.90 0.70 0.50 0.50 0.70 0.50 0.55 0.50 0.30 0.25 0.25 0.20 0.25 0.15 -0.05 -0.05 0.15 0.30MBS 0.25 0.90 0.90 1.00 0.70 0.45 0.45 0.60 0.20 0.25 0.35 0.20 0.20 0.20 0.05 0.15 0.00 0.00 -0.05 0.10 0.20TIPS 0.00 0.80 0.70 0.70 1.00 0.25 0.40 0.60 0.20 0.25 0.05 0.00 0.00 0.00 0.00 0.00 0.05 0.00 0.20 0.35 0.20High Yield -0.05 0.35 0.50 0.45 0.25 1.00 0.10 0.10 0.65 0.70 0.60 0.60 0.40 0.40 0.45 0.60 0.65 -0.10 0.00 0.45 0.50Glob Bonds (U) 0.10 0.55 0.50 0.45 0.40 0.10 1.00 0.60 -0.15 -0.10 0.00 -0.10 0.40 0.40 -0.05 0.00 0.00 -0.05 0.00 0.00 0.00Glob Bonds (H) 0.10 0.90 0.70 0.60 0.60 0.10 0.60 1.00 -0.15 -0.10 0.00 -0.10 0.40 0.40 -0.05 0.00 0.00 -0.05 0.00 0.00 0.00EMD Ext 0.10 0.10 0.50 0.20 0.20 0.65 -0.15 -0.15 1.00 0.95 0.60 0.55 0.50 0.50 0.80 0.25 0.55 -0.10 0.10 0.30 0.25EMD Lcl 0.10 0.15 0.55 0.25 0.25 0.70 -0.10 -0.10 0.95 1.00 0.60 0.55 0.50 0.50 0.80 0.25 0.55 -0.10 0.10 0.30 0.25Lg Cap Eq 0.05 0.20 0.50 0.35 0.05 0.60 0.00 0.00 0.60 0.60 1.00 0.90 0.70 0.70 0.55 0.75 0.40 0.15 0.00 0.40 0.55Sm/Mid Cap Eq -0.05 0.10 0.30 0.20 0.00 0.60 -0.10 -0.10 0.55 0.55 0.90 1.00 0.55 0.55 0.60 0.85 0.50 0.05 -0.05 0.40 0.60Int'l Eq (U) -0.10 0.15 0.25 0.20 0.00 0.40 0.40 0.40 0.50 0.50 0.70 0.55 1.00 0.90 0.60 0.50 0.40 0.10 0.00 0.35 0.40Int'l Eq (H) -0.10 0.15 0.25 0.20 0.00 0.40 0.40 0.40 0.50 0.50 0.70 0.55 0.90 1.00 0.60 0.50 0.40 0.10 0.00 0.35 0.40Emerg Eq -0.10 0.00 0.20 0.05 0.00 0.45 -0.05 -0.05 0.80 0.80 0.55 0.60 0.60 0.60 1.00 0.25 0.45 -0.10 0.10 0.30 0.35Private Eq -0.10 0.05 0.25 0.15 0.00 0.60 0.00 0.00 0.25 0.25 0.75 0.85 0.50 0.50 0.25 1.00 0.00 0.00 0.00 0.20 0.35Private Debt 0.00 -0.25 0.15 0.00 0.05 0.65 0.00 0.00 0.55 0.55 0.40 0.50 0.40 0.40 0.45 0.00 1.00 -0.20 0.10 0.35 0.60Real Estate 0.40 -0.05 -0.05 0.00 0.00 -0.10 -0.05 -0.05 -0.10 -0.10 0.15 0.05 0.10 0.10 -0.10 0.00 -0.20 1.00 0.00 0.00 0.00Comm 0.10 -0.05 -0.05 -0.05 0.20 0.00 0.00 0.00 0.10 0.10 0.00 -0.05 0.00 0.00 0.10 0.00 0.10 0.00 1.00 0.10 0.15HF Low 0.40 0.05 0.15 0.10 0.35 0.45 0.00 0.00 0.30 0.30 0.40 0.40 0.35 0.35 0.30 0.20 0.35 0.00 0.10 1.00 0.90HF Mod 0.10 0.10 0.30 0.20 0.20 0.50 0.00 0.00 0.25 0.25 0.55 0.60 0.40 0.40 0.35 0.35 0.60 0.00 0.15 0.90 1.00


Reserve FundAsset Allocation Update and Recommendations

August 16, 2011

Allan Martin, Managing PartnerDon Stracke, Senior ConsultantLynda Dennen, ASA, EA, Research Consultant


Summary

• The New Mexico Retiree Health Care Authority is partially funded to meet future postretirement benefit commitments

– Similar to most postretirement medical programs– Transitioning from a pay-as-you-go model to a funded system

• This study seeks to balance competing objectives, while using existing asset classes under the State Investment Council

– Extend the expected insolvency date, by increased return (and risk)– Protect the Fund from the risk of an earlier insolvency -- decrease risk (and return)– Decrease risk concentration on economic factors– Measure allocation relative to other public postretirement medical funds

• NEPC has generated recommended asset allocations using the currently available SIC asset classes, as well as adding a Risk Parity asset class option

– Seeking marginal improvement with higher return and/or lower risk– Significant opportunity to improve diversification if SIC allows access to additional

asset classes

• Some allocation results show similar solvency to existing allocation– Significant opportunity to improve diversification if SIC allows access to additional

asset classes

• Current insolvency is expected in fiscal year ending 2027– Solvency study assumed a 7.75% investment return, according to Actuary (Segal)– NEPC assumes a lower return (6.65%) for the current allocation, But we also

estimate insolvency after 2026• Small changes in investment return do not move the needle in terms of solvency• Investment return is a small portion of annual contributions and expenses


Purpose and Methodology

• To assist the Trustees in developing a long-term asset allocation strategy

– Which asset classes should be represented in the portfolio– Long-term target percentages to be allocated to each asset class

• Recommend revisions, if any, to change current asset mix targets

– Additionally, suggest alternative asset classes that would help diversification and that may be approved in the future

• Project the level of plan assets over the next 25 years– Use existing solvency framework, including revenues and expenditures– Integrate NEPC assumptions for investment returns

• Assess appropriateness of current and prospective asset mixes


Projection of Current Asset Allocation

• The current allocation is expected to become insolvent during FY ending 2027, but there is a wide variation of outcomes depending on actual investment returns

• The Fund should remain solvent through FY 2022 with 95% confidence• Even under the best outcome (5th Percentile), the Fund eventually declines

to $0 after FY 2034

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800$millions

Fiscal Year Ending

Median

5th Percentile

25th Percentile

75th Percentile

95th Percentile


Treas2%

Credit2%

MBS4%

Core Bonds33%

Lg Cap33%

Lg Cap26%

Sm/Mid Cap15%

Sm/Mid Cap10%

Int'l22%

Int'l17%

Emerg22%

Emerg14%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Asset Risk

Asset Allocation

New Mexico RHCA Current Asset and Risk Allocations

Total Fixed Income 33.0% Equity 67.0%

Total Fixed 8.0%

Equity 92.0%

• The current allocation has 67% in equities, which contribute 92% to overall risk

• Greater diversification could spread risk over different sources and lower overall portfolio volatility, but would decrease return as well


Updated Asset Allocation Options

• Given the limited asset class options available, we had considered two additional asset allocations

– Similar risk as the current allocation– Similar return as the current allocation

• In addition, we have introduced two additional asset allocations– Increasing Fixed Income allocation to 50% to lower portfolio risk (and return)– Adding a Risk Parity allocation of 20%

Current Allocation

Current Policy

Same Risk as Current

Same Return as Current

Additional Fixed

IncomeWith Risk

ParityCash 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Large Cap Equities 26.1% 25.0% 27.6% 27.2% 20.0% 21.0%Small/Mid Cap Equities 10.3% 10.0% 5.5% 5.5% 5.0% 8.0%Int'l Equities (Unhedged) 16.8% 15.0% 16.5% 16.3% 12.5% 12.0%Emerging Int'l Equities 13.6% 15.0% 16.5% 16.3% 12.5% 12.0%Total Equity 66.8% 65.0% 66.2% 65.3% 50.0% 53.0%Core Bonds 33.2% 35.0% 33.8% 34.7% 50.0% 27.0%Total Fixed Income 33.2% 35.0% 33.8% 34.7% 50.0% 27.0%Global Asset Allocation 0.0% 0.0% 0.0% 0.0% 0.0% 20.0%Total Other 0.0% 0.0% 0.0% 0.0% 0.0% 20.0%

Expected Return (5-7 years) 6.6% 6.6% 6.7% 6.7% 5.9% 6.8%Expected Return (30 years) 8.5% 8.4% 8.5% 8.5% 7.9% 8.5%Standard Dev of Asset Return 13.1% 12.9% 13.1% 13.0% 10.8% 12.4%

Probability of 1-Year Return Under 0% 30.6% 30.4% 30.5% 30.4% 29.2% 29.3%Probability of 5-Year Return Under 0% 12.9% 12.6% 12.7% 12.6% 11.0% 11.2%Sortino Ratio @ 0% 0.61 0.62 0.63 0.63 0.68 0.66Sortino Ratio @ 12% -0.34 -0.35 -0.34 -0.35 -0.44 -0.36Sharpe Ratio 0.32 0.32 0.32 0.32 0.32 0.34


New Mexico RHCA Asset Allocation and Risk Allocation

• Although each allocation has similar risk profiles, the Current Policy has the lowest overall expected volatility

Lg Cap

Lg Cap

Lg Cap

Lg Cap

Lg Cap

Lg Cap

Sm/Mid Cap

Sm/Mid Cap

Sm/Mid Cap

Sm/Mid Cap

Sm/Mid Cap

Sm/Mid Cap

Int'l

Int'l

Int'l

Int'l

Int'l

Int'l

Emerg

Emerg

Emerg

Emerg

Emerg

Emerg

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

With Risk Parity

Additional Fixed Income

Same Return as Current

Same Risk as Current

Current Policy

Current Allocation

Treas Credit MBS Lg Cap Sm/Mid Cap Int'l Emerg

Standard Dev of Asset

Return

13.1%

12.9%

13.1%

13.0%

10.8%

11.8%


Efficient Frontier

8

5

5.5

6

6.5

7

7.5

8

8.5

9

10.5 11 11.5 12 12.5 13 13.5

Expe

cted

Return

Standard Deviation

Current Mix

Current Policy

Same Return

Same Risk

Additional Fixed Income

With Risk Parity

Efficient Frontier

Efficient Frontier with Risk Parity


Summary & Recommendations

• Given the current SIC asset classes as options, there are limited options available

– We have modeled a Risk Parity allocation for reference purposes– A second option is to lower risk through additional fixed income assets,

which in turn lowers return

• Current Allocation is very close to the optimal portfolio – RHA recently moved to NEPC’s asset allocation recommendation which

was presented in 2010

• Adjusting the allocations slightly does not materially increase the level of solvency at any confidence intervals

– Investment return portion of annual income is dwarfed by other contribution and expense amounts

• In general, NEPC would recommend a decrease in equity exposure to decrease risk in the portfolio, but return would be lowered as well

– Reduction in small cap, overweight emerging markets equities

• When SIC expands the number of asset classes, there will be opportunity to increase diversification and stabilize the solvency of the Fund

– Diversification through allocations to Risk Parity, GTAA, or alternatives


Appendix


Post Retirement Medical Funds Asset Allocation Comparison

New Mexico

New Castle County

City of Boston

Orlando General

City of Charlotte

San Bernardino CalPERS

Cash 0% 17% 0% 0% 0% 0% 0%Large Cap Equities 26% 36% 34% 22% 30% 15% 35%Small/Mid Cap Equities 10% 0% 0% 11% 20% 5% 0%Int'l Equities (Unhedged) 17% 12% 12% 12% 18% 10% 29%Int'l Equities (Hedged) 0% 0% 0% 0% 0% 0% 0%Emerging Int'l Equities 14% 0% 0% 0% 0% 10% 0%Total Equity 67% 48% 47% 46% 68% 40% 64%Core Bonds 33% 23% 34% 34% 12% 0% 20%Credit 0% 0% 0% 0% 0% 5% 0%High-Yield Bonds 0% 0% 0% 0% 0% 5% 6%Global Bonds (Unhedged) 0% 0% 0% 0% 20% 0% 0%EMD (External) 0% 0% 0% 0% 0% 5% 0%Total Fixed Income 33% 23% 34% 34% 32% 15% 26%REITS 0% 0% 0% 0% 0% 5% 10%Total Alternatives 0% 0% 0% 0% 0% 5% 10%Global Asset Allocation 0% 12% 20% 20% 0% 30% 0%Commodities 0% 0% 0% 0% 0% 10% 0%Total Other 0% 12% 20% 20% 0% 40% 0%

Expected Return 6.6% 5.4% 5.6% 5.7% 6.0% 7.3% 6.6%Standard Dev of Asset Return 13.1% 10.0% 10.7% 10.7% 13.0% 13.1% 14.2%Sortino Ratio @ 0% 0.61 0.67 0.65 0.65 0.55 0.68 0.56Sharpe Ratio 0.32 0.29 0.29 0.30 0.27 0.37 0.29


Post Retirement Medical Funds Standard Deviation Comparison

Lg Cap

Lg Cap

Lg Cap

Lg Cap

Lg Cap

Lg Cap

Lg Cap

Sm/Mid Cap

Sm/Mid Cap

Sm/Mid Cap

Sm/Mid Cap

Sm/Mid Cap

Sm/Mid Cap

Int'l

Int'l

Int'l

Int'l

Int'l

Int'l

Int'l

Emerg

Emerg

REITs

REITs Commod

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

CalPERS

San Bernardino

City of Charlotte

Orlando General

City of Boston

New Castle County

New Mexico

Treas Cred MBS HY TIPS GB EMD Lg Cap Sm/Mid Cap Int'l Emerg REITs HF Low Vol Commod


• Investors face an even lower market return environment– Bond yields are the lowest in over 50 years, limiting future returns– Stock fundamentals unlikely to support a higher risk premium over bonds– Economic growth muted as unemployment and debt overhang are not solved– Long-term investors should expect higher nominal returns in the future, as

indicated by a very steep yield curve

• Most markets have been driven by macro/top-down factors– “Risk on/risk off” determination of returns, not based on fundamentals– A return to company and security differentiation seems overdue

• Quantitative easing by Federal Reserve dominates markets– Creates steep yield curve and extends macro, high correlation environment– Increases currency pressures on emerging markets – Unconventional actions by central banks have led global economy into

unchartered waters, increasing uncertainty for the future

• Global currency regime under stress– Fuels recent commodity run and raises risk of long-term price inflation– Political risk of protectionism and capital controls

NEPC 2011 Capital Market Observations

13


• Maintain asset allocation discipline– Continue to stress risk management while opportunities remain limited– Emerging market equity and debt (esp. local currency) remain attractive

• Typical implementation is underweight emerging’s growing share of the world economy– Real asset prices reflect inflation fears, but may have buying opportunities

• Examine portfolio structure – the implementation within each asset class – for example:

– Top-down strategies that could benefit from continued macro markets– Long/short and/or quality-focused managers within the equity allocation– Fixed income structured into objective-driven hedges and/or global

unconstrained strategies– International equity to include small cap developed and emerging

• Accessing growth of the emerging consumer

• Continue to build illiquid strategies – illiquidity premium remains attractive

– Multiple forms of distressed lending remain attractive– Real estate offers pockets of opportunity, but proceed with caution

• Consider hedging of developed market currency to reduce uncompensated risk

– Some international managers have hedged or half-hedged products– Overlay managers can customize hedging across the portfolio

NEPC 2011 General Actions for Clients

14


• Relies on a combination of historical data and forward-looking analysis– Expected returns based mostly on forward-looking current market pricing

– Volatility based on history, with some recognition of recent increase

– Correlations based on a mix of history and current trend

• Historical data is used to frame current market environment as well as to compare to similar historical periods

– Historical index returns, volatility, and correlations

– Average historical valuation and yield metrics

• Forward-looking analysis is based on current market pricing and a building blocks approach

– Return equals yield + changes in price (valuation, defaults, etc.)

– Use of key economic observations (inflation, real growth, dividends, etc.)

– Structural themes (supply and demand imbalances, capital flows, etc.)

• Assumptions prepared by Asset Allocation Committee– Specialists from public markets, hedge funds and private markets provide insight on market

themes

• Assumptions and actions reviewed and approved by Partner’s Research Committee

Development of Asset Class Assumptions

15


Comparison of Assumptions

16


1. Reflects average since inception (1926 except as noted below) of the respective index through 12/31/2010

2. LB/BC Aggregate reflects average compound annual return since 1976

3. International reflects average annual return since 1970

Major Asset Class Review (Geometric)

17

Historical

Asset Class

Long Term Geometric Average1

2005 2006 2007 2008 2009 2010 2011Cash 3.6% 3.50% 3.75% 4.00% 4.00% 3.00% 2.00% 2.00%Core Bonds2 8.3% 4.50% 5.00% 5.00% 5.00% 5.50% 3.75% 3.00%Large Cap 9.9% 8.50% 8.50% 8.50% 8.50% 9.25% 7.75% 7.00%International3 9.4% 9.50% 9.00% 8.75% 9.00% 9.75% 8.00% 7.00%

5-to-7 Year NEPC Assumptions


• Sources of Return– Valuation

– Real earnings growth

– Dividend yield

– Inflation

Assumption Development - Large Cap Equity

• Volatility– Historical annualized volatility = 15%– Trailing 12 month volatility (Dec 2010) = 18%– Current VIX Pricing ~ 18– Volatility is conditional – spikes in volatility tend

to result in extend periods of increased volatility– Annual volatility expected to normalize over 5-7

years but this likely leads to 5-7 year volatility above historical average

– 2011 5-7 year Volatility assumption = 18%

Return SourceCurrent Values

Expected Forecast Values

Return Contribution

Valuation14.3

(forwardearnings)

15 0.00%

Real Growth* 2.5% 2.0% 2.0%

Dividend Yield** 1.9% 2.0% 2.0%

Inflation 1.2% 3.0% 3.0%Total Expected Return 7.0%

* Real GDP growth used as proxy for real earnings per share growth

5%

10%

15%

20%

25%

30%

35%

40%

1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006

Annual

ized

Dai

ly V

ol

Date

Trailing Volatility - S&P 500

1 yr Vol

5 yr Vol

18

Source: Bloomberg, NEPC


2011 5-to-7 Year Return Forecasts

19

Geometric Expected Return

Asset Class 2010 20112011-2010

Cash 2.00% 2.00% 0.00%Treasuries 2.75% 2.00% -0.75%Credit 5.50% 4.00% -1.50%MBS 4.00% 3.50% -0.50%TIPS 3.50% 2.25% -1.25%High-Yield Bonds 8.00% 6.25% -1.75%Global Bonds (Unhedged) 3.25% 1.75% -1.50%Global Bonds (Hedged) 1.92%EMD External 6.50% 5.25% -1.25%EMD Local Currency 6.25%Large Cap Equities 7.75% 7.00% -0.75%Small/Mid Cap Equities 8.00% 7.00% -1.00%Int'l Equities (Unhedged) 8.00% 7.00% -1.00%Int'l Equities (Hedged) 7.25%Emerging Int'l Equities 9.50% 9.00% -0.50%Private Equity 10.00% 9.50% -0.50%Private Debt 10.00% 9.25% -0.75%Real Estate 7.00% 6.00% -1.00%Commodities 4.75% 4.50% -0.25%Hedge Funds Low Vol 6.25% 5.75% -0.50%Hedge Funds Mod Vol 7.50% 7.00% -0.50%

Volatility

Asset Class 2010 20112011-2010

Cash 1.50% 1.50% 0.00%Treasuries 5.50% 6.00% 0.50%Credit 7.00% 7.00% 0.00%MBS 9.00% 10.00% 1.00%TIPS 7.00% 7.50% 0.50%High-Yield Bonds 12.00% 12.00% 0.00%Global Bonds (Unhedged) 10.00% 9.00% -1.00%Global Bonds (Hedged) 5.00%EMD External 15.00% 12.00% -3.00%EMD Local Currency 15.00%Large Cap Equities 18.00% 18.00% 0.00%Small/Mid Cap Equities 23.00% 22.00% -1.00%Int'l Equities (Unhedged) 21.00% 21.00% 0.00%Int'l Equities (Hedged) 19.00%Emerging Int'l Equities 29.00% 28.00% -1.00%Private Equity 30.00% 28.00% -2.00%Private Debt 19.00% 19.00% 0.00%Real Estate 15.00% 15.00% 0.00%Commodities 22.00% 20.00% -2.00%Hedge Funds Low Vol 7.00% 7.00% 0.00%Hedge Funds Mod Vol 12.00% 12.00% 0.00%


Investment Policy

State of New Mexico Retiree Health Care Authority Reserve Fund

August 16, 2011


VII-2

TABLE OF CONTENTS

I. Purpose and Core Beliefs .................................................................................... 1

II. Functional Organization and Responsibilities ...................................................... 1

III. General Objectives and Policies .......................................................................... 2

IV. Asset Allocation Objectives and General Strategies ............................................ 2

V. Investment Program Implementation ................................................................... 3

VI. Performance Measurement ................................................................................. 3

VII. Rebalancing……………………………………………………………………………...4

VIII. Review and Modification of Investment Plan....................................................... .4

IX. Agreement .......................................................................................................... .4


1

Investment Policy State of New Mexico Retiree Health Care Authority Reserve Fund I. Purpose and Core Beliefs

The purpose of this document (herein after referred to as the Investment Policy) is to set forth an appropriate set of goals and objectives for investment of the New Mexico Retiree Health Care Authority (NMRHCA) Trust Fund (herein after referred to as the Fund). This policy statement is intended to set forth reasonable parameters to ensure prudence and care in the execution of the investment program, while allowing for sufficient flexibility in the management oversight process. NMRHCA Trust Fund is funded by contributions from participating employers and employees, retiree premiums, disbursement from the Taxation and Revenue Suspense Fund, State appropriations and other miscellaneous revenues. Core Beliefs:

A well defined governance structure with clearly delineated responsibilities is critical in achieving long-term, consistent success.

Balancing the opportunity for potential returns with the possibility of losses is an important risk mitigator.

II. Functional Organization and Responsibilities

A. Board The Board of Directors of the NMRHCA (Board) is responsible for overseeing the Investment Oolicy and disbursements of the Fund. The State Investment Council (SIC) is authorized to invest the assets in the Fund in accordance with the Joint Powers Agreement, attached as Appendix I. The Board will review the agreement annually. B. Staff The Board has delegated to Staff authority to assist the Board to review policy issues, to implement the programs established by the Board and to report to the Board on the ongoing implementation of the Policy. Pursuant to its authority to delegate functions, the Board hereby delegates to the Executive Director the responsibility to manage the Fund investment program subject to the Board-approved investment policies.

C. General Investment Consultant The Board may utilize the services of a General Investment Consultant. The General Investment Consultant will be responsible for:

Performing asset allocation studies and recommending asset allocation strategies to the Board at least annually


2

Monitoring, evaluating, and reporting, at least quarterly, to the Board on performance and any changes in the management of the funds.

III. General Objectives

The general objectives define the goals to be achieved through the management of Fund assets. A. General Objectives of Fund

The primary objective of the Fund is to generate a total return in excess of the assumed actuarial return as determined annually by the Board, which includes realized and unrealized gains, plus income, less expenses, with a prudent level of risk. Secondarily, for Board information purposes, the total return for the overall Fund shall meet or exceed the Funds Policy Index (as described in Appendix II). Additionally, the Funds return shall also be compared with comparable funds as represented by the Consultant’s relevant peer group universe, with the understanding that the Funds funded status and overall investment risk profile may differ from the average fund in that universe.

Provide liquidity to meet all cash needs and serve as a buffer against higher than anticipated adverse claims. As such, the Fund will maintain a position in highly liquid market instruments.

Provide diversification to avoid significant losses and preserve capital, while operating under the Prudent Investor Rule

IV. Asset Allocation Objectives and General Strategies

A. Objectives The Fund has a long term investment horizon, and utilizes an asset allocation methodology which encompasses a strategic, long-run perspective on capital markets. It is recognized that a strategic long-run asset allocation plan implemented in a consistent and disciplined manner will be the major determinant of the Fund’s investment performance. Asset allocation modeling identifies asset classes the Fund will utilize, and the target percentage and appropriate ranges that each class will represent in the total Fund.

B. General Strategies Asset allocation provides diversification to NMRHCA’s Plan’s overall investment program and is to be managed over time to maximize return at a prudent level of risk. To accomplish this, NMRHCA considers the following:

1. Historical and expected long-term capital market risk and return

behavior. 2. The correlation of returns among the relevant asset classes. 3. The perception of future economic conditions, including inflation

and interest rate assumptions.


3

4. Projected net cash flows – i.e. contributions and premiums paid

(cash inflows) compared to claim expenses, administrative expenses and other expenses (cash outflows).

5. The potential for significant periods of negative returns in many

asset classes. V. Investment Program Implementation

A. Manager and Advisor Policy

1. Manager Utilization

The SIC (or if appropriately determined, any external money managers) will have full discretionary investment authority over the assets it is responsible for managing, subject to the Joint Powers Agreement and guidelines and policies set forth in this document. Each investment manager, including the SIC, will function under a formal contract which delineates responsibilities and appropriate performance expectations. All managers will be expected to acknowledge in writing that they are fiduciaries and as such, will be expected to know and comply with applicable manager specific portfolio guidelines. Portfolio performance will be evaluated relative to its adopted benchmark and peer group on a regular basis. 2. Manager Authority

The SIC shall have discretion and authority to direct and manage the investment and reinvestment of assets, determine portfolio strategy, determine security selection and determine timing within their asset class. The SIC shall have discretion to establish and execute transactions with established regional and national securities broker/dealers as needed. The SIC is required to achieve best available prices and most favorable executions with respect to all portfolio transactions, as market conditions permit. It is the SIC’s responsibility to identify policies that may have an adverse impact on performance, and to initiate discussion with Staff toward possible improvement of said policies through Board action. 3. Securities Trading

The emphasis of security trading should be on the best execution basis, i.e., the highest proceeds to the Fund and the lowest cost, net of all transaction expenses. Placement of orders should be based on the financial viability of the brokerage firm and the assurance of a prompt and efficient execution. The SIC will notify the NMRHCA Executive Director in advance of SIC Board meeting(s) when the independent contractor presents the Execution Cost report. At least annually, the SIC will present to the Board an independent report related to the SIC’s overall execution costs.

VI. Performance Measurement and Review


4

Special attention will be paid to risk-based performance measures.

1. The Fund’s investment returns should meet or exceed the designated

benchmark plus expenses over the long term (defined as rolling fifteen year horizons).

2. Individual manager portfolios shall be judged according to benchmarks which reflect the objectives and characteristics of their strategic role within the Plan.

3. The Board shall review the long-term investment performance of the Fund at least quarterly.

VII. Rebalancing

Due to the fluctuation of market values, positioning within a specified range is acceptable and constitutes compliance with the policy. The Board shall review the actual asset allocation quarterly and determine if any asset classes are out of range. The Board will direct staff to rebalance as necessary.

VIII. Review and Modification of Investment Plan

1. The Board shall review the Investment Policy and Joint Powers Agreement annually. Any modifications approved by the Board will be promptly communicated to the SIC and made available to the public.

2. The SIC will meet at least twice annually with the Board to review the Fund portfolio activity, investment performance, and economic market analysis in the context of this Investment Policy.

3. The SIC will provide monthly written reports on portfolio activity and investment performance and expenses. Additionally, any significant changes in investment strategy, decision-making process, or personnel will be communicated in writing to the Board immediately.

4. The Board intends to review quarterly the performance of the Fund and the SIC reporting relative to the objectives and guidelines described herein.

IX. Agreement

By signing this Statement of Investment Policy the Board indicates its agreement therewith.

Adopted at ________________________ on . By:_________________________________ ,Chairman

State of New Mexico Retiree Health Care Authority Reserve Fund


5

Appendix I

Joint Powers Agreement

(Included by reference)

Appendix II

Long-Term Policy Target

Policy Index: The policy index is calculated by multiplying the target asset class weights times the return of the respective passive benchmark. Composite: The composite is calculated by multiplying the actual asset class weights times the actual manager return. When the Policy Index is subtracted from the Composite; the result, measures the contribution of both active management and policy drift.

Long-Term Policy

TargetPolicy Range Benchmarks Consultant's Universe

Passively Managed

Target

Fixed Income 35%

Domestic Investment Grade 35% 30% - 40% Barclays Aggregate Core Fixed Income 0%

Domestic Equity 35%

Large Cap Equity 25% 20% - 30% S&P 500 Large Cap Equity 50%

Small Cap Equity 10% 5% - 15% Russell 2000 Small Cap Equity 0%

International Equity 30%

Developed Equity 15% 10% - 20% MSCI EAFE International Developed 0%

Emerging Equity 15% 10% - 20% MSCI Emerging Mkts International Emerging 0%


Minutes of the Regular Meeting of the


INVESTMENT COMMITTEE

June 12, 2013

10:15 AM

4308 Carlisle Blvd. NE, Suite 207

Albuquerque, New Mexico

CALL TO ORDER

Mr. Alfredo Santistevan, Chair, called the meeting to order at ~10:25 AM.

ROLL CALL TO ASCERTAIN QUORUM

Mr. Santistevan, Mr. Crandall, Mr. Montaño, and Mr. Sullivan attended. Ms. Goodwin

and Ms. Padilla-Jackson were available by teleconference,

APPROVAL OF AGENDA

The agenda was approved by unanimous voice vote.

FY 2012 AND 2313 RETURNS

Mr. Tyndall, Executive Director, reviewed the recent history of fees paid for

management of the long-term benefit fund. The fees are tracked and reported with an

improved certainty in recent years than historically. The fees are in line with fees paid for

management of similar accounts by other public bodies. NMRHCA is only charged for the

externally managed parts of the fund, and these fees are rising as a total dollar amount but

remain reasonable as a percentage of fund values. The SIC accounting and total costs have

significantly improved as compared with historical precedent and remain a good value for

the services rendered.

RECENT RETURNS

The Committee requested that the investment returns be compared with projected

results under a dollar/cost averaging regime.

LONG TERM RETURNS (10-YEAR)

1. FEES

A. CURRENT FEES ($)

The most recent report was made available to the Committee.

B. FUTURE FEE STRUCTURES

The Committee discussed reports by staff and the investment management

advisor that may shed light on expected fund performance. Mr. Tyndall will

discuss this with Mr. Martin in advance of NEPC’s report to the Board.


2. ALTERNATIVE INVESTMENT POSSIBILITIES ASSET ALLOCATION (SIC V. NMRHCA)

1. ACTIVE V. PASSIVE

The Committee reviewed the existing policy and agreed that Mr. Smith will be

consulted about any changes to available participation by NMRHCA in the pools

where the NMRHCA is presently unable to invest. Whether a statutory change to

allow such participation will be considered when additional information is

available.

2. INTERNATIONAL

The Committee noted the recent trend in the non-US developing market funds.

Mr. Martin’s opinion will be sought, but less exposure in this area is expected to

be advised. Clarifications of policy ranges to minimizes losses will be considered.

3. REBALANCING

The Committee discussed the timing of the rebalancing of the asset

allocations. It was determined that the best strategic use of available budget

would be to have Mr. Alan Martin, NEPC, examine the issues and recommend a

course of action for the next quarter. Mr. Martin will be available in July, after the

Annual meeting, and may make a report to the Committee at that time. Mr.

Tyndall will contact Mr. Martin and arrange for his firm to review the several items

involved and prepare the recommendation to the Board.

OPEN DISCUSSION

The Committee discussed the Board’s fiduciary responsibility and management

philosophy as a policy setting body. At the present time, a rebalancing of the fund is very

likely, and when additional advice and analysis is available, the rebalancing can be

accomplished by staff, probably within 30 days’ time. The adjustment of policy ranges will

also be considered, but the ranges have been judged optimal over the last two years for the

available pools.

EXECUTIVE DIRECTOR'S REPORT

None.

PRESIDENT'S REPORT

Mr. Santistevan summarized the steps the Committees has considered and the items

to be reviewed with Mr. Martin, investment advisor, Mr. Smith, Deputy State Investment

Officer, and Mr. Horowitz, legal advisor.

OTHER BUSINESS

None.

DATE AND LOCATION FOR THE NEXT REGULAR MEETING:

The next Investment Committee meeting was not set, but members’ schedules were

discussed.

ADJOURN

The meeting adjourned at ~11:20 AM.


Regular Meeting of the NEW MEXICO RETIREE HEALTH CARE AUTHORITY

E X E C U T I V E C O M M I T T E E

June 17, 2013 11:00 AM

4308 Carlisle Blvd. NE, Suite 104 Albuquerque, New Mexico



AGENDA

Attendees: Mr. Alfredo Santistevan, President Mr. Tom Sullivan, Vice President Mr. Joe Montaño, Secretary

Staff: Mr. Mark Tyndall, Executive Director Mr. David Archuleta, Deputy Director Mr. Rudy M. Bantista, Communications and Board Recording Secretary

Call to Order Mr. Santistevan, President


Approval of Agenda Mr. Santistevan, President


July Retreat Mr. Santistevan, President

President's Report Mr. Santistevan, President


Date and Location for the Next Regular Meeting:

The next Executive Committee meeting is to be determined.

Adjourn


Minutes of the Regular Meeting of the NEW MEXICO RETIREE HEALTH CARE AUTHORITY


June 17, 2013, 11:00 AM 4308 Carlisle Blvd. NE, Suite 104


CALL TO ORDER

Mr. Santistevan, Board President, called the meeting to order at ~11:05 AM.


Mr. Santistevan. Mr. Sullivan, Vice-President, and Mr. Montaño, Secretary, attended.

APPROVAL OF AGENDA

The Committee approved the agenda by unanimous vote.


Mr. Tyndall, Executive Director, reviewed member enrollment counts, subsidy amounts, and premiums. The legislative strategy was discussed Employee/Employer contribution rates (EE/ER) to meet the Five-Year plan goal were reviewed. A solvency period of 25 years was considered as an achievable goal.

JULY RETREAT

The July Annual Board Meeting draft agenda was reviewed.

PRESIDENT'S REPORT

A Finance Committee meeting was tentatively proposed for Thursday, May 16, 2013.

OTHER BUSINESS

No other business was discussed.

DATE AND LOCATION OF THE NEXT MEETING

The next Executive Committee meeting was not set.

ADJOURN

The Committee adjourned ~12:10 PM.



FINANCE COMMITTEE

June 19, 2013 10:00 A.M.

ERB Board Room 701 Camino de lost Márquez

Santa Fe, New Mexico

Participant Passcode: 473289 Phone Number: Toll free: 1-888-205-5513

AGENDA

Attendees: Mr. Alfredo Santistevan, Chair Mr. Doug Crandall Ms. Jan Goodwin Ms. Olivia Padilla-Jackson Mr. Joe Montaño Mr. Tom Sullivan


Call to Order Mr. Santistevan, Chair Roll Call to Ascertain Quorum Mr. Bantista, Recorder Approval of Agenda Mr. Santistevan, Chair Strategic Plan Mr. Santistevan, Chair Action Item Mr. Santistevan, Chair 1. Eight Percent Increase in rates for 2014 Mr. Santistevan, Chair 2. Attestation of Intent with regard to Mr. Santistevan, Chair

Excise Tax Open Discussion Mr. Santistevan, Chair Executive Director’s Report Mr. Tyndall, Executive Director President’s Report Mr. Santistevan, Chair Other Business Mr. Santistevan, Chair Date and Location for the Next Regular Meeting

The Date and Location for the next Committee meeting is to be determined. Adjourn


Preliminary Staff Recommendations – 2014

Adjust all self-insured medical rates by 8% in accordance with current loss ratio Rationale: NMRHCA long-term solvency projections include annual 8% rate increases as part of their base line assumptions in order to keep pace with rising medical costs. Changes to this rate of increase in any given year are based on an evaluation of NMRHCA’s overall loss ratio (how closely NMRHCA rates match actual costs). While NMRHCA’s loss ratio position has stabilized, it remains at approximately 104% which warrants an increase in line with long term assumptions. Projected Savings: N/A Total Members Impacted: 40,261 Average Impact Per Retiree: Varies According to Plan (Avg. $15 per month) Impact on Solvency: Already part of valuation 2013 2014 $ Difference Premier – Retiree $134.77 $145.55 $10.78 Premier – Spouse $250.24 $270.26 $20.02 Premier Plus – Retiree $251.88 $272.03 $20.15 Premier Plus – Spouse $389.96 $421.16 $31.20 Medicare Supplement – Retiree $150.84 $162.91 $12.07 Medicare Supplement – Spouse $226.26 $244.36 $18.10

Adopt Attestation of Intent to Preclude Payment of Excise Tax Beginning in 2018, federal health care reform will require any plans with an actuarial value above a certain level to pay a 40% excise tax on any excesses. The current annual value for a retiree plan is $11,850 but it is uncertain if that figure will be indexed. It is possible (even likely) that NMRHCA may have plans that will be excess of this figure by 2018. The latest GASB valuation is calculated without consideration being given to this variable. Without any acknowledgement of future plan adjustments, the excise tax would cause the current UAAL to increase to $3.8 billion. With the board’s stated intent that it will adjust plans to avoid the excise, tax the current UAAL will be reduced to $3.4 billion. As such, staff requests that the board adopt the following attestation of intent: “NMRHCA’s Board of Directors would like to state its intent to modify plan designs as necessary to preclude the payment of any excise tax established by 2010’s Patient Protection and Affordable Care Act (PPACA) beginning in 2018.”




June 24, 2013 10:00 AM




AGENDA

Attendees: Mr. Alfredo Santistevan, President Mr. Tom Sullivan, Vice President Mr. Joe Montaño, Secretary


Call to Order Mr. Santistevan, President


Approval of Agenda Mr. Santistevan, President


July Annual Meeting Mr. Santistevan, President

Meet with Senator Campos Mr. Santistevan, President

Election of Board Officers Mr. Santistevan, President

President's Report Mr. Santistevan, President


Date and Location for the Next Regular Meeting:

The next Executive Committee meeting is to be determined.

Adjourn




June 24, 2013, 10:00 AM


CALL TO ORDER

Mr. Santistevan, Board President, called the meeting to order at ~10:05 AM.


Mr. Santistevan. Mr. Sullivan, Vice-President, and Mr. Montaño, Secretary, attended.

APPROVAL OF AGENDA

The Committee approved the agenda by unanimous vote.


Mr. Tyndall, Executive Director, has received the initial rate sheet for the Health Exchange participants. The premium amounts indicate that the rates set by the NMRHCA are not out of line. The NMRHCA members would not be eligible to participate in the Health Exchanges, as they are eligible to participate in an ‘employer plan’; however, there are still many open questions about Federal subsidy levels and actual coverage that will be reviewed at they are determined.

JULY ANNUAL MEETING

The July Annual Board Meeting draft agenda was reviewed.

PRESIDENT'S REPORT

A Finance Committee meeting was tentatively proposed for Wednesday, June 26, 2013, at 10:00 AM. Voting on items to be presented to the Board at the Annual meeting continues. The Finance agenda was discussed.

MEET WITH SENATOR CAMPOS

Mr. Santistevan noted that that a meeting between Senator Campos and NMRHCA Board members and staff has been set for Tuesday, June 25, 2013. Mr. Montaño and Mr. Santistevan plan to attend with the Executive Director. Mr. Sullivan is not available.

OTHER BUSINESS


DATE AND LOCATION OF THE NEXT MEETING

The next Executive Committee meeting was not set.

ADJOURN

The Committee adjourned ~12:20 PM.



FINANCE COMMITTEE

June 26, 2013 10:00 AM

NMRHCA Board Room 4308 Carlisle Blvd. NE, Suite 207


Participant Passcode: 473289 Phone Number: Toll free: 1-888-205-5513

AGENDA

Attendees: Mr. Alfredo Santistevan, Chair Mr. Doug Crandall Ms. Jan Goodwin Ms. Olivia Padilla-Jackson Mr. Joe Montaño Mr. Tom Sullivan





FY2013 End-of-year Review Mr. Archuleta, Deputy Director

Dependent Subsidy Rate (Action) Mr. Tyndall, Executive Director

Life Insurance Discussion Mr. Tyndall, Executive Director






Adjourn



F I N A N C E C O M M I T T E E

June 26, 2013 10:00 AM NMRHCA Board Room, 4308 Carlisle Blvd. NE, Suite 207, Albuquerque, New Mexico

CALL TO ORDER



Mr. Santistevan, Mr. Crandall, Mr. Montaño, and Mr. Sullivan attended. Ms. Goodwin and Ms. Padilla-Jackson were excused.

APPROVAL OF AGENDA


FY2013 END-OF-YEAR REVIEW

Mr. Archuleta, Deputy Director, reported the preliminary FY2013 end-of-year financials that are very close to complete. The numbers represent expenditures as paid. As of June 30, 2013, final account numbers may be anticipated to be in general agreement with projections. A $30 million benefits fund contribution is projected.

DEPENDENT SUBSIDY RATE (ACTION)

Mr. Tyndall, Executive Director, described the staff recommendations for 2014. Two of the items have been approved for recommendation to the Board. The remaining item continues the phased reduction of family coverage subsidies for retirees with multiple dependent children. The staff recommends the phased elimination of subsidy over four years by increments to ease the financial obligation of the members with minimal impact to the fund solvency.

Mr. Crandall made a motion to approve the Staff recommendation for approval by the Board, Mr. Sullivan seconded. Mr. Montaño abstains at this time. The motion carried with three member votes in favor and none opposed.

LIFE INSURANCE DISCUSSION

Mr. Tyndall presented several tables to show the effects of changes in the life insurance coverage of members enrolled in a medical plan. Further reduction in the coverage does not substantially increase solvency, but premium costs will become prohibitive, as new enrollees are not eligible for the benefit.

OTHER BUSINESS



The next Finance Committee meeting was not set.

ADJOURN



Regular Meeting of the


FINANCE COMMITTEE

July 3, 2013

10:15 AM

NMRHCA Executive Director’s Office

4308 Carlisle Blvd. NE, Suite 104




AGENDA

Attendees: Mr. Alfredo Santistevan, Chair

Mr. Doug Crandall

Ms. Jan Goodwin

Ms. Olivia Padilla-Jackson

Mr. Joe Montaño

Mr. Tom Sullivan

Staff: Mr. Mark Tyndall, Executive Director

Mr. David Archuleta, Deputy Director

Mr. Rudy M. Bantista, Communications and Board Recording Secretary




Naprapathic Services and Offsets Mr. Tyndall, Executive Director






Adjourn



F I N A N C E C O M M I T T E E

July 3, 2013 10:15 AM NMRHCA Executive Director’s Office,

4308 Carlisle Blvd. NE, Suite 104, Albuquerque, NM

CALL TO ORDER



Mr. Santistevan, Mr. Crandall, and Mr. Montaño attended. Ms. Goodwin and Ms. Padilla-Jackson were available by teleconference. Mr. Sullivan was excused.

APPROVAL OF AGENDA


NAPRAPATHIC SERVICES AND OFFSETS

Mr. Tyndall, Executive Director, reported the changes to the benefit plan structure that would be necessary to include the naprapathic services as a budget neutral element. Ms. Padilla-Jackson suggested a member interest survey be done.

EXECUTIVE DIRECTOR’S REPORT

Mr. Tyndall, Executive Director, noted that the most recent benefit loss ratio numbers would support a staff recommendation of 6% increase to the Medicare Supplement premium rather than the 8% increase as previously approved for 2014.

Mr. Crandall made a motion to approve the revised Staff recommendation of 6% increase to the Medicare Supplement premium for approval by the Board, Mr. Montaño seconded. The motion carried unanimously.

PRESIDENT’S REPORT

Mr. Tyndall presented the results of the most recent solvency valuation and discussed the assumptions involved. Changes to certain categories of medications and an age minimum for subsidy were also reviewed. Additional work in these areas is in process.

OTHER BUSINESS

Ms. Goodwin proposed that Wellness be discussed, and Mr. Santistevan assured her that it would be addressed during the Annual meeting.


The next Finance Committee meeting was not set.

ADJOURN



Large Core Large Non U.S. Non U.S. Mid/Small

Cap Active Bonds Cap Index Developed Emerging Cap Total

Market Value April 30, 2013 $38,046,942.96 $96,463,571.92 $37,375,634.48 $41,747,512.76 $31,276,176.23 $28,612,971.56 $273,522,809.91

Prior Month Adjustment 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Contributions 812,500.00 2,275,000.00 812,500.00 975,000.00 975,000.00 650,000.00 6,500,000.00

Distributions/Withdrawals 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Fees (38,338.39) (47,825.20) (1,657.90) (4,827.91) (10,342.85) (45,541.67) (148,533.92)

Income Earned 72,581.89 282,980.15 60.48 243,998.24 84,029.95 25,884.83 709,535.53

Capital Appreciation/Depreciation 797,513.78 (2,194,810.92) 850,627.98 (1,260,998.54) (954,063.69) 1,665,350.08 (1,096,381.31)

Market Value May 31, 2013 $39,691,200.23 $96,778,915.95 $39,037,165.04 $41,700,684.55 $31,370,799.63 $30,908,664.80 $279,487,430.21


CHANGE IN NET ASSET VALUE

FOR THE MONTH ENDED MAY 31, 2013

$0$25,000,000$50,000,000$75,000,000

$100,000,000$125,000,000$150,000,000$175,000,000$200,000,000$225,000,000$250,000,000

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30-Sep-12

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30-N

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31-D

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31-Ja

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28-Feb-13

31-M

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New Mexico Retiree Health Care Authority Market Value of Investment

Fiscal Year 2013

Mid/Small Cap

Emerging Markets

Non US Developed

Large Cap Index

Core Bonds


Long-term Policy

Investment Market Value % of Total Target Range

Equity

Domestic

Large Cap Active 39,691,200.23$ 14% 12.5% 20-30%

Large Cap Index 39,037,165.04 14% 12.5%

Mid/Small Cap 30,908,664.80 11% 10% 5-15%

39% 35%

International

Non US Developed 41,700,684.55 16% 15% 10-20%

Emerging Markets 31,370,799.63 10% 15% 10-20%

26% 30%

Fixed Income

Core Bonds 96,778,915.95 35% 35% 30-40%

35% 35%

Total 279,487,430.21$ 100% 100%


PORTFOLIO ALLOCATION

FOR THE MONTH ENDED MAY 31, 2013

14%

Large Cap

Active

37%

Core

Bonds

12%

Large Cap

Index

16%

Non US

Developed

11%

Emerging

Markets

10%

Mid/Small

Cap

Asset Allocation


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